March 24, 2010
The Government’s decision to introduce Games Tax Relief in today’s Budget is an inspired decision. It is good for the UK games industry, good for consumers of British video games and good for the wider UK economy.
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 video games industry is a significant industry, but it needs Government support to realise its full potential. In particular, it needs Games Tax Relief. Games Tax Relief is designed to counter the growing international threat from state-aided foreign competitors, encourage the development of new skills and jobs, and protect the cultural threat to the UK of losing the video games development industry.
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. At the same time, a brain drain is taking place, with talented staff being lured away from UK games studios to work in overseas jurisdictions. Foreign jurisdictions take advantage of substantial tax breaks to use them in part to tempt development staff away from the UK to work in overseas studios.
At the moment, the UK video games industry is competing with one hand tied behinds its back. TIGA, the trade association representing the UK games industry, proposed the introduction of Games Tax Relief to the UK Government. The Government has now endorsed this approach in the Budget. Games Tax Relief will free the UK video games industry to compete aggressively and successfully in the global market place.
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 the game makes a loss, the development company would be able to use the Games Tax Relief to obtain a cash tax credit which would reduce that loss. An independent organisation with knowledge and experience of video games production would need to administer the cultural tests, checking submission criteria are met and policing the Relief.
The effect of Games Tax Relief would be to enhance the competitiveness of the UK video games industry. Our overseas competitors would no longer have a cost advantage against us. Games Tax Relief should lead to increased investment, job creation, innovation, stimulate the development of new genres of games and ameliorate the brain drain of skilled staff to overseas studios. TIGA’s research indicates that over 5 years Games Tax Relief would create or save 3,550 graduate level jobs; increase and safeguard£457 million in new development expenditure and‘saved’ development expenditure that would be lost without the relief; and generate£415 million in tax receipts for the Treasury, comfortably exceeding the cost of Games Tax Relief. Games Tax Relief would also encourage game developers to adopt new online, more sustainable business models and sell directly to the consumer.
As the UK emerges from the recession, we need to rebalance the economy away from an excessive dependence on financial services and public sector employment. We need to promote export oriented, high skilled, knowledge based business sectors of the economy, such as the video games industry. Video games are the Hollywood of the 21st Century. With Games Tax Relief in place, the UK is guaranteed a leading and successful role.
Dr Richard Wilson
CEO of TIGA, the trade association representing the UK games industry
March 24th 2010
T: 07875 939 643