Video games industry in Scotland - Scottish Affairs Committee Contents

Examination of Witnesses (Questions 1-93)

13 OCTOBER 2010

IAN LIVINGSTONE, MICHAEL RAWLINSON, DR RICHARD WILSON

  Q1  Chair: I welcome you to this meeting of the Scottish Affairs Committee and to our investigation of the video games industry and related matters. Some of us have already had visits to Dundee on an informal basis, which we found immensely useful. We have advertised for and received a number of pieces of written evidence, which, again, have been found to be very useful. Now we are down to the formal hearings. I am sorry for the delay caused by the vote in the House. It might seem to you people who deal with gee-whizzery and so on that it would be much easier just to press a button. However, the great advantage of voting in the way that we do is that you get to meet lots of people in the Lobbies. The Government Members who are here will very soon learn that the opportunity to catch a Minister without his or her civil servants, get them to agree to something, and write to them saying, "As you agreed on such-and-such a date" is immensely helpful. [Interruption.] I am afraid that we have to go away again, but we will be back. We hope to get this finished by 11 o'clock tonight. Sorry about this.

  Sitting suspended for a Division in the House.

  On resuming—

  Chair: I will not say everything I said before, but for the record, we have with us Dr Richard Wilson, chief executive officer of the Independent Game Developers Association; Michael Rawlinson, the Director General of the Association for UK Interactive Entertainment; and Ian Livingstone, Life President of Eidos and Chair of the Computer Games Skills Council. In the next session, we will speak to Paul Durrant, who is the Director of Business development at the University of Abertay Dundee, but rather than have him sit in the corner like a bad boy, we thought we would have him up here. If there are any really difficult questions that you don't know the answer to, you can always palm them off on to him.

  Mr Livingstone He can translate for us.

  Q2Chair: Sorry, we don't have a simultaneous translation. That was a bit harsh, actually. Mark that man down as a troublemaker.

   My first question is basically aimed at getting an overview of Scotland's position in the global games industry—the industry's strengths and weaknesses, the key factors making Scotland a successful base, and changes that might imperil the industry's future. Respond to that, and if there are any other comments that you want to make of an opening nature, put them in there. Then we will go into the questions.

  I am offering each Member the opportunity to ask five minutes of questions. Then we will try to tie things up at the end. We will go through a similar process with you, Mr Durrant. Who wants to be first?

  Dr Wilson: I am very happy to start off. Thank you very much for inviting us here today. It is great to have an opportunity to present the case of the video games industry to this Committee.

  In terms of some of the key issues that we would be keen to get across, I think we would like to emphasise that the video games industry in the UK—in Scotland in particular—is important economically, culturally and in terms of education.

  Economically, the UK video games industry contributes about £1 billion to UK GDP and generates about £400 million in tax receipts for the Treasury. The sector is important educationally—there are many video game companies in the United Kingdom, and some in Scotland, that make educational-based games. The sector is important culturally: more than 70% of the UK population now play video games. It is important for all those key reasons.

  In terms of the sector in Scotland, our research shows that Scotland has 46 development companies, employing 651 development staff. Video game companies in Scotland, such as Denki and Digital Goldfish in Dundee, make entertainment games. A company called 3MRT uses games-based technology to make learning tools and devices. We also have other companies that develop software to support the games industry in Scotland.

  The Scottish games industry has been very successful in recent years. Scotland was, of course, responsible for "Grand Theft Auto", which was one of the most successful entertainment products of all time. Other companies have produced games such as "Crackdown" and "Lemmings", which have been very successful.

  However, the UK games industry—in Scotland in particular—has suffered over the past couple of years. Our data show that the development work force in Scotland have declined by more than 18% over the course of this year, primarily because Realtime Worlds, one of the biggest development studios in Scotland, went into administration.

  The sector, both in the UK and in Scotland, has declined in any case over the past 12 months. We believe that one of the key reasons for this is that the UK games industry doesn't have a tax break against production, whereas most of our key overseas competitors—or at least some of our key overseas competitors, our critical competitors—do have tax breaks against production. So our development industry is not competing on a level field, which means that it is harder to attract investment and to create jobs.

  Mr Livingstone I would like to add to that, and to point out what great things Scotland has done. The Scottish embraced the games industry very early on. Obviously, the University of Abertay Dundee has been a shining example of how to do things right. It got the Skillset accreditation for computer science and for art and animation. The reason for that is that it decided to set up a games-centric ecosystem in Dundee, where the university was working very closely with local industry and local government. There was therefore a very positive symbiotic relationship, from which everyone could benefit. Industry effectively got a two-year interview process, as regards the students coming out of Abertay, and Abertay in turn helped with research projects and with giving the industry the students it actually wanted to make the games.

  So many courses in the UK are, frankly, not fit for purpose. They are generalist subjects—media studies, effectively, masquerading as computer games studies—whereas Abertay is absolutely doing it correctly. It is giving the hard skills that industry needs to make the games—computer science, maths, art and animation. So this has been very effective. I would hope that that model is replicated throughout the UK.

  Using games as a learning tool in education has also been a strong point in Scotland. I think you can even study programming now. At one point a company like Microsoft could almost effectively hijack the classroom. Children are learning IT alone—they learn about Word, PowerPoint, Excel, but they don't learn to programme any more. It was not that many years ago that the BBC Micro and the Dragon were used in schools, so children learned basic programming. That creates a push further on in their educational profile, from primary school to secondary school to university. There is a demand put on the university to support children in studying computer science and maths.

  Clearly, the perception of games has been a lot better in Scotland than it has been in the rest of the UK because of the willingness of local government, universities and industries to say, "This is a great subject." It is part of the digital economy—the knowledge economy for the UK going forward. It is clean, green and knowledge-based—all the skills that are required in the new world of the digital economy, which is going to get the UK back on its feet again; traditional manufacturing and financial services are in decline. For me, Scotland has been a great example of promoting games with the right connotations—not just talking about the violence in a few titles, but about the games industry as a whole being a great thing.

  Mr Rawlinson: I would like to add that the market for video games has grown and developed. The reason why our association has changed its name so that it relates not solely to video games but covers interactive entertainment is the expansion in the market. As Ian rightly points out, Scotland has been at the forefront of the close relationship between education, development and governmental support. We are now on the cusp of a new wave of potential growth and opportunity.

  If we look at our industry, we have gone from hardcore video-games-playing to everybody participating in interactive entertainment. This change has been brought about by the introduction of easily accessed devices such as the Wii and the DS, and Apple iPhone applications that are touch-sensitive. The barriers to entry for people playing games have been greatly reduced, so the opportunity for companies to create, access and exploit the market is growing. We are at a point where we have got not only potential within the existing market, but a hugely growing market. Our problem is that we are competing against other countries that have recognised this growing potential, and which are setting their stall out with support that enables their businesses to take maximum advantage. This is where our strengths and weaknesses come into play. We have strengths, but we really need to exploit them and make the most of them.

  Q3  Chair: The point about the problems leads me on to the second point that I want to make, which is about your relationship with Government, particularly at Westminster, and whether we should be doing anything more to help you, as distinct from just keeping out of the way. In terms of comparisons with elsewhere, we would quite like to hear from you what points we should be putting to the Minister when we see him next week. That was really what triggered this inquiry off. Jim McGovern, the Member for Dundee, was very much the driver behind this inquiry, which arose from the tax cut—or the cut in the tax cut—that you experienced. It would be helpful if you could spell out for us the agenda that we ought to be pursuing with the Government to help you.

  Dr Wilson: I think there are three key things that we would be very keen for the Committee to advance or put to the Minister. The first is the issue of games tax relief. As you know, at the time of the general election, we were delighted because all political parties—the Scottish National party, the Labour party, the Conservative party and the Liberal Democrats—publicly said that they supported games tax relief, which we were very pleased about, as you can imagine. Unfortunately, after the election we did not have an opportunity to present our case again to Ministers, despite making attempts to do so. We would be very grateful if the Committee could raise the issue of games tax relief and ask Ministers, particularly the Treasury team, to look at it again. Games tax relief is the major issue facing our sector. It is the key measure that we think, if implemented, would allow us to compete on a level playing field and allow the sector to flourish. The second issue—

  Q4  Chair: Can I just be clear about that? In the run-up to the election, people were promising this. Then the position changed after the election, did it, in the sense that what was promised was not delivered?

  Dr Wilson: That is absolutely right. To be completely precise, the Labour party and the Scottish National party both included a commitment to games tax relief in their manifestos. The Conservative spokesman, Ed Vaizey, and the Liberal Democrat spokesman, Don Foster, both said that their parties supported games tax relief. As you can imagine, we were ecstatic at the time to have cross-party support, so it was unfortunate that, after the election, that clearly dissipated. But there was a united front before the election, with political parties supporting games tax relief.

  Q5  Chair: When you say "dissipated", you mean that it was not delivered.

  Dr Wilson: Exactly.

  That is the first issue. The second issue that would be well worth raising is the research and development tax credits. That is very much a second-best measure for the video games industry. None the less, because the Government are conducting a review of R and D tax credits, it makes sense to raise with the Minister ways in which the R and D tax credits can be made more helpful to the sector and, indeed, other sectors as well. We suggest, for example, making the tax relief more generous at the very least, and making it easy to apply.

  Q6  Chair: Can I just clarify whether or not there is anything specific about your industry in relation to R and D? Would you require a tweaking of the scheme, or would the generality of the scheme apply equally to yourselves and anybody else?

  Dr Wilson: We are limited, unfortunately, in what we can do with research and development tax credits. I understand that there is an international definition of what constitutes R and D. It is called the Frascati definition. I think that all Governments around the world are constrained in what they can do with research and development tax credits. Some developers—you probably met them when you were up in Dundee—have said that they would be very glad if you could make R and D tax credits reward content innovation. At the moment, R and D tax credits very much focus on technological improvements, and they are designed to give tax relief to technological or scientific improvements.

