Gibraltar became British in the early eighteenth century, around the same time as the BVI. In all other ways, however, the two colonies could barely be more different. Where the British Virgin Islands were an abandoned backwater for centuries, the subject of international indifference, Gibraltar was fought over repeatedly by world powers. It is proverbially steadfast, a symbol of the stubborn might of the British nation. The iconic silhouette of the Rock, a towering limestone lion at the mouth of the Mediterranean, has graced the cover of innumerable war memoirs and boys’ weeklies. Any threat to its status conjures up a storm of outrage in the London tabloids. No other colony anywhere has ever been so close to the hearts of its owners.
This is, in truth, slightly odd; Gibraltar is a tiny little peninsula not much bigger than Wimbledon Common, a skin tag hanging off Iberia’s bottom. I ran all the way around it in an hour, and that included dips out of and into Spain at beginning and end. Where colonies like India enriched Britain immeasurably, for most of its history Gibraltar never amounted to all that much, even militarily, and what significance it did have was brief. It came into its own with the opening of the Suez Canal in 1869, since that transformed the Mediterranean Sea from a lake into a highway. Possession of the Rock ensured that Britain controlled both the Mediterranean’s entrance and its exit.
For the coal-powered Royal Navy before the First World War, Gibraltar was a useful refuelling station, ensuring ships could patrol far from their home bases. For the oil-powered navy of the Second World War, it helped keep the route to the oilfields of the Middle East open and serviced convoys supplying British and American forces in North Africa, Italy, the Balkans and southern France. It was also—for much of the war—the sole part of mainland Europe west of the Soviet Union in Allied hands, which gave it both symbolic and practical significance, not least because it allowed my great-grandmother’s cousin Billie to make it home after escaping from a Nazi prisoner of war camp. The war left as a legacy miles upon miles of tunnels within the Rock, which served as hospital, munition store and accommodation for many of the tens of thousands of men who made Gibraltar their home. They are now a popular tourist attraction, alongside the tunnels left by the Rock’s defenders in earlier sieges and some attractive natural caverns.
The Rock’s original Spanish inhabitants were driven out when London took control in 1704, and were replaced by immigrants from Malta, Morocco, Genoa, India, Britain and elsewhere, who worked in the shipyards, supplied the garrison and engaged in some light smuggling with the Spaniards across the bay. These Gibraltarians in turn lost their homes during the Second World War, being forcibly evacuated to make room for Allied soldiers, sailors and airmen. This experience of evacuation—the sense of unity, the discrimination they suffered in exile, their struggle to return home after the war was over—welded them together and created for the first time an organized and coherent Gibraltarian nation. On their return, they demanded self-government and received it in 1950.
But democratic advance did not mean life was easy. Those were the years of decolonization, when London surrendered control of India, the Suez Canal and many more strategic assets. And the Spaniards not unreasonably asked why the Brits clung on to this little colony when they were giving up so many others. Technically, the Treaty of Utrecht, which was signed in 1713 to end the War of the Spanish Succession, gave Gibraltar to Britain in perpetuity, but times were changing, and the Spanish government demanded that the peninsula be returned.
It is perfectly possible that, given the opportunity, Britain would have hauled down the Union Jack as readily in Gibraltar as it did in Tanganyika. In the age of the ballistic missile and the nuclear-powered submarine, small and exposed military bases like this one looked vulnerable, anachronistic and expensive. But surrendering control of the place was politically impossible: the Gibraltarians and their numerous friends in the United Kingdom were fiercely opposed to rule from Madrid (Spain did have a fascist government at the time after all). After a referendum confirmed that all but forty-four Gibraltarians wanted their country to remain British, London considered the question closed, which infuriated Madrid. In 1969 Caudillo Francisco Franco severed all land, sea and air ties with Spain, and for the next sixteen years Gibraltar was essentially under siege. Its economy was dependent on London, in particular on the dockyards of the Royal Navy.
Gibraltar has always been surprisingly British, but this is when it turned its back on Spain decisively. The local dialect—Llanito, a mixture of Andalusian Spanish, Genoese Italian, English, Hebrew and various other bits and bobs—began to be replaced by the English that its young people learned at university in the UK. Without the steady stream of Spaniards crossing the frontier to work, the shops and restaurants became more dependent than ever on military custom, and thus ever more British. If you stroll now between the café tables laid out on Casemates Square or down Main Street, you’d be forgiven for thinking you were in a provincial English town, although you might wonder why the weather was so nice.
Gibraltar did try to get into the tax haven business by copying legislative innovations from the Caribbean, but never made much of a success of it. US clients couldn’t be bothered to cross the Atlantic, and Europeans already had good and discreet French-, German- or Italian-speaking bankers in Switzerland, Luxembourg, and various assorted micro-states. Occasionally, a lawyer in the Channel Islands would send down some business that was too crooked for them to countenance, but it never amounted to much.
“The economy was two thirds Ministry of Defense in terms of GDP. In terms of employment, right through the 70s and into the early 80s that accounted for 40 percent of the labor force,” said Ernest Montado, who in the early 1970s created the colony’s statistics service and who still speaks with a trace of the hard-to-place Llanito accent—which makes the speaker sound a little like a well-traveled Welshman. As soon as the frontier was closed, the government in London sent out a mission to study the economic situation, but failed to come up with many useful suggestions. “They said, ‘There’s not much you can do on this piece of rock, you know.’ They were talking about things like shellfish farming. I said, ‘Fine, but that’s not going to feed many people,’” Montado remembered.
And then came 1981. It started as a good year, with Gibraltarians winning full British citizenship and Prince Charles and Princess Diana coming to the Rock on honeymoon. But in June the government in London announced it was radically changing the way the navy was maintained. Britain needed fewer ships now it no longer had an empire to defend, and the ones it did have were more sophisticated. That meant that it needed fewer and more specialized shipyards, and Gibraltar was not going to be one of them. This was a disaster for the yards’ 1,400 employees, and catastrophic for the colony as a whole. The border was still closed, and now it was losing its sole significant employer. “We were going to lose 25 percent of GDP, just like that,” said Montado.
