Gambling tax hike: £3.2 billion to scrap the child benefit cap

The Labour Party had its Annual Conference in Liverpool, where the Chancellor of the Exchequer gave a speech on possible budget changes.

The new budget is set to be released on November 26, but there are already predictions about what will be changed.

Why taxing gambling is back on the table

The forthcoming budget debate is focusing intense scrutiny on new revenue streams, and Chancellor Rachel Reeves has made it clear where her party stands on the issue of gambling industry taxation.

Speaking at the recent party conference, Reeves indicated that a tax hike on the sector is firmly "on the cards," asserting that gambling operators;

 "should pay their fair share of taxes, and we will make sure that happens."

This is a move which has been mentioned before among Labour MPs and is seen as a politically astute one.

Examples of tax on gambling revenue from around Europe

Major economies increasingly rely on the Gross Gaming Revenue (GGR) from non-essential industries as an uncontroversial way to raise public funds. 

Specifically in Europe, countries often levy significantly higher taxes on Gross Gaming Revenue than the UK's current rates, setting a clear precedent for potential increases.

Country	Online GGR tax rate (approx.)	Key context
France	~55% - 60%	One of the highest tax burdens in the world; recent increases are explicitly aimed at generating billions for the national budget.
Netherlands	37.8%	High rate increase that has led to warnings from the Dutch regulator about revenue shortfalls and the risk of players migrating to the black market.
Belgium	33% - 44%	Uses a high, progressive tax structure for land-based and online casino games, often reaching the higher end for major operators.
Czech Republic	30% - 35%	A straightforward, high GGR rate on technical and live games, well above the UK's current duty.
Sweden	22%	Reflects a broader European trend of increasing GGR duties to secure greater state revenue.
United Kingdom	21%	The current baseline rate for online casino games, which campaigners argue is significantly lower than most comparable European economies.

Crucially, raising duties on betting and gaming firms is one of the few tax increases generally well-received by the public. Since it targets a highly profitable, non-essential leisure industry, it avoids directly impacting the average household's mainstream disposable income. 

In fact, research suggests that substantially raising this levy could generate billions, enough to potentially cover the cost of key social reforms, such as the long-debated scrapping of the two-child benefit cap.

Scrapping the two-child cap

The main objective of increasing any tax is to fund significant social reform, particularly child poverty. The scrapping of the controversial two-child benefit cap would go some way towards achieving this.

The Institute for Public Policy Research (IPPR) has calculated that the Government would need £3.2 billion to scrap this cap.

Increasing the gambling tax would raise the funds necessary for this.

The IPPR came up with these specific tax increases:

• Raising the duty on online casinos from 21% to 50%

• Increase the levy on slots/gaming machines from 20% to 50%

• Increase the taxes on non-racing bets from 15% to 25%

Support for the tax increase

Over 100 MPs, including Gordon Brown, have signed a letter to express their support for this possible tax increase, arguing that gambling companies bring “little value to the UK economy”.

It is estimated that the gambling industry will bring in over £3 billion this tax year. Whilst this sounds like a high number, it is only 0.1% of the national income.

Unintended consequences

While the policy aim is laudable, the industry and regulatory experts warn that such a sharp increase in duty carries significant unintended consequences that could undermine consumer protection.

Lower profits could mean lower wins

Faced with a near-doubling of the tax rate, licensed online casinos would be left with a difficult choice: absorb the massive cost, reducing investment in safer gambling measures and customer support, or pass the expense on to the player.

The most probable mechanism for passing on the cost is a reduction in the Return to Player (RTP) percentage. For UK gamblers, this means less competitive odds, lower bonuses, and, ultimately, less value for their money.

In turn, this creates a major risk of channelisation failure, where players are driven away from the regulated UK market towards illegal, black-market gambling sites.

A drive to black market sites

This risk is already understood by the authorities.

The UK Gambling Commission (UKGC) recently published the first of a series of reports identifying the key motivations that draw consumers to unregulated sites. These sites, which are unlicensed by the UKGC, pose a critical danger as they lack mandatory safeguards like identity verification, spending limits, and self-exclusion schemes (such as GamStop).

The UKGC found that players are primarily attracted to the black market by two factors:

• Better odds/promotional offers

• Ability to bypass stringent regulatory checks

If regulated sites are forced to offer less generous odds due to higher taxes, the illegal market's appeal, which offers no consumer protection, will only grow stronger. This trade-off pits social funding against player safety.

Disagreements within the party

The Treasury is currently working on combining the various gambling duties into one, but has faced backlash and strikes over this from the horse racing community.

Some believe that the different levels of tax should stay as they are, as different forms of gambling carry various levels of danger.

Reeves also faced opposition from her own party, with Baroness Fiona Twycross disagreeing with the tax hike. Twycross is the Minister for gambling and has publicly expressed her hesitation in increasing the gambling tax, imploring the Government to “look at what the implications are of raising taxes”.

Her quotes echo one of the key issues of raising the gambling tax in the UK. The lure of illegal gambling sites is already a problem for many UK players. A tax hike would only exacerbate this.

Is a trade-off worth it?

As the Labour Party moves to cement its commitment to tackling child poverty, the proposed gambling tax hike remains the clearest and most politically palatable path to securing the necessary £3.2 billion.

Yet, as the Chancellor weighs the benefits of funding this crucial social reform, the lessons from Europe are clear: aggressive taxation forces regulated operators to offer less value, directly fueling the growth of the unsafe, illegal black market.

The government’s final decision represents a critical trade-off: using the gambling industry’s profits to fund social justice, but potentially at the cost of player safety within the regulated UK market.