§ 3.3 p.m.
§ Lord Donoughue rose to call attention to the situation facing all involved in horseracing; and to move for Papers.
§ The noble Lord said: My Lords, first, I must offer to the Chief Whip our great thanks for giving us a day of government time in which to hold this debate. I should say how encouraging it is to see many distinguished Peers with great experience in racing taking part in the debate.
§ My own role is more modest. I cannot pretend to match the expertise of other noble Lords present. I have simply had a lifelong love affair with racing for 45 years since, as a young boy at the end of the war, I walked from my Northamptonshire village to Lord Hesketh's charming Towcester racecourse.
§ I also declare an interest today as a member of a highly successful and very good value syndicate in which I own a small part—perhaps near the tail—of several remarkable animals currently catching swallows on the gallops, though as yet untested on the course. I also feel that I am personally a major contributor both to the revenues of the levy board and the huge profits of Ladbroke's.
§ I propose today merely to try to give a general introduction to our subject, raising the issues currently of most concern. Noble Lords will contribute their expertise to particular issues in greater detail. I shall not mention bloodstock and the curse of VAT as I know that my good and noble friend Lord Carnarvon and others will speak on it.
§ We all look forward to the maiden speakers who should not, in my personal view, feel too constrained by this House's usual conventions of being non-controversial. Today is a completely non-party 310 occasion and we welcome strongly held views on the subject. Even summarising it is daunting, as the landscape of horseracing is complex and full of differing, sometimes contrasting colours. Racing contains many interrelated businesses, trades and occupations based on the approximately 60,000 racehorses running each year at 1,100 fixtures. Racing involves racecourse operators, horse breeders, owners, trainers, jockeys and stable staff, with various ancillary trades such as vets, farriers, auctioneers, bookmakers, journalists from newspsapers and television; and last but not least it involves the punting public.
§ Racing is a major leisure industry employing over 100,000 people, so it is one of the top employers in Britain. One of its great attractions is that it cuts across classes. The aristocracy and the working classes —if we may still use those terms of distinction—have always shared a mutual passion for racing. Occasionally, the non-conformist bourgeoisie—sadly represented in my own party—disapproves, but we can live with that.
§ Naturally, many component parts have their own interests which do not always coincide. We accept that they have different voices but it is important that today we move forward together towards an industry-wide consensus on what are the basic choices in solving the problems of racing, but with a common desire for the future prosperity of the industry.
§ There has been much debate on whether there is a crisis in racing; "crisis" is an over-used word and we need not waste time on semantics. The point is that racing is unquestionably in serious financial difficult-ties. Strictly, it is not financially viable. That has nothing to do with the current economic recession, although it highlights the difficulties. The basic problems are more fundamental; they have long been here and are worsening. These problems are graphically illustrated by the fact that for the average owner there is no prospect whatever of an economic return. We look forward very much to the maiden speech of the noble Marquess, Lord Zetland; he has pointed out that owners pay out over £200 million a year in training costs, while receiving, I believe, only £22 million in prize money. He can correct me if those figures are wrong.
§ In the UK prize money covers only 20 per cent. of costs compared with over 40 per cent. in France. It should be over 50 per cent. It is estimated that a horse must win on average six times to recover its costs. Not surprisingly, over 90 per cent. fail to do so and also not surprisingly, 25 per cent. of owners drop out each year.
§ There are not only problems for owners. Something like one-quarter of training yards are said to be for sale, and 50 out of 59 racecourses are said to be loss-making without levy support. Speaking as an investment manager, I ask who would risk investment on such a prospectus? Already an increasing number of our horses race abroad. Ahead lies the freer Europe post-1992. There is a grave danger that British racing will drop out of the international first division.
§ Racing in Britain continues because it is subsidised not by the Government who benefit from £400 million 311 in tax receipts; not by the levy, which is not a subsidy —it is a recycling of racing's own money; and certainly not by the bookmakers who contribute little. The subsidy is from within: from owners with little hope of return; from trainers who barely cover their costs and especially the stable employees who work long hours for unacceptably low wages; and from the punters who pay the levy which was originally meant to be paid by the betting industry. Yet this is an industry which generates £400 million to the Exchequer and over £4 billion in betting turnover. It is indeed a rum world.
§ What is the scale of the problem? The Jockey Club estimates that the industry needs £100 million to be recycled back into racing. That seems modest. It still leaves little return for those in racing except the love of it, and we do not underestimate that. The key question is how to raise £100 million as the present levy system has almost certainly reached a ceiling at around £40 million.
