14 May 2003

SPEECH BY ECONOMIC SECRETARY JOHN HEALEY TO BINGO ASSOCIATION AGM

Queen Elizabeth II Conference Centre, Westminster

I am pleased to be able to join you today. Thank you for your invitation to do so.

I know this is an important event in the industry’s calendar and I was determined not to miss your event, despite it being such a busy week in Parliament. Because I want to reinforce the relationship between government and your industry, and because I know many of you are concerned at present about the future of bingo taxation. And in many ways, the timing could not be more appropriate.

Following a year of consultation, the Chancellor announced last month the reforms we are making to bingo duty. I would like to thank the Association - and representatives of the clubs - for the discussions you have had with me, and the assistance you have given Customs officials to date in this process.

If anything, this work together is more important now – especially covering the small independent clubs – to examine the detailed implementation and precise impact of the reforms.

The profile given to bingo policy during the last year and announcements in last month’s Budget, is recognition of the importance of Britain’s 690-odd bingo clubs in our communities.

With more than three million regular players, it remains one of the most popular pastimes in the UK. And its popularity spans the generations. Sir Alan Budd recognized in his Gambling Review Report that bingo is part of the British social fabric, providing a good night out for a modest outlay, and doing so in a safe, comfortable environment which is especially valued by many women and elderly people.

It says a lot, I think, about this place of bingo clubs in our communities, that the Fostering Network launched their campaign to encourage people to become foster carers last year through bingo clubs.

Bingo’s place at the heart of many of our communities was one reason why the Government was concerned by the steep decline in the number of clubs - with more than half closing in the last 20 years despite the industry’s successful recent advertising campaign to increase the number of players.

Government cannot change the wider pressures facing the industry, including trends in the choices people make about their leisure activities. But we can reform regulation of the industry - as Richard Caborn will be explaining later this morning. And we can reform taxation of the industry - as I will now examine in my contribution to your discussions.

In Government, we share the view of many in the industry that the old bingo duty regime was part of the problem. Taxing stakes and prizes, was inefficient and made the tax complex and burdensome for clubs to administer.

And since the early ‘80s rises, the old duty made bingo a highly taxed activity - with the burden falling disproportionately on pensioners, women, people on lower incomes, and those particular parts of the country where bingo is most popular.

The approach we adopted for bingo duty followed the principles we had already applied in reforming betting duty and pools duty:

- first, reforms should improve the capacity of the industry to thrive in the UK.

- second, the reformed system should be simpler for clubs to administer, reducing the compliance burden.

- third, the new regime should be allocatively more efficient – opening the market to greater competition and giving punters a better deal.

- and fourth, the new tax should continue to make a fair and effective contribution to overall Government revenues.

In the case of betting duty, independent studies before the reforms - and early experience after - showed a gross profits tax to be allocatively efficient, with these efficiencies passed onto the customer to bring punters back into UK-based betting shops.

At the time, our decision to abolish the tax on betting stakes and replace it with a tax on bookmakers’ profits was a bold move - but an evaluation of the modernisation of gaming tax I am publishing today shows it was a successful move :

betting shops have experienced an increase in turnover of 82%, almost half attributable to GPT;
over 2,000 more jobs have been created in the UK;
internet and niche gambling sectors have seen a significant boost – because, as they generally have lower profit margins, the duty on stakes was a greater burden for them.
international business is being drawn to UK, and though it’s still too early to quantify, one large chain has reported 10% increase in overseas sales since GPT.

Now, whilst we have been consistent in our approach and general objectives across the gambling regimes, different factors mean that revenue decisions and the detailed design of the reforms will inevitably be different.

With betting, the industry was rapidly moving off-shore and onto the internet, and the market is increasingly international. Imperatives for reform therefore included safeguarding the UK-based betting jobs and positioning the British betting sector to compete globally.

The tax cut necessary for successful gambling reform was over £100 million in the first year - but the changes are projected to return to revenue parity with the old system by 2004/5, and then to contribute more.

Those circumstances are not comparable with pools, or with bingo.

So clearly, it cannot therefore be the case that “one-size-fits-all” will work for all gaming industries. But, by abolishing the bingo tax on players’ stakes and added prize money, and moving to a gross profits tax - as the Chancellor announced in the Budget - we should:

reduce barriers to entry into the bingo market, helping niche and smaller clubs, which typically have lower profit margins, to survive and grow.
see the costs and complexity of compliance reduced.
reduce the burden of tax currently falling on bingo players, and ensure they get better value for money.
provide a better environment for the bingo industry to maintain its role in local communities.