General Franco had died by now in Spain, and the newly democratic government in Madrid was easing the restrictions on the border, which at least raised the prospect that Gibraltarians could start trading with their neighbors. But economic diversification was hard when the Ministry of Defense owned almost everything, including most of the colony’s real estate. There was accommodation for servicemen, and separate officers’ messes and swimming clubs for the navy, army and air force; there were special areas for their bands to practice and wharves kept in reserve just in case a big submarine came in.
The 20,000 Gibraltarians were squashed into a third of the colony’s already tiny extent. “We have an area called the Alameda Estate—you can just about see it from here,” said Montado, taking me to a window and pointing south across the town. “That’s six or seven blocks, the best public housing Gibraltar ever had, housing 4,500 people. It’s comfortable and good. A bit further up the Rock there’s an area called the Mount, and in surface area it’s the same as the Alameda Estate, and that housed just the admiral and his wife. I said, ‘Look, you can’t expect us to take this knock, diversify our economy, if we can’t even build a bloody office block—we don’t have the space for it.’”
The colony’s government, led from 1988 by a combative union rep called Joe Bossano who had learned his negotiating tactics in east London industrial disputes, fought hard to gain good redundancy terms from the British government for local workers and worked to turn Gibraltar into a more commercially orientated place. Land was reclaimed from the sea, extending the area of the town, and more houses and offices built. People studying in Britain at the time remember how every time they came home, it was as if the colony had gotten bigger.
Bossano wasn’t in Gibraltar when I visited, but having heard I wanted to talk to him, he called me one Sunday evening and we chatted for a couple of hours. He led the opposition party before becoming first minister, and the prospect of a committed socialist taking charge of such a strategically significant outpost had alarmed American officials. They had invited him to visit the United States, all expenses paid, the year before the election, in an attempt to persuade him of the virtues of capitalism. “I was very impressed by their candor, their transparency and their honesty, in telling me what they were up to. They wanted me to come over and brainwash me, so I went over,” Bossano said. It was from both sides’ point of view an extremely successful trip. The rabble rouser met a series of American capitalists and came away transformed.
“I became very left wing from being in West Ham, and then I learned the peculiar aspects of capitalism from having face-to-face meetings with top guys in the United States,” he said. “It was incredible. It was almost an electrical thing, as if there were sparks coming out—you could see the energy of the guys. It was almost visual.”
On his return, and after his elevation to the top job, he brought in a US company to create better phone links with the rest of the world and unleashed the power of private capital, mainly by doing nothing to stop it. “We didn’t bend the rules; we just made them more flexible, so we could adapt them to the needs of the customer,” Bossano said.
Notoriously, he did not stop people who had received generous redundancy payouts from investing the money in speedboats with which they could revive Gibraltar’s ancestral trade of smuggling. If a Gibraltarian filled up his boat with cigarettes and zipped over to Spain he could clear £5,000 in a few minutes, more than his parents would have made in a month at the old dockyard. And, soon enough, hundreds of people were doing just that. By the early 1990s Gibraltar was importing enough cigarettes for every inhabitant of the Rock to be smoking seven packets a day, most of which went straight to Spain. That earned some £16 million in annual revenue for Bossano’s government, around a fifth of its total earnings, as well as vast profits for the criminal gangs that controlled the trade. The smuggling in return cost the Spanish government hundreds of millions of pesetas in lost duties. For years Bossano resisted demands that he shut it down, only doing so when the government in London threatened to impose direct control on the colony.
“The reality is we live on a lump of limestone at the entrance to the Mediterranean with no food and no water. We have to earn a living in ways that are perhaps not the best things to be doing in life,” said Bossano. (This sounded fine when he said it, but looks awful written down; he really is one of the most remarkably charming people I’ve ever spoken to.) “I am not saying that, if I had lots of different things to choose from, that I would develop an economy that depended on military activities, or an economy that depends on selling cheap cigarettes and cheap alcohol. Regrettably, the reality of it is that, if we weren’t doing any of those things, in a world that depended on a normal relationship between human life and nature Gibraltar would survive with only half a dozen people.”
Fortunately, with the border open, some of the Brits who holidayed or lived in southern Spain were crossing over to visit the old colony and to enjoy the familiar pleasures of a pint of bitter or a newspaper-wrapped parcel of fish and chips. That brought a bit more money into the economy, which helped the banks, and it helped the tax havenry, because Brits would use Gibraltarian companies to invest in Spanish real estate, and kept their money in Gibraltarian banks. More importantly, however, it also brought in customers for a local businessman who would turn out to be the one to find Gibraltar’s specific niche in the butlering business—a man called Freddie Ballester. His impact on the world has been vast, and is growing vaster all the time, but is almost entirely unrecognized. Before I visited Gibraltar I had never heard of him, but he is the colony’s equivalent of Michael Riegels.
Ballester is short and stocky, with white hair and a broad smile. We met in a coffee shop on the ground floor of one of the many office blocks built on the land that Bossano’s government reclaimed from the sea, and our conversation was regularly interrupted by greetings; he appeared to know everyone who walked by. Born after the Second World War, he was working in a hotel when he got talking to a British bookmaker who had come to Gibraltar to look into buying a local chain of three betting shops called Rock Turf Accountants. The visitor seems to have been impressed by the young Ballester’s energy and suggested that he work for him. Ballester was due to go to London on honeymoon, so he visited the bookie’s offices while he was there and liked what he saw.
“They sent a general manager out, and he trained me then left eleven months down the road. I kept on running the business, which I did from 1974,” Ballester said. With the frontier closed, his clients were mainly British squaddies posted to the Rock. They came in to bet on British events, particularly football, as well as horse and dog racing. “It was what it was. There was nothing better, you know.”
Running a bookmaker’s at the time wasn’t a very demanding job, once you understood the mathematics of it, and his career could have continued in this manner indefinitely, had the border not opened in the 1980s and his clients begun to change. British expats who lived on the Costa del Sol, which is just along the Mediterranean coast from Gibraltar, would regularly drive down to the colony to experience a taste of home. While their wives went shopping, the men would come into the betting shop and have a flutter. “I got chatting to them and they said, ‘We can’t come to Gibraltar every day, but if we deposited money with you, we could have a bet.’ They would leave, say, fifty quid and would phone up. Up to that amount, win or lose, they would settle up.”
