Planned hikes in UK gambling taxes are expected to generate around £800 million, significantly less than the £1.6 billion initially forecasted by the Treasury, as revealed by an analysis from H2 Gambling Capital (H2GC). The consultancy raised questions about some of the projections released by the Office of Budgetary Responsibility (OBG), suggesting that the Treasury’s expectations may have been overly optimistic.
OBG initially estimated that the tax changes could yield up to an additional £1.6 billion in tax receipts. However, this figure was later adjusted to £1.1 billion to account for anticipated “behavioral changes” among consumers. The expectation is that the increased taxes will lead to a decline in player demand as operators reduce bonuses to offset the higher tax burden. Additionally, some players might turn to the black market for better offers.
H2GC’s analysis suggests that even with these behavioral changes in mind, the actual increase in tax receipts will be more modest, estimated at around £800 million by the fiscal year 2028. This is after adjustments for consumer behavior are made. Initially, H2GC’s estimates before accounting for behavioral changes were aligned with the OBR’s, at £1.6 billion in additional tax revenue.
The impact of these changes is expected to be most pronounced within the iGaming sector, which is set to face a tax rate increase to 40%. Before considering behavioral changes, H2GC calculated a potential £1.35 billion rise in tax income by FY28. However, after adjustments, this figure drops to approximately £649 million, illustrating the significant impact of consumer behavior on tax revenue.
In sports betting, which will see its tax rate rise to 25%, the initial estimate stood at £204 million. Post-behavioral change, the adjusted forecast is much lower, at £149 million. These shifts underscore the complex dynamics between tax policy and consumer response.
The tax increases were confirmed by Chancellor Rachel Reeves during the autumn budget announcement. The new rates include a rise in remote gaming duty from 21% to 40%, effective from April 2026, and an increase in the general betting duty for remote betting to 25% from the current 15%, starting in April 2027. These new rates will apply to online betting profits but will exclude other forms of betting, such as spread betting and horse racing bets.
H2GC also examined how the tax hikes might influence gross gaming yield (GGY) and gross gaming revenue (GGR) in the UK. The analysis indicates that both metrics will be negatively affected by some operators withdrawing from the UK market due to the increased taxes and by players migrating to unlicensed sites for better offers.
By FY28, GGY under the new tax regime is projected to be around £6.69 billion. If tax rates were maintained at their current levels, this figure would be approximately £7.79 billion. Consequently, H2GC forecasts a £1.1 billion reduction in GGY, or a 14% decrease, should the tax rises proceed.
The iGaming sector is expected to bear the brunt of these changes, with a predicted 16% decline in GGY after the implementation of the new tax regulations. Sports betting is also expected to see an 8% reduction in GGR based on these estimates.
In terms of GGR, current regulations could see it reach £9.14 billion by FY28. However, if the tax increases are enacted, GGR is expected to fall to approximately £7.12 billion, representing a decline of £1.97 billion, or 22%, directly attributable to the higher tax rates.
H2GC’s analysis predicts that the iGaming GGR could be as much as 25% lower by FY28 if the tax hike takes place. Meanwhile, sports betting GGR could decrease by 11%, as the tax increase is set to be implemented later than for iGaming.
A significant concern is the anticipated growth of the black market in Great Britain. The consultancy forecasts that players shifting to black market sites could double in size by FY28. With current taxation, total channelisation for the online market is expected to stand at 94% in terms of GGY by FY28. This is broken down into 97% for sports betting and 93% for iGaming. However, post-tax rate increase, channelisation could drop to 87%, with sports betting at 94% and iGaming at 83%.
In terms of GGR, with current taxation, channelisation could reach 93% by FY28, divided into 97% for sports betting and 92% for iGaming. Should the tax increases proceed, this could decrease to around 84% for the whole online market, with sports betting and iGaming channelisation dropping to 93% and 80%, respectively.
H2GC warns that the black market could more than double in size with the new tax rates. Offshore GGY is projected to increase by 111% by FY28, with offshore GGR rising by 110% if the changes occur. The consultancy remarked that while politicians might see the reduction of the onshore market as a victory due to increased tax revenue, the significant growth of the illegal market and its negative implications, particularly on player welfare, would likely be overlooked.
The industry has voiced strong opposition to the proposed tax increases. Major operators have raised concerns that these changes will not only impact their businesses but also the broader market. Key issues include the potential rise in black market activity, reduction in bonus offerings, and likely cuts in spending. Some businesses have even warned of possible job losses as they adapt to the increased tax burden.
This dichotomy highlights a critical debate: while the government seeks to increase tax revenues, the unintended consequence might be a substantial shift towards the black market, posing significant challenges to both regulation and player protection.
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