It works like this:
The ATM offers you to withdraw money from your account. It offers you amounts of money in multiples of 10 and is stocked with £10 and £20 notes.
However, and here comes the conspiracy, it won't dispense any £20 notes until the ATM's all out of tenners. So if you want to withdraw £20 from the ATM, it'll dispense two tens, even though it's chock full of twenties.
Well, eventually, dispensing all those tens, it's going to run out. Evening rolls in, you hit town for drinks with you mates, you stop at the ATM to grab a tenner... oh snap, they're all out! So you have to get twenty instead.
You've just widrawn £10 more than you usually would, and since you're out drinking, you're likely to end up spending it when otherwise you wouldn't have.
What an evil scam!
Testing the theory
Sceptical? You should be! Here's how you test the theory:
First, you should notice that whenever you withraw £20, you get two tens.
If you should ever receive a twenty, that's where you're ready to test. Immediately opt to do another transaction and attempt to withdraw £10. Sometimes the machine won't offer £10 as one of its options (another trick to make you spend more) but there'll always be the option to type in any amount, so you can use that to request £10. Then see what the ATM does. The next bit is crucial.
If the ATM refuses or says it's out of tens, then the theory holds. However, if the ATM dispenses a tenner, the theory is refuted.
Disclaimer: I have the feeling that not every ATM will be programmed exactly the same way, such that some will not follow ATM theory and others will. In this case, I predict that ATMs at banks and near bars and clubs are the most likely candidates for following ATM theory. I know that the Halifax machine in my student union (also the closest to the student bar) has never failed ATM theory.