This was all very well, but it could have been better. Standing in the way of expanding his business was the law. At the time there was a tax on all bets made in British betting shops that came to around 7.5 percent, but bets placed at racecourses were treated differently and only had to pay 4 percent. So Brits in Spain were phoning up racecourses in the UK and placing bets with bookies there. This undercut the service Ballester was able to offer because his customers had to pay the higher rate of tax.
Gibraltar is a small place where not only does everyone know everyone, but everyone also tends to bump into everyone just walking down the street. That made it easy for Ballester to speak to the government official in charge of taxes, a Brit called Brian Traynor. “I explained about the on-track tax, the betting shop tax, and I said, ‘We don’t stand much of a chance, but I’ve noticed that since the frontier has opened fully, we’re getting more trade,’” he explained. “I made him a proposition: ‘Why don’t you allow us to bet at 1 percent tax, and then we’d get business.’”
And in April 1987 Traynor rose to his feet in the colony’s parliament to present the Financial Ordinance, an annual piece of legislation that laid out how Gibraltar’s revenue would be raised for the coming year. He ran through the state of the economy (a bit better than forecast), the trade deficit (worrying), tourism (encouraging) and the level of bank deposits (hopeful, though nowhere near those of Jersey or Guernsey), before getting on to tax and duty changes. It’s funny reading it now, being aware of how significant Ballester’s proposal was to become, to see how many things Traynor clearly considered to be more important than betting duty at the time. First, Traynor talked about cars, which would be taxed slightly differently to how they had been, and then he made alterations to the tax-free income allowance and proposed a review of inheritance tax. Then finally, after announcing a change to the fee that passengers on ships paid on arrival in Gibraltar (it rose from thirty to fifty pence), came the reform Ballester had suggested.
“As a measure to encourage non-residents, mainly British expatriates, to place bets through Gibraltar rather than London, a concessionary rate of gaming tax will be introduced,” he said. “This will be applicable to telephone bets on credit only, and there will be no public access to the premises either by Gibraltar residents or anyone else.”
Ballester had gotten what he wanted. Expats placing bets with him by telephone would get a much lower rate of tax—just 1 percent—than they could get by calling an on-course bookie in Britain, and that made all the difference. He applied for an offshore license, received it in 1989, opened a second floor at the betting shop on Casemates Square, put in more phone lines and waited for the calls to come in. “I employed additional staff to work in the betting shops, and two of the more experienced girls I brought up to the phones to work with me. We started getting accounts from Spain, Portugal, the UK, honest to God, even Australia,” he recalled, laughing. “It worked. On the offshore, we were taking in more money than in the betting shops. When some of the big boys, big punters, found out in the UK, they were phoning us up at the 1 percent, because over there they still had to pay 4 percent at the track.”
Not only was Gibraltar British, but Ballester was too. The company he worked for was British, its owners—Mr. and Mrs. Coomes—were British, the odds that he quoted in his shop were set in Britain and quoted on events that took place in Britain. He had to check any particularly large bets with his boss in London before agreeing to them, and the clients making the bets were overwhelmingly British too. Yet, by the magic of Gibraltarian autonomy, he could outcompete UK rivals by offering a lower rate of tax.
For a few short years he made them a fortune, but Mr. and Mrs. Coomes do not appear to have appreciated it. In 1994, on the instructions of his employers, Ballester closed down Rock Turf Accountants’ offshore betting service and went back to his traditional focus on face-to-face customers. But, thanks to his suggestion, the law had been changed, a seed had been planted, and it would grow into something genuinely huge. “I feel like it’s my own contribution to the success story of Gibraltar, in my own small way, without wanting any medals or MBE or OBE,” Ballester said.
Gibraltar enabled the gambling industry to escape the restrictions the state had put on it, rather as Jeeves helped one of Bertie Wooster’s friends take bets at the racecourse when he’d fallen on hard times. Jeeves’s plan didn’t work out very well for P. G. Wodehouse’s fictional ninth Earl of Rowcester, who had to flee for his life, pursued by an outraged customer, but in real life things went swimmingly—for Gibraltar, whose clients did spectacularly well out of the scheme.
To understand how Ballester’s idea changed first Britain and then an increasingly large part of the world, we need to understand how gambling worked in Britain at the time. Betting shops were legal, and had been since 1961, following a peculiar and hypocritical period when cash betting was illegal but betting over the phone and at racecourses were both considered fine. Since this was a transparent and unfair attempt to stop working-class people from gambling while exempting anyone who could afford a telephone or to travel, it had been widely ignored. Illegal betting shops were common, and the police largely tolerated them. The 1961 legislation was just an acceptance of reality: betting was too deeply embedded in working-class communities to be eradicated, and the government might as well earn some tax revenue out of it and try to keep the cash out of the hands of organized crime.
The government tolerated betting shops but did not encourage them. Bookies were not allowed to advertise, were not allowed to sell drinks or provide seats, could not show sporting events on television and could only open in a neighborhood if they were able to prove there was already a demand for their services. They were strange soul-less places, dominated by large blackboards displaying the latest odds. A radio feed announced the results of races, and their windows were painted over to stop anyone seeing in from outside.
But betting retained its central place in working-class culture. Unlike in the United States, where gambling on sports was illegal almost everywhere but casinos-dominated places like Las Vegas or Atlantic City, British gamblers disliked games of chance. They wanted to stake their money on a horse or a dog, where there was at least a theoretical chance that they knew more than the bookie and could execute a coup. The house might usually come out on top, but this was still a contest of wits in which the bookmaker was taking a real risk, unlike in roulette, which by design—the 0 being neither red nor black, thus giving the casino every thirty-seventh spin—is rigged to favor the house.
If anything was resented, it was the heavy taxes. On top of standard business taxes, every gambler had to contribute a fixed percentage of every bet to the government, plus an additional levy to support the horse-racing industry. By the 1990s the combined duty and levy was subtracting 9 percent of every bet before it was even made.
