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Losing the game

Rory Cellan-Jones | 09:50 UK time, Wednesday, 23 June 2010

"We will not go ahead with the poorly-targeted tax relief for the video games industry." Just one line in George Osborne's Budget speech yesterday sent an industry into despair. For years, the big guns of the games business have been in and out of Downing Street lobbying for help for their industry - and back in March when Alistair Darling finally delivered the tax relief they'd been asking for, the champagne corks were no doubt popping at developers and publishers across the UK.

Even after the arrival of the new government, the industry seemed convinced it was still in line for help. After all, the new digital minister was Ed Vaizey, who'd already promised a games industry conference back in March that tax breaks would be introduced in the Conservatives' first Budget. Perhaps ELSPA (Entertainment and Leisure Software Publishers Association), the industry's main lobbying organisation, should have been listening a bit more carefully a couple of weeks ago when Mr Vaizey and his boss Jeremy Hunt seemed just a little more cautious about what the Budget would offer.

Anyway, yesterday ELSPA's boss Mike Rawlinson sounded like a bride jilted at the altar:

"Bearing in mind the pre election commitment towards tax breaks made by the Conservatives and the Liberal Democrats we are extremely disappointed by the outcome of today's Budget. Our industry will be rightly puzzled as to how tax breaks can be lauded before an election, only to be seen as 'poorly targeted' and scrapped just six weeks later."

But why should the games industry really expect special treatment at a time of huge strains on the nation's finances? The argument is that a vital creative industry which is a significant exporter is losing out because other countries, such as Canada, are using government money to lure games investment away from our firms. In Los Angeles last week at the E3 games event, I met leading British developers who accepted that tax breaks were bad for the industry as a whole - but argued that if others were playing that game, the UK could not afford to stand on the sidelines.

But if we do have such a thriving industry already, where's the evidence that it really needs propping up? TIGA, another industry lobbying group, put out a report earlier this month showing that UK developers were eager to export even more - but, of course, that would only happen if the tax relief was delivered. And like every industry down the ages, from coal to steel to cars, the games folks pushed the line that a little investment now would deliver a return for the Treasury in the long run: "TIGA's research shows that over a five year period it (tax relief) will generate £415 million in tax receipts for HM Treasury."

A Treasury which has heard those arguments many time before appears to have looked sceptically at those sums. But the games lobby had another, perhaps more powerful argument - if we are prepared to support the British film industry, now a minnow on the world stage, why not give similar help to an industry which has a far brighter future? I think that's to ignore the justification for the help to the film industry, which is there for cultural rather than economic reasons. In a movie industry still dominated by Hollywood, it would be hard for British films to make an impact without some support, though you can argue whether the likes of "Sex Lives of The Potato Men" are a great adornment to our unique cinematic heritage.

"We're part of the culture too!" is the response from UK games developers, but is there anything uniquely British developed here? The big winner at this year's games BAFTAs was Rocksteady's Batman: Arkham Asylum, and the big hits made by the leading independent developer Blitz Games Studios are based on American TV shows. Both are making excellent games but they hardly reek of Kentish Town or Leamington Spa, where they were made.

Still, the games industry will have another chance to put all of these arguments to a government minister next month. Ed Vaizey is speaking at the Develop conference in Brighton - he may want to sharpen up his first-person shooter skills in advance.

Comments

  • Comment number 1.

    The problem with tax bungs for an specific industry is that the flip side is rarely reported - tax hikes for all other industries. What you give to the video games industry you have to remove from somewhere else.

    Everybody loves a tax break if they can get it. The government should show some backbone and belief in a free market by resisting demand and eliminating economic distortions caused by bungs.



  • Comment number 2.

    #1 "The government should show some backbone and belief in a free market by resisting demand and eliminating economic distortions caused by bungs"

    There's one flaw in that idea- the government can only legislate for Britain's 'free market'. Most industries and especially entertainment are global markets. If the US or French give their games makers 'bungs' then the "economic distortions" put ours out of business.

    The real tragedy of this budget is thats its hitting industries that are a vital source of exports. Games like 'Tomb Raider' (invented in Derby) have generated millions of pounds in revenue for no 11. If Shefield Forgemasters hadn't had their loan (and I stress loan... not bung. It would have been repaid) for a 15,000 ton press cancelled by the govt they'd have been the world leader in producing the cores for nuclear reactors.

    We have precious little manufacturing industry left. The tiny tax breaks they need are dwarfed by the £180bn benefit bill, yet our leaders prefer paying people not to work rather than using the money to create work.

  • Comment number 3.

    Games developers are businesses, right?

    Well as a business they've had their tax burden reduced in the form of lower corporation tax, lower employer NI contributions. and if anyone was starting up in the business then outside of the South East the 1st 10 staff they take on they won't have to pay employer NI at all.

    by the end of this Parliament the UK will have one of the lowest rates of Corporation (profit) tax in the world

    And importantly so will all other business

  • Comment number 4.

    @ #2

    A lower tax rate overall is preferable to specific tax incentives targeted at industries.

    And with a lower tax on profits and a lower cost of employing people the UK may actually be more favourable to France & Canada which are currently offering games industry incentives.

    In fact I'd like to hear about one big game that has come out of Canada (other than the FIFA series made by EA's Montreal studios, as that has always been developed their) None? So if I was a Canadian taxpayer I'd be demanding better value for my tax dollars

    And the Sheffield Forgemasters wanted a loan because the new owners wanted to borrow money but not give up equity in the company... I'm sure every single business would want money and not have to give up equity, are tax payers going to fund them all? Of course not!

  • Comment number 5.

