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Give Video Game Britain a Break

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The UK video games industry is the largest in Europe, contributes £1 billion to our economy and employs 26,000 people. but while the video games industry globally goes from strength to strength, the UK economy has barely grown over the last year. Weak economic growth has left the public sector deficit stubbornly high. With consumer spending suppressed by higher inflation, we urgently need economic growth to come from business investment and exports. The Government is pinning its hopes on British manufacturing to generate economic growth. Yet it has little to say about how creative industries, including video games, can support the recovery.

TIGA, the trade association representing the UK video games industry, will publish a report today (State of the UK Games Development Sector 2011) which forcefully demonstrates that the video games development sector is precisely the kind of industry that UK politicians should be supporting.

Game developers are talented and highly skilled. For example, over 80 per cent of Ubisoft Reflections' staff in Newcastle are qualified to degree level. The industry is at the cutting edge of technology: many developers spend over a fifth of their turnover on R&D. British developers are export oriented. Oxford based Rebellion Developments, maker of games including The Simpsons and Aliens vs Predator, generates 90 per cent of its turnover from exports. The sector is also low carbon in output - a characteristic that is set to continue with the trend towards digital distribution of video games.

The global market for video games is estimated to grow from $52.5 billion in 2009 to $86.8 billion in 2014. British developers should be in a strong position to win a share of this market. Our industry has a track record of developing original and highly successful video games. Neon Play's Paper Glider game has had 5 million downloads since January 2011. Jagex's Runescape has been played by 180 million people worldwide.

Our industry should be striding ahead. Yet our sector is struggling to advance to the next level. We face three principal challenges.

Firstly, our competitors, including Canada, France, Singapore and the USA all provide national or regional tax relief for games production, which typically effectively reduce the cost of employment and games production. No tax relief for games development exists in the UK. Between 2008 and 2010 employment in the British games industry fell by 9 per cent and annual investment declined from £458 million to £417 million. Conversely, the Canadian games industry has grown by 33 per cent over the same period. The British video games industry is competing with a ball and chain tied to its ankles. A tax break would enable our industry to compete on a level playing field. Yet the Coalition Government dropped TIGA's tax break in the June 2010 Budget.

Secondly, two-fifths of our development studios are held back by a lack of finance. Access to debt, bond and equity finance is difficult because of uncertainty about consumer demand for video games and because of the intangible nature of IP. Bank finance is therefore very unlikely to become a principal source of finance for game developers. Treasury wheezes like Credit Easing may help larger businesses in the medium term but they provide no immediate assistance for creative industries such as games development.

Thirdly, our industry faces recruitment difficulties. Two-fifths of developers have suffered from skill shortages over the last 12 months. This is partly because the domestic supply of high quality graduates in disciplines such as computer science is limited. The proportion of computer science graduates has fallen by a quarter in recent years. These skill shortages are amplified by a brain drain of talented staff to overseas jurisdictions, particularly Canada.

If creative industries such as the games development sector are to help rebalance the economy and drive economic growth, then the Coalition Government must address these challenges.

To ensure that our industry competes internationally on a level playing field, we should introduce a tax relief for games production. TIGA's research shows that over 5 years, Games Tax Relief would create or safeguard over 9,500 jobs, £431 million investment in development expenditure, £393 million in tax receipts to HM Treasury, at a cost of £194 million in tax relief. Games Tax Relief would more than pay for itself.

To improve access to finance, the Government could establish a Creative Content Fund (CCF). This would make investment available in the form of matched funding (i.e. pound for pound) repayable contribution in approved game production projects. The CCF would recoup the money from recipients out of successful sales of those games once they had generated a certain amount of revenue and over an agreed time period, together with a defined share of the additional profits. It would invest in projects that have the potential for success, not prop up businesses that are in difficulties

To ease skill shortages, the Government could pilot a scheme whereby tuition fees for students studying mathematics and computer science degrees are competitively priced in comparison to other degrees to incentivise the study of these subjects. In the longer term, the UK should aim to increase expenditure on higher education to ensure that our universities and the graduates that they educate are of the highest standard. The UK currently spends 1.2 per cent of GDP on higher education, compared to 2.5 per cent in Canada, 2.6 per cent in South Korea and 2.7 per cent in the USA. Higher education sustains creative industries. The UK cannot be a knowledge economy on the cheap.

UK games developers are high technology, highly skilled, low carbon businesses that have the potential to succeed in global markets and to contribute to the necessary rebalancing of the UK economy. The Prime Minister, David Cameron, called for a spirit of "can-do optimism" in his speech to the Conservative Party Conference in Manchester. We have a can-do games industry. What we now need is a 'can-do' Government.