Video games industry in Scotland - Scottish Affairs Committee Contents

2  A Games Tax Relief

Background to the proposal for a games tax relief

31. In August 2009, the Independent Game Developers' Association (TIGA), a trade association representing the UK games industry, submitted a proposal to the UK Government to introduce a games tax relief.[43] Dr Richard Wilson, Chief Executive of TIGA, told us that "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."[44]

32. TIGA proposed a tax relief that would cover any company in the UK paying corporation tax, and with a budget of £100,000 or more. They calculated 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 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.[45]

33. However, HM Treasury disagreed with some of these figures. We were told that the Treasury's calculation of the cost of the relief was:

[...] broadly consistent with the level of tax relief which TIGA had asked for in its submissions. The question of what the fiscal impact would be of any relief [...] is more difficult [...] the assumptions on which they are predicated we would disagree with [...] the assumption about the creation of a job actually being an addition to the UK economy and hence an addition to our revenues we just do not accept.[46]

Supplementary evidence from HM Treasury argued that "it is likely that the estimates provided in the research commissioned by TIGA, at the very least overestimate the impacts of introducing a sector specific incentive for the video games industry."[47]


34. Dr Wilson explained that, due to EU rules, applications would need to pass a cultural test in order to benefit from a 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.[48]

35. He also told us that TIGA:

[...] ran a test involving 18 games last year, just to see how it worked out [...] we found that out of those 18 titles, about 44% passed [...] 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.[49]


36. Several countries currently offer a tax relief for this sector, notably Canada, France and the USA. The NESTA report, The Innovation Game, looked in-depth at the tax breaks offered in Canada and France:

Montreal has a tax credit for the production of multimedia (rebate up to 37.5% on 90% of all eligible expenditure) and France has a production tax credit for cultural video games of 20% of qualifying labour expenditure for projects that pass a cultural test. France spent €170 million in 2008; Montreal spent £500 million between 2004 and 2008 (including tax credits and other grants.)[50]

37. Other countries such as Japan and Finland do not offer tax credits but do offer other financial incentives. NESTA said:

[...] many territories provide additional incentives for video games development: they entice foreign experts with tax holidays, support independent video games studios with Intellectual Property Development Funds and directly subsidise publisher investments in their territories. In some cases, such as British Columbia, they also favour investments in the sector through tax incentives for venture capitalists.[51]

38. Looking at the impact of the tax relief, TIGA note that "in the mid-1990s, Canada was a minor video games development location, only just starting to benefit from its location next to the world's largest video games market [...] by 2006, Canada had leap-frogged Britain to take third place in the global sales rankings."[52] This significant change has been attributed to tax relief.[53]


39. In 2009 NESTA commissioned It's Time to Play: A Survey on the impact of a tax credit for cultural video games in the UK development sector. The report surveyed 30 leading British video games developers, publishers and sources of funding. It found that: "most respondents to the survey believe that a tax credit for cultural games would benefit the UK video games industry in a number of ways, principally by improving growth, widening investment prospects, and supporting creativity and innovation."[54] Dr Wilson argued that: "with games tax relief in place, there are powerful incentives for overseas publishers to invest in Scotland [...] 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."[55]

Opposition to a tax relief

40. A games tax relief is not universally supported. Ed Vaizey reminded us that "not everyone in the video games industry necessarily thought the tax credit was a good idea."[56]

41. One criticism of the proposed tax relief is that it would mainly benefit large, multi-national companies, with the added risk that these companies would leave if and when the tax break was removed. Linked to this is the argument that start-up companies would not benefit from the relief. Mr Paul Durrant, Abertay University, said that "one of the challenges with a measure such as games tax relief is that it sometimes comes in a little way into the development cycle. It is a retrospective benefit that does not always bring the immediate cash-flow benefits that a SME games developer, particularly a smaller micro-business, might seek."[57]

42. It has also been argued that a tax relief would not help in either the generation or retention of intellectual property, which are priorities for the industry. In 2008, NESTA commissioned a report assessing the competitiveness of the UK's games development sector and the impact of governmental support in other countries. Their report, Raise the Game, noted that "while tax incentives have been very effective in encouraging investment into Quebec, they have not been targeted at the creation of new intellectual property by Canadian-owned studios, whose original ideas remain weak."[58]

