The contribution of betting shops to the UK economy

The contribution of betting shops to the UK economy A study on the economic impacts of betting shops in the economies of the UK, England, Wales and the English regions Report for the Association of British Bookmakers (ABB) June 2012 Centre for Economics and Business Research Ltd. Unit 1, 4 Bath Street, London EC1V 9DX t: 020 7324 2850 f: 020 7324 2855 w: www.cebr.com

2 Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd nor the report s authors will be liable for any loss or damages incurred through the use of the report. Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The study was led by Oliver Hogan, Cebr Head of Mircoeconomics with analytical and research support from Daniel Solomon, Cebr Economist. The views expressed herein are those of the authors only and are based upon independent research by them. This study has been commissioned by the Association of British Bookmakers and has utilised a combination of data provided by ABB and its members and those available in the public domain through ONS, Nomis etc. The report does not necessarily reflect the views of ABB. London, June 2012

3 Contents Contents... 3 Executive Summary... 4 Introduction... 4 Macroeconomic impacts of betting shops... 4 Local economic impacts of fewer new betting shops... 8 High Street vacancies and the economic environment facing the broader retail sector... 9 1 Introduction and background... 11 1.1 Betting shops in context... 11 1.2 Purpose of this study... 12 1.3 Structure of this report... 12 2 Methodology and assumptions... 14 2.1 Estimation of the economic impacts of betting shops... 14 2.2 Analysing the local economic impacts of changes to the planning regime for betting shops... 19 2.3 Predicting high street vacancies in the retail sector... 20 3 The macroeconomic impacts of betting shops... 21 3.1 Contribution of betting shops to GDP... 21 3.2 Contribution of betting shops to employment... 25 3.3 Contribution to the UK Exchequer... 29 4 Local economic impacts of changes to the planning regime for betting shops... 30 4.1 Chronological overview of the issues... 30 4.2 Challenges of a new Use Class for betting shops... 31 4.3 Economic implications of a new Use Class for betting shops... 33 5 High street vacancies and the retail environment... 37 5.1 Top-level view: the retail and wholesale sector... 37 5.2 Looking deeper: food, household goods and clothing & footwear stores... 39 5.3 Economic implications of denying the use of vacancies by betting shops... 40 Annex I: Questionnaire underlying in-depth interviews with the major bookmakers... 42

4 Executive Summary At the request of the Association of British Bookmakers (ABB), Cebr has investigated the economic impact of betting shops. The fruit of our lengthy investigation is contained within the pages of this report, and is summarised in this preamble. Introduction There were three broad objectives for the study, namely: 1. To establish the macroeconomic impact of betting shops in each of the UK, England, Wales and the English Government Office regions; 2. To examine the potential local economic impacts of changes in the planning regulations governing the opening of betting shops; and 3. To analyse vacant commercial lots on the High Street in the context of potential changes in the planning rules as applied to betting shops, as well as the tough economic environment facing the broader retail sector. These are vacancies that could, in theory, be occupied by betting shops with all their attendant benefits and with zero opportunity cost in terms of alternative uses. For the study, we used a combination of national statistics sources, data supplied by ABB from its annual economic modelling of the industry and Cebr s in-house economic models. However, the study also incorporated the results of a primary research element, involving in-depth interviews with four of the biggest players in the betting shop industry namely Gala Coral, Ladbrokes, Paddy Power and William Hill. The qualitative information gleaned during these in-depth interviews was supplemented by the quantitative responses of the bookmakers to a questionnaire designed by Cebr. The combination of these qualitative and quantitative data provided invaluable inputs for objective 2 of the study local economic impacts of changes to planning regulations but also for the sub-uk macroeconomic impact assessments under objective 1. Macroeconomic impacts of betting shops In broad terms, Cebr has discovered, though extensive investigation and economic modelling of the latest official data that the betting shop industry accounts for approximately 0.2 per cent of UK GDP. This equates with an absolute GVA contribution of almost 2 billion in 2009. To set this in context, Figure 1 illustrates the direct economic contribution of betting shops relative to the leisure or, under the SIC system, the Arts, Entertainment & Recreation

