UK Gambling Industry Warns of Closures and Black Market Growth After MGD Tax Hike

Key Highlights:

• The UK’s increase in machine games duty (MGD) to 25% has prompted concerns about profitability, retail gambling venues and future investment.
• Industry figures warn that higher taxes could push more customers towards unregulated gambling operators.
• Operators face mounting pressure from successive tax increases, with smaller retail businesses considered particularly vulnerable.

The UK gambling industry has raised concerns about the probable consequences of the administration’s decision to increase machine games duty (MGD) to 25%, with industry representatives warning of further pressure on already tight margins. Announced by Chancellor John Healy in the autumn budget, the five percentage point increase was smaller than the 40% rate discussed in industry debates prior in the year. 

Although some operators may view the final rate as less severe than anticipated, advisors and compliance specialists argue that the rise must be considered alongside other tax and regulatory changes affecting the sector. Their concerns include problem gambling venue closures, job losses, reduced investment, and a customer activity shift towards unregulated operators.

Why Is the UK Gambling Industry Concerned About the MGD Increase?

The increase in machine games duty has drawn mixed reactions across the UK gambling sector. While the final rate was less than some industry observers had feared, representatives say that the additional tax will add to the financial pressure facing gambling businesses. Dan Waugh, partner at advisory firm Regulus, cautioned against interpreting the smaller-than-expected increase as an optimistic outcome. 

He argued that businesses would still face a massive extra burden and advised that the measure could lead to further venue closures and job losses. Waugh also raised concerns about the effect of frequent fiscal changes on the UK’s reputation among prospective stakeholders. Legal experts have expressed similar concerns. Bethan Lloyd, a partner at Wiggin, said the industry was already operating under considerable pressure, making an extra five percentage point increase treacherous for businesses with narrow margins.

Lloyd also emphasised the potential drawbacks for horse racing revenues, given the importance of retail betting shops to the sector. She expects further consolidation and cost cutting, although technological developments and new market entrants could help ease some pressure over time. The latest increase follows a change announced in the prior budget by the then Chancellor Rachel Reeves, who raised remote gaming duty from 21 to 40 percent. 

A separate increase in general betting duty for remote betting is also scheduled to take effect next year, rising from 15 to 25 percent. Altogether, these changes have intensified concerns about the cumulative tax burden on gambling operators. Industry representatives argue that the impact extends beyond individual tax rates, affecting business planning, investment decisions and the viability of retail operations. 

The 40 percent MGD rate discussed before the announcement was largely associated with a report from the Social Market Foundation think tank, which had called for a higher rate. Industry observers have emphasised that this proposal was not an official Treasury plan.

Could Higher Gambling Taxes Accelerate Growth in the Illegal Market? 

One of the strongest warnings has come from Ismail Vali, president of Gaming Compliance International, who described the tax increase as part of a “perfect storm” that could encourage customers to move towards unregulated gambling operators. Vali cited estimates suggesting that the unregulated share of UK online gross gaming revenue rose from 0.43% in 2020 to an estimated 9% by the end of 2025. He warned that the market was approaching a point at which illegal operators could account for a substantially larger share of gambling activity. 

According to Vali, legal operators facing tighter margins may reduce marketing expenditure, potentially making it easier for offshore competitors to appeal to customers through better odds or bonuses. He also warned that consumers may struggle to distinguish between licensed and unlicensed gambling platforms.

The emergence of offshore websites that can reportedly be launched for as little as 25,000 pounds  adds to those concerns, according to Vali. Such relatively low entry costs could make it easier for unregulated operators to establish an online presence and reach customers. 

Industry figures differ in their expectations for how the sector will adapt. Lloyd believes larger, diversified groups such as Flutter and Entain are better positioned to absorb higher costs than smaller businesses and operators focused primarily on retail gambling.Waugh anticipates further venue closures and job losses but does not expect tax increases alone to trigger a broad wave of mergers. Vali, meanwhile, expects retail gambling to consolidate, some operators to fail and more customers to move towards online platforms.

Vali argues that stronger enforcement and coordination between regulators, advertising channels, payment providers and digital platforms will be necessary to limit the growth of illegal gambling. He has called for greater emphasis on channelisation  ensuring that customers use regulated gambling services rather than unlicensed alternatives.

The debate also raises questions about the government’s longer-term approach to the sector. Waugh suggested that the government’s tone towards gambling businesses could indicate further tax pressure in the future, particularly when compared with its more positive remarks about the banking industry.

For operators, the immediate challenge will be managing higher costs while maintaining the competitiveness of licensed gambling services. The final impact will depend on how businesses respond, whether consumers change their gambling habits and how effectively regulators tackle unlicensed operators.

The central concern raised by industry representatives is that higher taxes could have consequences beyond operator profitability. If smaller businesses close and more customers move to unregulated platforms, the government may face a difficult balance between raising revenue, protecting consumers and sustaining a viable regulated gambling market.