  As you can imagine, many game development companies engage in R and D. They develop their own technology and their own engines to make video games, R and D tax credits having helped up to a point. But, of course, the main focus of development that takes place in a development studio is generating new content. I suppose in simple terms—bearing in mind that we cannot really unravel an international definition of what constitutes R and D—what we would really like to see is the R and D tax credits being made more generous. At the moment, for every £1 of qualifying R and D expenditure, you can get £1.75 back. For example, you could—the Dyson report suggested this as well—raise the qualifying amount to £2, so that for £1 of qualifying expenditure you might get £2 back in R and D tax relief. That is the second issue. I must emphasise that that is very much a second-best option for our sector.

  The third issue is skills. We have a skilled work force. We need to increase the supply of good quality computer science and mathematics graduates. Our trade association, TIGA, has been very concerned about the decline in IT and computer science graduates. There has been something like a 25% drop in recent years in IT and computer science graduates. We have suggested, for example, that if tuition fees are likely to rise—we saw yesterday that they probably will—we would like to see measures taken by the Government to make sure that computer science graduates and mathematics graduates pay lower tuition fees than those on other courses. That would at least give people an incentive to study those important courses. In the case of computer science and mathematics degrees, there would be a cross-sectoral benefit; it would benefit not just the games industry. Those would be TIGA's three top priorities.

  Q7  Chair: Do the others want to add anything to that?

  Mr Livingstone We are certainly very much in support of production tax credits, from a practical point of view. This country often sees production tax credits as a handout, whereas a country like Canada sees them very much as an incentive. Canada offered $500 million by way of incentivising companies like Electronic Arts, Ubisoft and my own company, Eidos, to set up shop in Montreal. That in turn generated $1.5 billion of inward investment into Montreal. It has achieved in three years what it took this country 25 years to achieve. It has a highly skilled work force that creates content for global companies and publishers.

  We have now fallen behind Canada in the world ranking of developments, and that is a tragedy given our heritage, and our initial launch of video games way back in the '80s. It is no surprise that games like "Grand Theft Auto" and "Tomb Raider" started life here. We very much support production tax credits, not just as an incentive, but to create a level playing field. They would be financially rewarding for the Revenue as well.

  Mr Rawlinson: I would just reiterate that the introduction of the tax credit scheme would enhance the ecosystem, which would generate inward investment from major multinational publishers who are looking for the centres to create those big games. That, in turn, would support and develop our own smaller local companies. Together, we would create the right ecosystem, which would be a great ground for developing skills and enhancing our work force. We stand fully behind the points that Richard has outlined.

  Chair: Could I bring in Jim McGovern? He is the MP for Dundee East—

  Jim McGovern: West.

  Chair: Sorry, West. I knew it was Dundee; I got the city right. He has been the main driver behind these hearings. Jim, over to you.

  Q8  Jim McGovern: First, I would like to thank Paul, Michael, Richard and Ian for coming here today to give evidence to this inquiry. Richard, I recently said to you that I see more of you than I do of my wife, Norma—but for all the best reasons. How can the UK Government help support the games industry? The tax break that was offered prior to the general election has since been described as poorly targeted. Do you have a view on why it might have been poorly targeted, and do you think that it would have helped in the case of Realtime Worlds?

  Dr Wilson: On whether the games tax relief was poorly targeted, I think that, on the contrary, it was precisely targeted to help the UK games industry, and it was targeted to enable us to compete on a level playing field. Our calculations, or the calculations that Games Investor Consultanting did on behalf of TIGA, indicated that over a five-year period a games tax relief would more than pay for itself. It would generate £415 million in tax receipts for the Treasury, from an outlay of £192 million. It is important to emphasise that the tax relief would more than pay for itself. It would also lead to additional investment in the sector over a five-year period to the tune of £457 million, and it would create about 3,500 graduate-level jobs. We think that it was a very precisely targeted measure. It did not cost a great deal of money in the great scale of things, as far as the UK Government are concerned, and it would have been enormously beneficial for the sector itself.

  On the issue of whether games tax relief would have helped Realtime Worlds, it would be difficult and wrong for me to comment on its ultimate fate. I am not on the management team and I am not a non executive director, so I can only comment in general terms. I suppose the only thing that you could say is that if games tax relief had been in operation five years ago, Realtime Worlds may have had different funding options available. I would say, and this is the more important point, that with games tax relief in place we could look at the demise of particular firms with more equanimity—with regret, yes, but with more equanimity than we do now. With games tax relief in place, there are powerful incentives for overseas publishers to invest in Scotland—Dundee, Edinburgh and Glasgow—or the rest of the UK. There are strong financial measures in place, flowing from games tax relief, to enable indigenous developers to grow their firms. Games tax relief would be precisely targeted to help our sector, and it would be enormously beneficial not only to the games industry, but to the wider UK economy.

  Q9  Jim McGovern: I have a supplementary, Richard. You are the chief executive of TIGA, the games association. Is every organisation that is involved in the games industry a member of TIGA?

  Dr Wilson: In the United Kingdom?

  Q10  Jim McGovern: Yes.

  Dr Wilson: I wish they were. I do my best to grow my organisation, as you can imagine. There are, as I said in my opening remarks, about 46 games companies in Scotland. We have 19 members—14 developers and another five education institutions. Realtime Worlds was a member of TIGA, and it was a supporter of games tax relief, but unfortunately it went out of business, as you know, and it went into administration. So, no, we do not represent every single business in the UK. Equally, if you look at the Institute of Directors, the British Chambers of Commerce or the CBI, they do not represent every business in the UK. I think that we do a pretty good job of representing our sector.

  Chair: Julian?

  Julian Smith: First, I thank our witnesses for coming.

  Chair: The fact that everyone is walking out of the room—

  Julian Smith: I won't take it personally.

  Jim McGovern: They just wanted to hear me.

  Q11  Julian Smith: I want to start off by complimenting your industry on its success. Can I ask more specifically why, in your opinion, in these straitened financial times, your industry, as opposed to other creative industries, merits being a special case?

  Mr Livingstone The games industry is very much misrepresented in the world's perception. It's the largest entertainment industry in the world—bigger than DVD, music, box office and books—yet there has always been a sort of negative connotation. It's an industry that we are particularly good at in the UK, and we want to incentivise games makers, wherever they are in the world, to make the UK their destination of choice when it comes to making games. We have been particularly good at it. Traditional manufacture is in decline, financial services are in turmoil—

  Q12  Julian Smith: Why computer gaming, as opposed to other creative industries? Why should you get a tax break as opposed to others?

  Mr Livingstone The film industry has already had a tax break. It's had a 20% cultural tax break for a number of years. It had the support of the Film Council and the BFI. The Film Council is no longer in its current state, but we never had any help.

  Q13  Julian Smith: Is there anything specific? I presume there are things specific to the longevity of your development process that mean that you feel there is a good argument for having this.

  Mr Livingstone A typical blockbuster game that runs on a high-end console—a super-intense graphic console—will cost between £20 million and £30 million to produce. Then you are going to expend another £20 million on marketing and advertising before you see a penny back in return. R and D tax credits are always given at the end of a project. If you are successful in applying, you will get a rebate through R and D. What we need is help during the production process—because these are quite large capital investments—unless you want all production to move overseas to naturally cheap labour markets such as Asia or to incentivised markets such as Canada. You're going to see more and more production going offshore.

  Q14  Julian Smith: Do you really think that it is just about tax breaks? Isn't it about skills, really? If you look at the Abertay situation, or at Strathclyde and telecommunications, or other Scottish universities, the big opportunity seems, in my view, to come from a generally advantageous fiscal position for new business combined with skills, university spin-offs and that whole area. Are people going to come to Dundee just for tax breaks?

  Mr Livingstone Absolutely not. Good, high skills and low costs are absolutely joined at the hip. Canada offers great skills as well as low costs. As you quite rightly say, there is no point in going somewhere that's cheap if the labour is no good. It's all part of a package of things that we need. You might know I'm conducting a skills review of the computer games industry on behalf of Ed Vaizey at the moment, and we will be reporting in January. There are 81 universities in the UK offering games studies of some sort, and nine of those courses have been approved by Skillset as fit for purpose. We need good skills and production tax credits, and we need the perception of the games industry to change in a positive sense. We need Government and all MPs to put their arms around the industry and say, "Hey, this is a great industry. It's good socially, culturally and economically for our country." We need—

  Q15  Julian Smith: Hang on, Ian; I've got limited time. We've got to put our arms around a lot of people, and we've got limited money. What is it about your industry that means we should be giving it a tax break?

  Mr Livingstone We are creating IP, which is very valuable to the UK.

  16 Julian Smith: So does the TV industry and other format entertainment industries.

  Mr Livingstone We are knowledge-based.

  Jim McGovern: Could I make a point? I understand that the British film industry gets tax breaks of somewhere in the region of £110 million a year. The tax breaks that were offered by the previous Labour Government are somewhere in the region of £55 million, and the computer games industry actually generates more income in the UK than the film industry.

  Chair: Could Members please not enter into a dialogue?

  Q17  Julian Smith: Could I move on to the other fiscal measures that were announced in the Budget, specifically the NI holiday for new start-ups, the lowering of corporation tax and the abolishing of the jobs tax proposed by the previous Government? Michael, you talked about the new start-ups that your industry attracts. That has been a really positive message to those new start-ups to come to Dundee and other areas of the UK, hasn't it?

  Mr Rawlinson: It has; that is absolutely true. However, what I believe the games tax relief would bring is a scale of investment that multinational companies can bring; these other measures won't bring that. If we look at the fiscal support that is provided to the film industry, it is identified because of the cultural benefits and output that that industry can bring. But actually, I believe that that is a front for the economic support that is coming. We absolutely produce culturally relevant products, and if we are not careful, our ability to continue to produce culturally relevant material from a UK perspective is going to be severely damaged, because we will be competing with companies that are centring their creative process in the Americas and the Asian territories.

  Mr Livingstone We don't want to become a work-for-hire nation. When you think of "Tomb Raider" and Lara Croft—

  Julian Smith: Sorry, I've got one minute left. Paul, Abertay seems—

  Chair: I was going to take Paul after this session.

  Julian Smith: Are we not allowed to ask him anything?

