UK Software Industry

Luciana Berger Excerpts

Wednesday 10th November 2010 Westminster Hall

[Dr John Pugh (Southport) (LD)]

It is a pleasure to serve under your chairmanship, Mr Weir. I congratulate the hon. Member for Houghton and Sunderland South (Bridget Phillipson) on having started an important debate on an important theme. She will understand that I cannot comment on the situation in the north-east, so I shall concentrate my remarks on the contentious issue of video games—that has been the matter of some parliamentary discussion—and on Government procurement, which is an issue that interests me even more.

I am not especially interested in video games per se. I have not played them since the days when I had a Commodore 64 and played a game called “Pesky Painter”, which unfortunately I have not been able to obtain since. If anyone listening to this debate has a copy, I would be pleased if they wrote to me so that I could have access to the game again. Gaming is an addictive pursuit that takes up a lot of time, and someone who has other interests in IT—as I do—finds other things to do. There is, however, an argument in favour of Government support.

There are basically two extreme views on Government support. One is that the Government should always support successful and/or sometimes failing industries, and the other is that the Government should never interfere in the market. A friend of mine who is a software engineer alleges that any IT company that needs Government investment ought not to be backed in the first place, because there is enough venture capital out there and IT is a progressive and successful market.

I do not think that anyone seriously believes in either of those extreme positions. People who do not believe in state intervention at all are a bit like the people who do not believe in censorship at all. A case in which censorship was needed can always be cited, as can a case in which the state needed to intervene. The arguments usually centre on not the principle of state intervention, but the degree of it and the method used. I think everyone accepts, including the video games industry and all other branches of the software industry, that there is a role for the Government in incentivising economically useful behaviour. The video games industry supports the continuing policy of research and development credits, and of such credits that are specifically aimed at smaller businesses, presumably smaller software houses and the like. New starts are plentiful in the industry, and new starts can often become very big companies.

All the companies that we are talking about, including all those in the north-east, favour a sensible regime of business taxation. We can all talk about that, and about levels of corporation tax and the like. I guess that everyone nowadays accepts that tax incentives and breaks are better than direct subsidies, because they are a more effective way of encouraging winners and of getting the kind of behavioural impact that people want. I accept that a tax incentive is a form of sectoral subsidy, as essentially an amount that is due is not being paid, but the issue here seems to centre on whether a sectoral subsidy is, on the face of it, justifiable and necessary. It has to be necessary to be justifiable. On the face of it, there seems to be a pretty good case. I think we all accept that the industry has huge potential. The hon. Lady laid out very well what kind of potential it can offer, not only for the country as a whole but in areas of substantial deprivation. An area such as Sunderland is not necessarily associated, in the way that California is, with the IT industry, but the association is certainly helpful to Sunderland.

There is obviously a huge native skill-base in this country. I was surprised when, during the general election, individual constituents of mine e-mailed me to say that they were very much involved in a video games or software business, and they made representations on behalf of the industry. I was surprised at how many of them there were, and I was also surprised, in these days of the internet, that they did not know one another very well. I felt that after the election I could perform the useful function of putting them all in touch with each other. The hon. Member for Liverpool, Wavertree (Luciana Berger)—who has just arrived—is well aware that Liverpool has a burgeoning software industry involving a lot of small companies. We should support that industry emphatically, because it is very green, forward-looking and progressive.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Does the hon. Gentleman agree that we should introduce some kind of domestic tax incentives and support not only to boost the industry, but so that we can compete on an equal playing field? Other countries across the world that produce software and video games have additional incentives for the industry, in both research and development and in the wages of people who come from abroad. Because we do not, we have dropped from sixth to fourth place in the world in video games production. We have so many people leaving the UK to go to other countries, such as Canada, the United States—

[Mr Mike Weir (in the Chair)]

Order. I remind the hon. Lady that interventions should be brief.

--- Later in debate ---

[Ian Lucas]

Let me give the hon. Gentleman one example of what the Government whom he supports have chosen to do. They have chosen to reduce corporation tax rates year by year, and they are paying for that by taking away tax incentives for industry to make capital investment. The Labour party believes that that approach is wrong, because lower corporation tax has a huge effect on banks’ income, and the approach detrimentally affects investment and manufacturing in this country. We want to support investment and manufacturing in this country, so we favour tax incentives and relief for investment made by business. That is the line that we are taking. We took it in government, and we believe that it is correct.

[Luciana Berger]

Is my hon. Friend aware that the Red Book cites the amount involved in not introducing the video games tax relief as £200 million, but that that does not take into account the net benefit of introducing a video games tax relief, which conservative estimates have put at an additional £200 million?

[Ian Lucas]

I am very grateful to my hon. Friend. That sounds like a good deal to me, so perhaps such an approach that should be followed. We have a successful industry. We should be encouraging it to prosper, not taking away its advantages.

Last week, the Prime Minister made a speech about information technology. Interestingly, he chose to make it in east London. I note that this debate was secured by my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson). We want innovative companies throughout the UK—in England, including the north-east of England, in Scotland, in Wales and in Northern Ireland.

My hon. Friend made the excellent point that the north-east had one of the best regional development agencies in the country in One North East. She talked about Sunderland, its Software City and its computer city-approach. We all know about the success of the investment levered into the UK from Nissan by One North East, working with Her Majesty’s Government. That £400 million of investment came at a cost of £20 million. That is the type of work that has been going on in the north-east to bring innovative new companies and investors from abroad to the UK. Unfortunately, One North East has gone and, as we speak, Sunderland does not have a local enterprise partnership.

We heard the Prime Minister talk last week about a fund of £200 million for new technology and innovation centres, so I would like some information from the Minister about the money. Is that sum separate from the regional growth fund? If so, who will administer it and how does one access it? If part of the country, such as Sunderland, does not have a local enterprise partnership, how will it access finance from the fund? Is the fund intended to be solely for the benefit of east London or is it a national fund? [Interruption.] The Minister chuckles, but it tells us something that the Prime Minister shuttles across to the east of London to make such an announcement instead of going, for example, to the north-east of England, which has many great industrial stories to tell.

I would also like to pick up the point that the hon. Member for Southport made about Microsoft having a close relationship with the previous Prime Minister—or was it the Prime Minister before? There was evidence in last week’s announcements of another close relationship between a Prime Minister and a major multinational software company—Google. Strangely, however, the hon. Gentleman did not refer to that. In particular, there was an announcement of a review of the intellectual property system, which the Prime Minister himself said frustrated Google in this country. It is interesting that on the very day the Prime Minister announced that there would be a review of intellectual property rights in the UK, Google announced that it would be taking part in the east London high-tech city project.