GVA billions) 5 sector as a whole, but also relative to the leisure sector s constituent industries. 1 This shows that betting shops are responsible for about 15 per cent of the contribution made by the aggregate leisure sector and for about 40 per cent of the contribution made by the gambling and betting services industry. Figure 1 also suggests that betting shops are almost as important in economic terms as some of the other leisure industries. For instance, the GVA contribution of the creative and performing arts industry is only slightly larger than that of betting shops. Figure 1: Direct GVA contribution of betting shops relative to the Arts, Entertainment & Recreation sector (SIC 1- digit level) and its constituent industries (SIC 2-digit level), 2009 16 14 12 10 8 6 4 2 - R. Arts, entertainment & recreation 93. Sports activities and amusement & recreation activities 92. Gambling & betting activities 91. Libraries, archives, museums & other cultural activities 90. Creative, arts & entertainment activities BETTING SHOPS Source: ONS supply-and-use tables, Cebr analysis The economic impact of betting shops is not, however, confined to this direct contribution. We used Cebr s in-house input-output models to produce multipliers for betting shops specifically, which led to the finding that, for every 1 of GVA generated by betting shops, an additional 0.61 of GVA is generated in the wider economy through indirect and induced impacts. This betting shop GVA multiplier of 1.61 is illustrated and explained further in Figure 2 below. This multiplier produces an aggregate GVA impact of betting shops of just under 3.2 billion in 2009 and 2010. 2 These estimates are presented in Table 1 below. 1 We note that, working with the SIC codes used on the horizontal axis in Figure 1, betting shops are a subset of 92 the Gambling and Betting Services industry which is a subset of R the broader leisure or Arts, Entertainment & Recreation. Together, industries 90, 91, 92 and 93 constitute R. 2 Implicit here is the assumption that all spending rounds in the multiplier process occur in the same year in which the initial impact is experienced.

6 Table 1: Total absolute impacts of UK betting shops ( millions) Economic impacts of betting shops 2009 2010 Direct GVA contribution ( m, current prices) 1,966 1,973 Total GVA impact ( m, current prices) 3,155 3,168 Source: Cebr analysis Figure 2: GVA multiplier for the UK betting shop industry Betting shops GVA multiplier = 1.61 Direct impact 1 + Indirect impact 0.29 + Induced impact 0.32 Consumption expenditure in betting shops triggers their supply response. In producing or providing their services, betting shops generate additional value added. Assume sufficient consumption expenditure in betting shops to generate 1 of GVA. This 1 of GVA is the direct GVA impact of the relevant increment in final demand expenditure. To increase their supply, betting shops must increase their demands on their suppliers, who increase demands on their suppliers and so on through the supply chain. This generates the indirect impact, an increase in GVA throughout the supply chain of 0.29 for every additional 1 betting shops GVA The combined direct and indirect impacts have an impact on household income throughout the economy, through increased employment, profits etc. A proportion of this income will be re-spent on final goods and services, producing a supply response by the producers of these goods/services and further impacts through their supply chains etc. This produces the induced impact of 0.32 for every additional 1 of betting shops GVA Source: Cebr analysis We have also found that the contribution to the economies of England, Wales and the English Government Office regions is typically between 0.1 and 0.2 per cent of their aggregate (national or regional) GVA. The outlier is the North East, where betting shops are estimated to contribute 0.4 per cent of the region s total GVA. Furthermore, our regional input-output models allowed us to estimate national and regional GVA multipliers for betting shops. These range from 1.35 in Wales to 1.59 in London, meaning that between 87 and 99 per cent of the impact of betting shops is felt within those countries and regions.

FTE jobs ( 000s) 7 We also estimate that betting shops account for 0.2 per cent of total UK employment, equating to over 41 thousand full-time equivalent (FTE) jobs. We set this in context in Figure 3 in which, as with GVA, we illustrate the direct contribution of betting shops relative to the Arts, Entertainment & Recreation sector as a whole, but also relative to the leisure sector s constituent industries. This shows that betting shops are responsible for about 9 per cent of the FTE jobs contribution made by the aggregate sector and about 50 per cent of the contribution made by the gambling and betting services industry. Figure 3, therefore, suggests that, while betting shops are relatively labour intensive compared to the gambling and betting services industry of which betting shops form part they are significantly less labour intensive than the broader Arts, Entertainment & Recreation sector. Figure 3: Direct employment contribution of betting shops relative to the Arts, Entertainment & Recreation sector (SIC 1-digit level) and its constituent industries (SIC 2-digit level), 2009 600 500 400 300 200 100 - R. Arts, entertainment & recreation 93. Sports activities and amusement & recreation activities 91. Libraries, archives, museums & other cultural activities 90. Creative, arts & entertainment activities 92. Gambling & betting activities BETTING SHOPS Source: ONS Business Register & Employment Survey, Cebr analysis However, as with GVA, the employment impact of betting shops is not confined to this direct jobs contribution. Using Cebr s in-house input-output models to produce employment multipliers for the betting shop industry, we found that, for every 1 FTE job in betting shops, an additional 0.53 of a job is supported in the wider economy through indirect and induced impacts. This produced an estimated total employment impact of betting shops of 63 thousand FTE jobs in 2009 or 0.3 per cent of the total UK workforce. The number of FTEs in betting shops

