Online gambling companies face a tax of 15 per cent if they apply for a UK licence, a level that will almost certainly mean most operators decide to remain offshore.

The level is in line with the duty served on other forms of gambling, and way above the 2-3 per cent companies were lobbying for in order to justify switching their licences to the UK.

The Remote Gambling Association said the duty level set by the chancellor effectively closed the door on remote gambling in the UK.

John Coates, RGA chairman, said “this decision means that the UK has effectively turned its back on the industry. Quite simply, under this regime, with the additional VAT and Corporation tax for most companies, it would be almost impossible for a UK-based operation to compete with offshore businesses, especially those located in other EU jurisdictions.”

The UK’s new licensing regime, which comes into effect on September 1, faces competition from low-tax regimes in offshore locations such as Gibraltar, Malta, Alderney and the Isle of Man.

Clive Hawkswood, RGA chief executive, said the 15 per cent tax level was unrealistic and blew a hole in the government’s liberalisation of gambling laws.

“Given the overall tax burden it is very hard to see how any remote gaming operation could be profitable in the UK,” he said.

Ministers, he added, had frequently said the gambling act was driven by the need to regulate remote gaming. “They will not now be able to do that and the UK will not share in the growth of the fastest growing sector of the international gambling industry. The British government has missed a real opportunity to lead the way in terms of international regulatory standards.”

The chancellor also announced increases in duty paid by casino operators on their profits. The 2.5 per cent tax rate paid by the majority of casinos is increased to 15 per cent, while big-profit casinos see their tax rate increase from 40 per cnet to 50 per cent.

The Treasury has argued that online gambling companies needed to take into account the reputational and regulatory benefits of being licenced in the UK.

A Treasury spokesman said: “We will not get into some sort of race to the bottom. We are looking at a rate that is right for the UK. This offers a fair and competitive environment across all types of gambling. This puts all gambling in the same treatment.”