The UK video games industry: an agenda for the next Parliament
“TIGA’s manifesto, ‘The UK video games industry: an agenda for the next Parliament’ provides a considered and comprehensive approach to the key issues facing the games industry.” John Whittingdale OBE MP
1 Introduction
1.2 Executive summary
2 Macro-economic policy
2.1 Fiscal policy
2.2 Monetary policy
3.5 Encouraging investment into IP generating businesses
3.6 Increasing the value of corporation tax losses
3.7 Income Tax
5 Education
mathematics and science teachers
5.2 Allow schools the freedom to teach a range of qualifications
5.3 Give schools greater financial freedom to set pay
5.4 Promote a career in the video games industry in schools
5.5 Increase expenditure on higher education
5.6 Reduce tuition fees in priority
undergraduate subject areas
5.9 Train to Gain
7.1 Regional Development Agencies
10 Classification system
boxed games designed for those aged 12 or above
11 Engaging with Governments, parliaments and policy makers
11.1 Embed trade associations in policy making
11.2 A UK Video Games Council
12 Acknowledgements
Jason Kingsley
Creative Director Rebellion Studios
03
The UK video games industry: an agenda for the next Parliament
Foreword
Chairman of the House of Commons Select Committee for Culture,
Media and Sport; Vice-Chairman of the All Party Parliamentary Group
for the Computer and Video Games Industry.
My interest in electronic games stems back to my first purchase of
an Atari console some thirty years ago. Ever since then I have been a
keen if unaccomplished games player while at the same time watching
with fascination as my own children have graduated from Gameboys to
Nintendo DS and from PC games to PS2 and then PS3. However, it is in
my professional capacity, first as the Shadow Secretary of State for Culture,
Media and Sport, then from 2005 as chairman of the Culture, Media and
Sport Select Committee, that have I become increasingly aware of the huge
economic and cultural contribution that the video games industry makes to
British life.
TIGA’s manifesto, The UK video games industry: an agenda for the next
Parliament provides a considered and comprehensive approach to the key
issues facing the games industry. On fiscal policy, TIGA has consistently
drawn attention to the increasingly uneven global playing field, with some
Governments (notably in Canada) providing huge fiscal incentives and tax
breaks to encourage gaming companies to relocate. We simply cannot
afford to lose our industry overseas and so I very much support TIGA’s
call for Game Tax Relief, the retention of the Small Firms R&D tax credit
scheme, and a general lowering of the tax burden on UK businesses as
a whole. Games businesses, like any other businesses, need a low tax
environment if they are to compete successfully.
If UK games businesses are to maintain their competitive edge then they
must also have a skilled workforce. TIGA’s proposals relating to higher
education funding, the promotion of knowledge transfer between industry
and academia and the encouragement of industrial secondments would
help to ensure that the games industry has access to the skilled employees
that it needs.
The existing system of support for industry in general and for the games
sector in particular, needs reform. If financial support is to be provided
for the video games sector then it should generally be delivered through
national, flexible programmes.
Finally, I very much welcome TIGA’s dislike of quangos. Government and
Parliament do not need an interlocutor in the form of a Video Games
Council in order to understand the needs of the sector. Conversely, the
industry should not need to rely on a quango to have its views effectively
articulated. This is the job of voluntary trade associations such as TIGA.
The UK video games industry is extremely knowledge intensive and
employs some of the most creative and technologically savvy people in
the country. It is an industry of the future and can play an important role in
inspiring young people to study computer science, maths, art and design.
It is essential that we engage with UK video games developers and provide
the right conditions to allow this highly skilled, creative industry to flourish.
I thoroughly commend this policy document to MPs, policy makers and
anyone with a serious interest in the UK video games industry.
Foreword
Jason Kingsley TIGA Chairman and CEO and Creative Director Rebellion Studios
I have been working in the UK video games industry for over 20 years.
The company Rebellion that I founded with my brother Chris is one of the
largest independent video games developers in the world, with over 250
staff and an annual turnover of more than £12 million. The company has
multiple offices throughout the UK, including Oxford, Runcorn
and Liverpool.
Rebellion works with the best game publishers in the world including
Lucas Arts, Activision Blizzard, Electronic Arts, Sega and Ubisoft. We have
developed 19 international number one hits including games based on Star
Wars, The Simpsons, Harry Potter, Alien Vs Predator, Call of Duty, Sniper
Elite, and have received numerous awards including 5 BAFTA nominations
for our work
In 2001 TIGA was founded to represent the UK video games industry.
I was the driving force behind creating TIGA and am currently Chairman
of the organisation. Since TIGA’s inception, but particularly over the last
two years, we have worked hard to raise the profile of the video games
industry among Parliamentarians. I have personally given evidence to a
parliamentary select committee and I regularly lobby MPs on key
industry issues.
The UK video games industry has a rich and illustrious past – working with
and creating some of the world’s most successful entertainment franchises.
However our industry also faces considerable challenges. Many of our
international competitors receive significant advantages in terms of tax
breaks and other fiscal support from their governments. If the UK video
games industry is to continue to be world beating then policy makers must
recognise its importance and introduce the Games Tax Relief outlined
in this document, as well as other fiscal, administrative and educational
reforms. I was delighted by the Government’s announcement in the Budget
on March 24th that it intends to introduce Games Tax Relief. We now need
to see this measure introduced at the earliest opportunity.
It is worth explaining that when we talk about the UK video games industry,
we are not only talking about companies that make racing games or action
games for the PlayStation or Xbox. We also represent a sector making
social games, educational games, traditional games, historical games,
sports and fitness games. I am extremely passionate about the ways in
which videogames can educate as well as entertain. Videogames can also
be used to inspire young people and encourage them to continue studying
computer science, maths, art or design, in order to work in our industry.
The video games industry is an industry of the future and the men and
women who work in it are among the most highly educated, creative and
talented people in the country. We seek your support to
help our industry to grow.
To ensure the continuing success of this pre-eminently creative sector,
I urge political parties to support TIGA’s agenda for the video games
industry, as outlined in this paper.
The UK video games industry: an agenda for the next Parliament
05
TIGA is the trade association representing the UK video games
industry. The majority of our members are either independent video
game developers or in-house publisher owned developers. We also
have outsourcing companies, technology businesses and universities
amongst our membership. TIGA’s vision is to make the UK the best
place in the world to do games business. We focus on three sets
of activities: political representation, raising our industry’s profile
and developing services that enhance the competitiveness of our
members. This means that TIGA members are effectively represented
in government and parliaments, their voice is heard in the media and
they receive benefits that make a positive material difference to their
businesses, including a reduction in costs and improved commercial
opportunities.
culturally and increasingly educationally.
The UK video game sector makes a valuable contribution to the UK
economy. In 2008 the UK was the third largest developer of games
in the world in terms of revenue generation, generating £2 billion in
sales in 2008. The video games sector contributed approximately £1
billion to the UK’s GDP in 2009 and generated £400 million for HM
Treasury in tax revenues.[1] 28,000 people work in the games industry,
including over 9,000 in games development. Game development
sustains knowledge based, graduate employment. A typical game
development studio will have 80 per cent of staff qualified to
degree level or above.
Video games are increasingly embedded in UK culture and society.
73% of the population regularly play video games, including two-
fifths of people aged over 50.[2] Video games can reflect society,
make cultural commentary, use narrative and involve breathtaking art.
Video games also interact with other forms of media, for example,
inspiring film, television and music. No wonder that 86% of British
people believe that video games can be cultural products.[3]
Video games are educational. All video games have a rule set that has
to be learned before they can be played and when a player starts a
new game they have to be taught how to play it. A fifth of UK games
business make educational or serious games, making an explicit
feature of learning.[4] A number of studies suggest that video games
may help to promote skills such as visual and motor skills, strategic
thinking, relationship building, computer literacy, collaboration,
competition, multi-tasking and experiential learning.[5] Video games
have the potential to play a valuable role in mainstream education,[6]
in training and in workforce development.[7]
This paper sets out a range of policies for the UK’s political parties
to consider in the run up to the General Election. The proposals
described in this paper identify how to build on the success and
inherent potential of the UK video game industry, thereby benefiting
the wider UK economy and society. We hope that political parties will
support the agenda outlined here and that the next Government will
implement it.