8 suffered a 1.7 per cent decline in 2010. Consequently, our estimate of the aggregate employment impact for that year would drop to about 62 thousand FTE jobs. We have also found that, in most cases, the employment multipliers for England, Wales and the English regions are between 98 and 99 per cent of the UK multiplier, meaning that between 98 and 99 per cent of the employment contribution made by betting shops is felt within the same geographical boundaries in which the initial expenditure (and hence direct GVA impact) occurs. The only exceptions are Wales (88 per cent), the North East of England (92 per cent), the North West (95 per cent) and South West of England (94 per cent). Local economic impacts of fewer new betting shops Presently, betting shops are part of the A2 Use Class under the planning system. This Use Class covers financial and professional services. However, if new regulations are introduced, the expectation is that betting shops could be re-classified as part of a new gambling-specific Use Class. Because bookmakers tend to expand their businesses by opening new betting shops in vacant commercial lots (on High Streets and adjacent areas), such expansion can often entail a change in the Use Class of the relevant lot, for example, from an A3 Use Class business (such as a restaurant or café) to an A2 Use Class business to facilitate the new betting shop. Such changes are, in many if not most circumstances, largely automatic. The bookmakers that we interviewed, however, indicated that, even under the current framework, achieving permission to change a lot s Use Class can be difficult when the proposed new business is a betting shop. This was largely attributed by the interviewees to local community biases against betting shops. They also provided what appear to be fairly concrete examples of permissions being denied despite a strong economic case in terms of jobs and investment and regulatory case under the existing planning framework for such permissions. The bookmakers we interviewed indicated that moving to a new Use Class structure would compound these difficulties, severely limiting their ability to expand and bring muchneeded jobs, investment and vibrancy to ailing High Streets. Specifically, they indicated that new regulations could reduce the proportion of successful new openings by anything from 30 to 75 per cent of planned openings depending, of course, on the volume of planned openings and on the strength or otherwise of local community biases against betting shops in the areas where these openings are planned. The opportunity cost of denying permissions for new betting shop openings is not negligible, as demonstrated by the macroeconomic impacts of betting shops outlined above. While these impacts are by no means overwhelming, in the current economic environment, a couple of tenths of a percentage point could mean the difference between achieving and not achieving economic growth. At the individual level, a typical betting shop employs between 4 and 7 persons, meaning that new Use Class regulations, to the extent that they stop new betting shops opening, are likely to stop new jobs being created, especially when the tough economic environment means there may be little else to populate the elevated proportion of vacant commercial lots on the High Street and surrounding areas.

9 Betting shops also contribute substantially to the employment of women and young people in the UK. Cebr estimates that, this year, betting shops employ a total of about 55 thousand persons, 14 thousand of whom are aged 18-24 and about 31 thousand of whom are women. A new planning system for betting shops, therefore, risks exacerbating unemployment in the UK, particularly: in areas already suffering above the national average rate of joblessness namely the North East, Yorkshire and The Humber, the West Midlands and Wales; and amongst those worker groups already facing the most challenging labour market conditions namely 18-24 year-olds and females. In other words, insofar as new Use Class regulations further restrict the opening of new betting shops, they are liable to damage the employment prospects of women and young people, particularly in areas where unemployment is already high. Fewer openings of betting shops could also deprive local economies of an important source of investment that itself sustains local jobs. Opening new betting shops often requires significant re-fitting, re-decoration and equipment purchases, thus supporting jobs in the manual trades, in wholesale materials providers, equipment manufacturers etc. Cebr estimates that, in today s money, bookmakers have already invested about 2 billion in local economies through the opening of new betting shops and the new-style re-fitting of betting shops that already existed before the most recent changes in the industry. (See section 4.1 of the main report.) This equates with a 150 to 200 thousand investment per betting shop. High Street vacancies and the economic environment facing the broader retail sector The UK economy has been under considerable pressure since late 2008. Cebr s sectoral models of the UK economy predict that many types of retailer will continue to suffer in 2012 and 2013 before only gradually recovering. 3 This reveals that the steep declines in retail sales in the period 2008-2009 took their heaviest toll in terms of failing businesses in those years. Business failures have stabilised somewhat in 2010, at least to levels that are closer to pre-recession levels even though retail sales volumes have continued to fall. Retail unit vacancies also grew rapidly in the 2008-2009 period and, despite a fall in business failures, vacancies in 2010 remained elevated at their 2009 level, suggesting that those businesses that did survive were in consolidation mode. While retail unit vacancies have fallen consistently since 2010, they are still well above pre-recession levels and are expected to remain between 2.5 and 3.0 per cent above their 2007 level until at least 2014 or 2015. These are vacancies that could, in theory, be occupied by betting shops and, given the retail environment on the high street, the opportunity cost of doing so (in terms of the 3 We have drawn principally on Cebr s Industry Watch analysis in which, for BDO LLP, we predict business failures by broad industry sector over the coming 18 to 24 months.

10 benefits that could be expected from the vacancy s next best use) could well be zero. Arguably, this lends further support to the case for not unduly restricting the opening of betting shops through new planning regulations. Such undue restriction would result in the UK and its constituent economies foregoing the economic benefits of more betting shops outlined above and more extensively in the main report despite there being little else to occupy vacant commercial lots given the tough environment facing the retail sector in general. Furthermore, with vacancies remaining elevated with little sign of a strong recovery anytime soon, and local authorities already struggling financially with the depressed economy (and consequent commercial lot vacancies) and with fiscal cuts, failing to fill these vacancies with betting shops when there is no viable alternative use, could deprive local Government of a potential source of increased revenues from business rates. In 2010, business rates from betting shops provided UK Local Government with revenues of over 58 million, an amount which could be increased to plug budgetary gaps left by fiscal cuts if the opening of new betting shops is not unduly restricted. In the event that such openings do become unduly restricted, the current economic environment facing much of the retail sector and the fact that vacancies are expected to remain elevated for the foreseeable future means that there are likely to be few other opportunities for local authorities to plug these gaps.

