Tax break numbers don't add up, bingo chiefs tell Treasury

The bingo industry ran into a row with the Treasury yesterday, claiming it had misrepresented the benefit of tax breaks agreed in the wake of the Chancellor's decision to replace bingo duty with a tax on gross profits. The disagreement erupted after the Treasury announced that a further £10m tax cut would enable the industry to pay out an extra £125m more in prizes.

The extra tax cut followed an amendment to the finance bill, which said that gross profits would be taxed only after VAT had been deducted. Previously the industry had faced the possibility of being taxed twice because the Chancellor had retained VAT charges on players' fees, contrary to the situation in the betting industry.

The original decision to axe bingo duty and replace it with a 15 per cent gross profits tax saved the industry £25m, bringing the total tax break to £35m, the Treasury said. Sir Peter Fry, the chairman of the Bingo Association, said: "You don't have to be a mathematical genius to work out that a net saving of £35m won't give £125m in extra prizes yet that is the impression that is being given. There is no way the £125m in extra prizes can be claimed in anything like the near future."

Announcing the extra tax cut, John Healy, economic secretary to the Treasury, said the move ensured bingo was "fairly and proportionately taxed", adding: "We believe this provides a good basis for the industry to increase their prizes and attract new players." While Sir Peter acknowledged that an additional £10m was helpful, he said the Treasury's suggestion that this would create £125m in extra prizes was false. "This will cause aggravation among bingo members," he said. "Not to make it clear that the extra £125m would not happen today but was years off happening was rather naughty."

John Kelly, the chief executive of Gala, one of the country's largest bingo club chains, said the Treasury's move was "a step in the right direction". However another industry source criticised the Government for not going far enough. "The benefit is likely to be modest," the source said.

Sir Peter said the hike in prize money estimate was based on the assumption that bingo admissions would rise by 500,000. He said it also failed to take into account the Government's future taxation policy, referring to reports that it planned to increase the level of taxation on machines in bingo clubs.