The government should consider what actions it can take to increase investment in the UK games industry, going beyond tax relief for games production. We call for Lottery funding to be channeled into the games industry, together with changes in R&D tax relief, and other measures to improve access to finance for the sector, including creating better information about its economic performance.
Playing on a Budget
It is that time of the year when UK games developers take their eyes off their computer screens for a moment, to look at the TV, where a different type of game is being played, one that involves numbers instead of code – we mean of course the Chancellor’s Budget!
In recent years, the Budget has been the backdrop for announcements to bolster the UK games industry against competitors from other development territories – in particular Canada – where games companies benefit from lavish government subsidies. The Chancellor did in fact announce the introduction of tax relief for the production of ‘culturally British’ games in his 2012 Budget (at the same time as tax relief for animation and high-end TV productions), but this measure promptly went into administrative limbo, while the EC investigated whether it would give UK developers an unfair advantage over competitors. The government remains optimistic about the prospects for tax relief, and there was hope that its go ahead would be announced in this week’s Budget.
This wasn’t the case, although the Red Book does mention a modification in the legislation for games tax relief once it is introduced (assuming it gets EC clearance). The games industry is understandably frustrated. While it is clear that games tax relief is no panacea for the many challenges that it faces (the need for Next Gen skills and faster roll out of super-fast broadband), the government should consider what other actions it can take to increase investment in this high-growth sector. Here are three recommendations.
1. Channelling Lottery Funding into games development
To our minds, games are a creative medium with the same expressive potential and cultural relevance as film (anyone who doubts this should play Journey, Gone Home, The Walking Dead or The Last of Us). The public shares this assessment. This view is supported by academic research in Spain, for example, showing that the probability of playing games increases with other forms of cultural participation (whether that is listening to music or making art) and vice versa. (Nesta will be undertaking a similar study in the UK next year as the DCMS’s ‘Taking Part’ survey is starting to collect detailed information on the gaming habits of the English population).
It follows from all of this that the UK games industry is as deserving of support through Lottery Funding for good causes as is film. The Government should acknowledge this and appoint a Lottery distributor which, following the example of the British Film Institute, would “champion a breadth of bold and distinctive games development across the UK, nurturing new talent and enriching UK culture.” Take a look at the current list of 12 lottery funders. Our argument is simple. Why in 2014 would video games be excluded from this list?
2. Adapting R&D Tax Credits to support the games industry
R&D Tax relief is critical for games developers at the technological cutting edge, and all of the changes to improve its coverage of SMEs in recent budgets – including this week's – are to be welcome. However, and as Nesta has argued for years, R&D tax relief as currently configured is of limited relevance to the sector because it excludes scientific and technological advances with an aesthetic or user-facing angle which are important for industries like video games. The government should revisit this issue. As we argued in our Manifesto for the Creative Economy, HMRC should also publish data on how much tax relief is currently enjoyed by games companies and those in other creative industries whose R&D processes don’t involve people in white coats working in labs.
3. Lowering barriers to accessing finance
The Creative Industries Council’s Access to Finance Working Group and our Manifesto has proposed a slew of measures to lower the barriers to accessing finance in the creative industries, including in the games sector. We have previously recommended that policymakers look at how to stimulate greater use of project-based finance in games, a modality of investment which is particularly relevant for an industry like games, fraught by technological and market risks.
The dearth of market intelligence about the economic performance of the games industry is particularly harmful, as it makes it harder for investors to assess return on investment and risks, thereby inflating the cost of capital for developers and publishers.
One way in which Nesta is trying to address this gap in the evidence base is through the games map we are creating in partnership with Ukie, one of the trade bodies for the sector. This project combines data from a multitude of online sources with Companies House data to produce an up-to-date map of the sector in the UK, allowing investors, policymakers and support agencies to track the evolution and performance of games clusters across the UK, and identify promising companies to work with. We will be publishing the first findings of this project soon.