Video Games Industry in Scotland

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE    To be published as HC 500-ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE

THE Scottish Affairs Committee

Video Games Industry in Scotland  

Wednesday 20 October 2010

Edward Troup

MR EdWARD Vaizey MP

Evidence heard in  Public Questions  137 - 230

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Oral Evidence

Taken before the  Scottish Affairs Committee

on  Wednesday 20 October 2010

Members present:

 

Mr Ian Davidson (Chair)

 

Fiona Bruce

Cathy Jamieson

Jim McGovern

David Mowat

Mr Alan Reid

Lindsay Roy

Julian Smith

Dr Eilidh Whiteford

 

________________

 Examination of Witness

Witnesses: Edward Troup, Managing Director, Budget, Tax and Welfare, HM Treasury, gave evidence.

Q137 Chair: Good morning. I wonder, Mr Troup, for the record, could you just tell us who you are and what your position is?

Edward Troup: Yes. I am Edward Troup. I am Managing Director of Budget, Tax and Welfare at the Treasury.

Q138 Chair: You are aware that we are looking at the video games industry. Particularly in this session, we want to look at the question of taxation and support for the industry. Can you just start off by clarifying for us why you believe that the tax relief that was initially endorsed by all the political parties before the election was poorly targeted?

Edward Troup: I am not sure I would say it was poorly targeted. It was targeted at the video games industry. The current Government, having looked at this and having looked at its overall approach to how best to support the economy and growth, has taken the approach that, actually, the best way to support growth is through stimulating the economy as a whole by not picking particular sectors but by reducing the cost of taxation.

Chair: I understand that. We are going to see the Minister in a little while. Indeed, no doubt, somewhere he will be lurking and listening to this, I would have thought. Yes, we had noticed he is here.

Edward Troup: I think you will find he is here.

Q139 Chair: I just want to pursue with you the question I actually asked, which was whether or not this tax, as proposed and endorsed by the three parties, was poorly targeted. Can you just clarify for me who you believe the proposed tax break was targeted at and were there any disadvantages in that approach?

Edward Troup: First of all there was an announcement, as you know, earlier in the year that there would be a video games tax relief but that the details of it would be consulted on with the industry in order to get the design and the targeting right. Obviously, the General Election intervened so we did not get to the point of detailed design. We had looked at the existing film tax credit as a precedent and we had obviously seen the report from the industry.

I think what I can say is that in looking at any support like this there are problems with targeting simply because very few industries are completely hermetic and defining who should benefit from the relief and how they should benefit creates boundaries at which people who are just outside complain. So we were having some trouble working out exactly how to target it, but I think it was perfectly designable if we had continued with it.

Q140 Chair: Can you just clarify for me a little more about what were the difficulties exactly of targeting this on the industry?

Edward Troup: I am in danger of going beyond where we actually got to, but as we have seen with the film tax relief, which has taken 30plus years to develop in its current form, initial attempts to define qualifying expenditure for films ran into quite a lot of trouble. We ended up giving huge amounts of tax relief to people who invested in television series and television programmes, and it took about 30 years until we actually got back to the reforms in–I am sorry, I can’t remember exactly what year it was–the film tax industry three or four years ago.

Obviously we learnt a lot from that but I can’t say exactly how those problems would be replicated in the video games industry. Video games have some similarities to films in its production and development techniques, but it is not exactly the same and it wasn’t just a matter of taking the film tax credit and crossing out “film” and putting “video games” in. I am sorry, because we haven’t done the work in detail I can’t actually tell you exactly what the problems would be.

Q141 Chair: Can I just clarify though? Was there anything about the video games industry and its structure that makes it particularly difficult to draw up a targeted tax relief programme?

Edward Troup: I don’t think so. Any targeted tax relief is difficult to design simply because one person’s view of whether they work in this industry or that may not be the same as somebody else’s view. I don’t want to try and take parallels with other businesses but–

Q142 Chair: It would be helpful, actually, if you did. If you assume that we don’t know very much at all, which is always a good idea with MPs, it would probably help us understand the position. I see when I said that a couple of people behind you are nodding.

Edward Troup: I am glad they are being helpful. Again, you have got to realise I do not have a very, very detailed knowledge of this industry. My responsibilities extend across the whole of the tax system, so I am aware of and have been briefed on this industry but not in the details of exactly who does what.

To take an example, we are interested in other industries-and we have had representations about this before-about innovation, high-tech industries promoting high-tech activities. If I say to you a “high-tech industry”, you probably think as I do, of my iPhone or whatever it is but, often, what actually adds value to these things are rather odd products like the kind of glass they use in the screen or the little plastic switch or something. Whoever is working designing better plastic switches or better glasses for screens wouldn’t necessarily see themselves as being part of a high-tech industry if a minister stands up and says, “We are going to have a tax relief for high-tech industries.”

As I say, I have not been into the details of exactly how the video games industries work, but there will be problems of that kind; there will be the issues of people writing little bits of code and the artists who are providing support. Do these benefit from the tax relief or not?

I don’t want to overstate the problems because I am quite confident the Treasury and my colleagues in Revenue and Customs would, if given the chance and given the remit, be able to write a set of rules, as they have for the film industry, which define the relief. So I am sure we could do it. Whether everybody agreed that was well targeted I couldn’t say.

Generally, what has happened with all of the reliefs that we have introduced over the years is that at the boundary the people who are just outside come back and say, “It is not very well targeted. You have overtargeted it. You have missed me out.” I am sure exactly the same thing will happen here. But this would be possible. We could do this if we wanted to. There would be issues; there would be boundary issues, but it would work.

Jim McGovern: A good Scottish surname, Troup.

Edward Troup: It is, indeed. There is a Troup tartan I am told, but I don’t possess any.

Jim McGovern: I think it originates in Forfar.

Edward Troup: Yes.

Q143 Jim McGovern: With regard to the comparison that you mentioned about the British film industry, are you aware that the games industry generates as much for UK GDP as the film industry? The film industry gets some £110 million a year tax relief.

Edward Troup: I don’t want to sit here and do too much of a classic Treasury thing of bandying figures around, but I am told that the video games industry, based on 2008 figures, contributed £386 million to GDP. I am told that the film industry, based on 2009 figures admittedly, contributed £4.5 billion.

Q144 Jim McGovern: But you don’t want to quote figures?

Edward Troup: I don’t want to bandy figures around. I am very happy to quote them. That would suggest the film industry does contribute 10 times as much to GDP as the video industry. Obviously, we would love the video games industry to contribute 10 times as much because that would be very good for the economy.

Q145 Jim McGovern: I would certainly appreciate if you would forward those figures that you didn’t want to quote to me?

Edward Troup: I am happy to quote them. I don’t want to enter into a sort of, “My figures are betters than yours”.

Q146 Jim McGovern: Part of the problem, certainly with TIGA, the games association representative, is that prior to the General Election the Secretary of State for Scotland visited Dundee, the Chancellor visited Dundee, a Minister from BIS and a Minister from Culture, Media and Sport. Following these visits, the then Chancellor, Alistair Darling, announced tax breaks for the computer games industry. Between March, when that was announced, and June, when we were told it wasn’t going to happen, there seemed to be no consultation whatsoever. Have you any idea?

Edward Troup: I know that you met the Exchequer Secretary, David Gauke, last week and I am sorry I couldn’t be at that meeting. I think you did raise this with him and I believe that he told you that the Treasury and Treasury Ministers had to put together the June Budget obviously in less than 50 days–47 days, I think it was–and that clearly limited the time available for consultation. But there were meetings with officials during that period, I believe.

Q147 Jim McGovern: Officials of?

Edward Troup: Let me just check, but I believe that the games industry met with officials in BIS and DCMS. I am not sure that they met during that period with officials from the Treasury, but obviously we had had a number of meetings over an extended period with representatives of the industry. So while there wasn’t full consultation there were-

Q148 Jim McGovern: Can I just clarify that between March and June meetings were held with officials from the games association?

Edward Troup: Let me not go on the record and say that definitely happened, but I do recall being told there had been meetings. I am not sure that, in a sense, it really alters the point that David Gauke made to you that, actually, we had to put together the Budget for June at very short order.

Q149 Jim McGovern: What David Gauke said was that there wasn’t time to have many meetings. I said, "Did you have any meetings?", and he said, "No."

Edward Troup: No. I have just been handed a note. There were conversations with Treasury officials after the election but there were no actual meetings.

Q150 Jim McGovern: Treasury officials and whom?

Edward Troup: The industry-representatives of the industry. I have not got the names and details but I am told there were conversations. The industry spoke to Treasury officials, but there were no meetings.

Q151 Jim McGovern: We have already heard from the Chair that both parties who are now in the coalition had said prior to the General Election, "We support tax breaks for this industry". Why was it scrapped?

