On 11 October 2024, The Guardian published an article claiming that the UK government were “weighing up proposals” by UK think tanks the Institute for Public Policy Research (“IPPR”) and the Social Market Foundation (“SMF”) to “double” the UK’s Remote Gaming Duty (“RGD”) rate. The SMF report argues that online casino gaming is undertaxed in the UK, and advocates for an increase in RGD from the current rate of 21% to 42%. The SMF claims that this could raise an additional £900 million for HMRC.

Both think tank papers raise a fundamental question for policymakers to consider: how to effect the appropriate balance of gambling taxation and regulation. Clearly too little regulation, particularly in relation to “higher harm” products such as online casino games, can lead to consumer harm. However, too much taxation can also have a negative impact on both end users and the public purse: online gambling consumers turning away from the UK’s regulated market and towards the black market.

The threat of increased taxes has reawakened industry concerns that such rises could render operators in the regulated market unable to compete commercially with the offerings of black-market online gambling sites. While the Gambling Commission (“the Commission”) has somewhat downplayed gambling industry concerns around the UK’s illegal online gambling market in the past, a recent report published by the Betting and Gaming Council (“BGC”) suggests that the country’s black market is not only already substantial but also has real potential to grow amongst a younger generation.

BGC Report

On 19 September 2024, the BGC published a report (“the Report”) it had commissioned from Frontier Economics, a UK microeconomics consultancy, into black-market online gambling in Great Britain. The Report was compiled from over 6,000 respondents to two surveys conducted in July 2024. Respondents of the first were adult members of the general public, while those of the second were end users of four UK-licensed operators.

Striking the balance

The Report found that during the period between April 2022 and March 2024, end users of all online gambling in Great Britain staked a combined £2.7 billion on unlicensed online gambling websites on an annual basis. This constituted just 2.1% of the money staked annually with UK-licensed online gambling sites. Clearly, this is a relatively small percentage. With the obvious caveat that correlation does not equal causation, a key factor influencing this ratio is likely the point of consumption basis of UK online gambling licences. A study published in February 2022, commissioned by the BGC and conducted by PwC, found that for the year ended November 2020, stakes made by UK end users with unlicensed operators totalled approximately £2.8 billion annually. This suggests that the unlicensed market has stagnated in recent years.

£2.7 billion is clearly a significant sum to be escaping taxation each year, especially given that such revenue would in theory raise as much as £36.9 million in duties for HMRC were it to be taxed. However, the Report suggests that the Commission has struck an appropriate balance between over- and under-regulation – one that has kept the vast majority of end users transacting with UK-licensed operators. That said, licensed operators will argue that the £2.7 billion figure demonstrates that the UK black market for online gambling is substantial and will point towards over-regulation as the main contributing factor.

Younger users

According to the Report, “more than one in five 18–24-year-old gamblers… already use black-market online operators or social media / messaging platforms and virtual private networks (“VPNs”) to gamble” in the UK. This was “around three times” greater than the prevalence among end users of all older age categories surveyed.

Other notable findings include that 65% of online black-market spending comes from UK end users aged between 18 and 34, and that 4.2% of end users[i] surveyed had used social media or WhatsApp to gamble. The indication here is that a younger generation of consumers of online gambling are accessing the black market using technology in its various forms, from online casino websites to WhatsApp sports betting and so-called Telegram casinos.

While some may view this as a bellwether of young people in the UK turning away from the regulated market and towards the unregulated one, instead it likely reflects a broader trend of young people being more comfortable with these technologies and therefore electing to use them more frequently than their seniors. In any event, it is likely that the Commission will be forced to take further regulatory steps in future to prevent this generation of users from choosing the unregulated market over the regulated market for online gambling. In particular, the lack of visibility of use of WhatsApp and Telegram – as opposed to the relative prominence of unlicensed online casinos accessible online – poses unique regulatory challenges for the Commission.

VPNs

According to the Report, UK end users of black-market online gambling websites were more than four times more likely to have used a VPN than those that had never used an unlicensed gambling site. However, the legitimate use of VPNs for security and privacy reasons and the practical difficulty of restricting VPN usage makes any future prohibition against their use in this context extremely unlikely.

Direct marketing

One of the Report’s more surprising findings was that 54% of survey respondents that had used a site operated by a named black-market gambling operator were unaware that they had been gambling on an unlicensed site. This highlights the sophistication of marketing produced by black-market operators in this jurisdiction, which convincingly mimics legitimate communications sent by UK-licensed operators.

UK-licensed operators must comply with Chapter 16 of the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing, as overseen by the Advertising Standards Authority. This provides that all direct marketing communications from UK-licensed operators may not be sent without explicit consent from individual consumers. As mentioned in our previous post, in a response to a consultation on Social Responsibility Code 5.1.12, in May 2024 the Commission confirmed that this provision required all electronic direct marketing to be carried out with consent from customers on a per product and channel basis.

According to the Report, many unlicensed operators sent direct SMS and Instagram communications to end users, designed so as to be “indistinguishable from (those of) regulated sites”, without the consent required as described above. Such communications may thereby cause good-faith UK end users who are unfamiliar with domestic gambling regulations to sign up with unregulated operators inadvertently.

Conclusion

Overall, the Report suggests that the UK’s gambling regulatory framework is proving effective in minimising the use of black-market online gambling website by end users in the country. That being said, the Report underlines the regulatory challenges posed to the Commission by technological advancements creating new digital spaces with minimal visibility in which black-market online gambling can take place.

While commentators are generally of the view that the upcoming Budget will not increase RGD to the extent proposed by the IPPR and the SMF, many expect that online gaming will be subjected to a tax rise of some sort. The Report demonstrates that any policy decision concerning RGD must not underestimate the growing sophistication of the UK’s online gambling black market. A punitive tax regime, such as those suggested by the IPPR and SMF, could push UK end users towards this illegal market. This in turn would likely shrink the domestic regulated market, and in doing so negate the UK government’s broader intention to increase tax revenues. More importantly, it would also leave end users more vulnerable to the harms posed by a black market that has none of the safeguards of the regulated sector.

[i] Excluding lottery-only players.