The Rt. Hon. Alistair Darling
Chancellor of the Exchequer
HM Treasury Horse Guards Road
London
SW1A 2HQ
November 30th 2009
Dear Chancellor of the Exchequer,
Pre-Budget Report 2009 TIGA’s Submission
I am writing to you in my capacity as CEO of TIGA, the trade association representing the UK games industry, asking for you to introduce a Games Tax Relief in the forthcoming Pre-Budget Report. TIGA has over 130 members including games developers, outsourcing firms, technology businesses and universities. TIGA’s vision is to make the UK the best place in the world to do games business.
TIGA’s submission to the Pre-Budget Report (please see the attached document), makes a number of recommendations:
the introduction of a Games Tax Relief;
freezing corporation tax rates for the coming financial year, then aiming to cut them by one per cent over the course of the next Parliament;
freezing National Insurance Contributions for the next financial year, then aiming to reduce them by one per cent over the life of the next Parliament;
extend the definition of ‘qualifying costs’ within the R&D tax relief rules to include benefits in kind and premises costs (such as rent and rates);
encouraging investment into intellectual property generating businesses; and
increasing the value of corporation tax losses.
The most important of these measures for the UK games industry is the introduction of a Games Tax Relief.
The UK has a track record in creating some of the world’s best selling computer games. The UK games industry employs more than 28,000, over 9,000 in games development, contributes £1 billion to the UK’s Gross Domestic Product and generates £400 million in tax receipts.
The UK video games development industry is the epitome of a high-value added, knowledge-intensive sector. 60% of a typical development studio’s workforce is qualified to degree level and in many studios this figure rises to 80%.[1] Development staff are highly productive. In 2007, the UK games production sector grossed £1.24 billion, equating to £124,000 per worker, whereas the UK film production industry grossed £1.65 billion, equating to £49.253 per worker.[2] Salaries in the games industry typically exceed £30,000 per annum, above the national average. The industry is export oriented, with on average 46% of developers’ turnover generated from the export of games.[3]
Global games sales grew by 20% in 2008 compared to 2007. Yet between July 2008 and July 2009, the UK development sector’s workforce shrunk by 4% as studios closed or contracted and 15 per cent of UK games businesses closed down. This is because the UK games industry is competing on an uneven playing field. Our principal competitors in Australia, Canada, China, France, South Korea, Singapore and the USA all receive national or regional/state tax breaks for games production. No tax breaks for games production exist in the UK.
Consequently, video games development in the UK is increasingly uncompetitive, despite its world-class talent pool and impressive track record. Investment is flowing away from the UK with global companies downsizing or relocating their UK operations. Many UK based developers are being actively wooed by overseas companies and government agencies to relocate to jurisdictions with more favourable tax regimes. The UK game development industry fell from third largest in the world based on revenue in 2006 to fourth position in 2007 and is expected to fall to fifth place in 2009.
If no action is taken, the UK development sector will continue to contract. TIGA’s research indicates that unless the UK Government introduces a Games Tax Relief then employment in the development sector will fall by five per cent in each of the next five years, from 9,025 in 2009 to 7,351 in 2014. There would also be a fall of £1.9 million in development expenditure over the same period.[4] Without immediate action, one of the UK’s critical knowledge economy sectors will contract further, more creative jobs will be lost overseas, and the potential of one of our world-class digital industries will be stymied.
In contrast, with Games Tax Relief enacted, the industry would stop shrinking in 2010, grow by 2 per cent in 2011 and by 4 per cent in each of the next three years. 3,550 graduate level jobs and £457 million of investment in the development sector would be created or protected with the advent of the tax break. Games Tax Relief would more than pay for itself. Over 5 years the tax measure would cost £192 million but would deliver £415 million in tax receipts.[5]
We now have a clear choice: invest in an inherently successful industry to perpetuate our world leading position, or preside over the decline of a key knowledge industry.
TIGA has made representations to the Departments for Culture, Media and Sport, to Business Innovation and Skills, and to your own Department, setting out the case that Games Tax Relief would promote investment; expand graduate level employment; and strengthen a key creative industry. Knowing your determination to promote economic growth and to support growing knowledge industries of the future, I hope that you will be able to make a positive announcement about the introduction of Games Tax Relief in the Pre-Budget Report in December.
If you would like to discuss any of the points raised in this letter, please do not hesitate to contact me.
Given the importance of this issue to the UK games industry, I will be making the contents of this letter public.
Yours sincerely,
Dr Richard Wilson
CEO of TIGA
[2] Gibson, R., (2008), Games up? The economic case for introducing tax breaks for the video games development industry – a summary, p. 3.
[3] Wilson, State of the UK Video Game Development Sector, p. 5.
[4] Wilson, R., Gibson., R., and Gardner, P., Investing in the Future: a Tax Relief for the UK Video Games Development Sector (September 2009), p. 58.
[5] Ibid, p. 59.