TIGA recognises the macro-economic constraints facing the UK at this
time. Yet the UK video games industry represents a significant driver
in innovative economic activity and with the right support the industry
could contribute to the growth of a more diverse and sustainable UK
economy.
Where TIGA calls for direct increases in budgets or for new initiatives,
we do it in the context of keeping the UK competitive in the context
of comparable international schemes that directly subsidise or aid
foreign video games industries and thereby put the UK video games
industry at a significant disadvantage.
1.2 Executive summary
TIGA makes policy proposals in 30 areas in this report.
We have three key priorities:
1. the introduction of Games Tax Relief as soon as possible;
2. the retention and expansion of the SME R&D
tax credit scheme; and
mathematics and computer science degrees.
TIGA’s policy agenda:
1. There should be no increase in the tax burden on UK
businesses in general and on the video games industry in
particular.
2. The Chancellor and the Bank of England should aim to keep
base rates comparatively low, while aiming to hit the inflation
target of 2 per cent on the Consumer Prices Index. A relatively
loose monetary policy should help to reduce the cost of bank
finance and other things being equal keep sterling relatively
competitive.
3. Games Tax Relief should be introduced at the earliest
opportunity.
4. Corporation tax rates should ideally be cut by at least one per
cent during the next Parliament. Failing this, the rates should
be frozen.
Contributions (NICs) should be abandoned. NICs should
ideally be cut by one per cent during the next Parliament.
6. The rate of relief under the SME R&D tax credit scheme
The UK video games industry: an agenda for the next Parliament
should be increased from 175 per cent of qualifying
expenditure to 200 per cent. Engineers and scientists
should be recruited into HMRC specialist R&D Tax Credit
evaluation units.
businesses from attracting tax efficient investment under the
Enterprise Investment Scheme (EIS) and Venture Capital Trust
(VCT) scheme should be removed.
8. The value of corporation tax losses (whereby companies
can ‘carry-back’ corporation tax losses against profits of the
previous year) should be increased to help small companies.
9. The basic income tax rate of 20 per cent and the higher rate
of 40 per cent should be retained. Thresholds should be
linked to inflation to avoid the effect of fiscal drag. The 50
per cent rate should be abolished.
10. The introduction of the patent box regime, for 10 per cent
corporation tax on royalty income from patents, should be
introduced in April 2012, rather than 2013.
11. The introduction of a pilot SME Training Tax Relief (TTR)
should be considered. This tax measure would operate in a
similar way to the existing R&D tax credits. SMEs would be
able to offset expenditure on training, Continuous Professional
Development (CPD) for staff and education outreach activities
against corporation tax
12. The supply of good quality mathematics and science teachers
in schools should be increased through incentives such as
bursaries, ‘golden hellos’ and writing off of student loans.
13. Schools should be given the freedom and resources to teach
alternative academic qualifications to GCSEs and A Levels that
are acceptable entry qualifications for universities.
14. Schools should have greater flexibility over pay to enable them
to attract good teachers and to ease shortages.
15. The video games industry should be promoted as a career
option at school to encourage the study of science and
mathematics subjects.
ensure that UK universities remain internationally competitive
and can provide world beating tertiary education.
17. Tuition fees for students studying mathematics and computer
science degrees should be reduced or kept competitively
priced.
businesses should be promoted.
should be protected and ideally increased.
20. Train to Gain should be made even more flexible and used to
fund a greater variety of courses at all levels.
21. The funding gap between FE colleges and schools should be
eliminated as soon as practically possible.
22. Skillset, the Sector Skills Council for Creative Media, should
promote STEM subjects and art and animation courses at
school, and support those working in the games industry to
undertake higher level training.
businesses should be encouraged.
24. More financial support for video games should be delivered
through national programmes. Existing Regional Development
Agency funding for video games is irrational and inequitable.
25. Accredited trade organisations like TIGA should be able to
use UK Trade & Investment (UKT&I) grants to cover travel and
accommodation costs as well exhibition expenses.
26. Maintain a relatively lightly regulated labour market in order
to enable UK games businesses to operate as flexibly as
possible.
27. To tackle piracy, IP owners should be encouraged to adopt
new technological solutions and business models. The most
egregious serial pirates should be prosecuted.
28. The Pan-European Games Information (PEGI) age ratings
system should be made compulsory for all boxed games
designed for those aged 12 or above.
29. Government ministers in Whitehall and in Edinburgh and
politicians in Westminster and Holyrood should engage with
trade associations such as TIGA when devising policy. TIGA is
a voluntary organisation that genuinely represents the video
games sector.
30. There is no case for creating either a new UK Video Games
Council or for extending the remit of the existing Film Council
to embrace the video games sector. Government departments
in Whitehall should continue the existing process of holding
regular meetings with industry trade associations.
2 Macro-economic policy
2.1 Fiscal policy
environment within which firms, including games businesses, can
prosper and grow.
Fiscal policy should be gradually tightened. The public finances have
deteriorated as tax receipts have plummeted and public expenditure
soared. Public spending has soared from 2000, rising from 36.3 per
cent of Gross Domestic Product (GDP) to 47.6 per cent. This year
the Government is expected to borrow £178 billion, equivalent to
12.6 per cent of GDP [8] The deficit must be brought under control
07
as soon as practically possible. Otherwise the UK could lose its triple
AAA credit rating.[9] If this happened, the cost of servicing the budget
deficit would increase.
The fiscal adjustment should take the form of lower public
expenditure rather than increases in taxation. Lower government
spending, particularly government consumption spending, increases
economic growth.[10] Real increases in public spending should
be funded through productivity gains. In principal the scope for
productivity gains should be substantial. Public sector productivity
actually fell by an average of 0.3 per cent per annum between 1998
and 2007.[11] Higher taxes can reduce economic growth by damaging
the supply side of the economy.[12] Therefore, there should be no
increases in business taxation in the forthcoming Pre-Budget Report.
Broadly speaking taxes should be kept relatively simple, stable and
low. TIGA’s Manifesto suggests some specific tax proposals below.
2.2 Monetary policy
Conversely, monetary policy should be kept relatively loose. Indeed,
a tight fiscal policy will enable monetary policy to be more relaxed
than would otherwise be the case. If demand pressures are curtailed
through a strict fiscal policy, then the Bank of England will be able
to keep base rates comparatively low, while aiming to hit its inflation
target of 2 per cent on the Consumer Prices Index. This is good for
business, including the games development sector. 48 per cent of
games developers rely on bank overdrafts to finance their operations.[13]
A looser monetary policy could also help to keep sterling relatively
competitive, other things being equal. This would help UK exporters,
including video games developers. On average, 46 per cent of UK
game developers’ turnover is generated from the export of games.[14]
3 Specific tax policies
Proposal
The Government announced in the Budget on March 24th that it
would introduce Games Tax Relief. TIGA believes that Games Tax
Relief should be introduced as soon as possible. It should have the
following attributes:
• Eligibility for the Games Tax Relief would cover any company
within the scope of UK Corporation Tax.
• Video games would need to pass a cultural test, scoring
against criteria of European heritage and game locations,
languages, innovation, narrative, and location of development
and key development staff.
• The Games Tax Relief would be calculated and applied in
a similar way to the existing tax relief for British films. A
development company would be entitled to an additional
deduction in computing their taxable profits equal to the
UK expenditure incurred in developing a game, or 80 per
cent of the total expenditure incurred in developing a game,
whichever is the lower. The development company would then
be entitled to a tax credit calculated on the amount of the
deduction, which it would either be set off against the income
from the game or recovered as a payment from HMRC.
• The Games Tax Relief should have three tiers of benefit: 20
per cent of core expenditure for budgets above £6,000,000,
25 per cent for budgets over £3,000,000 but less than
£6,000,000 and 30 per cent for budgets of over £100,000
but under £3,000,000. The three tiers are designed to reflect
average production budgets of video games on different
games platforms, and correspondingly different sizes of
company. (In parenthesis, it should be added that if Games
Tax Relief is to assist the production of culturally British
mobile games then it would be advisable to extend relief to
games with a budget of £50,000 or more.)
• An independent organisation with knowledge and experience
of video games production would administer the cultural
tests, checking submission criteria are met and policing the
Relief. It would issue interim certificates or letters of comfort
confirming a product has passed or provisionally passed the
cultural test to ensure candidate projects are funded.
