Today at noon, Chancellor of the Exchequer John Healey will address Parliament, unveiling the UK’s autumn budget and determining the future of a retail sector on edge. Speculation has surged over a potential increase in Machine Game Duty (MGD) on Category B gaming machines, a move anticipated to take shape in some form.
In June, the Social Market Foundation think tank called for a drastic hike in MGD from 20% to 40%, suggesting that such a measure could generate between £275 million and £458 million while targeting the heightened risks associated with these machines. This proposal found support from allies of the Prime Minister, including former Prime Minister Gordon Brown, as well as numerous Labour MPs.
Industry responses have been fraught with alarm, particularly from bingo halls and betting shops. The Betting and Gaming Council (BGC) commissioned research claiming that this hike could jeopardize up to 16,000 jobs, leading to the closure of approximately 1,500 betting shops and 34 casinos. Furthermore, it suggested that the Treasury might even experience a decline of £124 million in tax revenue due to the potential closure of these establishments.
Despite these dire warnings and anticipations of more closures—beyond those already planned—The Times reported that Healey has settled on a more modest 5% increase. This adjustment has prompted some to view it as a relief, with The Times framing it as a “boost for racing.” However, concerns linger about the burden this tax rise will impose on the industry.
Greg Knight, CEO of UK retail operator JenningsBet, compared the situation to waiting for flight updates, noting, “It’s a bit like when you’re waiting at an airport and they say you’ve got a three-hour delay, then they revise it to half an hour, and everyone cheers. I certainly don’t think it’s a win. It could be an awful lot worse, but I’m not celebrating because at the end of the day it’s still going to be a big drain on the industry.”
Simon Zinger, managing partner at Calibri Law and advisory Bluestar Partners, echoed Knight's sentiment, calling the 5% hike a relative win, but still ultimately detrimental. He emphasized that any increase in tax would hinder businesses and threaten jobs.
The BGC has stated that any tax increase will endanger jobs and businesses; however, the anticipated damage appears to be less severe than the consequences of a doubling of MGD.
Financial consultant Andrew Bowden shared projections regarding the tax implications of a 5% increase. He estimated that the Treasury would collect about £120 million in tax without any shop closures, falling short of the SMF’s estimates. Conversely, he calculated that each betting shop closure could translate to a loss of approximately £155,000 in combined tax to the government. Bowden concluded that it would take 280 closures to negate any potential gains arising from the tax.
Knight indicated that if the tax were implemented, it might force him to close a handful of stores. The BBC reported that bingo halls and amusement arcades have communicated that a 5% hike could trigger closures, with Buzz Bingo warning that 40% of its clubs could face financial losses.
Zinger predicts an uptick in regulatory fines and enforcement actions as a knock-on effect of the MGD increase, compounded by recent remote gambling tax rises. He warned, “We will see an enforcement spike in about 12-24 months’ time that stems from operators who dial down compliance and RG measures as they try to preserve margins.” This concern includes the potential departure of skilled personnel due to budget cuts.
Conversely, the online sector may find some advantages in this shift, particularly firms operating without retail establishments. Smaller and newer brands like Midnite and Mr. Q might benefit from an increased MGD, hoping that larger competitors feel the heat in a fiercely competitive market. Zinger suggested that despite higher retail taxes, opportunities may arise for agile challengers who can adapt quickly to the evolving regulatory landscape.
While Healey weighs these implications, there are lingering doubts about the validity of the changes being proposed. In a significant setback, a draft version of the SMF's initial June report was mistakenly made public. This draft included internal comments that raised questions about the accuracy of its assertions concerning job losses and the impact on businesses like bingo and amusement arcades.
The SMF continues to advocate for a 40% rate, but senior fellow James Noyes expressed a nonchalant view of the smaller 5% hike, deeming a 25% rate a “reasonable level.”
Knight expressed frustration over the uncertainty surrounding the MGD adjustment, describing the real-world impact on staff as troubling. Varying sentiments echoed across the industry regarding the uncertain regulatory climate. Zinger pointed out that a 5% MGD increase may not enhance the overall growth prospects for the sector long-term, as the government will likely seek more revenue in the future.
Investment in the sector appears stunted by this uncertainty. Genting Casinos COO Paul Willcock noted his eagerness to invest in the UK market, only to be stymied by regulatory instability. Simon Thomas, executive chairman of Hippodrome, emphasized the need for stable conditions for operators to thrive.
Knight reiterated this sentiment, asserting that ambiguity is detrimental for any business. He wishes for assurances from the government that there will be no sudden tax changes in the future, urging for a commitment to stability that could foster a more favorable environment for planning and investment.
