Levy reform, the Government publishes the draft statutory instrument

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

On Wednesday the Government issued the draft statutory instrument it proposes to bring in reform of the horserace betting levy. This is ostensibly to extend the levy to remote gambling operators situated outside Great Britain but they have, as anticipated, taken the opportunity (and on what we see as a questionable legal basis) to make some significant alterations to the general levy structure.

We have recorded many times (for example, see here, here, here and here) the history of proposals to reform the levy. Most recently, we considered the proposals the Government published in January which led to the statutory instrument it has just published. In our previous notes we have set out the legal basis on which the proposals could be challenged. Now that the statutory instrument has been published, they would all appear to remain good legal grounds.

In particular, we have identified that the provisions could be challenged on the basis that they were ultra vires. The main statutory provision on which the Government is relying to bring in this legislation is section 2 ("Section 2") of the Gambling (Licensing and Advertising) Act 2014. This allows the Government by statutory instrument to "make provision so as to secure that the bookmakers by whom the levy … is payable include bookmakers who are required to hold a remote operating licence".But now we can see the proposed, legislative provisions, it is clear that they do indeed go well beyond this for example:

• mandating a fixed levy at 10% for all bookmakers (subject to an exempt threshold of £500,000);
• having the effect of mandating the extension of the levy to the Tote's on-course operations (which had under the previous levy schemes hitherto not been subject to levy);
• removing the power of the Levy Board to make levy schemes in respect of all bookmakers; and
• providing for new information gathering schemes in respect of all bookmakers.

The Government has indicated that in doing so it is relying not just on Section 2 but also on section 2(2) of the European Communities Act 1972 (the "1972 Act") on the basis that the additional changes are necessary to bring the levy scheme into compliance with European Union state aid rules. This is highly controversial and it is not at all clear that the 1972 Act provides a basis for significantly revamping existing legislation simply for this purpose (not least because under the 1972 Act, section 2(2) cannot be used to "make any provision imposing or increasing taxation" and the levy almost certainly constitutes taxation for these purposes).

We have also previously identified two bases under European law on which the provisions could be challenged:

• State aid – because the levy provides for financial assistance for a specific sector, it is likely to constitute state aid under European law. It is understood that the European Commission is likely to give its approval to the levy in the next few weeks but that could be challenged.
• Free movement – given that the provisions directly affect the provision of services between Member States of the European Union, they are potentially challengeable under Article 56 of the Treaty for the Functioning of the European Union.

There is nothing in the draft statutory instrument which in any way addresses these concerns.

The statutory instrument needs to be passed by an affirmative vote od both Houses of Parliament, which we assume is likely to take place in the forthcoming weeks, prior to 1 April. Then we shall see whether anyone seeks to bring any legal challenge.