  Chair: Well, you can, but it's coming off your time. There'll be a separate time to ask him questions at the end, if you want.

  Q18  Julian Smith: Okay. Fine. So, just going back to skills, do you feel that the UK Government—the London Government—could be doing more on skills to help your industry?

  Mr Livingstone We're very happy with Ed Vaizey's backing of the skills review, which I am leading. It's going to look at the whole talent pipeline—not just at existing universities, but at primary and secondary through to further and higher education— to get that push from a very early age, and to get careers advisers, teachers and parents on board with STEM subjects.

  Q19  Julian Smith: So you'd agree that public money is probably better put into that than tax breaks.

  Mr Livingstone I think that it should be a combination. You need the great skills, and you need a financial incentive for people to—

  Q20  Julian Smith: But on balance, in an era in which we have limited finances, would you put the money more into skills or tax breaks?

  Mr Livingstone I would like to see both.

  Mr Rawlinson: You wouldn't necessarily have to add additional money into the skills framework in schools. As Ian said, training and the curriculum were diverted away from computer sciences and into learning IT packages. I think it is probably recognised today that that is unnecessary going forward, as young people automatically have an affinity with computers and with using packages. There is no longer a need to invest in that capability.

  Q21  Julian Smith: I thought you said earlier that there was a skills shortage in the industry.

  Mr Rawlinson: I think that what we need to do is to get young people into programming and the fundamentals of computer science and other STEM subjects—something that has been severely lacking—and that will then flow through into the university agenda and on into the work force. That doesn't necessarily need more money; it needs more focus. We also need our industry to be talked up rather than down, so that when young people want to pursue a career in the video games and interactive entertainment industry, people are not saying, "Go and get a proper job," but rather recognising that it is a proper job, and that we are a recognised industry in which there are real prospects for young people.

  Julian Smith: I started off by complimenting you on your industry, and I compliment you at the end.

  Chair: Fiona?

  Q22  Fiona O'Donnell: Just leading on from what Michael was saying—and Ian also talked about the industry being misunderstood—I just wanted to give you the opportunity to say why you think so few women work in the sector.

  Mr Livingstone If you look at this historically, I think the industry is relatively new, unlike TV, film and traditional entertainment media. Games started off as guys making games for guys—either sports games or shooting games—and it is only with the gradual acceptance of games as a genuine entertainment medium that there has been more diverse content created over more diverse platforms, both online and offline. Now you're getting games that appeal to both men and women, and women are joining more and more to create the content that they want to consume. Girls predominantly prefer puzzle games. I think they are more mature than men; we just like doing sort of crazy stuff. But you are finding that more women are now joining the industry, which can be only a good thing. The industry is not trying to exclude women—far from it. We recognise the purchasing power of women and their enthusiasm for games, and we want them to join the industry.

  Q23  Fiona O'Donnell: I think that part of the perception out there of the industry concerns corporate social responsibility and the violent content of games. I think that that debate has been had for some time, but there is growing concern about the length of time that young people—adults as well—spend playing games. I wonder whether the industry has any views on that, and whether there are any health or safety concerns around it.

  Mr Rawlinson: As an industry association, we are very clear on our messaging through our website, and through all our communications, that interactive entertainment should be part of a leisure pursuit and a lifestyle, and that it should not be the sole preserve of people's leisure time. We recommend very firmly that there should be regular breaks of five to 10 minutes in every hour that is played. I think, however, that the zeitgeist is that young people really enjoy playing games, that they are rewarded for that experience and that, through the interactivity, there is a benefit that perhaps people of my generation and some parents do not recognise, because it was not part of their youth experience, so I think that there is still work to be done to explain that. I am not saying that the perceptions are not true or real for people, but I am not sure that they are the reality, if that makes sense. We have work to do.

  Mr Livingstone Historically, parents have allowed their children to watch endless hours of television and now the game seems to be the new threat in soaking up all their leisure time. You have to strike a balance and parents have to take some control of what their children's activities are. The good thing about games is that, because they are interactive, children are actively involved—engaged—in what they are doing.

  Q24  Fiona O'Donnell: They are more and more physical as well.

  Mr Livingstone Children are not sitting passively like a couch potato; they are learning about choice and consequence, problem-solving, puzzle-solving, intuitive learning, many social skills and technology. As a learning tool, games are helping children to learn quite a lot more. Many games, whether they are brain training or mathematics games, actually promote intelligence, I would offer.

  Q25Fiona O'Donnell: That is all very helpful. I promise you that I am not anti the sector; I just wanted an opportunity to talk about that.

  I apologise, because I am going to cherry-pick rather than go with a theme today. There is help available to the sector at different levels of government and from Government agencies. Are there any parts that you think are or are not working well at local authority level in terms of business gateway and supporting start-ups? What are your views on the support that you get from Scottish Enterprise and the Scottish Government? In terms of accessing—I know that this is a lot to think about—the support finance that is available for SMEs from the UK Government, do you have any comments?

  Mr Livingstone I think that there needs to be greater clarity, clarification and understanding of how these start-up companies, of which there are many, can access this help. There is usually a lot of bureaucracy involved and they do not know how to go about it—who to ask, what to ask, and how to get it.

  There is a golden age of opportunity now for games. Traditionally they have been high-cost packaged goods that go through retail and, consequently, they have not been able to reach global markets. But today, with the online world of network gaming, social games, casual games and games that are played on iPhone, small teams of people can get global audiences. Two-man or two-women teams can make a game for iPhone and sell many millions of units through broadband and through downloads. But they also need help and guidance—not just fiscal help, but mentoring help and business help— because they are creatives and they often do not have the help in business that they need. They need to partner with business people, they need access to finance, and they need guidance and to be told, "We are over here and we can offer you this help with setting up business and help with financial backing." We are brilliant at making games. We just need to get that ecosystem up and running because we could be a world power again.

  Dr Wilson: I think that Scottish Enterprise has done a good job with regard to video games—it has a number of schemes in operation, as you know, to help small development studios. I think I am right in saying that it has invested about £2.4 million in video game companies in Scotland since 2004, so it has been supportive of the sector. One thing that we could do throughout the UK—on the part of the Government and of Government agencies in Scotland as well—is be much more aggressive in marketing Scotland and the UK in general as a place to do games business.

  I have mentioned this to other MPs in different circumstances, but it is worth emphasising again: the Canadians are extremely good at doing this. They phone up and contact the chairman of TIGA and people on my board—they have no shame. They will contact major UK developers and try to get them to locate overseas. They have a very attractive package of measures with 37.5% production tax breaks. Scotland has some fantastic things about it—a great education system, a good health service and good transport links—but if we are going to market ourselves well, we have to be much more aggressive about the offering that we have available.

  Q26  Fiona O'Donnell: Whose job is that, do you think?

  Dr Wilson: I think there are a number of roles, actually. I think trade associations have a role—TIGA in the UK has a role—and Scottish Enterprise, UK Trade and Investment, the Scottish Government and the Westminster Government have a role. We all have a role to play.

  Fiona O'Donnell: Thank you for your patience.

  Q27  Fiona Bruce: In the written evidence that TIGA has submitted, you say that you expect games tax relief to have created or saved 3,550 jobs, although I think that the figure of 3,500 was said today. Could you elaborate on how you have come to that figure?

  Dr Wilson: There are a number of levels within games tax relief that we proposed. It was a tax break or tax credit depending on the size of the budget. For a game with a budget of more than £100,000 up to £3 million, you get 30% tax relief. If the budget of a game was between £3 million and £6 million, you get 25% tax relief, and if the game was more than £6 million, you get 20% tax break. Games Investor Consulting, which we contracted to do the mathematics, did an estimate of how much additional economic activity would be stimulated, and that was the figure it arrived at.

  We are confident because if you look at the experience in Canada—in Quebec, to which Ian referred earlier—typically, for £500 million of approximate investment through tax breaks, you're getting back another £1 billion—you get two for one back. I cannot give you today the exact, precise mathematical calculations on how that figure was arrived at, although I am happy to send that to the Committee if you like, but we are confident that the figures stack up. We are also confident in the data presented to the Treasury in the run-up to the March Budget. Treasury officials looked at the data then and said to me that although their figures were slightly different from ours, the broad picture was the same. So we believe that games tax relief has a powerful stimulating effect on job creation and additional investment.

  Q28  Fiona Bruce: Thank you. How many people does the industry currently employ?

  Dr Wilson: In game development, it is just over 9,000 at the current time.

  Q29  Fiona Bruce: You quoted a figure earlier. You said that in Scotland—did I hear this correctly?—you have 651 development staff in the industry. What proportion are in Scotland and what proportion of the 9,000 are elsewhere in the country?

  Dr Wilson: Out of approximately 9,000 development staff, according to our most recent data, 651 are based in Scotland, and the remainder are based in the rest of the UK, mainly in England.

  Q30  Fiona Bruce: You said that your development work force in Scotland has declined by about 18%, mainly because of Realtime Worlds, so is that 18% of 651?

  Dr Wilson: It is 18% of earlier on this year, back in March. Let me just check the figure—sorry. In April of this year, the game development work force was calculated in Scotland to be 798 development staff. That fell by 18.4% over the course of this year up to September, and now it is standing at 651.

  Q31  Fiona Bruce: So we have about 140 jobs in Scotland affected by the current climate—economic or governmental.

  Moving on, but on the same theme, could you describe some of the companies that you think will chiefly benefit from the tax relief? Let me quote one of your colleagues—Mr Rawlinson, I think—who said that "tax credits would enhance the ecosystem for major multinational companies", and that "there would be a scale of investment which major multinational companies would bring". My concern is to support our businesses and our whole industry. I have a particular concern for SMEs, which make up, I think, well over 90% of all businesses, or possibly 95%. What I am concerned about is that we ensure that the limited funds that we now have as a nation are targeted to support our businesses and our industry, and that we don't end up subsidising multinationals.

