Online gambling isn’t bad for the economy | Christopher Snowdon | The Critic Magazine

Online gambling is holding the economy back, according to the economic consultancy firm National Economic Research Associates (Nera). In a report commissioned by the Campaign for Fairer Gambling, a lobby group set up by the former casino entrepreneur Derek Webb, Nera claim that the economy would have grown by £1.3 billion a year between 2015-16 and 2022-23 if it weren’t for people gambling online. This news inspired Will Prochaska of the Coalition Against Gambling Ads — another of Mr Webb’s pressure groups — to call on the government to “consider taxing gambling like cigarettes” in order to “reduce consumption”, although how that would work in a business where customers choose how much to spend is unclear.

The general idea is that if people didn’t spend their money on online gambling, they would spend it on things that the authors of the Nera report claim have more “overall economic value”. This, they say, means that “online gambling is detrimental to the British economy”, and from this tendentious conclusion the Campaign for Fairer Gambling suggests that the government should deter people from doing it, which, by a happy coincidence, is what they already wanted.

This is wrong-headed from the start. The point of the economy is to allow individuals to access the goods and services they most want to use. If the government intervenes to make their first preference too expensive, too inconvenient or too illegal, he or she will have to settle for second best. In so doing, the government is imposing an economic cost on that person. The idea of using state coercion to make people spend money on things they don’t really want for the good of the economy (“Buy British!”) is silly. 

Claims about certain industries having bigger multiplier effects than others are usually dubious and self-serving, but they are particularly suspect in the Nera report because the authors define an economically productive industry as one that is “labour intensive”, which is to say that it has to employ more people to generate the same amount of revenue.

Specifically, they compare online gambling to “retail, dining, the arts, and amusement” and assume that the £6.5 billion spent on online gambling in Britain each year would be wholly diverted to these four industries if the gambling industry disappeared. Thanks to these industries being less efficient — sorry, more labour intensive — this would create more economic activity, according to the authors.

We find that when customers spend money on discretionary alternatives, they cause more economic activity and a greater proportion of total wages to be paid to employees than to they do gambling online. This is because these industries are more labour intensive, so when customers’ money goes to these other industries, more of it is paid out in wages, which then gets spent again in the economy.

It is true that online gambling companies spend a much smaller proportion of their revenue on wages than the other four leisure industries (2.5 per cent versus 38 per cent, according to Nera). They also spend much more on advertising and taxes and, according to the Nera report, their post-tax profit margin is 27 per cent whereas the profit margin of the other industries is 7 per cent. 

What do they think happens to profits? Do they get buried in a pit?

In the vaguely Marxist view of the authors, the only thing that matters is how much a business spends on wages because those wages will be “spent again in the economy”. They seem to think that all the other money simply disappears. What do they think happens to profits? Do they get buried in a pit? Of course not. They are paid out to shareholders who then spend the money. Or they are invested in infrastructure. Some profits may be put in the bank where the money will be lent out to someone else. Whatever they do with it, it gets spent. 

According to the Nera report, the online gambling industry spends 23 per cent of its revenue on marketing, nearly twice as much as the other industries. Where does this money end up? It goes to advertising agencies, football clubs, TV stations and a host of other businesses, all of which employ people who spend their wages. The authors say that online gambling companies spend a further 23 per cent of their revenue in taxes, nearly twice as much as the other industries, but they treat this as dead man’s money whereas it actually goes to public sector workers who — you guessed it — spend it.

If all you care about is making money go around the economy then it can be worth knowing which businesses and individuals spend the most and save the least (the marginal propensity to consume), but that is not what the Nera report looks at. It simply assumes that firms with a large wage bill are good and firms which need fewer staff to generate the same income are bad. It is a bafflingly Luddite view of economic productivity. It leads to the bonkers conclusion that people should be deterred from spending money on the things they like in order to reward labour inefficiency and that any industry that cuts costs by using technology reduces economic activity. 

This all brings to mind a quote that is dubiously attributed to Milton Friedman: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.” It is astonishing that an economic consultancy has written a report based on such an obviously flawed premise, but Nera have form for this. Ten years ago, in another report commissioned by the Campaign for Fairer Gambling (which has since been removed from the internet), they predicted that lowering the stake limit of fixed-odds betting terminals (FOBTs) to £2 would boost the economy. The Association of British Bookmakers, who opposed the policy, said that they expected “over 4,000 [betting] shops to close and 21,000 colleagues to lose their jobs.” Nera disagreed, saying that “the number of shop closures could be between 700 and 1200 which would leave the industry with just 5 to 10 per cent fewer shops that there were in 2000” (Matt Zarb-Cousin of the Campaign for Fairer Gambling reckoned that the figure would be even lower, at around 450). Nera estimated that job losses in the bookmaking sector would range from 4,255 and 8,259, but that overall employment would rise because spending would be diverted towards industries that have a higher “employment intensity”.

In 2019, the government lowered the stake limit to £2. Since then, 2,300 betting shops have closed with the loss of 20,000 jobs. The industry has 31 per cent fewer shops than it did in 2000. Nera’s estimates were miles out. (In case you’re wondering whether the pandemic was the real driver of this, we lost seven casinos and gained 19 bingo halls in the same period.)

It is impossible to know whether the FOBT reform created new jobs in other parts of the economy, but it seems unlikely since British punters haven’t reduced what they spend on gambling. Bookies are making £800 million than they did when they had FOBTs, but online casinos are making £900 million more. The irony is that if jobs were created by the clampdown on FOBTs, they were created in the supposedly unproductive online gambling sector.