A second issue was that by the 1990s the industry was dominated by a handful of very large companies. Because the industry as a whole could not expand thanks to the heavy taxes and the restrictions on opening new shops, the only ways for companies to expand their profits were to take over smaller rivals and cut costs. An oligopoly had developed, with a handful of household names—William Hill, Ladbrokes, Coral—overwhelmingly dominant. In the years of illegal gambling a bookmaker was a sole trader or a small businessman, part of the same community as his gamblers. Legalization, however, had separated the gamblers from the industry, which saw its customers solely as a source of profit. A neighborhood bookmaker might once have been careful to ensure his customers gambled only what they could spare, rather than their whole weekly pay, but a multinational corporation wasn’t bothered.
It was a comfortable existence for the bookmakers—they made steady profits from their customers, they obeyed the regulations, and everything was predictable—but there was change in the air. The government created the National Lottery in 1994, which could advertise. Its popularity vastly increased the amount of money spent on games of chance, and as communications improved and the world opened up, there was also the possibility of seeing if Freddie Ballester’s idea of relocating to Gibraltar might not boost profits a little. Ladbrokes was the first big bookmaker to dip a toe into offshore waters to take advantage of the lower taxes in the colony, although it only solicited bets from non-British clients, so it made no difference to the UK situation. But then came Victor Chandler, who was a very different proposition indeed.
Chandler is a caricature of a successful bookmaker: relaxed and tanned, he speaks with a slightly cockneyfied drawl, has a sideways smile and a glint in his eye. He’s a master of the killer anecdote, delivered deadpan. He was gambling aristocracy, going back to his grandfather, who left a dog track to his uncle and a bookmaker’s to his father. When his father died young, Chandler built the family business into a boutique operation favored by wealthy high-spenders who liked to bet whatever they liked on whatever they liked at any time.
“I’ve always thought that the best sort of client is someone who stays with me for a lifetime. That means someone who can treat gambling as any other entertainment, whether it’s mistresses, wives,” he said, with a flicker of a smile in an interview on his YouTube channel. “As the economy changed in the 80s, the City boomed, and businesses boomed generally, and there was a huge influx of foreigners into the UK. My business changed, and we saw high rollers for the first time of any real size … I had one Arab that was having fifty or a hundred thousand on at the races.”
Unlike the big corporations, and despite his lineage in the industry, he was still an outsider, seeking to build up a position in a very established market. That meant he either had to slog away against big companies with deep pockets and more outlets than him or else come up with something new they hadn’t thought of. The moment of inspiration came around the start of the 1994 World Cup, which was held in the United States but watched all over the world. He tells the story, sitting back in an armchair, one knee up, wearing an expensive-looking suit and holding a large cigar.
He had a phone call from someone who wanted to deposit a large amount of cash with him on behalf of a group of Far Eastern gamblers. They wanted to place their bets at a racecourse so he could give them the lower tax rate, even though they would be betting on football rather than horse races.“He left £800,000 in cash, and took 200 with him to Newbury,” Chandler says. “About an hour after he left, forty minutes, the police raided our office with guns, took everyone outside, questioned everyone and confiscated the money. Apparently the bank he’d drawn the money out of thought he was going into a drug deal or something like that. He was stopped on the motorway by a roadblock. All of this was related to me on the phone, so I headed back to the office to have a look at the 800,000 in cash, which was a very rare sight, especially in those days.”
It makes a great anecdote, but it was bad for business, not least because he missed out on a day taking bets while sorting out the mess. Wouldn’t it be better for all concerned if low-tax betting could be arranged without having to go to a racecourse at all, and without needing to transfer the quantity of physical cash that makes the Met come after you with guns? He looked into jurisdictions where he could legally take tax-free bets offshore and then heard about Freddie Ballester’s innovation. “I was lucky enough to be informed that there was a license for sale in Gibraltar, the casino license. The chap had sold the casino at the time, but he’d retained the license for bookmaking,” Chandler explained. “I came over and did a deal in a day with him, and bought the license—0001—which had to be printed out on the minister of finance’s daughter’s computer. Gibraltar’s government office at the time didn’t have computers.”
He had an office up and running—six landline telephones and a dozen mobiles, plus employees who spoke the languages required to answer them—in time for the 1996 European football championships, and took bets from clients in Hong Kong and Singapore. He was still running his British business through his UK company, however. All British bookmakers had voluntarily agreed not to take bets offshore, which may in fact be why Ballester had to close down his offshore operation. They were prepared to deprive foreign governments of tax revenue by basing themselves in Gibraltar, but not to undermine the British Treasury.
It wasn’t until 1999 that the decisive change happened. Chandler was apparently in the bath while his wife Carole read him snippets from the Daily Mail. One article said the Irish government had cut its betting duty from 10 to 5 percent, which was now lower than the rate in the UK. This intrigued her. If Irish bookmakers could take British bets, which they could, why couldn’t he do the same from Gibraltar? That was the light-bulb moment and the end of the gentlemen’s agreement. “I went to see a QC a few days later, and it all went from there,” Chandler says. “We decided to move the whole UK business to Gibraltar.”
The significance of what he had done was immediately apparent. The Racing Post, the horse racing industry’s most influential publication, splashed with the headline REVOLUTION, and other journalists flocked to write about his coup. In one interview he predicted he’d gain 10,000 clients by the end of the year, and these would be the most profitable ones, those who placed the biggest bets. In another paper he anticipated clearing a billion pounds within six months. His competitors felt they had no choice but to follow. Within months, Coral, Ladbrokes and William Hill had all moved their telephone and nascent internet operations offshore too.
This all came as quite a shock to the Gibraltarian government, which had not intended to dive so wholeheartedly into the butlering business. But local politicians were delighted. They had tried to keep the shipyards going using a succession of private operators, but they had failed one after another. Doing for British bookmakers what Jeeves did for the ninth Earl of Rowcester and helping them run their operations more profitably helped keep the lights on. Within months Chandler was employing more Gibraltarians than what was left of the shipyards. A rival bookmaker had to buy an old hotel just to find somewhere to put its employees. Gibraltar had finally found its niche.
“What serious punter—the average bet in Gibraltar earlier this year was £2,500 from Far East clients—can fail to be attracted by a 3 percent deduction, or service charge, as opposed to the usual deduction of 9 percent in the United Kingdom?” asked the Earl of Huntingdon, formerly the trainer of the Queen’s own racehorses, in a debate in the House of Lords that July.
