FOI request reveals disagreements between DCMS and Treasury over tax hikes

Information obtained via a Freedom of Information (FOI) request has shone a light on concerns about gambling tax hikes held by the Department of Culture, Media and Sport (DCMS) last year.

This included warnings about the potential impact on operator marketing spend and the effect that this could have on the horse racing sector. Concerns surrounding player channelisation were also raised.

DCMS’ now revealed suggestions have added to the scrutiny around the Autumn budget. This builds on Office for Budget Responsibility (OBR) estimates that the government could miss out on up to £500m in tax in the long run as players moved to unlicensed operators.

DCMS vs SMF

Although the request itself is heavily redacted, the DCMS replies to the FOI request show that certain individuals within the department were particularly critical of the proposals made by the Social Market Foundation (SMF), a cross-party public policy think tank, which made the argument for the heftiest tax raises.

The think tank initially recommended an increase in Remote Gaming Duty (RGD) from 21% to 50% and a harmonisation of General Betting Duty (GBD) across fixed odds betting, sports betting, pools, and other gaming products at 25%.

These proposals received support from the likes of former Prime Minister Gordon Brown, alongside a number of Labour MPs and the All Party Parliamentary Group (APPG) for Gambling Reform, chaired by former Conservative Party leader Iain Duncan Smith.

Ultimately, the SMF’s ideas were not fully adopted – RGD is instead going up from 21% to 40% in April. Meanwhile retail betting has been excluded from next April’s hike in GBD to 25%.

However, the FOI request revealed that DCMS officials had informed the Treasury, prior to the budget, that the hikes in gambling tax would not generate the tax revenues initially suggested by the SMF. 

The DCMS explained that the new taxes would result in a loss of jobs as well as a growing prevalence of the black market – arguments also made by industry stakeholders throughout last year’s months-long tax debate.

“DCMS warned Treasury about the consequences of its gambling tax raid and they ignored it, ” an industry source, who preferred to remain anonymous, told SBC News. “Every job cut, lost sponsorship, every customer who switches to the illegal market – it’s on them.”

An unlikely revenue goal

The department also warned the Treasury that increases in gambling tax could have knock-on effects on both operator and player behaviour, which would ultimately lead to revenue declines, and therefore tax declines. 

Among the behavioural changes that the DCMS outlined included operators departing the UK market as a result of the increased taxes, the costs of taxes being passed on to players via a reduction in betting promotions, players reducing gambling spend and the growing influence of the black market.

Another extract reads: “Overall, this proposal will undoubtedly still increase tax revenue once these adjustments are applied. However, it is highly unlikely to reach the revenues that the SMF report predicts.”

The revelation that DCMS shared industry concerns about players moving to the black market comes amid the department launching a consultation on banning unlicensed betting sponsorships in UK sport and the Gambling Commission (UKGC) stepping up its activity against illegal gambling.

According to the Betting and Gaming Council (BGC), the UK betting industry trade body, up to 9% of betting volume goes through the black market. The UKGC, meanwhile, has linked illegal gambling activity in the UK to Russian criminal networks.

The betting-racing rift

The impact tax hikes could have on horse racing was a big topic of discussion last year. It was also one that drove a bit of a wedge between two sectors that have traditionally shared similar goals and share a close symbiotic relationship.

When first proposing the tax hikes, the SMF suggested that betting duty on the sport should be cut from 15% to 5%, which would be complemented by an increase in the betting levy contribution from 10% to 20%. The overall benefits that this would have for racing, however, have been disputed by the DCMS.

Facing the prospect of a heavier tax burden, the British Horseracing Authority (BHA) and other racing stakeholders launched a campaign – #AxeTheRacingTax. A racing strike held in September received condemnation from the BGC, while the gaming industry also found itself at odds with the sport over the topic of gambling harm.

In recent weeks, we’ve also seen operators such as bet365 axe their sponsorship of major racing events, having announced yesterday that it would be pulling out of several racing partnerships, citing the recent budget as a key factor in its decision. 

A bet365 spokesperson said: “Regretfully, bet365 has made the very difficult decision not to continue sponsorship of a number of horseracing events, including the Craven meeting at Newmarket, the July meeting at Newmarket and the Old Newton Cup/Lancashire Oaks at Haydock. 

“While these have been long-standing and much-valued partnerships, last year’s Budget has unfortunately required bet365 to make some tough commercial choices.”

In the first three months of this year alone, Entain ended its 52-year stint as sponsor of the Coral Cup, both evoke and Flutter Entertainment announced a tightened marketing budget when it comes to racing, while BetMGM pulled its deal for the Fighting Fifth Hurdle in Newcastle after two years.

Some stakeholders in racing, like Thomas Savill, Director of Plumpton Racecourse, have questioned the motivations behind the industry’s sponsorship cut back. Motivations aside, however, the impact of the taxes are, without a doubt, already being felt across the racing industry.

The FOI request shows that DCMS also questioned the SMF’s assessment of gambling-related harm. The SMF argued that racing should be subject to a lower rate of tax than gaming, due to the betting on the sport being lower risk than casino or slots.

While DCMS did not dispute this, the department did question whether customers already suffering from gambling-related harm would ‘bear the burden of the tax increase’ and that an increase in taxes ‘may not even lead to a meaningful reduction in harm’.

The FOI request added: “It is also worth noting, while an increase to sports betting duties would significantly damage horseracing due to the low margins the industry receives on racing, unless a tax carve-out for racing was accompanied by an increase to the Horseracing Betting Levy, as suggested in the SMF report [which requires primary legislation] racing would be unlikely to feel any benefit. 

“Without this there is no way of ensuring that tax savings are ringfenced by operators to support racing and the money could in fact be spent promoting other [potentially more harmful but more profitable] products.”

The BGC weighs in on the debate

It’s important to reiterate that the SMF’s proposals were not fully adopted by the Treasury, and the government is also beginning to take action against the black market – the DCMS’ Illegal Gambling Taskforce being the best example of this.

This likely won’t do much to ease industry frustration over the DCMS documents, however.

Since the tax hikes were first proposed, the BGC has been particularly vocal in the wide-reaching effects that such a decision could have on the overall health and competitiveness of the UK gambling sector. 

A BGC spokesperson commented: “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.

“As we warned at the time, significant tax increases risk undermining a regulated sector that supports over 100,000 jobs and contributes more than £4bn in tax.

“The priority must be keeping customers in the safe, regulated market, not driving them towards the rapidly growing illegal market.”