How the Gambling Industry Will Benefit from Tax Cuts & Energy Price Help

The United Kingdom has had a storied time of it recently. The election of a new Conservative Party leader, and by default, Prime Minister in Liz Truss. The death of the longest ruling monarch in Queen Elizabeth II. And many people being fearful of the near future. Increasing energy prices and the general cost of living have not put the country in good stead.

It’s not only the people of the UK that have been suffering. Businesses across the country have also been on the receiving end of it all. This includes those in the gambling industry sector.

Once Liz Truss became the new PM of the country, she vowed to introduce significant change. After assembling her cabinet, many things were at the forefront of her rule. This led to a mini budget coming to light towards the end of September. UK chancellor Kwasi Kwarteng launched a large collection of tax cuts through this.

The biggest in half a century, actually. Within that, reductions of £45 billion for people and businesses by 2027 came to light. That stands as 50% more than anticipated in the initial stages. Truss and her government said they want to boost growth in the UK. This, it said, will help usher in a new era for Great Britain.

The question is what does this mean for the UK gambling industry? How will the tax cuts and energy price help support businesses within? We’ll take a closer look at this question to see what gambling companies can expect.

What Did the Mini Budget Entail?

With the mini budget from Kwarteng made public, what did it incorporate? Well, the first and most poignant part for many people was the scrapping of the 45% extra rate income tax band. That would have applied to those earning more than £150,000. Kwarteng also announced that the 40% higher rate for those earning over £50,271 will remain.  The scrapping of the 45% rate was, however, later abandoned due to the negative reaction of the markets to the policy.

Further to this, a cut in the basic rate of income tax from 20% to 19% was also a part of it. This will come into effect in April 2023. Those changes apply to England, Wales and Northern Ireland more so than Scotland.

The 1.25%-point national insurance rise from earlier on in 2022 will also disappear from November 6. To add to that, the cap on bankers’ bonuses will also disappear – a move that has angered many.

Kwarteng also cancelled the increase in corporation tax scheduled for next year. That was due to the rise from 19% to 25%, although will stick at the current rate now. Reversing this tax rise will allow £19 billion per year to remain in the economy. This, he said, will allow companies to utilise the funds to “reinvest, create jobs, raise wages, or pay dividends which support our pensions”.

That particular alteration was something expected. Truss pledged to cancel that rise early on in her campaign to become Tory leader. Of course, it is a welcome change for business groups. Yet those firms who aren’t turning a profit will doubtless dislike it. Combining that with the anger over the bankers’ bonuses, and it is shaky ground.

Some of his colleagues even lambasted him for that move. Most people have commented on the mini budget benefitting those who are better off. Plus, some have said that it is deepening the divide already experienced in the Tory Party.

There was also an energy price cap introduced as part of the changes. The Energy Price Guarantee is set to reduce the unit cost of both electricity and gas. Through this, a typical British household will pay around £2,500 per year, on average, for energy. That guarantee is due to start from October 1 this year and run for two years. The consumer saving will base itself on usage. Yet, expectations suggest that around £1,000 a year is saveable this way.

It didn’t take long for Labour leader Keir Starmer to comment on the budget. He said that the government are “gambling the mortgages and finances” of the people. And the mini budget did manage to send the British pound spiralling to its lowest level in 37 years. Yet what will the gambling industry get out of the changes?

What Will the Gambling Industry Get from the Changes?

Let’s start by taking a look at the energy price cap. This did stand out as being something that was likely to have a negative effect on land-based sites. After all, casino establishments and betting shops need heating and electricity to run. Casinos in particular are huge buildings to have to operate.

They need vast amounts of heating and electricity. With the constant increasing prices, many operators worried over this. In August, the Betting and Gaming Council (BGC) said that it wanted to see urgent action taken. It said the energy prices would be “catastrophic” in the hospitality and leisure sector.

The after-effects of COVID-19, Russia’s invasion of Ukraine and climate change all shoulder the blame. Global energy markets suffered vast disruption and this led to the price rates of oil, coal and natural gas exploding. In fact, the International Monetary Fund (IMF) said prices had gone up almost sevenfold.

The hospitality industry stood out as being one of the worst to suffer from such. Brick-and-mortar casinos and bookies make up part of this sector, they were likely to suffer thanks to the soaring energy bills.