Reason
the last decade has created an increasingly uneven international
playing field, making it difficult for UK games developers to compete.
Our principal competitors in Australia, Canada, China, France, South
The UK video games industry: an agenda for the next Parliament
09
“If the UK video games industry is to continue to be world beating then policy makers must recognise its importance and introduce the Games Tax Relief outlined in this document, as well as other fiscal, administrative and educational reforms. I was delighted by the Government’s announcement in the Budget on March 24th that it intends to introduce Games Tax Relief. We now need to see this measure introduced at the earliest opportunity.”
Jason Kingsley TIGA Chairman and CEO and Creative Director Rebellion Studios
Korea, Singapore and the USA all receive national or regional/state tax
breaks for games production. For example, Montreal in Canada offers
5 year income tax holidays for foreign specialists and pays 37.5%
of games companies’ salaries for 5 years. Likewise, France provides
a 20 per cent games production tax credit for games that pass a
cultural test.
Between July 2008 and July 2009 the headcount at British video
games studios fell by 4 per cent, and 15 per cent (44) of British
video games development studios, publishing and service companies
went out of business. Yet global industry sales grew by 20 per cent in
2008 compared to 2007. In turn, between July 2008 and July 2009
the UK video games industry’s contribution in tax revenues to the
Exchequer fell by £17 million and the sector’s contribution to Gross
Domestic Product (GDP) declined by £41 million.
British-made video games are facing a long-term decline in the global
sales charts, despite a record 2008. The UK is expected to fall to 5th
place in 2009, overtaken by Canada and South Korea, whose studios
are heavily government supported. British consumers have a strong
preference for British made video games, purchasing four times more
British-made video games than US consumers. Yet decline means that
the British public faces decreasing access to British-made video games.
A brain drain, in particular of skilled and experienced staff, to
subsidised studios overseas is beginning to bite, with a recent survey
finding this issue and overseas subsidies the top concerns of senior
UK industry executives.[16]
Effect
Games Tax Relief is expected over a five year period to: create
or save 3,550 graduate level jobs (or the vocational equivalent);
increase or safeguard £457 million in development expenditure; and
secure £415 million in new and saved tax receipts over five years.
This measure will drive sustained growth in the UK studio sector and
halt the current decline in investment in and jobs. The outlay for the
Government is anticipated to be £192 million over the same period.[17]
3.2 Corporation tax
Proposal
The small companies’ rate and the main rate of corporation tax
should ideally be cut by at least one per cent during the next
Parliament. Failing this, the rates should be frozen.
Reason
The tax burden on UK business has risen over the last decade. In
1997 the UK’s principal corporation tax rate was five per cent below
the OECD average. In 2008, it was 4.5 per cent above the OECD
average.[18] Higher taxation leaves business with fewer resources
available for investment and deters foreign direct investment.
A reduction in the small and large corporation tax rates over the
course of the next Parliament would give a signal that the UK was
determined to maintain a competitive tax system. This would serve
to strengthen the attractiveness of the UK as a destination for
overseas investment. The lower tax rates would provide business with
additional resources for investment and expansion.
Effect
A cut in the small companies’ rate of corporation tax from 21
per cent to 20 per cent would cost HM Treasury £450 million in
2010-11, rising to £650 million in 2011-12.[19] Reducing the main
corporation tax rate from 28 per cent to 27 per cent would cost HM
Treasury £1 billion in 2010-11, rising to £1.1 billion in 2011-12.[20]
Companies pay different rates of corporation tax and are not always
liable for the full rate. An examination of six games business’s
accounts from 2007 and 2008 indicates that a one per cent cut in
corporation tax would, on average, save each of them £16,560.
3.3 National insurance Contributions
The planned increases in Employers’ National Insurance Contributions
(NICs) should be abandoned. NICs should ideally be cut by one per
cent during the next Parliament. At the very least there should be no
increase in NICs: a cut in other business taxes would be completely
negated by a rise in NICs.
Reason
NICs are a tax on employment. The cost of games development in
the UK is already relatively high.[21] The cost of games development
needs to be lowered in order to encourage employment growth by UK
developers and to promote inward investment by overseas publishers
into the country.
Effect
Cutting NICs will reduce the cost of hiring employees and so
encourage businesses, including games developers, to expand
employment. It will also serve to make the UK a relatively more
attractive place to invest in. Reducing the Class 1 employee main rate
by one per cent would cost HM Treasury £4.2 billion in 2010-11.[22]
3.4 Research & Development (R&D)Tax Credits
Proposals
• Maintain the R&D Tax Credit Scheme for large companies.
The UK video games industry: an agenda for the next Parliament
• Increase the rate of relief under the SME R&D tax credit
scheme from 175 per cent of qualifying expenditure to 200
per cent.
should consider extending allowable expenditure under the
R&D tax credit beyond salaries to include overheads as a
percentage of salary (e.g. if a salary claim was £250,000,
HMRC could offer perhaps 50 per cent of that as overhead
and so make the total claim £375,000).
• Actively recruit trained engineers and scientists into the HMRC
specialist R&D Tax Credit evaluation units.
Reason
Business performed R&D drives economic growth.[23] The UK currently
invests a lower proportion of GDP in R&D in comparison to G7
countries such as the USA, France, Germany and Japan.[24] Business
investment in R&D in the UK is relatively low compared to other G7
countries.[25] In The most recent data available is for 2007 when
gross domestic expenditure on research and development was 1.79
per cent of GDP, or £25.4 billion.[26]
The R&D tax credit helps to support innovation in the video games
industry by facilitating the creation of new products, processes and
services. It also helps to enhance the competitiveness of the UK
games industry and can encourage overseas investment into the
games industry. If the UK is to be a leading knowledge economy
we need to create an environment that is supportive of business
investment in R&D. Further increases in the scope and generosity of
the R&D tax credit will act as an incentive to world class innovation for
the UK games industry in particular and other businesses generally.
Games businesses typically report that applying for the R&D tax credit
can be complicated and time consuming. Recruiting experienced
engineers and scientists into HMRC could make applying for the
credit easier.
SMEs (businesses with 500 employees or fewer) can currently
reclaim relief of 175 per cent on qualifying expenditure.[27] Enabling
SMEs to reclaim relief of 200 per cent on qualifying expenditure
would promote innovation and strengthen the competitiveness of the
games industry in particular and of many other UK businesses too.
Extending allowable expenditure under the R&D tax credit beyond
salaries to include overheads as a percentage of salary would serve
the same purpose.
Recruiting trained engineers and scientists into the HMRC specialist
R&D Tax Credit evaluation units should ensure that HMRC better
understands the video games industry, can give good advice to
games developers and simplify the process of claiming for the
tax relief.
Proposal
attracting tax efficient investment under the Enterprise Investment
Scheme (EIS) and Venture Capital Trust (VCT) scheme.
Reason
Currently, EIS and VCT reliefs are not always available to a company
that funds the creation of IP but does not create that IP itself.
Although there are ways that arrangements can be structured to
take advantage of the EIF and VCT reliefs, some of the restrictions
applicable to these reliefs have limited their application in relation to
the creation and commercialisation of IP. This inhibits investment in
companies which are set up to commercialise the IP generated by,
say, a group of games development companies.
Effect
investment into the original IP generating businesses and in turn
encourage investment into the IP commercialisation entities.
3.6 Increasing the value of corporation tax losses
Proposal
profits of the previous year. During the economic downturn, the
government has introduced measures to allow losses to also be
carried back to the two years preceding this (i.e. three years in total).
However, there is a cap of £50,000 applied to such carry backs,
making them worth a maximum of approximately £10,000 to a small
company.[28] This cap should be removed.
Reason
Removing the cap on loss carry backs into earlier years would allow
companies to gain full relief for the losses that they have suffered at
the time when they need it most. The £50,000 cap has been set at
such a low level that the net cash benefits to the company are too
small to make a significant difference to its prosperity.
Effect
This measure would provide additional much needed short term
support to those companies which are investing funds in R&D and
generating valuable IP but struggling to remain cash positive in the
current economic conditions. It will help them to survive the economic
downturn and contribute to the future success of our economy.
11
Proposal
The basic rate of 20 per cent and the higher rate of 40 per cent
should be retained. Thresholds should be linked to inflation to avoid
the effect of fiscal drag. The 50 per cent rate should be abolished.
