Adopting a very different approach towards the topic of UK gambling reform than that advocated by Christopher Snowdon in his recently published IEA ‘Current Controversies’ paper entitled ‘A Safer Bet – Gambling and the risks of over-regulation’, the Social Market Foundation has published a report entitled “Double or nothing? Assessing the economic impact of gambling” (a copy of which you can download below).
The report’s Executive Summary reads as follows:
This report explores the economic footprint of the entire gambling industry and its sub-sectors, and considers the extent to which the “economic defence” of business as usual stands up to scrutiny. We argue that, far from having a negative economic impact, a reduction in gambling expenditure, for example through reduced problem gambling, would be a net positive for the economy – bolstering gross value added (GVA), jobs and tax revenues as households would spend money on other goods and services with higher “economic multipliers”. As such, the case for bold, rather than timid, regulatory reform is compelling.
The 2005 Gambling Act was purported to be designed to deliver economic benefits. Remote gambling and fixed odds betting terminal (FOBT) gambling have approximately doubled the gross take from gamblers. Yet, as we argue here, no economic benefits may have been gained in return. This is because increased take from gambling results in reduced spending in other parts of the economy, such as retail and hospitality, leading to a net reduction in GVA, jobs and tax revenues.
The SMF’s position is not a prohibitionist or excessively paternalistic one. We do not seek to ban gambling – an activity which many individuals find enjoyable. Our concern lies principally with problem gambling and gambling addiction, and the key point that we want to highlight here – backed up with evidence – is that the case for tackling problem gambling is not just a moral one, but one that would be good for the economy.
The direct economic impact of the gambling sector
- In 2019, the gross value added (GVA) 1 of the gambling industry was estimated to stand at £8.1bn (in inflation-adjusted 2018 prices), up 45% on the £5.6bn seen in 2010. In contrast, overall UK economy GVA grew by just 18% over the same period of time. This has seen gambling’s share of UK economic output increase from 0.3% to 0.4%.
- The sector’s growth over the past decade has coincided with the rise of online gambling. Remote gambling has gone from accounting for just 12% of industry yield2 in 2009/10, to accounting for a majority (56%) of yield by 2019/20.
- Gambling accounts for the greatest proportion of GVA in the East Midlands (0.7%) followed by the North East (0.6%). It accounts for the smallest proportion of GVA in the South West of England (0.2%).
- According to the Office for National Statistics’ Business Register and Employment Survey (BRES), 85,000 people in Great Britain were employed (either self-employed or employees) in the “gambling & betting activities” industry in 2019 – amounting to 0.3% of all employment in Great Britain. Employment in the industry has declined from 93,000 in 2015, according to this data source. Declining employment in the sector reflects in part the shift from traditional gambling to online gambling, which is less labour intensive.
- As a percentage of total employment, the gambling industry is most important in Stoke-on-Trent, where it accounts for 2.5% of all jobs within the local authority. The city contains the headquarters of Bet365, one of the largest gambling companies based in the UK. This is followed by Three Rivers (1.7% of all jobs) – where Camelot Group is headquartered. In all other local authorities, the gambling industry accounts for no more than 1% of all jobs in the area.
- We estimate that the gambling industry directly contributes about £4.3bn to the Exchequer. This includes Betting and Gaming Duties, corporation tax, employmentrelated taxes and taxes on products & production such as business rates and irrecoverable VAT. This amounts to about 0.6% of central government revenues.
The indirect and induced economic impact of the gambling sector
- In addition to the direct economic impact of the gambling industry, we have considered its indirect and induced impacts:
- Indirect economic impacts relate to the additional GVA, jobs and tax revenues generated along the supply chains of an industry.
- Induced economic impacts relate to the additional GVA, jobs and tax revenues generated from the spending power of employees in an industry.
- Our analysis shows that, across the 129 goods & services categories in the ONS inputoutput tables on which we based our analysis, gambling had:
- The 92nd highest GVA effect. (The increase in UK GVA from each £ spent on gambling, taking into account direct, indirect and induced effects).
- The 110th highest wage effect. (The increase in aggregate employee compensation from each £ spent on gambling, taking into account direct, indirect and induced effects).
- The 92nd highest jobs effect. (The increase in aggregate jobs from each £ spent on gambling, taking into account direct, indirect and induced effects).
- That is to say, gambling has low economic “multipliers” compared with most other parts of the economy – for each pound spent on gambling, the uplift to GVA and jobs is lower compared with spending on most other goods and services.
