A level playing field – UK games industry to get tax-breaks.

This blogger is not normally a fan of taxpayer subsidised industries, firmly believing that market forces will be a far more efficient at delivering a wealthy future for Britain than the dead hand of government, so why make an exception for the UK games industry?

For two reasons:

1) Markets forces are already grossly distorted given the tax breaks available to the games industry in other parts of the world, this merely brings about a more level playing field in which to compete.

2) The games industry is exactly the kind of innovative and high-tech sector that plays to the strengths of an advanced country wishing to excel as a high margin economy, to ensure future prosperity.

Considering the above it is strange that the Digital Britain project whose stated aim was to; “secure the UK a place at the front of digital and telecommunications innovation and quality”, utterly failed to recognise the value of the UK games industry, and its future importance, by the very criteria it was set up to promote.

To quote the TIGA press release:

The UK video games industry is important part of the economy, contributing £1 billion to the UK’s Gross Domestic Product, sustaining 27,000 jobs, including over 9,000 highly skilled roles in games development. The video games are culturally important: 73% of the population regularly play video games and video games interact with other forms of media, for example, inspiring film, television and music. Video games also have the potential to play a valuable role in mainstream education, in training and in workforce development. A number of studies suggest that video games may help to promote skills such as visual and motor skills, strategic thinking, relationship building, computer literacy, collaboration, competition, multi-tasking and experiential learning.

The UK’s principal competitors in Australia, Canada, France, South Korea, and the USA all receive national or regional/state tax breaks for games production. For example, Montreal, Quebec offers 5 year income tax holidays for foreign specialists and pays 37.5 per cent of the salary costs of games companies’ development staff. Additionally, R&D tax credits cover 20-35 per cent of qualifying expenditure. Similarly, France offers a 20 per cent tax break for games production. These tax advantages are distorting competition.

In contrast, no tax breaks for games production exist in the UK. As a result, investment is flowing away from the UK. Between July 2008 and March 2010 the number of employees at British video games studios fell by 7 per cent, and 15 per cent of British video games firms went out of business. The UK has fallen from third to fifth place in global sales charts between 2006 and 2009, overtaken by Canada and South Korea, whose studios are heavily government supported

Games Tax Relief would operate in a manner similar to UK Film Tax Relief, a measure which has resurrected the British film industry. In order to qualify for Games Tax Relief, a company would have to fall within the scope of UK Corporation Tax. Additionally, video games would need to pass a cultural test, scoring against criteria of European heritage and game locations, languages, innovation, narrative, and location of development and key development staff. Video games that passed the cultural test would then be entitled to benefit from Games Tax Relief. If the game makes a profit, the development company would then be able to use the Games Tax Relief to reduce the amount of tax payable on that profit.

If Britain wishes to retain a comfortable lifestyle in the coming decades then we need to preserve and foster our greatest competitive advantage; our flair for innovation. It is not possible to compete on manufacture against an industrialising third-world, but it is very possible to retain the value of what is mass produced in those Chinese factories by creating the intellectual property necessary for those products to compete effectively. With this understanding it is clear that CPU designers like ARM, and GPU designers like Imagination Technologies, are the heroes of future British wealth creation because there IP is to be found in every single Apple iPod/iPad/iPhone, every Nokia phone, Blackberry phones, Archos personal media players, products created respectively by US, Finnish, Canadian, French companies, and all of which are products manufactured in the far-east.

The UK games industry sits in the same category as ARM and Imagination Technologies; providers of high value innovation that keep Britain at the cutting-edge of technology, and this Blog is delighted that TIGA have got their way.

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