Betting terminals tax hike is bad for bookies but good news for bingo







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Betting terminals tax hike is bad for bookies but good news for bingo

19/03/2014

Simon Goodley

Bookmakers say business unfairly targeted following news of gambling tax increase on controversial FOTBs

A surprise hike in taxes on fixed odds betting terminals (FOBTs) hammered shares in bookmakers as the Treasury targeted controversial machines in high street shops that have been dubbed the "crack cocaine" of gambling.

Ladbrokes suffered a 12% fall in its share price as the City feared the company's profits could be cut by almost a third after the chancellor raised duties on profits made from FOBTs from 20% to 25%. Critics argue the machines lead to more cases of problem gambling, while in February, a study produced by the Campaign for Fairer Gambling showed that more than £13bn was gambled on the machines by the poorest quarter of England's population.

However, the duty on bingo was halved as other forms of gambling escaped treasury punishment.

In the wake of the fixed-odds clampdown, high street bookie William Hill saw its share price quickly drop by 7% as Paddy Power lost almost 3%. Ladbrokes, which also warned it might now be forced to close more of its shops, was hardest hit because it has greater exposure to the machines, which are placed in high street bookmaking shops and allow punters to bet repeatedly on electronic games, most commonly roulette.

Last year the firm's punters inserted £11.6bn into the terminals – making the bookie £422m, more than half the gross profits of its shops.

Ladbrokes spokesman Ciaran O'Brien said: "The announcements mean yet more taxes on an already heavily taxed industry – another £75m to add to the £1bn already paid. The pips are squeaking and we must surely now be given some stability to continue to support our employment and tax base while delivering for shareholders."

He added that the Treasury takes more out of gambling in taxes than bookmaking firms do in profits and warned that the change may prompt the company to shut some of its shops.

"We will close 40-50 this year. We may now have to look at closing more," he said.

The Treasury says it expects the tax to raise an extra £75m from the industry in 2015/16, rising to £90m in 2018/19.

Barney Horn, an indirect tax partner at accountants Deloitte, said: "I think it was a surprise. There will be a lot of debate about it."

FOBTs have been a highly controversial – if hugely profitable – addition to high street bookmaking shops with both the coalition and Labour recently speaking out about possible ways in which their surge may be curtailed.

Aside from his raid on the betting machines, the chancellor also said that the government will consult on extending the horserace betting levy to offshore bookmakers, a charge currently paid by UK-based bookmakers to fund horseracing. The Treasury said the "consultation will seek views on a range of options which are likely to include developing commercial arrangements, modernising the existing levy and a horserace betting right".

However, the shock news for high street bookies was offset with surprise good news for the bingo industry, which saw the duty it pays on its winnings halve from 20% to 10%.

The industry had long complained it had been penalised in the 2009 budget when its tax rate was unexpectedly increased from 15% to 22% - which later came down to 20%. Bingo industry insiders had been expecting a cut back to the old rate of 15%, which is also the level bookmakers are taxed on profits from sports bets. However, they were delighted with their unexpected win.

Ian Burke, chief executive of Rank Group, which operates 97 Mecca Bingo clubs across the UK, said: "Today's announcement is an important boost for Britain's bingo clubs, which provide a range of social and economic benefits for the communities they serve. By bringing bingo duty into line with other forms of gaming entertainment, the government has created a basis for renewed investment and innovation."

Rank's shares rose by 7.5% and in contrast to Ladbrokes' predictions, the company said it would now consider opening more venues. "Rank has identified a number of towns and cities in Britain where, in the light of today's announcement, it would like to develop new clubs," it said.