'UK Government must act on tax breaks'

'UK Government must act on tax breaks'
Michael French

By Michael French

January 4th 2008 at 10:00AM

SPECIAL REPORT: Leading UK developers urge authorities to act in providing further industry support

Executives from leading British independent games studios have told Develop that they want the government to properly investigate the possibility of implementing tax breaks for the games industry following on from December's news that the European Commission has endorsed similar state support as legal in France.

Early in December, the EC announced the positive conclusion of its in-depth review into the legality of a French parliamentary bill which offered a 20 per cent tax rebate of up to €3.5m on games saying the bill did not contravene European Union law against state aid as long as all games that benefitted qualified a test of 'cultural relevance'.

Endorsing the bill has set a legal precedent for countries across the European Union - meaning other countries can introduce similar measures if they wish. The UK Government told Develop shortly after that it was not sure the measures would be right for the country, despite calls from trade association Tiga - but UK developers are still insisting that introducing tax breaks should be go under serious consideration.

"The UK definitely has to consider similar credits now," commented Ian Baverstock, business development director of Kuju. "Under EU law there is a limi to the power of the UK government to directly interfere in commercial markets but now that the precedent is there for France the government has to look at the impact on UK developers of this further distortion of the development market which is already severely distorted by the Canadian tax breaks."

In Quebec, publishers such as Ubisoft, EA, Activision and independents A2M have benefitted from a tax climate that sees up to 40 per cent of costs and salaries refunded by the local government.

The UK Government should take note of how this support has helped the games scene in Quebec city Montreal prosper, Blitz CEO Philip Oliver adds in an exclusive editorial written for Develop and available to read here.

"[In the UK] there is political will to help the industry, but the bigger picture in terms of worldwide trade and economics has meant that positive action remains a long-term prospect and one perceived to be fraught with difficulty. However news of the approval by the EU of the French government's proposed tax breaks should change that position," he told us.

"Currently the UK government provides no games-specific tax support or investment incentives. If the UK Government is serious about helping developers, then it needs to mat the tax breaks that France now delivers. Government support works, as the recent success of the Canadian games development industry has demonstrated."

He adds: "Competing for high profile global contracts has become increasingly difficult because of the cost of developing games in the UK. There are already worrying signs of a talent drain from the UK to emerging markets and this will only get worse if change doesn't come soon."

Both Baverstock and Oliver are active board members of trade association Tiga, which has regularly consulted with the Government on the UK industry's economic power and what can be done to improve it.

Other independent studios have been keenly watching the tax break situation unfold as well.

Commented Team 17 MD Martyn Brown: "Obviously as an independent developer investing heavily in new IP, we're delighted to see potential support from the Government. This is perhaps overdue when you consider the benefits handed out to various territories in the EU and recently, Canada."

If the Government doesn't act in some form, there is a possibility that activity across the Channel will impact the UK industry - although developers aren't too sure that the French tax credits will spur a turnaround for that country's development sector.

"Predicting a 'resurgence' in the French games industry from this seems overly optimistic, given what’s on offer in Canada, but it’s undoubtedly going to make a positive difference," commented Realtime Worlds studio manager Colin Macdonald.

"Everyone’s fear is of creating a dependency culture, but if we can manage that, the UK will be building upwards from already creating some of the best games in the world – whether that leads to even better and more profitable titles, or more UK developed games reaching that level. Hopefully both."

Kuju's Baverstock added: "This will inevitably be good in the short term for the French development industry. Given the relative scale of the UK development industry in Europe, it seems likely that this will equally inevitably reduce the development spend in the UK and potentially also attract some talent from the UK to France. Neither of these things are good for UK development and are going to be a distortion to the market but how serious the effect will be remains to be seen. This is a global market and these measures are no where near as bad a distortion as the current Canadian tax breaks."

But Brown said that, regardless, developers and Government must be prepared to ignore political rhetoric and hot air in order to move the issue forward: "We should absolutely look to protect the creative talent within the UK and harness it through UK derived titles. I’m not sure if this will mean people will flock to France to reap the benefits as I think the cultural mix of the UK is largely responsible for the type and range of titles we have historically created. I’d also hate to think that in giving with one hand, the Government would remove any create freedom with the other, I’m sure that doesn’t work for the film industry and it shouldn’t work here – I think those are the actions of a fairly short-sighted government that is, not for the first time, utilising political agenda rather than common sense."

To read Blitz CEO Philip Oliver's editorial on the tax breaks issue click here.