The changes are a bitter blow to Britain's casino owners who will have to pay more tax on the billions of pounds that are staked by their customers every year.
In a surprise move, the Government plans to increase the top rate of gaming duty, which is paid by casinos on the gross profit they get from gambling, from 33 to 40 per cent. This will take effect from April.
The casino industry currently makes a gross profit of more than pounds 450m a year from gambling and pays in excess of pounds 80m in gaming duty.
The Government's move is forecast to increase the tax burden for the 116 casinos around the country by pounds 20m in the first year, rising to pounds 25m the year after.
The country's largest casinos, including London's 21 casinos which currently pay 80 per cent of the gaming duty handed to the Government, will suffer most from the tax hike.
"One-arm bandit" machines are also to become more expensive to operate, leaving amusement arcades facing the prospect of a much higher tax bill. The cost of a 12-month licence for amusement machines that offer prizes of up to pounds 8 will increase from pounds 535 to pounds 645.
The price of a 12-month licence for slot machines offering a larger jackpot will also be increased from pounds 1375 to pounds 1815.
The rise will come into effect immediately and raise pounds 20m a year by 1999/2000. However, pinball tables, video games and quiz machines will not be affected by the new tax rules.
The Government's hike in gambling duty follows moves to deregulate the industry including recent measures to increasing the maximum pay-out for a jackpot machine to pounds 250 and a new type of slot machine paying out up to pounds 10 which has been permitted in bingo halls and betting shops.
These initiatives have led to a sharp rise in profits across the sector. However, the Government announced no new moves to deregulate the industry further.Reuse content