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Impact case study

The Modernisation of Gambling Taxes

Unit(s) of assessment: Business and Management Studies

School: Nottingham Business School


Professor Leighton Vaughan Williams has demonstrated the benefits to consumers, betting operators and governments of switching from a tax regime based on turnover to a gross profits tax (GPT).

Vaughan Williams' work in this area has had a direct impact on government policy. The UK government first applied GPT to betting through bookmakers, and then to bingo and pools betting. In 2013, GPT was extended to gaming machines through a new machine games duty.

HM Revenue and Customs used Vaughan Williams' elasticity estimates to set the rate of machine games duty. In addition analysis for the Gambling Commission was used to inform a Department for Culture, Media and Sport decision relating to gaming machines and stake limits.

Since 2011, other European countries have followed the UK's lead and switched to gambling taxation based on GPT.

Research background

In the year 2000, UK tax receipts and the revenues of high street betting operators were under threat from online and offshore betting.

The UK government sought independent academic research into the options for reform. HM Customs & Excise commissioned Vaughan Williams as principal investigator, along with Paton and Siegel of the University of Nottingham, to identify the best options.

The findings established that a GPT regime (in effect a tax on the stakes placed with bookmakers minus winnings paid out) would result in lower prices for consumers and higher turnover for UK bookmakers, than would the existing tax levied on bettors’ stakes. Vaughan Williams et al. demonstrated that the new tax system was optimal in terms of efficiency, equity and the long-term protection of tax revenues. The government adopted this approach, introducing GPT for general betting in 2001.

Subsequent research for HM Customs & Excise in 2002-03 to test the original 2,000 research findings showed that the new tax system had been successful in terms of its stated objectives, and that the forecasts of the effect of the new tax regime had been substantiated in terms of increased turnover and lower prices.

In 2004, Vaughan Williams was commissioned to lead research in the government's 'Modelling the UK Gambling Market' project. Vaughan Williams and Paton derived elasticity estimates for different betting activities by examining how changes in price affect the demand for betting.

Vaughan Williams and Paton studied the UK gambling market in greater depth in two further research projects for what is now HM Revenue & Customs in 2006 and 2009, designed to:

  • evaluate the competition between conventional gaming machines and the new fixed odds betting terminals (FOBTs)
  • provide empirical estimates of the impact of FOBTs on other gaming machines in the UK.

They found no significant evidence that fixed odds betting terminals were displacing conventional gaming machines except in licensed betting offices. In February 2013 the UK government introduced a new tax regime for gaming machines, known as machine game duty (MGD) based on GPT. This reform brought gaming machines in line with the taxation regime for the rest of the gambling sector, thereby unifying gambling taxation in the UK.


Gross profits tax (GPT)

Gaming machines

  • Machine games duty. (HM Revenue and Customs 2012)
  • Setting the rates of machine games duty: Technical background. (HM Revenue and Customs, 2012)
  • Head of Excise & Financial Transactions Policy Analysis, HM Revenue & Customs.[To corroborate that elasticity estimates produced by Vaughan Williams' research were used to model the impact of GPT]
  • Impact Assessment under the Gambling Act 2005 Category B3 Gaming Machines. (Department for Culture, Media and Sport, 2011)


  • Paton, D., Siegel, D.S. and Vaughan Williams, L., 2002. A policy response to the e-commerce revolution: the case of betting taxation in the UK. Economic Journal 112 (480). pp. F296-F314.
  • Paton, D., Siegel, D.S. and Vaughan Williams, L., 2004. Taxation and the demand for gambling: new evidence from the United Kingdom. National Tax Journal 57(4). 847-861.
  • Paton, D. and Vaughan Williams, L., 2013. Do New Gambling Products Displace Old? Evidence from a Postcode Analysis. Regional Studies 47 (6). 963-973.
  • Vaughan Williams, L. and Paton, D., 2013. The Taxation of Gambling Machines: A Theoretical Perspective, in Vaughan Williams, L. and Siegel, D.S. (eds.) The Oxford Handbook of the Economics of Gambling, Oxford University Press, New York, NY. 692-700.

Related projects

  • Paton, D., Siegel, D.S. and Vaughan Williams, L., 2000. An Economic Analysis of the Options for Taxing Betting: A Report for HM Customs and Excise. [end of project report (competitive tender) for HM Customs and Excise, value: £20,000; date: May-Sept 2000]
  • Paton, D. and Vaughan Williams, L.,. 2005. Modelling the UK Gambling Market. A Report for HM Customs and Excise and the Department for Culture, Media and Sport. [End of Project Report (competitive tender) for HM Customs and Excise, value: £25,000; date: Jan 2004-Feb 2005]
  • Vaughan Williams, L., Page, L., Parke., J. and Rigbye, J. 2008. British Gambling Prevalence Survey 2007: Secondary Analysis. [end of project report (competitive tender and peer reviewed) for Gambling Commission, value £23,000; date: Sept 2007-Aug 2008]