  Dr Wilson: Can I reassure you on that point? When we drafted our games tax relief proposal last year, we wanted a measure that would help the—if I can use the term—entire ecosystem of video game development companies in the UK. That is why, as I mentioned a moment ago, the tax relief that we suggested should be based on different sized budgets, with proportionately a larger relief available to smaller budgets, which would help smaller game developers. So, any game developers that are, basically, producing a game with a budget of more than £100,000 stand to benefit from games tax relief, provided that they also pass the cultural test that we had to incorporate in our games tax relief proposal.

  We envisaged that a spectrum of companies would benefit from games tax relief. Your SMEs would benefit from games tax relief. You are right that, just as more than 90% of businesses in the UK are SME in nature, the same applies to the video games sector—about 90% of studios would be classified as small and medium-sized enterprises.

  Publisher-owned studios in the UK could benefit in principle from the games tax relief, but they are an important part of the ecosystem within the United Kingdom. Many smaller developers can often spin out from publisher-owned studios. Of course, the Chancellor of the Exchequer has said that he wants the United Kingdom to be open for business, and we understand from overseas publishers that they would find games tax relief attractive. We think it would help the whole spectrum of fairness.

  Mr Rawlinson: Could I just illustrate that briefly? There was a studio in Canada employing 20 people that Activision purchased, having seen its capability. Today that studio now employs 200 people—those are 200 local Canadian jobs. That same model can apply in the UK and in Scotland in particular.

  Fiona Bruce: I have one minute left. May I ask one last question?

  Chair: Yes.

  Q32  Fiona Bruce: Thank you, Chair.

  This is a completely separate question that again relates to some evidence that TIGA submitted. You said that to qualify for relief, video games would need to pass a cultural test. Could you elaborate on how you would assess what to me seems like a very subjective issue?

  Dr Wilson: Well, the cultural test is informed—actually, I shall rewind slightly. We had to incorporate a cultural test in the games tax relief proposal because otherwise it wouldn't get through the European Union. There had to be a cultural test. We were advised that by the Treasury that that was the best way—the only way, effectively—to get a games tax break.

  The cultural test that we proposed was similar to the tax break criteria that exist in the film industry, which has a cultural test, and similar to—not exactly the same as—the tax break that is available to video game developers in France, who also have a cultural tax break. So, in terms of criteria, in order to pass the cultural test and therefore benefit from games tax relief, you would, for example, get points for using new technology, for having your production staff based in the United Kingdom, for if your game was a new game rather than a sequel, for using new technology, or for basing it on an aspect of British or European heritage—that could be a book, film, historical event or sport. We think the latitude for a game getting through the cultural test for the games tax relief is pretty flexible.

  We ran a test involving 18 games last year, just to see how it worked out. We took 18 titles, pretty much at random—a sample of publisher-owned, studio-developed games and independently developed game titles. Bearing in mind that none of those studios had tried to get their games through the cultural test, because they didn't know what it was, we found that out of those 18 titles, about 44% passed. That was pretty much the same proportion as exists in France. We imagine that if the games tax relief was introduced, clearly games companies would try to make sure that they could benefit from the tax break and pass the cultural test, so we think that a higher proportion would pass eventually.

  Fiona Bruce: Thank you. If there is time at the end, I might like to come back on that.

  Q33  Lindsay Roy: Good afternoon, gentlemen.

  In making a case for investment, whether public or private, do you share my view that the industry is a catalyst for more diverse creative technological development and that we perhaps do a disservice if we focus solely on video games? I am thinking in particular about medical applications—it is about not just games, but simulations. You might have a better chance of stronger investment if what they put forward was widened.

  Dr Wilson: Again, the games tax relief proposal that we put forward last year would have benefited interactive products generally. At least in theory, it would be possible for a game to pass the cultural test even if it wasn't primarily for entertainment purposes. You are right. There are obviously game companies in Scotland and in the United Kingdom more generally that create serious games—I think that about 20% of TIGA members and developers in the UK create serious or educational games. Games can obviously be used for training purposes as well. When we put forward our proposal last year, we thought it should benefit as wide a range of interactive products as possible.

  Q34  Lindsay Roy: We hear again and again that youngsters are digital natives and that we are digital immigrants. Is it really the case that we need to change the school curriculum?

  Mr Livingstone I have some opinions on that matter. The way education has been for 50 years has not really changed very much: one person talks to the many, the many copy down rote, and learning is boring. The way children engage with media has changed radically over the past 10 years. They use social media devices, they use Facebook and they work collectively together. It is the many helping the many—they are learning collaboratively. That ethos of collaborative learning should be taken into the classroom a lot more. Children should not be told to leave their media devices at the gates, rather like leaving their guns at the saloon. They should bring these devices into the classroom and use them for collaborative learning, and they can help to teach each other. Then the teacher is effectively a monitor as they all learn from each other by using things like Wikipedia, which was supposed to be a sin at first and yet is a constantly evolving encyclopaedia. Hard copies of encyclopaedias date, as do books, but Wikipedia is constantly evolving and upgrading with new knowledge constantly coming on. Those devices, and engaging with media and collaborative learning, should absolutely come into the classroom.

  Also, why should children make a choice between art and science? That is preposterous in a digital age of the creative industries. Computer games are the marriage of art and science. People need to know the workings between the two disciplines to be able to make the best digital content going forward. There are many ways in which the curriculum should change to be more up to date with today's technological thinking.

  Q35  Lindsay Roy: I don't wish to sound cheeky, but when were you last in a school? In my experience, a lot of these things are happening. There is collaborative work.

  Mr Livingstone I said in my opening remarks that this is actually happening in Scotland, which is great. It needs to go forward throughout the rest of the UK. They also use programming in Scotland, which they do not do in the rest of the UK. Scotland has been a shining example of the way modern learning is realised.

  Q36  Lindsay Roy: So how do we get that continuum from schools through FE to university and link it in with businesses like your own?

  Dr Wilson: There is some happening already. We find that about 40% of our development studios already has a relationship with universities or further education colleges. A smaller number has a relationship with schools, but there is some interaction happening between game development and education providers.

  Q37  Lindsay Roy: In relation to universities, how well served are you by Dundee and Abertay Universities?

  Dr Wilson: We have enormously high regard for not simply Abertay University, but other Scottish universities as well.

  Q38  Lindsay Roy: I am not one for league tables—Abertay is not high up in league tables—but I think we need to do something about that, because they seem to be providing a more integrated collaborative approach to learning, well focused on problem-solving approaches.

  Mr Livingstone From my understanding, the UK average is that 6% of universities engage with local industry, which is preposterous if you want to keep up with what is happening in the real world. We would ask any Government to ensure that there is more incentive for universities to engage with local industry. Abertay is a shining example of best practice, and that should be replicated throughout the country.

  Q39  Lindsay Roy: Would you agree that, if we are going to have league tables, there may well need to be different definitions of success criteria, for example in relation to employment and outcomes?

  Mr Livingstone And they should be financially incentivised to offer the skills that we certainly require: computer science, maths, art, animation and physics. It seems to be that, historically, universities have been funded on a bums-on-seats basis—excuse my language—that incentivises numbers rather than quality. So, you are stripping maths out of your curriculum to get more people on a course and to get greater income for the university, but it should be done the absolute opposite way, with less money for media studies rather than hard skills studies.

  Chair: Right, could we turn to Mark?

  Q40Mark Menzies: Thank you, Chairman. Richard, you talked about the £415 million benefit that you feel the tax break would bring, and the £192 million cost of that. Can you talk us through the numbers and the assumptions in the calculation that got you to that £415 million number?

  Dr Wilson: I'm afraid I can't do that now. I am very happy to send our report to the Committee, which will show how the figures were arrived at. What I can say is that the Treasury adopted that figure—in fact, I think both parties did. Before the election, they used our estimate of how much the games tax relief would cost in a given year. After the games tax relief was removed in the June Budget, the saving that the coalition Government assumed would take place was again based on how much money they thought we would spend on games tax relief in a given year—about £40 million. I suppose that all I can say to you at the present time is that the figures we presented were being accepted as robust.

  Q41  Mark Menzies: Do you believe that the Treasury has fully bought in, more or less, to that £415 million figure?

  Dr Wilson: I believe that the Treasury, in the run-up to the March Budget, looked at our report. As I said a moment ago, we were told that the Treasury did its own calculations and that those calculations were slightly different to what we suggested, but not that far out. We believe that they're pretty accurate.

  Q42  Mark Menzies: Bearing in mind that this is predominantly about tax relief and the costs and benefits, I think that it is quite important that we really understand how we got to that number. If you want to send it back to us at a later point that would be great. Also, it is important for us to be able to understand from the Treasury whether those numbers are robust enough, and if it is the case that is really the premise on which much of this case is built. If those numbers don't stack up—if the Treasury doesn't think that those numbers stack up—it really starts to bring into question much of the benefit and the return that this is all based on. If you can send that to us at a later stage it would be useful to the Committee.

  Dr Wilson: I would be very happy to do that, and I will send you the report. I agree with you. A strong part of our case has been that games tax relief was a net revenue generator for the Treasury.

  Q43  Mark Menzies: That's fine.

  The other thing is that, operating in an environment where money is very limited, if a tax relief was off the table, what other things do you think could be done, either by the Government or other bodies, to bring benefit to the games industry and, for example, in Dundee in particular?

  Dr Wilson: I am sorry to be repetitive, but I am probably going back to what I mentioned more or less at the beginning of the session: if we couldn't have games tax relief the next best thing would be to have very enhanced R and D tax credits. But that would, of course, incur additional costs for the Government, and R and D tax credits cannot be specialised, or focused on just the video games sector. In many ways, to use a familiar phrase, they would be poorly targeted because we would be using the research and development tax credits not simply to help the video games industry but to try to help a swathe of other sectors as well, and that could well end up costing the Treasury more.

  I am sorry to be tedious and to repeat this, but our industry wants to be able to compete on a level playing field, particularly against Canada. They have very generous tax breaks—37.5% tax relief in Quebec. A dozen states of the United States—the land of the free and the laissez-faire economic attitude—have tax breaks or incentives to get video game developers to focus in particular jurisdictions. We want to be able to compete on a level playing field and the best way to do that would be with the games tax relief. If we can't have that, the next best thing would, as I say, be R and D tax credits. But it wouldn't be a game changer, it would not draw in those overseas publishers to invest in the United Kingdom or stimulate new investment in the UK games industry.

