Labour MPs push for higher gambling tax to end two-child cap

Labour MPs have urged the UK Government to increase taxation on the gambling sector if it genuinely intends to address child poverty, a message that could unsettle operators amid growing uncertainty.

A total of 101 Labour MPs have signed a letter calling on Chancellor Rachel Reeves to implement a “polluter pays” model for online gambling taxes while considering the removal of the two-child benefit cap.

The move reflects growing pressure for a targeted levy that could generate billions, tackling a pressing social issue highlighted in the Joseph Rowntree Foundation’s UK Poverty 2025 report, which shows nearly one in three children in the UK live in poverty.

The letter, drafted by MPs Alex Ballinger and Dr Beccy Cooper from the All Party Parliamentary Group on Gambling Reform, advocates for a “specific levy on online gambling products,” with revenues ringfenced to fight child poverty and related social harms.

Escalating Pressure on Labour

Prime Minister Keir Starmer is under mounting calls to remove the two-child benefit cap, seen by campaigners as one of the most effective measures to reduce child poverty. At present, child tax credits and Universal Credit cover only the first two children in a household.

Repealing the cap could cost the cash-strapped government around £3bn, creating a rationale for raising additional funds via online gambling taxes.

The Institute for Public Policy Research, supported by former UK PM Gordon Brown, has proposed a 50% tax on online and retail slots, up from 21% and 25%, which could raise an estimated £1.88bn.

Earlier this week, the Liberal Democrats suggested doubling the remote gaming duty from 21% to 42%, arguing that gambling companies should “pay their fair share.”

While the letter does not specify an exact rate, it notes that the UK’s online gaming sector faces a lighter tax burden than countries like the Netherlands and Austria, where online casinos are taxed at 34.2% and 40%, respectively.

However, evidence from the Netherlands indicates that following the GGR tax rise to 34.2% in early 2025, revenues fell for both online and land based operators.

The MPs also criticized operators for VAT avoidance and offshore registrations, which limits domestic tax contributions and provides relatively few local jobs.

The Betting and Gaming Council, which has long opposed tax hikes, warns that increased levies could push players towards unregulated markets, even though its members already contribute £4bn in taxes and support 109,000 jobs.

Ballinger said on social media: “No child should grow up in poverty while gambling companies post record profits. Gambling related harms are rising, yet the sector remains VAT exempt.”

He has also backed Social Market Foundation recommendations for higher taxation on online slots, citing their disproportionate social harm. 

The SMF report notes that some gambling products lead to debt, family breakdown and strain on public services, arguing that more harmful, low employment industries should not pay less tax than socially valuable sectors such as horse racing.

Repealing the two-child benefit cap could offer Starmer a politically strategic win, amid Labour’s declining popularity.

Greater Manchester Mayor Andy Burnham told the Daily Telegraph that MPs have urged him to challenge Starmer, citing public discontent as Reform UK gains traction in national polls.

Although policy change is not immediate, it increases uncertainty for the gambling industry, with Burnham a vocal critic of high street betting. Acting decisively on child poverty while regulating a lucrative and sometimes controversial sector could strengthen Starmer’s public image.

Focus on Liverpool

Attention now turns to the Labour Party Conference in Liverpool (28–31 October), where speculation suggests Starmer may announce the removal of the two-child benefit cap, impacting around 450,000 households receiving Universal Credit, according to Child Action Poverty Group.

Chancellor Reeves’ lead budget advisor, Torsten Bell, is reportedly shaping Labour’s second year fiscal plan, including pension reforms, alignment of secondary income taxes and SME tax relief measures to boost productivity.

In her first Budget, Reeves prioritized “balancing the books” after uncovering a £25bn shortfall left by the previous government. While speculation arose about gambling tax increases, no immediate action was taken; Reeves confirmed the matter remains under review.

Starmer has not explicitly committed to gambling taxation but indicated in September 2025 that local authorities could gain enhanced powers to regulate betting shop numbers and locations, including cumulative impact assessments as part of the “Pride in Place” high-street regeneration program.

The Autumn Conference may therefore signal higher gambling taxes, with the November Budget expected to finalize Treasury decisions. Reeves has confirmed IPPR proposals remain “on the table,” ending a prolonged period of uncertainty for the sector, though any settlement is expected to carry a substantial cost.