The Tax Break Agenda Part 2

So the election is over and we have a new prime minister and a new government. How effective the new ‘team’ proves to be remains to be seen – only time will tell but speaking personally, I wish the new administration well.

Of course, it wasn’t entirely straight forward as there was no clear and decisive winner elected to power and the “hung parliament” resulted in a coalition of both Conservative and Liberal Democrat parties (I bet Mr Clegg still can’t believe his luck!).

But what does this have to do with video games you may ask? Well remember one of the hot topics pre-election was the provision of tax breaks for the video game industry. In the pre-election budget and as a direct result of TIGA’s relentless campaign, Alistair Darling announced the Labour Government would provide tax breaks to the industry. There seemed to be general approval for this from the other parties too.

But the Labour Government is no more and the situation now is that the new Government has been entirely silent on the issue. The big question is will the incumbent administration honour Labour’s pledge or will tax relief be sacrificed on the altar of spending cut backs?

Why is Tax Relief important?

Let’s just look at the position the key points. Here is an extract from a recent TIGA publication:
  • 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. E.g. Montreal, Quebec offer 5 year income tax holidays for foreign specialists and pays 37.5% of the salary costs of games companies’ development staff. Additionally, R&D tax credits cover 20-35% of qualifying expenditure. These tax advantages are distorting competition.
  • In contrast, no tax breaks for games production exist in the UK. Because of this, 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.
  • In 2008 the UK was the third largest developer of games in the world in terms of revenue generation. It generated £2 billion in sales in 2008, and contributed £1 billion to the UK’s GDP. The industry generates £400 million for the Exchequer in tax revenues and supports 28,000 jobs, including 9,000 graduate level jobs in games development, which command industry average salaries of approximately £32,000 per annum – higher than the national average of £22,000.
TIGA’s research indicates that over 5 years Games Tax Relief would:

• Create or save 3,550 graduate level jobs;
• Increase and safeguard £457m in new development expenditure and ‘saved’ development expenditure that would be lost without tax relief; and
• Cost a total of £192 million. This cost would ensure that the sector continues to make significant contributions to future exchequer revenues.

So it sounds like the issue on gaming tax breaks is progressing forward, which is good news for those in the industry.

But what do I think of it? I am hopeful that the government will see tax breaks for the video game industry as a good way to improve the UK, not just in the games industry but overall, since this will encourage them more to approve of the issue, and lead to a better future for the UK video games industry (and in turn, Train2Game students).

The hung parliament will hopefully be a blessing in disguise for the games industry and lead to what many in the industry have been seeking for many years, something that will strengthen the UK as a dominating force in the video game industry. 2010 is set to be a very interesting year.

The facts about why Tax Relief is important do make for a pretty persuasive argument but what’s your view?

Join the debate – perhaps the collective voice of we ‘gamers’ can make a difference?