Games Industry post-Brexit: Who Will Profit?
Cutting corporation tax to counter the effects of leaving the EU only helps the richest
Since June 23rd, when 52% of the British population voted to leave the European Union, there hasn't been that much press about how this decision will affect the games industry. So far, the predictions have been quite positive - UKIE has released an optimistic report highlighting the needs and expectations for the industry following Brexit. Of course, arguing for these demands is a slow and arduous process. Granted, making predictions around the issues of Brexit is difficult - one only needs to look at last week's High Court decision to involve Parliament in the action of invoking Article 50: the story of Brexit has a lot of twists and turns. Matters are further complicated by the sheer scale of the industry and its many, nuanced requirements to thrive. What is of crucial importance at this stage is to protect the interests of game developers that do not have the social and financial capital to withstand the uncertainty and restrictions that will come in place with the government's move to invoke Article 50.
For a long time, the games industry has capitalised on the notion of being a niche that desperately needs support in order to survive. However, the composition of the UK's industry has shifted thanks to the the continued success of several UK studios and games. Nonetheless, UKIE has been publicly calling for a corporation tax reduction in games industry. Its recent recommendation report states: 'The UK competes not just with other countries but with regions and cities abroad <...> so the government's moves to lower corporation tax are a positive step, as indeed they are for the British corporate sector as a whole.'
"Yes, post-Brexit Britain may not be as tempting for investors, but this shouldn't be patched up at the expense of public funds, nor does it need to be"
Cutting corporation tax with the aim of attracting business isn't a novel concept, but it's never been proven to benefit any but the richest of businesses, let alone wider society. Yes, post-Brexit Britain may not be as tempting for investors, but this shouldn't be patched up at the expense of public funds, nor does it need to be. For instance, Norway's corporation tax currently stands at 27% (UK's currently stands at 20%), but it has a booming games industry! Reduction in this tax only profits the upper echelons of the industry and not the independent games developers who will be the ones struggling once the effects of Brexit will kick in. Establishing a level playing field for all parts of the industry must be at the core of our negotiations with the government. Smaller games studios will technically continue to be eligible for various small & medium business tax reliefs, so a cut in corporation tax will only serve the interests of already well established companies.
High-skilled Employee Issue
74% of companies that have responded to UKIE survey have non-UK EU nationals filling in high-skilled posts, the non-UK EU nationals equate to 20-29% of total workforce in these companies. Most of the companies surveyed state that they wish to continue to have easy access to high-skilled workforce from abroad post-Brexit.
A post-Brexit image is forming, where long-term residence visas will only be granted to 'high-skilled' individuals from abroad. For instance, a work visa from Canada can cost between $500 - $1500. Covering such fees for 20 - 29% of a company's staff is a serious blow to the budget. If these changes in migration policy are implemented, it may mean that only bigger companies are able to pay for these expensive work visas, making it close to impossible for smaller studios to provide security to their current EU workforce or accommodate new employees from other countries.
"Another consequence may be that virtual industries, gaming included, will simply increase the outsourcing their animation and coding teams to other parts of the world"
Another consequence may be that virtual industries, gaming included, will simply increase the outsourcing their animation and coding teams to other parts of the world. Eastern Europe and, as of more recently, South-Asian countries have become hubs for outsourcing various parts of game development, however, with the pound currently dramatically dropping in value against both Euro and dollar, and unlikely to rise in value any time soon, buying such services will become increasingly expensive. This coupled with the tuition fees for university video games courses about to go up once again (there are currently around 40 of those around the UK), may result in less emerging qualified games developers and artists, potentially presenting a sharp shortage of talent that may really begin to cripple the sector.
In fact, the entire conversation surrounding 'high-skilled' labour is already problematic. It would be interesting to find out how many of the 20-29% non-UK EU workers currently in UK games industry have acquired skills in their home countries and how many of them already worked in the UK before joining these gaming studios. Skills and standards are acquired over time and it is disappointing to see games industry siding with the Brexit position that the rest of the people, the 'less-skilled', are not worthy or unable to learn, that a right to exist in UK can only be granted to the people with already established skills.