Reason
Low rates of taxation leave business with more money to spend
at their own discretion on software, equipment, premises or their
employees. Low taxation also strengthens the incentive for individuals
to set up and grow their own businesses because the opportunity
to make a profit is enhanced.[29] The 50 per cent tax rate would
raise comparatively little revenue and could serve to deter wealthy
individuals from locating in the UK and spending their money on
domestic businesses.[30]
Effect
Other things being equal, if income tax rates are kept at relatively low
levels economic activity will be enhanced. Stability in tax rates will
enable businesses and individuals to plan with confidence. Retaining
just two rates of income tax will make for a more simple tax system,
reducing both compliance costs and the risk of creating a perverse
set of incentives.
Proposal
Bring forward the patent box regime, currently planned to start in
April 2013 for 10 per cent corporation tax on royalty income from
patents, to April 2012 at the latest.
Reason
In a recent survey of 78 game development businesses in the UK,
9 per cent (7) had made applications for patents in the previous 12
months. The patent box regime is a good idea, similar regimes exist
in other countries, but to wait until 2013 to introduce this measure
seems dilatory. To demonstrate that the UK is determined to become
a leading knowledge economy, the introduction of the patent box
regime should be accelerated.
This tax measure would help a minority of game developers
financially. It should also strengthen incentives to invest in innovative
industries like the video games industry.
4 Workforce development
Proposal
Introduce a pilot SME Training Tax Relief (TTR). This tax measure
would operate in a similar way to the existing R&D tax credits.
SMEs would be able to offset expenditure on training, Continuous
Professional Development (CPD) for staff and education outreach
activities against corporation tax.[31]
Reason
Of the UK adult population, just 51 per cent and 31 per cent have
either a level 3 or level 4 qualification respectively.[32] This is relatively
low.[33] A large proportion of the UK workforce also lacks good basic
skills: 17 million adults have difficulties with numbers and 5 million
are not functionally literate.[34] The UK should strive for one of the
best skilled and qualified workforces in the world. Enhanced skills can
improve productivity which is good for business.[35] Equally, higher
skills can raise the employability of individuals.[36]
UK public and private investment in training is comparatively low by
international standards.[37] Market failure can contribute to a failure
to invest in skill development.[38] Employers face the hurdles of cost
and lost time when training their staff. This is particularly true for
SMEs.[39] Games businesses invest in training. 85 per cent of UK
games developers provide some form of training to their employees.
However, only 8 per cent provide training leading to a qualification.[40]
The SME Training Tax Relief could be piloted in the video games
sector and potentially other creative industries. Regional Development
Agency funds that are currently devoted to video games could be
used to pay for the pilot SME Training Tax Relief.
Effect
This measure would serve to encourage more workforce development
and training by games businesses in particular and other SMEs in
general. Other things being equal, staff productivity and employability
would be improved. It could additionally lead to an increase in training
resulting in qualifications.
It would also lead to stronger business-educational links. In the case
of the games industry, more developers would have the incentive
and resources to provide guest lecturers to universities, contribute
to course development, participate in school, college and university
career days and make work placements available. Knowledge
exchange between industry and universities would be strengthened.
The UK video games industry: an agenda for the next Parliament
13
The UK video games industry: an agenda for the next Parliament
5 Education
5.1 Increase the supply of good quality mathematics and science teachers
Proposal
mathematics and science; provide more generous ‘golden hellos’ to
teachers in these disciplines; and pay off their student loans if they
go into teaching and stay in the profession for a specified number of
years (perhaps five).[41]
Reason
Test and examination results indicate that the quality of UK education
remains comparatively disappointing. The United Kingdom is 14th in
the PISA league table for Science, and 24th on the PISA league table
for Mathematics.[42] Over two-fifths of GCSE students failed to get a
good pass (A* - C grades) at GCSE mathematics in 2009.
Part of the reason for this relatively poor performance relates to the
supply of teachers. There is a shortage of mathematics and science
teachers in schools.[43] Only 40% of trainee teachers in mathematics
and computing had good degrees (i.e. 2:1 or above) in 2007.[44]
Unless pupils and students are taught by good teachers, they will
struggle with STEM subjects and be put off from studying them any
longer than they have to.
Effect
Improving the financial incentives for graduates in mathematics and
science to go into teaching should ease teacher shortages in these
disciplines. This in turn should help to ensure better quality teaching
in these disciplines in schools. Ultimately, this should lead to a greater
supply of young people with a good understanding and higher
examination results in mathematics and the sciences.
5.2 Allow schools the freedom to teach a range of qualifications
Proposal
Give schools the freedom and resources to teach alternative academic
qualifications to GCSEs and A Levels that are acceptable entry
qualifications for universities.
should be free to determine which qualifications their pupils should
work towards after consultations with parents. Qualifications such
as the International GCSE and A Level, the Cambridge International
Certificate and the International Baccalaureate (IB),[45] may be more
appropriate for some pupils than GCSEs, AS and A2 qualifications.
The value of existing science GCSEs has been questioned by the
Royal Society, amongst others.[46] Additionally, GCSEs, AS and A2
levels entail regular examinations because of their modular nature.
Modular assessment naturally entails advantages and disadvantages.
Schools should be free to select the qualifications they deem most
appropriate for their pupils.[47]
Effect
A greater choice over the qualifications taught in schools could be
more satisfying for teachers and pupils alike. Examination boards will
have an incentive to provide high quality syllabi and examinations to
schools.[48]
Proposal
Give schools greater financial freedom to set pay by ending national
pay agreements.
Reason
Giving schools greater flexibility over pay could allow them to attract
better teachers and ease shortages. If schools in disadvantaged
areas could offer staff higher rates of pay, then they could be better
placed to compete against schools in more prosperous middle
class environments for the best teachers. Schools in disadvantaged
areas could receive additional public funds to help them remunerate
teachers in subject shortage areas.
Effect
If individual schools have greater liberty to determine rates of
remuneration then they will be in a better position to recruit the best
teachers in, for example, mathematics or computer science.
5.4 Promote a career in the video games industry in schools
Proposal
Promote the video games industry as a career option at school.
15
Reason
Highlighting the opportunities which exist in the video games industry
could help to encourage pupils and young people to continue
studying science, technology, engineering and mathematics subjects
(STEM) on the one hand, and art, animation and design on the other. [49] This is not simply important for the UK games industry. The UK
as a country has a poor record in respect of post-16 education and
training. The proportion of young people staying in education post 16
is below the OECD average.[50]
Additionally, the development of an applied GCSE or an equivalent
qualification in video game development, could, if schools chose
to offer it, help to motivate pupils and encourage them to continue
studying STEM subjects. Industry professionals and local higher
education institutions could then provide guest lecturing.[51] Having
said this, some leading industry figures tend to prefer recruiting
graduates with degrees and A levels in subjects such as mathematics,
computers science and physics; they would not want to divert pupils
from the study of these traditional subjects in schools towards a
GCSE in Video Games.
Effect
Promoting the video games industry as a career option in schools
could help to dispel the negative associations relating to some STEM
subjects and encourage more pupils to persevere with studying them.
5.5 Increase expenditure on higher education
Proposal
The UK spends approximately one per cent of Gross Domestic
Product (GDP) on tertiary education. The aim should be to increase
this over the course of the next Parliament. This should be funded in
two ways: by maintaining in real terms public expenditure on tertiary
education at 2009 levels and then increasing it as the Government’s
deficit is brought under control; and by eliminating the cap on tuition fees.
Reason
UK higher education is a success story and a source of competitive
advantage. According to the Shanghai University league table of
universities, the UK has 4 universities in the top 30, second only to
the USA. [52] The UK has just one per cent of the world’s population
yet achieves 12 per cent of the world’s scientific citations, while our
humanities published 33 per cent of the world’s output between
2006 and 2008. The UK is also second only to the USA in the market
for overseas students. The net annual contribution to the UK’s national
income made by international non EU students in higher education is
£5.5 billion.
Many of the UK’s competitors spend substantially more on higher
education. Canada, South Korea and the USA spend between 2.5
per and 2.9 per cent of GDP on tertiary institutions. The UK spends
approximately one per cent of GDP on tertiary education, of which
approximately three quarters is from public sources.[53] Unless the UK
increases investment on tertiary education and spends it effectively,
the UK’s competitive advantage in higher education will be eroded.
