The long arm of the levy

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Government consults on extending the levy to offshore bookmakers

On 26 June, the Government's consultation (the "Consultation") on the extension of the Horseracing Betting Levy (the "Levy") to bookmakers outside Great Britain was published and is available here. At present payment of the Levy, which is applied to the gross profits of bets taken on British horseracing, is required of only those bookmakers whose operations are based in Great Britain.

The Levy was first established under the Betting Levy Act 1961 and then reformulated under the Betting, Gaming and Lotteries Act 1963 (the "1963 Act"). It was in fact abolished by the Gambling Act 2005 with the intention that the funding of horseracing would instead be sustained by commercial agreements based on the database right in runners and riders data. That notion had to be abandoned after the decision of the European Court of Justice in BHB v William Hill Case C-203/02 [2005] RPC 260. Following that decision, the levy provisions of the 1963 Act and the Levy were given a reprieve by means of the Gambling Act 2005 (Horserace Betting Levy) Order 2007.

The potential to extend the Levy to overseas bookmakers was a last-minute introduction to the Gambling (Licensing and Advertising) Act 2014 (the "Act") by the House of Lords who argued that the extension would create a level playing field between on-shore and off-shore bookmakers. It was also argued by the Lords that the extension of the Levy would provide much needed support to the horse racing industry in Great Britain and the British Horseracing Authority welcomed its inclusion in the Act. Although ultimately the amount of Levy imposed on bookmakers will be a matter for the Levy Board and not Government, the Consultation suggests that the intention is that new Levy raised from offshore bookmakers would be in addition to Levy currently raised.

The Act itself does not extend the Levy and instead allows for the Secretary of State to make such an extension under a statutory instrument at a future date. The publication of this consultation is the first step towards such a statutory instrument being made.

There are a number of interesting aspects in the Consultation.

Firstly, the Consultation states that the Government proposes to amend the definition of the term "bookmaker" in the 1963 Act. This is potentially controversial territory. The scope of the definition was the subject of the judicial review in R (on app William Hill) v The Levy Board [2012] EWHC 2039 where it was held at first instance and on appeal ([2013] EWCA Civ 487) that users of betting exchanges were not bookmakers and were not liable for levy even if there were acting by way of business.

The Government states that it intends "to amend the 1963 Act to include a [new] definition of "Bookmaker"". The new definition is to "align with both the licensing regime established by the Gambling Act 2005" and "existing custom and practice" of the Levy Board and will mean that "liability to pay Levy will extend to all gambling operators that hold an operating licence from the Gambling Commission and take bets from British customers on British Horseracing".

This could be problematic. The 2014 Act allows the Government merely to secure that bookmakers under the 1963 Act "include bookmakers who are required to hold a remote operating licence" (section 2(1)). That would not appear to allow a wholesale amendment to the definition of "bookmaker", certainly beyond those already caught and holders of remote operating licences. If any Government proposal sought to extend liability for Levy beyond such persons, it is likely to be ultra vires.

Secondly, the Consultation proposes that Levy would be assessed not only on bets placed remotely by British customers but also by overseas' customers betting on British racing. This does not seem justifiable. Imagine a bookmaker with a substantial overseas client base betting on British racing but no British customers. It would pay no Levy. But if it wanted to break into the British market, it would suddenly have to pay Levy not only in respect of its new British customers but also its existing overseas ones. Such a barrier to entry seems disproportionate.

Finally, there is the question of the composition of the Bookmakers' Committee. This is the Committee, intended to be a cross section of relevant bookmakers, who each year propose a scheme for the Levy to the Levy Board which the latter can either accept in full or reject (if a scheme cannot be agreed between the Committee and the Board, the scheme must be determined by the Secretary of State).

While the Levy was confined to British bookmakers, it has been relatively straight-forward to compose a Bookmakers' Committee to reflect the range of relevant bookmakers with the big three retail bookmakers and Betfair having their own members and other bookmakers represented through the ABB.

But if Levy liability is to be extended internationally, it may be much harder to come up with a membership which represents this much greater international aspect. Moreover, representatives from overseas bookmakers may find it much harder to attend meetings. The Consultation states merely that that the Government "are seeking views on the composition and size of a revised Bookmakers' Committee".

Any extension to the levy will not be commenced unless and until the Government has obtained state aid clearance from the European Commission. The Levy remains an anachronism but the state aid issues and the problems which arose in respect of database rights have also hampered any possibility of wholesale reform. The Consultation thus reflects the uneasy position of seeking to marry this old law with the modern world.

Consultation responses are required by 21 August 2014.