Betfred has withdrawn its sponsorship of the Derby, citing tax increases imposed by Chancellor John Healey at last month's Budget. The decision ends the bookmaker's backing of five major British racing meetings and follows a cumulative 25 per cent rise in machine games duty (a levy on gaming machines in betting shops).

The gambling firm signed its deal in two parts to sponsor the five meetings collectively known as the British Classics. The portfolio covers the Derby and the Oaks at Epsom, the St Leger at Doncaster — which this summer marked its 250th running — and both the 1,000 and 2,000 Guineas at Newmarket.

Why has Betfred pulled out now?

Successive tax rises at consecutive Budgets, first under Rachel Reeves and then under Healey, have squeezed the money available for horse racing, according to the company. Betfred is owned by Fred Done, described as the UK's top taxpayer.

A Betfred spokesman said: "Following successive tax rises for the betting industry, and in particular the increase to machine games duty at the most recent budget, it is with great sadness that we have taken the difficult decision not to proceed with a three-year renewal of our sponsorship of the British Classics."

The spokesman added: "It is not a decision we wanted to make, but the cumulative cost of government policy has left us with no choice."

What does the Budget change mean in numbers?

Healey announced a five percentage point increase to machine games duty at last month's Budget. Combined with Reeves' earlier 20 per cent rise, the total increase reaches 25 per cent.

The Derby withdrawal is not an isolated retreat. Betfred has already ended its sponsorship of rugby league's Super League, a decision that has cost the code £1m per year.

What has Fred Done said?

Done told the Financial Times he expects gambling demand to persist regardless of the tax pressure on betting shops.

"Do you think when there's no betting shops punters will stop betting? The answer is no. They will find a way to bet, like in the prohibition," Done said.

He warned of the consequences of demand shifting to unregulated channels: "There won't be the controls [when those gamblers go to the black market], there won't be the taxes and there won't be funding for [horse] racing."

How has racing responded?

Amy Starkey of the Jockey Club, which runs Epsom and Newmarket, acknowledged the commercial logic behind the bookmaker's exit.

"While we are naturally disappointed that Betfred have taken the decision not to renew their sponsorship of the Derby and the Guineas Festival at Newmarket, we understand their reasons for doing so and know this was not an easy decision for them," Starkey said.

She confirmed replacement talks are under way. "We are currently in conversations with a number of interested prospective partners that share our ambitions for the future of both events."

The sponsorship market for British racing's flagship fixtures now hinges on whether the Jockey Club can secure new backers before the next running of the Guineas Festival at Newmarket and the Derby at Epsom.