Increases in the already heavy taxes on drinking, smoking and gambling were included in the British government's latest budget proposals, although these were largely overshadowed by the boost in general tax rates for those earning over GBP 150 000 p.a., who have been hit with a 50 percent tax rate as the Chanellor continues to attempt to buy the economy out of recession.
Of immediate concern to providers of poker and bingo entertainment was the news that they will have to contend with further tax hikes, although shares in bookie firms soared after fears of a massive tax hike in gross profits tax failed to materialise. As it turned out there was no change to the current 15 percent tax rate in that respect.
On the negative side, the Chancellor of the Exchequer, Alistair Darling, announced that bingo operators will have to pay tax at 22 percent rather than 15 percent at present. And while VAT on bingo is being removed, analysts are predicting that the changes will leave major bingo providers like Rank with a higher tax bill than it pays at present.
Analyst Paul Leyland summed it up when he said: "This is a good budget for bookies because a lot of people were worried that [government] would turn to the gross profits tax to raise money and they haven't. But it's bad for bingo because while VAT is going, the GPT is going up to 22 percent."
Rank plc has been lobbying hard for reductions in tax on bingo, arguing that it is not treated fairly when compared to other forms of gambling and that women who go to bingo effectively pay much more than their husbands when they go to bookmakers.
Axing VAT on bingo will cost the Exchequer GBP 50 million this year, one analyst estimated, adding that this will be more than compensated for by the GBP 60 million it raises in 2009/10 with three new measures – raising gross profits tax on bingo (GBP 35 million); gaining GBP 20 million from a 9 percent increase on the duty paid on amusement machines and introducing a new tax on casino card rooms.
Bookie firms attributed the retention of the status quo in their sector to the extensive lobbying carried out in March in operator meetings with the government, where it was pointed out that even a 2 percent hike in gross profits tax would result in the closure of at least 845 betting shops and consequent unemployment (see previous InfoPowa report). A Ladbrokes spokesman said: "Our case was strong, the arguments were strong, the industry’s entering recession. It wouldn’t make sense to single out one particular sector when businesses are under such pressure.”
The chairman of the Association of British Bookmakers, Warwick Bartlett, added: “We were able to demonstrate we were at the tipping point, that increasing gross profits tax by a certain amount would have tipped the balance so bookmakers would have had to make a deduction from their customers, leading to the loss of as many as 1 000 shops. The government realised the priority was to protect jobs.”
Rank is understandably disappointed, revealing in a statement that the bingo tax will cost the company overall GBP 9 million a year. The company lamented that the increases to bingo duty and poker taxation have been imposed "without prior indication or consultation”.
The implications of the new taxes compelled Rank to bring forward its management update, in which it said that tax changes would result in approximately GBP 6 million of unbudgeted costs during the remainder of this financial year, or approximately GBP 9 million over the full year.
Group turnover was down 1 percent as expected, and the Interactive division of the group reported turnover down 13 percent, mainly on sportsbetting operations, where a decline of 52 percent was experienced, mainly due to low win margin on football wagers.
MeccaBingo remain static, benefitting from the non-payment of VAT on interval bingo in both 2009 and 2008. This issue remains on appeal by the UK Customs and Excise authorities (see previous InfoPowa reports).
Rank shares tanked by 14 percent on the news of the tax implications.