The Government emphasises that the purpose of these proposed reforms is to ensure that UK players are protected, whether they are gambling on websites based in the UK or overseas, by making all operators targeting the UK subject to the same standards of regulation. At present, in the absence of any European code of conduct for online gambling operators, there are no uniform requirements and no guarantees as to the integrity and standards of those currently able to offer their services in the UK.
The Government has also reasoned that the proposed reforms will ‘level the playing field’, protecting the interests of online gambling businesses based in the UK. Under the present system, operators based overseas often have a competitive advantage over those in the UK. The current laws require only that an operator is subject to the laws of an EEA or white-listed state to advertise in the UK; it does not necessarily even need to be regulated or licensed in that state. Although white-listed states, at least, have been approved by the UK Government by reference to the standards of regulation in place, questions have been raised, not least in the UK Parliament, about the latest inclusion in the list of Antigua & Barbuda. Being subject to lesser (or even non-existent) standards of regulation means lower overheads, enabling operators to offer greater incentives to UK players compared to those subject to UK standards. Lower or non-existent taxation in some overseas jurisdictions is obviously another critical factor which gives non-UK operators a competitive advantage in the UK market.
So, the Government’s proposals to apply the same standards of regulation to all operators targeting the UK market are intended to protect UK players and help UK-based businesses. However, there are also clear financial incentives for the UK Government to reform the law as well. Firstly, if a level playing field is not achieved, UK operators may abandon the UK and move their businesses offshore, reducing tax revenue for the Government. Indeed, some high profile remote betting operators, such as Ladbrokes and William Hill, have already made this move. This is less of a consideration in respect of online casino operators, as less than 20 such operators hold a UK licence in any event.
As well as persuading existing UK business to remain in the jurisdiction, the UK Government, notwithstanding protestations to the contrary, must have one eye on the huge potential tax revenues to be gained from forcing all operators targeting the UK to pay UK taxes. Since commencing offering licences to those wishing to target its residents, the Italian Government has enjoyed substantial tax revenues (a large part of which has gone towards rebuilding the historic town of L’Aquila following the 2009 earthquake). In the UK, a tax rate of 15% on gambling profits currently applies to online operators, and if this rate is applied to all UK licensees under the new system, Government coffers will enjoy substantial benefits. It is for HM Treasury to set tax rates while the Department for Culture, Media and Sport is responsible for drafting the new legislation, but DCMS has indicated that it will liaise with HM Treasury in relation to the tax implications of the new system. It is conceivable, but we think unlikely, that a lower rate will be introduced.
The high cost of becoming licensed in the UK and paying the associated taxes may, of course, result in some less reputable operators choosing to disregard the law and continue their activities in the UK regardless. The UK will face the same technological and legal jurisdictional challenges in enforcing the new requirements as are faced by other countries implementing a similar system, notably Italy, France and Denmark. At the very least, such operators would be severely restricted in their ability to advertise in the UK, particularly on television, radio and in newspapers, due to the requirements of the various advertising codes.
The key question for operators currently enjoying the status quo is when these changes are likely to come into effect. After the announcement of the proposals in early January, it was expected that the consultation period would commence shortly. However we are still awaiting the release of the consultation document, which will set out the Government’s proposals in more detail and contain further information regarding how it is proposed that the system will operate. It may be that an early announcement regarding the proposed changes was forced by a leak of the proposals, but with a general election on the horizon, it may also be that this issue is not at the top of the Government’s list of priorities. In any event, we think it unlikely that any changes, which will involve reform of primary legislation, will come into effect before 2011 at the earliest.
The Gambling Act 2005 reflected the view of the UK Government that European laws required that operators in other EEA countries be allowed to offer their services freely in the UK. However, developments in Europe, criticism from UK operators and controversy arising out of the white-listing of Antigua & Barbuda have pressurised the UK Government into considering a new system, with the double benefits of ensuring the protections enshrined in the 2005 Act are applied to all UK consumers and of increasing the revenue from this growing industry. The cost of obtaining a UK licence and paying UK gambling duty will be a significant burden on the industry. However, the UK is such an important market that there is no doubt that UK facing gambling operators currently licensed and regulated offshore will obtain a licence in the UK if that is made a requirement.
By John Hagan, partner at specialist UK gambling law firm Harris Hagan