Fruit machine tax rise would risk pub closures and cut £622m revenue stream, industry warns

Pub operators and hospitality leaders have warned that Chancellor Rachel Reeves’ expected tax raid on gaming machines could seriously damage an industry already suffering from rising costs, staff shortages and fragile consumer confidence.

With speculation mounting that the Chancellor will significantly increase machine gaming duties (MGD) in the November 26 Budget, trade bodies say the move risks taking away one of the last remaining revenue supports for thousands of community pubs.

Fruit machines have been part of Britain’s pub culture for more than 50 years, and although their numbers have declined since their heyday, they remain an essential source of income. According to UKHospitality, there are approximately 36,700 fruit and slot machines operating in almost half of the pubs in the UK, generating £622 million a year. Once tax, supplier rent and other charges are deducted, operators are left with an estimated £385m – or nearly £8,500 per pub – at a time when margins are already “thin”.

Concerns have intensified following reports that Reeves is preparing big rises in gambling taxes to help plug a £30bn hole in the public finances. Proposals being discussed include raising sports betting fees from 15% to 30% and raising fees on automated and online slot machines from 20% to 50%. For bars, whose gaming machines are considered low-risk and tied to their core business, industry leaders say such a jump would be devastating.

Lawson Mountstevens, managing director of Heineken-owned Star Pubs, said pubs were already under “enormous pressure” following last year’s sharp rise in employer national insurance and the national minimum wage. “Our low-risk devices represent an important source of revenue. Any move that erodes their value puts further pressure on our ability to serve communities across the UK.”

This sentiment is shared across the sector. James Beyer, chief executive of Amber Taverns, said increasing MGD for machines that are “ancillary” to the main purpose of pubs would be “another unwelcome setback” after what he described as a “brutal attack” on the hospitality sector last year.

Greene King chief executive Nick McKenzie warned the measure could “inadvertently be the tipping point” for pubs already grappling with an “avalanche of costs”. The British Beer and Pub Association (BBPA) estimates that a rise in MGD to 50% would cost pubs £187 million a year, the equivalent of 16,300 jobs.

Emma McClarkin, chief executive of the BBPA, said the impact could be catastrophic. “These are low-margin businesses that create huge numbers of jobs for young people. Any increase in the cost of doing business puts them closer to closing their doors forever.”

Analysts believe listed pub companies could also face major hits. At JD Wetherspoon – which has already absorbed £60m in additional annual costs due to labor changes – Peel Hunt analyst Douglas Jack estimates that moving to 50% 1 million gallons per day will cost the group £18m. Founder Sir Tim Martin said gaming machines may represent a small part of Wetherspoon’s sales, but they remained an “important part of the pub’s economics” and were “really highly taxed”. Another increase would be “another straw on the camel’s back.”

The industry fears the government’s calculations are flawed. Instead of bringing in more revenue, higher taxes can make many machines unprofitable, removing them and reducing overall taxes. Admiral Taverns chief executive Chris Josie warned the move would have a “devastating impact”, cutting into the income of pubs in areas where alternative revenue sources are limited. In Admiral Taverns’ 1,300 pubs, the machines currently generate around £6,000 in net revenue a year; Under the proposed tax rate, this would fall to £2,625.

Combined with the financial pressures, industry leaders say the timing couldn’t be worse. New forecasts from the BBPA suggest that 332 pubs will have closed by the time the Chancellor presents her Budget. The concern here is that a rise in one million gallons per day would accelerate the decline of one of Britain’s most important societal institutions.

Trade bodies, including the BBPA and UKHospitality, are now urging the government to freeze tariffs on Class C low-risk fruit machines and Class D cash-drop machines – both of which are disproportionately used in pubs and entertainment venues.

For many pubs, automated income is becoming “increasingly important” as they deal with escalating operating costs, said Kate Nicholls, head of UKHospitality. She said that increasing one million gallons per day on these machines would be “harmful” to the health of the sector in the long term.

A Treasury spokesman said the tax decisions would be announced in the Budget, adding that its consultation on gambling taxes focused on remote betting sites, which employ fewer people, have lower costs and generate higher profits than traditional venues.

Industry leaders remain unconvinced. “This will not achieve the intended returns,” Josey said. “This will accelerate pub closures, job cuts, empty high streets and will likely reduce overall taxation. It will feel like the rug is being pulled out from under community pubs.”