At the time the UK government was earning some £500 million a year from taxes on the gambling industry and could ill afford to lose the income, so it promised urgent action. Initially, they tried to kill off the fledging offshore industry with a ban on advertising, but unsurprisingly that didn’t have much of an effect. If you’re the kind of client who can drop a few thousand pounds on a bet, you’re also the kind of person who doesn’t need an advert to know who to bet with. As ministers watched the revenue drain out of the government’s accounts and into those of Victor Chandler and his peers, they seized on an idea long favored by John Brown, chairman of Britain’s biggest bookmaking company William Hill, but one which officials had previously refused to engage with. This was to radically reform the way gambling was treated by the government, to stop bracketing it with harmful practices like smoking and drinking and treat it like any other leisure activity.
In the past pressure to do this had seemed like the kind of special pleading that any industry makes when trying to lower its tax burden, but with Butler Gibraltar having found a way to give the bookmakers leverage with the UK government, the demand for reform had more force. If the government didn’t do what the bookmakers wanted, they’d leave the UK, and the Treasury would be left with nothing. The government capitulated, and that’s how gambling was transformed, first in Britain and then everywhere. As with the Eurodollar market, which changed all dollars into offshore dollars, the industry’s aim was to make betting everywhere offshore betting and, as with the dollar market, for Britain to dominate. In fact, commentators at the time made a direct comparison between the two.
“Zero tax, claim the bookies, would double betting turnover. With no need to set up offshore, jobs would relocate to Britain, perhaps allowing London to capture the world’s betting market, just as it has for foreign exchange. The Chancellor would gain more in income and corporation tax than he lost in betting tax,” said an article in the Daily Telegraph, a paper which was notably sympathetic to the bookmakers’ arguments.
The actual change sounds minor—the government stopped taxing every bet that was made as an individual transaction and instead taxed bookmakers’ profits as an aggregate total—but the effects were profound. Instead of taxing turnover, the government taxed profit. Previously, a bet was taxed as if it was equivalent to an alcoholic drink or a packet of cigarettes. These goods are considered harmful, so special duties are levied on them at the point of sale to limit consumption. If the taxes were levied on the profits of brewers, or tobacco companies, the cost of their products would fall, and they could sell far more booze and cigarettes.
The reform essentially meant that the British government—concerned by the potential loss of revenue and perhaps seeking to make its concern look more principled—stopped looking at gambling as a public health issue and instead treated it like a leisure activity. If you’ve ever wondered why it suddenly became so much easier to gamble in the UK in the early 2000s and marveled at the incredible profusion of adverts for gambling companies on British television, you have Gibraltar to thank.
To be fair to the bookmakers and to Gibraltar, they were pushing at an open door. The “third way” politics of the Tony Blair and Bill Clinton years loved to reject what it saw as the pious moralizing of old-style politics and demonstratively treat citizens as responsible consumers. If multinational betting companies just happened to massively increase their profits in the process—or banks just happened to massively expand risky lending as a result of the parallel move toward the “light touch regulation” of the financial sector—then that was all for the good.
A member of Parliament quoted John Brown, the bookie who came up with the idea, in a debate in the House of Commons without any suggestion that he and his company might have an interest in arguing for a lower tax rate. “This is great news for the British punter, for UK plc and the Treasury,” Brown was quoted as saying. “The punter wins because we will make it possible to offer deduction-free betting for the first time since betting shops were introduced. The Treasury wins because we will be able to repatriate our offshore operations, enabling the taxman to share in all the profits we make on our international business. UK plc wins because we have a real opportunity to be the world leaders in online betting.” Neither the MP nor indeed John Brown felt the need to mention that it was also great news for the gambling industry.
Further reforms followed, which allowed bookies to advertise and to open shops wherever they wanted without having to prove that demand already existed. Regulation was transferred from the Home Office to the Department for Culture, Media and Sport—from the police to the so-called ministry of fun. “In the future, well-informed adults will have greater freedom and choice to spend their leisure money on gambling if they want to. The law will, for the first time, treat them like grown-ups,” said government minister Tessa Jowell in 2003. “Outdated restrictions … will be removed and the industry will be able to develop innovative new products.”
The big bookmakers moved their operations back to Britain, well satisfied with the new settlement, but it was a strange kind of revolution. There had been no public clamor for gambling to be reformed; quite the reverse. Opinion polls showed ordinary Britons were very happy with the situation as it was. The pressure came from officials worried about losing revenue and gambling companies wanting more freedom and less tax. Without the intervention of Gibraltar, which allowed bookmakers the option of not paying tax, no one would have given the companies’ argument five minutes of their time. Thanks to Gibraltar’s intervention and the leverage it gave the big companies, the issue became urgent. It was skilled butlering to win concessions by walking out like this. In fact, Jeeves used the same tactic in Thank You, Jeeves, leaving Wooster’s service and only agreeing to return when his employer stopped playing the banjolele.
Even so, looking back, it is astonishing that government ministers didn’t stop and at least try to assess what expanded access to cheaper betting might mean for the more vulnerable members of society. They were not dealing—as Jeeves had been—with an irritating musical instrument after all, but with an extremely addictive product capable of causing huge harm. Instead, these addicts were dubbed “problem gamblers,” thus making sure all the blame for their addiction was placed on them, rather than the problem companies selling them the addictive product. Such was the mood of the times. “We do not think the issue of problem gambling should influence the nature of gambling regulation,” said the government’s Better Regulation Task Force. “Government regulation should not have the effect of preventing mature consumers from exercising their right to spend their money as they see fit. We would urge you to consider self-regulation, such as a code of practice endorsed by the industry.”
I am not personally very interested in gambling, and it is possible that my lack of interest has blinded me to something important, but it seems obvious to me that when businesses sell something addictive, whether that’s drink, cigarettes, drugs or gambling products, it is not wise to expect them to do the right thing by their clients. That is asking them to turn away free money, and as a rule companies struggle to do that. Even gambling insiders were alarmed by the potential impact of what the reforms to their industry might unleash.
“We were astonished, to be honest, it went far beyond what we had hoped for,” said one bookmaker quoted anonymously in the academic Rebecca Cassidy’s Vicious Games, a study of the gambling industry based on years of research. He had gone to the pub with two friends for a celebration that turned into something more akin to a wake. “We were three old-timers sitting there on what should have been the best or the most profitable or promising change to our industry for a generation and two of us were singing from the old Methodist hymn sheet! We’d pushed at the door and the whole house fell over. That’s how it felt.”
