The sell-off, set to be announced next month, will be the first wholesale privatisation since Labour came to power.
Plans to privatise the Tote, abandoned by the former Conservative government, have been dogged by problems because of its key role in funding the racing industry. Racing's friends within government, who include Robin Cook, the Foreign Secretary, have been fiercely arguing behind the scenes that the Tote should not be divorced from racing or sold as a purely commercial interest.
The Treasury is now understood to have abandoned its plans to sell the Tote for its top value. They want to ensure that pounds 9m a year of its pounds 17m profits continue to go to the sport.
Ministers feared if they introduced a Bill to sell the Tote to a betting shop chain such as Ladbrokes or float it on the stock market, racing's allies in Parliament would scupper their plans. Mr Cook, who until last year wrote a tipsters' column in a Scottish newspaper, has been arguing within government that racing should have a stake in the running of the Tote.
The Treasury has now agreed the Tote should continue to plough its profits back to the sport even after it has been sold. The corporation is one of racing's main sources of income.
Trustees of the new privatised company will include the Jockey Club, the Racehorse Owners' Association, and the British Horse Racing Board (BHB). Ministers blocked the BHB bid to be handed control of the Tote.
"The Trust is a New Labour-type solution," said a source privy to the privatisation plans. "The notion is that the Government will get the full value for the Tote's free cash flow."
The Conservative government's repeated attempts to sell the Tote were blocked by the racing lobby, which feared it would lose one of its main sources of income. The Tote has the monopoly on racecourse betting shops, and runs 250 high-street bookies. Next weekend it stands to take pounds 10m in bets on the Grand National at Aintree, its busiest day of the year.
The Tote wants to borrow from the City to expand its betting shop chain, but, because it is owned by the state, the debt would show in the Government's borrowing figures. The Treasury wants to take the Tote's debt out of government figures. Privatisation will mean it can borrow from the City without the Government's permission. It also means the Tote can enter new markets such as casinos and nightclubs.Reuse content