The cap that makes up part of the new policies is doubtless going to help many. Although for a lot of people, it’s not actually going to be enough. After all, £2,500 per year is still a massive price for energy. If that cap also applies to businesses like casinos and bookies, then it will be quite the gift. Doubtless, the cost for energy within these establishments is much more than the cost in a house.

If the cost is being capped at £2,500, that’s beneficial. Yet, it does state that the saving will base itself on general usage. Thus, while a cap is in place for households, do businesses also get this benefit?

Next, let’s have a look at the scrapping of the corporation tax rise. The current rate of this is 19%, and with the scrapping of the increase, this will remain. Thus, companies will continue to pay 19% tax on their trading profits. With this being the case, cash will remain in the businesses themselves. The hike was set to come into effect in April 2023, moving it to 25%. That proposed increase would have hit profit-making companies hardest. It would also have made calculating their tax rate much more complex.

That tax increase would only have affected firms making more than £250,000 in profit. Around 10% of companies trading in the UK fall into that bracket. Those companies making between £50,000 and £250,000 would also experience an increase. This was also set to go up to 25%, although it would occur in increments. Any other firm (the remaining 70% in the UK) would remain at the 19% tax rate. That rate will remain at 19% for all businesses in the UK now.

If we take William Hill as an example, we can explain it further. (We realise that the company bases itself out of Gibraltar. But it is a popular UK bookmaker, and this exists as a basic example). In 2020, William Hill made a profit of £80.3 million before any interest and tax.

Removing the 19% tax from that, if William Hill based itself out of the UK, equates to around £15,250,000. An increase in tax to 25% would see that figure increase to £20,075,000. That’s an extra £5 million that would disappear from the company. The cancellation of that tax rate means that that extra money stays in the company.

Companies based in Gibraltar, like William Hill is, currently pay 12.5% tax on income. That increased from 10% in August 2021. Utility and energy providers, as well as those that abuse dominant positions, pay a higher rate of 20%. One of the main reasons that gambling companies operate out of Gibraltar is GGY. A 1% tax on Gross Gambling Yield occurs there. Whereas in the United Kingdom, this stands at anywhere between 15% and 50%.

If companies are only offering online gambling, then it makes more sense to stay in Gibraltar. Or in other offshore locations. Because the corporation tax isn’t changing, it means nothing to gambling businesses.

Will The Budget Stop Gambling Businesses Closing?

Nobody spoke of gambling businesses closing the doors of their land-based operations. Yet it remained a talking point for many brands, considering the energy price rises and so on. Calls for urgent action were not born out of nothing. Genuine fears within the UK gambling industry were being felt and likely still are for the time being, too. Will the energy price cap and announcements within the mini budget help save them?

Anything that can reduce the outgoing cost of a business is likely to be of help and energy price caps are a good place to start. The gambling industry hasn’t actually been a point of note during the mini budget, though. Or rather, it hasn’t come up as a highlighted area for benefitting from the changes. The truth is without footfall coming through the doors, these businesses won’t survive. That’s the norm for any company. Custom is a necessity. Rising costs in the UK would likely have had an impact on this being possible. So, the mini budget could have a positive effect, even if indirectly.

If people know they will pay less on energy prices. Know that they won’t have to pay an increase on national insurance. Know they can enjoy their earned money without paying extra income tax. Then, it could be the case that they have extra funds left over at the end of the month. That could be the incentive that some people need to consider returning to casinos. Or to their favourite bookies. A survey conducted in March 2022 displayed interesting results. The results showed that 18% of gamblers said they would stop playing, thanks to price hikes. A further 32% said they would reduce their general spend.

Conducted by YouGov for the Department of Trust, the survey gave a glimpse into the future. At least, if the cost of living continued to increase and over the months since March, it has. That was only expected to get worse as the winter months approached. A reduction in gambling activity isn’t good for the industry. There is the chance for the mini budget to stop this from happening, though.

There is no guarantee that it will, of course. For most people, heating their homes and eating will be a first concern. Gambling will be on the backburner as a luxury and this is how it should be. It’s never a good thing when betting or gaming is a “necessity” in someone’s life. But there is more potential for extra funds to be there with the help from the government. In that case, some people may consider having a punt or two on their favourite sports. Or spinning the reels of their favourite slot game(s). Time will tell how the winter months affect peoples’ finances in the United Kingdom and the industry will see how much players are willing to spend on their gambling interests.