No support in pre-budget report for software sector, despite it being larger than the state-backed film industry
Calls from video game developers for government support are understood to have fallen on deaf ears, with chancellor Alistair Darling expected to reject the idea of a tax break for the industry in the pre-budget report.
The news will be a massive setback for a sector that contributes more to the UK economy than the film industry, which does get financial help from the Treasury, and has spawned a string of worldwide hits including Tomb Raider and, more controversially, the Grand Theft Auto franchise. British game designers are battling to retain talent in the face of fierce competition from countries such as Canada and South Korea, who are using subsidies to lure developers.
In his final Digital Britain report in June, the then communications minister, Lord Carter, proposed a so-called 'cultural tax break' for computer games companies and there has been intense lobbying since then to get the idea approved by the Treasury. Richard Wilson, chief executive of the videogame trade association Tiga, said not coming to the aid of the industry would be 'a colossal mistake and a failure of imagination on behalf of the government'.
'We have provided concrete, substantive and compelling evidence to support the case for a games tax relief, which our research shows would more than pay for itself,' he said. 'We are convinced that the games industry has the potential to be one of the UK's leading digital industries as we emerge from the recession, so we will redouble our efforts to convince government and policymakers of the need to back our sector.'
Tiga had proposed support that it reckoned would cost the Treasury £192m – roughly equivalent to three days' worth of interest payments on the burgeoning national debt – over a five-year period. That cash, it argued, would safeguard £415m in tax receipts and encourage £450m of investment by the industry, creating more jobs.
Games companies provide employment across the UK, from Realtime Worlds in Dundee and Rockstar North in Edinburgh to Frontier in Cambridge and Rebellion Developments in Oxford.
For three decades, Britain had the third largest videogames industry in the world, behind the United States and Japan. But tax incentives in other countries have seen that ranking slip in recent years and by some estimates the UK is now fourth or fifth, behind Canada and South Korea, with France also gaining strongly.
British game developers will now be hoping that a change of administration might produce an improvement in their fortunes. Shadow culture minister Ed Vaizey has already stated that he is 'actively considering' a tax break for the industry.
Separately, shares in Game Group dropped almost 20% today after the computer games retailer shocked investors by saying total sales fell 10.8% over the 44 weeks to 5 December, with the slide accelerating over the final 18 weeks. While blockbuster game releases such as Call of Duty: Modern Warfare 2 and Fifa 2010 Football did very well, they could not make up for weak sales of other new releases. Revenues were also depressed by the decisions of both Sony and Microsoft to cut the price of their PlayStation and Xbox consoles earlier in the year.
Competition is also growing from the supermarkets, Game admitted, and it is trying to counter their influence by offering more 'bundles' to consumers – adding games and accessories packages to its consoles.
Game does about a quarter of its business in the last eight weeks of its financial year, which includes Christmas and the January sales, and it is hoping to attract customers who might formerly have gone to now-bankrupt Woolworths and Zavvi to buy their gaming presents.
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