11 1 Introduction and background This is the report on a study by Centre for Economics and Business Research (Cebr) on the economic size of betting shops and the impact of the betting shop industry on the UK economy. The study was commissioned by the Association of British Bookmakers (ABB). 1.1 Betting shops in context Betting shops were legalised in 1960, largely in response to public demand for off-course betting facilities. Thereafter, the number of betting shops in the UK grew rapidly and there were almost 16,000 by 1968. The betting shop industry, at that time, lacked concentration with small operators playing a prominent role. The number of betting shops has been in decline since the late 1960s and the industry has become increasingly concentrated, with the majority of betting shops now in the hands of a small number of major operators. There were an estimated 9,000 shops in the UK in 2010, over 83 per cent of which were run by five companies. 4 Approximately 90 per cent of all betting shop industry revenues are likewise attributable to these five companies, suggesting that, on average, each of their shops generates more revenue than those of their smaller competitors. 5 According to the Gambling Commission, just over two in every three betting shops were run by one of three major players: Ladbrokes, William Hill and Gala Coral Group. 6 Betting shops occupy a prominent position within the UK gambling sector. The gambling sector achieved revenues (gross gambling yield - GGY) of approximately 5.7 billion according to the Gambling Commission. 7 Just under 3.0 billion of this was attributable to the betting industry. 8 Betting shops are estimated to have generated about 88 per cent of this 3.0 billion total, making them by far the most significant single contributor to gambling sector revenues. Betting shops are responsible for slightly less than one half of the gambling sector s total revenues, which also make them the most important element of the broader gambling sector in revenue terms. Betting shops also contribute significantly to employment. In 2009, they provided 27 thousand full-time jobs and 22 thousand part-time positions. However, this total of 49 thousand is estimated to have fallen to just over 46 thousand in 2010, with a much more significant drop in part-time positions. Meanwhile, based on Gambling Commission data, we estimate that the gambling sector as a whole provided 117,111 jobs (full- and part-time) in 2009, meaning that betting shops accounted for approximately 42% of jobs in the gambling sector. The same data suggest that betting shops are the most significant employer in the sector, employing almost three times as many people as the next largest gambling industry 4 This 9,000 estimate is based on ABB s estimate of 8,600 in Britain and about 400 in Northern Ireland. 5 Deloitte, The Full Picture: An economic impact of the British betting industry (commissioned by Ladbrokes). 6 Gambling Commission, Gambling Industry Statistics: 2009/10, Table 1. 7 Estimate for 2009-2010. 8 Gambling Commission, page 4

12 employer, namely bingo halls. Even at the national level, betting shops contribute noticeably to employment: in 2009 they employed 0.2 per cent of all employed people. 1.2 Purpose of this study Existing assessments of the economic impacts of betting on the UK economy have tended to focus on the value of the betting industry as a whole, including not only betting shops but also on-track and remote betting (the latter including telephone, internet sportsbook and internet exchange betting). We refer, in particular, to the study by Deloitte, entitled The full picture: An economic impact of the British Betting Industry, January 2010. The Deloitte study estimated that the entire betting industry (using the aforementioned wider definition) contributed 3 billion in direct gross value added (GVA) to the British economy in 2008 (equating to 0.2 per cent of GDP), as well as 40,700 full-time equivalent (FTE) jobs. Furthermore, through the industry s links with other sectors in the supply chain, the total contribution was estimated at 6 billion and about 100,000 FTE jobs (about 0.3 per cent of total UK employment). The purpose of this report is to drill deeper to examine the specific economic impact of betting shops on the High Street for the UK as a whole and separately for England, Wales and each of the English Government Office regions. What the report demonstrates is that betting shops themselves are responsible for a significant proportion of the benefits to the UK economy of the entire gambling and betting services industry. Specifically, we find that betting shops are responsible for about two-thirds of the Deloitte estimate of the wider betting industry s direct impact of 3 billion and just over half of the total aggregate impact of 6 billion estimated by Deloitte. 9 Cebr s interviews with representatives of the betting shop industry (which are discussed later in the report) reveal that betting shops also employ a disproportionately high number of comparatively low-skilled and young individuals. Those individuals who might have difficulty gaining employment elsewhere can, therefore, find employment with betting shops. As such, betting shops perform a valuable social function, helping people from these vulnerable groups to find employment. 1.3 Structure of this report This report is structured as follows: Section 2 sets out the methodology, data and assumptions underlying our study. Section 3 provides the results of our macroeconomic impact assessment of betting shops in the UK, England, Wales and the English Government Office regions. 9 The implicit conclusion one can draw from this is that the supply chain supported by betting shops is not as strong as for the wider betting industry. But this also means that betting shops are more valuable in terms of jobs that non-betting shop betting services. This is apparent from the aforementioned Gambling Commission statistics and is demonstrated in section 3 of this report.