  Mr Livingstone Clearly we all want production tax credits but two other things spring to mind. One is perhaps to extend the EI scheme, so that it could be more widely used as a slave model rather than as a per-project model. Also, I hear that the proposed patent box is to be taxed at 10%. If you could extend that to IP, with IP owners paying corporation tax at 10% rather than 28%, that might incentivise IP retention as well as creation in this country, because if you tax IP at source there is a great incentive for people not to offshore their IP.

  Q44  Mark Menzies: I am conscious of time. When we took our informal evidence session, and were speaking to some of the companies in Dundee, it is probably fair to say that the people were not speaking with one voice when it came to the benefits of the tax changes. People were highlighting other things that could be done to help them. That was really the thinking behind that question.

  The other thing that I'd just like to try to understand is whether you have done any analysis of the benefits that the changes to national insurance contributions, corporation tax and so on that were announced in the Budget, would bring to companies that are essentially SMEs.

  Dr Wilson: I have just two points. On the issue about there not being a uniform voice when you went up to Dundee, we did a survey back in December 2009, which showed that 84% of developers supported games tax relief. I think that it would be unusual in any voluntary association to have complete unanimity on a particular tax proposal.

  Q45  Mark Menzies: In one particular company we spoke to, the senior person pretty much pushed it to one side, saying that there were bigger things on the table—IP ownership and various other things. It left me with great doubt as to whether this was over tax relief, or were there other things that we needed to focus on.

  Dr Wilson: But for every example you can find of a developer saying that they weren't convinced by games tax relief as being the top measure, I can name a lot of others who would be supportive of it. It is important to emphasise that.

  Q46  Jim McGovern: I think it is fair to say that in Canada, it is not just about tax breaks, but employee incentives.

  Dr Wilson: Yes. It is worth emphasising that skills are important—of course they are. But one of the reasons why there is a skills shortage, which has been important in the UK, and which has affected the development sector is again because our competitors in Canada have this enormous tax incentive, which in turn allows them to spend more money on poaching individuals from the UK to work in Canada.

  Q47  Mark Menzies: At what point do you think you will be able to do some analysis on the NI changes and corporation tax? Is it something that your company is looking at?

  Dr Wilson: We are looking at that. TIGA has set up a committee that will look into the tax changes that have been announced in the Budget. We don't believe it will change the essence of the argument, but we intend to look at it.

  With regards to the corporation tax measures that were announced, we have taken informal soundings with some overseas publishers. Everybody likes to have corporation tax cut, of course, but no one is saying that the changes in corporation tax are significantly substantial enough to make them change their investment decisions. If you have a 37.5% tax break in Quebec, obviously it looks much more attractive than lowering the rate of corporation tax in the UK.

  It is also worth emphasising that corporation tax reductions are very useful if you are making a profit, but a lot of the smaller developers, many of whom you may have come across in Dundee, were going through a period when they were making a loss. A change in corporation tax at that point doesn't really help them a great deal.

  Q48  Dr Whiteford: Thank you gentlemen for being here and for your forbearance earlier when we were running around the voting Lobbies.

  As Mark has just been saying, when we were in Dundee, we heard a range of views on the tax issue, from people who thought it would have a very marginal impact to others who would welcome it. But one thing that came across very strongly was that many of the games producers seemed to have problems with banks and access to sustainable finance, particularly finance for development and credit when things are in the pre-production stage. I wonder what your reflections on that issue are. That struck me, as I came away from Dundee, as being a more substantial issue that we need to address for the future of the industry than tax, but I would be interested to hear your thoughts on that.

  Dr Wilson: Again, our survey evidence from December 2009 seemed to show that developers had problems accessing finance. I think that probably no sector in the UK particularly loves the banks at the moment, and are able to say that they are getting stacks of cash from them. That much is probably general in nature. Developers will fund themselves in a number of ways, such as through publishers, through their own resources—in particular smaller developers, which rely on their own resources—and of course they will look to banks to help them out.

  But again, one of the things that was advantageous or seemed appealing about the games tax relief proposal that we put forward was that if a developer could show that their game had approval to benefit from games tax relief—as I said in the beginning, 30% tax relief on their particular product—that could in turn attract external investors in that game, because they could see that there would be money coming; in essence, there would be money available to invest in that company. That makes the small developer a more attractive organisation or opportunity to invest in.

  Mr Rawlinson: I think it is fair to say that any creative industry is a high-risk, high-reward industry, and the video games industry probably stands at the very top of that list of high risk and high reward. Therefore, the underpinning of a tax relief will improve the opportunity for the return on investment, and make it a better investment potential for the banks, particularly with small start-ups and SMEs, which I think our industry is creating a lot of at the moment. For the normal high street bank looking at that business, it is incredibly difficult for them to assess the risk and understand the proposition. In fact, both Richard and I attended a meeting with other creative industries in the summer, and the understanding of the decision makers within the banks was one of the key issues that we were discussing across all the creative industries. Yes, banks are a problem.

  Mr Livingstone Not just banks though. Private equity, VCs and angels still have trouble understanding our industry, and quite right too, because it's not just one format and one way of consuming content. There are diverse platforms and diverse ways of playing, whether it is small casual games played online, or games played on iPhones, handheld devices, mobile phones, social networks, or high-end consoles. With diverse content device skills and budgets from a few hundred pounds to £30 million, it is very difficult for anyone, even in our own industry, to understand the economics, let alone outside funders. We need an educational process too, so that people understand the whole process.

  Q49  Dr Whiteford: The other big issue that I came away with from Dundee was this whole issue of the level playing field. It struck me that if countries such as Canada and France are creating an unfair competitive advantage by subsidising their industries, that is an issue that we should be raising at the WTO, so that the unfair subsidies are taken out of the equation. That might be a more effective way of creating the level playing field that we all want to see our industry on.

  Dr Wilson The previous Government looked into that, and they found that there were no grounds for appealing to the WTO. They have already been down that route.

  Mr Rawlinson: Canada sits outside the EU, so it is not restrained by EU competition rules. As Richard pointed out earlier, the need for a cultural test enables us to overcome the state aid rules that would normally apply for providing sector-specific support. That is how France has been able to offer tax relief for its video games production.

  Q50  Dr Whiteford: It strikes me that the cultural test seems to be a pretty low bar, and that it might well be open to challenge. I am concerned, because what we don't want is a race to the bottom. We do not want these proposals to create a race to the bottom and replicate the existing problem that we are complaining about in other places.

  Mr Rawlinson: I think that we all agree with that. You're absolutely right. If your only selling feature is price, there is only one way and it is the bottom. That is not where we are. We are an industry and a country that has a rich heritage of excellent—indeed, the very best—games production. We look at the success in Scotland, in particular of "Grand Theft Auto". We do not look only at that product, but it is a world beater. We have the skills and the creativity, and I think it is uniquely British that we have success across a whole range of creative industries. We can look to other countries that are successful in particular creative industries, whether that be architecture, furniture design, art, painting—whatever it might be—but we seem to have skills and expertise across a very broad range of creative industries. That enables us to move forward in our industry, where, as Ian said, we are a marriage of technology and creativity.

  Q51  Dr Whiteford: I was interested in what you were saying at the outset about the diversification into iPhones, Wii games and so on, not least echoing some of the questions that Fiona was asking about the move away from simply violent computer games. That has to be a very welcome development if the industry is to improve its credibility and perceptions of that. I wanted to ask you about potential growth in that sector, which perhaps echoes someone else's question. What are the things, apart from tax relief, that will help us maximise potential?

  Mr Rawlinson: Growth will come through opportunity and talking up our ability in this country. Having a Government, an education system and a trade and investment department that really trumpet our industry as open for business and open for capability will give us the opportunity to lay our wares out and show what we are capable of. Underpinning that is this tax relief system that we are advocating. Although it will support the industry, and we do not want us to become a low price-based industry, it will provide an incentive for that inward investment. That is really important.

  Women in games is absolutely key, because then we get a diversity of content that we can create and can meet the needs of a growing market. We should recognise that the industry is growing well above the average. It is a leading growth industry, not just in terms of creative industries that are growing above the national average, but we are the leading creative industry in respect of that growth. The opportunities are exponential: marketing that, promoting that, diversification of the work force and definitely bringing in minorities and women that will create new game formats.

  To echo the words of the Chancellor when he says, "Yes, we want a low-cost economy because we are going to generate new jobs.", when asked where the jobs are coming from, we do not know. I cannot specifically say where they are going to come from, but I think the opportunity that we will create will give us new jobs and new employment.

  Q52  David Mowat: I want just a piece of context, first of all, in a couple of numbers that you gave. I think you said that there were 650 development employees in Scotland and 9,000 in the UK as a whole?

  Dr Wilson: Yes.

  Q53  David Mowat: What that is saying is that this industry is no more significant in a sense to Scotland than the rest of the UK, because those proportions are roughly the relative size of the countries and populations. Is that true?

  Dr Wilson: It depends precisely on what measurement you are looking on. I said in my evidence, which I have written down here, that Scotland has 46 development companies. That represents about 10% to 11% of development companies in the United Kingdom. In terms of head count—

  Q54  David Mowat: I think you said 9,000 in the UK.

  Dr Wilson: Yes, 9,000 in the UK. In terms of Scotland having a share of that head count, that 651 figure which is up to date is about 7.2%.

  Q55  David Mowat: Yes, so obviously, this is a UK issue?

  Dr Wilson: It is.

  Q56  David Mowat: We all went to Dundee. Is the structure of the industry in other bits of the UK—the other 93% of it—fairly similar to what we would have seen in Dundee or are there structural differences in other ways?

  Dr Wilson: In Dundee, you probably have a larger number of small independent developers. Most of the developers up there probably do not employ roughly more than about 25 people now. The big employer there, Realtime Worlds, went into administration. In other parts of the UK—for example, Brighton, Dundee, west midlands and London—you will get clusters of development studios, both overseas publisher-owned studios and independent developer-owned studios. Dundee might have been a little more different in the sense that there probably is a greater proportion of small independent developers.