Edward Troup: What members of the current Government said before the election I think is something you must take up with them. In terms of the reasons why it didn’t go forward, again, David Gauke, I think, when you saw him last week, said the Government wasn’t keen to extend the number of reliefs in the tax system unless there was strong evidence of market failure. There had to be strong evidence to support any intervention. As I said at the beginning of these comments-

Q152 Jim McGovern: Presumably, these decisions are made on advice from people like yourself?

Edward Troup: Indeed.

Q153 Jim McGovern: Do you believe this sort of one size fits all? Do you think that is appropriate?

Edward Troup: My and my colleagues’ role is to give advice. I think we set out and the question of what advice we gave is a matter between us as Ministers, but there are clearly choices between selective intervention to industries and an approach which seeks to create the conditions for growth more widely in the economy. This Government has been clear that it is more in favour of the latter than the former, but I do think this is a question of direction of choice rather than, “We are definitely only doing this and definitely not doing that.” But in this case the view, as I have said, was as expressed to you by David Gauke last week.

Q154 Lindsay Roy: Good morning, Mr Troup. Can you tell us how you have made the SMEs aware of different schemes where additional finance might be forthcoming to support them?

Edward Troup: Sorry, tax schemes or business finance schemes?

Q155 Lindsay Roy: Tax schemes and additional finance.

Edward Troup: Right. I think you probably need to ask representatives of the Business Department about business finance schemes because it is not the Treasury’s role to communicate business finance issues to individual businesses. But, obviously, there is an extensive Government network and there have been a number of bodies around the country sponsored by BIS as well as the Department itself which communicate and manage the various business finance schemes.

So far as tax schemes are concerned, if we have a tax relief, again the Treasury doesn’t go out and advertise to taxpayers. But once the Government has decided that it is going to introduce a particular scheme it is obviously very keen that one way or another that is communicated to those businesses or individuals or whoever it is who may take benefit of it.

In some cases that may be down to HMRC and so in a number of the reliefs that are available, the availability of-I don’t want to pick examples but HMRC have had advertising schemes which have effectively notified individuals of their entitlements.

I think I am right in saying that in relation to business schemes there has been a greater degree of reliance on the tax agents and the accounting firms as a network for promulgation of the existence of tax schemes. There is quite a healthy relationship there because it doesn’t cost Government anything and, generally, the professional firms are very keen, by way of their own advertising, to go around telling their clients that this scheme or that scheme exists, to mailshot everybody in the film industry and say, “Are you aware that this tax relief exists?” So, actually, the market is quite efficient at transmitting the details of tax schemes out to businesses when they exist.

Q156 Lindsay Roy: So the responsibility doesn’t lie with you in terms of advertising. What about the monitoring of uptake? Is that a role that you have? If the uptake is small, what action do you take to try and address that?

Edward Troup: Let me take that in two parts. First of all, the monitoring uptake is done principally on tax schemes through Revenue and Customs, through their own data collection and obviously with, I am afraid, something of a time lag, because of the nature of the business tax return cycle. HMRC will collect data on particular schemes from the corporate tax returns of companies and the selfassessment returns for unincorporated businesses. Those are all collated together. Again, I think you will have to ask BIS how they collect data on business finance schemes, but it does happen.

So far as tax schemes are concerned, yes, we do monitor them. First of all, there is what I might call the crude monitoring of just working out how much they cost each year and we do publish, on a regular basis, the cost of individual tax reliefs. It has not always been published every year but I think it has for the last few years so that we do know how many businesses benefit from any particular scheme and what the cost is.

At a policy level at the Treasury, with the teams that I am responsible for, we do seek to keep all of the tax reliefs under review. Clearly, the amount of resource and effort we can put into reviewing any particular scheme does depend both on ministerial priorities and on our own resource, but we would seek to keep an eye on the schemes and see whether they were continuing fit for purpose. I suspect it is probably the case that existing schemes are not being withdrawn as quickly as perhaps they should be when they have fulfilled their purpose or failed to fulfil their purpose, but Ministers do come back and look at schemes pretty regularly on the basis of our advice, which ultimately is driven by the data from HMRC.

Q157 Lindsay Roy: There is a purpose to monitoring. If the monitoring indicates a low uptake what action do you take in relation to advice to the Treasury?

Edward Troup: Again, the question of our advice is between us and Ministers. But if you look back at the historical record and see what has been done with schemes, there have been two approaches generally. There has been an approach that, where there has been low uptake of a scheme and the evidence shows that actually it wasn’t fulfilling its purpose, it would just be withdrawn on the basis that it wasn’t doing what it wanted to. Generally, when that has happened–and, again, I don’t have any specific examples in my mind-Ministers have been keen to find some other way of pursuing the policy end because the policy objective has remained good.

The other approach-and there are a number of examples of this-is where the schemes have been tweaked, where if the scheme has not succeeded at first then, on the basis of advice from ourselves and HMRC, some expansion of the scope of the relief or change of the qualifying criteria has been made to increase uptake.

Q158 Lindsay Roy: Finally, how do you know it is not fit for purpose, for example, just where advertised?

Edward Troup: I think there are two points. Generally, most tax schemes people do know about one way or another for the reasons I have said, although there is evidence that there are businesses who are unaware of some reliefs. The question of whether it is fit for purpose, in a sense, probably brings us back to video games. Does the analysis show that the impact on business behaviour and activity, investment, employment, whatever it is, first of all exists, that it is material and it represents good value for money, against the criteria which Ministers may want to apply? Of course those criteria may change from time to time.

Q159 Mr Reid: Before the decision was taken were any calculations done as to how much the tax relief would cost and, also, how much extra income would come into the Treasury because of people who would otherwise not be working in the industry, working in the industry and paying taxes?

Edward Troup: On the first part of that question, you will have seen from the Budget book in March that we had estimated £50 million a year as the cost of the relief. I don’t have in front of me the details of how that was calculated, but I think it 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-and, obviously, I have seen the analysis which the industry has put together-is more difficult. I think we do take issue with some of the claims there.

I think, without getting into numbers, this is about what happens if you create a job. Particularly if you create a job with an individual who has graduate-level skills, that person may, immediately before he or she got the job, have been sitting at home looking for a job, but if that job had not been created, you would have to say, what would have happened? Would they have spent the next two, three, four, five years sitting at home wondering where their job was going to come from? Of course the answer is generally not. They would have gone and got a job somewhere else, a different job, possibly a lower paid job, possibly a better paid job. But unless they left the country or stayed permanently unemployed they would have entered the labour market, they would have started contributing through PAYE and National Insurance and we would have had tax revenues from their activities. So it is simply not right to say that, if we introduce a tax relief or indeed give a cash subsidy and it creates 100 jobs, the revenue which is directly attributable to those jobs is additional cash for the Exchequer.

Q160 Mr Reid: That is right but in this case, as I am sure you are aware, TIGA assume or are alleging that these are trained people who are moving to Quebec because Quebec gives a very high level of tax relief. Have you done any surveys, any analysis, to work out how many people would leave the country if you don’t give the tax relief?

Edward Troup: No. This is an extremely difficult question to answer. This is not the only industry or the only circumstance in which claims are made that we need to provide support because otherwise we will lose talent to the UK. The approach the Treasury takes is both looking at the micro-economics, looking at the details of industry, but obviously we have to look at the economy overall.

Part of the assessment of how much revenue we are going to get in total and from individual taxes does depend on assumptions or forecasts about employment, about migration. We can’t, in a sense, start adjusting our forecasts because we say, “Oh well, we think this might keep 50 people or 100 people from leaving the country.” It is the aggregate level of employment in the UK and migration to and from the UK which ultimately drives our view on tax revenue.

So, although I am perfectly prepared to believe that you could find an individual who would say that his or her choice would have been different and they would have left the country, it is extremely difficult for us. It is impossible for us, effectively, then to say, “Oh well, that makes it worthwhile because this is part of a much larger aggregate picture of employment and migration.”

Chair: I wonder if I could ask if you could keep your answers a little shorter because we are obviously trying to get through. We have in the past had people-witnesses-who have tried to play with a straight bat as long as possible. I am not suggesting for a moment-

Edward Troup: I am here as long as you want me for.

Chair: Fine. I have got something on at 7, so we are hoping to reach the Minister before then.

Edward Troup: I will need the Domino’s Pizza’s number if you are going to go on that long.

Q161 Mr Reid: Have you done any studies of how many people who were working in the UK games industry have moved to other tax jurisdictions with games tax relief?

Edward Troup: No, we don’t have the resource to do that. Obviously, we have seen the industry information.

Q162 Mr Reid: Just a final question, on a point of principle, if another tax jurisdiction puts in a tax relief that attracts people away from the UK, should we retaliate or should we just ignore it?

Edward Troup: I think that is a wider policy question. We do not think that it is efficient on either a global or a national level to enter into economic competition. The principles of free trade and good economics would say that, actually, resources should be allocated to where they can be most efficiently used and that is in everyone’s interest. So if another country seeks, through tax or cash subsidies, to attract business, this is not something which we would favour.

It is a policy issue for Ministers but, certainly, I think the Treasury orthodox advice would be not to seek to retaliate simply because you get into mutually assured destruction territory. Where do we stop?

