The Government has been talking about innovation and backing key industries a lot this year so when its Budget and Industrial Strategy was unveiled, many, including many backing the British Games Institute campaign, hoped to see rising investment in one of the fastest growing, most innovative technology sectors in the UK: games.
Their hopes were at best delayed. At first glance, the Budget had scant support for games, with almost no new sector-specific support, some generic assistance and there's even a threat to global games companies. However, the whole picture is slightly more complex and may even improve in coming weeks.
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Games have had a rough year in terms of UK public support. Leaving Video Games Tax Relief aside, our latest analysis shows that public funding for UK games initiatives fell by a massive 27% in 2017 to just over £3m per annum, the second year in a row of falling public investment in games. The main casualties were Creative England's Greenshoots programme, which stopped taking submissions earlier this year and Creative Skillset's Skills Investment Fund, which had its matched funding component withdrawn in March. That leaves the UK Games Fund the only major public finance source in games left standing.
The UK Games Fund won just one year's extension to its existing programme, far from the £24m proposed by the Bazalgette review. All in the sector will desperately want this to change, but if indeed it closes in 2020, only some minor regional funding initiatives, modest funding for games culture via the Arts and British Councils, and some low-level games commissioning by Channel 4 and BBC could remain.
Instead of sector-specific initiatives, we got some new generic support which will help games companies. The increase in Research and Development tax credits will allow games companies to claim back more technology investment from the taxman, although the definitions still rule out a lot of creative R&D conducted by studios. Doubling the personal allowance for individual investors under the Enterprise Investment Scheme will release more capital for games companies, but in the small print are new restrictions on qualifying companies which might impact institutional investors. There is new funding for the regions, mostly tied to infrastructure or Science and Innovation collaborations with universities. Training in maths and computer science will be welcomed by games companies but critical components for games - arts and creativity - are absent.
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"The UK Games Fund won just one year's extension to its existing programme, far from the £24m proposed by the Bazalgette review"
The Chancellor shot across the bows of global digital businesses minimising their taxes at the expense of the UK tax authority. A new withholding tax on UK royalty sales by global digital businesses launches in 2019. Depending on where profits are reported, some global games companies with subsidiaries in tax havens like Bermuda just might come under scrutiny for their portion of UK digital games sales worth £2.2bn in 2016 (IHS).
Five sector deals were anticipated but the Creative Industries Deal is still being discussed with the Creative Industries Council and will be agreed 'in the coming weeks'. Key areas for negotiation like access to finance, export assistance, and talent/apprenticeships are listed as potential elements of a deal that requires strong evidence, doesn't simply fund incumbents and contains solid commitments to release new investment, especially for small-to-medium companies. By saying there is no new money but potential to re-allocate existing funding, Government is effectively asking well-funded sub-sectors, like film and TV, to accommodate poorly-funded sub-sectors like games. That's a tough ask, even before negotiating a deal that can deliver real value to 13 very different sub-sectors ranging from games to fashion.
The Industrial Strategy for Creative Industries instead announced just one new measure, a £33m Immersive Technologies Fund as part of an increased Industrial Strategy Challenge Fund, most of which is targeting non-games sectors. Games companies will be eligible to win some of that funding, but AR/VR is the primary focus of just 5% of UK studios. The Government re-announced the Creative Clusters R&D Fund first unveiled in August and more Tier 1 tech visas from November.
"Government is effectively asking well-funded sub-sectors, like film and TV, to accommodate poorly-funded sub-sectors like games"
There is acknowledgement of 'well-understood market failures' in access to finance for the creative industries (demonstrated by the Government's own economists in 2011), and commitments to overcome barriers to growth for IP-rich companies by working across agencies. What that means in practice is that the British Business Bank, with £2.5bn new funding for UK companies, will need to learn much more about the industries it currently does not touch to deliver the so-called 'patient capital' required by high risk creative sectors like games.
Probably the biggest factor influencing the Budget was the huge 25% downgrade in the UK's growth forecasts, and growing costs of Brexit, which has (so far) diverted at least £3bn from public investment and may have killed more ambitious plans at the last moment.
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Whether this is a real Budget for Games may well depend on what the Creative Industries Council negotiates with government. Optimists will say that the Industrial Strategy confirms Government's commitment to the creative industries as one of the UK's world-leading sectors. With the right deal, more patient capital, better access to skills and export assistance could help our games companies. Pessimists will say government's warm words could mask a further retreat from sector-specific investment that addresses the games sector's specific challenges. Pragmatists - including influential bodies like the Institute of Directors and the CBI - are saying this is a good start but government needs to do much more.
What about the BGI? Our proposal was also unsuccessful. The team is obviously disappointed not to have won funding this time around but the BGI campaign is not going away. Members of our team and the BGI's supporters worked hard for nearly four years to win Video Games Tax Relief, eventually overcoming vested interests and deep government scepticism to deliver a relief that's driving record growth in the sector. We will continue to fight for a new games agency because it's the right thing to do, proposing solutions to strategic challenges, presenting solid evidence of economic impact and defining clear and precedented mechanisms to release new investment into small companies.
The BGI will take time but with such wide, unprecedented support from 10,000 members of the public, a growing number of MPs and over 500 games, arts, finance and educational leaders, we have laid down a strong marker for change.