Is Rachel Reeves about to send the share prices of these UK ‘sin stocks’ lower?

Shareholders of the UK’s so-called ‘sin stocks’ face an anxious few weeks. Although the precise figure isn’t yet known, economists appear to agree that the government will need to either raise taxes or cut spending (or do both) by tens of billions to plug a hole in the nation’s finances.

Business as usual

It’s common for tobacco duties to be raised in budgets, often above the rate of inflation. According to the Office for Budget Responsibility, these will generate revenue of £8.1bn (£280 per household) in the current financial year. Indeed, the industry appears to be something of a cash cow.

For example, British American Tobacco’s (or BAT as it’s known) worldwide gross revenue was £59.7bn in 2024. Of this, it paid £33.8bn (56.6%) by way of duties and taxes. Personally, I think it’s nailed-on that Chancellor Rachel Reeves will raise rates again in November.

However, I suspect it will have little impact on the share prices of BAT and Imperial Brands Group, its FTSE 100 peer. Annual increases have probably already been factored in to their stock market valuations.

But I think there’s more uncertainty about the gambling industry.

An easy target?

Entain (LSE:ENT), operates in 19 countries and owns numerous brands, including Ladbrokes and Coral. But the internet has helped transition its business model away from traditional high street bookies. In 2024, approximately 70% of the group’s net gaming revenue was derived online.

However, the group’s share price wobbled on 8 August — falling 5.8% — following comments made by Gordon Brown. The former Prime Minister said that the “undertaxed” gambling industry should face higher levies in the budget.

The Chancellor has refused to distance herself from the comments. She recently told ITV: “I do think there is a case for gambling firms paying more… they should pay their fair share of taxes and we will make sure that happens.”

Indeed, Entain reckons one of the biggest risks it faces is becoming a “target for special or super taxation”.

An existential threat?

And the consequences could be significant. The group’s boss says any increase in duties would have an impact, including job losses. She claims that the industry already pays its fair share.

The chairman of Betfred has warned that all of its 1,287 high street shops would have to close if taxes were raised by 50%, a figure floated by one think tank.

The Betting and Gaming Council cautions that a big tax increase would force gamblers to turn to the black market instead of using licensed bookmakers.

An odds-on certainty?

The global gaming market (which includes the betting industry) is worth £122bn and grew by an average of 15% a year from 2020-2024. And Entain is benefitting from this.

Revenue is growing strongly in most parts of the group. It’s expected to report EBITDA (earnings before interest, tax, depreciation and amortisation) of £1.1bn-£1.15bn in 2025. It was £1.089bn in 2024.

However, although it did well during the pandemic, its share price is now (20 October) approximately 60% lower than it was in October 2021. And the budget speculation isn’t helping.

I think it’s highly likely that gambling taxes will be raised next month. Of course, the impact on Entain’s share price will depend on by how much they go up. But given the uncertainty, I don’t want to invest.

The post Is Rachel Reeves about to send the share prices of these UK ‘sin stocks’ lower? appeared first on The Motley Fool UK.

More reading

• AI and green energy: two UK penny stocks that could benefit from these explosive industries
• 2026 could be the year of interest rate cuts. How might the UK stock market react?
• Could this ‘golden oldie’ soon rejoin the FTSE 250?
• 3 alternative AI watchlist ideas for a Stocks and Shares ISA
• Meet the UK penny stock smashing the Nvidia share price in 2025!

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c., ITV, and Imperial Brands Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

See author's posts