UK Gambling Stocks Tumble As Tax Hike Plans Emerge
Shares in leading UK gambling companies plummeted, wiping out over £3bn from their value. The sell off was triggered by reports the Treasury is looking to increase taxes on the industry by £900m-£3bn to plug a £22bn black hole in the public finances.
Different Tax Rises Proposed
Rachel Reeves, the UK’s Chancellor of the Exchequer, is being urged by two leading think tanks—the Social Market Foundation (SMF) and the Institute for Public Policy Research (IPPR)— to tax the gambling industry.
The recommendations suggest the sector which makes £11bn a year from British customers could help fill the fiscal gap through extra duties. The government’s first budget in 14 years under Labour is on 30 October and the tax rises are being considered as part of the plan.
The SMF is proposing a smaller tax rise on online gambling companies, a 21% to 42% tax rate which would generate £900m. The IPPR is proposing a bigger hit, doubling taxes on higher risk gambling activities which would raise £2.9bn next year and £3.4bn by 2030.
The IPPR’s plan would increase duties on “higher harm” products like online casino games and leave taxes on “lower harm” activities like lotteries and bingo unchanged.
Market Reaction
After these reports shares in big gambling companies tanked. Flutter Entertainment, owner of Paddy Power and SkyBet, saw its shares drop 9% in New York which is £2.5bn of value.
When the FTSE opened on Monday other operators followed. Entain, owner of Ladbrokes, was down 14% and £700m of value was wiped off. Evoke, Playtech and Rank Group also fell by 2% to 12%.
Analysts don’t think the government will go for the higher tax rates but the uncertainty around regulation and tax is hitting the sector hard. Jefferies, a brokerage, warned that extreme tax rises could be devastating for profitability and could wipe out smaller operators. AJ Bell analysts also pointed out the regulatory challenges facing the industry which are ongoing risks for investors.
The Treasury is still discussing the budget and the gambling sector is on edge. The tax rises would have big implications for operators and investors.
It’s not clear which proposal the government will go for but the sector is now under pressure to navigate a tightening regulatory and fiscal landscape. Investors will be watching closely as the 30 October budget approaches with many expecting big changes to the tax structure.
