Could higher gambling taxes increase player losses?

The Social Market Foundation (SMF) proposes raising Machine Games Duty on Category B gaming machines to 40%. It argues that higher taxation could generate hundreds of millions of pounds in additional receipts while reducing gambling-related harm. 2

Casino operators could absorb the additional cost, reduce expenditure or adjust the return to player (RTP) on machines that support different settings. The last option would increase the expected cost of play without changing the maximum stake.

SMF acknowledges that operators might lower machine returns. The consequences for customers who continue playing deserve closer examination.

The operator's options

Machine Games Duty (MGD) is charged on gross gambling yield (GGY), broadly the amount wagered less winnings paid out. HMRC currently applies rates of 5%, 20% and 25% according to game characteristics. Category B is a regulatory machine classification, not a single existing MGD tax band. 3

Category B1 casino machines have a maximum stake of £5 per game. Where the installed game supports different manufacturer-provided RTP configurations, operators can adjust its theoretical return without replacing the game. They cannot simply choose an arbitrary percentage.

The Gambling Commission's B1 guidance states that there is no minimum RTP requirement. It also explains that the manufacturer determines the RTP and that it must be displayed to customers. 1

A machine at 95% RTP has a 5% theoretical hold. Reducing RTP to 93% increases theoretical hold to 7%. That is 40% more expected machine win per pound wagered, even though the displayed RTP has fallen by only two percentage points.

Recovering the additional duty

Consider a B1 casino slot recording £1 million of annual coin-in at 95% theoretical RTP. Its theoretical win is £50,000. If actual performance matches the theoretical result, GGY is also £50,000.

At an illustrative 20% duty rate, £40,000 remains after MGD, before operating expenses. A 40% rate would reduce that to £30,000 if coin-in and RTP were unchanged.

To restore £40,000 after duty at the same coin-in, theoretical hold would need to rise from 5% to about 6.67%, equivalent to RTP falling to 93.33%.

The same adjustment increases expected customer losses from £5 to about £6.67 for each £100 of coin-in. Whether it would be commercially worthwhile depends on how players respond.

Calculate the effect yourself

Enter the RTP displayed on a machine and compare it with another setting. The calculator also shows the theoretical revenue retained after duty, assuming coin-in remains unchanged.

Interactive calculator

What does a change in RTP mean?

Compare theoretical player losses and machine revenue at two RTP and duty settings. These are expected values, not a prediction of an individual session.

Return to player

Current RTP

%

80%100%

New RTP

%

80%100%

Machine Games Duty

Current duty

%

0%60%

New duty

%

0%60%

Coin-in (£)

Expected player loss · current

£5.00

5.00% theoretical hold

Expected player loss · new

£6.67

6.67% theoretical hold

Expected loss change

£1.67

33.4% change in theoretical hold

Theoretical win after duty

£4.00 → £4.00

Before other operating costs

Coin-in means total wagers, including replayed credits, not deposits. The model assumes identical coin-in in both scenarios and actual GGY equal to theoretical win. It does not predict how customers respond or what an individual will lose. The duty rates are illustrative, not a statement of the rate applicable to every B1 game.

Would customers lose more?

A customer maintaining the same volume of coin-in would face higher expected losses at a lower RTP. A customer playing to a fixed loss limit might reach that limit sooner, with less coin-in but the same final loss.

Coin-in counts all wagers, including winnings staked again. It is not the same as cash inserted, deposits or a customer's net expenditure.

Customers may react to poorer returns by playing less, switching machines or leaving the venue. Some may not notice the change. We cannot infer their behaviour from theoretical RTP alone.

For a customer who stops after losing £100, a lower RTP may shorten the session rather than increase the £100 loss. For someone maintaining the same coin-in, expected losses increase. Those outcomes have different implications for gambling-related harm.

The revenue forecast

SMF estimates that the proposed 40% rate could raise an additional £275 million to £458 million annually. The lower figure implies a taxable GGY base about 20% below its starting point under the report's simplified calculation. 2

RTP adjustments complicate that scenario. At 95% RTP, £1 million of coin-in produces £50,000 theoretical win. At 93%, the same win would require only about £714,286 of coin-in. Wagering could fall by nearly 29% without reducing theoretical machine win.

SMF recognises the possibility of RTP changes, but its published modelling does not set out a quantified interaction between changes in coin-in, machine hold and customer losses. Nor can an illustrative casino B1 example establish what would happen across the wider Category B estate.

A baseline before any tax change

The Gambling Commission requires B1 machines to display their theoretical RTP. That creates an opportunity to record the returns currently offered in casinos and check whether those settings change over time. 1

Who bears the cost?

A higher duty rate reduces the amount operators retain from each pound of GGY. Adjusting RTP could restore some of that revenue, at the expense of customers who maintain their wagering volume.

Other customers may reduce their gambling or reach the same spending limit sooner. The outcome for total player losses cannot be read directly from coin-in or theoretical hold.

The policy question is whether the additional duty reduces gambling-related harm in practice, including among customers already experiencing problems. Tracking machine returns before and after any change would provide one useful piece of that evidence.