The move offshore by Victor Chandler prompted the UK's big three betting companies (Ladbrokes, Coral and William Hill) to also look overseas. Ladbrokes has already started offering a Gibraltar-based service and Coral and Hill are likely to follow soon. Also appearing on the scene from offshore locations are new internet bookmakers such as Sportingbet (Alderney) and Eurobet (Gibraltar) which offer free bets with no tax or charges.

The UK treasury is very concerned that it may lose a large portion of the £500 million sterling it gets from betting duty to telephone and internet betting services targeting the UK from offshore centres such as Gibraltar and the Channel Isles. Telephone bets make up 13 per cent of the UK betting market and this figure is rising by 20 per cent a year. A wholesale shift offshore of telephone betting could potentially affect 35,000 UK jobs.

Chancellor Gordon Brown said last week that no option had been ruled out 'to discourage offshore betting and protect revenue' and suggested that 'other measures' could be introduced in the Budget next March. It is known that the UK Treasury is considering various other possibilities, including the levying of taxes on telephone calls to offshore centres, and an extension of the law used to recover corporation tax from controlled overseas companies. Then there is the EU-inspired initiative to force low tax jurisdictions to bring their taxes into line with high-tax countries to eliminate 'unfair tax competition'.

The Government of Alderney, where internet bookmaker Sportingbet is located, reacted to the announcement by saying that it does not feel threatened. Alderney Policy and Finance Committee Chairman Phillip Cranford-Smith said 'They might be able to do it in Gibraltar; but Gibraltar is part of the EU and we are not. As far as I know, the British government is not in a position to exercise its powers in our jurisdiction unless we step outside the bounds of good government. We are not doing that'.

Although e-commerce tax is fast becoming a thorny international issue for high tax countries, the UK government believes it is prepared for it. 'In the long term we are concerned but we are confident that we can handle the Internet and are looking at establishing international agreements through the OECD and EU to ensure tax revenue continues,' said a Treasury spokesperson.

The Government's attempt to clamp down on the betting industry is likely to be part of a broader agenda to discourage other online services such as share trading and publishing from relocating to offshore tax havens.

Gambling is only one of many services that can be delivered by telephone or over the internet, and with increasingly cheap access, the betting industry serves as a model of success for other services that are subject to above average taxes by international standards. In particular, there is concern that if a European Stock Exchange is formed then companies could avoid stamp duty by reincorporating in offshore jurisdictions in the European Union but still retaining the advantages of their London listing.

The Treasury's inevitable attempts to preserve its revenue base are at odds with the Government's declared committment to e-commerce. Taxing offshore phone calls, indeed! Tony and Gordon will no doubt have many lively discussions on this subject over the garden fence behind Nos. 10 and 11 Downing Street in the months to come.