Q163 David Mowat: TIGA last week said to us-and the numbers I think are consistent with what you said-that the cost of the tax relief was £192 million and it would create 3,500 jobs, which on the face of it is quite expensive; it is £60,000 a job. They also said, though, that there would be consequential revenue of £400 million. They actually said those numbers were broadly agreed with you. I guess what I am hearing is that the revenue one is the one that is more difficult to have a view on.

Edward Troup: I am afraid we don’t agree those numbers. I know that they have said in public that we have agreed those numbers. We haven’t agreed those numbers.

Q164 David Mowat: Okay. So those are their numbers?

Edward Troup: Those are their numbers. I recognise their numbers and I understand their methodology, but we disagree with it.

Q165 David Mowat: I guess my question then is, what is it about the film industry that, in your view, means they should have a tax credit-a tax relief in this way-that does not apply to the video games industry?

Edward Troup: I think that is a difficult and interesting question. First of all, the film industry, of course, has had support from Governments successively over a very extended period of time. It is an interesting question as to whether, if there were no relief for the film industry anywhere in the world, the Government would seek to introduce it. So, to a certain extent, this is something which has built up over time. Whether it leads to better outcomes for the global film industry I am not sure. It definitely does support the UK film industry in a world in which other Governments worldwide do give support for their own film industries.

Q166 David Mowat: That argument cuts just the same way as for video games, doesn’t it? Your first point in respect of the film tax credit was that it has been there for a long time. That doesn’t seem a brilliant argument.

Edward Troup: The UK does have critical mass of infrastructure and creative and technical expertise in the UK to support the film industry. There is a very strong cultural element in the British film industry, as there would be required to be for any video games support. So I do recognise that they are in the same space, but I think I will probably just go, again, back to my opening answer and say that the Government is making choices about new reliefs and its choice on this is that it doesn’t feel there is sufficient evidence of market failure to justify intervention.

Q167 David Mowat: You did say earlier that your group in HMRC was responsible for looking at the efficacy of tax systems, withdrawing them or adding new ones?

Edward Troup: Yes.

Q168 David Mowat: So, that being the case, it would seem that it is slap bang in the middle of your responsibility to understand the distinction between the video games industry and the film industry and what it is that makes one worthy of Government money and the other not.

Edward Troup: I think two things. First of all, the film tax relief, which has had a long and slightly chequered history, is now only costing the Exchequer about £95 million or £100 million a year. It is supporting an industry which, as I say, contributes £4.5 billion to GDP. So in terms of what the relative cost of this relief is and therefore if Ministers asked us, “Should we get rid of it?”, we would say, “Actually, it is pretty cheap.”

The second thing, as I say, is that this has been in the landscape for a very long time and the global film industry is adapted to and, in a sense, is slightly dependent on the existence of tax reliefs around the world.

If you are asking me is that where we might be with the video games industry in 20 years’ time, that is an interesting question, and how Government would respond if every other country in the world in 20 years’ time was supporting a video games industry with massive tax and cash subsidies, I think would probably be quite difficult for Ministers. But at the moment both the global framework and the cost-sorry, the Chairman is trying to stop me-don’t make this worthwhile.

Q169 David Mowat: Just finally then, the fact that we are discussing both of these industries, is the reason that their tax relief is even considered principally because the industries are very movable and therefore the revenue can just move, or is it because there is a cultural element here that somehow we perceive as being a good thing to have them done in our country?

Edward Troup: I think what I would say is that sitting where I am, an awful lot of industries come and see my teams and argue for tax relief-really an extraordinary number of industries. I have just come from breakfast with senior representatives of the property industry who think we should reinstate empty property relief. We have had quite a lot of lobbying about that and I am sure Members here have had lobbying on all sorts of things.

I think what is different about this is that this is quite visible. Whether that is a tribute to the industry and its ability to mobilise public and political opinion behind it or whether there is some intrinsic difference in this industry I don’t know. But, certainly, sitting where I sit and seeing a whole lot of papers and notes and submissions coming across my desk, actually there isn’t much to distinguish this from other industries who claim that talent is going abroad, that investment is needed here, that tax relief is the answer. This is a good report, but, to be honest, there are other industries which if you substitute their name for video games in this report it wouldn’t look that different.

Q170 David Mowat: The difference is, though, the cultural element, isn’t it? What I was just trying to get to is why films got it in the first place because it was perceived to be good to do these sorts of things, whereas property isn’t so sexy in that regard?

Edward Troup: It could well be. Obviously, in a sense, the cultural thing has now got tied up with the fact that within EU rules we can’t give any tax relief for a specific sector unless it falls within one of the exceptions of which a cultural element is one. So it is difficult to say whether that has driven the claim for relief or whether the shape of the relief has been driven by the EU State Aid Rules.

Q171 Dr Whiteford: Thanks very much and thanks for being with us this morning, Mr Troup. You are probably aware that Troup is part of my constituency in Banff and Buchan. Troup Head is an important nature reserve.

Edward Troup: Excellent. My father has a photograph of himself at Troup Head.

Q172 Dr Whiteford: I am conscious of time, so I will just try and restrict myself in my questioning. In reaching the decisions to back away from a tax relief system that was backed by all the parties prior to the election, were any direct comparisons done with the tax regimes in the countries that are direct competitors in this sector, particularly France and Canada?

Edward Troup: First of all, I have to go back to the point that the advice we have given to Ministers is advice we give to Ministers. But, obviously, in doing our own analysis, hence I think you would be entitled to assume in giving our advice we have looked very carefully at the global position and we are very aware and obviously the industry has been very good at pointing out what reliefs there are in Canada, bits of the US and, to a limited extent, in France. So, yes, we have done the comparisons and I know Canada stands out.

It is quite interesting in relation to Canada that they first of all have a Corporation Tax rate which, although they are bringing it down, is very much higher than ours; and they do have much more of a culture of giving certainly at a province level tax relief for all sorts of things, some of which are quite unusual, like processing pig manure and things like that. So there is a different economic approach.

Again, coming back to my opening remarks, the Canadians appear to have taken more of an approach of more selective tax reliefs, rather than a broader approach to supporting growth, at least in relation to these industries.

Q173 Fiona Bruce: I just wanted to tease out some further detail regarding some of the points raised earlier and, really, compare and contrast this proposal with some funding that Ed Vaizey has recently announced only this year for Abertay University to boost the Scottish video games industry and really look at whether we can honestly say that this games tax relief would be value for money when you compare it with how we could use other public funds, say, for that scheme.

I am interested that you say the figures that we were, I think, rather confidently given by TIGA are perhaps questionable. They say that the games tax relief would cost around £192 million and would create or save around 3,500 jobs. What you are saying is that to look at the creation or saving of those jobs without looking at wider economic indicators, like other jobs that they may be able to fall into, is really not something that can be confidently forecasted. That is interesting because, when we look at the figure of £60,000 per job which that scheme would create, that is a very high figure. What you are saying is that that is based on unreliable indicators in the first instance.

Comparing it with the Abertay University scheme, we had a witness at our last hearing from Abertay, a very senior representative there involved in training young people in computer skills and also in the pilot projects that they undertake with small businesses in the area which they bring into the university. So they are crossfertilising skills. They are not just providing, if you like, cash benefits. They are really building skills into our young people in the next generation.

Now, the witness there said that for the £2 million which has been announced will be given to boost the Scottish games industry through the Abertay University training, they are confident-and we are looking at a professional who has been working in the field for many years, working with small businesses, so indigenous businesses-they will create 400 jobs. That is £5,000 a job. Mr Chairman, you will be very relieved to hear that actually I am only asking for a very short answer.

Chair: Right.

Fiona Bruce: Can we honestly say that the games tax relief is value for money when you look at how we can use funds to promote our indigenous businesses in this field in that way-£60,000 a job on unreliable indicators; £5,000 a job to the professional training?

Edward Troup: I did see the evidence from last week and I thought it was very interesting. I am not an expert in these areas, but it did seem to me that this was quite an impressive return for money and Mr Vaizey may want to say something about it. But if the question is do I agree, from a Treasury perspective, that £5,000 a job is better value than £60,000 a job, even if I accepted that number, did I think that was a good thing, I would say, yes, it sounds like better value for money.

Chair: That was a surprising answer.

Fiona Bruce: Thank you. That is all I want to ask.

Q174 Cathy Jamieson: I just wanted to pick up on a couple of points in relation to some of the crossdepartmental work that is potentially going on in relation to this because the written submission came from DCMS and BIS talking about consulting around a review of taxation of intellectual property, additional support for research and development, tax credits and a whole range of things as a result of the Dyson review. I just wonder, who is actually in the lead on all of that currently? What discussions are already under way with the Treasury and when do you think that is likely to come to a conclusion and make a report?

Edward Troup: The taxation and intellectual property review, as with all tax matters, is very much a Treasury lead. We are hoping to get something out on that quite soon. I am sorry, I don’t think we have a date, and I certainly don’t have the date with me. As I think you said, certainly it is the case that we are looking at R&D tax credits as part of that.

