UK Gambling Stocks Hit Hard by Speculation of £3bn Tax Hike in Upcoming Budget

Highlights:

• Potential Tax Hike: UK government considers doubling taxes on online gambling, raising up to £3 billion.
• Stock Market Impact: Major gambling stocks, including Entain and Flutter, saw significant declines in response to the news.
• Industry Consolidation: Higher taxes could lead to consolidation, benefiting larger operators like Flutter in the long term.

Shares in major UK gambling companies tumbled on Monday following reports that the government may introduce a significant tax increase on the sector in its upcoming Budget. The potential tax hike could be as high as £3 billion, sparking a sharp sell-off in gambling stocks.

At 0840 BST, shares of Entain were down 13%, Flutter Entertainment dropped 7.2%, Evoke fell by 13%, and Rank Group was down 6.7%. The decline follows a report in The Guardian that Treasury officials are considering proposals to double taxes on online casinos and bookmakers, a move put forward by two influential think tanks and supported by a major Labour donor.

The proposals, which could be included in Labour’s first Budget in 14 years, aim to address a £22 billion financial shortfall identified by Chancellor Rachel Reeves. While no final decision has been made, sources indicated that Treasury officials are open to adjusting the current regime of betting and gaming duties to raise between £900 million and £3 billion.

The Institute for Public Policy Research (IPPR) has reportedly suggested doubling taxes on "higher harm" products, such as online casino games, which could generate £2.9 billion in the next year and up to £3.4 billion by 2030. The IPPR proposal would leave taxes on "lower harm" activities, such as bingo and the national lottery, unchanged.

Another think tank, the Social Market Foundation (SMF), is reportedly working on a more moderate proposal, suggesting an increase in the tax on online gambling from 21% to 42%, which would raise around £900 million.

Commenting on the potential tax changes, Berenberg Bank highlighted the challenges that could arise for operators. The bank assessed various tax scenarios, estimating that a 50% remote gaming duty (RGD) would significantly impact EBITDA and earnings per share (EPS) for companies like Entain, Flutter, and Evoke. Evoke, in particular, would be most affected due to its smaller financial position.

The report also noted that higher taxes could lead to industry consolidation, with smaller operators exiting the market and larger players like Flutter benefiting from increased market share in the medium term, despite short-term earnings impacts.