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In Nevil Shute's 1950s novel On The Beach, a handful of noble Australian survivors waited grimly for the cloud of destruction that was heading their way after the Northern Hemisphere was wiped out in a nuclear holocaust.

This scene has been re-enacted over the past few days, but this time as sporting farce. The Australian horseracing authorities believe a mushroom cloud of corruption, detonated in Britain, is heading their way to destroy their sport. In Shute's world, the predominant mood was stiff-upper-lip resignation. This week the Aussies have gone berserk.

Robert Nason, the chief executive of Racing Victoria, has threatened to call off the 2005 Melbourne Cup, Australia's biggest sporting event, as a means of spiting the Poms. Andrew Harding, the chairman of the Australian Racing Board, wants British horses banned from all international races. Both these notions are ludicrous, and British racing's response has, happily, been more robust than that of English cricket when faced with an equally empty threat of a ban over Zimbabwe.

The casus belli can be summed up in one word: Betfair. This is the upstart UK company that dominates the new world of betting exchanges. These enable gamblers, using the internet or phone, to bet not with a bookmaker, but with each other. If you believe a horse, or anything else will win, you can back that proposition directly with someone else who believes it will lose. The exchange acts as facilitator and takes a cut of up to 5 per cent.

Enthusiasts, and I am one believe, this is a liberating force in betting, which increases consumer choice and value. It offers something close to a classical perfect market. There are, however, two legitimate grievances against the exchanges. Both concern the fact that individuals have suddenly acquired the ability to lay horses to lose, not just back them to win.

The first (still unaddressed) is that this allows people to act as tax-dodging unlicensed bookmakers, which is unfair competition. The more urgent point is that this is a recipe for corruption. Anyone inside a racing stable can often be pretty certain a horse will lose (certainty about winning is more problematic), and the exchanges finally offer the chance to earn big money from that certainty.

However, the exchanges are dealing with this. In contrast to betting shops, every transaction on Betfair is traceable and any unexpected market movement can be picked up at once, not just by the company but by its customers. The exchanges have agreed with sporting authorities to provide names and addresses when requested, and have done so. They have nothing to gain and everything to lose by being bent themselves. Yes, there have been teething-trouble scandals, but the means of control is there.

The Aussies will not have it, damning not merely Betfair but the whole of British racing. “Probably the worst level of integrity management of any racing administration anywhere in the world is in the UK,” said Nason. “They are operating in the 15th century.” Well, it is true that some members of the Jockey Club would regard Henry VII as a bit of a young radical, but that's an unsupportable accusation, though not as wild as Harding's quoted remark that Australian racing is “corruption free”.

“That's a ridiculous thing to say,” said Andrew Eddy, racing expert on the Melbourne paper, The Age. “We may limit corruption here but we're certainly not free of it.”

The Australian game is pretty transparent. The racing authorities operate hugely lucrative Tote quasi-monopolies. Betfair threatens those, hence the panic. It's absurd: even in Britain, Betfair has less than 5 per cent of the betting market. And the threats are even dafter. The Melbourne Cup is sponsored by Emirates, owned by the Dubai government, fiefdom of the Maktoum family who dominate British racing.

Eddy thinks the real audience is the re-elected government of John Howard. Betfair now operates in an Australian twilight, betting on their races but not yet handing over information or a levy to the authorities, though both are on offer. Harding and Nason want Betfair made plain illegal.

And, while they're about it, perhaps Australia should outlaw prostitution and alcohol as well. Maybe ban floods and droughts. Look, cobbers, it can't be done. Controlling corruption in racing is mighty hard, whichever hemisphere you are in. You certainly cannot control the internet.

Whatever anyone thinks about the new casino culture, the British government's approach towards betting has been pragmatic and shrewd. Most other major racing countries, such as France and the US, sympathise with the Australians and are still trying to keep a puritanical and monopolistic grip. Their efforts are doomed. Janet Reno, Bill Clinton's attorney-general, warned bookmakers “You cannot hide online and you cannot hide offshore”. But you can, you can. These Australian racing overlords can't be in the 15th century, as I don't suppose they predate Captain Cook. But they sure haven't got the hang of the 21st.

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