You’ve got to feel some sympathy for Chancellor Rachel Reeves. Facing up to a gaping hole in the Treasury coffers, an economy that is shuffling towards recession and a growth strategy that’s dying by a thousand cuts; she also has to contend with a pesky former chancellor that’s telling her to tax, tax, tax the gambling industry. Well, be careful what you wish for. Europe has tried that model and it didn’t go too well for them. Germany, Italy, the Netherlands and Romania have all found out the hard way – you raise taxes on gambling, and you reduce revenues to the State.

Treasury officials are currently ploughing through data ahead of the Autumn Budget, crunching the numbers that will turn the UK’s economic fortunes around. 

They’ve got their work cut out; they’re looking at the banks, the energy companies, and most recently the gaming and gambling sector, calculating how much tax they can raise to plug the hole. 

Their problem, with the gambling industry at least – it’s not such a safe bet. 

It has been consistently recorded in countless assessments across Europe – raising taxes will likely serve to deepen the hole.

Paul Terroni, Strategy and Business Development Director at Novomatic UK Limited, has been assessing data and analysis from his European colleagues across a wide range of state models where taxation on the industry has been increased, and in Italy’s case super-charged.

A word of caution

The findings provide a more than cautionary tale for Reeves’ team.

“The notion that raising taxes will automatically raise Treasury revenues is no longer a reliable model,” he said. 

“In Italy and Holland revenues sank; in Germany, nearly half the gambling traffic went offshore and into unlicensed and unregulated markets; and in Romania tax revenues fell by almost a fifth.”

It’s not the lesson the Treasury wanted to hear, not least because former Prime Minister and Chancellor Gordon Brown is adamant that raising gambling taxes will deliver enough money to scrap the two-child benefit cap.

Not so says Europe.

The UK’s tax option

Brown is urging Reeves to hike RGD to 50 percent; general betting duty to 25 percent; MGD to 50 percent. 

The doves in the Treasury, though, have broader horizons in their purview: they have to find ways to maintain the fragile balance between revenues, market impacts, regulation and, of course, player protections.

And very oddly, too, there’s another pesky interloper. HM Treasury seems to be facing a further offensive from the gambling prohibitionists in the Labour Party that are advocating sky-high taxes – despite the findings in Romania and Germany that are seeing player protections collapse as their tax policies drive players away from safe markets to unregulated, illegal ones. 

The Italian Job

The price here in the UK of a similar policy would be significant: pushing taxes up and pushing vulnerable players into uncontrolled online gambling dens is not what the likes of the Gambling Reform APPG are advocating. 

It would be tantamount to state self harm. And what’s happened in Italy is a stark warning. 

Their tax raising policy, based very similarly to the anti-gambling lobby in the UK, is one of morality – they didn’t like machines. 

What they didn’t account for, however, was the punters didn’t like the taxes. They upped and left the regulated market and flooded the online and uncontrolled gambling sector.

Blowing the bloody doors off?

And it hit the tax revenues hard: AWP tax income is at its lowest since 2016 (excluding the Covid years), VLT tax returns are 20 percent down on 2019, and increasing the tax from 13 pc (2015) to 24 pc (2024) has lost the Italian government somewhere in the region of 1-1.5 billion euros.

Peter Hannibal, chief executive of the Gambling Business Group, has been studying the statistics which come from official records in Italy. He argues that these trends will be replicated, and more, if the tax ‘em model hits the UK.

 “I’m not certain many of those analysts advising the Treasury fully understand the elasticity of the market. In reality, price-like tax shocks in gambling reduces RTP/odds and depresses legal participation. The more flexible consumers will migrate to higher-payout, unregulated alternatives,” he told Coinslot.

Evidence points to a lose-lose 

And that will be a lose-lose situation for the Government. Hannibal agreed: “The net result is lower player activity in regulated, safe markets, migration to the unregulated markets which are out of reach of the Gambling Commission and the government. 

“There will be lower tax receipts from the legal, land based sector going into the Treasury and an unmonitored swathe of players – in their tens of thousands – who will be gambling without the protections the regulated industry has been investing so much money in.”

In fairness, less than 0.4 percent of those players will, albeit unlikely, shift into the problem gambling zone, but without the safer gambling messaging, self exclusion and age verification, it’s a bit of a risk for the government. 

Roll the dice with tax hikes, or analyse the evidence of those that have already tried it?