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10:28am on Tuesday, 11th June, 2024:

Taxed Away


When I started weekend work in an amusement arcade 50 years ago this summer, one of my duties was cleaning the slot machines in the morning, before the arcade opened. There were quite a few of them, but there was room for more, so I asked the manager why he didn't put more in. He told me that he had to pay £70 a year in a flat tax for each machine.

Inflation being what it is, £70 in 1974 is about £900 today, but let's stick with 1974 prices.

These were penny machines, so to make back £70 some 7,000 pennies would have to be put in. It's worse than that, though, because these machines pay out money as well as taking it in. Most of the ones in the arcade where I worked were 70s (meaning that if a player put 100 coins in they'd have 70 coins in winnings at the end) but some were 80s. OK, so how many coins would a player have to put in to give the arcade owner 100 coins in profit?

For 80s, it would be 100/((100-80)/100) = 500. For 70s, it would be 100/((100-70)/100) = 333⅓. Because there were more 70s than 80s (80s being used to lure players into thinking that all the machines in that bank were good payers), let's say that on average 3.5 coins have to be put into a machine for the owner to make 1 coin profit.

3.5*7,000 = 24,500. This means each slot machine had to have 24,500 uses before they made back the flat tax that had to be paid on them. 24,500 uses is about about 67 uses per day. Most days didn't see anywhere near that much use, but over spring and summer weekends, plus bank holidays and the six weeks of school holidays, they would greatly exceed that. You could use each one maybe three times a minute, and with peak periods from day-trippers being 11am-3pm that meant 4*60*3=720 uses per machine, assuming constant use.

OK, so use wasn't constant, but it also wasn't restricted to 4 hours, so I'd guess each one saw around 900 uses a day over the summer. That would be for around 50 days, including pleasant weekends outside of the school holidays, so 45,000 uses in all. Add an optimistic but calculation-friendly 4,500 uses in total for out-of-season plays and we get 49,500 uses per machine. All uses above 24,500 are profit, so that's 25,000 profitable uses, or £250 per machine.

Oh, but there's value-added tax on that. In 1974, it was 10%, so the actual profit was only £225 per machine.

This still doesn't sound bad at all, although it had to be used to pay all the other overheads such as salaries, business rates and spare parts.

As for why they didn't add more machines, well with only a finite number of visitors each year, there were only a certain number of machine uses in the pot. It was a balancing act: too few and you were missing out out income; too many and you suffered from diminishing returns.

The situation deteriorated when VAT rose. It also deteriorated when the 2005 Gambling Act added expensive administrative overload. It got worse in 2007 when the smoking ban on indoor workplaces came into force.

The final nail inthe coffin was a rationalisation of taxation laws in 2011. Amusement arcades don't only have gambling machines, they have other entertainment machines as well — rides, pinballs, games (not just Space Invaders) — and the government of the day decided to tax them all the same way. They simplified it so that the flat tax was only due on machines with very high payouts, and made all transactions subject to VAT.

Oh. That's transactions, not profits. If a player put 100 coins into a machine and got 70 back in winnings, VAT was due on the 100 the machine took in, not the 30 that was profit.

In 2011, VAT was 20%. If someone put 100p into a 70, you had to pay 20p VAT leaving you 10p profit. If they put it into an 80, you had no profit at all.

Amusement arcade owners howled loudly and in unison at this, predicting the end of swathes of arcades. They did meet with some sympathy, but the laws had been aimed at betting shops and pubs, where slot machines were used more intensely, cost more money to play and had more miserly payouts. Arcade owners were faced with the choice of replacing all their machines with fancy new ones aimed at hooking compulsive gamblers, or raising their prices from (by then) 2p a go, or closing.

In the end, many, many did close. It meant the end of entire seaside resorts. There were six amusement arcades in my home town when I started; now, there are two. The arcade I worked in was demolished and replaced by expensive flats. One of the others is on its last legs (although to be fair, it always has been). The remaining one keeps the amusement arcade to give parents something to do while their kids are jumping around in the indoor bouncy castle place next door.

The bigger centres, such as Blackpool and Scarborough, had enough critical mass to keep going (largely by raising prices and reducing wages). They were large enough to be considered as tourist destinations. Smaller centres lost visitors when they raised their prices, because they weren't destinations, they were just a simple, fun day out.

Coastal towns have been in decline for decades, and now rank among the most deprived regions in the country. Gutting them of one of the few industries available only to them has accelerated this. 14 of the 20 most deprived regions in the UK are coastal towns (15 if you include Hull).

It would be nice if a major party in the up-coming general election were to pledge to send investment in their direction, but I can't see it. For that to happen they'd need to know that coastal towns existed.

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