  Q57  David Mowat: Okay. I think that you used a figure of an 18% decline in Scotland over the past year. Would that be a similar number to the rest of the industry in the UK?

  Dr Wilson: In the rest of the UK, the most up-to-date figure I have is a 4.4% decline in the UK as a whole this year.[1]

  Q58  David Mowat: So Scotland has been disproportionately hit for whatever reason?

  Dr Wilson: That is right.

  Mr Rawlinson: The demise of Realtime Worlds had a disproportionate effect.

  Q59  David Mowat: That was in these numbers, was it?

  Mr Rawlinson: That was in these numbers.

  Q60  David Mowat: Okay. Thank you for that.

  Going back to your point about the size of the tax relief and what might come of it, £192 million is the figure that you have suggested and that will save and create 3,500 jobs. That is quite a lot per job. That is £60,000 a job. To echo the points made previously, it is very important that we can see other benefits than that. There are other ways that we can create jobs for £60,000 each. There has to be something else that we are going to create in terms of revenue.

  Mr Livingstone It is IP creating as well. We need more IP to reside in this country. The value of IP is hard to put on a balance sheet, but if you look at Lara Croft, which everyone says is quintessentially a UK digital icon, the reality is that "Lara Croft: Tomb Raider" is developed in California and it is owned by the Tokyo Stock Exchange. It is not British any more. A lot of our IP has gone offshore not just to be developed, but it is owned offshore.

  Q61  David Mowat: I agree, but even with IP unless you can either translate the ownership of IP into jobs or tax revenue—

  Mr Livingstone We don't want to become a work-for-hire nation.

  Q62  David Mowat: No, we don't. The nature of the tax relief is a sort of rebate, isn't it, so you actually get it while you're doing a development? Is that right? Is that what the Canadians do and what you need? It's not something that only goes to profitable games?

  Mr Livingstone It comes at the end of the fiscal year. They come with their 37.5% cheque.

  Q63  David Mowat: But you don't have to have made money yet?

  Mr Livingstone Not at all. To offset the costs of production is the great problem during the time of production.

  Q64  David Mowat: It would be quite important for me to see the figures that show the benefit over and above the £60,000 per job, because that is a lot of money to create a single job. We have to have a case.

  Dr Wilson: I am more than happy to send the information about how the figures were calculated to you. I would emphasise the fact that in the evidence we put forward, which we are confident about, it is a net revenue generated for the Treasury. It is worth emphasising that point.

  It is also worth emphasising something about the nature of the video games industry, which others mentioned earlier. The video games development sector is extremely export-oriented. A typical development studio would generate 62% of their turnover through the export of their games. Almost all developers in the UK export their content, which is really important.

  Q65  David Mowat: Can I just ask about that? One of the things I took away from being in Dundee was a little bit of knowledge about the structure of the industry. You have things that they call publishers who tend to commission these guys to produce what they produce. I don't know how typical this is, but it was a bit of an IP issue that quite often the publishers own the IP and they were using the firms in Dundee a little bit like creative software developers—nothing wrong with that; high added value and everything—but structurally it doesn't stand up. If the publishers are somewhere else, it sounds like there could be a structural issue in the industry. Eventually you become—I think you used the phrase, Michael—jobs for hire. You do become that in that model that I saw in Dundee. Is that something you think is happening?

  Dr Wilson: There are some developers who, as you say, do work-for-hire work for overseas publishers. There are other developers—for example, Firebrand Games in Glasgow is independently owned, owns a lot of its own IP and exports its games. It depends on the nature of the contract between publisher and developer. A lot of developers are increasingly trying to sell their games directly to the consumer; for example, as Michael mentioned earlier, over the iPhone. It will depend on the particular game and developer.

  Mr Rawlinson: The market is changing very rapidly, so we turn the clock back maybe as little as two or three—

  Q66  David Mowat: Is it consolidating?

  Mr Rawlinson: It has been consolidating, or it was in a process of consolidation. Two or three years ago the global publishers who had the access to market for box products controlled the market more or less, and therefore the independent developers were under pressure to relinquish their IP. Now, as Richard has rightly said, they have the opportunity to reach the global market through online distribution—whether that be through the internet, console portals, PlayStation network, Xbox Live or the iTunes network—direct to consumers, so they can retain the ownership of their IP, they can exploit their IP, and this tax relief would enable those smaller companies to grow and blossom alongside the multinationals.

  Q67  David Mowat: A quick final question on scale. The UK declined by about 4% and Scotland 18%. What does the industry do globally—approximately? Not just Canada. Broadly, is that number available?

  Dr Wilson: I haven't got a precise figure in front of me, but PricewaterhouseCoopers earlier this year quoted that the global market for video games—not just software but hardware—was worth about £50 billion this year, and they predict that by 2014 it will be worth £80 billion, very approximately. Forgive me for going back to Canada very briefly. While our work force have declined over the past two years, the Canadian games industry has continued to expand in terms of head count by another 33% over the past two years. The key difference again is the tax relief. You may think it's expensive to keep those jobs in operation, but none the less it clearly has a significant impact on growth or decline.

  Mr Livingstone The thing is that the industry is still growing. Software sales are increasing year on year.

  Q68  David Mowat: Globally?

  Mr Livingstone Yes. We will be reaching a tipping point—some say 2012, some say 2015—when revenues from network sales, or online delivery of games revenues, will be larger than those from box products.

  Q69  David Mowat: That's over the internet?

  Mr Livingstone Yes.

  Q70  Jim McGovern: Could I put a point to David? It wasn't just coincidence that Dundee became the hub for computer games. I also point out that it is not just about young lads sitting in front of a TV; there is a lot more to it than that. The Timex and NCR factories in Dundee started producing computers, and it was the people who worked in those factories that ended up starting businesses; that is why Dundee is the hub for the computer games industry in the UK. Obviously, Abertay University has a link to that.

  David Mowat: That is what I thought, but it does not appear to be wholly borne out by the numbers that Dr Wilson gave us; he said that 7% of the video games industry is in Scotland. That was all.

  Jim McGovern: Yes, probably in Dundee. If I sound biased there, my apologies.

  Mr Rawlinson: The circumstances around the growth of Dundee as a hub are as Mr McGovern pointed out, but in different hubs around the country different circumstances have prevailed. You will have found that a small company that 20 years ago had a success grew its business and had spin-offs, which then set up their own business alongside. So we do have these hubs in Brighton, Guildford, the midlands—around Leamington Spa, for instance—along the M62 corridor, including Manchester and Liverpool, and in the north-east, in Newcastle. All varied, for their own particular reasons, but nevertheless these hubs have grown and developed.

  Q71  Cathy Jamieson: One of the things about speaking after everyone has asked a lot of questions is that you have a bit of a job in trying to sweep up and crystallise some of these things, and that is what I hope to do. I have three quick questions to ask, so that the Committee and I are clear and can take things forward. First, in relation to IP, we have had a lot of discussion about not wanting that offshore, and all the issues around that, and of how the tax incentives would assist. I wonder whether there is anything else that the Government need to do, and that the Committee could recommend that Government looked at, in relation to the creation and protection of IP.

  Mr Rawlinson: I think Ian has already outlined the extension of the patent box. I am not an IP or tax lawyer, but if the Government could produce something that links IP to this country, or makes it beneficial to keep the ownership of the IP in this country, along with the tax receipts from the worldwide exploitation of that IP, it would be very beneficial.

  Mr Livingstone There are also hidden benefits that people might not appreciate, especially in the online world. In the old model—the old world, where people went into shops, bought their products and walked out—the shop will have paid corporation tax, and the Revenue would have got some VAT. In the online world, which can be served from anywhere in the world, those revenues are no longer being had. If the IP was coming from the UK and serving a global audience rather than the UK consuming IP from overseas, there would be additional tax revenue, which is now lost in the online world.

  Mr Rawlinson: VAT receipts are a big danger. We have already seen it with online trading of physical goods being serviced from the Channel Islands, but as Ian said, the server and the registered address for an online business could be in any low-cost tax jurisdiction.

  Mr Livingstone Tax on IP alone would be a great help.

  Q72  Cathy Jamieson: I was going to ask about VAT, but you have probably answered that.  One of the other issues that came up in discussion with some of the smaller companies was the issue of self-publishing. I wonder whether you have any views on what the Government could do to encourage more co-operation among the smaller companies to promote self-publishing. Have you any specific ideas on that?

  Mr Durrant: Is it possible that I can come in here? That was something that I was going to mention when I gave evidence, because I had the benefit of being party to that discussion in Dundee. I think that you heard that there was some kind of emergent plan to create a consortium. I suggest that the Committee seek details from NESTA, which is acting as an honest broker to bring that project together, and the project is advancing. Essentially, NESTA is putting together a consortium of developers, which will include developers in Scotland, with the idea, in particular, of taking advantage of digital publishing. It intends to create a developer-owned publisher, which will be owned by a consortium of developers, who will share not only marketing costs, but the revenue and returns. It aims to reduce the publishing cost and the risk. It wants to create a portfolio of titles and use that as a platform for raising finance.

  The reason I was going to mention this when giving evidence is that we'll be linking our prototype project with it, and I don't want to jump ahead to that. But, essentially, there are opportunities, there is a project there and there is some public funding going into it to try to stimulate it. As I say, I recommend that the Committee seek the precise details from the National Endowment for Science, Technology and the Arts. When I give my evidence, I'll talk about how our prototype project would specifically relate to that project and benefit it.

  Q73  Chair: Is there anything anyone would like to add to that?

  Dr Wilson: I would just like to add that, as a trade association, we try to provide best-practice information and advice on self-publishing. We had an event up in Dundee earlier this year—it was when the volcano went off, as it happened. We had some of our experts from other parts of the United Kingdom come up and speak about self-publishing.

  Mr Livingstone I would add that these companies can create great content, but not everybody knows about it, so they need help with not only accessing global markets, but telling those markets that they are here. They need help with marketing, promotion and getting visibility to drive users to their content.