- A key driver of the limited economic multipliers for gambling is the fact that the industry has one of the “shortest” supply chains of the entire UK economy. Consumer spending on gambling does little to create activity elsewhere in the economy, with a relatively high amount of gambling spend absorbed by the industry itself.
- On our measure of supply chain “length”, gambling ranked 116th out of 129 goods & services. This further highlights the limited positive impact that gambling has on other parts of the UK economy.
- The economic multipliers for gambling are significantly lower than for other items that consumers might reasonably purchase in instead of gambling – such as retail goods and food services. For example, we estimate that £1m spent on retail would create 34 additional jobs once all effects are considered – more than twice as many jobs as would be created from £1m spent on gambling.
- We estimate that gambling has a lower tax multiplier than other consumer sectors such as retail and food services. £1m net spend by consumers on gambling is estimated to equate to about £500,000 of additional tax revenue, once indirect and induced economic effects are considered. This compares to over £600,000 in the case of consumer spending on retail and food services.
- There is good reason to think that the macroeconomic benefits of online gambling are even lower than for gambling as a whole. Given the shift towards online gambling in recent years, this gives good reason to believe that the economic multipliers of gambling – already low – are shrinking. Financial reports show that online gambling is typically more profitable than retail gambling.
Economic impact of reduced rates of gambling
- If net gambling spend3 declined by 10% (about £1bn) and individuals spent money on retail instead – for example, as a result of regulatory reforms which curb problem gambling – we estimate that:
- GVA would be £311 million higher.
- The number of jobs in the economy would increase by 24,000.
- The Exchequer would receive an additional £171mn in tax revenues.
- This economic dividend arises from the fact that retail has higher economic multipliers. As such GVA, tax revenues and jobs lost in gambling would be offset by employment gains elsewhere.
- The economic analysis presented in this report is clear: while gambling supports tens of thousands of jobs across the UK and contributes about £8bn per annum to economic output directly, it seems very unlikely that this economic contribution is truly additional to what would have taken place if gambling did not exist. Indeed, with most other parts of the economy having more extensive supply chains, and thus higher economic multipliers, reductions in gambling expenditure through reduced rates of problem gambling would almost certainly be a net economic benefit as households instead spend money elsewhere. The Exchequer would gain too, as higher GVA and jobs in turn drive up tax receipts.
- This has strong implications as far as the case for regulatory reform is concerned. While some are calling for timid reforms – citing concerns about the negative economic impact of reduced gambling spend – our analysis suggests that this argument does not stand up to scrutiny once one considers the fact that problem gamblers would instead spend money elsewhere. Far from being a case for timidity, the economics of gambling – presented in this report – are in fact a case for bold, robust and significant regulatory reform. Done right, there is scope to both reduce the societal costs of problem gambling and realise economic gains.
- In order to achieve those benefits, regulation needs to be based on the best available data. In various places throughout this report, we have had to rely on indicative or out of date figures or make ‘best guess’ inferences. To ensure that future gambling regulation is based on accurate, timely and detailed evidence, the Government should commission an urgent review of the social and economic costs of gambling, commencing in 2021 and concluding in line with the timeframe of the Gambling Act Review. No final decisions on legislative review should be made until the Treasury has conducted an assessment of the economic and social costs of each policy change
1 Broadly speaking, GVA measures the value of goods and services produced by an industry, minus the value of intermediate consumption – the goods and services purchased by the industry as part of its operations.
2. Amounts staked by customers minus winnings paid to them
3. i.e. spending less prize money.
Not surprisingly, this report has caused controversy.
According to an SBC News article entitled “BGC claims SMF economic report uses fantasy figures on spend substitution”, Michael Dugher, CEO of the Betting and Gaming Council “claimed that the figures in the report were little more than ‘fantasy’ and that depressing gambling activity would not have the benefits suggested by the Social Market Foundation report”. It goes on to quote him as saying.
If people were restricted from betting in the regulated industry, they would simply migrate to the growing unlicensed, unsafe black market that employs no one, pays no tax and contributes nothing to UK plc. To think otherwise is, at best, naive. It’s disappointing but unsurprising that anti-gambling prohibitionists seek to deliberately downplay the economic contribution the industry makes, just because they don’t like the industry. They should stop looking down their noses at the people who enjoy a bet or who work in the industry.