Develop Jury: Why tax breaks?

This week’s Jury Service looks to encapsulate the complex and ever-changing issue of game development tax breaks.

The British game industry has tirelessly campaigned for implementing tax relief, in a nationwide push that has on occasion threatened to bring about reform.

Though the government has ultimately kicked the idea off the table for now, there is no sign of the industry giving up.

So with the hope that some day they could occur, we ask the development community what the benefits would be.

Order!

Develop Jury Service#11

How much of a practical impact would development tax breaks have on UK studios?

Adam Green, Managing Director, Assyria Game Studio
This is quite a tough question. Obviously the UK has amassed a huge public debt, and while in the long-term a tax break for the industry would likely result in an increase in growth and more long term economical benefits, short term it would only serve to increase the debt.

But tax breaks would undoubtedly be a great benefit to the industry, assuming it did not lead to cuts in other areas where the industry is supported.

I know we at Assyria would be able to employ another member of staff if tax breaks were in place, and larger studios would no doubt be able to employ far more.

The economical benefits would likely be great in the longer-term (as was indicated in TIGA’s report).

Also obviously the UK’s game industry employment dropped substantially last year whilst Canada’s dropped only 2% which goes a long way to proving the success of tax breaks.

So it’s clear that there is a practical argument in favour of them and I fully support TIGA in their efforts.

I just worry about it causing cuts in other areas, and I can’t see it being a fight we as an industry are able to win at the current time with the general election looming, and public debt at such high levels… Hopefully I’m wrong though.

Ian Livingstone, Life President, Eidos
Video games are not cheap to make. There is not much change out of £20 million to develop a blockbuster console game. Unfortunately the UK is one of the most expensive countries in the world in which to make video games.

There are naturally cheap labour markets in Asia and India and subsidised markets in the West. Quebec offers a 37.5% salary rebate to employers for staff involved in the production of video games. France offers a 20% tax credit based on a cultural test.

In the UK there is no financial help whatsoever. This has created an uneven playing field resulting in the closure of many studios. As a result, many of the UK’s best programmers and artists are being lured to North America to work.

Quebec even offers migrant workers income tax holidays. The Brain Drain is accelerating. Headcount in Canadian studios is now over 13,000 having grown from an estimated 2,000 in 2000 to become the world’s 3rd largest games development territory.

Canada’s headcount grew 18% between 2008 and today whereas the UK’s fell by 6%. By investing £500m in attracting the likes of Ubisoft, EA, Eidos and others to set up shop there, the Quebec government has generated £1,500m in inward investment.

Clearly it was an investment which paid off handsomely – not a handout as the UK government sees it. It is imperative that the UK government introduces a production tax credit scheme; not to support failing studios but to help build an industry that the UK is so good at. The games industry is a clean, green, knowledge-based creative industry so vital to the future digital economy of the UK. The government must act now.

Anonymous, Managing Director, high-profile UK studio
No healthy industry should need tax breaks. However, videogame development is a true global industry with a very wide international base. The high technology value that this kind of software can represent can make it very attractive to governments as part of an industrial and technology growth strategy where you are not competing on labour price but skills and IP creation.

Tax breaks offered by state bodies to attract this kind of investment distort the market place. Coupled with the typical demographic and highly mobile nature of many of the those who work in the industry and there is a great opportunity to quickly have a substantial influence on where Developers and Publishers choose to invest in setting up development facilities.

The UK has a strong record in producing talented people but we are currently, and will continue to lose people to other countries if the destination is attractive (and it often is) and the work there is looks interesting and is reliable. Unfortunately it is largely a case of, if they are doing, we need to do it too, or risk dropping down the table of development importance.

The UK government’s current R&D tax credit system is cumbersome and time consuming and less than transparent. Targeted tax breaks to help developers with the cost of staff and equipment could be simple and effective. The incoming changes to the Income tax system are also a step in the wrong direction.

Dr. Philip Oliver, CEO & Co-founder, Blitz Games Studios
Game development tax breaks have had a massive impact in other countries. Just look at Canada as an example of how fast the industry can grow once the government supports it in a practical way.

As for over here, tax breaks can tip the business model for international buyers and investors in favour of using UK developers. This in turns leads to more work, investment and jobs in UK games development. The great thing is that the government will then tax more people and the net result is increased tax revenue.

"The government needs to invest to accumulate. Investing in the games development industry would show commitment to the creative industries and a knowledge economy, both of which have been identified by government as the direction to take the UK economy in the future."

Wayne Imlach, experienced game designer/producer
While I’ve never had to deal with the financial aspect of running a game development studio, the prime advantages of tax breaks, tax credits or some other financial support aimed specifically at the industry are likely to both reduce running costs and promote investment, which has the following positive effects:
The UK becomes a more attractive location to base a new studio, thereby creating jobs in the industry.

Existing studios can use any money saved to expand their operations, again providing possible additional jobs.
Financial risk is also potentially reduced, which could keep struggling studios afloat when they would otherwise need to close down.

And most obviously, more studios means potentially more games means more taxable profits.
Subsequently all this would lead to a more robust and diverse game development industry with a greater retention of talent and IP, which in itself can be an attractive lure to investors determining the best location for a new studio. This is just one of several long term advantages that go beyond the simple short-term financial benefits.

The UK games industry might be successful enough at the moment to survive without any tax breaks, but without such encouragement from the Government we will slowly lose ground to overseas territories that do support and invest in their own game industries. Better to promote the UK’s talents while we’re still relatively healthy, rather than wait until the industry has been run into the ground making a recovery so much more difficult.