Thinktank Report Behind Ongoing UK Tax Panic Released

October 16, 2024
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A key report that underpins the drive to send gambling taxes skyrocketing in the UK has been officially released, as reaction to a potential government tax raid continues to mount.
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A key report that underpins the drive to send gambling taxes skyrocketing in the UK has been officially released, as reaction to a potential government tax raid continues to mount.

A newly released report by the Social Market Foundation (SMF) claims that a review of UK gambling taxation is “long overdue” and argues that rates for online gambling should double, at a minimum.

The non-partisan thinktank says that the rate of remote gambling duty, levied against all online gambling operators, should increase from the current rate of 21 percent of gross gambling revenue (GGR) to at least 42 percent.

That echoes the contents of a report by the Institute for Public Policy Research in September, which argued that remote duty should rise to 50 percent, along with other tax increases.

These reports form the bedrock of rumours that the UK’s Labour government is considering a major increase in gambling taxes to fund the pledges of its first budget since winning July’s general election, according to recent reports by the Guardian newspaper.

The Guardian also pointed to veteran gambling campaigner Derek Webb as a key figure in the possible tax hike.

The man behind the Campaign for Fairer Gambling, whose most famous victory was to have stakes for fixed odds betting terminal maximum stakes slashed from £100 to £2 in 2021, is the Labour Party’s fifth-largest individual donor. Webb is also listed as the sole funder of the SMF report.

Share prices in listed gambling companies with exposure to the UK have slumped on the news.

Entain’s share price has fallen around 10 percent in the past week. Evoke is down 20 percent and Flutter down close to 3 percent, although prices have rallied somewhat since their initial crash following comments from chancellor Rachel Reeves.

Speaking at a Labour event to court business leaders earlier this week, when asked about the prospect of a gambling tax raid Reeves said the government was “proud of those businesses choosing Britain as a place to invest and create jobs” and said “we want a competitive tax system for all parts of our economy”, according to the Financial Times.

Since taking office in July, Reeves has consistently sought to emphasise the lack of funds available to the government after years of economic woe in the UK. Both thinktank reports paint gambling as a tempting target to increase state revenue.

The SMF claims that raising remote gambling duty to 42 percent could bring in an extra £900m to the Exchequer.

Gambling companies are not required to pay value added tax (VAT), their products contribute to social harm and operators dodge corporation taxes by basing themselves in other jurisdictions, it argues.

Meanwhile, the political cost of raiding the industry is next to zero, according to research.

A survey published by SMF alongside the release of its report claims that 52 percent of the general public believe the government should increase gambling taxes.

When asked which three of several taxes, including duties on tobacco and income, the government should raise first, 74 percent of those surveyed included gambling in their top three.

The economic sense of hiking gambling taxes is more open to critique.

Consultants at Regulus Partners argue that increasing online taxes to even 40 percent would be self-defeating.

“Profits would be largely or entirely wiped out,” said Regulus, adding that the knock-on effect of cost-cutting measures would mean less money spent on marketing, content and other elements of the gambling supply chain.

Taxes could be increased to around 25 percent of GGR, raising about £300m for the government, without serious negative consequences, Regulus argues.

The Social Market Foundation notes that the gambling industry has proved able to endure much higher tax rates in other jurisdictions than those currently levied in the UK.

Europe has seen a wave of gambling tax increases over the past few years. Taxes have risen to 22 percent of GGR in Sweden, 28 percent in Denmark and in the Netherlands are set to climb to 37.8 percent of GGR in two stages from 2025.

The SMF also pointed to New York, where online operators stomach a 51 percent tax rate, although the industry has struggled to turn a profit in the Empire State since it began sports-betting licensing in 2022.

Gambling interests have reacted with dismay the to news of a potential tax increase.

Speaking to the Racing Post, the head of the British Horseracing Authority, Julie Harrington said: "In light of the recent speculation about the possibility of increasing betting taxes we must make clear to the government the potential unintended consequences of any such action. In particular, the potential to cause serious harm to racing's revenue streams if gambling taxes were to be significantly increased.

"With the effects of the financial risk checks still to be fully felt, a substantial increase in betting taxes would not only damage racing's finances, it could also have a real and lasting impact on communities across Britain."

The chief executive of the Betting and Gaming Council, Grainne Hurst, also highlighted the potential impacts on racing.

"I want to be very clear with government, any further tax rises now will not only slam the brakes on growth for our sector, but it will threaten jobs and completely derail horseracing," she said.

"Our industry is at a crossroads as we seek to implement the measures contained in the white paper, measures that will cost our sector over £1bn. We also can't ignore the new levy on research, prevention and treatment for problem gambling, which will raise £100m a year from bookmakers," added Hurst.

The UK will publish its Autumn budget on October 30.

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