Higher education funding has not kept pace with the expansion in
student numbers that has taken place. Funding per student has halved
in the UK over the past 20 years.[54] Funding in the UK ($11,866) is
around half the US level of investment ($24,704) and substantially
lower than Canada ($19,992) and Sweden ($16,073).[55] The UK
video games industry competes to a crucial extent on the quality of
its workforce. If tertiary education is not adequately financed then the
supply and quality of graduates will be adversely affected.
Effect
Increasing the proportion of GDP allocated to tertiary education
will support the UK’s ambition to be a leading knowledge economy.
More intelligent people will be able to benefit from higher education,
the quality of research will be strengthened, the recruitment and
retention of high quality teaching staff will be enhanced and the UK’s
leading position in the market for overseas students will be reinforced.
UK games businesses will also be more likely to draw on a healthy
supply of high quality graduates if investment in tertiary education
is increased.
5.6 Reduce tuition fees in priority undergraduate subject areas [56]
Proposal
voluntarily cutting tuition fees in these disciplines or by Government
action to achieve this objective, either by regulation or by financial
intervention.
Reason
The video games industry needs high quality graduates (or the
vocational equivalent) in both STEM subjects such as computer
science and mathematics, and art and animation. The games industry
has experienced skill shortages particularly in computer programming [57] This has had a negative impact on many games businesses,
for example, resulting in the delay of products and services and
increasing the workload on other staff.[58]
The UK video games industry: an agenda for the next Parliament
As Professor John Holman, National STEM Director and Director of
the National Science Learning Centre has said: ‘The UK needs more
STEM graduates if we are to be a leader in the knowledge economy.’
Indeed this problem has been reiterated by David Lammy MP, Minister
of State for Innovation, Universities and Skills, who stated: ‘We need
to encourage more people from all backgrounds to take up STEM
subjects to expand and improve skills here in the UK’ [59] The Leitch
Review of Skills suggested in 2006 that the UK needs to increase the
proportion of the workforce qualified to degree level or the vocational
equivalent from 29 per cent in 2005 to 40 per cent in 2020.[60]
Yet the number of graduates in some STEM disciplines is in decline.
There has been a twenty five per cent fall in the number of IT and
Computer Science graduates between 2004 and 2008 .[61]
Universities will have to avoid deterring potential students from
studying STEM courses if tuition fees rise further, following Lord
Browne of Madingley’s review of Higher Education Funding and
Student Finance.[62] Some STEM courses are relatively expensive for
universities to provide and clearly need to be properly resourced.
Universities should consider cross subsidisation between different
degree courses to ensure that potential STEM students are not
discouraged from entering higher education. Money raised through
higher tuition fees should also be used to provide for bursaries
and lower fees generally for capable students from disadvantaged
backgrounds to study STEM subjects.[63]
Effect
degree courses and keeping them lower in comparison to other
undergraduate subjects would provide a strong financial incentive
to bright students to study these subjects. Other things being equal
this should increase the supply of good quality graduates in these
disciplines, easing skill shortages in the video games and other
industries.
businesses.
Reason
The knowledge transfer between universities and business is mutually
beneficial. Games businesses have much to benefit from establishing
strong links with educational institutions. For example, many UK
games businesses could enhance their competitive edge and the
quality of their games if they develop a greater understanding of
current academic research in areas such as machine learning and
artificial intelligence. Universities benefit from acquiring a greater
understanding of the activities of businesses and their skill needs.
Effect
This scheme would benefit individual lecturers and their university
students because it would provide lecturers with state of the art
business experience. Games development firms would benefit
by having highly knowledgeable researchers addressing practical
business issues. Universities would also benefit because the scheme
would strengthen links between the games sector and higher
education and generally aid knowledge transfer.
5.8 Promote ‘blue sky’ research
Proposal
protected and ideally increased.
Reason
A balance needs to be struck between blue sky research and near
market research. Both are important. Both need to be supported.
Private sector organisations may be deterred from spending on
curiosuity or ‘blue sky’ research[64]. This is because it can sometimes
be difficult for businesses to monopolise the returns on their
investments, as the discoveries and developments of that research
could produce spillover effects that other organistions might benefit
from. There is therefore a strong public good argument for investment
by the Government and higher education in blue sky research.
The Government should be careful of investing resources in the
promotion of specific research activities that are designed to reap
an economic benefit at the expense of blue sky research. Such
investments can be expensive, as was the case with the Concorde
project. Additionally, operators in the private sector could be as
equally well placed as the public sector and higher education to
make such investments because they might be able to capture the
returns on such R&D expenditure. Also, expenditure on utilitarian
research ventures could simply squeeze out more profitable research
developments. Both blue sky research and near market research need
investment.
Effect
Ensuring that research funding is blue-sky driven is more likely to
result in serendipitous discoveries with unforeseen economic and
social benefits. It will also make higher education a more attractive
place for academics, and so help to ensure that UK universities retain
high quality staff.
Proposal
Train to Gain, a scheme whereby employers can benefit from full or
partial public funding, should be made even more flexible and used to
fund a greater variety of courses at all levels.
Reason
The games’ industry’s workforce is exceptionally well qualified. A
typical TIGA member like Blitz, Exient or Rebellion will have over 80
per cent of staff qualified to degree level or the vocational equivalent.
Train to Gain was originally designed to enable people with low level
skills to acquire a level 2 qualification, although it has been made
more flexible. In future, Train to Gain should be used to co-fund higher
level skills, including leadership and management. This would make
the scheme more useful to the games industry.
Effect
Greater flexibility in the use of Train to Gain resources would make
the scheme more useful to knowledge sectors of the economy,
including the games industry. It would encourage more training at
higher skill levels.
Skillset, the Government backed Sector Skills Council for Creative
Media, should give particular attention to promoting STEM subjects
and art and animation courses at school, and support those working
in the games industry to undertake higher level training.
Reason
Skillset, the Government backed Sector Skills council for Creative
Media, has as part of its remit the objective to reduce skills gaps
and shortages. As part of this activity, Skillset should highlight career
opportunities in the games sector.[65]
As the games industry already employs a highly skilled workforce,
spare resources should be focussed on employees studying short,
‘bite-sized’ training to meet employer and employee needs, including
management and leadership programmes.
In parenthesis, Skillset also operates an accreditation scheme for
university games courses. Nine out of over 81 games courses are
Skillset accredited. The Skillset accreditation process is excellent
for courses which match its criteria and is a good benchmark for
high quality courses. However, the Skillset accreditation process is
relatively prescriptive for undergraduate games courses. There are
some high quality university courses which are not such a neat fit
for the Skillset criteria.[66] It would be a mistake to assume that all
university games courses which are not Skillset accredited are poor.
Effect
Over time, if Skillset promote courses relevant to the games industry
in schools and enables developers to benefit from higher level
training, skill shortages and skill gaps in the games industry should
be ameliorated.
Proposal
The funding gap between FE colleges and schools still exists and this
should be eliminated as soon as practically possible.
Reason
Typically, game development studios hire graduates from universities
rather than FE colleges. Yet FE colleges might provide a greater
supply of the games workforce in the future. FE colleges might work
with universities to deliver a version of a university games course its
students. This could help to increase the number of IT related students.
FE colleges are at a competitive disadvantage vis-a-vis schools
because of a funding gap between the two sectors. Jim Knight MP
has estimated this gap to be around 5.6%. [67]
Effect
FE colleges will be able to compete on a level playing field with
schools in recruiting and retaining staff if the funding gap between
the two sectors shrinks. FE colleges will also be able to fund courses
more generously.
Proposal
businesses by: encouraging the TSB to continue investing in
collaborative developer-university R&D projects; and by fostering more
Knowledge Transfer Partnerships (KTPs).
The UK video games industry: an agenda for the next Parliament
Reason
and strengthen higher education. The TSB provided grant funding
of £117.1 million to new projects involving UK businesses in the
financial year 2008-09. Of this £577,000 went to projects involving
UK video game businesses.[68] This investment facilitates a proof
of concept that subsequently allows business opportunities to be
exploited. It should be continued.
