Pub operators and hospitality leaders have warned that Chancellor Rachel Reeves’ expected tax rise on slot machines could cause serious damage to an industry already struggling with rising costs, staff shortages and weak consumer confidence.
As speculation grows that the Chancellor will sharply increase the slot machine games tax (MGD) in the November 26 Budget, industry groups say the move risks depriving thousands of community pubs of one of the last remaining revenue supports.
Fruit machines have been part of British pub culture for more than 50 years, and although their numbers have declined since their heyday, they remain an essential source of income. According to UKHospitality, there are almost 36,700 fruit and slot machines in almost half of Britain’s pubs, generating £622 million a year. After deducting taxes, supplier rents and other charges, operators are left with an estimated £385 million – or around £8,500 per pub – at a time when margins are already “razor thin”.
Fears have increased after reports that Reeves is preparing significant increases in gambling taxes to plug a £30 billion hole in the public finances. Proposals being discussed include increasing the sports betting tax from 15% to 30% and increasing the tax on slots and online slots from 20% to 50%. For pubs whose slot machines feature low stakes and represent only part of their core business, such a jump would be devastating, according to industry leaders.
Lawson Mountstevens, managing director of Heineken-owned Star Pubs, said pubs were already under “enormous pressure” following the sharp rise in employer welfare and the national minimum wage last year. “Our low-stakes machines are an important source of revenue. Any move that undermines their value puts a strain on our ability to serve communities across the UK.”
This opinion is shared throughout the industry. James Baer, chief executive of Amber Taverns, said an increase in the MGD for machines that are “ancillary” to pubs’ primary purpose would be another “unwelcome setback” after what he described as a “savage attack” on the hospitality sector last year.
Nick Mackenzie, chief executive of Greene King, warned the move could be “inadvertently the game-changer” for pubs already struggling with an “avalanche of costs”. The British Beer & Pub Association (BBPA) estimates that an increase in MGD to 50% would cost pubs £187 million a year, equivalent to 16,300 jobs.
Emma McClarkin, chief executive of the BBPA, said the impact could be catastrophic. “These are low-margin businesses that create large numbers of jobs for young people. Any increase in the cost of doing business brings them closer to closing their doors for good.”
Analysts say listed pub companies could also suffer significant setbacks. At JD Wetherspoon, which is already incurring £60m in additional annual costs due to work changes, Peel Hunt analyst Douglas Jack estimates a move to 50% MGD would cost the group £18m. Founder Sir Tim Martin said that while slot machines only accounted for a small proportion of Wetherspoon’s turnover, they remained “an important part of the pub economy” and were “already heavily taxed”. A further increase would be “another straw on your back.”
The industry fears that the government’s calculations are flawed. Instead of raising more revenue, higher taxes could cause many machines to become unprofitable, leading to their retirement and actually reducing overall tax revenue. Chris Jowsey, managing director of Admiral Taverns, warned that the move would have a “devastating impact” and would cut into the income of pubs in areas where alternative sources of income are limited. Across Admiral Taverns’ 1,300 pubs, vending machines currently generate net sales of around £6,000 per year; Under the proposed tax rate this would fall to £2,625.
Beyond the financial pressures, industry leaders say the timing couldn’t be worse. New forecasts from the BBPA suggest 332 pubs will be closed when the Chancellor delivers her Budget. There are concerns that a rise in MGD will accelerate the decline of one of Britain’s most valued community institutions.
Trade associations including the BBPA and UKHospitality are now calling on the government to freeze tariffs on low-stakes Category C slot machines and arcade-style Category D penny-fall slot machines, both of which are disproportionately used in pubs and leisure venues.
Kate Nicholls, chair of UKHospitality, said income from machines had become “increasingly important” for many pubs as they struggled with rising operating costs. An increase in the MGD for these machines would be “detrimental” to the long-term health of the sector, she said.
A Treasury spokesman said tax decisions would be announced in the Budget, adding that the consultation on gambling taxation was focused on online betting sites, which employ fewer staff, have lower costs and make higher profits than traditional venues.
Industry leaders remain unconvinced. “This would not produce the intended returns,” Jowsey said. “It would accelerate pub closures, cut jobs, erode high streets and probably reduce overall tax revenue. It would feel like the rug is being pulled out from under community pubs.”
