- Heavy-handed regulations and taxes on Adult Gaming Centres (AGCs) are shrinking the safer, in-person gambling sector and pushing consumers into black markets.

- AGCs are subject to an eye-watering effective tax rate of 66%, as well as a £2 stake cap and the “80/20 rule” that mandates low-demand machines occupy 80% of floor space.

- Despite not serving alcohol, AGCs also pay at least £1,900 annually in licensing and operating fees - 80% more than the highest alcohol license.

- These burdensome taxes and regulations make physical gambling venues less profitable, and they have declined by 23% since 2018. In contrast, online gambling has surged, generating £6.9 billion in Gross Gambling Yield (GGY).

- This undermines efforts to tackle problem gambling. Online platforms show problem gambling rates of 18% of users, compared to 5.8% for in-person venues, while black markets lack protections altogether.

- Yet proposals backed by former Prime Minister Gordon Brown to raise Machine Games Duty from 25% to 50% would make matters worse - shutting down safer venues and pushing more players online or into black markets.

- Alongside lifting pressure on AGCs, this paper calls for the Gambling Commission to be reformed from first principles, since its intrusive checks are pushing gamblers towards black markets.

New research from the Adam Smith Institute warns that heavy-handed regulation and taxation of Adult Gaming Centres (AGCs) is infringing on players’ freedom to choose and pushing them towards unsafe, black-market gambling websites.

AGCs, among the safest places to gamble, are being squeezed by high taxes and strict rules. They face a 66% effective tax rate, a £2 stake cap on Fixed Odds Betting Terminals, and the “80/20 rule” which forces 80% of machines to be low-profit, low-demand slots and reels.

Despite not serving alcohol, AGCs also pay steep licensing fees, including a premises license, annual renewal and an operational fee administered by the Gambling Commission. These costs total at least £1,900 a year - 80% more than the highest alcohol license fee.

Although these rules aim to protect the 0.3% of the total population who are problem gamblers, they are shrinking the safer land-based sector and fueling growth in unregulated online gambling. Since 2018, land-based venues have dropped by 23% while online gambling has surged. It now generates £6.9 billion in Gross Gambling Yield (GGY), compared to £4.6 billion from physical venues.

In-person gambling offers stronger safeguards such as trained staff, no alcohol and exclusion schemes like MOSES. By contrast, online and even black market gambling website sites, often accessed via VPNs, offer higher payouts and greater freedom to self-direct their gambling, but fewer consumer protections. Unsurprisingly, online gambling shows far higher rates of problem play - 18% versus 5.8% for in-person.

But, the crusade against the gambling industry is encroaching on citizens’ freedom to spend their money how they wish and pushing more gamblers into the online black market. Proposals, backed by former Prime Minister Gordon Brown, to more than double both Machine Games Duty and Remote Gaming Duty to 50% would compound the problem. They would drive more players underground, threatening jobs in hospitality and community venues like bingo halls and seaside arcades.

The Adam Smith Institute is calling for urgent action - starting with fundamentally reforming the Gambling Commission from first principles. Regulated firms already invest in safety but intrusive checks and heavy taxes, many of which are dictated by the prohibition-prone Gambling Commission, erode liberty and trust whilst pushing people towards riskier options.

Alongside reforming the Gambling Commission, the report urges the government to:

- Scrap Machine Games Duty or cut it to 15% - in line with General Betting Duty.

- Reform or remove the 80/20 rule to meet real demand - unlocking up to £700mn in extra GGY.

- Update the maximum stakes and payouts of category B3/B4 machines (such as slot machines) in line with inflation (e.g. raising £2 stake to £3.21 stake, and raising £500/400 maximum payouts to £800/£640 payouts).

- Cut and standardise premises license fees and operating license fees.

Prohibition, and prohibitive legislation that pushes industries closer to that end, does not work. Over-regulation and over-taxation is hurting the land-based gambling sector and helping the black market. Not only are lower taxes and less burdensome regulations crucial for economic growth and jobs, but for the defence of liberty as well as genuine harm reduction.

Dr Christopher Snowdon, Head of Lifestyle Economics at the IEA, said:

“Contrary to popular belief, the gambling industry is not growing in Britain and the land-based gambling industry is in steep decline. In the Gambling Commission, we have a regulator that is more sympathetic to anti-gambling fanatics than to the businesses it is supposed to be looking after, and we have a government that seems intent on pushing gamblers to an unregulated, offshore market that neither creates jobs nor pays taxes in this country.”

Maxwell Marlow, report co-author and Director of Public Affairs, said:

“Regulations laid by the government, and enforced through the Gambling Commission, cause more harm than good.

Adult Gaming Centres ensure that gamblers are not sold intoxication whilst they bet, and provide safeguarding for punters throughout their experience. Whilst there is little wrong with online gambling, it occurs without additional guards in place for if the experience turns sour.

If the government wishes to treat gambling as a subject of public health, then adding higher taxes and regulatory hurdles to the safer forms of betting is irrational.

To revitalise the high street and raise its revenues, the government should revise and review its punitive treatment of Adult Gaming Centres”

Maxwell Marlow is the Director of Public Affairs at the Adam Smith Institute. He was previously the ASI’s Director of Research. He is a winner of MHP Group’s ‘30 To Watch’ (2023).

Oscar Lingwood is a third-year student studying Philosophy at Lucy Cavendish College, Cambridge University. He is also the Vice-Chairman of the Cambridge University Conservative Association.

For any further details on the methodology, or to arrange an interview, please contact press@adamsmith.org / +44 7584778207

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