Bookmakers no longer had to worry about the state taking a stake out of every bet, so they could offer much more attractive odds and encourage higher-frequency betting. They did this by bringing in machines—fixed-odds betting terminals—which gave gamblers instant and repetitive gratification. FOBTs are normally a version of roulette, with the outcome decided by a random-number generator, and bookies reported how clusters of punters would stand behind the gambler, watching him play. There were horse races being shown on televisions all around the shop, but the FOBTs were so addictive that staring at them was preferable to watching live racing. As with casino roulette, the machines are mathematically rigged in favor of the house. With horses, dogs or any other live sport there is at least the possibility of outwitting the bookmaker, thanks to your superior knowledge of form; with FOBTs, if you play for long enough, and the machines are designed to make sure you do, the bookie literally always wins. They are a one-way bet. By 2007 there were 30,000 of them in Britain’s betting shops.
“FOBTs? Money hoovers. They literally suck up any cash that is lying about the place. I think of us as like a massive cleaner,” said one senior manager at a British bookmaker interviewed anonymously by Rebecca Cassidy. “In we go to a neighborhood. Any spare cash, mate? In this slot here! That’s it, just shove it all in there. Oh, and enjoy a free cup of coffee while you’re at it, you fucking mug.”
Inevitably, the big companies put their betting shops in places where punters could be relied upon to lose as much money as possible. This was predation on the most vulnerable members of society by huge corporations armed with ever more finely honed addictive machines. There was a direct correlation between the concentration of betting shops and the level of deprivation in a district. Within a decade, the machines were earning bookies almost £2 billion a year in profits. On average, that’s a loss of almost £100 from each family in Britain, and the money was coming overwhelmingly from those families least able to afford to lose it. “I’m a bookie through and through, cut me and I bleed bookmaking,” said Stan, another one of Cassidy’s interviewees, who had previously run an independent network of bookmakers in southeast London but become disgusted by the way the industry had changed. “I’ve retired because of the machines. I’ve sold up. I’m off to Spain. You’ve got to earn a living, but you need to look in the mirror when you shave or else you’ll cut your throat.”
But what did this mean for Gibraltar? If it had become so easy for the big betting companies to make huge profits while operating in the UK, did this mean the little colony had to go back to scratching a living? Not exactly, because the butler had a new idea.
The reforms had been intended to unleash the British gambling industry. The theory was that places like Europe and the United States would eventually catch up with the British advance, but by this point the big UK bookmakers would be so entrenched they would be the Google and Amazon of gambling. At first, this looked like a good bet by the government in London—the big bookmakers moved their operations back to the UK and paid their taxes into the British Treasury—but the theory had a flaw: if you base your strategy on under-regulating and under-taxing your rivals, there is always the possibility that someone will do the same to you.
A good butler does not stop trying to help his client just because his client has secured better treatment; instead, he looks for further ways to improve the situation.
When Freddie Ballester closed down his offshore operations in 1994, he still thought the idea of offshore gambling was a good one, so he took out his own license and kept renewing it year after year. And that proved to be a wise investment because, even before the British companies went home, other gambling companies had moved in. In 2000 he teamed up with a company called sportsbook.com, which wanted a permit allowing it to offer online betting from the Rock. In 2003 he moved to a new company, Party Gaming, which also wanted to open up in Gibraltar and offer gambling over the internet. Just when the government in London was congratulating itself, Butler Gibraltar was planning a whole new strategy for its client.
“The real explosion came in 2002, 2003, not because we went looking for it, but because the likes of 888 and Party Gaming were looking for a European base from which to effect a listing in London,” said Peter Montegriffo, who was a minister in the Gibraltar government from 1996 to 2000, the period when the first online companies opened their offices. “Since 2002–3, it has been absolutely dramatic … If you look at the economic pie, it now represents in employment terms one fifth or even one quarter, but not just that, it also brought in a type of skill and a profile of individual, many of them young of course, who really provided a great boost to the human capital of the place.”
Butlering has totally transformed Gibraltar, with the business of helping bookmakers avoid other countries’ regulations and taxes proving profitable and enduring. By 2003, the UK Ministry of Defense contributed just 4 percent of the colony’s economy, which meant Gibraltar no longer worried so much about upsetting people in London. The Rock’s online companies were selling betting products into Britain, tax-free, while Britain’s world-leading gambling companies, weighed down by the costs incurred by any established business, were not the Amazon or Google of gambling after all. On the contrary, they suddenly faced the prospect of being Blockbuster Video to Gibraltar’s Netflix.
They had promised the UK government to come back onshore if it did what they asked, but that promise didn’t last out the decade. Jeeves whispered to them that moving to Gibraltar had worked for them in the past, so why not do it again? In August 2009 William Hill moved its online business to Gibraltar, and was followed within a week by Ladbrokes. Betfair, one of the new generation of “betting exchanges,” which provides a platform for people to bet with each other, followed in 2011, expecting to save £20 million from the switch, as did pretty much all the others. “We should not criticize them for doing so. They have a duty to their shareholders,” said Philip Davies, an MP from the then opposition Conservative Party in 2009, shortly after William Hill and Ladbrokes broke their promises to stay in the UK. “It has become totally unsustainable for them to keep their business here. For every £100 profit they make online, they will pay £1 or £2 in tax offshore, whereas they would pay £36 in the UK … Clearly, it is an absolute no-brainer for them.”
Davies, a former bookmaker himself who was later forced to apologize for failing to declare gifts he received from Ladbrokes, said the government should repeat the trick it tried after Chandler moved to Gibraltar and cut taxes again in the hope it would lure the bookmakers back once more. The issue was urgent—according to one estimate, the government was losing £300 million a year in taxes by 2013—but his argument was fallacious. However much the UK cut its taxes and regulations, it would never be able to match Gibraltar. The skilled butler can find advantages anywhere, even in the gaps between different bits of Britain. “Gambling operators have made hay exploiting the laissez-faire regime that has existed hitherto, while successive governments and regulators have failed to keep up with the revolution,” concluded a report from a House of Lords committee set up to look at gambling in 2020.