In a sense it comes once again back to my opening point of actually providing a broader stimulus to support intellectual property and intellectual development in the UK across industries. I think, of the R&D tax credit, in the most recent year for which we have got data, about £50 million of the £700 million or £800 million of support went to software development. So it is not as if the industry isn’t already able to access some support. But we do see this as an important broader plank in supporting a whole range of industries but particularly in the intellectual property field.

Cathy Jamieson: In view of time, Chair, I will leave it at that.

Q175 Julian Smith: Can I ask you a bit about your calculations or the Treasury’s calculations of the three general fiscal announcements that were made for small business in the Budget, so specifically the cancellation of the previous Government’s jobs tax, reduction in Corporation Tax and the NI holiday for businesses outside London in the regions and what benefits those general fiscal decisions have made on this industry?

Edward Troup: Obviously, I can tell you what the aggregate figures were for the amounts of money involved in those, but I can’t tell you how those break down for this particular industry than I am afraid I could for any other industry of comparable size. The industry is probably better able to answer that question than I am, so, no, I don’t have those figures.

Q176 Julian Smith: But you would confirm that for an industry with quite a large number of new start-ups this might have some benefit?

Edward Troup: I would expect them to benefit. Indeed, once again back to my opening point, there are a number of measures which the Government have taken through National Insurance, through Corporation Tax, through the NICs holiday for startup businesses, which are generally applicable to the whole range of businesses and which this industry, along with any other growing or existing business, can benefit from.

Q177 Julian Smith: Just in terms of international competition, would you confirm the information that we have had? You talked about Canada having reliefs for this industry but, actually, large gaming markets such as Japan and Korea don’t have any. Can you confirm that?

Edward Troup: As far as I am aware there is no tax subsidy in either Japan or Korea, although I have read that Korea do provide cash subsidies to their industry, but I do not know if that is the case. I am not aware of any Government support given in Japan.

Q178 Julian Smith: The final question was, really, on the recent change in IP tax relief. There has been a bit of a relaxation on that for companies that aren’t owned in the UK, which I think came in the second Finance Bill. I just wondered if you had any comment on that.

Edward Troup: This is getting into a level of detail I don’t have the answers for. I am aware there was some change. I don’t think it has any direct impact on this industry, but it may do.

Julian Smith: Thank you.

Q179 Chair: Thank you very much. Can I just ask, before I ask my colleagues if they have any other questions, if there is any information or figures that you think might assist when we are producing a report that would help illustrate some of the points that you have produced? I take the point that we don’t want to bandy figures, but if we are adding figures to a report that help make points then that would be useful. So if there is anything, upon reflection, you would like to let us have after this, could you do so?

Edward Troup: Yes. I did note there was a question as to whether we wanted to put a written note in. Can I confer with my colleagues and actually have a word with David Gauke to see whether he would like to back up any of the points he has either made to Mr McGovern in meetings or I have made with a further note?

Chair: That would be helpful. Jim, you wanted to make another point or ask another question?

Q180 Jim McGovern: Two points actually, Chair. I have been in regular contact with Richard Wilson, who is the Chief Executive of TIGA. Although quite a few of us here have said we don’t want to bandy figures about but have then gone on to do so, is it fair for me to go back to Richard Wilson and say, "Mr Troup disagrees with your figures. They are inaccurate."?

Edward Troup: Absolutely; no, completely. Let’s be clear. I am not saying his calculations are arithmetically wrong. I am saying that the assumptions on which they are predicated we would disagree with. I have not checked it myself but I am sure the arithmetic is fine, but 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.

Q181 Chair: Perhaps it would be helpful if you just let us have a note indicating which of his assumptions you believe are wrong and how, in order that we can just have a more informed debate going forward. I think that might be helpful.

Edward Troup: If you are asking for a note to explain the point that I have made about displacement and dead weight costs of tax incentives, I am very happy to do that. My colleagues are probably blanching behind me because they are going to have to write it.

Chair: That will teach them to nod earlier on when I was saying that Members don’t understand very much.

Q182 Jim McGovern: On the second point, I take issue with what you said earlier on that if someone doesn’t get a job in the computer games industry will they sit in the house for five years doing nothing? No, they will get another job.

I am obviously an MP for Dundee. In recent years, it has been transformed. It now regularly comes in the top 10 of the knowledge economies throughout the world. I would take issue with what you have said and I would actually quite resent it. If they don’t get a job in the computer games industry they can go to McDonalds or Tescos or B&Q and get a job. Is that what you are saying?

Edward Troup: No, I am not saying that. I don’t want to get too much into the details of where the graduate market is now at the moment, but the historical evidence is that graduates do find graduate-level jobs in the main. They do sometimes have to move location in order to find those jobs.

Q183 Jim McGovern: To Canada or somewhere?

Edward Troup: The evidence is there has not been mass emigration of graduates. They have found jobs. I don’t have any evidence on internal migration. One of my sons has just graduated, was at a graduate fair yesterday and is looking rather alarmed about the prospects, but he is quite prepared to move to wherever a job is and I am confident he will find a job. I think that applies to a graduate who would otherwise have been employed in the video games industry if they didn’t get the tax relief.

Chair: Okay. Can I thank you very much for coming along to see us? We have finished bang on time. Thank you.

Examination of Witness

Witnesses: Mr Edward Vaizey MP, Minister for Culture, Communication and Creative Industry, Department for Business, Innovation and Skills, and Department for Culture, Media and Sport, gave evidence.

Chair: Minister, if you are ready, we could just make a start. Can I thank you very much for coming along to the Committee today. The light isn't shining directly in your eyes, is it?

Mr Vaizey: It does feel a bit like an interrogation, Mr Chairman, but I am not giving anything away.

Q184 Chair: If you move that way it will shine right in your eye. That’s excellent, excellent. Thanks very for much for coming. Could I start off just by referring to various quotes that we have had from the industry. We are told that on 29 March you, then the Shadow Cabinet Minister, told Develop that the Conservatives "are going to support tax breaks for the video games industry" in the Conservatives’ first Budget. On 26 April, he added: "We are fully behind game tax breaks. This is my unequivocal statement." He said: "It’s been approved by George Osborne." Then we have quotes from Don Foster saying something similar. What changed between those statements being made prior to the election and the announcement that you were not going to proceed with games tax relief?

Mr Vaizey: Not wishing to obfuscate right from the first off, that is a question for Treasury Ministers because obviously George Osborne, the Chancellor of the Exchequer, took a view in terms of his Budget about what was the appropriate way forward. Reading, as it were, between the lines, my view is that the Chancellor took a view that in terms of the business support package he was putting together in the Budget, which covered all business sectors in terms of reducing business taxation, the holiday on National Insurance contributions and not putting forward the increase in National Insurance contributions, he was creating an environment which was a good place to do business whether you were in the video games business or in the widget-making business or whatever and that he didn’t therefore want to proceed with a specific sector tax break.

I think one Government insight perhaps into the Treasury thinking from the earlier evidence of Mr Troup is where he said, of course, that many different industries put forward their case for a tax break and I think therefore the Treasury took a view they were looking at the bigger picture. I think, if one is talking about the politics of this, you look at how the coalition Government has approached various issues. There are certain policies that they put in place since the election and certain policies they haven’t proceeded with because of the nature of the coalition Government and the changed circumstances.

Q185 Chair: I understand some of that, but the difficulty that I have is that the quotes we have been given said that you-not as the Treasury Minister but as the Shadow Cabinet Minister for this industry-said that you were going to do it and you said that George Osborne was on board for it.

I am not clear, from your answer, why that was said then and then changed afterwards. Do you understand what we are searching for and why the industry is unhappy? I want to come on later on as to whether or not it was the right thing to say but, as my children used to say to me, “But you promised”. I think there is a feeling from the industry that this was promised and they don’t quite understand why the promise was broken, particularly since both partners in the coalition said that they supported a games tax break.

Mr Vaizey: I think that is the key point. Don Foster made similar quotations and again had a similar assurance in terms of the Liberal Democrat position, although I don’t believe that a video games tax break was specifically in the Conservative election manifesto. I couldn’t speak for the Liberal Democrat election manifesto. But, 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.

I think they felt that they were approaching things afresh, both in terms of the Budget deficit, what they could afford, but, also, the bigger picture in terms of the fiscal support they wanted to put in place for business as a whole. So the Chancellor took that decision and that was absolutely within his right to make that decision.

It may be that we can revisit a video games tax break in the future. I heard Edward Troup mention a timescale of 20 years; it might be shorter than that. I am not trying to dodge the question, but I think the Chancellor is entitled to make a decision when he is putting together his Budget. I think there were things we would have liked to have done in the runup to the General Election that just simply proved impossible after the General Election, looking at the state of the public finances but also looking at the approach the Chancellor wanted to take going forward.

