The trade association representing the UK video games industry is calling for more generous tax incentives to allow the industry to compete globally.
TIGA has published a new report demonstrating the “critical contribution” of the sector to the UK economy and setting out a case for strengthening the Video Games Expenditure Credit (VGEC).
It says that many overseas jurisdictions provide more generous tax incentives for games production than the UK. The UK’s VGEC provides an effective rate of relief of 20.4 per cent. Conversely, France and Australia offer effectives rates of relief of 30 per cent. Quebec has an effective rate of 31.9 per cent, says TIGA.
A key pillar of TIGA’s proposals for enhancing VGEC include enabling small studios to scale-up and grow via a credit that offers a rate of 53 per cent on qualifying costs for games with budgets of up to £23.5 million.
The report, Economic Impact Assessment of the UK Video Games Industry, was commissioned by TIGA and authored by Professor Homagni Choudhury, Professor Joe Cox and Dr Alan Leonard of the University of Portsmouth. Their rigorous research highlights the UK’s global success story – but also the urgent need for reform if the industry is to compete on a level playing field with international rivals.
Key Findings:
- The video games industry plays a vital role in contributing to the success of the UK economy. The video games industry generates £12 billion in Gross Value Added (GVA) annually, supports more than 73,000 jobs (including approximately 28,000 developers), and contributes £2.2 billion in tax revenues.
- In addition, the sector supports regional economic growth, with most of the economic activity outside of London. While the capital is responsible for the largest share of GVA at 38% (£2.1bn), regional hubs make hugely significant contributions, including the North West (£443m), Scotland (£393m), West Midlands (£362m), East of England (362m), Yorkshire & Humber (£253m), North East (£200m), East Midlands (£171m), South West (£126m), Northern Ireland (£52m) and Wales (£27m).
- Despite this, the UK video games industry is not competing on a level playing field and is at a disadvantage in competition for inward investment.
- Many SME studios struggle to access funding. SMEs have relatively few assets, start-ups will have little evidence of a financial track record and commercial success is unpredictable. SME studios struggle to grow: 78% of UK studios employ four or fewer staff.
TIGA is recommending that the UK Government should consider the following three proposals to drive growth across the UK video games development sector:
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- Introducing an Independent Games Tax Credit (IGTC) with a rate of 53% on 80 per cent of qualifying costs for projects up to £23.5 million could boost GVA by £482 million and create 6,952 jobs (including 896 development roles). It would ‘cost’ HMRC £135 million but generate £156.4 million in tax revenue. An IGTC would reduce capital constraints on SME studios, enable more studios to develop their own IP and enable more studios to scale-up and develop games with higher production values.
- Raising the rate of VGEC from 34% to 39% could boost GVA by £436.2 million and create 6,291 jobs (including 760 development roles).
- Increasing the proportion of qualifying expenditure from 80 per cent to 100 per cent could increase GVA by £731.7 million and generate 10,551 jobs (including 1,292 developers).
It says that each proposal is self-financing, adding that the additional tax revenues generated exceed the initial outlay required by HMRC. For example, the IGTC would provide a return on investment of £1.16 in tax revenue for each £ paid out to developers.
Dr Richard Wilson OBE, CEO of TIGA, said:
“The UK games development industry provides high skilled employment, supports regional economic growth and is export focused. Our sector is a success story with considerable potential. However, our industry is not competing on a level playing field and we are at a disadvantage in the competition for inward investment because our existing VGEC is not as generous as some of the tax incentives available in other jurisdictions. Additionally, many SME studios struggle to access finance to scale up and grow.
“The most effective way of driving growth in the UK video games industry is to enhance VGEC. VGEC reduces the cost of games development, which in turn encourages investment and the creation of high skilled jobs in the sector. Our new report shows that an IGTC could create 7,000 jobs including 900 development roles, whilst generating tax revenues for HM Treasury. Strengthening VGEC will promote economic growth and ensure the UK remains a leader in games development.”
Jason Kingsley CBE, TIGA Chairman and CEO/Co-Founder of Rebellion, added:
“From AAA blockbusters to groundbreaking indie titles, UK games studios are world class – but the competitive pressures are intense. This landmark report shows that modest improvements to VGEC would deliver thousands of jobs, unlock new investment and crucially pay for themselves. If we want to secure the UK’s place at the forefront of the global games industry, the Government must seize this opportunity and back our studios to grow.”
Professor Homagni Choudhury from the University of Portsmouth, said:
“This report underlines the vital role that the UK video games industry plays in driving innovation, generating output, and contributing significantly to UK Gross Value Added, while also supporting high-quality employment across the economy. At a time when the UK government is rightly prioritising growth and jobs, our research shows that the video games sector is already making a significant and growing contribution to both. The industry not only generates and supports high skilled positions, but also stimulates wider economic activity, investment and exports.
“With the right policy environment and enhanced support through measures such as the Video Games Expenditure Credit and Independent Games Tax Credit, the sector has the potential to deliver even greater economic returns and to play an integral role in supporting the UK’s long-term growth strategy. We are delighted that the School of Accounting, Economics and Finance at the University of Portsmouth has been able to work with TIGA in producing this landmark report, which combines rigorous academic analysis with industry insights to inform and shape policy, and highlight the strategic importance of this world-class sector.”