Understandably during the consultation, the industry was arguing for more - wanting to see the removal of duty on bingo stakes and prizes, and the removal of VAT on “par fees”.

But you have heard the Chancellor’s Budget statement and will appreciate the economic pressures at present, and the imperatives to cover our international anti-terror obligations and invest in health, education and policing. Despite these pressures, the Chancellor did not want to delay bingo tax reform and the Budget package is a £25 million tax cut to the industry.

I know most of you are disappointed, and some of you are very critical. But in every Budget we need to make difficult decisions about the scope and size of our tax changes - and none are more difficult than deciding where to draw the line when we are giving tax relief.

We know full well that after every Budget there will be criticism - and we are used to that. Whether it is relief for small cars, small breweries, British filmmakers or bookmakers - we are usually criticised for not going far enough.

I know some of you also think we’re being unfair to bingo, compared to betting. But I hope I’ve explained the difference between a consistent approach and an equivalent approach and the reasons for it.

The Bingo Association has acknowledged that this £25 million tax reduction represents about £800 per week for the average club. Now of course there is no such thing as an “average club”, and as each one of you examines the effect of the reforms on your own companies and clubs, I want to know the detailed impact. But it’s worth being clear about the overall picture:

Although the Association argued for removing VAT during the consultation, it also modelled this package with the Henley Centre and estimated that this will:

… increase prizes by at least £18.75 million
… increase admissions by 500 000 a year
… increase industry profitability too - by around 39 per cent.

Although - on your behalf - it wanted more, in its press response to the Budget the Association confirmed its estimate that in total the reform will nevertheless deliver a £240 million benefit to players in the shape of lower prices and higher prizes.

We - like the Association - therefore expect to see significant benefits to bingo clubs and players as a result of this tax reform.

But let me say that this is not necessarily the last word on reform. Throughout the consultation process on bingo duty reform, we have been open to sound evidence and constructive comment. And we remain willing to listen:

- after the industry said that it needed three months to bring in the new regime, we announced 4 August in the Budget as the starting date. However, in discussions with officials since the Budget you have told us that unforeseen issues mean that the industry would not be ready to bring in the changes by then.

So yesterday in the Commons I amended the Finance Bill to delay the reform until 27 October – the date the industry now prefers.

- you also asked if the start and end of accounting periods could be amended, so they more closely match the industry’s accounting practices and minimise the amendments needed to you accounting systems.

Again, I have amended the Finance bill to do just this.

In discussions since the Budget - with both officials and with me - your leading figures have raised the concern about the gross profits tax being charged on a definition that includes the VAT-inclusive players’ stakes. As a result, but without commitment, I confirmed to the House of Commons yesterday that I am considering this specific issue further.

However, we can only make such progress on the basis of accurate analysis, measured argument and detailed discussion. The onus is on the industry. You own and run the bingo clubs.

We can have a stand off. Or we can have a sensible dialogue on preparing, implementing and monitoring these reforms.

In the short term, it is possible to make further progress. In the longer term, the current changes are not necessarily a full stop for tax reform for bingo.

Our approach across the modernisation of gambling taxes has been to consult, implement and evaluate with a readiness to refine our reforms where there is a good and affordable case for doing so - just as we doing now to the scope and administration of betting tax.

Before I end, let me mention one further area of gambling taxation that seems ripe for reform - amusement machine licence duty.

I know these machines are an important source of income for many of your clubs, with - we understand - up to one third of the industry’s profits coming from gaming machines.

It is a complicated fiscal regime, with five different rates depending on the type of machine. And we know from informal consultations that many machine operators find the duty over-complex and burdensome.

In addition, licence fee rates do not reflect ability to pay - so the effective tax rate (duty as a percentage of profit) falls most heavily on the least-used machines, while the most-used machines are the most lightly taxed.

This is clearly not an equitable of efficient basis for raising revenue, and it means that pubs and clubs that cannot be confident of their profit margin may be deterred from investing in amusement machines and deprived of a valuable source of income.

In developing policy in this area, we are keen to work closely with all involved - machine operators, suppliers, manufacturers and trade representatives.

We plan to publish a consultation document to seek such wide-ranging views, and I hope - through your association and directly - the bingo industry will make sure you make a strong contribution to this work.

So, in summary, I hope you see what Government is now doing with bingo duty as a sensible reform of an outdated system, which - as it stands - delivers a £25 million tax boost to your industry which should benefit both players and companies.

I hope you also see that I want a closer dialogue with the industry on the detail of the implementation and reform.

But this depends just as much on you, as it does on me.

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