The UK’s unregulated offshore gambling sector is poised for substantial expansion, with H2 Gambling Capital’s latest modelling forecasting that higher tax on licensed operators will accelerate player migration away from the regulated market. The analysis paints a stark picture of how fiscal policy can reshape competitive dynamics within the iGaming industry.

The Numbers Tell a Story of Migration

H2’s projections are dramatic. Offshore gross gaming yield, the revenue measure that excludes player winnings, has climbed from roughly £200 million in 2019 to an estimated £685 million in 2025. By 2031, that figure is forecast to nearly double again to £1.4 billion, representing a compound annual growth rate of 12.7% from 2025 onwards.

The underlying turnover figures are equally striking. Offshore turnover has expanded from around £5 billion in 2019 to £16.6 billion in 2025, with projections suggesting it will reach £36 billion by decade’s end. What really stands out is the acceleration between 2023 and 2025, when volumes roughly doubled.

H2’s methodology relies on detailed web traffic analysis, accounting for bounce rates, time spent on sites, and a weighting for high-value customers who gravitate towards unregulated brands. The analysis factors in a 2.0x spend multiple for offshore visitors relative to their onshore counterparts. This explains an apparent paradox: licensed sites capture 96 per cent of visits but only 92 per cent of actual spending.

Licensed Operators Face Headwinds

The Remote Gaming Duty increase, which took effect in April 2026, emerges as the pivotal driver. H2 characterises this tax rise as a “significant headwind” for the regulated sector and a catalyst for channelisation decline. That term refers to the proportion of gambling conducted through UK-licensed operators, and the figures are sobering. Channelisation fell from 97 per cent in 2019 to an estimated 92 per cent in 2025, with further decline to 85 per cent expected by 2031.

The casino segment showed resilience in 2025, with gross gaming yield rising 14 per cent to £5.70 billion. Online betting proved weaker, falling 6 per cent to £2.45 billion despite turnover growth of 5 per cent, reflecting pressure on hold margins. H2 forecasts marginal iGaming GGY decline of 1 per cent in 2026, accelerating to a 5 per cent fall in 2027 as the duty increase takes fuller effect.

The combined nominal decline across 2026 and 2027 is calculated at 6 per cent. In real terms, though, that translates to approximately 11 per cent. When accounting for reduced promotional bonusing and other competitive adjustments, the real-term impact could reach a 20 to 25 per cent decline on a gross revenue basis.

The Broader Market Context

Overall UK online GGY is projected to increase modestly from £8.8 billion in 2025 to £9.6 billion in 2031. That nominal growth obscures a troubling reality: in real terms, the market is forecast to contract by approximately 12 per cent over the same period. Even by 2031, licensed operators are projected to capture around £8.2 billion of the £9.6 billion total, maintaining market dominance in absolute terms but losing share to unregulated competition.

The Betting and Gaming Council’s chief executive, Grainne Hurst, offered a sharp assessment. Higher taxation benefits only criminal offshore operators, she argued, while costing the UK jobs, investment, and legitimate tax revenue. Her comments reflect industry frustration that fiscal policy may inadvertently strengthen the very operators it seeks to disadvantage through regulation.

The analysis raises a strategic question for policymakers: whether the current tax trajectory achieves intended objectives or simply redistributes activity from licensed to unlicensed markets, fragmenting consumer protection in the process.