Reeves's gambling tax hike is a losing bet

Chancellor Rachel Reeves hikes gambling tax — (Image credit: Carl Court/Getty Images)

Another week, another FTSE 250 company disappears. On Monday, William Hill's owner, Evoke, said it was in talks with Bally's over an offer for the company that would value it at more than £200 million. It may not seem like much for such a well-known brand, but Evoke is weighed down by debts that have depressed the value of the shares. The bigger problem, however, is that it is grappling with the huge rises in gambling taxes imposed by chancellor Rachel Reeves in the last Budget. She pushed up remote gaming duty, which applies to online casino and roulette games, from 21% to 40%, and online betting duty from 15% to 25%. The rate for betting at old-fashioned bookmakers on the high street was left at 15%, but that was little consolation for the major chains, which these days make most of their money from their apps, and mainly use the shops as a form of advertising.

It is not just Evoke that has been hit by that tax rise, although it has suffered more than most as its operations are concentrated in Britain. Paddy Power said late last year that it was closing 57 of its British shops with the loss of more than 250 jobs, while Entain, the company that owns Ladbrokes and Coral, has also started to close branches. Ahead of the tax rise, Betfred warned it might close all of its more than 1,200 physical stores if the new levies went ahead, and while that has yet to happen, it might well over the next year or two. Add it all up, and the outcome is clear. The tax rise has led to a big wave of closures across what has always been a huge industry.

There are three big problems with gambling tax rises. First, they will deal another big blow to the high street at a time when it is already facing a wave of closures of retailers, cafes and restaurants. There are more than 5,500 betting shops across Britain, at least before the latest round of closures. That is more than triple the number of bookshops and double the number of newsagents. Sure, that branch of Coral or William Hill, with its tatty biros and slightly dodgy-looking punters, was never exactly the most cheerful place in the typical town centre. But even so, it paid business rates, employed people and, in a small way, helped keep the high street alive. If they all start to close down, nothing will replace them. There will just be a few more dismal boarded-up shopfronts.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Raising gambling taxes will crush a British success story

Next, it does not look as if gambling tax rises will raise anything like as much money as expected. The £1.1 billion in extra cash forecast to roll into the Treasury assumes that there will only be very minor changes to behaviour (it would be £1.8 billion with no change). But that hardly seems plausible. If there are fewer physical shops, if the odds are less attractive and less money is spent on online marketing, the casual punter who puts the occasional fiver on the Cup Final or the Grand National will drift away. The hardcore gamblers will use a “virtual private network” that disguises which country you are visiting the internet from, to bet offshore, or else to gamble on the fast-growing prediction markets. Either way, the tax will raise far less than forecast.

Finally, raising gambling taxes will damage a major British industry. Companies such as Bet365 and Entain are among the global leaders of an industry that is worth well over $250 billion worldwide and growing all the time as legal restrictions are relaxed. A robust domestic market is vital if entrepreneurs are to flourish and established businesses are to succeed on the global stage. You might think the Treasury would want to back such success stories. After all, there are not that many of them any longer. Instead, it seems determined to tax them into extinction.

It seems extraordinary that the Treasury hasn't worked out by now that when you increase the taxes on an industry, it gets a lot smaller very quickly. But it looks as if it hasn't and will have to relearn that lesson all over again, and in the most expensive way possible. Even if the Treasury gets its extra billion, it will, in the process, have crippled a major British industry, worsened the crisis on the high street and pointlessly destroyed thousands of jobs. Even for the most hopeless chancellor of the last 50 years, that seems like a losing bet.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Explore More

Matthew Lynn is a columnist for Bloomberg and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.