Tax incentives key to attracting videogames companies, survey finds

Videogame developers are more likely to locate and expand their businesses in countries which offer tax incentives, a new study has found.

A survey by e-skills, the Sector Skills Council for Business and Information Technology, gathered the responses of more than 80 studios based in the UK and 220 located in France, Canada and the USA.

It found that 68 per cent of studios felt tax relief had impacted on their firm's decision to expand operations in a country with more than half - 54 per cent – believing tax relief had affected the establishment or expansion of an overseas presence by a games studio.

The findings come as French videogame designer David Cage told Develop magazine he would be working in Canada if France dropped its game tax break policy.

Cage, who produced the hit PlayStation 3 title Heavy Rain, said in an interview published today: “The French games industry couldn’t compete without tax breaks. And I look at the UK and think it’s all quite depressing.”

It also follows the launch of Labour's Creative Industries Network last month during which s hadow culture secretary Ivan Lewis hit out at the Coalition government, saying its policies were damaging Britain's creative industries.

The e-skills survey found that 81 per cent of Canadian studios which received support were given tax relief or credits on labour expenditure, with 61 per cent receiving R&D tax relief and 50 per cent being handed relief on capital investment.

Seven out of ten studios receiving support said tax breaks had enabled them to increase profitability – in Canada this rose to 90 per cent. And 77 per cent said public financial support had encouraged them to establish operations within their home country with 76 per cent saying it influenced their decision to retain a domestic presence.

The UK video games development sector is the largest in Europe and the global market for video games is growing.

But tax breaks in countries such as Canada and some American states has contributed to a fall in employment in the UK games development sector of nine per cent between 2008 and 2010, according to the gaming industry body TIGA, which has today seized on the survey's findings as further proof that tax relief is needed for British developers.

They have come close before: in March 2010, then chancellor Alistair Darling announced plans for games tax relief in the final budget before the general election. It was cancelled, however, by Chancellor George Osborne who said the original plans had been “poorly targeted”.

In a statement welcoming the findings, Dr Richard Wilson, CEO of TIGA , said: “This Report provides empirical evidence that government financial support for game development in countries such as France and Canada is significant and widespread.

“ At the strategic level, public financial support - including tax credits/tax relief - often influences overseas studios’ location and expansion plans.

“ At an operational level, public support enables studios to increase profitability, increase their productivity/competitiveness, increase their output of games, increase the quality and attractiveness of their games and/or increase their market share.”