KTPs involve establishing a partnership between a business and
an academic institution, enabling them to access expertise to drive
forward business development. The programme has a great track
record.[69] More UK video game businesses could benefit from KTPs,
particularly in respect of acquiring marketing skills and developing
new business models.[70]
Effect
TSB funding for proof of concepts and the promotion of more KTPs
will encourage innovation in the video games industry. This in turn
should enhance the competitiveness and sustainability of more UK
video game businesses.
7.1 Regional Development Agencies
Ensure more equitable RDA funding for video games businesses and
deliver more support through national programmes.
Reason
Total RDA funding for the video games industry amounted to
£1,083,000 in 2007-08[71]. However, this masks great discrepancies
in funding. RDA funding for the video games industry in 2007-08
ranged from £471,000 in the North East to £0 in the South East,
South West and West Midlands. Important clusters of video games
developers, for example, in Brighton, Guildford and Oxfordshire
therefore receive virtually zero support from their RDAs.
England’s RDAs spent £2,586,000 on projects specifically aimed
at the video games industry in 2008-09.[72] Funding for the video
games industry remains very unbalanced. ONE spent £931,000 on
projects specifically aimed at the video game industry in 2008-09,
whereas the South East Economic Development Agency (SEEDA)
spent just £58,000 and the East Midlands Development Agency
apparently invested nothing over the same period.
All clusters should be properly supported, with programmes focussing
especially on business-to-business knowledge sharing and early stage
financial assistance. Some funding should be made accessible through
national programmes that all games businesses can access. RDA
funded programmes for the video games sector should compliment,
not compete, with the work of private sector organisations like TIGA.
Effect
If a more rational system of support is established then more game
businesses, irrespective of their geographical location, will be able to
access publicly funded programmes.
Allow accredited trade organisations to use UK Trade & Investment
(UKT&I) grants to cover travel and accommodation costs as well
exhibition expenses.
Reason
UKT&I [73] works with accredited trade organisations such as TIGA to
operate the Tradeshow Access Programme. The scheme supports UK
businesses looking to exhibit at overseas trade shows by providing
eligible firms with grants of £1,000, £1,400 or £1,800, depending
on the location of the trade show. Through UK Trade and Investment’s
Tradeshow Access Programme (TAP) £57,000 was spent on
assisting UK video games businesses exhibit at overseas exhibitions
in financial year 2008-09.[74]
Accredited trade organisations should be given greater flexibility
over the use of the grant. In particular, they should be able to use
the money to cover travel and accommodation costs, in addition to
exhibition expenses. This would help to maximise attendance at trade
shows. The principal of using public funds in this way has already
been conceded: some RDAs currently help businesses in this way.
Effect
This would enable more eligible SMEs in general and games
businesses in particular to attend trade shows, thereby enhancing
their potential to export.
19
The UK video games industry: an agenda for the next Parliament
A relatively liberal labour market that places comparatively few restrictions on hiring and firing should enable development studios to operate flexibly, create jobs and keep labour costs relatively low
8 Labour market flexibility
Proposal
Maintain a relatively lightly regulated labour market in order to enable
UK games businesses to operate as flexibly as possible.
Reason
limited projects. Rigid labour laws can increase costs, threaten the
survival of a business and make it more difficult to recruit new people
for new projects. According to the World Bank Group, it is easier to
employ workers in the UK in comparison to Japan, but it is easier to
employ workers in the USA and in Canada when compared to the UK. [75] The UK needs to create and maintain a relatively lightly regulated
labour market as part of a programme of making the country a good
place to do business.
restrictions on hiring and firing should enable development studios to
operate flexibly, create jobs and keep labour costs relatively low. This
in turn should serve to accentuate the UK’s attractiveness as a place
to do business to overseas investors and publishers.
9 Combating piracy
9.1 Sticks, carrots and new business models
Proposal Tackle piracy by slowing down or cutting off the broadband supply of
serial pirates and prosecuting the most egregious offender. Encourage
IP owners to adopt new technological solutions and business models
as a long term solution.
Reason
Content creators have a right to protection from illegal file-sharing
(and other forms of piracy). A legal framework that restricts the
broadband supply or prosecutes the most egregious offenders on the
one hand, while protecting innocent consumers from such action on
the other, seems a reasonable balance. Consumers also need to be
educated about the consequences of file sharing.
The majority of video games businesses see piracy as a problem for
their organisation and an increasing one. However, piracy is not an
existential threat for most game developers, including those involved
in self-publishing. Many self-publishing developers are looking to
combat piracy by adopting new business models, including digital
distribution, subscription based services and/or advert supported
free games.
Effect
The legal approach should address the most extreme forms of piracy.
Promoting new business models amongst IP owners could improve
their sustainability.
10 Classification system
10.1 Make the PEGI system compulsory for boxed games designed for those aged 12 or above
Proposal
(PEGI) age ratings system compulsory for all boxed games designed
for those aged 12 or above.
Reason
from potentially harmful or inappropriate material; provide consumers
with sufficient information to enable them to make informed choices
about purchasing games; ensure that the classification system is
enforced; and ensure that games are rated accurately, quickly and as
cost effectively as possible.
The Digital Economy Bill paves the way for the adoption by the UK of
the PEGI classification system. This provision should be enacted. It is
advantageous for those game developers that also publish games and
who export to countries where PEGI operates because they only have
to pay one set of classification fees.
Effect
Enacting this provision will provide certainty for publishers of video
games, keep regulatory costs down and allow them to proceed with
the task of educating the public about the PEGI rating system.
21
11.1 Embed trade associations in policy making
Proposal
Governments, parliaments and other third parties should pay full attention
to the views of trade associations like TIGA when devising policy.
Reason
Trade associations like TIGA have a key role to play in articulating
the interests and opinions of the businesses in their respective
sectors. As voluntary organisations of employers, trade
associations are best placed to articulate business needs to third
parties and to Government. Members freely give of their time
and resources. No publicly funded organisation can claim to be
‘employer led’ in the same way as trade associations.
Effect
Policy makers are more likely to understand the genuine views
and opinions of businesses through trade associations. Other
things being equal, policy measures will be more likely to meet
the needs of business as a result.
11.2 A UK Video Games Council?
Proposal
There is no need to create either a new UK Video Games Council or for
extending the remit of the existing Film Council to embrace the video
games sector. Ministers in Whitehall and Edinburgh and politicians in
Westminster and Holyrood should engage with representative trade
associations such as TIGA, not bureaucrats in quangos.
Reason
It has been suggested that either a UK Video Games Council
should be established or that the remit of the existing Film
Council should be extended to embrace the video games sector.
If the purpose of these proposals is to raise the profile of the
games industry vis-a-vis policy makers, or to ensure that the
sector is represented in discussions with them, then there is
little advantage in this proposal. TIGA, the trade association
representing the UK games industry, already champions the
cause of the UK games sector. There is no need to establish
another quango for this purpose, or to extend the remit of the
Film Council to achieve this end.
The video games sector is different from the film industry. On some
measurements it is larger the film industry. [76] Therefore, the remit of the
Film Council or a similar institution would have to be amended to reflect
the needs of the video games industry. The majority of its budget would
have to be directed towards the video games sector. Its board of directors
would have to contain a majority of directors from the video sector.
However, this is not TIGA’s preferred approach.
Unless a Video Games Council or a reformed Film Council had significant
resources to spend on, for example, prototype funding, workforce
development in the games industry or promoting a career in the sector in
schools, colleges and universities, there would be little benefit in creating
this institution.
There may be a case for creating a non-departmental public body to
administer TIGA’s proposed Games Tax Relief. However, the role of this
organisation, if it should be created, should be solely to administer
Games Tax Relief.
Effect
The case for a Video Games Council has not been made. There is little
appetite for the Film Council’s remit being extended to video games.
Creating a more favourable tax environment for the UK games industry,
measures to strengthen education and skills and promote knowledge
transfer remain more urgent priorities for the video games sector.
Government can accurately ascertain the views of the video games
sector by working with trade associations like TIGA.
12 Acknowledgements
The UK video games industry: an agenda for the next Parliament was written by Richard Wilson, TIGA’s CEO. Richard would like to thank a number of people for their contributions to this policy paper.
TIGA is very grateful to John Whittingdale OBE MP for kindly agreed to write the Foreword.
