James Okafor
The chancellor is expected to avoid the feared doubling of Machine Game Duty, yet retail operators argue that any increase still spells closures — and the road ahead remains unclear.
At around midday today, chancellor John Healey will take his place at the despatch box to deliver the autumn budget, settling the question that has kept the UK retail gambling sector on edge for months.
Speculation has run wild over a possible rise to Machine Game Duty (MGD) on Category B gaming machines, and some form of increase is now widely anticipated.
The Social Market Foundation published a report in June urging the government to double MGD from 20% to 40%. The think tank said the move would bring in between ÂŁ275m and ÂŁ458m and tackle the greater harm risk posed by these machines. The idea won backing from allies of the prime minister, among them former PM Gordon Brown and a large group of Labour MPs.
Talk of a smaller increase
Bingo halls and betting shops reacted with outrage. The Betting and Gaming Council commissioned research that reportedly found up to 16,000 jobs, 1,500 betting shops and 34 casinos could be lost — and that the Treasury might actually collect £124m less in tax once premises closed.
Operators warned of hundreds more shop closures on top of those already planned. Then The Times reported that Healey had settled on a smaller rise of 5%.
Much of the industry has greeted this as a victory and a huge relief — The Times itself called it a "boost for racing" — but those who will have to absorb the increase are less sanguine.
"It's a bit like when you're waiting at an airport and they say you've got a three-hour delay, then they revise it to half an hour, and everyone cheers," Greg Knight, CEO of UK retail operator JenningsBet, tells iGB.
"I certainly don't think it's a win. It could be an awful lot worse, couldn't it, but I'm not celebrating because at the end of the day it's still going to be a big drain on the industry."
Simon Zinger, managing partner at Calibri Law and advisory Bluestar Partners, is equally reluctant to call it a victory. "The 5% is a win relatively speaking, if you think about what was possible, but I don't think it's a win given that any level of additional tax would be counterproductive," he tells iGB.
Who loses from a 5% hike?
The BGC has warned that any increase, at any level, puts jobs and businesses at risk, though the damage should be far smaller than earlier estimates based on a 20-point rise.
In a LinkedIn post, financial consultant Andrew Bowden sketched a rough calculation of what a 5% MGD rise would mean.
He found that with no store closures the Treasury would collect about £120m in tax — well short of the SMF's projections — but that each betting shop closure caused by the rise would cost the government £155,000 in combined tax. By his estimate, it would take 280 closures to erase any net gain from betting shops.
Knight tells iGB that JenningsBet would probably have to shut a "handful" of stores if the rise goes through.
The BBC has reported that bingo halls and amusement arcades have warned a 5% rise would force closures. Buzz Bingo told the broadcaster that 40% of its clubs would be pushed into loss-making territory.
Zinger, formerly general counsel at Entain, expects a rise in fines and enforcement actions as a knock-on effect of an MGD hike combined with recent increases in remote gambling taxes.
"We will see an enforcement spike in about 12-24 months' time that stems from operators who dial down compliance and RG measures as they try to preserve margins," Zinger forecasts. "We should also not underestimate the impact of good people leaving those businesses as a result of the cuts."
Does anyone benefit?
There may be winners, though — another cost pressure on retail could favour the online sector, particularly operators with no retail exposure at all.
A higher MGD could help online-only challenger brands such as Midnite and Mr Q, which are smaller, newer, high-growth businesses. They may quietly be hoping for a full 20% rise on Wednesday to land a blow on their much larger rivals at a time when market share is fiercely contested.
Higher retail taxes would leave these typically online-only challengers untouched and could "actually lead to new opportunities for some", Zinger notes. Their smaller size would also help them sidestep some of the compliance mistakes he expects big operators to make as they chase margin recovery after the tax rises.
"The new entrants or challengers have an opportunity to get things right at the outset, especially the customer care angle. They can also be more agile and adapt quicker to changing regulation that has an operational or tech angle.
"They still need to make the effort and demonstrate they take compliance seriously — but it might be easier to do without the financial and public market pressures."
Some have speculated that Flutter's recent UK&I restructure was about more than cost savings — that it also aimed at greater agility to take on this new breed of disruptive competitor.
Worrying foundations
As Healey weighs the industry's fate, questions linger over how evidence-based any changes to gambling policy will be.
In an embarrassing turn for the think tank behind the MGD campaign, a draft of the SMF's June report was accidentally published with senior staff comments attached, revealing doubts at the top over some of its wording.
The comments ask whether claims about job losses were "overly overoptimistic" and concede that bingo and seaside arcades would be hit by a rise, while admitting the authors "couldn't be sure" how the industry would respond.
And although the SMF apparently stands by its call for a 40% rate, senior fellow James Noyes seemed untroubled by the smaller 5% rise the chancellor has reportedly settled on. Quote-replying to The Times report on his personal X account, he described a 25% rate as a "reasonable level".
Knight says the uncertainty and lack of confidence surrounding the MGD change is bizarre and frustrating. "For the three months throughout the summer since [the SMF] report came out, I have been inundated with staff asking if their shop's going to close. There are real-world consequences to what people do."
More broadly, regulators and policymakers have drawn industry anger recently over the contentious roll-out of financial risk assessments, whose evidence has been disputed, and the government's decision to scrap plans to permit — a move iGB has reported raises more questions than answers and could open the door to further gambling reform.
UK needs long-term clarity
What the industry will want from the budget above all, then, is clarity and stability — two things in short supply in the British market right now.
A five percent increase in MGD, for instance, may be bearable — but how can the industry know the government won't come back for more gambling tax the next time it needs revenue?
'We're just sitting here and waiting really'
Zinger’s view is that a 5% rise in MGD is “not a win for the general growth prospects of the UK industry longer-term since we can assume that the government will come back for more eventually”.
That uncertainty is doing real damage to investment. Genting Casinos COO Paul Willcock said recently the operator was “itching to invest” in the UK but the absence of a stable regulatory climate was holding it back. Hippodrome executive chairman Simon Thomas made a similar point, saying operators need to know the “playing conditions” will stay put.
Knight agrees. He’d “like to think” MGD won’t come up again at the next budget, but he can’t be certain — and that is the hardest part.
“It’s just not good for any business to have three or four months of uncertainty,” he says. “It’s a mental strain and to have to go through that on a cycle. We’re just sitting here and waiting really.”
Whatever the chancellor decides on 28 October, Knight wants the government to give the sector longer-term assurances so it can plan properly, instead of springing tax rises whenever the exchequer needs more money.
“I absolutely would call on the government to say, for the rest of the term of this parliament, or the next if it’s re-elected, that that’s it. So we can build with a bit of confidence.”
Jake Nordland
Source: igamingbusiness.com
