The UK government's decision to raise Machine Games Duty from 20% to 25% has prompted warnings of betting shop closures, job losses and further growth in illegal gambling.

The UK gambling industry is facing another increase in taxation after Chancellor John Healey announced that Machine Games Duty (MGD) will rise from 20% to 25% in the autumn budget on 28 October 2026.

Although the five-percentage-point increase is considerably smaller than the 40% rate proposed by some policy groups earlier this year, industry representatives have warned that the decision will place additional pressure on an already struggling retail gambling sector.

The announcement follows a series of tax increases affecting both land-based and online gambling operators.

While some industry observers expressed relief that the government had not introduced a more substantial increase, others argued that the cumulative impact of higher taxes and tighter regulations could accelerate betting shop closures and encourage customers to use unlicensed gambling platforms.

Particular concern surrounds the growth of the illegal online gambling market, which industry experts estimate has expanded significantly in recent years.

Machine Games Duty rises to 25%

Machine Games Duty is a tax applied to the profits generated by certain gaming machines, including those operating in betting shops and other gambling venues.

The increase from 20% to 25% represents a 25% rise in the duty rate itself, adding to the operating costs of businesses that depend on gaming machine revenue.

In the months preceding the budget, the industry had faced speculation that the government could introduce a considerably higher rate.

Much of that discussion followed a proposal from the Social Market Foundation, which recommended increasing the tax to 40% as part of a wider review of gambling taxation.

However, that figure was a recommendation from a think tank rather than a confirmed Treasury proposal.

The government's eventual decision was therefore less severe than some operators had feared.

Nevertheless, Dan Waugh, a partner at gambling advisory firm Regulus, warned against treating the outcome as a positive development.

"If your income tax went up by a quarter overnight, you wouldn't see that as a positive," Waugh told iGB.

He argued that the increase would still have consequences for operators, particularly businesses already operating with limited financial flexibility.

Another tax increase for UK gambling operators

The latest announcement comes after significant changes to the UK's gambling tax framework.

In the previous autumn budget, then-Chancellor Rachel Reeves announced an increase in Remote Gaming Duty from 21% to 40%, substantially raising the tax burden on online casino operators.

A separate increase in General Betting Duty for remote betting is also scheduled to take effect next year, with the rate rising from 15% to 25%.

The latest MGD increase therefore adds to a series of fiscal changes affecting different parts of the gambling industry.

For operators with both online and retail businesses, the combined impact could be particularly significant.

Higher taxes reduce the proportion of gambling revenue available to cover operating expenses, investment, marketing and other business activities.

Companies may respond by reducing costs, closing less profitable locations or reviewing their investment plans.

Waugh also raised concerns about the impact of frequently changing tax policies on the UK's attractiveness to international investors.

He suggested that repeated increases could make the market appear less predictable for companies considering long-term investments.

"The industry needs to work out how it breaks this cycle of tax increases and regulatory tightening, because otherwise it's heading to a pretty dark place," he said.

Illegal gambling market approaches 10%

One of the strongest warnings came from Ismail Vali, President of Gaming Compliance International, who believes the combination of higher taxation and tighter regulation could accelerate the growth of illegal gambling.

According to figures cited by Vali, the estimated share of online gross gaming revenue generated by unregulated operators in the UK increased from 0.43% in 2020 to approximately 9% by the end of 2025.

These estimates suggest substantial growth from a relatively small starting point, although measuring illegal gambling activity remains difficult.

"We are knocking on the door of 10% illegal black market share," Vali warned.

He argued that higher taxes could indirectly strengthen illegal operators by reducing the ability of licensed companies to compete.

As regulated businesses face increased costs, they may reduce marketing expenditure, promotional offers or other customer acquisition activities.

Unlicensed operators, meanwhile, do not necessarily face the same tax obligations or regulatory requirements.

This can allow them to advertise more attractive bonuses or betting conditions.

Vali believes that many consumers struggle to distinguish between licensed and unlicensed gambling websites, particularly when offshore platforms resemble legitimate operators.

He also highlighted the relatively low costs associated with launching certain offshore gambling websites.

According to Vali, some ready-made platforms can reportedly be established for as little as £25,000, lowering the financial barriers for businesses seeking to enter the market without obtaining a UK licence.

Why higher taxes could benefit unlicensed operators

The relationship between gambling taxation and illegal market growth is an important issue for regulators.

Licensed operators must comply with UK gambling legislation, including consumer protection measures, identity verification requirements and responsible gambling obligations.

