Computer Games Industry

Debate between Lindsay Roy and Jim McGovern

Wednesday 29th June 2011 Westminster Hall

[Jim McGovern]

I thank my hon. Friend for his intervention. I can quote from the evidence taken by the Select Committee on Scottish Affairs, which conducted an inquiry into this subject. It was said in that Committee that on 29 March—just five weeks before the general election—the then shadow Minister said that the Conservatives were

“going to support tax breaks for the video games industry…We are fully behind game tax breaks. This is my unequivocal statement. It’s been approved by George Osborne.”

However, in the very first Budget, in June 2010, they scrapped that. I have never heard a reasonable explanation of why that happened. Perhaps this afternoon we will hear one.

[Lindsay Roy (Glenrothes) (Lab)]

I, too, congratulate my hon. Friend on securing this very important debate. As I understand it, the Government tell us that the key to recovery is growth and support for small and medium-sized enterprises. Is my hon. Friend saying that we are entering this competitive field with one hand tied behind our backs?

[Jim McGovern]

I thank my hon. Friend for his intervention. The Government seem to be saying that differences in corporation tax and research and development tax credits are good enough to support the computer games industry. My view and that of TIGA, the association that represents the computer games industry, is that a one-size-fits-all policy is not good enough and there should be a specific solution for specific industries, such as the computer games industry.

The one policy difference between the UK and our competitors is a scheme of tax incentives for games developers. Canada offers tax breaks of 17.5% to 37.5% on labour expenditure. As I said, Ireland is investigating how best to implement tax breaks, and Pennsylvania is offering a 25% tax break, which is similar to that offered by the other 16 US states that offer such support. It is clear that the UK is being outdone by those tax regimes. That is why I am calling on the UK Government to introduce a tax incentive scheme that rivals those other countries’ schemes.

As the Minister will be aware, the Scottish Affairs Committee investigated the current state and benefits of the computer games industry in Scotland. Its conclusion on tax breaks was clear. It said that there were compelling reasons to introduce tax breaks and that the UK Government should begin a consultation process to see how best to achieve that. That is additional to recent calls by major international developers. Three of the largest—Activision Blizzard, THQ and Ubisoft—have publicly stated that tax breaks in the UK would make them much more likely to invest here. There are many reasons why they do so now.

--- Later in debate ---

[Jim McGovern]

I certainly do agree. We do need a long-term strategy. Everyone involved with the computer games industry—it is a big thing in my constituency of Dundee West—agrees that a long-term strategy is required, but in the short term, to prevent companies from going bust or moving to Ireland or Canada, tax breaks would be very important. They would be a big factor in helping companies to survive.

I and many others are deeply disappointed that the present Government have ignored the call for tax breaks and stubbornly remain of the view that that is a policy they choose to disregard. The Government’s one-size-fits-all approach to tax incentives simply is not working. While the UK Government remain outwitted by our international competitors, it is highly likely that inward investment will be lost. As with other major economic sectors previously, the UK will lose out because of a Government who choose to ignore the calls of industry, rather than listen.

I will move on to another way in which the UK Government can support the industry. This is a case not just of tax breaks, although they are fundamental, but of the range of measures that developers feel would support them. The Scottish Affairs Committee stated in its report that the Government must work with industry bodies to best determine how to better publicise the availability of R and D tax credits and to introduce a more targeted R and D scheme to the industry.

I welcome the recent changes to R and D tax credits, but the Government could do much more in that regard. Only some of the recommendations have been met. I call on the Government to extend that programme to make the available tax credits more generous and to work with the industry to discover how best the scheme could be tailored to its needs.

That brings me to the third way in which the Government could make the business environment more attractive to games developers. Start-up developers face serious trouble in securing loans and financing from the banks. I know that that is a wider problem experienced by small and medium-sized enterprises throughout the UK, but I ask the Government to redouble their efforts to ensure that the banks grant the finance required for start-ups to get going.

Research conducted on behalf of the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport by Dr Stuart Fraser of Warwick business school and IFF Research in May highlights the worrying extent of the difficulties that creative industries face in securing financing. They are much more likely than other industries to be turned down by the banks. That was highlighted in the Scottish Affairs Committee report on this subject. According to research by the trade body TIGA, the majority of 104 surveyed games companies reported either that there was no difference in their ability to borrow from their bank or that the situation had got worse in the course of last year.

The Government have committed themselves to improving the access to finance from banks from the all-time low that we experienced due to the banking crash. Clearly that has yet to produce any results for the computer games industry. As with many creative industries, there is risk associated with games developers, as the sad demise of Realtime Worlds in my constituency illustrates. A product that fails to sell can have a dramatic impact on a company. However, without some risk being taken, industry and the economy simply will not grow. I ask the Government and the banks to work in partnership with the industry to see investment increased and jobs created.

[Lindsay Roy]

Is it not ironic that the Government have invested heavily in Abertay university to enhance the skills profile? If these jobs are not available, we will see a drain from that investment overseas.

[Jim McGovern]

I thank my hon. Friend for his intervention. He is absolutely correct. When we took evidence at Abertay university, we were told that, every day, students there who are studying the computer games industry and will graduate in that subject are receiving phone calls from France, Ireland and Canada saying that they will be offered a job there. Most of the students who study computer games do not end up employed by a company in the UK; they end up starting their own business. It is extremely galling for people in Dundee, who want to locate in Dundee, to find that it is much easier to move abroad than to stay in the UK, so I thank my hon. Friend for that point.

On that subject, if we stifle young companies with a lack of finance, we cannot hope to see economic growth. We must return to rewarding those who take appropriate, but not reckless, risk in starting and running businesses. There are other proposals that the UK Government could implement to support UK games developers. TIGA has called for the creation of a creative content fund. That would allow for funding on a pound-for-pound basis up to £100,000 for companies that produce highly creative content. The UK Government must acknowledge that computer games developers and other creative industries have specific requirements that are not being addressed. The creation of a creative content fund would target funding on those industries, and show that their needs were catered for. It would encourage investment, growth and job creation. I ask the Minister to draw up plans to consult on introducing these measures, and to work with the industry and the Treasury to put in place a policy that encourages and rewards creative investment.

As for the value of higher education and of a skilled work force for the industry, I am well aware that higher education spending is a devolved matter, but the Government could do a number of things. A major requirement for developers is a highly skilled and trained work force. The industry is populated largely by graduates and, as I mentioned earlier, securing jobs for Dundee graduates has had a great effect on the city.

I welcome the Government’s decision earlier this year to award funding to Abertay university. However, it remains a small sum compared with the support that could be offered. The Scottish Affairs Committee’s report highlighted the real concern that there are too few mathematics and computer science graduates to sustain the industry. Abertay has led the way on this, and I urge the Government to work with universities and industry to ensure that we have the work force and skills base that the economy needs. Abertay has acted as an experiment on what can be done in partnership between higher education institutions and the private sector. I ask the Government to work with the Scottish Executive to develop working relationships of that sort, and to ensure that public spending cuts do not harm access to higher education or the quality of teaching and research.

The theme that runs through my speech today is a call for a more coherent and aggressive growth strategy from the Government. I well understand Ministers arguing that we need a simplified tax incentive structure. I am sure that we would all agree that unnecessary complication would be a hindrance to economic growth. However, we sometimes need an element of necessary complication. The temptation to find simple solutions to complicated problems can be far too alluring; instead, we should accept that there is a case to be made for having specific solutions to specific problems. Individual industries require tailored support to meet their needs. Whether it is tax breaks for the UK film industry or tax breaks for games developers, the Government must introduce policies that actually work for the many important industries that we have in the UK.