A number of TIGA board members provided particularly helpful comments on the paper: Jason Kingsley, TIGA Chairman and CEO and Creative Director of Rebellion Studios; Gareth Edmondson, TIGA Vice-Chairman and CEO of Ubisoft Reflections; Jon Chasey, Chairman of Finblade; Paul Mayze, Chief Operating Officer of Monumental Games; Philip Oliver, CEO of Blitz Studios; Ed Daly, General Manager at Zoe Mode; and Vincent Scheurer, Sarassin LLP.
Eva Field, TIGA’s PR Manager and Alex Dziedzan of Politics Direct contributed to the text.
Jeff Meek, Managing Partner at French Duncan LLP and Peter Denison-Pender, Country Manager at Alma Consulting Group UK Ltd., provided helpful advice on some of the tax measures in the paper.
The education elements of the paper benefited from comments by the following: Paul Durrant, Director of Business Development at Abertay University; Mark Eyles, Principal Lecturer, School of Creative Technologies, University of Portsmouth; Professor Carsten Maple, Head of the Computer Science and Technology and Professor of Applicable Computing, University of Bedfordshire; Dr. Mike Reddy, Future Technology, Games Development and A.I., Division of Computing, Newport Business School, University of Wales; and Tim Hurnell, Director Faculty of 6th Form & Creative Studies, Guildford College.
Any mistakes or omissions are the responsibility of the author.
The UK video games industry: an agenda for the next Parliament
23
We simply cannot afford to lose our industry overseas and so I very much support TIGA’s call for Game Tax Relief, the retention of the Small Firms R&D tax credit scheme, and a general lowering of the tax burden on UK businesses as a whole. Games businesses, like any other businesses, need a low tax environment if they are to compete successfully. John Whittingdale OBE MP
Endnotes
[1] Gardner, P., Gibson, R., and Wilson, R., Investing in the Future: a Tax Relief for the UK Video Games Development Sector (TIGA, 2009).
[2] See http://www.mcvuk.com/press-releases/51488/2009-UK- National-Gamers-Survey.
[3] Gardner, P., Gibson, R., and Wilson, R., Investing in the Future: a Tax Relief for the UK Video Games Development Sector, p. 6.
[4] Relentless, the Brighton based developer, produce Buzz! The School Quiz. The School Quiz created a series of curricular video games in conjunction with the Department for Ed and Skills (as it was then called). Red Redemption launched a game in 2007 called “Operation Climate Control” (with Defra and Oxford University), aimed at GCSE school children aged 15-16 to educate them about climate change and to stimulate changes in behaviour.
[5] Gardner, P., Gibson, R., and Wilson, R., Investing in the Future: a Tax Relief for the UK Video Games Development Sector, p. 27.
[6] See Sandford, Richard, Ulicsak, Mary, Facer, Keri, and Rudd, Tim, Teaching with Games (Futurelab, 2006). Available at: http://www. futurelab.org.uk/resources/documents/project_reports/teaching_with_ games/TWG_report.pdf.
[7] The potential market for corporate video training games is substantial. Caspian Learning has developed a game to train Volvo’s sales workforce; PIXELearning has developed games involving diversity training and corporate social responsibility; PlayGen has created anti- money laundering and data security training games; Blitz Studios TruSim division developed a game called ‘Triage Trainer’, designed to improve medical training; and TPLD in Scotland designed a superbug training game for employees in a hospital to teach them about MRSA.
[8] HM Treasury, Pre-Budget Report 2009, December 2009, Table 1.1.
[9] Bawden, Tom, “Pound backtracks after Fitch warns that huge budget deficit threatens UK’s rating”, The Times, November 11th 2009.
[10] How to Save £50 billion: Reducing Spending for Sustainable Public Finances (Institute of Directors/Taxpayers’ Alliance, 2009), pp. 12-13.
[11] 22 official estimates of public sector productivity have been made in the last six years, principally by the Office for National Statistics (ONS). Only 4 show an increase in productivity, while the remaining 18 show declines in productivity. See Taylor, Corrin, “The public sector productivity challenge”, in Big Picture (Institute of Directors, Quarter 4, 2009, No. 5), p. 27. See also Duncan, Gary, “As government spending rose, value for money fell in Labour’s first ten years, figures reveal”, The Times, June 10th 2009. Between 1998 and 2007 public spending grew by more than 75% to £582 billion. The new official measures of public sector productivity which gauges the additional services produced in return for extra resources and effort show that this fell by a total of 3.2% over the 10 years to 2007, falling by an average of 0.3% per annum. Apparently, productivity did creep in the final two years, 2006 and 2007 by 0.8 and 0.6% respectively.
More recently, ONS figures suggest that school reforms under the current Government have failed to improve the efficiency with which the state uses its educational resources. The ONS said that the volume of inputs – how many resources the government puts in – rose by 33% between 1996 and 2008. The volume of outputs – how much the state gets in return – also rose by 33% a measure of efficiency that divides output by input – stayed the same. See Turner, David, “School reforms data deal blow”, Financial Times, December 2nd 2009.
[12] How to Save £50 billion: Reducing Spending for Sustainable Public Finances (Institute of Directors/Taxpayers’ Alliance, 2009), pp. 12-13. See also “Sharing the pain”, The Economist, March 6th 2010, pp. 83-85.
[13] Wilson, Richard, State of the UK Video Game Development Sector (TIGA, January 2009), p. 5.
[14] Ibid, p. 5.
[15] For more information on TIGA’s proposed Games Tax Relief, see Gardner, P., Gibson, R., and Wilson, R., Investing in the Future: a Tax Relief for the UK Video Games Development Sector (TIGA, 2009).
[16] Time to Play (NESTA, 2009). See http://www.nesta.org.uk/time-to-play/
[17] This is not a huge sum of money compared to the totality of public expenditure or to some other Government schemes. For example, the Business Links advisory service which employs 1,600 advisers, costs £190 million per annum to run. See Bridge, Rachel, “We need to halt the meddling”, The Sunday Times, February 14th 2010.
[18] Taylor, Corrin, (June 2009), “The worst of all worlds?” (IoD News), p. 11.
[19] Tax ready reckoner and tax reliefs (HM Treasury, November 2009), Table 5, p. 11.
[20] Ibid, p. 11.
[21] Gibson, N., and Gibson, R.; Mateos-Garcia, Juan (ed.), Raise the Game (NESTA, 2008), especially p. 11. See http://www.nesta.org.uk/assets/ Uploads/pdf/Research-Report/raise_the_game_report_NESTA.pdf
[22] Tax ready reckoner and tax reliefs (HM Treasury, December 2009), Table 5, p. 11.
[23] Terence Kealey, vice-chancellor of Buckingham University, quotes an OECD report which actually suggests that publicly funded R&D has “negative results”. See The Sources of Economic Growth in OECD Countries (2003), which reports a comprehensive regression analysis of the different factors that might explain the differing growth rates of the world’s 21 leading economies from 1971 to 1998. See Kealey, Terence, “Beware of selling your soul to the knowledge economy”, The Guardian, Thursday 19th November 2009.
[24] See http://www.oecdilibrary.org/oecd/content/table/2075843x-2009-table1
The UK video games industry: an agenda for the next Parliament
[25] Annual Innovation Report (Department for Business, Innovation and Skills, 2010), p. 6. See http://www.berr.gov.uk/files/file54587.pdf
[26] http://www.theyworkforyou.com/wrans/?id=2010-02-25a.318146.h
[27] The rate of relief for larger businesses is 130 per cent.
[28] Small Company Corporation Tax Rate currently hovers between 19- 21% (depending on the relevant financial year) and can go higher when the marginal rate between small company and large company tax rates is used. You need to consider the net benefit of the losses when subject to the prevailing tax rate. So, losses of £50,000 can now be carried back two years to reduce historic profits by £50,000 which, at a tax rate of 20%, effectively creates a £10,000 historic overpayment of corporation tax which can be reclaimed as cash in the current year by the small company.
[29] Significantly, Michael Porter, one of the world’s leading experts on competitiveness has warned that the new 50p tax rates is “at the upper end of the band. If it goes any higher than that – and if that is perceived as being a long term policy – then I think that’s going to create some real problems in the long run.” Porter also advised the Government to “maintain every pound they can” of spending on innovation infrastructure, including universities. See Groom, Brian, “Tax rises drive off investors, Brown is told”, Financial Times, February 23rd 2010.
