Online Gaming Impact on the UK Economy

The online gaming industry has come under scrutiny for its effects on the UK economy, with recent studies suggesting a significant negative impact. A new report, commissioned by the Campaign for Fairer Gaming and produced by the National Economic Research Associates (Nera), argues that the growth of Casinos not on Gamstop has shifted funds away from more productive sectors, ultimately costing the economy billions each year.

The Rise of Online Gaming in the UK

Figures from the Gaming Commission show a sharp rise in online gaming revenues over recent years. Revenues increased from £4.2 billion in the financial year 2015-16 to £6.5 billion in 2022-23.

This rise coincides with an increasing number of online users and a significant number of extended sessions. Data indicates that more than 24.5 billion online interactions were logged by customers of major operators during the first quarter of 2023-24, and over nine million sessions lasted longer than one hour.

The industry has capitalised on a growing market, but the Nera report raises questions about the wider effects of this trend on economic growth and employment.

Negative Economic Consequences

The Nera report emphasises that online gaming is a high-margin activity for operators but contributes little to the overall economy. The industry employs relatively few people compared to the value it generates, and spending in online gaming often replaces expenditure in other sectors that are more labour-intensive and economically beneficial.

Other industries, such as entertainment, dining, and retail, are defined as “discretionary alternatives” by Nera. When consumers choose to engage online rather than spend in these sectors, the result is a net loss for the economy in terms of job creation, wages, and economic growth.

According to the report, online gaming cost the UK economy £1.3 billion per year between 2015-16 and 2022-23, and wages saw a decrease of £2.6 billion compared to spending elsewhere.

Statistic & Value

• Annual online gaming revenue (2022-23): £6.5 billion
• Annual cost to the UK economy: £1.3 billion
• Decrease in wages due to online gaming: £2.6 billion
• Total number of sessions logged (Q1 2023-24): 24.5 billion
• Online sessions exceeding an hour: 9 million

Calls for Increased Regulation and Taxation

Derek Webb, founder of the Campaign for Fairer Gaming, criticised the government's review for failing to properly consider the financial, economic, and societal impacts of online gaming. He argued that while online gaming should remain legal, stronger regulation and adequate taxation are needed to prevent the industry from harming the economy.

Webb highlighted the need for a balanced approach that allows the industry to operate while minimising its negative effects. “Growing the economy will require adequately taxing the online gaming sector and placing constraints on its promotion,” Webb noted.

The call for increased taxes is based on concerns that the current tax structure does not reflect the economic and social costs imposed by the industry.

Labour-Intensive Alternatives Are More Beneficial

The Nera report claims that the money spent on online gaming could be far more effective if spent on alternatives that are more labour-intensive and have a broader economic footprint. Industries like hospitality, leisure, and retail all contribute more to the economy by employing more people and offering higher wages.

Sectors Providing More Economic Value

The report outlined sectors that could provide significantly more economic value if spending were diverted from online platforms:

• Hospitality (Restaurants and Bars): Generates employment opportunities and income for local communities.
• Leisure (Museums, Cinemas, and Theatres): Contributes to cultural value and fosters economic growth.
• Retail: Encourages local production, which creates job opportunities and keeps money circulating within communities.

These industries support local communities and create positive economic cycles that benefit a wide range of individuals, unlike the online gaming sector, which concentrates profits within a small group of operators.

Industry Response

The Betting and Gaming Council (BGC), which represents the interests of online gaming operators, has pushed back against the findings of the Nera report. A BGC spokesperson highlighted the economic contributions of the sector, pointing out that members of the council support 110,000 jobs, contribute £4.2 billion in tax revenue, and generate £7.1 billion for the wider economy.

The spokesperson warned that imposing further restrictions could have unintended consequences, such as driving consumers to the unregulated offshore market.

“Unnecessary restrictions on users will not induce them to spend on galleries or museums but instead will force them towards the growing unsafe, unregulated online market,” the spokesperson argued. The unregulated market poses significant risks to consumers, with no oversight or protections.

Key Arguments from the Industry

• Job Creation: Claims to support 110,000 jobs across the UK.
• Tax Contributions: Contributes £4.2 billion annually in tax.
• Funding for Sports: Supports sports like horse racing, football, and snooker through sponsorship deals.

While these contributions are notable, critics argue that the negative effects of online gaming outweigh these benefits.

Societal Costs of Online Gaming

Campaigners have also raised concerns about the societal costs of online gaming, which include related social problems. Will Prochaska, a spokesperson for the Coalition Against Gaming Ads, supported the Nera report’s findings, suggesting that the economic costs of problem gaming are much larger than the figures considered in the report.

Prochaska called for stronger measures to reduce gaming-related harm. He argued that one of the ways to mitigate these effects is to treat gaming like cigarettes—through higher taxation aimed at discouraging excessive consumption. “If we want to reduce harm, we need to reduce consumption,” Prochaska said.

Proposed Changes to Gaming Tax Policy

The Social Market Foundation, a cross-party think tank, is also expected to release recommendations on gaming tax reform. Dr Aveek Bhattacharya, the foundation’s research director, argued that the gaming industry has long benefited from favourable tax policies, such as exemptions from VAT and offshore tax avoidance measures.

Bhattacharya said that with the government looking for ways to raise revenue while reducing social harm, there is a strong case for increasing the remote gaming duty in the upcoming budget. “For too long, the gaming industry has been undertaxed,” he remarked, suggesting that changes to the tax code could help address both economic and societal concerns.

Potential Policy Measures

• Higher Remote Gaming Duty: Increase in taxes on online gaming revenue.
• Restrictions on Promotion: Controls on advertising and promotions to minimise consumer exposure.
• Stronger Consumer Protection: Improved safeguards against problem gaming.

The Path Forward

The debate around the economic and social impact of online gaming is far from settled. On one side, the industry argues for its economic contributions, job creation, and support for sports. On the other, campaigners and economists highlight the detrimental effects on economic growth, wages, and the financial stability of individuals and families affected by problem gaming.

The Nera report provides substantial evidence that online gaming has shifted consumer spending away from more productive parts of the economy. Addressing these issues will likely require a combination of stronger regulation, increased taxation, and greater consumer protections to ensure that the economic costs of online gaming do not outweigh its benefits.

For the UK government, the challenge is to balance the revenue generated by the industry with the wider economic and societal costs. With the autumn budget approaching, there may be an opportunity for policymakers to take meaningful steps in addressing these concerns, potentially setting a new precedent for the regulation of online gaming.

FAQs

What is the economic impact of online gaming on the UK?

The Nera report estimates that online gaming reduces the UK's economic activity by £1.3 billion per year and has led to a decrease in wages by £2.6 billion annually.

How has online gaming affected employment in the UK?

The online gaming industry employs relatively few people compared to its revenues. It is a high-margin activity, and spending in more labour-intensive sectors would generate more jobs.

What industries could benefit if spending shifted away from online gaming?

Industries like hospitality, leisure, and retail could benefit significantly. These sectors are more labour-intensive, supporting local communities and creating positive economic cycles.

What are the main arguments from the online gaming industry?

The online gaming industry argues that it supports 110,000 jobs, contributes £4.2 billion in tax, and funds sports like horse racing and football. They also warn of the risks of driving consumers to unregulated markets.

What changes are being proposed to online gaming tax policy?

Proposals include increasing the remote gaming duty, restricting gaming advertising and promotions, and improving consumer protection to reduce related harm.

Why are higher taxes on online gaming being considered?

Higher taxes are being considered to offset the economic and social costs of online gaming. The aim is to discourage excessive gaming and generate revenue to address related societal concerns.