An increasing number of bookmakers have either moved abroad or set up operations abroad to avoid the 6.75% tax currently levied on all bets.

Firms such as Victor Chandler have been able to offer gamblers tax-free bets with a much lower 3% deduction.

Ladbrokes set up a similar operation in October, with the internet and phone-based operations expected to continue to grow the market in the future.

The UK industry had warned the UK Treasury that it needed to slash the betting tax rate to 3% or face a widespread switch of operations offshore - with the loss of thousands of jobs and millions of pounds of revenue.

But in his pre-Budget report, Mr Brown said he would strengthen the advertising ban on teletext services and other media, and has ruled out "no options" to discourage the offshore operators.

Voluntary code broken

He said he might bring in other measures in the budget in March.

Currently, offshore bookmakers are able to exploit a loophole in the ban on advertising in the UK by promoting "tax-free" offshore betting on teletext and other electronic media.

The UK's bookmakers charge clients a 9% deduction, which includes a general betting duty rate of 6.75% and a 1.25% horse-racing levy.

Despite the offshore move the UK's general betting duty receipts are up by 3.5% in 1999, but the government is concerned this trend will be reverse if more bookmakers move offshore.

The UK racing industry currently employs 50,000 people and the UK betting industry employs another 35,000, while the horse-racing levy of 1.25% raises £52m per year for the industry.