They must also pay the relevant taxes on their gambling revenue.

Unlicensed operators serving British customers illegally may avoid these requirements.

This creates a potential competitive disadvantage for regulated businesses, particularly when consumers compare promotional offers or betting conditions.

Industry representatives argue that excessive taxation could widen this difference.

If licensed operators reduce bonuses, marketing or product investment to protect profitability, some customers may become more attracted to offshore alternatives.

However, the extent to which tax increases directly cause illegal market growth remains difficult to establish.

Consumer behaviour is influenced by several factors, including advertising exposure, product availability, payment options and enforcement against illegal websites.

Vali nevertheless believes the government should place greater emphasis on preventing customers from moving outside the regulated market.

He has called for stronger cooperation between gambling regulators, payment providers, technology platforms and advertising networks.

The objective would be to make unlicensed gambling services more difficult to access while maintaining the competitiveness of legal operators.

Betting shops face further closures

The increase in Machine Games Duty is expected to place particular pressure on retail gambling businesses.

Betting shops have already faced rising operating costs, changing customer behaviour and increasing competition from online platforms.

Gaming machines remain an important revenue source for many retail operators.

A higher tax rate on those machines could therefore reduce the profitability of individual locations.

Bethan Lloyd, a partner at law firm Wiggin, warned that the sector has limited room to absorb additional costs.

"The industry is already very squeezed," Lloyd told iGB.

"A 5% increase on an industry that has very squashed margins is not ideal."

She expects operators to continue reviewing costs and consolidating their retail operations.

Smaller companies and businesses focused exclusively on physical betting shops may be particularly exposed.

Larger groups such as Flutter and Entain have more diversified operations, potentially giving them greater flexibility to absorb higher costs across different business divisions and markets.

However, even larger operators may reassess the commercial viability of individual betting shops.

Waugh also expects further venue closures and job losses, although he does not believe the tax increase alone will necessarily trigger a major wave of mergers and acquisitions.

Horse racing could also feel the impact

The consequences of further retail gambling closures could extend beyond betting operators.

Lloyd highlighted the potential impact on British horse racing, which maintains a close commercial relationship with the betting industry.

Retail betting shops provide an important channel for customers placing bets on horse racing.

A reduction in the number of physical locations could affect betting activity and the revenue streams connected to the sport.

The relationship between gambling operators and horse racing includes sponsorship, media rights and other commercial arrangements.

Any significant contraction in the retail betting sector could therefore have wider consequences for the racing industry.

At the same time, Lloyd suggested that technological developments and new market entrants could help offset some of the pressure facing gambling businesses over the longer term.

Nevertheless, the immediate outlook remains challenging for operators with substantial retail exposure.

Industry calls for stronger enforcement

Vali believes the government's approach should consider the gambling market as a whole rather than focusing exclusively on licensed operators.

He expects continued consolidation within retail gambling, with some businesses potentially unable to withstand the financial pressure.

"I expect to see retail consolidate. I expect some operators to fail, and I expect more migration to online platforms," he said.

His primary concern is that some of this migration could benefit unlicensed operators rather than regulated online gambling companies.

Vali has called for a greater focus on channelisation, the proportion of gambling activity taking place within the regulated market.

He argues that protecting channelisation requires coordinated action against illegal operators, including stronger monitoring, enforcement and cooperation with payment and advertising services.

The UK has an established gambling licensing framework, but Vali believes that its effectiveness depends partly on ensuring licensed businesses remain competitive.

The challenge for policymakers is balancing tax revenue, consumer protection and the financial sustainability of regulated operators.

Further tax increases remain a concern

The gambling industry is also concerned that the latest budget may not be the final increase in taxation.

Waugh pointed to the difference in the Chancellor's language when discussing the gambling and banking sectors.

While announcing an additional three-percentage-point banking surcharge, Healey expressed appreciation for the banking industry's contribution to the economy.

Waugh argued that the gambling sector received no comparable recognition.

He believes the government's approach suggests that further tax increases remain possible.

For now, the increase in Machine Games Duty adds another financial challenge to an industry already adjusting to higher online gambling taxes and changing regulatory requirements.

The immediate consequences are likely to be felt most strongly by retail-focused operators, particularly those with limited margins.

The longer-term question is whether the combined pressure will accelerate the shift towards online gambling and, more importantly, whether an increasing share of that activity will take place outside the regulated market.

For industry representatives, preventing that outcome has become an increasingly important part of the debate over UK gambling taxation.

Source: IGamingBusiness