The UK’s Betting and Gaming Council (BGC) has warned proposed plans to raise gambling tax in the UK could lead to up to £3.1 billion ($4.1 billion) being lost from the economy and as many as 40,000 job losses across the industry.
These claims were made in a new report commissioned by the BGC and carried out by consultancy EY-Parthenon. Titled ‘Impacts of changes to betting and gaming regulation’, it considered several of the proposals submitted for an amended gambling tax.
The government is expected to set out new gambling tax plans during its upcoming budget on 26 November. Several approaches have been mooted but the government is yet to confirm which approach it will take.
The report considers four proposals, covering the current three core gambling tax rates in the UK. These comprise general betting duty (GBD), currently at 15% of net stake receipts, remote gambling duty (RGD) of 21% of profit and machines gaming duty (MGD) at 20% of profit.
It also took into consideration the impact of ‘elasticity’ when analysing each approach to new tax rules. Elasticity measures the responsiveness of one economic variable to a change in another.
This is based on estimates of ‘central’ price elasticity of demand, produced in 2014 by Frontier Economics for HMRC, and ‘higher’ elasticity, estimated by EY to account for a greater possible impact.
Aligning rates could cost almost 5,000 jobs
In the first instance, the report looked at how aligning rates would impact the industry. This approach would see betting duty rates rise to 21%, remote duty remain at 21% and machine duty stay at 20%.
Based on central elasticity, this measure would raise an additional £250 million in betting duty but also lead to a £400 million increase in black market stakes. As such, the government would forgo £10 million in duties. In addition, 800 direct jobs could be lost and 2,000 indirect jobs.
However, on a higher elasticity basis, this approach could favour the black market more heavily. Betting duty would rise £180 million, whereas black market stakes could increase by £1.2 billion. This could lead to a £420 million drop in gross value added (GVA), the measurement used to estimate the size of the industry and its supply chain, and 4,700 direct and indirect job losses.
SMF tax proposal could pump £8.1 million into black market
Secondly, the BGC’s report considered a proposal made by the Social Market Foundation (SMF). In July, the SMF suggested raising RGD from 21% to 50%, GBD to 25% – but cutting horse racing bets to 5% – and keeping MGD level at 20%.
In a best, central-based elasticity scenario, an additional £1 billion would be drawn from the industry in tax in this scenario. However, the report said black market stakes would rocket $5.8 billion and cut regulated industry GVA by £2.2 billion. In addition, some 22,000 jobs could be lost as a result of the changes.
As for higher impact, research suggested tax revenue would rise, but only by £470 million. This would be due to more players turning to the black market, with illegal stakes forecasted to rise £8.1 billion. GVA would drop by £2.5 billion and more than 30,00 jobs would be lost.
IPPR approach puts 40,000 jobs at risk
The third proposal addressed was from the Institute for Public Policy Research (IPPR), a progressive think tank. It suggested increasing all three rates: GBD from 15% to 25%, RGD from 21% to 50% and MGD from 20% to 50%.
Should this be the case, central elasticity basis suggests a £1.8 billion increase in tax, given that all three rates would rise. However, black market stakes are anticipated to rise £6 billion, wiping $2.5 billion off industry GVA. On top of this, the report said 29,100 jobs would be cut from the sector.
However, if there were a stronger, higher response from consumers, the impact of changes would worsen. Tax revenue would rise £1.1 billion but black market stakes would also jump £8.4 billion, leading to £290 million in foregone duty.
As such industry GVA would slump £3.1 billion, while some 40,000 jobs could be lost. This would include 14,100 direct jobs and 26,000 indirect positions.
Fixed increases would still hit jobs
Finally, the report looked at whether a fixed increase should be applied to each rate. In this case, referred to as a ‘ready reckoner’, GBD, RGD and MGD would all increase by 5%.
Based on central elasticity, excise revenue would be higher across all three rates, but other tax revenue would decline. GVA would be lower across each segment, while hundreds of jobs would be lost in the process. RGD would likely be hardest hit, losing an estimated £359 million in GVA and approximately 3,700 jobs.
In terms of high elasticity, again excise tax revenue would increase in each area, but other tax revenue would decline, with an estimated £210 million to be lost in total. GVA as a whole would drop £860 million, while up to 10,000 jobs would go.
Again, RGD would see the worst impact, losing £420 million in GVA and almost 5,000 jobs.
Tax rises a ’threat’ to UK economy
Commenting on the report, BGC CEO Grainne Hurst said it was clear further tax rises would be a “direct threat” to UK jobs and economic growth. She urged the government to tread carefully before committing to higher tax.
Any increases would be in addition to the new statutory levy, which came into effect on 6 April this year.
“Figures speak for themselves,” Hurst said. “Tens of thousands of jobs lost, billions diverted to the black market and a possible £3 billion hit to the economy.
“Tax raids like those proposed would mean fewer betting shops, casinos and bingo halls, fewer jobs and a huge boost to the growing, unsafe gambling black market, while not raising anywhere near the tax claimed.”
With this, Hurst called for “balanced’ regulations and a “stable” tax regime to help support a growing, regulated sector.
“These proposals would achieve the absolute opposite of that and undermine the very consumer protections that keep people safe by pushing customers towards the unregulated black market, where there are no safeguards, no tax receipts, no jobs and no support for the sports we all love,” Hurst said.
“Britain’s betting and gaming sector is a world leader – employing thousands, paying billions in tax, and investing in British sport. The choice is clear: back a successful, sustainable, regulated British industry – or risk losing jobs, investment and growth.”
High street bookmakers echo tax concerns
The report comes after several major operators warned they could close retail locations if the mooted tax rises go ahead.
A Sunday Times report suggested William Hill shop closures could take place if taxes rise. The sources, who were not named, said these closures could range between 120 and 200 – up to 15% of the entire William Hill UK estate.
Flutter Entertainment also set out plans to close 57 Paddy Power betting shops across the UK and Ireland. This, it said, was amid increasing cost pressures with almost 250 staff facing redundancy.
Stella David, CEO of Entain, has also said UK retail shops could close to help save on costs.
The government is yet to confirm its plans for a gambling tax but is expected to reveal its approach in November’s budget.