The Impact of the UK’s Tax Increase on the iGaming Sector: How to Prevent Market Leakage

The UK’s iGaming industry has been coping with constant regulatory adjustments for years, but the most recent tax increase has pushed operators into a far more challenging environment. Taxes alone don’t break a market, but when margins shrink and operating flexibility tightens, licensed operators find themselves working with fewer tools while grey-market competitors continue playing by their own rules.

This analysis looks at what the new tax structure is doing to the market in real terms, and why the response cannot rely on taxation alone.

How Higher Taxes Are Changing Operator Behavior

The Value Gap Is Growing

When taxes go up, operators need to adjust something and usually it’s bonuses, player incentives, or RTP. These are the exact levers players notice most. As the value proposition weakens, players with experience in the market naturally look for alternatives that give them more for their money.

Why Players Drift to the Grey Market

Grey-market sites have fewer restrictions and lower costs. They can offer promotions that licensed operators simply cannot match. Players don’t always leave because they want to take a risk often they leave because the legal market feels less appealing than it used to.

Pressure on Responsible-Gaming Standards

Licensed operators pour significant resources into compliance, safer-gambling tools, and various monitoring systems. The challenge is that when margins start tightening, these functions don’t always get the breathing room they need. It’s not intentional, but they’re usually among the first areas where you feel the cutbacks.

Over time, this creates a kind of domino effect: compliance becomes less robust, players sense that drop in confidence, and the distance between them and unregulated options suddenly feels much shorter. Once that shift begins, it’s hard to pull things back.

The Revenue Paradox

Higher taxation is expected to increase public revenue. But if a growing percentage of play moves off-platform, the opposite can happen. A shrinking regulated ecosystem produces less tax, not more.

What a Balanced Approach Should Look Like

1. Use Real Player Behavior Data

Regulation should be adjusted based on actual movement in the market not assumptions. Data on player migration, conversion funnels, and channel leakage should guide policy decisions.

2. Keep the Legislation Adaptable

The industry moves much faster than most regulatory cycles. Advertising rules, bonus restrictions, affordability checks and operational guidelines must evolve with the market. A static rulebook will not hold the regulated sector together.

3. Strengthen the Legal Market’s Appeal

Players stay where value, user experience, and trust intersect.

To compete, licensed operators must be able to offer products and promotions that are not dramatically inferior to grey-market propositions - while still maintaining compliance.

4. Learning from Countries That Managed to Strike a Balance

A useful way to understand what might work in the UK is to look at places that faced similar pressure. Italy and Spain, for example, both operate under relatively heavy taxation. Even so, the markets there haven’t collapsed under the weight of it.

The difference isn’t the tax rate itself it’s everything that surrounds it.

When enforcement is predictable, the rules are clear, and the regulators understand the day-to-day reality operators deal with, the market stays stable. It’s far from perfect, but it works well enough to keep players inside the regulated environment rather than wandering off to alternatives.

Final Thoughts

Raising taxes is easy; building a system that actually holds together afterward is the complicated part.

If the goal is a functioning, safe, and competitive market, taxation can’t operate on its own island. It has to move alongside regulation, enforcement, and an honest look at how players behave. Ignoring any of these pieces increases the risk that users drift toward places where none of the rules apply.

Source Credit: Originally published by iGamingExpert.https://igamingexpert.com/features/uk-tax-itai-pazner/