The slow path to levy reform

United Kingdom

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

We are still awaiting a formal update from the UK Government concerning its proposals for the reform of the Horserace Betting Levy after its brief announcement in the spring (see here for our analysis then). However, since the spring the following significant events in relation to levy reform have occurred.

  • There was the referendum vote. If (and when) the UK leaves the EU, there is a very serious question (see below) as to the extent to which the Government will still have to comply with EU (or any other) state aid rules, one of the most substantial difficulties lying behind levy reform.
  • There was a change of Prime Minister with a new Government apparently minded to take on the gambling industry (see for example the proposals in relation to advertising and FOBTs and the investigation commenced last week by the Gambling Commission and the CMA into gambling operators' terms and conditions).
  • Frontier Economics have delivered to the Department for Culture, Media and Sport their economic analysis on the funding of Racing (although this is yet to be published).
  • It was reported earlier this month thatthe Sports Minister, Tracey Crouch, had told leading figures in both Racing and the gambling industry that the Government had settled on a flat rate of 10% for gross profits for both retail and online bookmakers (with the first £500,000 of gross profit apparently exempt) for the reformed levy. This would be a reduction in the headline rate from the current 10.75%, but given the expansion of the tax base to overseas operators, would certainly represent a substantial net increase in levy revenue. Moreover, the suggestion appears to be that the rate would be set in stone rather than, as currently, subject to annual review.

As we wait for a formal announcement from the Government (they may be waiting for state aid approval from the European Commission before moving forward), a few issues are worth commenting on in light of these developments.

Firstly, in the spring, the Government said that levy reforms would be achieved by secondary legislation made under section 2 of the Gambling (Licensing and Advertising) Act 2014. However, there are strong doubts as to whether that section provides the powers required. Moreover, it is rumoured that with the Government taken up with Brexit issues, the legislative agenda before Parliament is actually relatively light at the moment so it may be that the Government in fact seeks to bring in the proposals by means of primary legislation. This would certainly make a legal challenge harder (although not necessarily impossible).

Secondly, as regards the continuing application of state aid rules, this remains one of the great (albeit almost completely undiscussed) uncertainties arising in relation to Brexit. Plainly our current state aid rules derive exclusively from European law. The simple view is that if we leave the EU, they will no longer apply. But this may depend on how hard the final Brexit is. If the UK were to leave the EU but join the European Economic Area (currently looking unlikely it is true), essentially the same state aid rules would apply. But it may be that even if there were a harder form of Brexit, some form of compliance with state aid rules would be part and parcel of a bespoke trade deal between the UK and the EU (the now troubled CETA agreement proposed between the EU and Canada had provisions that required state enterprises to "follow commercial considerations and non-discrimination", which while not the same as EU state rules, is in the same territory). State aid rules could also be introduced at a domestic UK level, although it is unlikely that this would act as a constraint on any measure put into effect by primary legislation.

In any event, it seems very unlikely that Brexit will occur before the spring of 2019 (two years after the Article 50 notification is made, currently due for spring of next year). Until that happens, the UK will at least in theory remain a full member of the EU and will have to comply fully with its state aid rules.

Thirdly, it is worth remembering that the following aspects of the levy under the proposed reforms remain completely uncertain.

  • The need and/or justification for any levy or funding for Racing in light of the revenue it now receives in terms of the sale of media rights. The (apparently) proposed flat rate of 10% - which as stated above is likely to represent a hefty increase in net levy yield - particularly calls into question this justification.
  • Whether the levy will be assessed only on bets made by UK punters or whether it will be assessed on bets made by punters worldwide on British horseracing.
  • The identity of the “racing authority” which will get to make the decisions regarding the spending of the levy revenue.

Commentators on levy reform have become accustomed over many years to having to be patient and we continue to await news of the next step from the Government. However, the recent news reports suggest we may at last be entering into the final furlong, even though some potential hurdles remain.



Finally, the Levy Board and the Bookmakers' Committee must agree the terms of the 56th levy scheme (that is under the existing regime relating solely to bookmakers in Great Britain) on or by 31 October, failing which it will fall to be settled by the Secretary of State. Secretaries of State have historically considered the settling of levy schemes to be a significant chore and so if the Board and the Committee cannot agree, this may add yet further impetus to the reform proposals.