The UK government plan to combat offshore gambling operators is likely to start with bookmakers being taxed and licensed by the Gambling Commission. Offshore operators avoiding the betting levy which funds the racing industry has been criticised and reform to fix the broken system has been promised. While the government looks at reform, the betting industry is looking at ways of scrapping the betting levy.

John Penrose, the heritage minister claimed: "We are intending to move as fast as we can towards a system which will fix the problem of offshore betting.

"We plan to move to a system which will switch away from the current organisation which has driven many bookmakers offshore."

In a speech to MPs earlier this week Penrose said the industry should be based at the point of consumption rather than where operators are based.

"It means anybody based anywhere in the world who wants to sell gambling services to any consumer based in the UK will, in future, have to have a Gambling Commission licence."

The Conservative MP Matthew Hancock has called for bookmakers taking bets from British residents to have to be based in the UK to ensure that they contribute to the horse racing industry through the betting levy. "We need a level playing field by ensuring all gambling in the UK pays UK tax and UK levy."

The current system is seeing the prize money quickly falling which is putting jobs at risk.

"The problem is in part because those who make a profit from the sport through the gambling on it have gone offshore to escape contributing to the sport on which they rely."

Penrose supported the ideas: "The levy as it currently stands is broken," he said. "It does not work and people on all sides – whether in the gambling industry or in racing – are pretty united in their criticism of it."

The government is also asking for submissions about a replacement of the 50-year-old levy, which requires betting operators to have over 10 per cent of their profits to sport. Racing has complained that betting operators have been exploiting loopholes to reduce their levy commitments, resulting in a decline in the yield from about £115m three years ago to just less than £60m this season.

The Association of British Bookmakers, representing the William Hill, Ladbrokes, Gala Coral and 130 independent operators, said that from 2014 it would pay for a number of races which formed “the core fixture list”.