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Budget 2016: Measures Affecting Operators

There has of course been a huge fuss in the media surrounding the 2016 Budget, proposed cuts in PIPs, the resignation of Iain Duncan Smith and the subsequent Government U-turn. Here, though, we take a look at the measures proposed that are of direct relevance to the gambling and licensed trades.

Most of you will have heard that alcohol duty on beer, most ciders and spirits has, again, been frozen. This is the fourth year in a row that the Chancellor has applied such a freeze. Duty on wine and higher strength sparkling ciders will, however, rise in line with inflation, leading to complaints from some that the distinction is discriminatory. The Government says that these measures are designed to help the nation’s pubs and “to support responsible drinkers”. However, the Alcohol Health Alliance has claimed that freezing the beer duty actually further harms pubs, by reducing the relative price of alcohol sold in supermarkets. The Government’s analysis of the changes acknowledges this, and the fact that the number of pubs will doubtless continue to decline.

The Government also admits that its measures on alcohol duty “are likely to lead to a minor increase in overall alcohol consumption in the UK” and that, with the freeze meaning that the price of a bottle of spirits will on average be 87p less than it would otherwise have been, it will cost the Exchequer £85 million a year.

The decision to freeze duty again has been met with howls of protest from alcohol harm pressure groups such as the AHA and the Institute of Alcohol Studies. They are frustrated by the Chancellor’s failure to accede to their demands, in lobbying leading up to the Budget, that duty be increased. They have accused the Government of missing an opportunity to protect children from alcohol-related harm, pointing in particular to cider being sold at “pocket money prices”.

Set against a backdrop of off-sales dominating alcohol consumption, whether these changes will actually help or undermine the pub sector remains to be seen.

Less well-publicised than the measures surrounding alcohol duty are those aspects of the 2016 Budget that will have an impact on the gambling sector. There are two main areas to focus on.

First, the Government plans to make free casino and bingo gaming subject to Remote Gaming Duty, thus bringing them into line with free bets being subject to General Betting Duty. This announcement has surprised bookmakers, who had feared that the Chancellor was planning instead to impose another increase in Machine Games Duty and place restrictions on online advertising. The fact that neither of these measures has come to pass has come as something of a relief, although the application of duty on free and discounted spins and bonus credits will certainly hit operators’ profits, potentially significantly so, given the extent to which the sector relies on such offers in the acquisition and retention of customers.

Whilst the new measure will not become effective until 1 August 2017, giving operators time to consider changes to their player incentive schemes, there is no doubt that this represents bad news for the industry. The Treasury estimates that the change will swell tax revenue coffers by some £345 million over the four tax years between 2017/18 and 2020/21 and all of this will come out of operators’ profits. The devil will be in the detail, though, and the precise way in which operators will need to adapt their marketing will depend on how the new rules are drafted.

The Budget notes also confirmed the introduction of the new Horseracing Betting Right on 1 April 2017. This follows on from the announcement at the time of the March 2015 Budget that the Government planned to introduce the Right, which surprised many at the time, coming as it did only 6 days after the last consultation on the subject had closed.

The Right will replace the Horserace Betting Levy, which has been in force since 1963. Moves have been afoot to abolish it since 2001, and momentum in that direction has increased since the increasing popularity of online gambling, which led to the implementation of the Gambling (Licensing and Advertising) Act 2014. The Government launched 3 separate consultations on, respectively, extending, modernising and replacing the Levy between June 2014 and March 2015.

The Levy currently does not apply to gambling operators who are based offshore, although some do make a voluntary contribution. The British Horseracing Authority has welcomed its replacement by the Right, under which all betting operators will be obliged to pay in order to be entitled to bet on British horse races, as representing “a fair and sustainable funding mechanism for British Racing” by “securing the long-term prosperity of our sport and those within it”. It also believes that the Right will enable British Racing to grow its already very significant contribution to the economy of £3.45 billion.

Perhaps unsurprisingly, the Association of British Bookmakers is less keen and has pointed out that its members already pay 10.75% of horseracing profits to the racing industry and £173 million to racecourses for the right to show their races in betting shops.

The Government has said that it will continue to recognise the unique position of on-course operators, and is considering how to factor into the new scheme the current arrangement whereby they only pay a de minimis flat-rate fee towards the Levy in addition to the fees they pay to individual racecourses.

It is intended that the Horserace Betting Levy Board will continue to exist and that it will remain responsible for collecting funds. These will then be passed to a new Racing Authority which will be responsible for making decisions on spend.

The ABB has claimed that “the Racing Right is unworkable and the detail will derail it” and indeed the precise way in which the new system will work remains to be seen. First of all, the Government faces the challenge of determining what the actual rate will be, and it is poised to enter into negotiations with the betting and racing industries surrounding that issue now. It has said that the rate “will reflect the degree of mutual interest between betting and racing” and is awaiting the report on independent research which it has commissioned into the funding of horseracing.

There is also the question of whether the EU will require VAT to be paid on payments made by operators under the Right – something that is not within the Government’s power to control. As a statutory levy, the Levy is currently not liable to VAT but, given that the Government says that the Right will be administered directly by the horseracing industry, it is possible that it will not be regarded as a statutory levy, meaning that it will be subject to VAT.

Various commentators have in the past expressed the opinion that primary legislation would be required to abolish or amend the Levy. However the Government appears to believe that it can introduce the Right using secondary legislation under s2 of the Gambling (Licensing and Advertising) Act. Approval of the new scheme will, however, require the approval of both Houses of Parliament.

We will update you further on the introduction of the Right once further details emerge.