13 Section 4 examines the local economic impacts of reduced numbers of new betting shops as a result of changes to the planning regime governing their opening. Section 5 considers high street vacancies in the context of the tough economic environment facing the broader retail sector and the economic implications of denying the use of such vacancies by betting shops.

14 2 Methodology and assumptions There were three broad objectives for the study, namely: 1. To establish the macroeconomic impact of betting shops in each of the UK, England, Wales and the English Government Office regions; 2. To examine the potential local economic impacts of changes in the planning regulations governing the opening of betting shops; and 3. To analyse vacant commercial lots on the High Street in the context of potential changes in the planning rules as applied to betting shops, as well as the tough economic environment facing the broader retail sector. These are vacancies that could, in theory, be occupied by betting shops with all their attendant benefits and with zero opportunity cost in terms of alternative uses. We describe the methods underlying each of these three parts in what follows. 2.1 Estimation of the economic impacts of betting shops To establish the size and economic impacts of the betting shop industry, we adopted the framework provided by the ONS supply-and-use tables, the most detailed official record of how the industries of the economy interact with other industries, with consumers and with international markets in producing the nation s GDP and national income. Making use of the supply-and-use framework to analyse a relatively small industry such as betting shops which is only a subset of an industry at the level of disaggregation provided by this framework is one of the best means of ensuring consistency with the national accounting framework. Methods used in the UK-level analysis The process of embedding a disaggregated industry, such as betting shops, involves assigning that industry a role within the supply-and-use tables. For the betting shop industry, the starting point was estimates of the total income of betting shops in Great Britain. These data were supplied by ABB, which produces them as part of its annual economic modelling of the industry. The data are collated from the biggest betting shop companies and uplifted for estimates of the numbers of smaller companies and independent betting shops. We assumed that the total income of the betting shop industry corresponds with the total demand for betting shops services. 10 This was followed by a process of backward induction 10 The UK Office for National Statistics (ONS) system of national accounts is built on Standard Industrial Classifications (SIC), the most recent being SIC 2007. The SIC system is used to classify product and service categories and producing industries using the same coding system. However, not all of a product or service category is necessarily produced by the corresponding industry and not necessarily all of

15 through the supply-and-use tables, involving (i) matching the demand for betting shop services to their supply; (ii) establishing the corresponding production, income and expenditure accounts for the betting shop industry, including the industry s supply chain; and (iii) adjusting the supply-and-use tables to ensure that they are re-balanced to GDP under the production, income and expenditure approaches to its calculation. Having assigned a role for betting shops within the supply-and-use framework, we had the foundation for establishing: The economic size (or direct impact) of the UK s betting shop industry, using standard measures of GVA 11 and, from this, the percentage contribution to GDP exchequer contributions and employment; and The wider economic impact of betting shops on the UK economy, using Leontief input-output modelling to estimate a full set of (matrix) multipliers capturing direct, indirect and induced effects of betting shops on output, GVA and employment. We use the multipliers in association with the direct impacts data to produce estimates of the total impacts of the industry through the supply chain response (indirect impacts) and the boost to household incomes and expenditure in the wider economy (induced impacts). Methods used in the national and regional analyses The starting point in determining the size of the betting shop industry in England, Wales and the English regions was to allocate the shares of the UK betting shop industry pertaining to these nations and regions. We did this for GVA using the regional allocation of betting shop premises suggested by the aggregated data provided by the companies that responded to our questionnaire and participated in our in-depth interviews (see subsection 2.2 below). Having completed the UK-level input-output analysis, we produced equivalent sets of multipliers for each of England, Wales and the English Government Office regions. Total GVA and employment impacts were obtained by first estimating the relevant region / country multipliers. The key issue with producing regional technical coefficients 12 is that regional propensities to import are much higher than national propensities, meaning local borders are more porous an industry will be dedicated to the production of the corresponding product or service category. (Note we use product category and product or service category interchangeably throughout the report.) 11 GVA or gross value added is a measure of the net value of goods and services which, in the national accounts, is the value of industrial output less intermediate consumption. That is, the value of what is produced less the value of the intermediate goods and services used as inputs to produce it. GVA is also commonly known as income from production and is distributed in three directions to employees, to shareholders and to government. GVA is linked as a measurement to GDP both being a measure of economic output. That relationship is (GVA + Taxes on products - Subsidies on products = GDP). Because taxes and subsidies on individual product categories are only available at the whole economy level, GVA tends to be used for measuring things like gross regional domestic product and other measures of economic output of entities that are smaller than the whole economy. 12 Technical co-efficients are also known as direct requirements and represent the amounts of intermediate consumption of the various product/service categories from which the industry draws its inputs per 1 of output of the sector. The matrix of technical coefficients, which is calculated from the domestic use table is the pre-cursor to the Leontief inverse matrix that produces multiplier estimates. Our

