The UK Chancellor John Healey announced a 5% rise in the Machine Gaming Duty (MGD) on Wednesday, a decision that some industry figures greeted with cautious relief, noting it was less drastic than the anticipated 40% increase discussed throughout the summer. However, many in the industry have voiced concerns that this tax hike could push customers towards unregulated gambling operators.
Operators and advisors have highlighted that this latest duty is just one addition to a series of recent tax and regulatory changes affecting both retail and online gambling sectors. In last year’s budget, the then-Chancellor Rachel Reeves revealed an increase in the remote gaming duty (RGD) from 21% to 40%, while a new general betting duty for remote betting is set to rise to 25% next year, up from 15%.
Dan Waugh, a partner at the advisory firm Regulus, underlined the negative implications of the tax rise. He remarked, "If your income tax went up by a quarter overnight, you wouldn’t see that as a positive," suggesting that the increase might lead to more venue closures and job losses. Waugh added that the constant change in fiscal policy risks making the UK a less attractive option for potential investors.
Legal experts echoed Waugh's apprehensions. Bethan Lloyd, a partner at Wiggin, emphasized that the industry is already facing significant pressure, stating, “A 5% increase on an industry that has very squashed margins is not ideal.” She raised concerns over horse racing revenues, pointing out that many punters rely on retail betting shops as opposed to online platforms, predicting continued consolidation and cost-cutting in the sector, though she hoped developments in technology and new market entrants could alleviate some issues.
Ismail Vali, president of Gaming Compliance International, delivered a stark warning about the potential for an illegal market surge. He described the MGD increase as part of a "perfect storm," leading consumers towards an expanding illicit gambling market. Vali highlighted alarming data indicating that the unregulated share of online gross gaming revenue in the UK is projected to soar from 0.43% in 2020 to an estimated 9% by the end of 2025, effectively doubling each year from a low base. "We are knocking on the door of 10% illegal black market share," he cautioned.
He pointed out that as legal operators scale back their marketing efforts due to diminishing profitability, consumers are likely to find brands offering better odds and bonuses without verifying their licenses. “Consumers cannot differentiate between this stuff,” Vali noted, expressing concern over the rise of “plug-and-play” offshore sites, which require startup costs as low as £25,000, further promoting unchecked market growth.
The discussion around a potential 40% MGD increase had been fueled by a report from the Social Market Foundation earlier this year. Some industry observers stressed that this figure was never part of official Treasury plans but emphasized that operators are feeling the cumulative burden of rising duties, including the RGD and MGD hikes.
Waugh stated that the industry must find a way to break the cycle of tax increases and regulatory burdens, warning that otherwise it may be heading towards difficult times. Looking into the future, he believes larger, diversified companies like Flutter and Entain are better equipped to manage increased costs, while smaller retailers and operators focused solely on retail face greater risks.
Waugh anticipated further venue closures and job losses but refrained from predicting a wave of mergers driven solely by tax increases. Ismail Vali offered a more dramatic forecast, predicting retail consolidation, operator failures, and a continued shift towards online platforms. He reiterated that the illegal market's unchecked growth can only be mitigated through stronger enforcement and collaboration among regulators, platforms, payment providers, and advertising channels.
Vali also remarked on the broader public policy challenge; while the UK has a well-respected licensing framework, excessively high fiscal and regulatory pressures could push legitimate operators towards losing market share to illicit competitors. He called for a renewed focus on strategies that ensure effective monitoring, enforcement, and optimization of the gambling landscape.
Waugh reflected on potential future challenges, alluding to Healey’s contrasting tone towards the gambling sector compared to banks, which are set to face an added 3% tax on banking surcharges. He noted, "I think the other thing is the sense that actually the government looks down its nose on this industry, and the sense it’s prepared to be vindictive even." Waugh concluded that the industry will likely confront further tax increases in the coming years, signaling concerns about government attitudes towards the sector.
