By Charles Arthur.
"Tax breaks in countries such as Canada and the US luring jobs away from UK, says lobby group Tiga"
Urgent action is needed to safeguard the UK games industry from a brain drain caused by tax breaks being offered in countries such as Canada and the US, says a lobby group.
Tiga, which represents games developers and companies, says that the disappointing GDP figures released today indicate the need for action to prevent any further shrinkage of the UK industry, which has seen its headcount fall by 9% since 2008, and its direct and indirect contribution in tax revenues fall by £55m, and the sector's contribution to GDP decline by £132m.
The organisation has repeatedly called for tax breaks to support companies in the UK and encourage investment in the UK, citing schemes offered by Canada and 20 states in the US, where a growing number of businesses are taking advantage of incentives to relocate.
A scheme costing the Treasury £194m would over five years generate £431m of investment in development expenditure and £394m in tax receipts, and "create or safeguard" more than 9,500 jobs – including 3,300 in the games industry, according to a revised estimate by the lobbying group.
But the communications minister, Ed Vaizey, indicated last December that he would not consider the idea for another four years, having turned it down not long after taking his job.
However, the Tiga chief executive, Richard Wilson, said that the gloomy GDP figures for the past quarter indicated that it was more urgent than ever to encourage investment in creative industries. Without tax breaks, there will be a further 24% fall in headcount between 2010 and 2015, meaning an aggregate 30% fall since 2008.
"The latest GDP figures are clearly worrying. The UK government must back industries with the potential to drive the economy forward," said Wilson. "The video games industry is an industry of the future – high tech, highly skilled and export oriented. If the coalition government is serious about its intention of rebalancing the economy then it should invest in the UK video games industry by introducing a tax break for games production. Games tax relief would create jobs, boost investment and generate much needed tax revenue for the government.
"The global video games market is expected to grow from $52.5bn in 2009 to $86.8bn in 2014. However, this growth will happen overseas if we do not invest today. The UK is exceptionally good at developing video games but we are not competing on a level playing field. Other governments around the world are backing their video games industries. The UK coalition government is not. Of course the government must tackle the deficit, but it must also have a strategy for growth. Tiga's games tax relief will support economic growth and tax revenues. We urge the government to review our evidence and reopen the discussions on games tax relief."
"The government should also improve the existing R&D tax credit scheme. TIGA recommends that the existing R&D tax credit for large firms should be retained. Regarding the R&D tax credit for small firms, the categories of qualifying expenditure should be widened, the level of relief raised, the value of the relief for loss-making companies increased, and the claim process simplified."
Tiga has released its findings in an 85-page document which revises the evidence submitted to the Labour government in 2008, following its call for evidence to support a cultural tax break for games production. The report was written by Tiga, Osborne Clarke and Games Investor Consulting, the independent games research company, which carried out the empirical research, including a census of over 80% of known British games development and publishing companies.
The report found that over the past two years, overseas government support for video games development has continued to grow, leaving the UK games industry competing on a highly uneven international playing field.
A games tax relief scheme would over five years create a net 1,328 new jobs in the "games studio" sector, increasing investment in games studios by £138m. It would also create 2,427 "indirect" jobs in related business, with annual tax revenues rising by £126m and a GDP contribution of £307m.
The suggested games tax relief would cover any games development businesses falling within the scope of UK corporation tax which develop a game with a budget of at least £100,000 and which pass a cultural test. The tax relief would be calculated and applied in a similar way to the existing tax relief for British films.
