Horse Racing (Hansard, 5 March 2003)

§ Mr. Alex Salmond (Banff and Buchan)
I am delighted to introduce this short debate today on horse racing. I am not certain whether my horse racing column inThe Scotsman on a Saturday qualifies as an interest to declare: if it does I willingly declare it. Some people reckon that it should be a matter of certification rather than declaration; nevertheless it is there on the record. The hon. Member for Mansfield (Mr. Meale), who takes a keen interest in these matters, would have liked to be present but unfortunately he is elsewhere on parliamentary business. I know that he shares many of my concerns.
In general, the horse racing industry is in pretty robust shape, although there are a number of challenges and difficulties, some of which have been well publicised. Much of the underlying health and growth in the industry is due to the Government's wise decision in October 2001 to move to a gross profits tax on the industry. I particularly liked that decision. It was one of the few occasions when the Government took my advice on a matter: it was not just my advice as there was a widespread campaign. However, the occasions when I find myself in central agreement with the Government are few enough to make something of them. It was a wise decision.
That decision was based on the view that there was a win-win situation in horse racing. Horse racing depends for its funding on punters: the large numbers of people all over the country who want to back horses. That is where the real flow of income comes from in horse racing. The view was taken that we could have a large-turnover, low-margin, betting market that would be good for everyone. Potentially that is the present situation.
The issue that I want to focus on today could partly undermine that and spoil an otherwise rosy picture. I said that there were a number of issues in the industry. They have been well publicised in television programmes, such as "Kenyon Confronts" and "Panorama", which investigated scandals and difficulties in the racing industry. I do not underrate those. Unlike some, I consider investigation a perfectly legitimate journalistic activity. It is the job of journalists to draw attention to anything that goes wrong. Only then can they be put right. I am confident that over time the racing structures will adapt themselves to confront and to overcome those challenges.
I am delighted to welcome the Leader of the House of Commons, the right hon. Member for Livingston (Mr. Cook) to our debate—

§ The Minister for Sport (Mr. Richard Caborn)
It must be serious.

