Balancing act
While video games developers won't be getting their first slice of the tax break pie the UK film industry has been benefitting from tax breaks since 1992. So what are the comparisons and does everybody think that tax breaks are a good idea?
On 7 June the economic forecasting group, Oxford Economics, published a report stating that the UK film industry’s tax breaks contributes more than £4.5bn a year to the UK's gross domestic product and £1.2bn to the exchequer. It also states that the film industry employs around 36,000 people and the report even delves into the amount of money made by tourism from people coming to Britain to see the places featured in such films as Harry Potter (Alnwick Castle, Northumberland), Pride And Prejudice (Basildon Park, Berkshire) and Miss Potter (the Like District). 
The numbers are impressive and slightly higher than those estimated by Tiga (£1bn for the GDP each year) for similar tax breaks for the video games industry.
The similarities don’t end there though. “For films it’s a cultural tax credit so any film production that passes a cultural test is guaranteed a tax credit at the end of the project, and it literally gets back 20% of its production costs as a tax credit,” says Juan Mateos-Garcia, creative industries research fellow at Nesta, the National Endowment for Science Technology and the Arts – a Lottery funded body whose mission is to make innovation flourish in the UK through providing funding for innovative companies.
This mirrors the stipulations Tiga has campaigned for when the video games industry applies for a tax break. Juan continues: “In terms of the level of film production in the UK it has of course increased it and increased the level of investment in the sector. Another question is that whether this money should be invested in something else, but the decision was made on a purely cultural basis for the UK film sector and in terms of the number of films produced and the number of investments it has produced an impact.”
As the UK film industry has been benefitting from these tax breaks for the last 18 years it must have come across some problems or has is it really truly ‘tried and tested’? “In the UK there were some problems with the configuration of the tax credit where some companies were doing double dipping and benefiting from different tax measures so it had to be redesigned to address that problem, There could be risks in that sense and there could be potential problems in it supporting projects that could be designed to be larger than they need to be and encouraging inefficiency,” explains Juan.
In other countries where video games tax breaks have also been running for a long time there could be other problems as it’s not a be all and end all problem solver for developers: “[Like] the way the French tax credit for video games is configured it could favour certain kind of platforms against others, for example if you think about
the way the industry is going – you have boxed products of consoles and PCs and then you have online and mobile and it’s the latter two that are experiencing faster growth these days,” said Juan.
There still is an element of risk because while it’s great for the creative minds in the industry to come up with new and innovative products the video game developers still have to identify how much money they can make from more simple games such as those aimed at Facebook and the iPhone.
Even with those downsides to the whole tax break solution there is a much wider reaching argument based on the very economy of the nation. Philip Booth, the editorial and program director at the Institute of Economic Affairs, an economic free market think tank, puts it bluntly: “Every pound that is given to the video games industry in the form of a tax break has to be paid for in terms of higher tax by another business.”
The UK has one of the longest tax codes in the developed world, it’s about 10,000 words long and this with every industry clamouring for special dispensation to gain a tax break it can turn into a political and economic nightmare as Philip explains: “All industries would like to have lower taxes, the saving industry would like to have tax breaks on certain products so that people can save more. More and more these days manufacturing industries are arguing that we should have some sort of industrial policy which provides incentive for people to move into manufacturing rather than services and the whole British tax code is ridden with these special exemptions for different industries.
“And really the bottom line is that if an industry is going to be successful then it should stand on its own two feet. We shouldn’t be encouraging industry for its own sake, we encourage production essentially to provide consumers with things they want to consume and there’s no intrinsic view that video games have to be produced in Britain. We could produce something else in Britain and import video games from Canada and so on.” 
Once again Canada gets a mention but if we look at different industries there are certain similarities especially when it comes to poaching talent from other countries. As Philip puts it: “There are no doubt some people in continental Europe who would say we’ve stolen the talent from football clubs in Europe and built up the best football league in Europe which is incredibly successful commercially and is also a major export industry as well.
“I work in a university as well as in a think tank and there are a huge number of foreign lecturers who work in universities because Britain has a comparative advantage in providing higher education, particularly in vocational courses at post graduate level and universities make an awful lot of money from educating overseas students – this a great invisible export. And we’re able to do that because of the talent we’ve attracted from overseas. There are many service industries and manufacturing industries which are mainly global businesses that are different providers in different countries competing for talent and video games is no exception in that regard.”
Is there a balance to be found here? Perhaps but only with a restructuring of the current corporation tax system as Philip suggests here: “What I would like to see would be not just this relief but nearly all tax reliefs being abolished from the corporation tax system and then the current rate of corporation tax being replaced by a lower corporation tax. That would of course benefit the videogames industry just as it would all businesses. It wouldn’t benefit as much from the loss of the tax relief but it would certainly benefit somewhat if all reliefs were abolished altogether.”