Thursday, 21 January 2010

Onshore and offshore

I was at a breakfast this morning with many in the gambling industry and the racing industry, talking mainly about onshore and offshore bookmaking.

The comment was made that when the current Government first looked at gambling, with the publication of A Safe Bet for Success (when Tessa Jowell was Secretary of State), the document it produced was littered with warm words about Government wanting to work with the gambling industry. The Government duly embarked down the road of putting in place legislation that would make the UK a "world class" jurisdiction; and then in the space of literally six weeks, faced with an onslaught from the Daily Mail, it bottled it and produced regulatory and fiscal policies that didn't match. The offshore industry it wanted to entice to Britain stayed put; and onshore operators, which at the time were rather greater in number than today, battled with their disadvantageous position.

On this, I think everyone was agreed. So too, I suspect, the theory that an in-coming government, assuming a change, is bound to start from a position of wanting to correct what went wrong. In theory, it's easy enough: support the industry (in terms of facilitating its ability to trade internationally), and, to the extent possible, reduce the cost of doing business at home. This is what government tries to do for every industry out there, and while it can't always get it right - high-profile departures like Dyson show that - on the whole the aim is clear and such policy can in broad terms be pursued.

But between the time of the Gambling Act and now, the disadvantaged onshore industry has, with only two exceptions, given up and gone away. The result is that nearly every remote gambling operator in the world now sits outside the UK's jurisdiction, where it is under no obligation to contribute to tax, levy, foundations to help problem gamblers, or anything else.

An incoming government wanting to put right the mistakes of the past would therefore have to look at reducing the rate of UK gambling tax (currently 15% of gross profits), which makes Britain fundamentally uncompetitive. But to come back onshore, overseas operators need the overall cost of doing business in the UK to be reduced, which immediately means you get into a circular argument: you want people here, because you want to make sure they are paying their way; but if they pay their way, you raise the cost of them doing business.

The sensible policy would obviously have been not to lose them offshore in the first place, and it seems absurd to think that it has taken William Hill and Ladbrokes moving just in the last few months for this issue to come to the front of many British minds. But, given that they have now been lost, what can be done to get them back?

I blogged about the carrot and the stick approach earlier this month, when the UK Government made an announcement that had a slightly 'if you can't beat them, join them' feel to it. But in reality, standing up for the British industry in Europe, which I would love to see happen more, means standing up for its right to operate cross-border under the terms of Article 49 of the European Treaty within a properly-regulated system. And I'm not sure how you can do that at the same time as putting in place restrictions on EEA-licensed operators which adhere to your own regulatory standards, just because you're not happy that they aren't paying something to someone else. The law is about regulation, not tax, unless you want to get into a fight at the ECJ.

On that basis, though, I can picture a future scenario where a more Eurosceptic UK government delights in being challenged in the ECJ by an offshore operator for putting up internal market barriers, on the grounds that it could paint itself as standing up for British interests in keeping out "unwanted" offshore gambling in the face of a European Commission which insists on internal market rules. This would be fine, on the face of it, were it not that you are back to the problem you started at: there are only two operators left under British jurisdiction, and UK consumers don't for a second distinguish between those two and everyone else. Why should they? Consumers look for the best service and the best price, finding the product they want at the price they want. They stopped being interested in a British kite mark before I was born.

It was commented this morning that 'what needs to be advocated is a modern market approach to these issues', which is right. But in reality, the room would have been split at least two ways about what a 'modern market approach' actually is; and it's while everyone's been having the debate that the industry has developed, or moved, somewhere else. Unfortunately, we're still trying to find a middle ground between the views. Perhaps we need to accept that there isn't one.

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