Cuts and closures predicted as UK industry faces yet more tax trouble

The UK gambling industry is licking its wounds after learning that it will be hit with yet another round of tax hikes, as industry analysts predict more doom and gloom for the sector.

Labour Chancellor John Healey announced in his Autumn Budget this week that taxes on gaming machines with stakes over £1 will be increased from 20% to 25% of gross gaming yield.

The rise in Machine Games Duty was in one sense a bullet dodged by the UK industry, with the government widely reported to have been considering rates as high as 40%.

Nevertheless, the industry is dismayed to be facing another increase to its tax burden, a year after it was announced that online gambling rates would rise.

UK trade group the Betting and Gaming Council (BGC) “expressed deep disappointment” at the budget announcement.

From April this year, taxes on remote gaming (aka online casinos and poker) climbed from 21% to 40% and rates for online sports betting are due to rise next April to 25%, from the current 15%.

Combined with other rising costs in the sector and consistently challenging compliance environment, the prospects for one of the world’s largest gambling markets appear uncertain.

Worse before it gets better

Analysts are predicting that the UK sector in general and particularly its so-called Tier 1 operators like Entain, Flutter and Bet 365 are in for a tough ride.

“Bonusing is already on the floor, overrounds are up, content and data costs are going up not down and this is a market without any meaningful growth in a long time and no sign of much in future,” said Alun Bowden, the head of strategic insight and Eiliers & Krejcik.

The nation is set to remain a powerhouse gambling market, he predicted, but warned that layoffs and more consolidation would likely follow the enhanced tax pressure.

“This is not to say the UK is in freefall or a doom loop, it's just that things are probably going to get worse before they get better and possibly won't get better for some Tier 1s.”

Omnishambles

More taxes levied on gaming machines only directly affects physical gambling venues like betting shops, where limited machine numbers are allowed, casinos and slot halls - known as adult gaming centres in the UK.

However, executives say that the omnichannel nature of the UK gambling sector means that new costs in one part of a business inevitably hurt the rest of the company.

They point to the thousands of closures of high street betting shops following the hike to remote gaming taxes as a key example of this.

So as their retail estates get squeezed, departments across the country’s biggest gambling operators will feel the effects.

Cuts coming

The BGC warned that there would be severe consequences for the industry.

Referencing research by EY, it said that as many as 9,000 people could lose their jobs and 1,000 gambling venues could close as a result.

“This is a deeply damaging decision and a blow to the thousands of workers, businesses and communities who depend on Britain’s regulated betting and gaming industry,” said BGC chief executive Grainne Hurst, who said that the chancellor had turned a blind eye to repeated warnings about the potential costs of his tax increase,” said Hurst.

“The Chancellor has chosen a tax rise that will cost British jobs, close businesses and hollow out high streets, while handing an advantage to illegal operators. The Government cannot ignore the consequences of this decision,” she added.

Fellow trade body the Gambling Business Group warned that further incoming hikes to the National Minimum Wage in 2027 will only add to the pressure facing retail gambling premises.

The chief executive of high profile global operator evoke, which owns the William Hill brand and retail estate in the UK, echoed warnings that cost-cutting was on the horizon.

Per Widerström said that the machine tax increase “comes at a time when the industry is already facing significant cost pressures, and risks further job losses and betting shop closures on high streets across the country.”

“Increasing the tax burden again on regulated operators risks driving more people towards the black market, which do not provide the same safeguards and protections,” he said.

Not for turning

The reality is that the British government is unlikely to be moved by claims that thousands of retail gambling venues will close.

Prime Minister Andy Burnham has made no effort to hide his disdain for high street bookies and arcades, grouping them with vape shops in a segment he described as “antisocial”.

Among changes he announced upon taking office in August was his intention to remove the “aim to permit” clause of UK gambling law.

The provision requires local councils to allow new betting shops and similar venues to be opened on UK high streets unless it has a particularly strong reason to object.

With that protection removed, councils will find it significantly easier to refuse to allow new gambling sites to open.