  Q74  Cathy Jamieson: I have a short question. I suppose this will put people on the spot, but we will have to produce a report with recommendations. Could each member of the panel say in one sentence what the top recommendation is that they would like us to make to the Government?

  Dr Wilson: I'm so sorry to be boring, but I hope that the report will say that the Government should look again at tax relief, on the basis that we are supporting an export-oriented, highly skilled industry. We are supporting a sector that really has an opportunity to take advantage of growth in world markets. So, games tax relief should be the top priority, and I hope that the Committee will be able to recommend its adoption.

  Mr Livingstone I think it's a combination of things, led by production tax credits and tax relief, but that's also matched with the skills that we need to make the games; we need hard skills, not soft skills, and we need people who know how to make a game, rather than who know the philosophy behind the games. We need the perception of games to change. We need greater careers advice at a younger age to get people into the industry. We want IP-creation incentives—not just creation, but retention. We need programming in schools. We need broadband. Feeling great about 2 megabits is misplaced; as more and more devices are used in the home, those 2 megabits will go down to a lot less. If we've got four or five users in a home, we will need at least 8 megabits, not only to download games, but to play them online and to serve global markets from the UK. So, broadband is another issue. Of course, there is also piracy.

  Chair: That was a very long sentence.

  Mr Livingstone I hope there will be a lot of recommendations.

  Mr Rawlinson: To cut it short, I would just reiterate what my colleagues have said. We have covered the points.

  Q75  Mr Reid: Thanks for coming along this afternoon. Perhaps you could explain how you see games tax relief working in practice and why games tax relief, rather than other incentives, is so important.

  Dr Wilson: Again, the reason why we advocated games tax relief was that, over the last few years, game developers and publishers have been saying that the UK is competing on an uneven playing field and that we are losing jobs and investment to overseas jurisdictions, particularly Canada. Typically, if you go to a development studio, almost every person you speak to will say that they have lost staff to Canada, so there is a real brain drain. That is partly driven by Canada's very strong tax incentives. That's why we proposed games tax relief.

  

I can send the Committee a copy of the proposal, but in concise terms, games tax relief would benefit a company if it had a budget of at least £100,000 a game. As I think I mentioned, there would be three different rates of relief: 30%, 25% or 20%, depending on the exact cost—

  Q76  Mr Reid: Per cent. of what?

  Dr Wilson: Of the cost of the game. A company's game would have to pass the cultural test. As I mentioned, we had to include the cultural test in our proposal. If your company was profitable, you could use the games tax relief to reduce your corporation tax bill. If your company was making a loss and your game qualified, you could use the games tax relief as a cash rebate from HMRC. Basically, it would be increasing cash flow to the business in question. I think I mentioned that one of the reasons why we proposed games tax relief was that it would help a range of companies in the United Kingdom—small companies, independent development studios and publisher-owned studios.

  Q77  Mr Reid: You keep referring to Canada. Is Canada the only problem, or are there other countries?

  Dr Wilson: Canada is the most egregious example—shocking example—of Government intervention providing very strong rates of tax relief. Quebec offers the most generous relief, but other provinces of Canada offer very strong rates of relief as well. About a dozen states in the United States provide either tax relief for games production or similar strong incentives. France has a tax break for games production. I think that back in 2008 Singapore launched a $200 million scheme specifically to help the export of video games. It just shows the level of ambition and money that other countries are putting behind video games. Those are the main competitors I would refer to.

  Q78  Mr Reid: Would the level that the previous Government proposed for the tax relief be sufficient to enable us to compete with Canada?

  Dr Wilson: The Government informed me on the day of the Budget that they were going to adopt our proposal. As I said, we were proposing a 20%, 25% and 30% rate of relief. We think that was a proportionate response to overseas developments. We don't think it would be a race to the bottom; we think it would be a way of making sure that the UK games industry was competing on a level playing field. We think the proposal we put forward was proportionate, sensible and would have the required effect of helping us to compete on a level playing field.

  Q79  Mr Reid: I want to ask about the jobs that you think you could create if you got the tax relief. What would the people doing those jobs otherwise be doing? Would they be working in Britain in other sectors? Would they be attracted in from abroad? Would they be unemployed? Where would they come from?

  Dr Wilson: Obviously, that is a very difficult question to answer because you never know what a multiplicity of people would do, but we do know that a brain drain is taking place from development studios in the UK. Again, I am very happy to send the Committee a copy of our report. Back in 2009, we carried out a survey of game developers. We found that just under 25%—I think the figure was 23%—of development studios said that over the previous 12 months they had lost staff. Of those development studios that said they had lost staff, 75% said they had lost staff to Canada, and those were typically the extremely high-skilled project managers or experienced programmers. A lot of very high-skilled people were leaving to go to Canada.

  What would these people be doing if we didn't have games tax relief? We don't know precisely what they would be doing, but we can be pretty confident that some of them would push off to overseas jurisdictions.

  Q80  Mr Reid: So it is more a question of retaining the skills that we have?

  Dr Wilson: It is a question of retaining skills, absorbing some of the new, very qualified graduates, or training people in the games industry who are coming out of education.

  Q81  Mr Reid: From what you have been saying, the industry seems to be concentrated in certain hubs throughout the UK. Does that mean that if the Government changed their mind and granted the tax relief, all the benefits would simply go into those hubs, or would wider parts of the country benefit as well?

  Dr Wilson: The truth of the matter is that the game development work force that we currently have are very mobile. At the moment, they tend to be male, as we have already commented. They tend to be fairly young, so they don't have many restrictions or ties in relation to where they are currently working. Clearly, if we had games tax relief and some of the existing studios expanded, people would go to those towns and cities—Dundee, Brighton, Guildford or wherever—but if there was a very strong university in another part of the UK and it was able to spin off new start-up studios, there is no reason in principle why another hub might not emerge.

  One of the good things about the video games industry—this is worth emphasising—is that the majority of the work force is not concentrated in London. It is good that it is concentrated throughout the UK. I think 85% of the development work force are outside London, which is really good. We talked about this earlier. All political parties have talked about wanting to rebalance the economy and promote growth throughout the United Kingdom. The development work force can be part of that solution. It is fantastic to be able to have high-skilled jobs in Jim McGovern's constituency, to name but one example. It is great that we can create these jobs in different parts of the United Kingdom. Yes, you would see some existing hubs expanding, but it would also be possible to see new hubs emerging, particularly if there were a strong university in place.

  Chair: I should interrupt. I know, Mr Livingstone, that you have to go, and I could see you becoming more and more itchy. If you must dash, I thank you very much for coming, but if you can stay a bit longer it would be helpful; we were interrupted by the vote. I could see you getting more and more ready to go, so leave when you want to.

  Q82  Mr Reid: Mr Wilson, you were talking about a mobile work force, and we are dealing with intellectual property, which is slightly intangible. Traditionally, if a Government give a company a subsidy to build a factory and put in machinery, the Government who gave that grant have some sort of control, because you can write in a clause stating that the machinery cannot be taken away. Is there a risk that if the companies benefiting from tax relief get a better offer from Canada or somewhere else, the intellectual property and skilled developers may go away anyway?

  Dr Wilson: Our belief is that with the games tax relief in place the United Kingdom is a much more attractive place in which to do business. We have referred to the fact that we have a talented work force—and some excellent universities—in the United Kingdom games industry. With the tax relief in place, we are confident that more overseas publishers will invest in the United Kingdom. One thing in our proposal is that to benefit from the games tax relief you must obviously pay corporation tax, so it seems to be a win-win situation. More companies will invest in the games industry—overseas publishers, to name but one example—and will not only have the ability to employ skilled people in the United Kingdom, but will also pay corporation tax to the United Kingdom Government.

  Q83  Mr Reid: And would you see it as a relief that would have to be permanent, or could it be there for a few years, after which you would be able to compete on your own? Would it need to be a permanent feature?

  Dr Wilson: At the very least, we would like a pilot project. As you know, almost every Government pilot project becomes permanent, so we would be delighted with that proposal. To be serious, we would want games tax relief to be a permanent measure. We believe—I can show you the statistics behind our calculations—that it is a net revenue generator for the United Kingdom, so we believe it makes a lot of investment sense.

  The United Kingdom Government decided that film tax credit makes sense for the film industry because it promotes high-skilled jobs and attracts businesses to invest in the United Kingdom, and we believe that the same argument applies to games tax relief, which helps an important creative sector.

  Q84  Mr Reid: Would the industry change? Is the cultural test restrictive, or is it such a low bar that the whole industry would qualify anyway? Would there be any change?

  Dr Wilson: No. Obviously I was struck by your remark about a low bar. When we did our test last year, we found that 44% of the titles we put forward passed for relief. We were obviously pleased that companies were able to benefit from the tax relief, but we were conscious when we made our proposal that it should be seen as a serious measure, and we knew that if something like 80% of companies were passing, the Treasury would probably show it the door, which I suppose in a way they did. We tried to frame the cultural test as a serious test. I said that 44% of titles passed our test, and that seemed to be pretty much on a par with the way the French tax credit works. I think about 40% of French games typically benefit from production tax credit. I would not say that it is a shoe-in, but it is an opportunity for game developers. No one has to take advantage of it, but it gives an opportunity if we can take advantage of a tax credit.

  You don't have to believe me on the benefits of games tax relief, because NESTA—the National Endowment for Science, Technology and the Arts—did a survey last year of about 30 key people in the games industry. It was not a big sample, but the people who were interviewed were very important and included financiers in the City of London, overseas publishers and key independent developers. Some interesting findings came out of that research. First, game developers thought that they would be able to hold on to all the IP. Secondly, the financial institutions—the City of London— thought that the games industry had become much more attractive with games tax relief. Thirdly, everyone said that it would create more jobs.

  Mr Reid: Thanks very much.

  Q85  Chair: Now, there are a couple of observations that I would like to make. I have three questions to put to you, and then I will take the supplementary questions that anybody else has. People shouldn't feel obliged to ask another five minutes of questions.