43. The call for a games tax relief in the UK is a response to the effects of subsidies in other countries. The Minister told us that "if you take a step back to how we got in a position where we are effectively talking about tax breaks, it was all effectively down to Canada. So if Canada wasn't doing what it was doing I am not sure it would be so high on the political agenda."[59] The introduction of tax relief to compete with other countries is not guaranteed to succeed and has inherent risks. The Treasury do not think that "it is efficient on either a global or a national level to enter into economic competition [...] orthodox advice would be not to seek to retaliate simply because you get into mutually assured destruction territory."[60] The UK's fall to possibly sixth place in the global games rankings puts the country behind Japan and South Korea, both of which:

[...] are still at the top of the global rankings without bespoke, large-scale support for video games companies. German studios too have attained healthy rates of growth in spite of their government's apathy [...] towards video games. Similarly, the Nordic countries and Australia have established themselves on the global map of video games development, and attracted substantial levels of foreign investment, without the sort of measures available in Canada and France.[61]

The NESTA report, whilst generally in support of tax relief, concluded that "the tax credit is no panacea to the problems faced by the UK video games sector."[62] It was also argued that the 'cultural' element to the proposed relief could produce commercial incentives for companies to produce games to qualify for the credit instead of games which consumers wanted to buy.[63]

44. There are also concerns over the benefit of such a relief for smaller, indigenous companies, and how it would impact on intellectual property creation and the skills shortage. A tax relief is not the sole factor for investors; other cost factors and skills are also crucial elements in deciding where to locate a business. We accept that it is impossible to guarantee the impact that a tax relief would have in the UK.

Government position on a tax relief

45. Before the 2010 general election, the Conservative, Liberal Democrat, Labour and Scottish National parties all signalled their support for a games tax relief. The then Chancellor, Rt Hon Alistair Darling MP, stated in the March 2010 budget that "our creative industries are also a huge source of jobs, wealth and pride. I will offer help to the computer games sector, similar to the steps that are helping to restore the fortunes of the British film industry."[64]

46. On March 29 2010, Ed Vaizey, the then shadow Minister for the Department for Culture, Media and Sport, told Develop magazine that the Conservatives "are going to support tax breaks for the industry."[65] On April 26 he added that "we are fully behind game tax breaks. This is my unequivocal statement [...] it's been approved by [then shadow Chancellor] George Osborne."[66] On April 30, Don Foster MP, the then Liberal Democrat shadow Secretary of State for Culture, Media and Sport, said in a statement to TIGA that "Liberal Democrats support the introduction of a games tax relief. Following consultation on the details, we would implement the relief as soon as possible."[67] The Rt Hon George Osborne MP, Chancellor of the Exchequer, announced as part of the Budget on 22 June 2010 that "we will not go ahead with the poorly targeted tax relief for the video games industry."[68] On 27 October, the Prime Minister was asked why the Government reneged on their promise to introduce a games tax relief. He replied: "we had to make difficult decisions about tax relief [...] I am afraid that that tax relief, which was not particularly successful or well targeted, must go."[69]

47. We asked Mr Vaizey why support for a tax relief was expressed before the election and opinion changed so quickly after the election. Mr Vaizey replied that "to put it completely bluntly, as far as I am concerned, after the election all bets were off in terms of the financial situation and in terms of how the Chancellor wanted to approach his budget."[70] He added "do I, as a matter of principle, think that tax credits are a good thing? Not necessarily. Did I, as shadow Minister [...] take a view that we were effectively in tax competition with other jurisdictions? Yes quite possibly."[71]

48. The Association for UK Interactive Entertainment told us that "no detailed explanation has been given to date for why these tax breaks are now considered to be 'poorly targeted'."[72] In evidence, Edward Troup of HM Treasury, said "I am not sure I would say [a games tax relief] was poorly targeted. It was targeted at the video games industry."[73] We asked Mr Vaizey why the tax break was described as "poorly targeted." He replied "I can't clarify the position for you. I didn't get a chance to lobby the Treasury directly on the video games tax break. I lobbied indirectly and made my views known, but I wasn't aware the Treasury regarded the tax break as poorly targeted."[74]


49. In the 1990s the UK Government introduced a tax credit for the film industry. This tax credit currently costs £110 million per year.[75] The games tax relief is estimated to cost £192 million over five years. Although the Government decided not to proceed with the games tax relief, the film tax relief will not be abolished. When this issue was raised with the Minster, he replied "I think it is a historic issue [...] I think an existing tax credit is in a stronger position than one that doesn't exist."[76]

50. A games tax relief would cost less than the tax credit currently awarded to the film industry. The Government has tried to explain away the existence of a film tax credit in contrast to the resistance to a games tax credit as a matter of politics and history. This is a poor argument for seemingly favouring a mature industry over an emerging one. Inertia is a poor justification for the status quo. We highlight the inconsistency in the Government's approach to the two industries and draw this anomaly to the Government's attention. We believe that a cost benefit analysis should be done of the video games industry and the film industry to see which gives the better value for money.