§ Mr. Salmond
I am sure we are about to have a statement announcing an extension of time or a Government motion to extend time for the debate. I particularly welcome his presence here. I acknowledge his interest in the industry.
Many of these challenges will be overcome. It is an important part of the journalistic process that attention is drawn to them. There are other organic and 305WH regulatory issues in the industry. It has so many representative bodies that even people like myself, and perhaps the Leader of the House and others who are interested, find it hard to keep up with who represents whom and who regulates what. I suspect that the Minister shares my concern that we need a much more rational understanding of who are the gamekeepers, who is responsible for policing various aspects of racing and whose interests are being represented by whom.
I had an interesting meeting with Michael Singer of the Punters Protection Association yesterday. I was struck by just how frustrated Mr. Singer was. He has a long career of trying to represent punters' interests. Punter is not a derogatory term: it is fairly well celebrated in the racing industry. He asked the question: are punters not consumers? Where is the consumer interest being centrally represented in the various bodies of the racing industry? The Minister might like to touch on that. It seems a substantial question that should be answered.
From a Scottish perspective, all five Scottish racecourses are grouped together in an organisation called Scottish Racing. The Leader of the House may be an honorary president of that organisation. He certainly has some association with it. That is to his credit, because that grouping says a great deal about the potential of Scottish racing to grow, with more fixtures, trainers, jockeys, meetings and more employment, making a substantial contribution to the Scottish economy. People feel frustrated by the limited number of fixtures that they are allowed to have.
Several important issues surround the horse racing industry, and the central theme that touches them all is the question of who is responsible for regulating which parts of the industry, and which bodies are responsible for representing the consumers. The decision by the British Horseracing Board to impose a charge of 10 per cent. of gross profits on on-course bookmakers may have substantial and profound implications. How was that decision arrived at; can it be fair and just; and, above all, what are its implications for many people?
On-course bookies are part of the firmament of the racing industry. They are not all as rich as Barry Bismarck Dennis, but they are all characters, as he is, and form a crucial part of the racing experience. It would be regrettable if their ranks were thinned and that part of the market weakened. They are concerned that that is exactly what will happen as a result of the new charge arising from the British Horseracing Board's decision.
To help us to understand the background to the decision, I shall quote from a letter from Mr. John Stevenson, chairman of the National Association of Bookmakers, to the hon. Member for South-West Hertfordshire (Mr. Page), which provides a crystal clear summary of the complex process behind the introduction of the new charge on 1 April next month. Last year, various large bookmaking companies were in dispute with the British Horseracing Board—almost everyone has been in dispute with the BHB recently. The dispute was resolved at a meeting in March 2002, when the chairman of Bookmakers Committee, comprising the big three bookmakers, took part in discussions. The letter states: Peter Savill agreed to meet the only representatives of the 'Big 3' but it was pointed out that the Chairman of the Bookmakers' Committee … should also be present. Peter Savill agreed on the 306WH condition that he would only meet the above four bookmakers. This meeting was held at the Hilton Hotel on 26th March and was followed by a further meeting on 28th March at which Nigel Smith (BHB Commercial Director) also attended. At these meetings a number of decisions were agreed including that a 10 per cent. gross profits data charge should be paid by all bookmakers. The outcome of these meetings was circulated to members of the Bookmakers' Committee and discussed at a meeting of the Bookmakers' Committee on 5th April 2002 and ratified at a later meeting held on 15th April 2002 by a majority of 8:4 which under the Bookmakers' Committee Constitution was a virtual certainty"— any "certainty" in respect of the racing industry is to be welcomed! Thus, the NAB was specifically excluded by the BHB from taking part in the negotiations which led to the decision concerning the 10 per cent. gross profits tax although we were informed of this decision by the Bookmakers' Committee when it was a fait accompli. However, at no stage was the NAB allowed to be involved directly with the BHB in these negotiations. Since Warwick Bartlett was also the Chairman of the British Betting Offices Association … which represents small independent off-course bookmakers it is clear that the interests of all off-course bookmakers were represented in negotiations with the BHB and that racecourse bookmakers were not represented. That provides a fair summary of what happened at last year's meetings.
I have also had sight of the agreement between the BHB and the body representing the biggest companies in the industry—Corals, the Hilton group, Stanley Racing, William Hill and the Confederation of Bookmakers Associations—which brought to an end the disputes over the imposition of the charge on all bookmakers. Significantly, in clause 4.3 of the agreement, the signatories had to forgo any suggestion of making complaints or submissions to the European Commission or to any other competition or anti-trust authority anywhere in the world, unless they had a legal obligation to do so. That was the document that on-course bookmakers were later invited to sign, but refused to do so, preferring to develop their case through the Office of Fair Trading.
