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How big a gamble is the zero-tax plan?; Economists evaluate John Brown's call for punters' deductions to be abolished.

A SENIOR professor of economics has lent his support to John Brown's radical call for the abolition of punters' deductions as a means of stemming an estimated annual loss of pounds 3 billion in turnover to offshore betting and illegal gambling.

Professor Neville Topham of Salford University says that punters need not be the only winners from the revolutionary idea thrown into the ring by Brown, chairman and chief executive of William Hill.

But Topham's enthusiasm, based on an overview of the paper that Brown presented to the British Betting Office Association seminar last month, is not shared by another prominent economist, Tote board member David Lipsey.

Brown believes betting could gain a new lease of life if the nine per cent deduction imposed on punters were abolished and replaced by a tax on bookmakers' gross profits.

Using the slogan "radical problems require radical solutions", he suggested the switch could stop as much as pounds 2 billion of punters' money heading into offshore betting accounts and also claw back the estimated pounds 1 billion lost to illegal gambling.

Now Topham has given credence to the proposal. "This idea is worth serious economic analysis," he says, "especially so if the leakage offshore is substantial and illegal gambling in this country is as prevalent as bookmakers claim.

"Estimates have been stated for the economy in general that the black economy is about 15 per cent of trade as a whole, and I expect this industry to perform to the national average."

With betting turnover annually reaching around pounds 6.5 billion, the extent of illegal gambling at 15 per cent would be pounds 975 million, in line with Brown's estimate.

Topham has seen the paper in which Brown puts forward a scenario of a tax rate of 20 per cent of a bookmaker's gross profit, allied to the "high-risk assumption" that punters would reinvest the benefit of no deductions.

He says: "At present trading levels, the switch from taxing

the transaction to taxing the

gross margin - transaction less winnings - would result in a very steep tax.

"On pounds 100 the tax is pounds 9 and if you imagine a book based on 20 per cent overround, then you'd want to get back the pounds 9 from the pounds 20 profit, giving a rate of 45 per cent.

"However, the rate could be brought down because trade would go up as the price of betting came down. Added to that, no deductions might stop illegal betting and there is evidence in Ireland that the impact of the halving in duty, while not doubling turnover, is certainly not marginal."

Brown's model suggests betting duty raised would drop by pounds 164 million - but only by pounds 100 million if illegal betting stopped and the offshore tide was stemmed.

The short-term loss in tax revenue would be offset by other benefits in employment levels and corporation tax.

BUT the professor, whose team at Salford led research into a Tote superbet in the 1990s, felt the Government might suffer a 'double whammy' by losing out on increased business in betting shops and also the duty foregone on money spent on alcohol and cigarettes that is switched to betting.

Lord Lipsey, a former Whitehall adviser and public policy editor of The Economist, who is now on the Tote board, is less convinced that Brown's plan would work.

"I couldn't see that it would really solve the problem," he says. "I can't see the obvious advantage if it just raises the same amount of money for the Treasury.

"What the Government is concerned with is not what turnover does, but what it is pocketing at the end of the day.

"Cutting the price to the punter by one per cent, or a ninth, is equivalent to an 11 per cent reduction, but the chance of a one per cent cut leading to an 11 per cent increase in revenue is not on.

"Unfortunately, there are no miracle solutions. The long-term way forward is through media rights much more than fiddling about with betting duty."

While Brown has been praised for his forward thinking, some in his BBOA audience last month had a strong sense of deja vu.

BBOA chairman Warwick Bartlett says: "It's a good idea, but it's not his idea. The BBOA is on record as having a meeting with Customs & Excise in 1994 putting forward this idea."

Bartlett says that Customs had ruled it out then and the change would require too much legislation.

He also dismisses a suggestion that bookmakers would simply bet to bigger overround percentages to squeeze the punter, if they found a tax on gross profits was proving punitive.

"Just how do you tinker with the margins?" asks Bartlett. "The prices come from the racecourse, we don't set them. People who talk about blower money are living in the past. There's a new breed of bookmaker now. Someone sent pounds 4,000 down to Yarmouth for a horse and the price hardly moved."
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Title Annotation:Sports
Author:Smurthwaite, Tony
Publication:The Racing Post (London, England)
Date:Feb 3, 2000
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