16 than national frontiers. We captured this through the use of location quotients. Location quotients (LQs) involve adjusting the UK-wide technical coefficients to take account of differing proportions of local demands being satisfied locally. They are interpreted as a measure of the ability of a particular industry in a particular region to supply the demands placed upon it by other industries and by final demand in the region. Under this interpretation a LQ > 1 implies that the industry is more concentrated in the region than in the UK as a whole, while a LQ < 1 implies that the industry is less concentrated in the region than in the whole of the UK. 13 However, these simple location quotients assume that the differences between the UK and regional/national technical coefficients are the same across the sectors. Therefore, to capture differences between the amounts of cross-industry trade at the regional / national level and the UK level, we used more advanced Cross-Industry Location Quotients (CILQs). CILQs take account of the relative sizes of the sectors providing and purchasing inputs. Under this interpretation a CILQ < 1 implies that the supplying sector is relatively small compared to the purchasing sector at the regional level, so some of the required inputs need to be imported from elsewhere in the UK. A CILQ > 1 means there is no need to adjust the UK technical coefficients as all the needs for the input can be met from within the region. The results of this analysis are unique matrices of technical co-efficients for each of the nations and regions. From these, the multiplier impacts of the betting shop industry in each of the nations and regions can be determined. Key data and assumptions The aforementioned data supplied by ABB from its annual economic modelling of the industry suggests that the total income of the betting shop industry is as presented in Table 2 below. (We note that total income includes the gross win from betting gross turnover less payouts to winners and total gross margin from gaming machines.) The table shows that total income of the GB betting shop industry was 2.8 billion in 2009, which remained broadly stable in 2010. Table 2 also present Cebr s estimates for the UK as a whole, which required an estimated rating by which to uplift the GB data to include Northern Ireland. To do so, we assumed that there are about 400 betting shops in Northern Ireland, which is an additional 4.4% on top of the total number of betting shops in GB. We uplifted the GB total income data on this basis. domestic use table was estimated using the information in the 2009 supply table in combination with a 2005 domestic use table in the ONS last set of input-output analytical tables. 13 These simple location quotients are calculated as the share of the relevant sector in total regional GVA relative to the share of the relevant sector in total UK GVA.

17 Table 2: Total income of the betting shop industry, millions Year Total income (GB) Total income (UK) (Cebr estimate) 2009 2,768 2,889 2010 2,779 2,901 Source: ABB, Cebr analysis Because the latest supply-and-use tables the framework for the analysis relate to the year 2009, we took the 2009 total income figure for UK betting shops forward in the analysis. As outlined above, we assumed that this total income figure represents total demand for betting shop services (at purchasers prices). By assuming that demand is equal to supply, this provided the relevant entry for total supply of betting shop services (also at purchasers prices) in the supply table. From supply at purchasers prices were subtracted taxes less subsidies on products to complete the supply table entries, culminating in an estimate of total domestic output of betting shop services at basic prices. Taxes less subsidies were taken as the sum of net VAT paid (excl. VAT paid through suppliers) and Amusement Machine Licence Duties paid, both of which were included in the information provided by ABB. This amounted to an estimate of 191 million for the UK betting shop industry in 2009. This was, in turn, equated with the output (at basic prices) of the betting shop industry and provided the starting point for developing the production and income accounts for betting shops. For the income account, we developed estimates, based on the ABB data, of: Taxes less subsidies on production: this was assumed to include business rates, employers national insurance contributions and betting shop and Gambling Commission licence costs. The estimate here was 122 million. Compensation of employees: this was taken as total employment costs in the ABB data less employer s national insurance contributions (because they are treated under taxes less subsidies on production), giving an estimate of 661 million in 2009 for the UK betting shop industry. Gross operating surplus: we used ABB s reported figures for profit before interest and tax (2009 estimate of 647 million for UK betting shops) and added back a number of items that were subtracted by ABB from revenues to arrive at this figure, including gross profit taxes ( 240 million), business rates ( 57 million) and depreciation (estimated to be 87% of total non-vatable business costs including head office, or 295 million). 14 14 The 87% estimate of the proportion of non-vatable business costs attributable to depreciation of fixed assets was put forward by Ladbrokes, who informed us that this was broadly accepted as typical of the entire industry.

