Iain Fletcher: An each-way loser - Chancellor's review is a no-win bet

Watching Gordon Brown stand up yesterday and deliver his sermon from the mount - there really is a streak of evangelical piety about the Labour leaders - it seemed that Prudence, the trusted keeper of the purse-strings, had been replaced by Panic.

Watching Gordon Brown stand up yesterday and deliver his sermon from the mount - there really is a streak of evangelical piety about the Labour leaders - it seemed that Prudence, the trusted keeper of the purse-strings, had been replaced by Panic.

The rhetoric was there - Britain enjoying the most prosperity, the most consistent growth and possibly the best weather in 200 years, and also the implication that we, the humble subjects, should bow in honour to the man responsible, Brown himself - but it all rang a little hollow.

And this is why. If things are going so well, why is he doing the government equivalent of feeling down the back of the sofa for pennies?

You may have missed it, and even if you did not you may have thought it irrelevant compared with the really important things, such as the cost of smoking, or the extra billions promised for the health service and combating terrorism. But in a couple of brief sentences he promised to review the tax position of betting exchanges and the people who use them, people who currently enjoy tax-free winnings. Check under the cushion on the left, Gordon, I think I dropped ha'penny.

Betting exchanges, for those whose only acquaintance with them has been through recent tabloid allegations about jockeys slowing horses to lose or even, in one recent case, falling off in a manner that looked suspiciously like a jump, act as a broker between people. Want to back or lay a horse, or football team, or indeed Pop Idol winner, then exchanges give you that chance, and this is why they are different from traditional bookmakers. They allow Joe Soap of Acacia Avenue to lay things to lose.

That is the bookmaker's role, their side of a bet, and they have made enormous profits for years, so it is no surprise that the public fancy doing it as well. Tax them as suggested and they will stop, the exchange will have no liquidity and will go bust, much to the pleasure of the high-street chains.

This is not the point for Brown, though, nor the fact that racing is corrupt and has been for decades. No, his problem is cash, a lack of it, and it is partly a problem of his own making.

In October 2001, startled by bookmakers' preference for offering tax-free betting to their clients by operating offshore, Brown agreed a new tax level with the industry, bookmakers and exchanges alike. The deal was that 15 per cent of gross profits would be paid in tax and another 10 per cent of gross profits from horse-racing would go to the Horse Racing Levy Board. It was a trade-off after a stand-off, and perceived wisdom was that the punter would spend more, recycle his winnings and in doing so make up the Treasury's shortfall. An increase of 45 per cent in turnover should suffice, according to the number-crunchers. But they got it wrong, punters made the most of tax-free by backing more short-priced winners, and the Treasury is suffering.

Time for a scapegoat, and here, conveniently, is the upstart in the business - exchanges. By attacking them, or specifically the layers, Brown will do one of two things: force the exchanges out of business or out of the country. He loses either way. He should ask the punters - it is a no-win bet.

Iain Fletcher is the author of 'Game Set and Matched', a book on exchange betting to be published in June by High Stakes Publishing.