By 2017 gambling companies were investing the money they saved on taxes on expanding their businesses, spending £1.5 billion on advertising. That explains why it’s hard to turn on a commercial television channel without being encouraged to place a bet, and the money poured in. In the five years up to 2019 the amount of money gambled online in the UK increased from an annual total of £13.4 billion, which is already more than £200 for every person in the country, to a scarcely imaginable £121.3 billion. That’s almost £2,000 for every single person in the UK and, since not a penny of it was staked by me, at least one person is getting a double share. Over the same period, the bookies’ online profits rose from £1.5 billion to £5.5 billion, mostly from the casino games that proved so addictive on FOBTs. That means the companies now make a greater profit online than they do from their betting shops, which have been earning less and less money over the last five years. It is so easy to bet from your smartphone, that why would you bother walking down the road to a betting shop? Somewhere between 40 and 60 percent of all those online bets end up in Gibraltar.
“I just think people are weak,” an account manager at a Gibraltar-based gambling company told Cassidy. “If you get addicted it’s because you are weak, you have no willpower. Maybe I’m harsh. I see everything in black and white. I am addicted to cars because I want to be.”
But that is not what is happening. Bookmakers have learned all the tricks of what Shoshana Zuboff calls surveillance capitalism, the system invented in Silicon Valley that monetizes customers’ data to get ever better at predicting what they will want and then selling it to them. The computer learns your habits and how to indulge you to keep you playing: notifications come at the right time to encourage you to have a bet at the weekend. If you lose regularly on elaborate long-odds accumulators—what bookies used to call mug’s bets—you are rewarded with “free cash,” to keep playing. If you make careful, selective bets that earn you the kind of steady profits made by a clever gambler in the old days, the computer automatically limits your stakes to reduce the company’s losses. This is an industry that knows ever more about how to get people hooked on its products, while discarding the kind of punters who eat the worm off the hook without getting snagged. “The people most at risk are the most profitable to the industry; the greater the problem, the bigger the profit,” said the House of Lords committee in its 2020 report.
Official studies suggest that somewhere between 250,000 and 460,000 people are—to use the term favored by the UK government—“problem gamblers.” That is almost certainly more than are addicted to opiates and crack cocaine put together, but it underestimates the problem, since for every gambling addict a whole circle of relatives and friends are affected too. Some 55,000 children are already addicted to gambling, and away from the old male-dominated world of the betting shop, women gamble online almost as enthusiastically as men. Surveys of the homeless show they are disproportionately likely to be addicted to gambling, as are ethnic minorities and people with the least to lose. “Those in the lowest income quintile were spending an average of 12 to 14 percent of their net income, compared to only 2 percent or less in the highest quintile,” the House of Lords study said.
The Gambling Commission, created during those sweeping early 2000s reforms, argued in 2018 that the government needed to stop treating gambling as part of the entertainment business and see it as a health crisis. “These are not small numbers. They suggest a significant public health issue, which has received remarkably little attention relative to other population level concerns,” it said. This warning came at least a decade too late for the parents who set up Gambling with Lives, a group that tries to raise awareness of the risk of suicide among people who have lost everything through gambling, and which estimates that 650 suicides a year are linked to gambling addiction. “Our children had all struggled with their gambling addiction for years,” says the group’s website, which features the portraits and details of twelve heartbreakingly young men and one young woman who all killed themselves after failing to escape their addiction. “Often being clear for many months at a time … but always dragged back in by an industry offering ‘free bets’ and other give-aways. They all felt that they could never break free.”
One estimate of the financial cost of gambling addiction to Britain puts it at between £260 million and £1.2 billion, which is a spread so wide that it demonstrates clearly how much additional research is needed before we know what exactly is going on. The government meanwhile earns some £3 billion from the industry, around 0.4 percent of its total tax take. It is remarkable how when Parliament debates gambling, MPs are more concerned about the interests of racehorse owners than of gambling addicts. In 2017 a Scottish member of Parliament suggested in the House of Commons that a special levy should be imposed on the gambling industry to raise money to help addicts, without apparently knowing that such a levy was already made possible by the 2005 Gambling Act. It was just never actually set up.
Gambling companies regularly issue press releases to highlight how much money they donate to charities devoted to reducing the harm they cause, but the total is just £8 million a year, compared to £97 million provided to support racehorses. That means the industry provides owners with £7,000 a year per horse. Meanwhile it spends as little as £19 annually per gambling addict, while making almost ten times that much in profit, every second.
Bookmakers still like to evoke traditions of working-class Englishness (“You may as well have surrendered to the Germans all them years ago as tell a man he can’t have a bet,” said one bookie at a meeting attended by Cassidy in 2013), but they are now about as rooted in local communities as Amazon. In the last couple of years there have been suggestions that a compulsory levy to support addiction services could be imposed, and the biggest companies have suggested they could raise their voluntary contributions. However, whenever they do so, hidden within their statements is an implicit threat, repeated word for word in statement after statement from the Betting and Gaming Council: “We mustn’t drive customers to offshore, black market, illegal operators that don’t have any of our safeguards.” Translation: if you try to impose rules on us, we’ll just leave.
This is not to say that the Gambling Commission has done nothing to rein in Gibraltar-based operators. In 2017 it fined 888 £7.8 million for allowing customers to gamble even though they had asked for their accounts to be blocked, something customers can do to break the cycle of gambling addiction. In June 2019 it fined Gamesys £1.2 million for allowing customers to gamble with stolen money. In October 2019 it fined Petfre £322,000 for money-laundering failures. These may look like significant sums of money, but compared to annual profits measured in the billions, they vanish like single coins fed into a slot machine.
“The online gambling industry is the apotheosis of Big Tech, in terms of its algorithms, its flow of capital, its rootlessness, its addictiveness, its marketing techniques, its ability to permeate into the essential elements of our economic, social and cultural lives,” wrote James Noyes, a former adviser to the deputy leader of the Labor Party and author of a study of the gambling industry, in 2020.
This is the absurdity of talking about the “nanny state,” as though we are back in the cozy world of Milton Friedman talking about automobile sales and safety, instead of a world in which the cash reserves of some companies are now equal to the forex reserves of many major developed economies, where capital is left to roam freely around the world, untethered from any semblance of territory, of productivity, of accountability, of reciprocity of value—if online gambling is not at the heart of the daunting world that we all now face, then what is?
