Treasury ignored DCMS gambling tax hike concerns before Budget raid

Whitehall raised questions about the amount of money a gambling levy could raise before Chancellor Rachel Reeves pushed ahead with tax hikes in the Autumn Budget.

A Freedom of Information request seen by CityAM shows analysis by the Department of Culture, Media and Sport in response to proposals by the Social Market Foundation and former Prime Minister Gordon Brown which would “tap the sector” to the tune of £2bn.

The analysis suggested that a gambling duty would not raise what the Social Market Foundation had hoped, describing its purported value to the Treasury’s coffers as “unrealistic”, while it also warned of a boost to the black market and job losses.

One industry source said: “DCMS warned the Treasury about the consequences of its gambling tax raid and they ignored it. Every job cut, lost sponsorship, every customer who switches to the illegal market – it’s on them.”

Chancellor Reeves opted to increase the remote gaming duty from 21 per cent to 40 per cent – close to what was proposed by the Social Market Foundation – and set a new general betting duty at 25 per cent from next year.

Gambling on/off the table

Some of the analysis presented by government officials in emails then came to light in official forecasts around the Autumn Budget, where Reeves enacted a smorgasbord of tax rises across industry.

The Office for Budget Responsibility (OBR) estimated that new gambling taxes would raise £1.1bn – a figure only close to half the gains estimated by the Social Market Foundation, though the think tank called for a higher rate of the remote gaming duty and increases in the horserace betting levy, which were not included in reforms. 

The FOI reveals that analysis said: “Whilst an increase to sports betting duties would significantly damage horseracing due to the low margins the industry receive on racing, unless a tax carve-out for racing was accompanied by an increase to the Horse Racing Levy, racing would be unlikely to feel any benefit.

“Without this there is no way of ensuring that tax savings are ring-fenced by operators to support racing.” 

OBR officials added that the behavioural responses to changes were “uncertain”, leaving the future of tax receipts on less stable ground. 

Ignored warnings

In the OBR analysis, the fiscal watchdog suggested that behavioural effects stripped around £700m from the total tax gains when they were factored in. 

Some of these behavioural effects arise from bettors turning to the black market, operators passing costs onto consumers and companies redesigning products to avoid higher levies.

A Betting and Gaming Council spokesperson said: “This Freedom of Information release shows that, ahead of the Chancellor’s Budget, DCMS officials themselves raised serious concerns about the claims made in the Social Market Foundation report and questioned whether the revenues being suggested would ever materialise.

“DCMS clearly shared the industry’s concerns that sharp tax rises could reduce investment, put jobs at risk and push some customers away from the regulated market towards harmful illegal operators, yet despite these warnings the Treasury chose to press ahead.”

a Treasury spokesperson said: “Our fair reforms to gambling duty better reflect the modern industry and its impacts while raising over £1bn per year to deliver this country’s priorities – cutting the cost of living, cutting waiting lists, and cutting government borrowing.”