UK Gambling Act Incompetence Costs Taxpayers £25 Million

So much for joined-up government, efficient regulation and support for a growing industry—the UK’s implementation of the UK Gambling (Licensing and Advertising) Act 2014 has turned into a debacle.

The new law has been postponed by a month in order to allow a High Court Judge to determine whether it is legal or not. The Gibraltar Betting and Gaming Association (GBGA) brought the case alleging that the law is not compliant with EU treaties.

Last Minute Delay

The announcement came one week before the new laws were due to be implemented, after most online poker rooms had already warned their players of the forthcoming transition. Many operators have left the market entirely, discarding expensively acquired customers in a good faith attempt to comply with the law.

The transition has cost operators a lot of money, but not nearly as much money as the UK Treasury. The budget estimates for gaming revenue come in at an annualized £270 million ($439 million). The one month delay—assuming the laws are pronounced legal, which is a big assumption—will cost the UK government up to £25 million ($40 million) in legal costs and lost tax revenue.

The blame does not rest with the GBGA. Right from the get go, the Department of Culture Media and Sport (DCMS) was warned that the bill would face legal challenges because it breached EU treaties.

The Legal Challenge was Announced 18 Months Ago

The Permanent Secretary—the top civil servant of the DCMS—was asked to provide supplementary evidence to the DCMS Select Committee when it realized that its statement about the existing 2005 laws—which stated that “no specific public protection risks have yet arisen,”—would make the new laws illegal under the EU treaties.

The Permanent Secretary was forced to explain that the text was an error, and replaced it with “no specific public protection issues have yet arisen.” This restatement allowed the DCMS to attempt to take advantage of a “get out” clause in the EU treaty that allows for trade restrictions if they can be justified on the basis of consumer protection.

Phillip Brear, Gibraltar’s Gambling Commissioner, submitted evidence that the UK Gambling Commission’s (UKGC) own evidence showed that this argument was invalid. The UGKC evidence “... shows that the ‘harm’ associated with remote gambling is very low in the UK,” wrote Brear.

He gave his expert opinion that the new laws risked “diluting existing regulatory controls and accountability,” and said the solution was “extremely high risk and high cost.”

In July 2012, William Hill said that it was considering a legal challenge. By March 2013, the GBGA had collected £500k to launch such a challenge. Despite this the DCMS committee approved the text of the new laws and arrogantly explained that a legal challenge was unlikely.

Although we cannot rule out the possibility that a disgruntled remote gambling operator or association might try to bring a case against the UK in the European Court of Justice, we are satisfied that the Government has considered the compatibility of the proposed legislation with EU law and we note its confidence that any challenge to the legislation would be unlikely to succeed.

Even Bankers Are Accountable Now But Incompetent Politicians are Immune

The UK has passed laws enabling bonuses to be reclaimed from bankers if the bank subsequently loses money—there is no law allowing the public to reclaim wasted money from politicians and civil servants who make such expensive errors out of pure incompetence.

When the successful bidders for the first sports betting licenses were announced in Germany, the award was delayed deliberately to allow for an expected legal challenge to be mounted.

The UK government and the DCMS rushed to implement the new Gambling Act despite being fully aware that it was at high risk of breaching EU treaties and that fully funded legal challenges were waiting in the wings.

The legal challenge may have been at the “eleventh hour,” but given the short time lapse between the planned October 1 implementation date and the bill receiving Royal Assent, that was the only hour when a challenge could be legally presented. It was 100% foreseeable.

No Foresight, No Anticipation, No Sense

The associated Treasury Bill which changes the tax regime to allow the 15% point of consumption tax does not come into force until December 1. If the government had an ounce of common sense, the two bills would have been implemented simultaneously—and delayed until at least six months after the new laws gained Royal Assent.

That the government does not have an ounce of sense is brilliantly evidenced by the fact that the UKGC uses one definition of a UK customer while the Treasury uses another—either some players are required to be regulated but not taxed, or they are required to be taxed but not regulated.

In such a mess, it comes as no surprise that the UKGC has completely misunderstood the automated top up and rebuy facilities the best poker room software provides, and classified it as a problem gambling risk. Their stance on this issue caused operators to inform their customers that the feature would no longer be available—along with likely development costs to reconfigure the software. Following a petition by UK players claiming the restriction put them at an unfair advantage versus their non-UK opponents, the UKGC clarified its stance claiming the restriction was merely “guidance” and that the feature could exist if “other player protection measure are effectively implemented.”

Ten months ago, when the bill was being debated in the House of Commons, MP Philip Davis said that the government’s strategy to improve consumer protection was “complete nonsense.”

“This has nothing to do with regulation or player protection; it is about taxation and tax rates, as the Treasury made abundantly clear in its forecast,” he continued—although for the month of October 2014, it has nothing to do with collecting any taxes either.