51. A major issue regarding the Government's decision to abandon a games tax relief is that of consultation. Dr Wilson 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,"[77] and Edward Troup confirmed that between March 2010 and the June 2010 Budget, "the industry spoke to Treasury officials, but there were no meetings."[78]

52. Ed Vaizey described his job as being "to support this industry as much as I can."[79] In relation to the games tax relief, however, Mr Vaizey told us "I didn't get the chance to lobby the Treasury directly on the video games tax break. I lobbied indirectly and made my views known."[80] It appears that Mr Vaizey was not consulted by the Chancellor before the proposed tax relief was abolished. When pressed on this issue, Mr Vaizey replied "I am quite low down on the food chain."[81]

53. Prior to the general election the Conservative, Liberal Democrat, Labour and Scottish National parties supported the principle of a games tax relief. Given this consensus across the political landscape, the industry could have reasonably expected the introduction of such a tax relief, and would have planned accordingly. However, in its first budget, the Government changed its position.

54. The Minister responsible for the video games industry should make representations at the heart of Government on behalf of this economically and culturally important industry. We are surprised and disappointed that the Minister was only able to lobby the Treasury indirectly on the games tax relief. We expect the industry to be better represented in future within Government. We invite the Government to explain in its response to this Report how it will ensure that the voice of the industry is properly represented in future and give an undertaking that this experience will not be repeated.

The future of tax relief

55. The Chancellor described the proposed tax relief as "poorly targeted", prompting debate over the meaning of the phrase. The proposed tax relief was specifically targeted to the UK video games industry; in this sense, it was well-targeted. The real issue is whether the tax relief is value-for-money and would alleviate many of the structural problems in the UK sector; those being generating and retaining IP, self-publishing and aiding start-ups.

56. There are both compelling arguments for a tax relief, most notably in the lessons of the effect such a relief has had in Canada, and real concerns. The Committee is divided over the issue of tax relief for the industry and we are unlikely to come to a consensus on this issue. There is disagreement between HM Treasury and games industry representatives over the financial benefit of a games tax relief. We recognise, however, that the UK Government has ruled out a tax relief for the foreseeable future, and the current fiscal environment means this view is unlikely to change in the short-term.

57. We recommend that the possibility of introducing a tax relief be kept under review, and the health of the industry be monitored for the potentially malign effects of uneven international competition. We recommend that the Government, meanwhile, undertake a full and comprehensive assessment to determine the benefits of such a relief, as well as examining those countries whose industries continue to flourish without Government support.

43   TIGA, Investing in the Future: a Tax Relief for the UK Video Games Development Sector, August 2009 Back

44   Q 43 Back

45   Q 8 Back

46   Q 159 Back

47   Ev 59 Back

48   Q 83 Back

49   Q 32 Back

50   NESTA, The Innovation Game, Adjusting the R&D Tax Credit: boosting innovation in the UK video games industry, October 2010 Back

51   Ibid. Back

52   TIGA, Investing in the Future: a Tax Relief for the UK Video Games Development Sector, August 2009 Back

53   Q 67 Back

54   NESTA, It's Time to Play, A Survey on the impact of a tax credit for cultural video games in the UK development sector, 2009 Back

55   Q 8 Back

56   Q 205 Back

57   Q 94  Back

58   NESTA, Raise the Game, December 2008 Back

59   Q 217 Back

60   Q 162 Back

61   NESTA, The Innovation Game: Adjusting the R&D Tax Credit: boosting innovation in the UK video games industry, October 2010 Back

62   NESTA, It's Time to Play, A Survey on the impact of a tax credit for cultural video games in the UK development sector, 2009 Back

63   Ev w13 Back

64   HC Deb, 24 March 2010, col 261 Back

65   "Tories: We'll offer tax breaks in our first budget", Tuesday 30 March 2010 Back

66   "Tories: you have to trust us on game tax breaks", Monday 26 April 2010 Back

67   Ev 55 Back

68   HC Deb, 22 June 2010, col 175 Back

69   HC Deb, 27 October 2010, col 311 Back

70   Q 185 Back

71   Q 187 Back

72   Ev 49 Back

73   Q 138 Back

74   Q 186 Back

75   Q 143 Back

76   Q 202 Back

77   Q 89 Back

78   Q 150 Back

79   Q 211 Back

80   Q 186 Back

81   Q 213 Back

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