The maximum stake on fixed-odds betting terminals (FOBTs) will be reduced to £2 under new rules unveiled by the government.
Currently, people can bet up to £100 every 20 seconds on electronic casino games such as roulette.
Sports Minister Tracey Crouch said reducing the stake to £2 “will reduce harm for the most vulnerable”.
But bookmakers have warned it could lead to thousands of outlets closing.
Research by KPMG has estimated a £2 limit would cut revenue for the Treasury by £1.1bn over three years, an annual loss of £45m to local authorities and £50m to British racing.
Betting firm William Hill, makes just over half its retail revenues from FOBTs.
Its chief executive, Philip Bowcock, has told the BBC that a £2 FOBT limit would have a devastating impact on the High Street betting industry, with up to half of Britain’s betting shops facing threat of closure and about 20,000 jobs going.
Ms Crouch said: “We recognise the potential impact of this change for betting shops which depend on (FOBT) revenues, but also that this is an industry that is innovative and able to adapt to changes.”
She said the government will work with the industry and the Gambling Commission “to examine the effects of regulatory changes and also the continuing trend of growth of gambling activity online”.
A government report found consistently high rates of problem gamblers among players of FOBTs “and a high proportion of those seeking treatment for gambling addiction identify these machines as their main form of gambling”.
Ms Crouch said FOBTs were “an outlier in the world of high-street gambling because of the speed with which it is possible to lose large amounts of money”.
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Ms Crouch said the £2 limit would “substantially” reduce harm and protect the most vulnerable players.
She added: “Even cutting to £10 would leave problem gamblers, and those most vulnerable, exposed to losses that would cause them and their families significant harm.”
Anti-gambling campaigners have condemned the machines, saying they let players lose money too quickly, leading to addiction and social, mental and financial problems.
Matt Zarb-Cousin is now a spokesman for the Campaign for Fairer Gambling but was previously addicted to FOBTs.
“It’s no exaggeration to call FOBTs the crack cocaine of gambling,” he has told the BBC.
“If we had a gambling product classification, similar to that of drugs, FOBTs would be class A.”
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