Offshore bets trickle turns into a torrent

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The scale of the explosion in low-tax and tax-free offshore betting became clear yesterday when John Brown, the chief executive of William Hill, revealed that the equivalent of 60 per cent of the firm's telephone betting turnover has moved offshore in the last four months. The news adds further weight to arguments from Britain's bookmakers that betting duty must be reduced to enable them to compete in what is now a global betting market.

There is little sign, however, that Gordon Brown will react to the bookies' long-running campaign to cut betting duty from its current level of 6.75 per cent, when he delivers his Budget speech tomorrow afternoon. Without such a reduction, the bookies argue, a growing amount of betting turnover will continue to find its way to low-tax operators abroad. The odds, however, are that the rate will remain unchanged tomorrow, and a wholesale cut to three per cent, the level advocated by the bookmakers, is most unlikely.

The figures released by John Brown yesterday, though, appear to show that the flight of turnover offshore is growing faster than anyone could have expected. The process began almost a year ago, when Victor Chandler announced a move to Gibraltar, from where he now operates a telephone betting service which charges a three per cent deduction. Ladbrokes and Hills, Britain's biggest bookies with more than 3,000 betting shops between them, soon followed suit, and all three firms now run internet betting sites which charge no tax at all.

"It's exploded," Brown said yesterday. "Our internet betting site and offshore telephone-betting site now account for 60 per cent of all our previous telephone turnover, and we have the largest telephone betting business in the country. We launched the telephones in January and the internet site in December.'

The figure is both startling and disturbing, not just for UK-based bookies, but also for the racing industry, which receives almost £60m each year from the Levy, which is payable on bets placed - and taxed - in the UK.

Already, bookies who rely solely on betting shops are complaining that punters are watching racing in their shops, but phoning their bets to offshore operators. There are stories - perhaps exaggerated, perhaps not - of queues forming outside payphones near betting shops as punters attempt to beat the "tax", (which is, of course, charged not at the actual rate of 6.75 per cent, but at nine per cent).

It makes such stark financial sense to bet overseas - ideally with a tax-free internet site - that to do so is simple common sense. A punter who places just one £5 bet a day, six days a week, will save £140 a year betting tax-free, and almost £100 if they phone their bets through to Gibraltar (or, in the case of Hills, Athlone in Ireland).

And £5 a day is, relatively, nothing. One of the keys to understanding betting turnover is to realise that it resembles the ownership of Britain's land - a large part of it is concentrated in surprisingly few hands. Hills have certainly not lost half their British account holders, but a significant number of the high-rollers have quickly moved their accounts offshore.

As far as both the racing industry and traditional bookies are concerned, however, the identity of those switching their bets offshore is much less important than the total of Levy-attracting turnover which is vanishing. Overall, cash bets in betting shops still account for the majority of British turnover, but the growth of new technology, particularly internet-enabled mobile phones, the shrinking number of shops, and now the availability of a low-tax alternative will inevitably cause the balance to change.

"In order for us to get down to a duty rate that will enable us to compete," Brown said yesterday, "it will cost [the Government] about £150m to £200m a year. There are 100,000 jobs in the UK betting and racing industry at stake, and they were willing to put £200m into Rover to save a fraction of that number of jobs."

A drop to three per cent would at least allow the bookies to compete on a level field with offshore telephone operators. In the longer term, though, Brown believes an alternative to betting duty will need to be found. This would enable bookies to attract money from around the world, instead of watching it head in the other direction.

"If this Govt wants to be part of the e-commerce world, they'll have to find a new way of taxing betting," he said. "They can be part of it in this country or they can be completely out of it, but if they wait another year there won't be anything left to have."