Q&A: Social Market Foundation fellow Dr James Noyes on levelling up the UK gambling industry

Understanding the nuances of new-look UK gambling legislation is one of the biggest challenges facing both operators and regulators at the current time.

If the vast volume of differing reports into the sector are to be believed, a practical consensus on beneficial change appears further away than ever.

However, in this latest report into the sector, Dr James Noyes, former advisor to Labour deputy leader Tom Watson, outlines several changes which he believes could preserve the sector going forward, while improving its processes and protecting consumers.

Below, Social Market Foundation senior fellow Noyes discusses the report’s two major recommendations – taxation and affordability – in greater detail.

EGR Intel: The UK gambling market is one of the biggest and most competitive in the world. Why do you feel it necessary to incentivise operators to base operations there?

Dr James Noyes (JN): I believe that there is an inbuilt asymmetry in the present commercial landscape of operators and that asymmetry is increasingly leading to unfairness. What we see now as a legacy of the 2005 Act, and reinforced the 2014 Act, is an ever-expanding long tail of grey market and even sometimes black-market operators that are based almost entirely offshore.

They seem to escape a lot of the regulatory scrutiny that parliament and policymakers are expecting of the more established household brands that have banded together under the banner of the BGC. Although some of these household brands will inevitably have international operations, they all share one thing in common. Entities like Sky Bet, William Hill, GVC and bet365 will have a base of some sort in the UK. That base means that, according to the five criteria we identify in the report (capital, human, social, legal and digital footprint), they tend to employ people in the UK so there’s some wider benefit to the UK economy.

At the same time you’ve got brands like MoPlay that suddenly pop up with a grand statement and tie themselves to Manchester United and talk about shaking up the industry, and two years later go into administration, leaving a lot of consumers in the lurch and the regulator once again lagging behind. This must stop. We can’t have this inbuilt asymmetry in the commercial landscape whereby different operators are paying different types of taxation, overheads, wages and are subject to different levels of legal accountability. We need to encourage a more standardised system, which demands that a minimum footprint is expected of all operators if they want to have entry into the UK market. The idea of the tax rebate is designed to help that process – it would be an incentive that determines the more presence that you have in the UK (according to those five criteria), the more advantageous it would be to you as an operator, and then that will be reflected in the tax burden on you.

EGR Intel: What sort of increase to RGD and betting taxes would be realistic for you to incentivise operators to establish a presence in the UK?

JN: I don’t advocate any particular tax increase because I think we live in uncertain times, particularly given the political ideology of elements in the current government and given there’s a strong likelihood of fiscal consolidation following Covid-19. That’s just the reality of the situation. However, I do think that it is not unreasonable to expect the gambling industry, who lobbied the government for assistance when times were bad, to be expected to chip to help the economy following this awful pandemic. The question would then be what fiscal consolidation would look like in terms of tax. We’ve had a recent increase of RGD already from 15% to 21% following the FOBT reforms and it might seem difficult to increase it again to say 25% – although the advantage of that increase would be that it would bring it into line with machine gaming duty. I’ve noted in the report when you look at betting duty for the online sector, it is very low compared to other European countries at 15% and if government were looking to increase tax, maybe a betting duty increase from 15% to 21% would make more sense than a remote gaming duty increase from 21% to 25%.

To be clear, with everything I put in my report, I have tried to keep the commercial sensitivities of the industry in mind. I don’t want any of this to be punitive. Before making those recommendations, or floating those numbers, I ran them past experts in the industry. I don’t want to name names but I put it in front of some very senior analysts in the industry with two questions. One, if there was an increase of RGD from 21% to 25%, and there was an increase of betting duty from 15% to 21%, in terms of impact on revenue would that be the same? Or would there be a disproportionate impact on revenue if one happened over the other?

The answer was that the betting duty increase from 15% to 21% would not be unduly burdensome on the remote sector if the government is looking for some type of fiscal consolidation. The point I was trying to make was if it must happen following Covid-19, raising betting duty to 21% is an option. It’s not a recommendation, it’s an option that could be considered when it comes to the forthcoming review of the act.

EGR Intel: Affordability is a tricky thing to monitor for gambling operators and the industry has previously failed on a one-size-fits-all approach. How did you reach the £100 figure?

JN: Before determining this figure, I said to my colleague we need something which for the vast majority of people who gamble shouldn’t even come close to their experience because at the end of the day, we’re not an organisation which believes in a nanny state. We need to have something which for the vast majority of people wouldn’t even be an issue, so it has to be high enough to be above that average spend, but low enough to protect the most vulnerable in society. The industry, including the BGC, is very keen on saying gambling is a normal and legitimate leisure activity, so we looked at minimum income standards (MIS) for what total leisure spend should be in terms of socially acceptable standards. It’s not up to us to say whether you spend your money on beer or an Arsenal season ticket or trips to the cinema or on gambling. That’s for you as an individual to determine what your leisure spend looks like. We’re saying that if gambling is a legitimate leisure activity, then your socially acceptable gambling spend should equate to what all your potential leisure spend would be in that category. If you look at MIS figures for socially acceptable total leisure spend, for lower income households it comes to £23 a week. Twenty-three pound per week is already more than double what the vast majority of gamblers spend so most consumers wouldn’t come close to that threshold. Also it’s half of what the poverty threshold is per week, and it’s also the socially acceptable figure for total leisure spend.

But the problem with that is that £100 a month, or £23 per week, there’s no way that you could sell that as a hard cap. It’s too low, you can’t expect everyone to be capped at £100 a month as that just wouldn’t be realistic. So, there were two other stages in this process, and this is where I went to the industry for their spending figure. We knew it had to be £100 per month, according to the data we analysed, but we also knew that it couldn’t be seen as something which was imposed on everyone, so that is why it became a soft cap. I should also stress that this would be a soft cap on net deposits – an important distinction to make when it comes to patterns of spend and play. I don’t think that these two vital nuances to the recommendation – the fact that it is a soft cap, and on net deposits – were always included or accurately reported in some of the press coverage of the report.

EGR Intel: How does this soft cap play out at an operator level?

JN: Operators are already intervening when certain markers of harm are flagged in terms of spending patterns, so we already have something similar to a soft cap being used by most firms. The only difference is that some operators might intervene at £80 a week, while some might intervene at £2,000 a week despite the same markers of harm, so we need to standardise it. It cannot be left to the individual interpretation of operators.

For example, if you or I were to sign up to a gambling account and we spend, like the vast majority of gamblers, under £100 per month, we won’t even know there’s any affordability check, apart from giving our name and our bank details to the operator. However, if we spend more than £100, there will be non-intrusive questions which already exist within these companies around things like credit ratings and sources of income. Operators would then be reassured that the individual can spend this money and those few people who spend more than £100 per month can carry on spending as much as they want in terms of net losses and net deposits.

All it means is that with a soft-cap glass ceiling, if you’re a problem gambler or you’re addicted, or you’ve got a credit rating of zero or you’re in significant debt, that glass ceiling suddenly becomes a steel ceiling and you can’t go through it.