A planned tax break for the UK games industry has been delayed pending an EU investigation.
Due to come into force on 1 April, the measure was designed to incentivise games companies to develop and produce work in the UK in a bid to boost the ailing economy.
The break would see 25% tax relief on up to 80% of a new game's production cost - if development was in the UK but only on games that did not focus on gambling, pornography or other "extreme" material.
But in a blow for campaigning groups such as UKIE, the European Commission has now said there was "no obvious market failure" that needed to be addressed and therefore a tax break would be unnecessary.
EU's competition commissioner Joaquín Almunia said: "The market for developing video games is dynamic and commercially promising."
It also voiced concern such a measure could "fuel a subsidy race between Member States" of the EU and that exemptions from the tax break could harm competition.
Tiga, the UK video games trade body, said it was "disappointed" at the decision.
A similar scheme in France was eventually passed by the EU leading Tiga to believe the outcome of the investigation will be positive.
The games industry is booming at a time when other entertainment industries such as music and cinema are struggling.
The sector contributes around £1 billion a year to the UK GDP.
Commenting on the announcement UKIE CEO, Dr Jo Twist said:
"We are extremely disappointed that the European Commission has decided to open an in-depth investigation into production tax credits for the UK games industry.
"We believe this support is crucial in opening up the opportunity for developers to make culturally British games, but also as a vital incentive for development studios and large multinationals to base their development in the UK and nurture the talent here. We are still confident of having the scheme introduced and are fully committed to having it in place as soon as possible."
”A similar investigation into the French games tax relief system was successful but this took 12 months to conclude."