  First, could you send us some more information? We are seeing the Minister next week, so obviously it is important that we get that sooner rather than later. Similarly, if you have prepared any answers to questions that we haven't asked, and you feel that we would benefit from hearing them, by all means tell us if you think that, on reflection, there are a couple of areas that we haven't covered.

  The first point that I want to put to you relates to sex and violence. The title, "Grand Theft Auto", does not impress, in terms of social conscience, well-being, and all the rest, does it? The industry does have this image of being somewhat bloody, gory and encouraging of antisocial behaviour. How do you overcome that? What sort of system of not censorship, but guidance, do you have that would encourage us to be supportive of the industry?

  Mr Rawlinson: I am very happy to answer that question. First of all, sections 40 and 41 of the Digital Economy Act 2010, which was passed in the dying breaths of the previous Parliament, amend the Video Recordings Act 1984 so that the industry's self-regulatory system for the age-content classification of video games, which is called PEGI, is enshrined in law. That is due to be implemented by the spring of next year, so we will have a stand-alone classification system for video games that makes the classification from 12 upwards mandatory and legally enforceable. It will be the first time that video games are covered by such a benchmark. Those amendments were made in response to the recommendations of the Byron review. It is very important for the Committee and Parliament to know that video games are regulated, like films, obviously, but unlike books, the content of which is totally unregulated.

  In comparison with other creative industries—I have cited films—we are a mature industry, so we should be free to tackle mature topics and mature subjects with our content and output, provided that it is correctly classified, regulated and signposted. "Grand Theft Auto" has always been classified as an 18-rated product for an adult audience. That game was, in fact, covered by the previous regulation, under which it was illegal to sell that product to a person under 18 years of age. The industry has acted, and it continues to act, very responsibly in relation to adult content. That is not to say that young children don't play that game, but that is the responsibility of parents. As part of the introduction of the new regime, which will come in next spring, the industry is committed to an education and awareness campaign to ensure that parents, gatekeepers and carers understand that video games are not just for children, and that there is a content classification system. It shows them what it is, how it's used and how they can use it to determine what is appropriate or inappropriate for their children.

  My final point is on scale. In 2009, 994 titles were produced for sale through retail shops. Of those titles, only 53 were classified at 18, so it is a very small percentage of the industry's output that is actually targeted at adults. As I have said, I don't think that it's unreasonable that, as we are a mature entertainment industry, we should be permitted, with correct regulation, to supply and produce adult content.

  Q86  Chair: Can you just clarify that? I am not sure that you are living in the real world if you believe that regulation stating that a particular video game should not be played by people under the age of 18 has much impact on what really happens in constituencies such as mine. I think that belief is naive in the extreme.

  Mr Rawlinson: I am not saying that young people don't play "Grand Theft Auto". I am saying that there is regulation that makes it an illegal offence for that product to be sold to under-18s.

  Q87  Chair: In a sense, my reaction is, "So what?" You mentioned that only a small percentage of games are classified 18, but that does not relate to the number sold. Is there an equivalent percentage?

  Mr Rawlinson: In previous years, that percentage, in terms of sales, was higher, but in the last year for which I have figures, 18-rated products accounted for about 8% of the market. That was against units produced being about 3%. It varies year on year, depending on the titles. To be honest, we get a peak when there is a new "Grand Theft Auto" or a "Modern Warfare".

  In terms of your rebuttal around 18-rated games, exactly the same regime applies to 18-rated films, so I think that it would be inappropriate for our industry to be singled out and treated differently to the film or other creative industries. I'm very happy to have a debate around adult mature content and the legal framework for its supply, but let's do that in the round, not isolate our products.

  Q88  Chair: I understand why you would say that. I have heard essentially similar things from the producers of cigarettes, and I think that the fact that you indicated that there was a peak in sales of games when the new versions of "Grand Theft Auto" or "Modern Warfare" came out indicates the direction in which the majority of the market is skewed. I listen to some of the youngsters in my constituency, and they are not playing educational games; they are playing games in which you blow as many limbs off as many people as possible, or steal as many things, or sell as many drugs, as you possibly can. That is the nature of it, and the role models that these youngsters are picking up from your industry are not particularly progressive or beneficial.

  Mr Rawlinson: First, the average age of a gamer is now 33. It is not just a market for young people, it is a market for the whole population, and there is a broad range of products. We were asked a question about women gamers, and, historically, one barrier to them playing games was the technological barrier. A joypad with eight or 10 buttons on it was quite technically challenging—I certainly can't master it. Nowadays, the Wii has a controller that you just hold in your hand and wave around, or a stylus that we can use to write on the screen. Or you can use your finger on a touch-screen. The technological barrier to engaging in games is falling, and so I think—

  Chair: I understand that, but I'm not entirely convinced, so I think I'll stop you before you dig yourself further in.

  Q89  Jim McGovern: Can I make a point? Obviously, you're involved in the entertainment side of the games industry, but Professor King, the principal of Abertay University, calls it "pervasive technology".

  Chair: That's one of the other points I was going to make, actually. To describe these as video games almost trivialises it. All of us who were in Dundee were quite impressed by the extent to which it covered a much wider range of activities. I see that you say "interactive entertainment", but I wouldn't necessarily describe it as entertainment; it is educational. There is an issue there.

  Leaving sex and violence behind for the moment, the second point I wanted to touch on, in terms of your relationship with Government, is that when we are talking to organisations, there are always two aspects. The first is whether you can access the Government, and feel that you can give them your views and that they hear them. The second is whether they accept and act on them—distinct activities. Do you feel that you have had, and now have, appropriate access to Government, in terms of being able to communicate your views to them? Leaving aside the question of the tax break, which is ongoing, on other issues do you think that they are responding appropriately?

  Mr Rawlinson: If I could just finish briefly, I would say that we, as a trade association, have very good relationships with our two key sponsoring Departments—BIS and DCMS. We also have relationships with the Department for Education, and I sit on the executive committee of the UK Council for Child Internet Safety, which is co-chaired by Tim Loughton and James Brokenshire, who is from the Home Office. We've had contact in the past, and continue to have contact, with the Department of Health. So I would say that as a trade body on behalf of our industry, we have very good relationships with Government. They listen to our views and seek our opinion and our input on a range of issues, and I think we're listened to.

  Dr Wilson: I think we have a very good relationship with all the civil servants whom Mike has just referred to in those Departments; it is a good relationship. Both the previous and current Governments have had round table meetings in the Department for Culture, Media and Sport, which both our trade associations were present at, with the relevant Ministers from that Department.

  As you will have seen from my evidence, I was disappointed that we weren't able to have meetings with Ministers, even for just five minutes, before the Budget, which I think was unfortunate. We would be very keen to have meetings, even if they were for a very short duration, with Cabinet Ministers relating to our industry. The Department for Business, Innovation and Skills would be one, and a Treasury Minister would be another, as well as the Secretary of State for Culture, Media and Sport. We know that these people are enormously busy, and we don't want to take up a huge amount of their time. But I think it would be good to be in front of them for five minutes just to highlight some of the key issues that are being faced. You rightly made a distinction by asking whether we were being listened to. If, after listening to us, they say, "We don't want to do that," that's absolutely fine, but I think it is important we have engagement with Cabinet Ministers from time to time.   

  Chair: Jim, you were bursting earlier on to make a couple of observations. Are there any other questions or points that you want to make?

  Q90  Jim McGovern: I would like to say to Richard that I think I said earlier, tongue in cheek, that I probably see more of you than I see of my wife. You talk about getting in touch with politicians; I am not a member of the Government, obviously, but certainly you and I are pretty regularly in touch, and I regularly visit Abertay University, and speak to Professor King on a regular basis. Just to conclude, I would like to thank you for coming along, Paul, Michael, Richard and Ian, who has had to leave, and I hope we can stay in touch on a regular basis.

  Dr Wilson: Thank you very much.

  Chair: Any other points that anyone wants to raise?

  Q91  Mr Reid: I think you said earlier, when I asked you one of the questions, that without this tax relief, you were losing developers to Canada. Do you have any evidence of that? Do you have records of people who have worked and trained here and have gone to work in Canada?

  Dr Wilson: We have a mixture of evidence. We have survey evidence—the survey of game developers that was carried out in December. As I said, I will send the Committee a copy of that report, so that you can see the statistics. We have anecdotal evidence from studios. I know it is never as satisfactory, but none the less, there is anecdotal evidence.

  Also, in the run-up to the March Budget, I contacted a number of companies to ask them for examples of people who had cleared off to Canada. I was given some information, but frustratingly, I wasn't in a position to pass it on to the Treasury at the time because of data protection requirements. Those are the three main sources of evidence.

  Q92  Lindsay Roy: Do you have any evidence of people from out of the UK, or out of Scotland, coming into Dundee?

  Dr Wilson: If I heard your question correctly, you asked about people from outside the UK coming into Dundee.

  Q93  Lindsay Roy: Yes, from outside the UK or elsewhere in the UK to Dundee.

  Dr Wilson: Absolutely. Sadly, before Realtime Worlds went into administration, about a quarter of its staff came from outside the European economic area. In fact, that is one point worth mentioning. It has been said to me by a number of developers and publishing studios that they are concerned about the possible restrictions on migration that are being planned. Some studios need to take very talented staff from their studios overseas on occasion to meet skill shortages in their companies and to complete particular projects. They would be concerned if they were to be prohibited from doing that. Although, as I mentioned earlier on, we have a skilled work force in the UK, from time to time, there will be occasions when you need very talented staff who you need to draw upon as quickly as possible.

  Chair: Okay. Thank you very much for coming along. We are just about to go on for another hour and a half with Paul. Can I suggest that we adjourn for five minutes for a comfort stop? If you want to stay to listen to Paul, by all means do so. If, however, you have to go off, then feel free to do so. I apologise for the delay at the start; it was because of the votes that we hadn't anticipated. Back in five minutes.

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1   I now have received more recent information from Games Investor Consulting which suggests that the decline in the UK as a whole between July 2009 and September 2010 is 5%].

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Prepared 7 February 2011