TIGA: Government has got tax plan wrong

TIGA: Government has got tax plan wrong

By Ben Parfitt

November 25th 2008 at 2:00PM

Development body criticises Alistair Darlingâ??s VAT cut, saying that income tax cut would have been better

TIGA, the trade body for game developers, has become the latest voice to slam the government’s recent announcement of tax changes in an effort to tackle the current economic crisis.

CEO Richard Wilson stated: “The economy has already received a major monetary stimulus. Base rates are at their lowest since the 1950s and sterling has declined by approximately 25 per cent against the US dollar. However, at a time when the economy is spiralling deeper into recession, unemployment is at an 11 year high and rising, house prices are falling faster than during the early 1990s property crash and small businesses are suffering from a lack of credit, a fiscal stimulus is a necessary but insufficient approach to take.

“The Bank of England will need to reduce base rates still further if we are to stave off the worse effects of the recession.

“The 2.5 per cent cut in VAT could help to stimulate spending, but will also cause some logistical and administration problems for businesses. It would have been better if the Government had cut income tax and raised personal allowances.

“The Government’s plan to guarantee bank lending of up to £1 million to small businesses, to allow small companies to spread out their corporation tax, VAT and national insurance payments and to create a £25 million fund to help businesses that are having difficulty accessing finance are all welcome proposals. However, the Government’s intention merely to defer the increase in small business corporation tax from 21p to 22p to 2010/11 is disappointing. Small business corporation tax should not be increased.

“While the Government’s short term approach to the economic downturn – a fiscal stimulus – makes sense, its long term strategy is quite wrong. Increases in national insurance contributions add to the burden of taxation and deter employment growth because they increase the cost of employment. The planned cuts in allowances and the new 45 per cent income tax rate will raise relatively little in revenue and sends out the message that the UK will be a higher tax economy in the future. This is the wrong message.

“A recent Tiga survey showed that one third of games developers in the UK already believe that the burden of taxation is holding back their businesses. The UK’s long term strategy should be foster a low tax economy in order to enable owners and managers to grow their businesses, invest in R&D and spend more on training.

“The Government should also go further in reducing public spending in order to get the public finances back on a sound footing, rather than raising the burden of taxation. Even on the Government’s rosy forecasts, the current budget will not be balanced until 2015/16.”