Q186 Chair: In your last answer and the last couple of clauses there are almost two separate things. The one I want to pursue just now is: was it badly targeted? Was it the wrong thing to do? I understand your point that financial circumstances meant there were a whole number of things junked.

What I am not clear about is that the argument also seems to be being put forward that this was badly targeted. In a sense, that is almost a criticism of the promises that were made beforehand because I don’t know whether or not, once you got into office and once you found support from the Treasury and so on, things were then revealed to you that indicated that this was not such a good idea as you had previously thought. That is a different defence from the defence of saying, “The economic situation was so poor that we couldn’t possibly do it.” Can you just clarify the position for us?

Mr Vaizey: 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. So I can only really extrapolate in terms of why they decided to describe it as poorly targeted and that would probably be unhelpful.

Q187 Chair: So, from our perspective, the relevant Minister dealing with the cultural industries still takes the view that this was adequately targeted, but, as they were a bad boy, they did it and ran away?

Mr Vaizey: No. My view on tax credits is more nuanced than that. If you start, as it were, from the beginning, do I, as a matter of principle, think that tax credits are a good thing? Not necessarily. Did I, as a shadow Minister and Don Foster as a shadow spokesman for the Liberal Democrats, take a view that we were effectively in tax competition with other jurisdictions? Yes, quite possibly.

What would a tax credit bring in terms of the video games industry? I think it is very important to be clear on a number of points. First of all, it could act as a stimulus to inward investment. It wouldn’t necessarily support, as it were, the indigenous British or, indeed, Scottish video games industry. It might attract foreign investment from foreign companies.

The Treasury, I think in its written evidence, has indicated that in a sense one is in a never-ending spiral at that point, that if you introduce a tax credit then someone introduces a better one and you are under pressure to introduce even more. It was certainly never my view that we could ever match, as it were, the kind of generous financial support that the Canadians give to their industry and they have clearly made a decision that they are going to try and attract as much of the video games industry as they possibly can.

The tax credit was there as a potential stimulus to inward investment but there is also a recognition that, for example, Germany, which has a growing and successful video games industry, doesn’t rely on a tax credit and that Japan and apparently Korea as well don’t.

I am now in a position, given that the Chancellor has now made his decision in terms of the tax credit in the light of whatever circumstances were presenting themselves to him when he was presenting his Budget, to look at whether there are other ways in which I can support the video games industry.

Q188 Jim McGovern: Obviously you heard what was said previously, so you will have heard what I said about consultation prior to Alistair Darling’s announcement to proposed tax breaks for industry. Numerous Government Ministers visited Dundee to see for themselves what the industry involved. The main gripe of TIGA was that prior to the Budget in June no consultation took place prior to the decision to withdraw any tax breaks. Could you explain why there was no consultation?

Mr Vaizey: I don’t think there was time. I think that the last Government came very late to the conclusion that a tax credit was, from their perspective, the right way forward. You will have seen the statements made in various Budgets and preBudget reports by the last Government in the runup to that, initially ruling it out, making sceptical noises and gradually moving towards that position.

I personally find it slightly frustrating that the last Government came to that conclusion in its last Budget at a point where it seemed likely it wasn’t going to be in a position to see that through after the election. I don’t think that there was-

Q189 Jim McGovern: Why did it frustrate you?

Mr Vaizey: Because I felt that if they had been serious about the video games industry and the video games tax credit they would have been putting this through two or three years beforehand, rather than in a last-minute Budget before a May election.

Q190 Jim McGovern: But you supported it?

Mr Vaizey: You heard the quotes from me, absolutely. In terms of what was an emergency Budget of the Chancellor in June, he had 50 days to put together an emergency Budget which, from his perspective, was about stabilising the public finances and putting in place longterm measures to support British business. So in that sense he would have been superhuman, I think, to have had the chance to consult in detail on a video games tax credit.

Q191 Jim McGovern: Thank you. When you say that the Government’s view is that a cut in Corporation Tax and National Insurance etc. is the way forward, do you actually believe that there is no case to say that specific industries need specific help?

Mr Vaizey: I look after a range of different industries in my position as minister for the creative industry. I always look ruefully at some of, as it were, the heavy manufacturing industries that still, I think, get a lot of political support. One looks at things like the car scrappage scheme from the last Government. I am therefore happy to go in to back what perhaps have been seen as frivolous industries like the fashion industry, which I think is absolutely incredibly important to the success of this country. So if you are asking me should the creative industries receive the same amount of attention and support from Government as perhaps manufacturing industry has in the past, then of course I absolutely agree with you.

From my perspective I think that as the Minister for the video games industry my job now is to make sure that existing Government schemes are tailored or tweaked to support so that the videos games industry can have access to them. So, for example, we have been talking about R&D tax credits. There is going to be a review of R&D tax credits. So I regard it as my role to try and ensure that that consultation takes into account the needs of the video games industry.

We are going to look again at the Enterprise Investment Scheme and venture capital trusts. So, again, I want to make sure that the video games industry is able to access those schemes without too much burden.

Q192 Jim McGovern: Finally, as I said earlier, numerous Government Ministers prior to the General Election came to Dundee to see Abertay University and to see what the computer games industry involves. Unfortunately, the public perception in a lot of cases is that they think of young lads sitting in front of computers playing at APB or Grand Theft Auto but it has, actually, massive implications for medical research and medical science. So would you be prepared to come to Dundee to see for yourself and possibly go back to your Government and ask them to reconsider tax breaks?

Mr Vaizey: I think I am coming on 3 February and I think I am taking David Mundell with me.

Jim McGovern: Oh right. That’s bad news.

Chair: Moving on. Lindsay.

Q193 Lindsay Roy: I want to focus on the talent pool. Would it be fair to say that the lack of tax relief was compensated by the project investment in Abertay? Was that a deliberate decision so to do? It has been broadly welcomed and is, I think, a recognition of the pioneering role of the university. What, in particular, secured that investment for Abertay?

Mr Vaizey: I think that it was an opportunity for me. I think the grant had been considered under the last Government. It didn’t come out of the blue and it was an opportunity for me to confirm it and take it forward. It also included grants to MediaCityUK in Salford. We have also given money to Bournemouth University as well. I think direct funding of incubators and areas where video games companies get a chance to prototype their models and development is a good way of supporting the video games industry.

I think, again, what the industry wants is to see active Government investment in key areas, particularly skills, but also in, effectively, research and development. Again, we shouldn't lose sight of that and when we look at the competing jurisdictions it is not necessarily just tax breaks that are attracting companies or helping the development. It is straightforward financial assistance.

I certainly think we need to look, as the landscape emerges in terms of local enterprise partnerships and so on and regional growth funds, at how we can also use that to support the video games industry.

Q194 Lindsay Roy: I think all universities will say they are the greatest thing since sliced bread in terms of particular initiatives. Can I probe you further about what in particular secured the investment for Abertay and, also, how are you going to measure the impact? How are you going to monitor the impact of this investment?

Mr Vaizey: I think what secured for me the investment for Abertay was that it was a scheme that was pretty far down the road and Abertay has a reputation that is unparalleled, I think, around the world. I think it was pretty clear that any investment in Abertay would be a sensible investment and a wellused investment by a university that stands absolutely at the top of the tree in terms of its educational value to the video games industry.

Q195 Lindsay Roy: If you look at the league tables -I am not a great fan of these-Abertay doesn’t feature highly in the university league tables. Have we got the indicators wrong? Do we need to do something about reevaluating in terms of outcomes?

Mr Vaizey: I wasn’t aware of that point and I would certainly be open to a discussion about ranking universities in terms of their support for either the video games industry or creative industries as a whole. I have commissioned a skills review which you might want to talk about later on, but I hope that will highlight the importance of universities like Abertay in terms of providing the absolutely first-class education in this sector that it does. So I would certainly be open to specific league tables. That is an idea that I hadn’t considered but I will take away and consider. We will call it the Roy table.

Q196 Lindsay Roy: Thanks very much. So you would be considering the possibility of continued differential support?

Mr Vaizey: Yes.

Lindsay Roy: Thank you very much.

Q197 Julian Smith: Thank you, Minister, for coming. You talked a few moments ago about the IP review, the review of IP and the consultation period. Do you have a timetable for when you expect that to be completed?

Mr Vaizey: No. I think that is, as far as I understand it, in the hands of the Treasury, but I would expect it to be completed in time, or my supposition is it will have been completed in time, for next year’s Budget.

Q198 Julian Smith: One concern generally on consultation is just that industries get truly consulted. Will it be possible? Will the Treasury be really reaching out to this industry as it will with other industries to the gaming industry?

Mr Vaizey: I will be making sure that the industry does respond. As far as I am aware, for example, the industry didn’t respond to the initial consultation with the IS and the VCT reform, so I want to make sure that they do respond to the R&D tax credit consultation. They have got to be in there making their case and I will certainly support them in doing so.

Q199 Julian Smith: I also wondered if you could talk more generally about the digital vision that your Department has for Britain, and, I guess, for Scotland more specifically, and how you see that helping the gaming industry, whether it is broadband or the other initiatives that have been taken? It will be quite interesting to see how that will benefit this industry that we are talking about today.