18 To complete the production account, we developed a SIC-based product and service breakdown of intermediate inputs demanded by betting shops, thus establishing a supply chain used by betting shops in providing their services. This involved the following steps: Identify total intermediate spend: this was taken as all costs, as reported to us by ABB, that were unaccounted for up to this point of the analysis. This included other income costs ( 7 million), other machine costs ( 78 million), SIS/Turf TV charges ( 191 million), other VATable business costs ( 339 million) and other non-vatable business costs excl. depreciation ( 44 million). Estimated own-industry intermediate consumption: we used the proportion of own-industry intermediate consumption by the wider Gambling and Betting services industry (SIC 2007 2-digit code 92) as a basis for assuming the betting shops own-industry intermediate consumption. Treatment of horseracing and greyhound levies: these were included in the betting shop industry supply chain. While these levies are collected by the Levy Board a Government intermediary the monies are passed straight on to the racing industries. The levies are thus effectively treated as payments for rights to supply bets on the races provided by the racing industries. Allocation of remaining intermediate spend across the other elements of the supply chain: having subtracted own industry intermediate consumption from total intermediate spend, we used the intermediate spending breakdown for the British betting industry supplied in the Deloitte (2010) report, adapted for embedding within the supply-anduse tables, to establish the remainder of the betting shop supply chain. The adapted breakdown used by Cebr is presented in Table 3 below. Table 3: Percentage breakdowns for remainder of intermediate spend based on SIC 2007 1-digit product/service categories (SIC 2007 1- digit code) Intermediate spend product / service category % of remaining intermediate spend allocated to each C Manufacturing 6% E Water and sanitation 1% G Wholesale & retail 2% H Transportation & storage 3% I Accommodation & food 1% J Information & communications 39% K Financial & insurance activities 2% L Real estate 21% M Professional and business services 15% N Administrative & support service activities 9% Q Human health & social work 1% Source: ABB, Deloitte (2010), Cebr analysis

19 Having completed the income and production accounts for the betting shop industry, we had the basis for assessing the direct impacts of the betting shop industry. Furthermore, completion of the production account provided the ingredients required to assess the multiplier impacts of betting shops through incorporation into Cebr s input-output modelling. 2.2 Analysing the local economic impacts of changes to the planning regime for betting shops We have sought to examine the potential local economic impacts of changes in the planning arrangements governing the opening of betting shops using data supplied by and in-depth interviews with representatives of the largest betting shop companies, namely Gala Coral, Ladbrokes, Paddy Power and William Hill. Methods used Through the interviews and questionnaire, the objective was to establish how anticipated changes in the planning regulations could impact on the business decisions of betting shop owners, especially decisions related to expansion and contraction of their shops presence. We sought to establish the number of betting shops that could be denied planning permission, thus providing a basis for understanding the potential socioeconomic loss to local High Street economies of these denied permissions, in terms of investment and output foregone, jobs foregone and business rates foregone. Because betting shops tend to provide significant proportions of part-time jobs and employ high percentages of 18-24 year-olds, females and the disabled, we also sought to assess jobs foregone in this context. Clearly, tackling the highest ever unemployment rate among 18-24 year olds is a national priority, the achievement of which would not be helped by denying planning permission to new or expanding betting shops. Key data and assumptions We undertook a literature review, including transcripts of Parliamentary debates, to establish a chronological overview of the pertinent issues. Through the programme of indepth interviews, we explored with the major betting shop owners the strategies they use to expand their businesses and the challenges they face under the current Use Class system. Using the data supplied by the bookmakers in these interviews and in response to the questionnaire developed for that purpose, we were able to establish a broad indication of the probable effects of a new Use Class system on their ability to expand the presence of their betting shops. This, in turn, provided the ingredients to assess the implications of such a new Use Class for local economies, particularly for employment and regional investment.

20 The questionnaire developed for these purposes is provided in Annex I. (We note that, while we received very healthy responses to the first part of the questionnaire, the bookmakers determined that there were too many uncertainties to try to populate the second part. Instead, broad orders of magnitude were discussed in the course of the face-to-face in-depth interviews.) 2.3 Predicting high street vacancies in the retail sector We have drawn on Cebr s Industry Watch analysis in which, in conjunction with BDO LLP, we predict business failures by broad industry sector for the next 1.5 to 2 years. Methods used This involved drawing out our analysis of the retail sector and reviewing the specific types of businesses that are appearing more likely to fail given the broad economic environment for retail. We used this, in conjunction with data from the Winter 2011/12 Colliers National Retail Barometer to examine current commercial lot vacancies on High Streets and outlook for vacancies going forward. These are vacancies that could, in theory, be occupied by betting shops and, given the retail environment on the High Street, the opportunity cost of doing so (in terms of the benefits that could be expected from the vacancy s next best use) could well be zero. This lends further support to the case for not unduly restricting the opening of betting shops through new planning regulations. Key data and assumptions The UK economy has been under considerable pressure since late 2008. Hence, Cebr s sectoral model of the UK economy predicts that many types of retailer will continue to suffer in 2012 and 2013 before gradually recovering. For this part of the study, we set out to contextualise the broad retail and wholesale sector s performance in the past and present, discussing the sector s business failures, sales volumes and retail business unit vacancies since the recession. For this purpose, we used the data and models underlying the Q1 2012 version of Cebr s Industry Watch report for BDO LLP. Looking deeper within the retail sector, we review the recent sales volumes performance of food stores, household goods stores and clothing and footwear stores to identify the parts of the retail sector in which businesses are most likely to fail and, thus, the kinds of shops that are more likely to end up vacated.

