Straw urged to sell the Tote
But it will warn that the powerful racing lobby, which includes Robin Cook, Foreign Secretary, may scupper a privatisation Bill in the House of Commons unless the Government finds extra money to fund the sport.
A Bill could also be delayed in an unreformed House of Lords because of the backing that many peers give racing.
The Tote, a self-financing government-owned corporation which runs on-course betting shops, provides one of racing's main sources of income.
In 1997, pounds 7.9m of the Tote's pounds 12m profits was diverted to racing via sponsorship, prize money and various projects.
The committee, which began its enquiry last August, will recommend that around pounds 8m of the betting levy be diverted into racing if the Tote is privatised.
It will warn that the Tote will be worth far less than its estimated pounds 120m price-tag if the privatised company is still expected to fund racing.
The report will recommend that Britain follow Australia's example; Australia diverted betting duty to its racing industry when it privatised its state betting shops.
It is expected also to suggest that tax from other forms of gambling such as fruit machines or casinos be channelled into the sport.
The Tote, along with other bookmakers including Ladbroke, pays a 1.08 per cent betting levy to the government on top of ordinary tax. The levy raised around pounds 350m last year for the Treasury.
The Treasury, which is pushing for privatisation because of the extra revenue it will raise, is expected to begin moves to sell the Tote this year, with a Bill reaching Parliament in the next parliamentary session.
The Tote is likely to be sold to one owner - probably a venture capitalist - in a bidding war, but it may be floated, with the Government retaining a golden share.
The committee, which is made up of senior Home Office and treasury officials and chaired by the chairman of the Tote, Peter Jones, was not expected to come out in favour of privatisation because of the problem of opposition from the racing world.
In 1995 the Conservative Home Secretary Michael Howard ruled out privatisation because it "might put at risk the contribution which the Tote makes to racing".
But last month the City accountants KPMG strongly recommended privatisation in a report on the various options for the future of the Tote.
Publication of the enquiry's findings was delayed because the Tote has recently been involved in a bid to buy the Coral chain of betting shops from Ladbroke.
The Tote's pounds 375m bid for the Coral bookmaking chain failed last month after it was trumped by a higher bid from Morgan Grenfell Private Equity, the venture capital arm of Deutsche Bank, which paid pounds 390m for the 827 betting shops.
The loss was a bitter blow to the Tote which was hoping to move into a bigger league to compete with privately owned betting shop chains such as Ladbroke.
The Tote intends to pursue plans to expand its off-course betting shop chain. It is in talks with several smaller bookmakers with around 100 shops each about possible takeovers.
"We have other options available to us which we are pursuing," said a source at the Tote. "Although we have been concentrating our energy on Coral, we have kept other options warm."
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