§ The Jockey Club has made an interesting proposal to the Home Affairs Select Committee of another place, which has stimulated wider support. It argues that racing has a unique product—the provision, organisation and regulation of competitive horseracing. That product costs some £250 million a year to produce. Others, particularly the betting industry, exploit that product for enormous profit, at present without paying for it. It is therefore suggested that betting should pay commission—a kind of copyright royalty—as happens in other industries and services. That seems fair and reasonable.
§ How much commission should be paid? Two and half per cent. is suggested. That seems modest. Australian, Japanese and French racing receive respectively 3½ per cent., 4 per cent. and 5 per cent. of betting turnover. British football receives 2¼ per cent. of football betting. Certainly, the current yield of 0.9 per cent on the present yield is ludicrously low, though we are grateful for the magnificent job done by the levy board hitherto. We shall be interested in noble Lords' views on that proposal.
§ Certain related questions arise. Who should pay? The present levy is paid by the punter. Can we find a framework which ensures that the betting industry pays? Can we discover the profits of bookmakers as they do not publish meaningful figures and the allocation of overheads can always disguise profits? Bookmakers bring choice to the betting public. In my view they deserve a reasonable return. They have always been the most professional body in racing at presenting their case. However, it is surely unacceptable that the bookmakers contribute so little to the racing industry from which they take so much.
§ If others are to contribute more financially they have a right to ask what is racing doing to set its own house in order. Is the present governance of racing adequate? Are racecourses managed and marketed in a sufficiently professional and commercial manner? Should the government of racing be left with the Jockey Club or should all sides of the industry be integrated into a single racing authority?
312§ The criticisms of the present arrangements from various quarters are well known. It has been said that the industry is too fractured and that the Jockey Club is too complacent, too remote, does not consult sufficiently, is too amateur, too uncommercial and its membership too narrow and unrepresentative. There is much history to support those criticisms and not much time to correct them. However, the criticisms do not seem to me to apply to the new team of the noble Marquess, Lord Hartington, and Mr. Christopher Haines, who have made a most encouraging start. Secondly, the importance of that role in organising racing and guaranteeing the honest administration of racing—its integrity—should never be underestimated. Thirdly, their proposals to reform the levy board provide the vehicle for improving the government of the industry by opening it to wider representation.
§ The latter point is most important since it potentially bridges the difference with those such as the Racecourse Association who have supported the new single authority originally proposed in the Rothschild Report. It will be interesting to hear how far the Jockey Club proposes going in that desirable process of widening representation in the governance of racing. If it is flexible we may construct a consensus. If it is not and the new regime fails to deliver, more radical solutions may prove irresistible.
§ Of the other reforms being aired at present, reform of the tote is usually prominent. Many would, in principle, prefer a tote monopoly. The majority of the racing world has such a monopoly. Certainly the £170 million the Pari Mutuel contributes to French racing dwarfs anything that we have here. We do not have a tote monopoly and it may be a waste of time discussing it. Maybe we would prefer, as the Irishman said, not to start from here, but we are here.
§ Taking a more pragmatic approach, we must ask the Minister, who has a great deal of knowledge of racing, what the Government propose for the tote, whose 5 per cent. of betting turnover and £6 million contribution—a great improvement on earlier years —is still clearly unsatisfactory. If the Government propose privatisation, can the benefits be kept in racing? Will they publish the ageing and very expensive Lloyds Merchant Bank report? Can the tote be made more aggressive with a more commercial board, possibly establishing national pool betting on a major scale? Surely it needs more capital, more commercial management and perhaps to be removed from Home Office control—the mentality that supervises Pentonville is not most appropriate for the tote, although too many of its investors may end up there.
§ It is also said that racing needs fewer fixtures and fewer racecourses. Reducing fixtures would certainly save some levy expenditure. However, I am wary of a contractional spiral. Marginal racecourses cost little and once closed are never re-opened. It is more important that there should be better management of the courses we have, improved facilities, more sponsorship, and Sunday racing, perhaps with no off-course betting.
313§ Finally, I turn to the Minister for the Government's role in the future of racing. It is true that racing must initiate its own revival. But the Government have a vital and sometimes essential role as legislation is required. There are a number of questions for the Government. Will they assist in providing a new framework to raise revenue from the betting industry, including any necessary statutory change to the levy board? Will they take a decision on the tote, again with any necessary statutory changes? Will they re-open the question of Sunday racing? Will they allow betting shops to open in the evening? Will they consider—though I would not press this—reducing betting duty, as they did with football, to provide capital for investment in better facilities?
