Ahead of the Budget on 30 October, Rachel Reeves is being bombarded by lobbyists urging her to loot their enemies. The New Economics Foundation wants a ‘jet-setter tax’ on frequent fliers of €100 per flight. Action on Smoking and Health wants a levy on tobacco companies. Greenpeace reckons it can raise at least £26 billion a year by levying a wealth tax on the ‘super-rich’. An assortment of think tanks and pressure groups linked to the Labour donor Derek Webb think they can squeeze another £3 billion out of the gambling industry by doubling gaming and betting duties. Meanwhile in Scotland, the neo-temperance lobby are demanding a ‘levy’ on alcohol retailers who, they claim, are getting rich off the back of minimum pricing (a policy that only exists because they lobbied for it).
The appeal of these taxes lies in the old adage ‘Don’t tax you, don’t tax me, tax that fellow behind the tree’. They will, supposedly, only affect faceless corporations and ‘those with the broadest shoulders’, and who cares about them? Alas, it is more complicated than that and the Labour party is starting to realise that if there were billions of pounds lying on the pavement, the last government would have picked them up. Putting VAT on school fees and taxing non-doms were the closest thing Labour had to a magic money tree before the election, but it is now widely recognised that they will raise little if any revenue and the overall impact on the public finances could well be negative.
It is a reminder that before you hike up taxes, you should give a little thought to the unintended consequences, and yet the wider economic consequences of windfall taxes on industries that have not been the beneficiary of any obvious windfall are rarely considered. It is probably fair to say that the New Economics Foundation does not have the best interests of either the airline industry or business travellers at heart. For anti-alcohol, anti-gambling and anti-smoking groups, creating unemployment in the industries they attack is not so much an unintended consequence as the whole point.
The idea of doubling machine games duty, doubling general betting duty and hiking remote gaming duty from 21 to 50 per cent comes from a report by the IPPR, a centre-left think tank. It contains no modelling of the impact on the wide range of companies that will be affected and the entire analysis runs to just four paragraphs. It might as well have been written down the pub on the back of a beer mat. Insofar as it is possible to discern the IPPR’s logic, it is that if you double the tax rate, you make twice as much money.
This is naive in the extreme. Take general betting duty, for instance. This is the tax that bookmakers pay. The IPPR wants to increase it from 15 to 30 per cent. It is not clear whether the IPPR understands this, but general betting duty is paid on Gross Gambling Yield (GGY), which is the amount of money an operator has taken in stakes after it has paid out winnings. It does not include operating costs, rents, wages and other overheads. Although GGY is sometimes misleadingly referred to as ‘profits’, it is much closer to ‘revenue’. The IPPR is proposing that the government snaffle an extra 15 per cent of what a bookmaker earns before he has covered any of his expenses. In other words, any bookie who makes a margin of less than 15 per cent will – all things being equal – be put out of business.
The same applies to other parts of the gambling sector. Take casinos, for example. Last year, Grosvenor casinos made £23.7 million profit from £331 million revenue, a margin of 7 per cent. Mecca casinos made £3.9 million profit from £139 million revenue, a margin of 3 per cent. Even these modest figures flatter the industry. When the impact of club closures is taken into account, Grosvenor’s profits fell to £16.5 million and Mecca made a loss of £1.7 million. Much of a casino’s revenue comes from machine gaming, taxes on which the IPPR wants to double from 5-20 per cent to 10-40 per cent (depending on the machine). Again, this is a tax on revenue, not profit. Combined with a hike in gaming duty, which casinos also pay, it would make virtually every casino in the country unviable. And while the IPPR spares bingo clubs from a rise in bingo duty on the basis that bingo is ‘lower harm’, they make a lot of their money from gaming machines and would also be under threat.
Even many online gambling companies, which tend to be more profitable, would find it hard to survive if remote gaming duty was hiked from 21 to 50 per cent. In crude terms, they would need to have a profit margin of at least 30 per cent to stay in business, but few of them do. Rank’s online gaming business, for example, yields a margin of 10 per cent while Evoke, which owns William Hill and 888, has a margin of 13 per cent.
It would be too simplistic to say that all these businesses will go bust if Rachel Reeves capitulates to the anti-gambling lobby on taxation, but many of them will. Some of the others could survive, but only by making redundancies and giving customers a worse deal by, for example, offering shorter odds. They might do less advertising and few people would complain about that, but advertising agencies employ people too.
What is certain is that there is not £3 billion – or anything close to it – swishing around the gambling industry that can be painlessly creamed off by the government. The same is true of the wider economy. Contrary to left-wing orthodoxy, the Conservatives have milked it dry. There is no easy money.