There seems to be a strong case for arguing that a section of the industry was not represented at the genesis of the agreement, and was only afterwards consulted and outvoted on a committee on which they were a minority. The process of imposing the charge on the on-course bookmakers is wrong.
Is the charge fair and just? I have a host of information that shows the essential difference between an on-course bookmaker, who bets at a fine margin, who can make a profit as well as a loss and whose satchel can grow larger or smaller, and a major off-course bookmaking chain, which has guaranteed profits across its range of undertakings.
On-course bookmakers do not need all the data for which they are being asked to pay an astronomical increase in charges. Over the past few years the estimate of that increase has ranged from 2,000 to 4,000 per cent., depending on how much the charge will rake in. It does not seem fair that those bookmakers, who are in a different financial position from others, should face such enormous increases in their charges.
The most important point I want to make concerns the implications for the industry as a whole. The on-course market is a bulwark: a protection for the wider punting interest. Starting prices, which still denominate 307WH the majority of bets that are struck and returned, are centred on the on-course market. If the on-course market is weakened by a substantial tax increase on on-course bookmakers, one potential—or certain—result will be to force an increase in on-course margins, which will then result in a substantial increase in off-course margins.
One does not need a crystal ball to know that some major bookmaking chains have an ambition to raise margins in the industry. Mr. David Harding, the chief executive of William Hill, speaking at the annual industry seminar this year, said that margins were unsustainable at starting prices, and that he wanted to see them raised substantially. The ambition to raise margins, at least for that company, is clear.
I had a discussion with Mr. Alan Ross, the managing director of Ladbrokes, who takes a different view. He thinks that I am reading too much into the sequence of events by suspecting that there is a conspiracy to raise margins and prices in the industry. He believes that people were properly consulted and that their interests were taken into account. However, I would say that there is, at least, a serious question mark over those proceedings.
Government policy in the past, and, I hope, the policy of the current Government, has been to encourage a strong on-course market. The latest consultation document from the Treasury on the modernisation of gambling tax discusses the success of the movement towards the gross profits tax on betting, and notes that the duty exemption for on-course betting was introduced in 1987 to promote a healthy on-course market in the horse-racing industry. It appears to imply—I am sure that that is the case—that the Government support that.
The Government's policy seems to be to encourage that market to thrive and prosper, and not to see it weakened in any way. However, I believe that market to be threatened with weakening if the charge goes ahead as proposed.
When people say that I should not read a conspiracy or a plot into these proceedings, I am reminded of a quotation from Adam Smith: People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. In my closing remarks, I should make it clear that my chief concern is not with the activities of the major bookmaking companies. I do not think that there is a company in any market anywhere that has not tried to raise its margins by one means or another. It is part of the natural job of a company to attempt to increase its profitability. I am much more concerned with the role of the BHB. It seems to me that the genesis of the BHB and some of its activities, and the control that it has over things such as racecourse information, mean that it should be holding the ring. It is meant to be the referee—a regulator of the industry. There is a difficulty if the BHB has a vested interest in profits increasing for bookmaking chains because, under the levy, it will get 10 per cent. of that profit increase. It is difficult when the referee becomes one of the players, and that may be the case now.
308WH The 10 per cent. charge on on-course bookmakers may not be the central problem facing the horse racing industry, but it is unjust. It was arrived at through the wrong means. There was no effective process of consultation, and the charge might have serious implications for punters across the country—millions of people who have the right to expect the protection of a competitive market.
In betting activities for which there is not such a competitive market, bookmakers arrive at their own prices. In horse racing in South Africa or Italy, for example, only pool prices are returned, and there are sometimes profit margins of 180 per cent. in the bookmakers' own starting prices. The margins in UK horse racing are much finer because the on-course market that sets the SPs is very competitive. It would be against the public interest if, through one means or another, those margins were unfairly increased. It is also against the public interest if a section of the industry—a lynchpin, a protector for the punter at large—is treated unfairly. The charge and the way that it is being introduced treats on-course bookmakers unfairly. I hope that the Minister shares those concerns.
I do not say that the charge is the only issue facing the industry, or that people may not have decent motives for doing what they are doing. However, I hope that the Minister is prepared to address my central concerns about the confusion between the regulatory bodies involved in the industry; what their interests are; and who is representing the punters and defending consumer interest, now that the charge is being carried through. Unless we consider those concerns through the Office of Fair Trading, ministerial intervention or at least ministerial concern, we might find that this magnificent opportunity, to which the Government contributed through their wise decision to change the taxation structure, is dissipated as the lack of an effective referee begins to operate against the public and racing interest.

