Owners in fear of a knock on the door

The racing industry will discover this afternoon if its somewhat fractured campaign to extract cash from the Chancellor to compensate for losses to the National Lottery has been successful. Unfortunately, any bookmaker offering prices would be unlikely to go odds-on.

Since the launch of the Lottery just over 12 months ago and, in particular, the arrival of scratch cards, betting turnover has dropped significantly at a time when it was expected to increase.

Already, the Levy Board, which collects money to fund racing via the bookmakers' deductions from punters, is preparing to slash and burn its way through the prize-money on offer in future seasons. This could only be detrimental to the quality of racing and, therefore, add further to the bookies' turnover problems. A vicious circle beckons.

The solution advanced by both bookmakers and racing's administrators, though in slightly different ways, is a cut in the Chancellor's slice of betting, collected via duty which currently stands at 7.75 per cent. The bookmakers are asking for a two per cent reduction, which would be passed on to punters with a cut in the overall "tax" from 10 per cent to eight per cent.

The British Horseracing Board, however, wants any reduction to be split between the betting industry and a direct return to racing, via an increase in the Levy. The Chancellor has no doubt listened to racing's pleas. Whether he has taken any notice will soon be apparent.

As if the campaign to support the sport's immediate finances was not enough, minds at the BHB are also exercised at present by the Customs & Excise concession which allows owners to claim back VAT on racing expenses. The scheme could be reviewed any time after next March, and a decision to discontinue it would cost the racing and breeding industries pounds 20m a year.

The agreement between racing and Customs requires owners to "actively seek sponsorship" of their horses in order to claim back the 17.5 per cent VAT on bloodstock purchases and training bills. At present, between 60 and 70 per cent of owners are benefiting, but only 29 per cent are actually covered by sponsorship. The remainder, of course, may be seeking support, but the revenue collectors will soon be asking serious questions about just how hard. If abuse was thought to be widespread, VAT could be re-imposed throughout the industry almost overnight.

"Obviously we're gearing ourselves up and encouraging everyone taking advantage of the scheme to realise what their obligations are," Tim Darby, of the BHB, said. "It means a bit more than just writing letters. You can't just write to Coca-Cola or Whitbread and ask them to sponsor a five- year-old handicapper. But if every two months or so you're writing to half a dozen local companies, it's quite straightforward.''

Anyone claiming the tax without putting in the work could be in big trouble. "If you've been claiming since the scheme's inception in 1993, the VAT people could knock on your door tomorrow and if you've done nothing to seek sponsorship, they'll ask for a backdated cheque. For an average owner with one horse in training, it could be pounds 7,000.''

For racing, too, an end to the VAT scheme would be a disaster. "It has had effects all the way through," Darby says. "The number of horses in training is rising, and it's been a factor in the increase of prices at the sales." The betting is that the VAT regime will endure, but with the effects of the Lottery growing by the month, no-one is taking any chances.