Shares in British gambling firms plummeted on Monday morning after reports that the government was eyeing up £3bn tax rises on the sector in a move that one investment bank said would “all but wipe out bookmaker profitability in the UK”.
William Hill-owner Evoke saw its share price crater by over 13 per cent in morning trading, while shares in Flutter, which owns brands like Paddy Power and Sky Bet, dropped by six per cent.
Entain – the owner of Ladbrokes and 888casino – took a seven per cent pummelling to its stock price, wiping over £3bn in total off the UK gambling sector’s market cap in just a few hours of trading.
The sharp slump follows a report published in the Guardian on Friday which said the Treasury was weighing up introducing proposals put forward by two think tanks, and backed by one of Labour’s biggest donors, at the upcoming Budget.
The Institute for Public Policy Research (IPPR) and and Social Market Foundation (SMF) have both proposed new ways of taxing the UK gambling sector in recent months, with the latter backed by casino entrepreneur turned gambling regulation campaigner Derek Webb.
In September, the IPPR published a report that estimated that the government could raise £2.9bn next year – and north of £3bn by 2030 – if it doubled taxes on “higher harm” industries like online casino games, while leaving “lower harm” activities like bingo and the lottery untouched.
This would see the tax levied on general high-street bookmakers hiked from 15 per cent to 30 per cent, and online gambling duty up to 50 per cent.
The SMF’s proposals are more moderate, suggesting the government should double the taxation on online gambling companies specifically from 21 per cent to 42 per cent, in a move that it says would raise £900m.
But several analysts have dismissed the rumoured levies as unrealistic, with one labelling them “egregious”.
James Wheatcroft, analyst at the investment bank Jefferies, said: “The proposals apparently being considered would all but wipe out bookmaker profitability in the UK, per our estimates.
“The headlines highlight that changing tax (and regulation) is a legitimate concern when investing in gaming companies, but the extent of these proposals seems unrealistic. The headlines have since faded to the backpages, with limited media follow-up elsewhere.”
Meanwhile Barclays analyst Brandt Montour commented: “While the article appears credible, the proposed changes (a doubling of most tax rates within one of the proposals) seem egregious to us, and will likely raise realistic concerns over anti-competitive impacts (most small operators would likely close-down) as well as giving a substantial boost to the black market.”
Both Barclays and Jefferies also warned the IPPR proposals – if implemented in their strictest form – would stoke a rise in black market gambling.
Russ Mould, AJ Bell’s investment director, said: “Labour is desperately looking for ways to raise revenue, having ruled out increasing taxes on ‘working people’. It’s notable that the speculation suggests so-called ‘lower harm’ activities like bingo and the lottery will be untouched by any tax changes…
“Today’s news is a salient reminder of the strengthening headwinds the sector faces in terms of regulation and tax and that this remains a live risk for investors to consider.”