Mr Vaizey: I’ve got a whole range of different responsibilities but, obviously, one of them is broadband rollout, so we want Britain to have the best superfast broadband in Europe by the end of 2015. That is absolutely about making Britain a good place to do business.

I think that we have what I would call an element of convergence going on, so not only do you have the web but you have also got film, television and video games, I think, coming together to form a nexus, as it were, where the barriers, the silos between these different industries are rapidly breaking down.

So, from a policy point of view, as a minister that covers these areas, I want to put in place structures that allow these industries to talk to each other and feed off each other. That involves support from the Regional Screen Agencies; it involves NESTA; it involves the Technology Strategy Board, which I think is a very important player in all of this. It could even involve the Arts Council, surprisingly enough, because we, I think, have a unique combination of being a series of nations that are very creative. We are known around the world for our creativity but also, actually, quite a lot of hightech technical skills which I think come together very neatly.

Q200 Julian Smith: One of the things that confuses this Committee sometimes is where London stops and the devolved Administration starts. How does your Department work with the devolved Government on these sorts of issues?

Mr Vaizey: I think we work reasonably well. I think the Scottish Government, to a certain extent, could take credit for continuing to pioneer in that area. They put together, for example, Film Scotland and the Scottish Arts Council to create Creative Scotland.

The Scottish Government has a broadband strategy and I think is taking the digital agenda very seriously. So I certainly feel that I, as a Minister, can learn from my Scottish colleagues but also from my Welsh colleagues as well about what they are doing, and Northern Ireland as well. I think it is interesting to see certainly that there are clear digital agendas in each of the nations as well as in Whitehall.

Q201 David Mowat: You mentioned in your last answer that you had a vision of, I think you said, film, television and video games coming together in a seamless way. I am interested, then, to explore why it is that one of those is subsidised or continues to be and the others are not, in your view?

Mr Vaizey: I think it is a historic issue and it was obviously at the front of my mind when I was campaigning for a video games tax break before the election that the film tax credit is in place and supports a great deal of inward investment by the film industry into this country and the kind of skills that emerge as a result of that and the industries that emerge as a result of that.

One shouldn’t get the idea that the film tax credit has been a stunning success from year zero. It has had a lot of bumps in the road. Indeed, at one point in the mid-2000s it was really a very large tax evasion scheme. But the film tax credit now is working I think very effectively.

Q202 David Mowat: What I have had difficulty with right from the start of this is distinguishing what it is about the film industry which says that they should have a film tax credit and the video games industry that says, as you rightly said, the Chancellor looked at the fiscal position and said, "Okay, we can’t do that, but we continued with the film one". I am just interested in the thinking behind that from a cultural-I guess you were an influencer in that dialogue.

Mr Vaizey: I think it is politics. I think an existing tax credit is in a stronger position than one that doesn’t exist.

Q203 David Mowat: So the fact that the films get it and video games don’t is a historic anomaly?

Mr Vaizey: Yes. I wouldn’t want to use the words “historic anomaly” because that might give the impression that we found the film tax credit anomalous. One thing I can reassure you is that the Government is 100% behind the film tax credit, but it is a historical circumstance, yes.

Q204 Jim McGovern: It is not 100% behind the games industry?

Mr Vaizey: No, I said 100% behind the film tax credit.

Jim McGovern: Not 100% behind the behind the games industry? Mr Vaizey: No, I said 100% behind the film tax credit.

Jim McGovern: By implication then, not–okay, sorry.

Q205 David Mowat: I just want to push a bit further because it does seem the best point that the video games fraternity have is that this other industry did get this tax credit over a number of years and it did apparently make a difference. Yet, I think the reason you gave for it not being given to video games was inertia, "We’ve got one; we haven’t got the other. Therefore, it is all too difficult to bring in another one but we will keep the old one going." You see, had you got rid of both of them it would seem to me that the Government’s position was more tenable in a way?

Mr Vaizey: Yes. You can argue for intellectual coherence. If you were going to try and examine potential differences between the film tax credit and the video games tax credit I think, as we are now back on to the video games tax credit, it is worth perhaps reminding ourselves that not everyone in the video games industry necessarily thought the tax credit was a good idea and there are a number of reasons for that.

First of all, the film tax credit, because it depends on European Commission approval, has to be based on a cultural test, not just on the labour force being British but also on the narrative, as it were, of the film having a British angle, which is why, for example, Harry Potter can qualify as a British film even though it is made by an American studio. So whether you can translate a cultural test to a video game like Angry Birds is an interesting philosophical discussion worth having. Obviously, given that the Prime Minister plays it a lot, it probably would pass the cultural test.

The other issue is the way that video games are changing. More and more games are going online. They are multiplayer games, so, much more than in film, the publishers-as it were, if you take the parallel of the American studios, the publisher of the film-are perhaps not falling away but may play a less important role going forward. Developers will be able to put their games online and get a global audience through iPhone apps and iPads and things like that. So there was a feeling, for example, and quite a strong feeling among some elements of the video games industry when we were talking about a tax credit in the run-up to the election, to say, “Well, actually, are you simply going to put in place a system that supports an old model of making games and doesn’t actually stimulate the new model?” Which is why, for example, if one can tweak the R&D tax credit and also look at investment schemes to encourage investment into the games industry, one might actually bizarrely end up with a better result by supporting, as it were, the future of the games industry rather than what some people would characterise as the past.

Q206 Dr Whiteford: We have obviously heard a lot of evidence over the last few weeks, but one of the things that has really troubled me is that it is clear that there is a growing and rapidly diversifying global industry, yet we are witnessing a contracting UK industry. The UK and Scotland in particular has been a significant player in this sector to date but it appears that we are losing market share to a range of competitor countries, some of which are promoting their sectors very aggressively and others which aren’t.

I suppose my question is, really, how interested is the Government in retaining this sector in the UK as a significant player? If the original commitments around tax are something that the Government is now backing away from, what do you intend to do to create a conducive environment for this sector to flourish and what kind of timescales are we looking at for implementation?

Mr Vaizey: I am very interested in ensuring that we have a successful video games industry. I think that, to a certain extent, the problems that the video games industry faces in this country are similar to some of our other creative industries in terms of creating scale.

Certainly a lot of businesses, when they reach a certain size, get sold either to Japanese or American publishers which have much bigger scales. So those are the kinds of structural problems in terms of creating business of scale in this country.

I think there are massive opportunities for the industry in this country on a range of options. First of all, on the reason I commissioned a skills review is that, if I take, for example, one conversation I had with a potential inward investor in this country, there were three legs that they were looking at, as it were, to encouragement to invest. One was skills, which is a big tick for this country; one was ease of doing business, which should and is a relatively big tick in terms of the general burdens on business and running a business, regardless of whether it is video games; and thirdly was fiscal support.

I think if we get the skills review right so that we can get out there and tell the industry that this is a great place to pick up talent, that will encourage them. I think that if we continue to put in place a good business environment and a benign business environment, that will encourage investment.

As I say, if we can put in place some element of financial support, either through direct support through business support schemes, or indirect support through research and development schemes or access to finance schemes then I think that will also continue to support it. But I also do think-and this is my job-that we need a clear narrative for the industry. We need to set out why this is a great place to have a video games business.

I don’t want to give the impression that I am in any way criticising UK trade and investment. I am not. I think they do a very good job. But I certainly think we need to learn perhaps from the aggression of some of our competitor countries in terms of their active wooing of different companies. I think we need to be bolder in terms of going after organisations and actively encouraging them to come here.

Q207 Dr Whiteford: I think that is helpful, particularly in terms of the research and development side, because we did hear a lot that finance for development was a particular issue for some companies.

I am concerned about the skills issues, though, because we do have the example of Abertay, but the historic problem in Scotland has been brain drain. I think moving away from an expert labour economy, which is what we have had, where we lose our highly skilled people often to Canada historically, Australia and the US, has been very bad for the country and it has resulted in a lot of people on low paid jobs rather than highly skilled people in better paid jobs, which I think has to be an aspiration. So I would strongly urge us not to be simply just skilling people up to get jobs overseas where the talent is lost.

Mr Vaizey: Absolutely.

Q208 Fiona Bruce: Good morning, Minister. You heard me asking earlier about the comparable cost of the investment that is proposed through this tax. Really, the figures don’t seem to stack up. Given the severe financial constraints that we have inherited from the previous Government, you cannot, I think, do other than accept that the tax relief proposal simply isn’t value for money?

Mr Vaizey: As I say, I think that George Osborne had to consider a range of factors when he was putting his Budget together. I think the Treasury had a figure in mind about how much tax relief would cost and, as a Minister who has been through the spending review, I know that Departments literally are looking at the smallest possible sums that you could imagine. So I could see that if George Osborne was considering the very difficult financial circumstances that we are in, the actual potential cost of a tax credit, which would effectively be additional public expenditure at a time when he is trying to reduce it, would be a factor that would certainly have influenced him.

