Risk or revenue – the politics of gambling

The continuing debate around FOBTs would now appear to boil down to whether the Treasury wishes to take the hit in tax revenue that would result if the government institutes a £2 stake limit. By Christina Thakor-Rankin.

While betting and gambling itself may be the ultimate marriage of risk and revenue, in the world of legislation, regulation and taxation, the two are far from being not natural bedfellows – with the management of player risk often perceived to be the ‘Kryptonite’ of operator profit (and therefore tax) revenue.

We only need look at the recent judgment from the UK Gambling Commission against 888 for an example of how this can pan out. The record £7.8m fine shows that operators often tread a fine line between player risk and profit – and sometimes stray from the path.

There are examples from around the world of how the needs of a country or state to plug a domestic economic hole have resulted in the birth of new legislation and regulation designed to bring in revenue in the form of licence fees and taxation from a previously prohibited activity.

There have also been some examples, albeit fewer, where the driver for legislation has been the mitigation of risk, whether based upon social, religious or moral grounds, and where regulation has been introduced to provide citizens with consumer protections and a safety net against unscrupulous operators. The small number of jurisdictions that have tried to regulate on the premise of risk by either limiting the number of operators, stakes, winnings or products available to players in jurisdiction have quickly seen themselves targeted by offshore operators, quick to spot and seize an opportunity.

Nowhere is this dichotomy between risk and revenue better illustrated than by the recent events in the UK in relation to the on-going debate around FOBTs (Fixed Odds Betting Terminals) offering comparatively high stakes, high-speed betting on games such as roulette and blackjack in the 8,000 or so high-street betting shops across the country.

For those not familiar with the UK landscape, there are currently approximately 33,000 machines in operation in high-street betting shops which reportedly generating around £1.7bn a year in revenue. The tax on FOBTs in high-street betting shops currently sits at 25% – raised in 2014 from 20% in a surprise move by the Treasury.

Spearheaded by the Campaign for Fairer Gaming (CFG), and its drive to ‘Ban the FOBTs’, the debate around FOBTs which allow customers to bet up to £100 every 20 seconds (the theoretical equivalent of up to £18,000 in an hour) – coupled with the horrific stories of those who have become addicted to them and resulting in them being dubbed as the ‘crack cocaine’ of gambling – has been raging for the best part of a decade.

The campaign has had some success over the years, most recently following the last review by the Department of Digital, Culture, Media and Sport (DDCMS) which resulted in the Gambling Commission introducing new risk-mitigation measures in early 2016 for players wishing to bet more than £50 on the machines. Granted not the desired complete ban, or, a reduction in stakes or the number of machines permitted per shop, but progress nevertheless, and a more concerted approach by the industry to address harm.

While immediate and more stringent action was allegedly blocked by the then Prime Minister, David Cameron, the government did announce a new review into the machines in late 2016.

A proper look
This gathered momentum and hit the headlines ahead of the last UK General Election with the Prime Minister Teresa May taking an active interest and announcing: “I’m thrilled we’ve got to the point where social responsibility is now at the heart of the Government’s programme. We can now get on with looking at these machines properly.”

This was met by Adrian Parkinson from the CFG who said: “For six years, David Cameron buried his head in the sand over FOBTs. He promised to take a proper look at them but failed to deliver anything meaningful.”

“Now, these highly addictive machines are going to be scrutinised like never before and the charade is over for the bookmakers.”

Over the years there have been allegations of the industry deliberately clustering terminals in poorer areas, including Boris Johnson describing them as “(the) scourge of our high streets” and a “bad influence on our community”, together with pre-election reports of average losses in Labour constituencies of around £3 million, and in Tory constituencies of around £2 million – as well as criminals and drug dealers using the machines to launder dirty money.

Social responsibility and a moral stance against a specific activity (FOBTs in betting shops) which is largely alien to most voters and so easily presented in a coloured light supported by an ongoing government review due to be concluded after the election is arguably a safe manifesto bet for politicians and parties of all persuasions.

Post-election we see a slightly different landscape.

Firstly, a report calling for a reduction in stakes from £100 to £2, published by a group of cross-party MPs, chaired by Labour’s Carolyn Harris, and backed by casinos, amusement arcades and pubs, aimed to influence the ongoing government review, has been found to breach parliamentary standards.

The standards commissioner, Kathryn Hudson, cited a number of breaches by the all-party parliamentary group on FOBTs: failing to record attendance at its meetings; failure to take proper minutes; failure to add a disclaimer making it clear that the report was not an official House of Commons publication; and a lack of sufficient transparency by not disclosing the free help it received from a public affairs company called Interel which works for rival organisations in the gambling sector.

Hudson concluded that the breaches were “at the less serious end of the spectrum”, but while it should not have any material impact, this failing may prove to be useful to the Treasury which according to unofficial sources is seeking to bring the DDCMS review into FOBTs to an expeditious close.

Financially crippling
According to undisclosed Whitehall sources, the FOBTs generate an estimated £400m in tax revenues, and the impact of any reduction in stakes, and especially one as dramatic as £100 to £2, would be “financially crippling” for the Treasury. This especially so given that several pre-election manifesto pledges designed to raise revenue by other means have since had to be reviewed or completely scrapped due to the Conservative Party failing to retain its Parliamentary majority.

Whilst campaigners against the FOBTs are urging the government to continue with the review and take appropriate action, stating that the risks which resulted in the undertaking of the review still hold true, the chances of a drastic reduction may be diminishing.

Not only has the all-party parliamentary group on FOBTs been slightly discredited, having been fuelled by industry rivals who would be the beneficiaries of any reduction in stakes on FOBTs in betting shops, but statistics provided by the bookmakers themselves indicate that the average level of customer spend on the FOBTs is below £100, and in most cases significantly less. This coupled with enhanced social responsibility and player protection measures over the last 12 months and the fact that gambling addiction is not only limited to FOBTs and betting shops, but also casinos, arcades, bingo and online gaming.

This coupled with the woes of the Treasury, it would not be beyond imagining that history is about to repeat itself. Either the government will implement measures which seek to mitigate risk but which do not negatively rebound on the Treasury, as with the measures on FOBTs in 2016; or the Treasury may simply decide to apply a higher tax to a higher risk activity as it did in 2014.

Naturally, neither solution will fully satisfy either party, ensuring that the debate will continue to rumble on – most likely finding itself the subject of another review just in time for the next election.

Related articles: 
Cutting FOBT stake could cost bookmakers £150m – report
Minority government worsens industry outlook on FOBT stakes
FOBT fiasco is an indictment of all stakeholders 
Gambling reviews and growing pains