    What so many people seem to miss is that so many great gaming titles have come from the Games Industry here in the UK.

    As well was Tomb Raider, mentioned by "Peter_Sym" above, we have also produced almost the entire Grand Theft Auto series, the chart-hit Red Dead Redemption (in co-op with Rockstar San Diego). We've also created the Fable series through Lionhead Studios. Not forgetting the entire line of Donkey Kong Country for Nintendo, Perfect Dark and Viva Pinata.

    In the UK we also produce the Crackdown series, about to get its sequel on the Xbox 360 ..

    I know I've forgotten some other big titles too but what I'm saying is that here in the UK we produce some excellent "Triple-A" titles and some groundbreaking new IP's for the major publishers and manufactures. Yet the government still see it as a fledgling industry. The chancellor needs to realise that the games industry in the UK brings in more than the film industry.

    Without the help companies will simply move to more profitable countries and we will lose our place in what is fast becoming the biggest entertainment industry on this planet. I thought the Tories/LibDems were planning for the future?

  • Comment number 6.

    #4 While I agree that lower tax rates in general are a good thing for business I wouldn't give up equity in a company for A LOAN either. Its not like Dragon's den where the money is invested. Forgemasters were meant to repay it with interest. Nor am I suggesting that taxpayers fund 'all businesses that want to borrow money'.... just the ones that will generate jobs, revenue and exports. With the trade deficit, budget deficit and unemployment as bad as it is its the governments DUTY to boost our exports and tax revenue and sensible investment in profitable industry is the best way to do that.

    As for the quality of forgemasters products... ask Saddam. Only place in the world that can make an artillery gunbarrel 500metres long and capable of firing a shell the size of a phonebox! At least in some industries we're still world beating (and that IS a slightly tongue in cheek comment)

  • Comment number 7.

    @ #4 > I'd like to hear about one big game
    > that has come out of Canada (other that FIFA)

    Most of Ubisofts games are developed in Montreal....

    http://en.wikipedia.org/wiki/Ubisoft_Montreal

    So how about the Prince of Persia games, or the Assassins Creed games, or the Tom Clancy Splinter Cell or Rainbox Six games? And this is from just ONE development studio in Canada. Ubisoft themselves are HQ'd in France, but do most of their dev in Canada because of the tax breaks...

    In future Chris, speak up only when you know what you are talking about.

  • Comment number 8.

    ??? I don't quite understand how anyone can't work it out. Here is how it works (for all parties and ALL politicians)

    Before Election:
    Promise the earth

    After Election:
    Do What You Want

    This is why I spoilt my vote this year. Neither the Conservatives OR Labour deserved it. They hand out cash to those on the take, at the expense of the working man.

  • Comment number 9.

    Now, Rory, did you name this title so just to troll all the people still playing The Game?

  • Comment number 10.

    @ no. 4
    Ubisoft Montreal, as mentioned, makes a lot of big titles. There's also Bioware - Mass Effect, Dragon Age, KOTOR etc.

    The problem is that decisions about the industry are being made by people - like Chris - with little knowledge of it.

    With the video game industry in the UK producing triple A titles - many of which were shown off at E3 - and the historically dismissive attitude of politicians to the industry, it's likely Osborne simply thought the video game industry was an easy place to save money, without thinking it through as much as he should have.

  • Comment number 11.

    Maybe they should bring out a fox hunting game. That would get the tories behind them.

  • Comment number 12.

    The situation is simple, (in terms of politics, it's exactly as #8, "MarkG" put it) our current government still regard the "Games Industry" as "teenagers in bedrooms".

    The removal of the "poorly targetted" tax relief will come back and bite us as we will lose our place at the forefront of games development.

    Can someone please introduce our current goverment to "the internet" before they decide we don't need that any more.

  • Comment number 13.

    The global gaming industry makes more money than music and film put together. I find it sad that they didn't do what they said they would do. GB has a fair few game developers. And an awful lot in the north of England which is where the tories said they want more economic infrastructure. It's a missed opportunity for the govt to get more people into work and encourage big gaming companies to develop more in the UK. Maybe even it will scare developers from the UK so we make less money.

    Judging from the budget I think it will stifle regeneration in this country and we may see a summer of discontent if a General Election is not called by next summer. The rich really should of bailed us out on this one. I know it's a tory govt but the reality is that the average people in this country cannot afford to bail the country out AGAIN.

  • Comment number 14.

    Coal, Steel and Cars are physically tied to the land on which they stand, which means that they can make a compelling argument that the nations which host them, could usefully assist them against unfair competition from similar plants in other nations. Even a films industry has a certain level of infrastructure, studios, locations, which tie it down, geographically.

    Now, for the games industry, there are locations, like Warwick/Leamington, where games development has a long legacy, but this is often because people like the Oliver twins or the Stampers actually came from those areas, and chose to continue living there.

    The industry has obviously moved on from the days when you could run such a business out of a dilapidated farmhouse in the middle of nowhere - but as a creative industry, it still stands or falls by the creativeness of it's people, and, not only can those people will move wherever the living is best for them, but Software is notoriously easy to outsource, to wherever the cheapest (although, in reality, seldom the best) developers can be had.

    Even if the creative process is not outsourced (and it is arguable that compelling and attractive entertainment cannot be produced by the cheapest developers available in the cheapest country to be found - even if governments believe that other Software projects can be run in this way) Tax breaks will not make people any more creative, in the same way that tax breaks could help a steel mill afford a new press, or a car maker retool for a new assembly line.

  • Comment number 15.

    The plot thinkens... Rory, could you look into this please:

    http://www.develop-online.net/news/35224/Global-publisher-sabotaged-UK-games-tax-breaks

 

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