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Unit 1 Micro: Can the UK Computer Games Industry Grow

Geoff Riley

24th January 2012

Britain is one of the world’s biggest exporters of creative products - from live TV shows and music to books, arts, architecture and films the economy has built up an enviable global reputation for excellence and a growing trade surplus to aid our balance of payments.

Computer games falls squarely into this category but, according to TIGA - the trade association representing the UK’s games industry - unless there is renewed government support, the future of this sector is at risk. TIGA claims that the British games industry is suffering a significant ‘brain drain’ as talented programmers and artists leave the country to work abroad.

The games industry is lobbying for a tax break to encourage investment - tax breaks are effectively subsidies by another name. A press release from TIGA says that:

“Our industry is being held back by difficulty accessing finance. A well-targeted tax break for games production would help our industry overcome this challenge and enable us to contribute to the UK’s economic recovery.”

A tax break (ok ... a subsidy) would reduce the cost of games development and make them more profitable to be developed here in the UK. New games for different platforms (PC, mobile, cloud-based games) can often be hugely expensive and unless a title is successful and the volume of users and purchasers is high, it is difficult to bring down the unit cost towards a profitable level.

Canada has introduced tax breaks for games developers and the Irish government recently launched a €10 million start-up fund to encourage entrepreneurs to launch companies in the country, which is expected to focus on mobile video games and cloud computing.

Watch this video: BBC news (Oct 2011): Can the UK raise its game? (Rory Cellan-Jones)

There are fears that a brain drain effect is starting to take hold with developers learning their trade here before emigrating elsewhere notably to Canada. 41 percent of UK developers who lost their jobs between 2009 and 2011 moved overseas and took jobs outside of the UK - this is indicative of a high level of geographical mobility of labour and reflects I suppose the young average age of the bulk of people who work in this sector.

TIGA argues on the basis of survey evidence that

* 216 new games companies entered the UK games industry between 2008 and 2011, but there were also 197 closures.
* The UK’s share of global investment (venture capital and private equity) in the games industry declined from 10 per cent in the mid-2000s to 3.5 per cent.
* 93 per cent of TIGA members said that a new Games Tax Relief would result in more private investment in the UK games industry.
* 63 per cent of TIGA members said that they would seek private investment in new games following the introduction of a new Games Tax Relief

Is the computer games industry one that is deserving of a special tax break or should the industry be left to fight for itself in world markets without the need for government intervention?

Remember some of the approaches to evaluation that might be helpful in an essay answer:

(i) Is a tax break / subsidy effective in meeting specific aims (e.g. more jobs, higher investment)?
(ii) Is it efficient to provide a subsidy and if so for how long?
(iii) Is a tax break equitable especially as other industries might make an equally compelling case?

Suggestions for more reading

UK ‘must act to solve games industry brain drain’ (BBC news, October 2011)
Government has ‘let down’ video game development in UK (BBC news, July 2010)

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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