Britain cuts top stake on gambling machines on addiction fears

* Stake cut after concerns over gambling

* Bookmakers warn that betting shops could close

* Online gambling also faces higher duty (Adds analyst view on Remote Gaming Duty, updates shares)

By Rahul B

May 17 (Reuters) - Britain will cut the maximum stake on fixed-odds betting terminals to just two pounds after the government opted to try to tackle problem gambling and rejected claims that such a big reduction could cost thousands of jobs.

The decision follows complaints that the machines, on which gamblers in high street shops bet up to 100 pounds ($135) every 20 seconds on games such as roulette, were highly addictive and allowed players to lose large sums of money too quickly.

"These machines are a social blight and prey on some of the most vulnerable in society, and we are determined to put a stop to it and build a fairer society for all," Matt Hancock, Secretary of State for Sport, said in a statement on Thursday.

Critics of the machines, often dubbed the "crack cocaine" of gambling, had also written to Prime Minister Theresa May urging the government to cut the stake to 2 pounds.

The decision deals a blow to companies such as William Hill (Frankfurt: 633847 - news) and GVC who had argued that the terminals were a major source of income for high-street betting shops which are struggling to stay afloat as younger gamblers move online, putting jobs at risk.

Gambling companies -- most of which run internet as well as high street businesses -- face a two-way squeeze as the government plans to increase Remote Gaming Duty on online gambling to offset the loss of income from the cut in the stake.

Analysts expect Britain to increase the current 15 percent base levy on online operators by between 3.5 to 5 percent. No further details are expected before the government's Autumn Budget in November.

The Office for Budget Responsibility watchdog forecast total machine gaming duty would yield 720 million pounds in 2017-18.

U.S. OPPORTUNITIES?

The clampdown, which marks the biggest regulatory change in the UK gambling industry since rules were liberalised in 2005, was welcomed by charities, the church and opposition politicians.

However, the government has not set an exact timetable for implementing the changes.

Shares (Berlin: DI6.BE - news) in the main gambling companies fell in early trading on Thursday, with William Hill, down nearly 9 percent at one stage, hit hardest before swinging back into credit.

London-listed gambling stocks have had a topsy-turvy week, surging on Monday after the Supreme Court paved the way to legalise sports betting in the United States.

With (Other OTC: WWTH - news) tighter curbs and higher taxes in their home market, the companies are likely to seek to expand across the Atlantic (Shanghai: 600558.SS - news) . Ireland (Other OTC: IRLD - news) 's Paddy Power Betfair (Other OTC: PDYPF - news) said already on Wednesday it was considering merging its U.S. business with fantasy sports company FanDuel.

There are over 8,788 betting shops in Britain and companies are allowed to install a maximum of four machines per shop.

Ladbrokes Coral (LSE: LAD.L - news) , bought by GVC for close to 4 billion pounds late last year, operates close to 3,500 high street betting shops across the UK, employing over 25,000 people. William Hill has around 2,300 betting shops employing over 12,500 people.

William Hill said the new regulation could lead to a 35 to 45 percent reduction in annual total gaming net revenue. It said that the limit could result in around 900 of its high streets shops becoming loss-making.

GVC said cutting the top stake on gambling machines would mean a reduction of around 160 million pounds in its core earnings in the first full year.

REGULATORY SHIFT

The clearer regulatory picture could however facilitate a further round of consolidation in the British gambling sector.

GVC has expanded rapidly through acquisition, while Paddy Power Betfair is the product of a merger.

The government, which said the move would need parliamentary approval, pledged to engage with the gambling industry to ensure it was given sufficient time to implement and complete the technological changes.

The government said the Gambling Commission would also toughen up protections around online gambling such as stronger age verification rules and proposals that require operators to set limits on gamblers' spending until affordability checks have been conducted.

It also laid out plans for a major multi-million pound advertising campaign promoting responsible gambling that will be supported by the industry.

Campaigners welcomed the tighter rules.

The opposition Labour Party's deputy leader Tom Watson said on his Facebook (NasdaqGS: FB - news) page: "This announcement signals the end of the reign of destruction and misery that FOBTs have brought on the lives of gambling addicts and their families and communities for too many years." ($1 = 0.7376 pounds)

(Reporting by Rahul B in Bengaluru Editing by Kate Holton/Keith Weir/Jane Merriman)