Gambling companies don’t lose very often but nor are they usually playing a game of poker against the chancellor of the exchequer,At next week’s budget, Rachel Reeves is widely expected to announce an increase in the duties that bookies and casinos pay to the Treasury, ending months of speculation and frenzied lobbying designed to sway the government,The tax rise could cost the industry anything between about £1bn and £3bn, depending on how far Reeves turns the screw,To some, that would be fair recompense for an out-of-control industry grown fat on misery,To others, it would be an anti-growth tax that will backfire, costing thousands of jobs and fuelling the illicit market.

The devil is in the detail.It’s complicated but, in essence, it works like this.When customers win, they aren’t taxed at all.For companies, there are three main rates of duty:Remote gaming duty (RGD), applied to online games of chance, is levied at 21% of profits applied to what they win from punters.Machine games duty (MGD) applies to physical slot machines, mostly at 20%.

General betting duty (GBD) is taxed on bookmakers’ winnings from sports such as football and horse racing, mostly at 15% in betting shops and online,Together, these duties raised about £2,5bn last year, paid out of total industry revenues of about £11,5bn,The Treasury has consulted on harmonising the varying tax rates but almost nobody wants this to happen or thinks it will.

Two influential thinktanks, the IPPR and SMF, recommend increasing all of the rates significantly, to raise £3.2bn and £2bn respectively.Both say that RGD, the largest of the duties because it is charged on the fast-growing online sector, should be more than doubled to 50%.The former prime minister Gordon Brown has swung his political heft behind the higher figure, which he and the IPPR say could pay for an end to the two-child cap on state benefits.They claim increases on this scale would cause huge job losses, drive punters to unregulated illicit operators that put customers at greater risk and would ultimately be counter-productive, resulting in lower tax receipts.

A report by the accounting firm EY, commissioned by the industry’s trade body, the Betting and Gaming Council (BGC), suggests the IPPR’s proposal could result in the loss of 40,000 jobs and cost the UK economy £3bn a year.The IPPR has described this analysis as “deeply flawed”.The boss of Betfred, the billionaire Tory donor Fred Done, has claimed would have to close all of his 1,287 bookmakers if taxes go up, at a loss of 7,500 jobs alone.That is the accusation levelled at gambling companies in a report by MPs on the Treasury select committee, after a testy evidence session with the chief executive of the BGC, Grainne Hurst.She sparked gawps of incredulity among MPs when she claimed that gambling did not cause any “social ills”.

The committee did not find this credible and applied the same scepticism to the industry’s doomsaying about tax rises.There appears to be a playbook.Stewart Kenny, the retired co-founder of Paddy Power who now campaigns for tougher gambling regulation, told the committee that he too used to raise the spectre of the illicit market when he was an industry advocate trying to lobby against higher taxes.It is also worth looking back at what the industry claimed when the government unveiled plans to cut the £100-a-spin stake on fixed odds betting terminals (FOBTs) in 2018.Back then, a KPMG report for the industry claimed more than 4,000 bookmakers would close.

In the end, about half that number did and much of that was down to the pandemic and the long-term shift to online gambling, encouraged by gambling companies themselves.The Betfred billionaire’s apocalyptic predictions should also be taken with a pinch of salt.Back in 2018, he said FOBT curbs would force 500 of his 1,644 shops to shut.Two years later the Done family paid themselves a £10m dividend and the chain still has 1,287 shops.It has been intense.

During a summer charm offensive by the BGC the industry hosted senior Labour staffers at a darts-themed evening, while BGC chair, Michael Dugher, boasted of his many meetings with senior MPs, including one of his oldest and closest friends in politics, who happens to be Rachel Reeves.A source close to the chancellor said she had no formal meeting with the BGC and would not ever have discussed the tax changes with him.The media played its part too.The Sun, for instance, ran a front-page campaign headlined “Save Our Bets” that urged Reeves to “shelve crackdown on fun”.The Sun Bingo website’s revenues from its shared betting partnership with the gambling software company Playtech increased 7% to €78.

9m (£69,4m) last year,SunBets is to be relaunched next year,Yes,First, the illicit market isn’t a total paper tiger.

It is growing and there is some reason to believe that raising taxes too steeply risks contributing to that.Alun Bowden, a leading industry analyst at Eilers & Krejcik Gaming, explains that one of the biggest pulls for customers is being offered “bonuses”, such as free bets given on opening an account.“It’s the main way of attracting and retaining players.It’s buy one get one free at Tesco, or the loyalty card at Pret,” he says.These “free” bets aren’t customers’ real cash, they are notional “house” money.

However, when punters lose these bets, the sums still count towards the duties levied on operators,“[If taxes rise] the sensible thing is to slash that bonus because you’re giving more of your own money to the government,The black market would not do that,If anything they’d increase it,”This, says Bowden, means that the threat of an exodus to the parallel market cannot be ignored.

“It’ll happen slowly and then all at once,” he says, addding that it is also true that there is a level of tax that would result in a much smaller online gambling industry, or even wipe out profitability,For RGD, Bowden says, this falls somewhere between 35% and 40%,There are undoubtedly many people who campaign for gambling reform who would be happy to see a smaller UK industry,Horse racing relies heavily on income from bookmakers, through media rights deals, fees for data, and the horse racing levy, worth about £100m a year (effectively an extra 10% tax on racing bet income),Both the SMF and IPPR have recommended a carve-out for horse racing that would mean lower duties and mitigation measures.

The SMF recommended increasing the levy to mitigate any negative consequences.Elements of the horse racing industry, many of whom have no affection for online casino games, have broken ranks with the bookies, saying they would be happy with higher duties on that part of the industry, as long as they are left alone.Thebookmakers argue you cannot separate the two like that.If their income is curbed, they will have less to contribute to racing through media rights deals, so racing will suffer.Chatter in the industry and in Westminster suggests the Treasury will probably end up opting for a middle ground, raising between £1bn and £2bn without triggering significant job cuts.

Most of the rise will probably apply to RGD, given the relative unpopularity of online casino and slot machines games with the general public,To raise an extra £1bn without increasing GBD), RGD and MGD would have to go up by more than 10 percentage points each,