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What makes Britain British? Is it the Queen? A penchant for tea? Satirical humour that’s baffling to other nationalities? Or maybe it’s chicken tikka masala.
This is the question British games companies will now be asking themselves at every step of the production process, if they want to pass the British Film Industry’s Culture Test for video games and qualify for up to 25% tax relief – the amount removed from their profit before tax.
The decision to introduce this legislation, which came into effect on August 19th 2014, is part of a push to help the UK establish itself as a leading global force in the games industry and ensure production is kept in Britain.
TIGA, the games industry trade association, examined the success of similar schemes in Canada and the US, which have offered tax incentives for games companies for several years. The report by TIGA said the UK industry lost hundreds of jobs, mainly to Canada, where games companies received “generous support” and were “interested in bringing over UK game developers.” This resulted in a fall from the third largest games industry in 2006 to fifth place, due largely to competing on an “uneven playing field.”
The gaming industry is big business – Destiny, released last week by American video games developer Bungie, cost £310 million to produce, far exceeding even Hollywood’s most extravagant budget. The company made this amount back within the first 24 hours of sales, making the game the biggest new video game franchise launch in history.
Research conducted by TIGA indicates that over the next five years, the tax relief will create an additional 10,300 jobs within the industry and bring in around £188 million per year for the sector. It is also expected to make a significant contribution toward export growth, as 95% of UK games businesses export their products, compared to one third of companies generally.
Dr. Richard Wilson, CEO at TIGA, said:
“This will finally allow them to compete on a level playing field in the global video game market, and decisively reduce the cost of games development in the UK.”
Tax breaks are only available for companies producing games that are certifiably British – gaming companies can use a checklist to determine the extent of their game’s “Britishness” and will be awarded points for each section, which will then determine the exact amount of tax relief they can receive. Categories include the setting, the number of characters from the UK, how British the storyline is and the contribution of the video game to the “promotion, development and enhancement of British culture.”
Similar relief already exists for other creative industries, such as television and film production, and the coalition Government has argued that introducing them for video games will be a “recognition of the UK’s important position” within this sector.
Mark Gerhard, boss of Jagex who made multi-player fantasy game Runescape, said it was now up to UK game companies to make make the most of this opportunity and prove that the legislation, which will be reviewed in five years, was the right decision.
“Tax breaks for the British games industry have been a very long time coming, but this is far from being the end of the matter. Studios across the UK need to collectively show that the fight for their introduction has been a worthwhile one by maximising their potential to deliver a robust, expanding games industry in this country.” He said.
“Our industry should be held in the highest regard, strengthening the British economy and fuelling job creation, both things which tax breaks will help reinforce.”
One gamer voiced concern that the culture test could hamper creative freedom and compromise the quality of the games:
“It narrows the breadth of setting a lot. Now it could be a case of ‘be British or fail’ – those prepared to comply to the culture test will succeed, while those that don’t will continue to struggle for investment.”
Andrew Eades, chief executive and founder of British gaming company Relentless, disagrees that the new legislation will have a negative impact on the industry. He told us it would be “creatively wrong” to just go for cultural points over the integrity of the game and believes many games will “qualify by accident” if they are set in the UK or have British characters and developers.
“Games have to have global appeal and should really be in an area that the games company are experts in. British companies are well versed to have British influences and this could be a really positive thing. The credit system is there to help us, it’s not an obstacle course with hurdle after hurdle.”
Grand Theft Auto creators, Rockstar Games, have several offices in the UK. Rockstar North, based in Scotland, is the branch responsible for the GTA series. The most recent release, GTA V, made over £2 billion in the first six months of sales. If they choose to take advantage of the tax reliefs and set the next GTA game in the UK, they could save over £10 million.
For large, international companies such as Rockstar, this may not have a huge impact. However, 95% of UK video games developers are SMEs and with an estimated £35 million of extra support created from the tax reliefs, these businesses will be better equipped to hire more staff and make better games, which will help them to compete on a global scale.
We spoke to Mike Bithell, creator of Thomas was alone:
“Crucially, [the tax relief] up the amount of investment I can make in staff. I work with freelancers on my games, and these kinds of tax breaks mean I can afford to invest in more staff time. I have two chaps working on the game already who I would have been hesitant to bring in before these breaks made it in. That’s already making my next game better, more stable, and faster to produce. At my end of the scale, a couple of team members change everything.”
The potential power of the British video games industry is undeniable – the UK entertainment and media market is expected to grow by 3.1% over the next four years, according to PwC’s Global Entertainment & Media Outlook. The total value of the industry is expected to reach £64 billion by 2018 – £4.1 billion of which will be attributed to gaming, making it the second most powerful sector after internet advertising.
Through the interactive nature of gaming, as well as the average length of time spent playing, it is possible to explore and understand a culture far more effectively than through film or television. The growth in the British video games industry looks set to not only aid economic growth, particularly in the SME sector, but will also help spread a better understanding of British culture beyond the restrictions of traditional media.
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