§ We have a great opportunity to make the necessary changes to restore the viability of racing. The timetable is tight. By the summer we need to have agreed a pattern for change in racing. What noble Lords say this afternoon and the undoubtedly positive reply from the Minister will help to shape racing's future prosperity.
§ My Lords, I beg to move for Papers.
§ 3.19 p.m.
§ The Marquess of ZetlandMy Lords, we are all most grateful to the noble Lord, Lord Donoughue, for the eloquent way in which he introduced the debate. As a first-time speaker in this House I hope that your Lordships will treat me with your usual indulgence.
I wish to declare a number of interests in the racing business in that I am a chairman and managing director of one of our racecourses and a director of two others. I was until recently the chairman of the Thoroughbred Breeders' Association. That position gave me a seat on the Horseracing Advisory Council. I am also a member of the Jockey Club.
Today we are discussing the state of a proud and noble sport, and one in which we have led the world for three centuries and more. It is beyond dispute that horseracing in this country is still looked up to and admired by racing people all over the world, both for the integrity of its administration and for the sheer quality of its bloodstock. That is something of which we can all be extremely proud. Yet hardly anyone who works in the industry would deny that we face a serious and growing financial problem. British racing is grossly underfunded. There is nothing particularly new in that situation. British racing has always been short of money. However, the difference now is that the world is shrinking and we are falling behind. Nowadays it is impossible to visit the other major racing nations in the world such as Hong Kong, Australia, Japan, South America, America and even France, without returning feeling thoroughly de-pressed by the growing difference between those countries and us in terms of infrastructure, facilities and prize money.
It is most important here to emphasise that a proper level of funding in racing terms is not just a matter of increasing prize money, important though that is. It is also a matter of the level of stable lads' wages; the standard of facilities at our racecourses; 314 standards of hygiene, of horse care; and of maintaining and improving the quality of all the 100,000 jobs in the racing industry. The noble Lord, Lord Donoughue, referred to the latter point. In short, we must improve the whole infrastructure of the racing industry. Frankly we are beginning to fall desperately short of our international competitors in this respect.
I mentioned prize money. Without owners there would be no racehorses. As the noble Lord, Lord Donoughue, said, we have now reached the stage where £22 million of prize money is annually chasing over £100 million of training fees. A one in five chance of breaking even is not a very encouraging prospect for the new owner. There is clear evidence now that owners in this country are beginning to drop away from the sport at an alarming rate. I believe that that trend can only increase over the coming years. The danger is that Britain, which was once the proud world leader, will find itself becoming a second class racing nation. That would never do.
There is really only one source of serious revenue in any racing industry and that is the off-track betting market. In this country we are talking of a market dominated by the bookmakers. The volume of bets struck during a year amounts to some £4.3 billion. From that sum the Treasury takes 8 per cent.—nearly £400 million a year. It is suggested that the bookmakers take roughly £180 million in net profits. The whole of our racing industry exists on just £40 million a year—that is, under 1 per cent. of turnover —in the form of the levy. One might consider that rather a lopsided arrangement.
One cannot help but be struck by the stark contrast between the state of racing in the other major racing nations of the world and the situation in Britain. In almost every case in those other nations the totalisator, or the pool betting system, dominates the off-course market. As noble Lords will know, profits from totalisator operations, unlike those made by the bookmakers, find their way back into the racing industry.
It is easy to define the problem, but finding a solution is certainly not easy. There are probably only four ways of creating a satisfactory level of funding for our racing industry under the present structure. The answer may be found in one, some, or all of those ways. First, one could reduce the rate of betting duty and return that saving to the racing industry. Secondly, one could charge the punter more. Thirdly, one could divert some of the bookmakers' profits back into racing. Fourthly, one could massively increase the presence of the totalisator, or pool betting system, in the off-course market.
That is as far as I should go within the constraints and conventions of a maiden speech. The last thing I want to do is to run the risk of treading on any of your Lordships' toes. However, I wish to float one thought before your Lordships. During the past week there has been talk of the possible introduction of a national lottery in this country. If that were to come about and if, as I assume, tickets were sold in the high street, a form of legalised gambling outside of licensed betting shops would be introduced. One might then ask 315 oneself whether totalisator betting could not equally become available in the high street, perhaps under the same umbrella and via the same equipment. After all, the tote is totally accountable to government for its returns. With a potential market of perhaps another £3 billion or even £4 billion a year in due course, both the Exchequer and the racing industry might benefit dramatically from such a development.
