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The £92 Million Question: How a Proposed Machine Games Duty Hike Could Reshape British Gambling and Horse Racing

By jili tutorial · October 7, 2026

The £92 Million Question: How a Proposed Machine Games Duty Hike Could Reshape British Gambling and Horse Racing

Setting the Scene: A Looming Budget Decision

As Chancellor John Healey prepares to deliver the autumn Budget later this month, the UK gambling industry is bracing for what could be one of the most consequential tax changes in recent memory. The government is reportedly considering doubling the Machine Games Duty (MGD)—the tax levied on revenues from category B gaming machines found in betting shops, bingo halls, and casinos—from its current rate of 20% to 40%.

While the Treasury may view this as a straightforward revenue-raising measure, a newly published analysis from consultancy firm Regulus Partners paints a far more complex picture. The report warns that such a move could not only fail to deliver the anticipated tax windfall but also accelerate the decline of British high streets, decimate the horse racing industry, and paradoxically reduce overall tax receipts.

Understanding Machine Games Duty: What’s at Stake?

What Is MGD and How Does It Work?

Machine Games Duty is a form of excise duty applied to profits from gaming machines. The current standard rate stands at 20% for category B machines—the type typically found in high street betting shops. These machines, which include Fixed Odds Betting Terminals (FOBTs) and their successors, generate significant revenue for bookmakers and, by extension, contribute to government coffers through taxation.

The Government’s Stated Rationale

The Treasury’s argument for doubling MGD to 40% appears straightforward: if a 20% rate generates approximately £300 million annually, a 40% rate should theoretically generate £600 million. However, this simple arithmetic fails to account for behavioural responses, business closures, and the wider economic ripple effects that Regulus Partners has now quantified in detail.

The Financial Breakdown: A Typical Betting Shop’s Economics

To understand why the proposed tax hike could prove so damaging, it helps to examine the financial structure of an average British betting shop. According to Regulus Partners’ analysis, each shop currently generates annual revenues of approximately £440,000, derived equally from two sources:

Where Does the Money Go?

The revenue distribution reveals just how tightly balanced these operations are:

Expense CategoryPercentage of RevenueApproximate Annual Amount
Staff costs (wages, NI, pensions)~30%£132,000
Government duties and VAT~20%£88,000
Rent~20%£88,000
Business rates7–10%£31,000–£44,000
Horse racing (media rights + statutory levy)~6%£26,400
Remaining operational costs and profit~10–14%£44,000–£62,000

The Crunch Point: Where the £45,000 Bites

The proposed MGD increase to 40% would add approximately £45,000 in annual costs per shop. To put this figure in context:

“While the increase may appear modest in isolation, it effectively eradicates free cash flow for a typical shop,” the Regulus report concludes. With no surplus to absorb the additional tax burden, many shops would face an impossible choice: close immediately or operate at a permanent loss.

The Domino Effect: Predicted Shop Closures and Job Losses

A Three-Year Collapse

Regulus Partners’ modelling projects a catastrophic contraction of the betting shop estate if no mitigating measures accompany the tax rise:

Wider Economic Impact

The consequences extend far beyond the betting shop doors:

Example—The High Street Effect: When a betting shop closes, it rarely leaves an empty unit for long. However, the immediate effects are stark: footfall in the surrounding area declines, nearby cafes and newsagents lose regular customers, and the premises often remains vacant for months or years, contributing to the visual blight of struggling high streets. In towns where the betting shop is one of the few remaining anchor tenants, closure can accelerate wider retail decline.

The Horse Racing Connection: A £92 Million Blow

An Unlikely Symbiosis

The relationship between betting shops and British horse racing might seem counterintuitive—one takes bets, the other stages races—but they are deeply interdependent. Betting shops contribute to racing through two primary mechanisms:

  1. Media rights payments: Bookmakers pay racing’s governing bodies for the right to broadcast races in their shops.
  2. The statutory levy: A legally mandated contribution calculated as a percentage of betting profits on horse racing.

Together, these payments form a critical revenue stream for the sport.

Quantifying the Damage

Regulus Partners estimates that the MGD increase would cost horse racing approximately £92 million annually ($121.6 million). This represents:

A Concrete Example: Consider a regional racecourse that hosts 20 race days per year. Its prize money is funded by a combination of sponsorship, entry fees, and contributions from racing’s central funding bodies, which rely heavily on betting-derived income. A £92 million reduction in the sport’s income could force prize money cuts of 20–30%, making it harder to attract competitive fields, reducing race quality, and ultimately diminishing the sport’s appeal to both punters and television audiences.

The BHA’s Response

The British Horseracing Authority (BHA) has responded with unusual force. In an official statement, the regulator described the modelling results as a “stark warning” to both the industry and the government.

“We strongly urge the government to seriously consider the secondary impact on horse racing of a tax hike on betting shops, and also urgently explore measures to ensure that British racing – and the 85,000 jobs it supports – is put on a long-term and sustainable financial footing.”

— Greg Swift, BHA Director of Communications and Corporate Affairs

The BHA’s concern is not merely academic. British racing is already navigating a challenging period, with declining attendances at some tracks, increased competition from other sports and entertainment options, and the lingering effects of COVID-19 disruptions. A sudden £92 million contraction in income would be devastating.

