The Gambling Commission is outpaced and outgunned by betting companies, according to a government report warning that the watchdog is struggling to protect people from gambling-related harm.

The National Audit Office, which monitors the effectiveness of public bodies, said the regulator had not adjusted to technological change such as the rise of online and mobile gaming. It said funding constraints had hampered the commission, which has an annual budget of £19m but regulates an industry that took £11.3bn from punters last year.

The commission is “constrained by factors outside its control, including inflexible funding and a lack of evidence on how developments in the industry affect consumers,” the NAO said.

It concluded that the regulator was “unlikely to be fully effective in addressing risks and harms to consumers within the current arrangements”.

Its verdict comes after the government promised to review the 2005 Gambling Act, following successive scandals that have cast doubt on the industry’s commitment to rein in disordered gambling.

High-profile cases include revelations about the industry’s use of so-called “VIP schemes”, as well as concern about the impact on young and vulnerable people of gambling advertising and its links to football.

While the commission has ramped up the level of fines it issues, from £1.4m in 2014-15 to nearly £20m last year, it has struggled to keep pace with changing trends, the NAO said. These include a 56% rise in advertising spending between 2014 and 2017, most of it via online and social media channels rather than television.

The NAO also pointed to the increase in the proportion of online gambling that happens via mobile phone, up from 23% in 2015 to 44% in 2018.

Gareth Davies, head of the NAO, said: “The risks to gamblers are changing as technologies develop. Yet the Gambling Commission is a small regulator in a huge and fast-evolving industry. While the commission has made improvements, gambling regulation lags behind the industry.”

The NAO called on the commission and the Department for Digital, Culture, Media and Sport (DCMS) to do more to encourage companies to surpass minimum standards on problem gambling protection, including “financial and reputational” incentives.

It also called for a review of the commission’s funding model, via fees paid by operators for licences.

Labour MP Carolyn Harris said: “The Gambling Commission is not fit for purpose and Neil McArthur [its chief executive] should resign in the light of this report. The commission is simply not up to the job of regulating the gambling industry, particularly the online sector, parts of which seem to operate like the wild west.”

There are an estimated 395,000 problem gamblers, 55,000 of them children, with a further 1.8 million deemed “at risk”. Six further people are affected by each addict, according to a study cited in the report.

The report lamented a lack of long-term research to measure the impact of the problem gambling. Research has suggested that the economic cost could be as much as £1.2bn a year, nearly half the industry’s £3bn annual tax contribution.

The Gambling Commission said the NAO’s report “underlines the constraints that our current funding arrangements presents, and we are developing proposals to discuss this with DCMS”.

The regulator pointed to measures it had taken such as imposing stricter age verification and banning gambling on credit cards, but admitted that more needs to be done. “We must see a reduction in the number of people experiencing harm and we are currently pushing the industry to focus on poor VIP practices, advertising technology and game design,” the DCMS said.

“We have already announced we will review the Gambling Act to ensure it is fit for the digital age.”

“We have also worked closely with the Gambling Commission over the last year to introduce a wave of tough measures – cutting the maximum stake on fixed-odds betting terminals, introducing tighter age and identity checks for online gambling and banning gambling using credit cards from this April.”

The threat of increased regulation has proved a drag on the share prices of UK gambling companies, prompting an industry-wide effort to display improved attitudes to problem gambling.

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