The UK is fantastic at teaching tech subjects to young people, especially women. UKIE has been an integral part of it - supporting home-grown talent with its Digital School House project, encouraging STEAM (Science, Technology, Engineering, Arts, Maths) education and quality higher level apprenticeships. Many other countries still lag behind in such initiatives - chances are that it will be the privileged few that will be allowed into UK under this new visa regime. 'Who needs the stifling, bloodless, bean-counting quantitative Brussels bureaucracy; we can introduce a stifling, bloodless, bean-counting quantitative bureaucracy all by ourselves (in fact we already have done for non-EU migrants)'. - Sam Kriss recently wrote about a points-based system.
"Access to the Digital Single Market is arguably more important for the games industry than the European Single Market for physical goods"
The end result has a danger of looking something like this: instead of having a mix of people of different abilities, prerogatives and life stories paying an equal amount of tax as the other industries, we will have 'high-skilled', privileged individuals coming here and paying less tax.
Digital Single Market
Access to the Digital Single Market is arguably more important for the games industry than the European Single Market for physical goods. While this is another one of European Union's bargaining chips, it is likely that UK will be able to negotiate its way into this agreement. UKIE's work in getting this deal has been very active - Dr Jo Twist, CEO of UKIE has confirmed that just recently, on 21st of October, UKIE gave oral evidence to the House of Lords Internal Market Sub-Committee's inquiry into the trade of digital services.
Similarly to 'tangible' goods, as a result of the Single Market, the larger companies are able to defer the VAT, but with the changes that were brought in July 2015, the Digital Single Market and the VAT charges that come with it now disproportionately burden small and medium businesses.
Another signal that larger companies are being prioritised in EU exit negotiations came with the announcement that Nissan car making company was reassured to have a tariff-free access to EU market.
Free flow of digital information is equally as relevant as free flow of money and goods, so it is likely that digital markets across the EU (games industry included) may demand similar conditions. This may result in the survival of the games industry being dependent on public subsidies which are both economically precarious and morally dubious. Games sector must prepare that it may not receive such generous treatment and invent new solutions to deal with potential rise in tariffs, especially for small and medium sized studios.
UKIE's negotiation advice is in danger of being beneficial only to a very particular, already resource-rich part of the industry. Now, the European Union is by no means a liberal organisation - one only needs to look to its treatment of Greek economy or the brutality of its borders to realise that. What was misunderstood is that is not merely that foreign bureaucrats are making the laws, but the kind of laws they are making: pro-bank, anti-labour austerity.
"With so many economic changes about to take place in this country, this must be the time for all the people that care about the direction the industry will be taking to be incredibly vocal"
UKIE has been fantastic to quickly produce this report, but with the vast speed of current political events, it somehow already feels outdated. The games industry is not a homogeneous body - the only reason for its continuing and growing success is precisely its diversity, whether that's the thematics of the games or the people creating them.
On Norway's recent success in games sector, Jory Prum, a sound engineer who worked at LucasArts and on Telltale's Walking Dead franchise, comments: "It's a country used to being on its own." So when one developer or studio becomes successful, they all do. That's due to the sector sharing assets, talent and even hardware. It is possible that this sort of isolation is where Britain is headed to and this could serve as a chance to develop these networks of solidarity between studios.
This is why Brexit does indeed offer a unique opportunity to decide what sort of industry we want to be. This will require the companies that do not put profit before people to be vocal about their objections towards the neo-liberalism on steroids that Brexit is most likely to result in. With so many economic changes about to take place in this country, this must be the time for all the people that care about the direction the industry will be taking to be incredibly vocal. One or more sets of recommendations is not going to be enough - demands must be loud, clear and followed by action, if necessary.