UK Online Gaming Regulation

The beginning of this week saw a uniquely British tactic used to move forward a potential amendment to UK gaming law. Three Members of Parliament slept overnight in the Palace of Westminster to create legislative time for a Private Member’s Bill to receive a Second Reading on Jan 25, 2013.

The UK Offshore Gambling Bill is being promoted by MP Matthew Hancock. As a Private Member’s Bill, it has no hope of becoming law, and as yet there is no published text to define the amendments it proposes to make.

This procedure is used by MPs to pressure the Government to adopt the proposals and introduce a Bill that does have the support necessary to get it into law. Conducting an overnight vigil in Parliament is one way to ensure that their Bill gets on the list of those that will be debated.

Existing System

The Bill’s supporters want to replace the existing tax system which imposes a 15% tax on companies licensed in the UK with a 15% tax on the income generated by UK players no matter where the gaming company is regulated.

Currently the UK permits operators regulated in other countries to offer poker and online gambling to UK citizens. A “whitelist” of regulated companies is maintained and companies on the list are allowed to service the UK market without being subject to the 15% tax.

Matthew Hancock argues that UK companies like Ladbrokes are gaming the system to avoid tax by setting up offshore regulated subsidiaries. He puts a figure of £300m on the lost income to the country as the result of this loophole.

In the current climate of financial crisis, a number of entirely legal tax efficiency arrangements have been branded “immoral” by the Prime Minister, Mr David Cameron. There is considerable political pressure to make companies and individuals pay their “fair share” of tax. By latching on to this argument Mr Hancock has tapped into a broad base of cross party support for his proposals.

Proposed Changes

What is confusing is that the Government itself announced plans to change the system to a “point of consumption” tax in the Chancellor of the Exchequer’s last budget statement. The budget statement lists proposals for new laws on tax, and the Government’s views appear to be in perfect accord with those of Mr Hancock and his supporters.

The Budget announcement picked up on the proposals to amend the 2005 UK Gambling Act announced by the UK Department of Culture, Media and Sport (DCMS). With the responsible ministry and the Treasury backing the proposals why is there still a private member’s bill going through the system?

Mr Hancock’s Bill includes the additional requirement that the 15% gaming duty be paid by all bookmakers in the UK. Horse racing in Britain is subsidised by a Horserace Betting Levy paid by UK bookmakers. The British Horse Racing Authority (BHA) supports the Bill because the existing legislation encourages companies to leave the UK to avoid paying the tax. When they leave the UK, they also stop having to pay the Horserace Betting Levy.

The level of political sensitivity within this part of the gambling industry can be judged by Betfair’s decision to voluntarily pay £6.5m towards the Levy even though it has no legal obligation to do so.

Price Tag

The 2012 UK Budget published estimates of gaming revenues expected under the new point of consumption regime. In 2016 the Treasury estimates that it will receive £270m. A number that seems very much inline with the £300m figure quoted by Matthew Hancock.

If the final tax rate does come in at 15% it is likely that the Treasury figures will miss the mark. At such a rate Poker and Sports Betting revenues are likely to take a substantial fall as can be seen by the experience in the French and Italian regulated Markets.

The Treasury consultation on this change closed on June 28th and pokerfuse made a submission which pointed out the likelihood that poker would be very seriously affected if the rates of gaming duty were set as high as 15%.

Implications

In the background looms the possibility of EU wide remote gaming legislation. Last November the EU Parliament adopted a resolution on online gambling in the internal market. Interestingly it doesn’t appear to want to replace national regulation:

12. Points out that online gambling is a special kind of economic activity, to which internal market rules, namely freedom of establishment and freedom to provide services, cannot fully apply; recognises, however, the consistent jurisprudence of the Court of Justice of the European Union which emphasises that national controls should be enacted and applied in a consistent, proportionate and non-discriminatory manner

The prospects for any EU legislation affecting UK regulated companies may be slim, but the impact of this statement does leave open the possibility of other countries enacting legislation which could restrict poker player pools to national citizens thus reducing the size of player pools accessible by UK citizens.

Unsurprisingly the UK Government is opposed to EU wide gaming legislation. Government Minister John Penrose explained:

In his keynote speech, he added that – although there was possibility for “practical cooperation” between EU states – the differences in “religious traditions, cultural attitudes [and] legislative styles” meant that the EU should respect the rights of each country to regulate online gaming.

Pokerfuse supports the regulation of poker and accepts as a fait accompli the fact that countries will use regulation to introduce or increase taxation.

What can be done is to influence regulation so that avowed concerns about player protection translate into genuine protection of player funds; that taxation levels do not turn online poker into an unbeatable game of chance and that the unique nature of poker as a gambling game dominated by skill is recognized by lawmakers and regulators when they make their decisions.