[30] HM Treasury expects to raise just 30 per cent of the tax due from the 50p rate because individuals are taking measures to limit their liability. See Houlder, Vanessa, “Executives drive rush for pay-outs ahead of 50p high-earner tax rate”, Financial Times, February 22nd 2010.
[31] It would be important to identify and audit bona fide courses to eliminate any potential for abusing SME Training Tax Relief.
[32] Skills for Growth. The National Skills Strategy (Department for Business, Innovation and Skills, November 2009), p. 22.
[33] Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 1, p. 10 and p. 40. For example, around 40 per cent of people aged 25-64 in the USA and Canada have a degree or the vocational equivalent, compared to around 31 per cent in the UK.
[34] In other words, 17 million adults lack level 1 numeracy, equivalent to a low level GCSE. Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 1 and p. 10.
[35] Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 8 and p. 35.
[36] Ibid, p. 9 and p. 36.
[37] Employers in England spent £2.4 billion on direct course costs and up to £17.4 billion in total, excluding the wages of employees. The Government spends around £12 billion per annum on adult skills each
year, of which £4.5 billion is on Further Education, including work based learning, and £7.4 billion on higher education. See Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), pp. 12-13.
[38] The principal areas of market failure in respect of workforce development are: time preference and risk; credit market failure; information failure and externalities. See Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 59.
[39] Around 30 per cent of firms do no training at all. Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 12.
[40] Wilson, Richard, State of the UK Video Game Development Sector (TIGA, 2008), p. 6.
[41] At present, eligible postgraduate trainee teachers are entitled to a tax free bursary. From August 2008, trainee teachers in mathematics and science receive a tax free bursary of £9,000 (£225 per week). See http://www.tda.gov.uk/Recruit/thetrainingprocess/fundinginengland. aspx#undergrad. Golden hellos, taxable, one-off payments, are made at the start of the second year of teaching to eligible teachers who have completed their induction periods. Teachers in mathematics and science are eligible to receive £5,000 golden hellos. See http://www.tda.gov. uk/Recruit/thetrainingprocess/fundinginengland/goldenhellos.aspx and http://www.tda.gov.uk/teachers/induction/goldenhelloteachers. aspx?keywords=golden+hello
In parenthesis it is worth mentioning that graduates of video games courses should have high levels of technical competence and should be reasonably well prepared to act as IT teachers, for example. Only a percentage of games graduates will go directly into games and teaching is a good alternative profession.
[42] OECD PISA 2006 database. Table 2.1c and Figure 2.11c, PISA 2006: Science Competencies for Tomorrow’s World; and also OECD PISA 2006 database. Figure 6.20b, PISA 2006: Science Competencies for Tomorrow’s World.
[43] Moor, H., Jones, M., Johnson, F., Martin, K., Cowell, E. and Bojke, C., Mathematics and Science in Secondary Schools: the Deployment of Teachers and Support Staff to Deliver the Curriculum (DfES Research Report 708, 2006).
[44] See the Centre for Education and Employment Research, University of Buckingham. See also The Economist August 25th 2007.
[45] The IB is already being taught in schools and sixth form colleges. See http://www.ibsca.org.uk/ibsca-index.htm
[46] Grimston, Jack, “Simple science: GCSEs need little know-how”, Sunday Times, November 15th 2009.
[47] School league tables would have to be reformed to cater for a greater variety of qualifications taken in schools.
25
[48] It could be argued that an educational ‘Gresham’s law’ could operate in a qualifications market, with bad qualifications driving out good ones as schools opt for easy subjects in an attempt to advance up the school league tables. However, university entrance requirements can militate against this. For example, students wishing to study a university computer science degree course are likely to have to study mathematics at A level if they are to have any hope of getting a place. Most teachers, being professionals, are also likely to prefer challenging syllabi and examinations to easy ones.
[49] Games companies could perhaps be incentivised through a system of grant support for undertaking inspirational projects with local schools.
[50] Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 4. In fact, just 71 per cent of Britain’s teenagers are in education compared to 86 per cent in France (‘An unacceptable term’s work’, The Economist, December 5th 2009, p. 38).
[51] Newport University engages with pupils in a similar manner through initiatives such as the Computer Club for Girls.
[52] According to QS, the education consultancy, there are four British universities in the world’s top 10. See Sugden, Joanna, “Capital gains for UK universities as Oxford slips in world rankings”, The Times, October 8th 2009.
[53] Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 72.
[54] Ibid, p. 72.
[55] Education at a glance 2006, OECD, 2006.
[56] Clearly, this policy does not apply to Scotland, which does not charge under-graduates tuition fees.
[57] Fortunately, there does not seem to be a shortage of artists.
[58] Wilson, Richard, State of the UK Video Game Development Sector (TIGA, 2009), p. 6.
[59] See http://www.hefce.ac.uk/news/hefce/2009/stemproj.htm.
[60] Leitch Review of Skills, Prosperity for all in the global economy – world class skills. Final Report (HM Treasury, December 2006), p. 3.
[61] According to e-skills, the sector skills council for Business and Information Technology, the number of IT and computer science graduates fell by 25% between 2004 and 2008 (from 20,210 to 14,920).
[62] http://nds.coi.gov.uk/clientmicrosite/content/Detail.aspx?ReleaseID=40 8381&NewsAreaID=2&ClientID=431
[63] Some universities already have their own bursary schemes to support students from disadvantaged backgrounds and/or to support students on STEM courses. These traditions need to be developed further.
[64] Sharp, Margaret, “Technology policy: the last two decades”, in Buxton, Tony, Chapman, Paul, and Temple, Paul, Britain’s Economic Performance, Second Edition (Routledge, 2001), pp. 495-526
[65] See Annual Report 07/08 (Skillset. The Sector Skills Council for Creative Media, 2008), p. 74. See http://www.skillset.org/uploads/pdf/ asset_12287.pdf?3
[66] It has been suggested that there are no accreditation for courses that focus on game producer skills, courses that deliver massively multiplayer game development skills, or courses that are focussed on casual or mobile phone game development.
[67] House of Commons, 3 Mar 2009 : Column 1570W. TIGA notes with concern that the new method for calculating FE and school funding has obscured the opportunity to compare ongoing funding against the previous discrepancies between FE and 6th Form pupil funding.
[68] Written answer from David Lammy, Minister of State for Higher Education and Intellectual Property, to Philip Davis MP, 5 November 2009, Official Report, column 1244W.
[69] See http://www.ktponline.org.uk/business/business.aspx.
[70] Two video games businesses have been involved in KTPs (as of November 2009).
[71] £1,883,000 if Advantage West Midland’s £800,000 funding for the serious game sector is taken into account. See written answer from Pat McFadden to Philip Davies MP, 9th September 2009, Official Report, column 270805 and 276658W. See http://www.parliament. the-stationery-office.co.uk/pa/cm200809/cmhansrd/cm090909/ text/90909w0045.htm
[72] Hansard source (Citation: HC Deb, 3 February 2010, c336W).
[73] UK Trade & Investment (UKTI) is the government organisation that helps UK-based companies succeed in the global economy. It also help overseas companies bring their high quality investment to the UK’s economy – acknowledged as Europe’s best place from which to succeed in global business. For more information please visit www. uktradeinvest.gov.uk or telephone +44 (0)20 7215 8000. For latest press releases, visit the online newsroom at www.newsroom. uktradeinvest.gov.uk More information on UKTI can be found at: www. youtube.com/UKTIWeb | http://blog.ukti.gov.uk | www.flickr.com/ukti | http://twitter.com/ukti.
[74] Hansard, January 28th 2010, column 1100 (written answer). See http://www.publications.parliament.uk/pa/cm200910/cmhansrd/ cm100128/text/100128w0026.htm#10012892000015
[75] http://www.doingbusiness.org/EconomyRankings/
[76] See, for example, http://games.venturebeat.com/2009/06/29/report- games-will-see-strong-growth-over-next-three-years/
The UK video games industry: an agenda for the next Parliament
TIGA is the trade association representing
the UK’s games industry. Our members
include independent games developers,
in-house publisher owned developers,
vision is to make the UK the best place
in the world to do games business. We
focus on three sets of activities: political
representation, generating media coverage
competitiveness of our members. This
means that TIGA members are effectively
represented in the corridors of power,
their voice is heard in the media and they
receive benefits that make a material
difference to their businesses, including a
reduction in costs, improved commercial
opportunities and knowledge transfer.