Reform gambling taxes to lift half a million children out of poverty, urges IPPR

• Scrapping the two-child limit and benefit cap would lift 500,000 children out of poverty
• Fairer gambling taxes could raise the £3.2 billion needed to fully fund this, finds IPPR
• Tax changes would target high-stakes online gambling, slots and major betting firms – especially those based offshore
• Former PM Gordon Brown says the tax change would help ‘win the war we must wage on child poverty’

Reforming how gambling is taxed could generate the £3.2 billion needed to scrap the two-child limit and benefit cap – two policies driving up child poverty – according to a major new report from the Institute for Public Policy Research (IPPR). The change could lift 500,000 children out of poverty and reverse years of rising hardship for low-income families.

Together, these two policies affect 1.6 million children. Poverty rates among families with three or more children have risen by a third since 2012–13, and one in four such families now face food insecurity. Reversing these cuts would be the most effective single step the government could take to reduce child poverty - no other measure provides comparable headline child poverty reduction per pound spent.

To fund this, IPPR proposes targeted tax rises on profitable parts of the gambling industry – especially online casinos, slot machines, and high-stakes betting – where harms are concentrated and revenues have soared. Over 60 per cent of gambling profits come from just 5 per cent of users, many of whom are at high risk of serious harm, including debt, mental health issues, family breakdown, and suicide.

Former prime minister Gordon Brown has backed the plan, calling for urgent political action to address rising child poverty.

The proposals focus on online gambling firms - the fast-growing part of the industry where the risk of harm is greatest. Many of these companies are based offshore and pay little or no UK corporation tax. In 2021, two of the largest operators paid effective tax rates of just 3 and 4 per cent, the IPPR report points out.

The industry also benefits from unique tax advantages, including a complete exemption from VAT – unlike almost any other consumer-facing sector. These reforms would ensure the industry contributes more fairly, reflecting both its profits and the social costs it creates.

The package of changes would also create a more level playing field with horseracing, which faces a general betting duty of 25 per cent, significantly higher than the duty paid on other kinds of bets.

Proposed tax changes include:

• Increasing Remote Gaming Duty (online casinos) from 21 per cent to 50 per cent
• Raising Machine Games Duty (slots and gaming machines) from 20 per cent to 50 per cent
• Uplifting General Betting Duty on non-racing bets from 15 per cent to 25 per cent (bringing other sports in line with the rates paid by horseracing)

Contrary to previous research, IPPR has found that raising gambling taxes in this way is unlikely to reduce overall government revenue. As duties are based on revenue rather than profit, firms would still pay more tax overall, even if they adjust odds or payout in response the change. Such changes could increase the taxable surplus, potentially raising tax receipts beyond current forecasts.

Henry Parkes, principal economist and head of quantitative research at IPPR, said:

“The gambling industry is highly profitable, yet is exempt from paying VAT and often pays no corporation tax, with many online firms based offshore. It is also inescapable that gambling causes serious harm, especially in its most high-stakes forms. Set against a context of stark and rising levels of child poverty, it only feels fair to ask this industry to contribute a little more.”

Gordon Brown, former prime minister, said:

“Thanks to IPPR’s report, we now know that taxing gambling more fairly would fully fund the first crucial step in the war we must wage against child poverty: ending the two-child limit and lifting the benefit cap.

“There are many reasons why the highly profitable betting and gaming industry should pay a fairer share towards the cost of UK’s unmet needs. Most important is that it would enable half a million children to be lifted out of poverty in this autumn’s budget, and so help to build our country for the next generation.”

ENDS

Rachael Henry, IPPR head of advocacy, and Pranesh Narayanan, senior research fellow at IPPR, are available for interview  

CONTACT

Rosie Okumbe, digital and media officer: 07825 185421 r.okumbe@ippr.org  

David Wastell, director of news and communications: 07921 403651 d.wastell@ippr.org  

NOTES TO EDITORS

1. The IPPR paper, Reforming gambling taxation: How to lift half a million children out of poverty by Henry Parkes, Prof Ashwin Kumar and Jamie O’Halloran, is published at 1800 on Wednesday August 6 at: https://www.ippr.org/articles/reforming-gambling-taxation
2. About the authors:  
   - Henry Parkes is principal economist and head of quantitative research at IPPR 
   - Professor Ashwin Kumar is director of research and policy at IPPR 
   - Jamie O'Halloran is a senior research fellow at IPPR
3. A 2014 study commissioned by HMRC suggested higher gambling prices might reduce the total amount gambled. However, IPPR’s analysis has found that the proposed tax rises are unlikely to cut revenues, and may even increase them. This is because gambling duty is charged on firms’ surplus after paying out winnings, which are likely to increase if firms worsen odds  available to consumers.