Leaders within the gambling sector are expressing their frustration over reports suggesting that Chancellor John Healey is contemplating an increase in taxes on high-street slot machines as part of his inaugural budget proposal.
The Social Market Foundation, a prominent think tank advocating for a hike in machine games duty (MGD) from 20% to 40%, has estimated that such a move could generate between £275 million and £460 million annually, in addition to the approximately £610 million collected in the previous year.
This proposal is expected to find support from Andy Burnham, a persistent critic of slot machines, who has already taken steps to tighten licensing regulations, making it more challenging for gambling establishments to open new locations.
Fred Done, the billionaire founder of Betfred, is among the industry leaders warning that this tax increase could lead to shop closures, job losses, and ultimately fail to achieve its intended revenue goals, depriving the Treasury of tax income.
However, not all industry figures share this viewpoint. Stewart Kenny, co-founder of Paddy Power and a recent critic of the gambling industry, has accused Done of spreading alarmist narratives.
The debate surrounding the potential tax increase is complex. While bookmakers are often associated with betting on sports, they also derive significant profits from slot machines. A report commissioned by the Betting and Gaming Council from the accounting firm EY suggests that raising the duty to 40% could result in the closure of approximately 1,470 betting shops, nearly a third of the current total of 5,617, leading to around 15,900 job losses and a net tax revenue decline of approximately £120 million. The horse racing sector, which benefits from a levy on bookmakers’ profits, would also be impacted.
Done indicated that he would likely be compelled to close around 495 of his betting shops, nearly half of Betfred’s locations, resulting in the loss of 2,475 jobs and £67 million in tax revenue.
Entain, which owns the Ladbrokes and Coral brands, has informed Burnham that job cuts would be necessary across its network of 2,300 shops if the tax policy is implemented. Other sectors, including casinos and bingo halls, are also at risk. The Rank Group, which operates Mecca Bingo and Grosvenor Casinos, warned that one-third of its venues could shut down, affecting around 2,000 employees.
It is prudent to approach the statements from bookmakers with skepticism. In 2019, Betfred operated about 1,620 shops. Since then, the company has threatened to close nearly 1,000 due to stricter regulations and taxes. Despite many of these policies being enacted, the actual number of closures has only been around 330, partly due to a significant shift toward online gambling.
In a promotional advertisement, Done calls on customers to visit him, not at local betting shops, but on Betfred.com. Meanwhile, the Done family has distributed tens of millions in dividends, including £50 million in 2022 alone.
Bet365, which operates solely online and does not have high-street shops, recently cited an increase in gambling duties from the previous chancellor Rachel Reeves’s budget as a reason for announcing the elimination of approximately 300 jobs at its Stoke-on-Trent headquarters. However, it did not mention that the company had already been ramping up its use of artificial intelligence, leading some employees to believe that government policy is being used as a convenient excuse for corporate downsizing.
A spokesperson for Bet365 stated that the company is responding to a “highly competitive trading environment, along with rising regulatory and tax-related expenses.” Nevertheless, numerous large UK gambling companies, including Betfred, Entain, and Flutter, have all reported job cuts following Reeves’s duty hike. It is difficult to ascertain how much of this workforce reduction might have occurred regardless, given existing economic concerns and structural changes within the industry. However, it is logical to conclude that any further increases in costs, particularly through higher taxes on slot machines, would adversely affect the gambling sector.
Simon Thomas, CEO of the Hippodrome Casino in London, noted that the looming tax increase is already stifling investment. “We have a £6 million rooftop expansion project ready to commence, but with the uncertainty surrounding MGD, we have had to put it on hold,” he remarked, adding that if the MGD rises to 40%, it could lead to a third of bingo halls and casinos closing.
Burnham has already taken measures to restrict the establishment of new gambling venues, expressing particular concern over 24-hour adult gaming centers (AGCs) that feature machines likely to be impacted by the proposed MGD increase. The rise of these so-called “slot farms” is believed to be a key factor prompting his actions.
However, it remains uncertain whether AGCs would suffer from increased taxes. These establishments already operate with significantly lower overhead costs and face less stringent regulations compared to casinos and bingo halls, which have seen minimal growth. Last year, AGCs reported a revenue increase from £528 million to £613 million by adding more machines to larger venues.
Consequently, if taxes on slot machines are raised, AGCs may be better positioned to withstand the financial repercussions. The AGC operator Merkur has already expressed interest in acquiring 132 shops that Betfred has put up for sale, suggesting that it is not overly concerned about potential tax increases. Should other operators follow suit while traditional bookmakers downsize, an increase in MGD could simply result in the replacement of betting shops with 24-hour slot venues.
As Treasury officials deliberate on potential duty increases, they must carefully consider the unintended consequences of such decisions.