Q209 Fiona Bruce: Absolutely, but what, clearly, you brought out this morning is that, notwithstanding that, you are looking very constructively at how you can use the limited funds that we have to really make a difference for this industry in Scotland and elsewhere.

Mr Vaizey: That is what I am very keen to do. As I say, I was keen to use what money was available to support particular centres of excellence across the country-so Bournemouth, Manchester and Dundee. Also, I am keen to use existing fiscal support mechanisms to ensure that the video games industry, as it were, gets a fair crack of those. So I don’t think, in those circumstances, I am adding to the burden of public expenditure or pushing the boat out. I am simply trying to make sure that all the mechanisms which the Government does think are the effective ones to put in place are relevant.

Q210 Fiona Bruce: When I talk about value for money, I am talking about the comparable return on investment.

Mr Vaizey: Yes.

Q211 Fiona Bruce: I am very pleased to hear all that you have said today. Can I talk about something that is, if you like, for many people, an elephant in the room regarding the video games industry? I was very pleased to go to Abertay University because I saw there the constructive side of this industry and how much they are doing there in terms of medical development. Only last week actually I visited my local fire station and saw the technology being used there to help in fire training-exactly that kind of excellent technology. That is the kind of investment that I think everyone would want to see such funds as there are put into developing them-the small, local, indigenous businesses developing skills, keeping our expertise and our intellectual property here.

What a lot of people like me, and I am a mother of two teenage boys, are very concerned about is when we use the term “video games industry” it might be perhaps worth thinking again about that very title because at the moment it encompasses so much that is positive. It is about, really, whether it is right that we should be looking even at tax relief for certain products-and I am quoting; I checked with one of my colleagues earlier before I put this to you-where, when we went to Dundee and we talked with the video games producers and someone asked one of the developers, “Well, what sells?”, he said, “Well, basically, it is shooting and killing.” That might have been, if you like, not the whole picture but it is part of the picture. It is very concerning for mothers like me, just finally touching on one point-and this was picked up by a previous witness when I asked about it-on the streaming of online games where there might be a certification of the age range but there is, really, no effective way of prohibiting youngsters from accessing these games. I think if we are going to invest in this industry then we need to address the very real concerns that there are on the part of parents like me about support for the products which are coming on the market.

Mr Vaizey: I absolutely, obviously, understand your concerns. I am not the father of teenage children but I will be, hopefully, in a few years’ time. That is, I have got two young children but they are some way off being teenagers.

Obviously, violence in video games is a perennial debate. I took the view, as a shadow spokesman on this issue and I now take the view as a Minister, that my job is to support this industry as much as I can because it does tend to get some negative headlines. I feel that the negative headlines are somebody else’s responsibility. My responsibility is to get the positive headlines. I do think, in the last two or three years, the industry itself has been extremely good at getting out there and explaining the enormous range of benefits it brings not just to interactive entertainment and leisure but to support for the disabled, the kind of technology that will allow someone who is a quadriplegic to interact with people through eye movement and things like that, and, as you say, in terms of simulation for the emergency services and indeed our armed services. So there are a range of massive benefits.

In terms of 18-rated games, I think they make about 3% of the total games available. There will obviously be, occasionally, questionable matters of taste and we have seen that in recent weeks in terms of some particular games focused on the war in Afghanistan. So there is no doubt that those issues arise, but what I always say is you could say the same about film and you can say the same about literature. Tastes do change and evolve. But, as I say, my job is to promote this industry and I will let others highlight its flaws.

Q212 Fiona Bruce: I will just come back very briefly on this; thank you. You are absolutely right in so many respects and I wanted to ensure that I emphasised the positive side. I think the difference between, say, film or even literature, is that it is the monitoring which is the issue because we now have, obviously, a generation which has direct access to these products in a way that, with regard to the other products, they don’t have. So I simply wanted to highlight this because certainly the witnesses from Abertay University did say that they would very much like to look into and have some R&D support for looking into this area but, at present, it doesn’t perhaps seem to be available as it could be. Perhaps that is something that you might be willing to look into.

Mr Vaizey: That is something I would certainly happily look into and it might be something that, for example, I could talk to the Technology Strategy Board about because that provides a test bed platform for people to test out their games. It would certainly be an interesting way to test technology to see whether you could monitor, as it were, the age of people playing games. I am also a member of the Government’s UK Child Internet Safety Group of Ministers. So we sit around a table on regular occasions to discuss how to keep our children safe online, which is very important.

Again, it is not a problem I would argue is specific to the video games industry. It is a whole issue about how children are kept safe online and how parents monitor what they are doing online, and how parents in particular get the kind of instructions and education that will enable them because, let’s face it, not all parents are as tech savvy as their teenage children and they do need clear guidance on how they can try and keep their children within bounds.

Fiona Bruce: Thank you.

Q213 Cathy Jamieson: Thanks so much and thanks for what you have told us so far. I am very pleased to hear your support for the creative industries particularly, as you have mentioned, the fashion industry which of course is very important as well to Scotland. I had the pleasure of seeing the Scottish Textiles Exhibition at the ICA last week. Interestingly, some of the points that designers and people involved in the industry there were making were similar to the points about the computer games industry.

But I want to take you back, if possible, to some of the things you said right at the beginning of the evidence that you have given us. I understand the position there, you know. You said the Chancellor had to take certain decisions as he was entitled to do. But, surely, in a situation where everyone seemed to be suggesting that tax breaks were a good idea prior to the election, it would have been incumbent then on the Chancellor to seek the views of the Minister directly responsible for promoting the creative industries before he took a decision to scrap it. You seem to suggest that hadn’t happened?

Mr Vaizey: I am quite low down on the food chain.

Q214 Cathy Jamieson: But you have responsibility for this industry.

Mr Vaizey: There is a famous anecdote about an obscure Minister under the Thatcher Government which I don’t have time to tell. But, obviously, you have the Secretary of State for Business who would have-I imagine the Chancellor would potentially consult his Cabinet colleagues on issues. But, at the same time, as we all know as politicians, the Budget is very much the province of the Chancellor and the Chancellor is perfectly able to access the information he needs. He knew that all three political parties had spoken up in support of the tax credit but he was also able to access all the information, particularly for example the information that Edward Troup was putting forward in the earlier evidence session, and take a view. He is the Chancellor; I am not. He is perfectly entitled to reach his own conclusions for his own Budget and for his own priorities as well. I am not going to be in a position to write his Budget for him, nor would I want to be.

Q215 Cathy Jamieson: With respect, Minister, you have made some play that you are the Minister responsible for the creative industries. I am now concerned that you feel that you are so far down the food chain for a very important industry that the Chancellor would not take account potentially of what you say. If you heard the questions that I asked of the previous witness, it was around what is going to happen in the future as a result of the review, for example, on R&D credits. If you didn’t get a result the last time around, what confidence can we have that the Treasury are going to listen to you next time?

Mr Vaizey: All I would say in response to that is that I walked right into that one, didn’t I? That will teach me to make a flippant remark at a Select Committee hearing. It is up to me to try and deliver for this industry, so I will do my very best to do that.

Q216 Cathy Jamieson: Could I ask you a question that I asked previous witnesses at earlier hearings as well, because we have to make some recommendations obviously arising out of this report. What I asked the previous witnesses was: what did they want to see as our top recommendation? I am not going to walk into anything when you tell me that that is my job, but what I would like to ask you is what recommendations could we make that would be helpful to you in making those representations to the Chancellor for the future of the games industry in Scotland?

Mr Vaizey: I think you could say that the Chancellor should certainly, when he considers the review of R&D tax credits and when he considers issues such as access to finance and business support, maintain that he sees the creative industries as being central to that and that he, in particular, looks to ensure that the video games industry is not inadvertently excluded from the opportunity to participate in any future fiscal support schemes that he thinks are appropriate for British businesses on.

Q217 Mr Reid: Good morning, Minister. Thanks for coming along. Here we have a situation where we have a successful British industry but another country, Canada-Quebec, in particular-gives its own industry tax breaks. It means that our successful industry is losing a brain drain to Canada. What is the Government’s reaction to that?

Mr Vaizey: Again, 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.

Again, looking back at the last Government, which in effect took the credit for a tax credit that it never introduced and it only said it was going to introduce it in its last Budget, one of the frustrations I found as the Opposition spokesman was that when I raised the issue of Canada two or three years ago I was told again and again that this was a matter potentially for the World Trade Organisation to look at and that turned out, really, to be a red herring. So if I was being more robust than perhaps I have been in the last 40 minutes I would say that the last Government, to a certain extent, did sit on its hands in the face of Canadian competition.

Again, I do feel pretty confident that we can continue to support this industry and continue to compete with Canada. Canada is putting a lot of direct Government support in and, again, it is at the state level rather than the federal level, so you have got states now competing against each other. But we remain, as it were, a very important jurisdiction in terms of our skills. Britain will become a very good place to do business, regardless of what business you are in. Provided we ensure that the fiscal support mechanisms and Government investment and support for industry takes into account the needs of the video games industry then I am confident about the future.