21 3 The macroeconomic impacts of betting shops This section sets out our findings on the size, economic contribution and economic impacts of betting shops at the aggregate UK level and for each of England, Wales and the English Government Office Regions. Section 3.1 assesses the economic contribution of betting shops to UK GDP and contextualises this by providing a comparative analysis with broader related industries and sectors of the economy. Section 3.2 presents our findings on employment and section 3.3 our findings on contribution to the UK Exchequer. 3.1 Contribution of betting shops to GDP Aggregate UK-level results In broad terms, Cebr has discovered, through extensive investigation and economic modelling of the latest official data that the betting shop industry accounts for approximately 0.2 per cent of UK GDP. This equates with an absolute GVA contribution of almost 2 billion in 2009. While the contribution of the betting shops is small, especially when compared with some of the very significant sectors of the economy (such as manufacturing and financial services), a 0.2 per cent contribution to GDP is not insignificant during these times of negative growth. To set this in context, we compare the contribution of betting shops to that of the more aggregate industries of which they form a part in Table 4 below. This shows that betting shops are responsible for about 15 per cent of the economic contribution made by the aggregate Arts, Entertainment and Recreation sector, which itself contributes about 1.3 per cent of UK GDP. At the more disaggregated SIC 2-digit level, betting shops can be seen to be responsible for about 40 per cent of the contribution made by the gambling and betting services industry as a whole. Table 4: Betting shops GVA contribution compared to the broader industry and sector of which they form part SIC code Sector Contribution to GDP * Total GVA ( m, 2009 estimate) ** R ^ Arts, entertainment & recreation *** 1.3% 14,740 92 ~ Gambling and betting services 0.5% 4,810 N/A BETTING SHOPS 0.2% 1,966 * Includes an estimate of taxes less subsidies on products ** Excludes taxes less subsidies on products *** This is the sector including the contribution of betting shops ^ SIC 2007 1-digit level ~ SIC 2007 2-digit level Source: ONS supply-and-use tables, Cebr analysis

GVA billions) 22 Figure 4 below provides an illustrative comparison of the GVA contributions of betting shops with those of: The aggregate 1-digit arts, entertainment and recreation sector, of which betting shops form a part; and The aggregate 2-digit industries that make up this aggregate 1-digit sector, including gambling and betting activities (of which betting shops form a part) as well as the creative and performing arts, the aesthetic arts and the sports activities industries. 15 This is further illustrative of the important role played by betting shops in the wider gambling and betting services industry, but also shows that the betting shop industry is almost as important (in economic terms) as some of the other arts, entertainment and recreation industries. For instance, the GVA contribution of the creative and performing arts industry is only slightly larger than that of betting shops. Figure 4: Size of betting shop industry relative to the other elements of the arts, entertainment and recreation sector 16 14 12 10 8 6 4 2 - R. Arts, entertainment & recreation 93. Sports activities and amusement & recreation activities 92. Gambling & betting activities 91. Libraries, archives, museums & other cultural activities 90. Creative, arts & entertainment activities BETTING SHOPS Source: Business Register & Employment Survey, Cebr analysis However, the economic impact of betting shops in the UK is not confined to this direct GVA contribution. We used input-output modelling to produce betting shop industry multipliers, which led to the finding that, for every 1 of GVA generated by the betting shop industry, an additional 0.61 of GVA is generated in the wider economy through 15 We note that, working with the SIC codes used on the horizontal axis in Figure 4, betting shops are a subset of 92 the Gambling and Betting Services industry which is a subset of R the broader leisure or Arts, Entertainment & Recreation. Together, industries 90, 91, 92 and 93 constitute R.

23 indirect and induced impacts. This betting shops GVA multiplier of 1.61 is illustrated and explained further in Figure 5 below. Figure 5: The UK betting shops industry s GVA multiplier Betting shops GVA multiplier = 1.61 Direct impact 1 + Indirect impact 0.29 + Induced impact 0.32 Consumption expenditure in betting shops triggers their supply response. In producing or providing their services, betting shops generate additional value added. Assume sufficient consumption expenditure in betting shops to generate 1 of GVA. This 1 of GVA is the direct GVA impact of the relevant increment in final demand expenditure. To increase their supply, betting shops must increase their demands on their suppliers, who increase demands on their suppliers and so on through the supply chain. This generates the indirect impact, an increase in GVA throughout the supply chain of 0.29 for every additional 1 betting shops GVA The combined direct and indirect impacts have an impact on household income throughout the economy, through increased employment, profits etc. A proportion of this income will be re-spent on final goods and services, producing a supply response by the producers of these goods/services and further impacts through their supply chains etc. This produces the induced impact of 0.32 for every additional 1 of betting shops GVA Source: Cebr analysis This produces an aggregate GVA impact of betting shops of an estimated 3.2 billion in 2009 and 2010. 16 These estimates are presented in Table 5 below. 16 Implicit here is the assumption that all spending rounds in the multiplier process occur in the same year in which the initial impact is experienced.