Ladbrokes urges UK government to rethink betting machines tax hike

(Adds comment from Ladbrokes (LSE: LAD.L - news) )

By Keith Weir

LONDON, March 20 (Reuters) - Ladbrokes urged the British government on Thursday to rethink plans to increase the rate of tax levied on its profits from high stakes gambling machines that will cost UK bookmakers around 75 million pounds ($125 million) a year.

The rate will rise to 25 percent from 20 percent in a year's time, Finance Minister George Osborne said in his budget statement on Wednesday, responding to the spread of fixed-odds betting terminals in betting shops that critics say are highly addictive.

The surprise rise in tax on the gambling machines, that now account for a large part of total revenues generated in their shops, has hit shares in bookmakers hard.

"We will be pressing for an urgent review of a tax that seems to be based on the commercial success of a product not on any strategy or basic taxation principles of equity between competing sectors," said Ladbrokes spokesman Ciaran O'Brien.

Market leader William Hill (Other OTC: WIMHF - news) said on Thursday the tax hike would cost it 22 million pounds ($37 million) a year, raising its initial estimate of the impact from 16 million.

The increase is expected to cost Ladbrokes around 20 million pounds a year and have more of an effect on its bottom line as it remains more reliant on its betting shop chain than William Hill which has expanded its online business.

Shares in Ladbrokes fell a further 4.5 percent on Thursday to 134.1p while William Hill lost 1.4 percent to 346.6p.

Bookmakers are frustrated that the government cut taxes on bingo in the budget while punishing them. They already face an additional 300 million-pound bill from a new tax on online gambling that is due to take effect in December.

The budget announcement led to a number of analysts' downgrades in the sector.

"Ladbrokes is most affected given the dominance of UK retail in its business mix. We see a dividend cut as unavoidable at this point and we reiterate our 'Sell' recommendation," said James Ainley of Citi in a research note.

Gamblers can spend up to 300 pounds ($500) a minute on the fixed odds terminals, more than 33,000 of which have been installed in shops around the country over the past decade.

Bookmakers recently introduced warnings to try to prevent players from running up rapid losses but say there is no evidence to support claims that the machines are leading to an increase in problem gambling. ($1 = 0.6014 pounds) (Writing by Keith Weir; Editing by Kate Holton, Greg Mahlich)