Q218 Chair: I wonder if I could touch on one or two other points that have come up at various stages during our inquiries. Relationship with the banks: we have had the impression from a number of people in the industry that the banks don’t understand them, that they are risk averse and that some of the firms in the industry are having difficulty finding capital to develop. Do you see yourself as having a role in that in any way and, if so, what have you been doing and is there anything on the stocks that would make these problems of the firms in the industry ease?

Mr Vaizey: I have had one roundtable with the video games industry. We are having another one to talk about inward investment and how we co-ordinate the various functions of Government to ensure that we are getting the message out to companies abroad to invest. I also want to have a roundtable on access to finance. Again, I think it is a problem that is wider than simply the video games industry. It is to do with the creative industries and it is to do, again, with why talks about tax breaks tends to enter this discussion because, to put it bluntly, I have also heard the same anecdotes where people will say they will go to a bank and be told, “Well, frankly, if you were coming to me with a proposal for a pizza delivery business of course you would get the money because I know how that works”, whereas the video games industry is inherently risky because you are depending on hits. If your game is not a hit, as Realtime Worlds saw only too tragically, that can have very, very serious consequences for the business. So I think that what I can do in particular is also use my knowledge of the film industry as well to work with the banks and investment houses that are specialists in investing in the creative industries and ensure that there is a coherent landscape for people to talk to banks that are more au fait with their sectors.

Q219 Chair: The second point follows up, really, from the points that Mrs Bruce raised about the violence in films. I must say I was a bit concerned by your response, which basically seemed to indicate that you were interested in the good headlines and you weren’t bothered so much about the bad headlines. It does seem to me, as the General Culture Minister, that you ought to be concerned about the general coarsening of cultural life that is just symbolised by the video games. I heard the argument that it was only 3%. I am not sure that amongst, particularly, youngsters in my constituency it is 3% by usage because I do get the impression that maybe they are selling only a relatively small proportion of these but they are available to a much, much wider group and they are breeding an attitude which suggests that violence is a way to solve problems. Relationships and so on and so forth are all softy things. It is chopping people’s arms off and running them over with a car or breaking and entering and all the rest of it. Grand Theft Auto is not a childcare video and it just seems to me that you ought to have a responsibility or take it more seriously than you perhaps you gave us the impression that you were doing. Can you just clarify whether or not you see yourself as having any role in that sort of area?

Mr Vaizey: What I was going to say was that I thought this Select Committee and the decision to hold an inquiry into video games was a great opportunity for the video games industry, because I think that one of the issues and problems has been that the games industry has not been taken as seriously by politicians as it should have been. One of my regrets about the industry has been that the only time it has featured in Parliament is when individual members of Parliament have wanted to use it as an example to pick on violent video games. So while I absolutely accept that it is possible to have a view on a particular game and whether or not it is tasteful or appropriate, what I would strongly argue back at you, Mr Chairman, is that these seem to be the only way that some politicians think that you can get headlines for the video games industry when, in fact, what this inquiry will show is that you have got a fantastically successful industry with a huge range of applications.

There is a ratings system for video games. They are subject to the same kind of controls that film is. So why is it that in terms of our cultural climate we tend to celebrate the success of British film? We stay up for the BAFTAs; we stay up for the Oscars; we love looking at pictures of our film stars in the newspapers and celebrate in their success. Yet, we seem again and again only able to come back to the violent nature of video games.

Obviously, we know and we could all name films we have been to where we have found the violence to be very much pushing the envelope. What I object to is that we don’t then come out and say, “The film industry is coarsening our children.” We say, “That was a violent film and I certainly want to make sure my kids don’t see it.” You can certainly take that attitude about the video games industry. You can say, “That is a violent video game and I don’t want my children to play it.” But you shouldn’t say, “That is a violent video game and the video games industry is coarsening our children.” I just don’t agree with that observation.

Q220 Chair: That is something for us to report. Can I just clarify as well whether or not, in terms of supporting the industry, the Department is involved in any way in providing support to what seems to me to be a novel suggestion of some sort of collaborative publishing? We met people in Dundee, we were discussing routes into marketing and so on and the difficulty that sometimes people developing their games had about finding somebody who was willing to undertake all the marketing. One of the suggestions was that various people involved in the industry would try and collaborate and almost have a mutual of some sort to try and access markets in a more constructive way than they have been up to now. Is that something that you would see as being your role, to help that sort of thing, or would that just simply be seen as a business problem that was passed on to BIS?

Mr Vaizey: It would certainly be something that I would be interested in knowing more about. But, again, it would be something where I would regard somewhere like Abertay University or the Technology Strategy Board or NESTA-the National Endowment for Science, Technology and the Arts-having an opportunity to research that area, promote it and perhaps make it more widely known.

Q221 Chair: Two final points if I could, just to get clarification. Arising from the points that were made by Mrs Jamieson, is it correct that you were not consulted before the Chancellor abandoned the manifesto commitments to introduce games tax relief?

Mr Vaizey: I had a chance to put my point of view across, so I felt that I had had a chance-

Q222 Chair: So you were consulted?

Mr Vaizey: I felt I had a chance to make my case.

Q223 Chair: Sorry, is that yes? Yes, you were consulted?

Mr Vaizey MP: I felt I had a chance to make my case.

Q224 Chair: Sorry, is that a "yes"? Yes, you were consulted?

Mr Vaizey: I felt I had a chance to make my case.

Q225 Chair: So that is a "yes" then, is it?

Mr Vaizey: Yes.

Q226 Chair: Fine. I wasn’t quite sure why you were phrasing it in that way. Can I just clarify? I understand that the guns in the tanks of the Chancellor are greater than yours, but can I just clarify whether or not in principle you remain in favour, if the economic situation was different, of a games tax relief, or do you take the view that it is so badly targeted that it is not actually worth supporting and that we ought to be pursuing other routes entirely?

Mr Vaizey: I remain of the view that we will continue to debate a video games tax credit, that it doesn’t have universal support in the industry and that there are a whole range of other options that we can and should look at in order to support the video games industry. So I do not take the view that the fact we do not have video games tax credit means the game is up and we might as well just all pack our bags and go home. I think there is a hell of a lot to play for.

Q227 Chair: The thing that strikes me on that is that the focus of the lobbying and the views expressed by the games industry has tended to focus on a video tax relief. I must confess I am not entirely sure whether or not they have hung their hat on that because it is the peg that is available in order to raise the profile or whether or not there is a genuine conviction that that is the way to go. That is why I am just trying to clarify with you whether, given your functions now and having had the opportunity to see more and do more with the industry, you are now of the view that there are a number of other things that would achieve the same objective in a better and more targeted way, or whether or not you still think, "Yes, notwithstanding some difficulties with tax relief, it is still better than any other proposal."

Mr Vaizey: I think, Mr Chairman, one understands how these things work and that a particular policy proposal gets a certain element of momentum. I think the industry can be in danger of seeing it as the panacea and I just don’t think it is a panacea.

I would never rule out potentially looking again at a tax credit or returning to the issue, as I say, as a potential option. I personally feel that if it was to come back on table it would be an inward investment vehicle, as I have said in my opening remarks, not necessarily a vehicle that would see the size of the indigenous in British industry grow significantly so there will always be that controversy. I am now focused on looking at other options to how we support the video games industry.

Chair: Fine. Thanks. Jim, you had another point you wanted to make?

Q228 Jim McGovern: Yes. First of all, Ed, I look forward to meeting you and David in Dundee, and my earlier remark was flippant, obviously. I would just like to ask you if you would take this thought away with you. It is a quote that was just given to me yesterday and it is from a man named Danny Bilson, who is the chief executive of a global video games publisher called THQ. He had just announced that they were investing in Quebec.

In response to a question about whether a global publisher would invest in the UK Danny Bilson said, “Well, it’s all about money. The talent in the UK is extraordinary…. I got to know a lot of teams in the UK-it’s one of the greatest talent centres in the world. So there’s no issue with talent; it’s just economics-and if the Government finds subsidies there, absolutely we would build out….but I’m sorry, it’s all about money”. I don’t think you should sell yourself short. I am sure you have got the ear of the Chancellor and possibly the Prime Minister. I could forward this to you if you want?

Mr Vaizey: No, I have seen it already.

Q229 Jim McGovern: Have you? Were you keeping it a secret?

Mr Vaizey: I read all the websites.

Q230 Jim McGovern: Okay. I am sure you will take that back to the Chancellor.

Mr Vaizey: THQ do have a UK investment, as you know the interview makes clear. But, obviously, that is why I have made the point about the tax credit as an inward investment vehicle.

Jim McGovern: Yes.

Chair: Thank you very much for coming along. That has been very useful. Again, as with the colleague that came before you, if, upon reflection, there is anything that you want to let us have in a written form that you think would illustrate the points that you made we would be grateful to have that.