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Horserace Betting Levy Regulations 2017

My Lords, the Government are proposing to extend the horserace betting levy to betting operators based offshore. Currently, betting operators in Britain are required to pay the levy, whereas those based offshore but otherwise in identical circumstances are not. This is manifestly unfair. Alongside this we are setting the rate of the levy, providing long-term certainty for betting and racing industries.

Horseracing is an extremely popular sport, being the second best-attended sport in Britain last year. Some 6 million people enjoyed a day at the races in 2016 and it is an important contributor to the economy. The symbiotic relationship between betting and racing is well established. The principle of transferring funding to racing from the proceeds of betting under statutory arrangements dates back to 1928 and the levy itself has been in place since the early 1960s.

The levy generally works well, providing distinct funding for specific purposes. Areas of expenditure include prize money, veterinary research and education, and upholding integrity. These areas are also crucial from a betting perspective. For example, a healthy prize supports large and competitive field sizes, ensuring that racing remains attractive as a betting product. However, wider changes have meant that the levy is no longer fair to either betting or racing. Given the introduction and subsequent rapid growth in remote—primarily online—gambling in recent years, this has created a system which puts British-based operators at a competitive disadvantage. It has contributed to a significant decline in levy receipts.

While I applaud and pay tribute to those betting operators that have chosen to make voluntary contributions to the sport, efforts at securing a long-term arrangement have failed to materialise. The Government have been left with little choice but to take action to ensure fair competition among betting operators. The UK is by no means unique in this regard. France, Ireland, Germany and others all have similar statutory arrangements in place.

The Government’s proposed changes to the levy have two principal objectives. They will create a level playing field between all betting operators and provide a fair return to the racing industry, helping to sustain and develop the sport. The levy is a pre-existing state aid, as it was in place prior to the United Kingdom’s accession to the European Economic Community, as it then was. As we are making material changes to the levy, we now require state aid approval from the European Commission. The Government are seeking state aid clearance and these regulations will come into force only once this approval is granted. We have today been informed by the European Commission that state aid approval will not be received before 1 April. Therefore, the reformed levy will not be in place on this date. However, we are confident that clearance will be received shortly. The statutory instrument provides for the reforms to come into force once state aid clearance has been received. Until that time, the 56th levy scheme, as determined by the Secretary of State, will take effect from 1 April, ensuring a continued flow of funding to the racing industry.

I turn now to the levy itself. The levy will be payable on bets on British racing made by customers located in Britain. The location of the operator will be irrelevant. The levy will apply equally to all: bookmakers, including pool-betting and spread-betting operators, and betting exchange providers. The levy rate will be set at 10% of a betting operator’s gross profits on such activity and it will apply whether the bet is placed at a course, a high-street bookmaker, or online.

The Government considered a range of evidence in arriving at a fair levy rate. This included responses to three previous consultations on the levy and extensive engagement with representatives from the betting and racing industries. We have also considered the recent history of the levy, the overall landscape of the betting market and the findings of an independent report on the funding of racing.

Alongside the headline rate, we are proposing a threshold amount. As a result, no operators will pay levy on their first slice of gross profits derived from taking bets on British horseracing. This exempt amount will be set at £500,000 and will mean that the majority of small and medium-sized operators will not be required to pay the levy. The Government are of the view that a rate of 10%, with a £500,000 de minimis threshold, is a fair and proportionate contribution from betting to the mutual interest it has in a good-quality racing industry.

A fixed rate provides a foundation for betting and racing to make longer-term investments with confidence. However, the market can change, so it is important that the levy can respond. Therefore, the regulations require the Secretary of State to review the rate of the levy within seven years.

The changes I have outlined will make necessary alterations to the levy scheme itself. In addition, the Government have previously announced that we intend to make changes to the administration of the levy to reduce administration costs and remove government from day-to-day involvement relating to levy expenditure. We will consult on this second phase of levy reform in due course and the issue will return to this House then. That is a matter for another day.

These reforms will ensure a level playing field for competition for all betting operators, and will give racing a fair return from those who make significant profits from the British racing product. The levy will support funding for a range of areas, including prize money, integrity, veterinary science, and equine welfare.

As we approach the final furlong towards these much-needed reforms, the Government believe that resolving the unfairness in the current system will enable betting and racing to move forward and to work together to grow both industries in the mutual benefit of a sustainable and vibrant racing product. I beg to move.

Amendment to the Motion