Supplementary written evidence from HM
Treasury
The Committee requested additional information
regarding the research presented to Government by The Independent
Games Developers Association (TIGA)
TIGA, an industry representative body for video
games developers, commissioned research into the impacts of introducing
a sector specific tax incentive for the video games industry.
The research estimated that, over a five year
period, providing tax relief to the value of £192 million
would incentivise an additional £457 million of development
expenditure than would otherwise have occurred. They estimate
that this will create or save 3,550 jobs and provide an additional
£415 million in tax receipts to the Exchequer than would
otherwise have occurred.
Based on these estimates, TIGA claim that the
relief would pay for itself over the five year period.
We are not in a position to assess the reliability
of the sources for the figures produced. However, we do not agree
with the validity of some of the assumptions underpinning these
estimates, nor that they represent the full (net) benefit to the
UK economy rather than just the specific benefits to the sector.
Investment
Subsidising investment into a sector (such as
games development) would be expected to attract additional investment
into that sector. In turn, this would be expected to generate
additional economic activity and employment in that sector.
Economic theory would suggest that (1) any additional
investment in the sector will be greater than the total (net)
additional investment to the UK economy and (2) that the allocation
of resources across the economy is more effectively performed
by the market, except where there is strong evidence of a market
failure.
The research commissioned by the industry implicitly
assumes that the investment incentivised by the subsidy is entirely
additional to the UK economy. In reality, it is likely that the
relief is displacing investment from elsewhere in the economy.
Therefore the net impact on total UK investment could be limited.
It is also possible that any subsidy could divert
investment away from more productive sectors, to the detriment
of the productivity of the UK economy as a whole.
Employment and tax receipts estimates
The research assumes that the additional investment
in the sector is creating additional employment and tax receipts
for the UK economy. In reality, if the investment is being displaced
from elsewhere in the economy then it is likely that the employment
created is also being displaced.
In the case of the "saved" employment,
the research assumes that individuals previously employed in the
games sector would have become economically inactive or would
have left the UK. It is likely that most of these individuals
would have found alternative employment in the UK, generating
tax receipts in the process.
Summary
Therefore, 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 tax incentive for
the video games industry.
25 October 2010
| 
