British bookmakers are beginning to get last minute jitters, it seems, as the clock ticks closer and closer to the Treasury's announcement of the new budget. Their very real concern: Will the betting duty be dropped?
Last year, bookmakers kept the same close watch to see whether the government would tip its hand. Yet, despite the bookmakers' pleading and prodding, the government failed to lower betting duty rates through the 2000 budget.
This year, however, there's a little more reason to anticipate that the betting duty either be reduced or completely abolished. First, Chancellor Gordon Brown, in his November pre-budget report gave bookmakers their first reason to hope change was forthcoming. It is the government's objective, the
report explained, to "assess the scope for a modernization of general betting duty that would deliver a business environment in which the British betting industry can compete in both the domestic and international markets, taking full advantage of the opportunities offered by the development of
e-commerce, while ensuring that the future revenue stream from betting is protected. The government believes there is scope for a modernizing reform of general betting duty to deliver this objective."
More recently, Treasury officials have been considering a plan that could have vast repercussions. It has been suggested, as outlined in Financial Minister Stephen Timms' speech before the recent British Betting Offices Association seminar, that the government might scrap the betting duty in favor of a flat-rate levy on profits made by bookmakers. This plan would require, however, that British bookmakers who headed offshore for friendlier tax regimes come back to the Great Britain.
"We want to make sure that any benefits from reform are fairly shared with racing and with customers," Timms said in his speech. "We also want to make sure that by making the U.K. industry more competitive, we bring betting back onshore and welcome a new international market to this country."
But, would operators like William Hill and Ladbrokes be willing to make such a move?
Probably so, says Warwick Bartlett, chairman of the British Betting Offices Association, which represents most British bookmakers. Bartlett ticked off a number of advantages for bookmakers to close their offshore shops and head back to the Isles. Chief among them, he said, is the better technology and bandwidth available in Great Britain. Plus, many operators face employee morale problems when staffing offices on small islands like Gibraltar and Malta: Many Britons dislike the limited amenities available
offshore when compared to their wide choices back home, especially when many are forced to part from their families during offshore working stints.
William Hill CEO David Harding was cautious in expressing an opinion on the flat tax scheme and whether Will Hill would want to close its offshore offices. In a recent interview, Harding told IGN, "We don't know enough yet about what the actual proposals are to make that decision. We're very supportive of what the British government is trying to do, supportive of the principle. Clearly when we understand the details and we're able to evaluate the case, we'll make our decision. We're very supportive and excited about what they're trying to do."
Repatriation would most likely be a requirement of the government's flat-tax plan, acknowledged Ladbrokes' spokesman Andy Clifton. "It may very well be that we wouldn't have a choice. In order to comply with what the government wanted, then yes, we would have to bring our offshore businesses
back onshore. And in theory, it would make sense to do that, because the economies of scale of having all our betting operations in one place would far outweigh the advantages of being totally tax-free elsewhere."
For Mark Blandford, who heads up Sportingbet.com, a move back to London would be great. "It's my home," he said. Since his company is a completely tax-free offshore business, however, Sportingbet wouldn't be forced to make the move. And, Blandford added, it's just not a financially wise step. The
Alderney-based bookmaker will stay put, homesickness notwithstanding, he concluded.
Taxing bookmakers on their gross profits would enable these companies to offer tax-free betting to consumers. "This would put us on the same level with offshore bookmakers," Bartlett added.
Another downside to the flat-tax scheme is the probable cost for bookmakers to close their offshore operations. Bartlett estimates that relocating to England would cost each of the large bookmakers $4 million.
For the big bookmakers, that cost would be something that could be absorbed through tax filings. But, some smaller bookmakers might find their moving costs too high to bear.
British bookmakers are keeping their options open in case the Treasury disappoints them once again. Blue Square, for example, announced today that they might consider a move to Malta, where they've held a license to operate since October 2000.
"The tax changes which have been mooted would be great news for Blue Square and would underpin our strategy for remaining onshore," Blue Square CEO Martin Belsham told The Independent. "But if they
are not sufficiently aggressive, we would move certain parts of our business offshore."
In March, we may finally learn whether the path leading British bookmakers to the islands is a two-way road.