Machine games duty (MGD) was introduced in 2013 and is one of six duties levied on gross betting profits (total stakes received less prizes paid out). It is charged on games played on a machine where customers hope to win a cash prize greater than their original stake. Fixed-odds betting terminals (FOBTs) in betting shops are one of several types of machines liable to MGD. These accept up to a pre-set maximum stake and pay out prizes according to fixed odds. MGD receipts from FOBTs are subject to downside policy risk as the Government plans to reduce maximum permitted stakes, but has not yet decided by how much. Its consultation on the issue stated that the maximum would be reduced from £100 to between £50 and £2.

While still relatively small, MGD cash receipts have been growing rapidly, rising from £502 million in 2013-14 to £707 million in 2016-17. Growth slowed in 2016-17, perhaps reflecting the duty rate rise from 20 to 25 per cent that took effect in March 2015. Year-to-date MGD receipts growth has slowed further and we expect it to raise £720 million in 2017-18.

Chart A shows contributions to growth in MGD cash receipts since its introduction and what we assume about these factors over the forecast period. The £205 million rise in the three years to 2016-17 was dominated by increases in the average profit per FOBT and the rise in the effective tax rate, with the number of FOBT machines actually falling slightly. Receipts from other types of machine liable to MGD also increased, but much less rapidly. Based on current policy in relation to FOBTs, our forecast assumes that machine numbers will remain stable, but profits per machine will continue to rise. This profits assumption accounts for £74 million of the £119 million increase in MGD receipts in the five years to 2022-23. It is the key assumption that will change when the Government sets the new maximum for FOBT stakes. Given the wide range of options under consideration, the effect of the new limit on receipts could be in the tens or hundreds of millions of pounds.

Chart A: Machine games duty cash receipts growth

Machine games duty and fixed-odds betting terminals