And Britain could have approached this very differently. The United States faced the same difficulties as Britain in the late 1990s, with the birth of offshore operations and punters being tempted by gambling sites based in places like Antigua and the Dominican Republic, plus more casinos opening on sovereign Native American territory and elsewhere. Many of the pioneering operators in Gibraltar predicted that it was just a matter of time before the US government accepted the inevitable and abolished restrictions on gambling; in 1996 the Clinton administration, however, decided to create a special commission to study the issue before deciding what to do about it. “Too often public officials view gambling as a quick and easy way to raise revenues without focusing on gambling’s hidden social, economic and political costs,” Clinton said when he signed the act establishing the commission.
The commission didn’t publish its report for another three years, just in time for British officials to read it before changing their own laws. Although its conclusions are not entirely applicable to the situation in the UK because Americans tended to gamble in casinos rather than on sports, many should have been heeded, not least the direct and obvious comparison between gambling addiction and alcoholism. “Indebtedness tends to increase with legalized gambling, as does youth crime, forgery and credit card theft, domestic violence, child neglect, problem gambling, and alcohol and drug offenses,” the report stated.
It was hard, the authors said, to put a cost on the damage that gambling causes, but politicians needed to recognize that there was a trade-off. If you allowed gambling in order to raise revenue, you were causing damage to people’s lives by doing so and ultimately undermining society. Unlike insurance or other productive financial services, this is a zero sum industry: bookies’ profits are simply gamblers’ losses, and there is no broader societal benefit. The United States resolved not to follow the British example and instead to be far more cautious about opening up its market. In 2009 it showed what it thought of companies that tried to escape its restrictions by fining Party Gaming, the Gibraltar-registered company that employed Ballester for a while, $105 million for taking money from American gamblers in contravention of US law. Party Gaming had been making almost all its revenue from the United States, and its share price fell by two thirds.
By 2019 the gambling industry—or “gaming” as Gibraltarians insist on calling it—employed 3,800 people on the Rock, twice as many as in 2011. It now provides the largest share of corporate and individual taxes, and regulating the industry costs the Gibraltarian government less than a million pounds a year. Gibraltar has outgrown itself: the old sea wall is still in place, built of handsome dressed stone, intended to withstand the ravages of a winter storm. But now the black cannons don’t stare out to sea, but over a lane of traffic directly into the plate-glass windows of a rampart of office blocks. The low-rise old town is almost completely ringed by blocky towers built on what used to be the harbor.
According to the Gibraltarian government’s own figures, the Rock is now the third richest place per head of population in the world, with a gross domestic produce per capita of $111,505, ahead of Luxembourg but behind Monaco and top-ranked Qatar. The government admits the figure is significantly distorted by having so many people enter the colony from Spain to work every day, but it’s still quite an extraordinary development for a place that feared the loss of a Royal Navy shipyard meant bankruptcy. And it goes some way to explaining why Gibraltarians see no need to rein gambling in.
“In Gibraltar today nobody moans about anything—it’s incredible. Everybody’s well off. There may be the odd pocket, but everything’s better than ever, everybody’s got a better house than ever, everybody is employed,” said Joe Garcia, veteran editor of Gibraltarian news magazine Panorama, which he started after training as a draftsman in the dockyard. “We write in the paper about a problem or this and that, and people don’t notice—where’s the problem? Everything is positive, and people seem to be happy. Gibraltar has never had it so good.”
Unlike Nevada, however, where gambling is similarly important to the local economy, in Gibraltar you can’t see it. There is a betting shop on Casemates Square, much as there would be in any town square in the UK, and there is a floating casino, but gambling operates as a financial services industry. Just as the BVI feels divorced from the reality of how its shell companies allow kleptocrats to hide their crimes and wealthy companies to reduce their taxes to nothing, Gibraltar is a world away from the reality of young people spending money they don’t have on online games rigged to ensure they can’t win. And this shouldn’t be surprising. A butler is indistinguishable from any other prosperous-looking man on the street. It is his actions that define him. And so it is with Gibraltar. Its gleaming but anonymous office blocks couldn’t look less relevant to the reality of gambling addiction in Britain’s most deprived neighborhoods.
Joe Bossano, the man who as Gibraltarian premier ordered the reclamation of the land on which the office blocks now stand, is incredibly proud of what he achieved. Gibraltarians have access to subsidized flats, which ensures everyone can afford to get on the housing ladder; young people receive subsidized education at British universities if they want it; there is a hospital, and public amenities, and more. It seems a little strange for an avowed socialist to have made an alliance with online gambling, which is one of the most cutthroat sectors of an already viciously capitalist internet, but he doesn’t see it like that at all.
“If you think of China and President Xi’s concept of socialism with Chinese characteristics, without knowing it, what I was doing in 1988 was socialism with Gibraltarian characteristics,” he said.
And that, to me, is just a witty way of saying that Gibraltar has become wealthy from being a butler to the giant gambling companies. This is just the start too. It wasn’t too long ago that the border between Spain and Gibraltar was closed altogether, but Gibraltarian gambling companies now advertise on the shirts of Spanish football teams and in their stadiums, just like they advertise in the English leagues. These voracious online predators are expanding everywhere the internet reaches and taking advantage—as BVI shell companies did before them—of the inability of developing nations to regulate them. In 2019 the leading medical journal the Lancet referred to this as “the utter evil of an industry that does indeed prey on those facing social peril and financial precarity.” Evil is not a word that medical journals throw around lightly.
And this raises questions about Butler Britain, because if even British people fall victims to this evil, then how does Britain benefit from it? The answer to that is that it doesn’t, or not necessarily anyway.
“In real life,” said Bossano, “you haven’t got the choice of doing everything that is right, and everything that is good, and everything that is best. You have the choice of doing, quite frequently, the least worst that you can get.”
The butler’s client is whoever will pay it the most, and if the client wishes to pay the butler to help inflict evil on his fellow citizens, then he will do that with as much diligence and skill as he will do anything else. Having accepted that he can’t afford morals, because morals are bad for business, he can find clients in the most unlikely places, and help them move truly vast sums of money, as we’re going to find out.