Now that the UK has left the EU, the Government intends to introduce a new subsidy control system. The Government has the opportunity to create a system that works for firms, employees and the wider UK economy.
Subsidies (e.g. a cash payment, a loan with interest below the market rate, a loan guarantee) need to be used judiciously in order to minimise the potential for harmful and distortive effects. Yet the UK has scope to increase support for businesses in the form of state aid subsidies. In recent years, the UK public sector has spent less in state aid than many other EU countries. In 2018, the UK spent 0.38 per cent of GDP on state aid (excluding railways, and agriculture and fisheries). Comparatively, Germany spent 1.45 per cent.
TIGA, the trade association representing the video games industry, is calling for a subsidy regime that is focused on achieving the UK’s strategic objectives. These objectives include: improving productivity (e.g. incentivising investment in physical and digital capital and training); addressing market failures (e.g. in the provision of finance for high technology start-ups); and promoting social goods (e.g. encouraging job creation as part of the levelling up agenda). TIGA has also recommended a subsidy regime that enables sector specific support, efficient oversight and enforcement and a system that is both agile and transparent. TIGA has advanced this argument in response to a recent Government consultation.
The video games industry is one of the sectors that the UK should aim to promote over the coming months and years. The sector provides high skilled employment: around 80 per cent of the development workforce is qualified to degree level or above. The industry supports economic growth in clusters throughout the UK: approximately 80 per cent of the workforce is based outside of London. Games development is export focused: around 95 per cent of games studios export at least some of their content. The video games industry is relatively resilient to Coronavirus engendered lockdowns: games development is a digital sector and work can be undertaken and delivered remotely. We have the potential to grow our high skilled, export focused industry further.
Access to capital, an endemic issue across high-tech industries, has consistently been one of the top factors holding back many small and start-up UK games developers. The Government now has the opportunity to ensure studios get the funding they need to grow, expand and succeed. TIGA has proposed that the new subsidy system should enable the introduction of a Video Games Investment Fund (VGIF). This would improve studios’ access to finance by making grants or loans of between £75,000 and £500,000 available to games businesses on a matched funding basis throughout the UK. Research shows that a VGIF would create approximately 1,200 highly skilled jobs by 2025. Our new subsidy control regime should also be designed to permit subsidies for training development staff, particularly in small studios and the continued operation of the UK Games Fund.
High-tech industries like the video games sector have further potential for expansion. An agile, transparent and flexible subsidy control system, allied with an enhanced Video Games Tax Relief, will help to drive investment, employment and growth throughout the UK.
Dr Richard Wilson is the CEO of TIGA, the award-winning trade association representing the UK video games industry. At TIGA, Richard has successfully campaigned for the introduction of Video Games Tax Relief and introduced an accreditation system for university games courses.