Tessa Jowell’s efforts to boost betting with the controversial Gambling Act were in tatters last night.
Her plan to make Britain the online gambling centre of the world folded after the Budget effectively banished operators from the country.
Chancellor Gordon Brown announced a 15 per cent gaming duty for betting websites on Wednesday.
Industry bosses said this ruled out any chance of them moving their firms to Britain from low-tax or tax-free countries such as Gibraltar, Malta or the Channel Isles.
Britain’s regulatory rules for Internet gambling – crafted by Miss Jowell’s officials at the Department for Culture, Media and Sport and presented as a key part of the Act – are now meaningless, with no operators to regulate.
And the fallout from the Chancellor’s surprise announcement of a 50 per cent tax on „bricks and mortar“ casino profits continued yesterday.
UK operator Rank saw its share price sink another 6 per cent, continuing Wednesday’s 4 per cent fall, after bosses warned the new tax would cost them £8 million a year.
Casino websites will be allowed to operate from the UK for the first time from September, and Miss Jowell has stated repeatedly that she wanted to attract online firms.
She told MPs last year: „We are concerned to ensure increasingly that online gambling companies understand the benefits of registering in this country.“
Whitehall documents show Labour’s aim was that „Britain should become a world leader in the field of online gambling“.
But such plans have been scuppered by Mr Brown.
British firms such as Ladbrokes, William Hill and Betfair base their sports betting businesses in the UK while their online casino and gambling operations are overseas.
The online industry is fiercely competitive with 2,800 operators around the world.
The battle to attract Internet punters means profit margins are geared towards operating in low-tax or zerotax countries.
Bosses made it clear to the Government that to lure them to Britain, betting duty must be no more than 2 per cent.
An explosion in online gambling in Britain has also created concern over addiction problems and underage betting.
Yesterday, Clive Hawkswood, of the Remote Gaming Association representing UK online gaming firms, said: „It is disappointing, as some operators who consider themselves British companies were keen to relocate here. There was genuine interest and we put forward strong arguments.
„It seems this was a political decision. Quite how the Government got from where they started – wanting to attract online operators to the UK – to where we are, who can guess? The market is getting bigger and bigger. Up to two million Britons now gamble online, not including the Lottery.
„We would have thought the Government would want some control over the regulations.“
Industry analyst Warwick Bartlett said Britain would miss out on a substantial influx of hi-tech jobs.
He said: „In Gibraltar, 15 per cent of the population works in online gaming. But operators estimated they would lose 50 per cent of their profits if they moved back to Britain with this level of taxation.
„Gordon Brown’s decision wasn’t based on what the public or the industry wants.“
Liberal Democrat spokesman Don Foster said: „This has become a farce. We are left with a regulatory regime with nobody to regulate.
„It makes a nonsense of Tessa Jowell’s promises to protect the public.“
A spokesman for the Department of Culture, Media and Sport insisted: „There are some significant advantages for online operators to be based in the UK.„