Tax breaks

For many years Britain has been home to the world’s third largest videogame industry, tucked in behind the US and Japan. From the bedroom coders of the 80s to the behemoth that is GTA, many well known franchises have had their roots in our green and pleasant land.

Recently, however, Britain’s status has been slipping. Both France and Canada have received heavy investment from international publishers that has resulted in dramatic growth. Ubisoft and Activision have seen the potential in those countries and the former’s Montreal office alone employs almost 2,000 staff, and with output of the calibre of Prince of Persia, Splinter Cell and Assassin’s Creed it’s an investment that has paid off.

The reason why such large cheques have been written overseas is a simple one: tax. When the Canadian Government offers an incentive worth 30% of a company’s payroll in tax credits (with an additional 7.5% if the game they are developing includes a French-language version) it’s hard to ignore.

By comparison, Ian Livingston speaking at Develop last summer described the UK as “the most expensive country in the world to develop a game.” He cited the cheap labour of Asia and the tax breaks afforded to those in other countries as reasons why more and more studios are being setup overseas. With developers such as American McGee opening up studios in China to take advantage of both the untapped talent pool and financial benefits, it would seem hard to argue against such a statement.

There is movement though, and back in June Communications Minister Lord Carter presented the final in a series of reports entitled Digital Britain. Alongside many suggestions aimed at improving the technological state of the nation he proposed “cultural tax breaks” to redress the balance. Something akin to those mentioned above and not too dissimilar to that which the British film industry already has.

Sadly, despite this recommendation being back by several years’ worth of lobbying from high profile developers and bodies representing the industry, Wednesday’s pre-budget report made no mention of any such deal. Taking the quote directly from the full 200+ page report:

“The creative industries, including the video games industry, make a valuable economic and cultural contribution to the UK.  The Government committed in Digital Britain to work with the video games industry to collect and review the evidence for the introduction of a tax incentive to promote the development of culturally British video games.

“While recognising the challenges currently faced by the sector in competing internationally, the Government is not currently persuaded that the evidence is sufficiently compelling to justify the introduction of a tax incentive for the development of culturally British video games at this time.”

It would seem that although the forecast was that any initial loss would be dwarfed by the projected investment such cuts would bring, the Government did not consider it a compelling enough case to implement. The wording does not rule out a change of heart in the future but given the economic climate I doubt many would foresee that occuring soon. And whilst some of the more scaremongering articles may talk about this signalling the exodus of development staff to more lucrative foreign climes, I think the reality is a little more mundane.

Given the relatively low cost of living abroad, it has always been attractive for British developers to look overseas. A number of my former colleagues have upped sticks, kissed goodbye to our gloomy skies and headed over to America but not because of any subsidy that the US Government is doling out. Many look to expand their career, explore a different style of living or even just pick up a larger pay cheque and would do so whether the powers in Whitehall offered financial incentives to British employers or not.

We mustn’t forget that there is also an influx of talent. Even at my own studio, whilst the great proportion of our development staff are British, we are also graced with talented people from across the globe. Many countries from the EU were represented at our Christmas lunch this week, as well as those from as far afield as Australia and Japan.

Of course, I speak at a personnel level. Rising up to the boardrooms may produce a different evaluation of the situation, as cited by Realtime World’s Studio Manager Colin MacDonald. “We’ve created 300 jobs since setting up in 2002. If we were to create another 300, we’d [now] have to look over seas,” he commented to Develop.

Taking another approach, rather than relocation, could jobs have been saved with the tax breaks that many want? With numerous UK studios having to shut their doors in recent times, including arms of EA and Midway, it might not be unfair to suggest that those with international operations and looking to make savings would not look favourably upon studios in less than advantageous tax regions.

Whatever the future for the British games industry it is undeniable that it’s still rich with talent. With GTA, Crackdown, Little Big Planet, Fable and a host of other internationally renowned IPs annually pulling in more revenue than cinema, games are an extremely profitable area for the economy. It may just take a little time for the corridors of power to truly recognise that fact.