Why games are cultural and why the UK needs tax breaks

We had some incredibly frustrating and disappointing news last week that the European Commission has decided to launch an in-depth investigate in to the proposed UK games production tax credit scheme.

Whilst this is of serious concern it is not an insurmountable barrier to overcome and we need to focus on providing a powerful and united answer to the Commission’s questions.

One of the Commission’s overarching concerns is whether or not there is an obvious market failure in the UK game industry. But they are also looking at whether:

• aid is necessary to stimulate the production of games that are “British”

• offering this type of aid would fuel a ’race to the bottom’ as more European countries seek to introduce their own tax reliefs; and

• the proposed cultural test works as intended, to identify games that are culturally British without leading to undue distortions of competition.

A full investigation is a standard European Commission procedure, where they will scrutinise any tax relief measures proposed by member states to make sure that they are not falling foul of state aid laws. Giving any specific industry tax break is actually illegal unless the industry can prove that the break will encourage and increase the production of “cultural goods”.

Of course, this is a really complex territory. The tax relief can’t just be granted freely and therefore distort markets and competition. They must ultimately be fair and justified. But the challenge we have is multiple: of course games are cultural products. They are not created in a cultural vacuum. The personalities, the perspectives of every coder, writer, artist, designer behind a game’s concept and development leave an imprint in the final product.

They generate culture, and are purveyors of culture in their own right. They generate emotion and opinions, and the way they do that is through story, through experiences, and a huge diversity of innovative mechanics.

But we have to show why there are not as many culturally British games being made as there could be and how the credit would help address this. There are a number of other tax credit schemes that have gone through this process, such as the French games tax system that was originally approved in December 2007 and the UK film tax credit. And our team has been going through the questions and the responses to these with a fine tooth comb.

The EC investigation into the French relief system looked at a number of issues similar to those we have to deal with. This included asking whether they were going to meet the cultural objective given, whether it gave a sufficient incentive and whether other measures could be more appropriate.

These issues were all resolved and the EC’s final decision to introduce the French tax reliefs recognised that games can be cultural products, that tax credits are compatible with the rules on state aid, and that so long as a strong enough cultural test is in place, such credits would achieve the win. So whilst the French game industry of 2006 (when the investigation took place) is a very different one to our industry in 2013, we should at least be encouraged that they made it.

One of the immediate questions we had for government was why did the new reliefs for animation and high-end TV production get through the EC when games didn’t?

The UK film industry had to fight hard for its tax credit, and went through the same investigation process before the scheme was introduced. This and other earlier cases has meant that there is historical precedent for film and other established audio visual sectors as being accepted as cultural products.

This fact is enshrined in EC law under the Cinema Communication. The EC also accepted a clear case for market failure in each of these sectors: without the tax credit, British films, animation and high-end TV productions would struggle to be made in this country. Persuading the EC of similar arguments from a games perspective will be key.

How we explain market failure to the EC is critical. We absolutely believe that in order for the British game industry to fulfil its true potential, to make a significant contribution to UK PLC culturally and therefore economically, it needs this scheme.

Global growth of the industry is predicted to be near nine per cent year-on-year and the UK is not keeping pace with this. On the one hand, there is huge turmoil, studio closures, consolidation. On the other hand, there are lots of exciting new businesses with fantastic new and potential IP.

But the rate of start-up failure; the pressure to have a big hit and the knock on impact this has on ideas; the need to make the game appeal to a wide an international market as possible; the need to rely on work-for-hire, the tiny window of opportunity to get investment; the perception that we are a risky business; all contribute to an unsteady foundation for these new businesses as well as established ones who want to continue to operate in the UK.

We also truly believe children need to see that there is an incredible industry on their doorstep and we need to make sure the large companies making the games they love can continue to make them on British children’s doorsteps. We want them to consume British cultural goods too. We are a fascinating, richly mixed culture: our games should have the chance to reflect that if they want to.

For our industry to be seen as successful we need a fully functioning ecosystem of big British studios benefiting from inward investment from global game businesses and independent developers of all sizes making great British games – tax breaks will provide the stability needed for this ecosystem to be created.

We do not have much time to respond and joining together to provide evidence is going to be absolutely crucial. We’re working with the government and Tiga to be absolutely unified on this issue but we need help from developers to gather evidence on all the questions being asked by the Commission.

So if you want to contribute in any way please visit our Facebook page or get in touch by emailing consultations@ukie.org.uk. We’re so close to winning this and now really is the time for one final push.