Gaming Analysts Balk at UK’s Gambling Tax Proposal

Man placing a bet at the casino

Article by : Erik Gibbs Oct 15, 2024

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The UK government’s proposed steep increase in taxes on gambling operators has sparked alarm among gaming analysts, with some warning that the move could severely impact the industry’s profitability. According to Jefferies Equity Research analyst James Wheatcroft, such a hike “would effectively wipe out listed operator profitability and likely pose an existential threat to many smaller operators.” 

Wheatcroft’s stark warning came in an investor note published on October 13, in which he reacted to reports from *The Guardian* suggesting the Labour government, led by Keir Starmer, is considering a significant tax increase after uncovering a “black hole” in the budget allegedly left by the previous Rishi Sunak administration.

The Labour Party, which took control of the government earlier this year, is reportedly weighing two proposals to overhaul the taxation of the gambling industry. These proposals aim to fill the budgetary gap, though the suggested measures have raised concerns about their economic impact on the gaming sector.

The first proposal, backed by the Social Market Foundation, calls for a substantial increase in the taxes levied on iGaming and online sports betting (OSB) providers. The tax rate for iGaming providers would more than double, from the current 21% to 42%, while the tax on OSB operators would also jump from 15% to 42%. 

The second proposal, deemed even more aggressive, comes from the Institute for Public Policy Research (IPPR), which advocates for a 50% tax on iGaming and OSB providers, up from the current 21%, and for High Street bookmakers to see their taxes doubled from 15% to 30%.

Both proposals have reportedly been causing division within the UK Government as it weighs the potential revenue benefits against the possible consequences for the gaming industry and related sectors.

Wheatcroft expressed significant doubt about the feasibility of such steep tax increases, calling them “unrealistic.” He noted that while tax and regulatory changes are a legitimate concern for investors in gaming companies, the magnitude of these proposals would likely lead to devastating consequences for the sector. Wheatcroft also observed that the issue had not garnered much attention outside of the UK, and that media coverage of the tax proposals had already started to fade.

Despite the potentially dramatic impact, Wheatcroft outlined several ways in which gaming firms might respond to mitigate losses. These measures could include reducing marketing and promotions, offering less favorable odds to players, and cutting back on sponsorships, particularly for sports teams and events. Such changes could harm the broader sports ecosystem, as UK bookmakers are key sponsors of football clubs and other professional sports leagues.

Wheatcroft also predicted that many smaller operators would be disproportionately affected by the tax hike. With less financial flexibility than larger firms, these smaller companies could struggle to absorb the increased costs. As a result, Wheatcroft expects that market share could shift to bigger players, potentially leading to greater consolidation in the industry.

Another major concern raised by Wheatcroft is the potential rise in black-market gambling if taxes on regulated operators become too onerous. As the legal options for gambling become more expensive and less attractive to consumers, some may turn to illegal platforms that offer better odds and fewer restrictions. This shift could undermine the very purpose of the tax increase by reducing the overall tax base and jeopardizing consumer protections in the gambling industry.

Wheatcroft also pointed to the potential ripple effect on the horse racing industry, which relies heavily on revenues from betting operators. A decline in the financial health of betting firms could result in less money being funneled into horse racing, threatening the viability of an industry that is already under financial strain.

The Starmer government is in a delicate position as it seeks to address the budget shortfall while balancing the interests of various sectors. The gambling industry plays a significant role in the UK economy, providing jobs and contributing to public revenues, but it also faces criticism from those concerned about problem gambling and its social impacts.

While nothing has been finalized, the possibility of a sharp tax hike remains on the table, leaving the industry in a state of uncertainty as it awaits further developments.