Come Wednesday 28 October, the UK’s chancellor of the exchequer, John Healey, will stand in front of the despatch box in parliament and outline the UK’s autumn budget, finalising the fate of a UK retail sector that is on tenterhooks.
The past several months have drawn rampant speculation over a touted hike to Machine Game Duty (MGD) on Category B gaming machines, which is now widely expected in some form.
The Social Market Foundation think tank released a report in June calling for a doubling of MGD from 20% to 40%, which it claimed would raise between £275 million and £458 million and address the higher risk of harm from these machines. Allies of the prime minister, including ex-PM Gordon Brown and many Labour MPs, backed the rise.
Reports of a smaller hike
The industry, from bingo halls to betting shops, reacted with furore. The Betting and Gaming Council commissioned research which reportedly found as many as 16,000 jobs, 1,500 betting shops and 34 casinos could be at risk – and that the Treasury could actually see £124 million less in tax due to resulting premise closures.
However, amid operator warnings of hundreds more shop closures (on top of the hundreds already planned), The Times reported that Healey has now settled on a smaller 5% hike.
Many in the industry have framed this as a win and as a huge sigh of relief – The Times itself called it a “boost for racing” in its report – but concerns remain for those who will have to absorb this tax rise.
“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 law firm Calibri Law and advisory Bluestar Partners, is also cautious to frame it as 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 any additional tax rise of any level would threaten jobs and businesses, although the damage is expected to be far smaller than earlier projections based on a 20-point rise.
In a LinkedIn post, financial consultant Andrew Bowden put together a rough calculation of the projected impact of a 5% MGD rise.
He found that with no store closures the treasury would take about £120 million in tax – well short of the SMF’s projections – but £155,000 less in combined tax would make its way to the government for every betting shop closure the rise results in. He estimated it would take 280 closures to wipe out any net gain from betting shops.
JenningsBet’s Knight tells iGB he would probably have to close a “handful” of stores if the rise went through.
The BBC has reported that bingo halls and amusement arcades have warned a 5% rise would lead to closures. Buzz Bingo told the broadcaster that 40% of its clubs would be pushed into loss-making territory.
Zinger, who previously worked as general counsel at Entain, predicts we’ll also see a spike in fines and enforcement actions as a knock-on consequence of an MGD hike and the recent remote gambling tax rises.
“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?
But there may be winners too from another cost pressure for retail – namely the online sector, especially those without any retail exposure.
There could be benefits to a RGD hike for online-only challenger brands like Midnite and Mr Q that are smaller, newer, high-growth businesses. They may well be quietly hoping for a higher 20% MGD rise on Wednesday to hit their goliath competitors at a time of high competition for market share.
Higher retail taxes wouldn’t impact these typically online-only challengers and could “actually lead to new opportunities for some”, Zinger notes. Their smaller size would also let them avoid some of the compliance mistakes he predicts large operators may make in pursuit of margin recovery post tax-hikes.
“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.”
Indeed, some speculated that alongside cost savings, Flutter’s recent UK&I restructure may have also been about aiming for greater agility to compete with this new ilk of disruptive competitor.
Worrying foundations
As Healey weighs the industry’s fate, questions remain around how evidenced-based any changes to gambling policy will be.
In an embarrassing development for the think tank pushing for the MGD hike, a draft version of the SMF’s original June report was found to have been accidentally published with senior staff comments attached, which reveal uncertainty among top brass over some of the report’s wording.
The draft’s comments question whether claims around the impact on job losses were “overly overoptimistic” and contain an admission that bingo and seaside arcades would be hit by a rise but that the authors “couldn’t be sure” what the industry response would be.
And despite the SMF apparently maintaining its call for a 40% rate, SMF senior fellow James Noyes appeared nonchalant about the smaller 5% hike the chancellor has reportedly settled on. In a post on his personal X account quote-replying to the Times report, he described a 25% rate as a “reasonable level”.
Knight says the uncertainty and lack of confidence around the change to MGD 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 also drawn ire from the industry recently over the controversial roll-out of financial risk assessments, the evidence for which has been contested, and the government’s decision to scrap aim to permit – which iGB has reported raises more questions than answers and could open the door for further gambling reform.
UK needs long-term clarity
What the entire industry will be looking for from the budget more than anything, then, is clarity and stability – factors in short supply in the British market at present.
A five percent increase in MGD, for example, may be tolerable – but how does the industry know the government won’t raise gambling taxes again at the next time of asking?
‘We’re just sitting here and waiting really’
Zinger argues a 5% MGD hike 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”.
Uncertainty is certainly hurting investment in the sector. Genting Casinos COO Paul Willcock recently said the casino operator was “itching to invest” in the UK market, but was being held back by the lack of a stable regulatory climate. Hippodrome executive chairman Simon Thomas also said operators need assurances that the “playing conditions” would remain stable.
Knight echoes the point. He says he’d “like to think” they won’t revisit MGD in the next budget but he can’t be sure, and the uncertainty is the worst 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.”
No matter the policy outcome on 28 October, Knight calls on the government to give longer-term assurances to the sector so it can plan appropriately, rather than random tax hikes when the exchequer decides it needs additional revenue.
“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.”