The Contradiction: Why the Treasury’s Projections May Be Wrong

Challenging Assumptions

Both Regulus Partners and the BHA question the fundamental assumption underpinning the tax rise: that doubling MGD will double tax receipts. The analysis suggests the opposite could occur.

The Numbers Behind the Projection

Regulus forecasts a potential 32% decline in total MGD revenues to approximately £155 million if the predicted shop closures materialise. This seemingly counterintuitive outcome arises from a simple equation:

Even accounting for the shops that survive, the reduced estate generates substantially less total MGD revenue than the current system.

The Economics of Tax Rate Increases: The Laffer Curve in Practice

This situation exemplifies the economic concept known as the Laffer Curve, which posits that there is an optimal tax rate that maximises revenue. Beyond this point, higher taxes reduce economic activity so significantly that total revenue actually falls. While the curve is typically discussed in the context of income tax, the same principle applies to sector-specific duties like MGD.

Historical Parallel—The French Example: France provides a cautionary tale. When the government significantly increased taxes on gambling machines in the early 2000s, the regulated market contracted dramatically, and unlicensed operators filled the void. Tax revenues from the sector declined despite the higher rate, while problem gambling prevalence remained unchanged—the activity simply moved underground.

Industry Pushback: A United Front Forms

Regulus Partners’ analysis joins a growing chorus of opposition to the proposed MGD hike. Key industry figures and analysts have all weighed in with their own assessments.

Deutsche Bank: Rank Group’s Exposure

A recent analysis from Deutsche Bank identified Rank Group as the operator most vulnerable to an MGD increase, owing to its substantial land-based footprint. The bank’s estimates paint a concerning picture:

Entain CEO: The Black Market Warning

Entain CEO Stella David has warned of a different but equally concerning consequence: customer migration to the unregulated market. She estimates that up to £1 billion in gambling stakes could shift to black-market operators if the tax rise goes ahead.

“They are people losing their jobs and communities losing long-established high street businesses.”

— Stella David, Entain CEO

Betfred Owner: An Even Worse Projection

Fred Done, owner of Betfred, has offered an even more pessimistic projection. He states that the MGD hike would force Betfred to close 495 of its shops within a year, resulting in:

The Bigger Picture: What This Means for UK Gambling Policy

A Pattern of Increasing Pressure

The proposed MGD increase arrives amid a period of intense regulatory scrutiny on the UK gambling industry. The Gambling Act Review—which concluded with the publication of the Gambling Act White Paper in April 2023—has already introduced proposals for stricter affordability checks, stake limits on online slots, and enhanced problem gambling research funding.

Industry stakeholders argue that increased taxation on top of these regulatory burdens could create a “perfect storm” that undermines the viability of the regulated market as a whole.

The High Street Context

The betting shop network has already contracted significantly over the past decade due to:

According to industry data, the number of betting shops has fallen from approximately 9,000 in 2010 to around 5,500 today. The proposed MGD increase could accelerate this decline dramatically, reducing the sector to a shadow of its former size within just three years.

Frequently Asked Questions

Why does the government want to increase MGD?

The stated aim is to raise additional tax revenue for public services. The Treasury may also view it as a public health measure, aligning with broader efforts to reduce gambling-related harm by making gambling more expensive.

Could shop closures actually reduce problem gambling?

While reduced availability of physical betting shops might lead to some decrease in gambling participation, experts point out that customers displaced from the regulated market are more likely to migrate online—to either licensed or unlicensed operators—than to stop gambling entirely. The net harm reduction effect is therefore questionable.

Are there alternatives to doubling MGD?

Several alternative approaches could raise revenue without catastrophic industry impact:

The Road Ahead: What to Watch For

With the autumn Budget scheduled for late October, the industry has limited time to make its case. Key questions remain:

  1. Will the government proceed with the full doubling to 40%, or moderate its ambitions?
  2. What mitigation measures might accompany the increase (e.g., transitional relief, business rates reduction, or offsetting tax cuts elsewhere)?
  3. How will the Treasury respond to the mounting evidence that the tax rise would be counterproductive in purely fiscal terms?
  4. What happens to the statutory levy and media rights arrangements if betting shop revenues collapse?

Conclusion: A Decision with Consequences Far Beyond Gambling

The proposed Machine Games Duty increase is not merely a tax technicality—it is a decision that could reshape the British high street, determine the future of horse racing, and ultimately test the government’s true fiscal priorities. The analysis from Regulus Partners provides a data-driven counterargument to the Treasury’s apparent assumptions, but the question remains whether the evidence will carry sufficient weight in the political calculus.

For the thousands of betting shop employees, the stable staff and jockeys at racecourses across the country, and the local communities that rely on these businesses for jobs and footfall, the budget announcement will carry enormous consequences. The industry’s unified pushback—from consultancy reports to CEO warnings to operator projections—suggests that this is not simply special pleading from vested interests, but a rational assessment of a policy that could fail in its own terms.

As Chancellor Healey prepares to deliver his budget, he faces a choice: pursue a £260 million revenue target that appears increasingly unattainable, or adopt a more nuanced approach that balances fiscal objectives against the economic realities of an interconnected industry. The outcome will reveal whether the government’s stated commitment to economic growth and high street regeneration extends to the gambling sector—or whether it views this industry as an acceptable sacrifice in the pursuit of broader fiscal goals.