There is another matter to which I wish to refer briefly. It concerns the serious question of VAT on bloodstock. I know that other noble Lords will speak on this matter in much greater detail later in the debate. As I am sure most of your Lordships are aware, when we finally join the single market in 1993, VAT on bloodstock sales will no longer be payable in the country of the purchaser but in the country of the seller. With VAT rates at 15 per cent. in this country but only 2.3 per cent. in Ireland and 5.5 per cent. in France, it is quite clear that buyers and sellers will desert our markets for the differential of 12.7 per cent. available in Ireland. Furthermore, Tattersalls, the most important and influential sales company in Europe, will almost certainly be forced to move its operations to Ireland where it already has a complex up and running.
The devastating effect that all this will have both on our hard pressed breeders and on the town of Newmarket and its associated trades and professions can only be guessed at. However, the potential effects are catastrophic. We have two major problems facing our racing industry and our breeding industry. Both of those problems need to be addressed urgently if we are not to lose our place permanently to our world and European competitors.
§ 3.28 p.m.
§ The Earl of CarnarvonMy Lords, your Lordships would wish me to congratulate the noble Marquess, Lord Zetland, on his excellent maiden speech. I am sure that all your Lordships will wish to see him here frequently on future occasions. I should like to underline and elaborate on the point about value added tax that the noble Marquess has raised. However, before doing so, I wish to convey to the noble Lord, Lord Donoughue, the gratitude felt by those involved in racing and breeding for this debate on racing today.
I also have to declare an interest as a breeder. I have twice been president of the Thoroughbred Breeders' Association. If today one wishes to buy a race horse in England—I hope people wish to do that—one has to pay 15 per cent. VAT. If one buys the same horse in Ireland and brings it back to England, one has to pay the same level of tax. However, in two years' time if one goes to Ireland and buys a similar horse, the tax will be 2.3 per cent. and one can take it wherever one wants without having to pay any further tax within the European Community.
The changes will be more far-reaching as they relate to the English market, which is the leader in Europe. It will no longer be possible for any European to buy a racehorse in England and either race it here or take it home without having to pay VAT at 15 per cent., so 316 in future he will buy elsewhere at a lower rate of VAT. That is an example of what will happen in 1993. It follows that the market will develop where the tax rate is lowest, which will be Ireland. The problem will affect the sellers of racehorses—that is, English breeders. They will need to sell where buyers are keen to go, which is where the price is most attractive —that is Ireland.
The introduction of the single market in January 1993 will trigger off the changes. What is most important is that the final tax paid by the buyer of the racehorse (which your Lordships may or may not know is treated as a hobby for tax purposes) will, following the abolition of fiscal frontiers for trade between European Community countries, be the tax applied at the place of sale. There is an additional category of buyer who will also be affected—the flat rate farmers—comprising many breeders, particularly in Ireland and to a lesser extent France.
We all understand the Government's policy of allowing market forces to resolve problems of competition. Faced with that tax differential, it is beyond the ability of those affected to adjust their prices to remain competitive. The rate of VAT is only 2.3 per cent. in Ireland, giving a difference of 12.7 per cent. between their rate and our 15 per cent.
One may ask why the problem should be so critical now as we have lived with VAT since 1973. The answer is two-fold. The single market means the abolition of fiscal frontiers and the loss of the majority of reliefs, such as export undertakings, which have alleviated the problem until now. I am assured by those who have been negotiating on behalf of the bloodstock industry that the Government's representatives, who have been most understanding of the position, are in accord with them as to the extent of the effects due to take place in January 1993.
I must emphasise that if no remedial action is taken by the Government soon, not only will Tattersalls leave this country and go to Ireland, as the noble Marquess, Lord Zetland, has already said, but we shall also see many other related businesses being forced to concentrate their activity in that country, such as bloodstock agents, transporters, shipping agents and insurance agents—all to the detriment of our export trade. The Government will undoubtedly lose tax revenue and see a further increase in unemployment as ancillary bloodstock services leave these shores. Once the move has been made it will be virtually impossible to reverse. It is important to remember that about 40 per cent. of breeders who sell in the English market comprise overseas vendors, principally Irish.
I am speaking of an uniquely British industry which for over 200 years has prospered and earned much money for this country and has never asked for favours or special treatment. All it asks for is the opportunity to compete without an enormous tax disadvantage.
I urge the Government most sincerely to have the courage and foresight to grant the bloodstock industry a special rate of value added tax, say, 5 per cent., on the sale of bloodstock and related services. 317 That decision may reduce the present level of tax income but will at least ensure the Government receive some tax.
I and all those for whom I speak in the bloodstock industry most earnestly ask the Government to accede to that proposal. I would be extremely grateful if the noble Lord the Minister in his reply would give some indication of his support for the proposal, which would remove a serious problem for the British thoroughbred breeding industry.