§ The Minister for Sport (Mr. Richard Caborn)
I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on securing the debate, even though I had to come back from a meeting of Ministers in Copenhagen to address the House this afternoon. It is nice of the hon. Gentleman to acknowledge that the Government have done quite a lot for the racing industry. He used phrases such as "win-win situation", "robust" and "very wise". The industry is doing extremely well on the betting side and on the horse racing side, which we are discussing. In fact, in a few years, horse racing income will have doubled.

§ Mr. Deputy Speaker(Frank Cook)
We can resume our sitting with eight minutes of injury time.

§ Mr. Caborn
As I was saying, the hon. Member for Banff and Buchan gave due credit to the Government for what they have done for the industry. In a few short 309WH years, the racing industry will have doubled its income, which shows the magnitude of the tax changes. If the recent results of Ladbrokes are anything to go by, the bookmakers are not poor either. It has been a win-win situation for the industry. We are talking about relative positions because, overall, both sides of the racing industry are thriving. The punters have had a reasonable deal, and reinvestment into facilities will pay dividends.
The hon. Gentleman is right that it is disappointing that the industry has probably not taken advantage of the opportunities placed before it. We have tried to create a framework for the industry, which is extremely important for leisure activities, employment and economic activity. The hon. Gentleman referred to some of the problems that we have tried to resolve. The Jockey Club responded positively to the "Panorama" programme, and I am confident that in the not-toodistant future we shall have a new regulatory structure to deal with jockeys, owners and trainers.
As the hon. Gentleman knows, until the Office of Fair Trading decides who owns the data, it is unlikely to make decisions on complaints that bookmakers have made to it. Until the major principle of who owns the data is decided, we can only speculate on that decision and the major implications of it. I assure the hon. Gentleman that I take an active interest in the industry, and I will watch what is happening throughout it, particularly in the area to which he referred. We have made a major investment in the industry through our tax reorganisation. We have tried to be fair with the industry. The fact that the money on the data is actually going through the levy structure makes it tax efficient in its own right. It does not bear VAT, which is a saving of 17.5 per cent. Again, we have raised no objections to that at this stage. We have tried to be as helpful to the industry as we can.
Some important points have been raised. The starting price has been the subject of some discussion. Changes in the industry have been brought about by the convergence of technologies. Betting exchanges are now coming into play, although I have no evidence at the moment that they are undermining the on-course market. I have no proof of that, and it is very difficult to consider that situation objectively. If there is an unwelcome impact, it should be negated for the time being by the enforcement of the current National Joint Pitch Council rule, which prevents on-course bookmakers from taking or laying bets through betting exchanges.
Our starting point on the SP system should be an acknowledgement that there is nothing sacrosanct about it. We, as a Government, have no locus on that matter. It is for the industry to determine. It is not 310WH enshrined in statute, and whether to use it has always been purely a matter of choice for off-course bookmakers. Off-course bookmakers are licensed in the same way as on-course bookmakers, and could offer their own prices on every race now if they wished. That is a clear position, and a debate is under way on it at the moment. The same position on starting prices already exists in every other betting opportunity apart from horse racing and greyhound racing.

§ Mr. Salmond
I suggest that there is a legitimate Government interest. The on-course market sets the starting price, which sets the majority of bets. If this imposition weakened the on-course market and resulted in a raising of margins, at a conservative estimate, some £40 million of off-course money would go straight from the pockets of consumers—punters—into Government profits, into the BHB via the Levy Board and into the profits of large bookmakers. That seems to me to be a matter of consumer interest, which is part of Government responsibility.

§ Mr. Caborn
I was coming to that. The letters to which the hon. Gentleman referred—it would be helpful if I could have copies of them—implied that a cartel is emerging. I can assure him that the OFT is already taking a passing interest in the matter. The hon. Gentleman suggests that there could be a lack of competition, which could become unhealthy and lead to operations under a cartel. The hon. Gentleman is absolutely right that the people who would suffer most would be the punters. We will watch that situation, and other institutions will look into it, too.
On BHB data charging, the commercial market and market forces will determine that. I shall take an active interest in any spin-offs from that, and will consider the matter carefully to ensure that the industry runs fairly for the punter. I have made it clear many times that the investment now going into the industry must be from not only the bookmakers and others, but the punters. Three areas should gain from the new fiscal arrangements in place. As I have mentioned, that matter has been referred to the OFT. I do not think that it will proceed at any pace until the OFT has taken the major decision on the rules and regulations and on who owns the data rights. Once that has been determined, the OFT may consider the imposition of the 10 per cent. requirement and whether it is fair to the industry and, in particular, to the punters. We shall probably have to wait a little while until the OFT concludes its work on the first inquiry.