Will Winston Churchill make a cameo appearance in future installments of the Call of Duty video game franchise? Will the bad guys in Grand Theft Auto drive double-decker buses? They will if the UK’s finance minister George Osborne has anything to do with it.
This month, Osborne launched a new tax incentive for the video game industry, which allows game makers operating in the UK to write off about 20% of their cost of production for qualifying games.
The news jumped out at me on a recent business trip to London, where it was on the front page of every major daily. For me, it was a déjà vu moment; I wrote last January about how an increasing number of regional tax authorities around the world are lining up to offer tax credits to the video game industry. One of the most established programs is in Texas, which has aggressively – and successfully – wooed the gaming industry with tax incentives. Texas now ranks second in the nation, behind California, in video game employment, with roughly 5,000 residents working in the industry.
Texas legislators have allocated $85 million to the program for next year. There are at least 27 other gaming tax credits in effect across the U.S. and Canada.
You cannot argue the math behind these incentives. The global video game industry – including mobile games on smartphones and tablets – generated $84 billion in 2014 and is projected to be a $103 billion industry by 2017. The top three software publishers – Activision Blizzard, Electronic Arts and Take Two Interactive – have a combined $10 billion in annual revenues. And, the average salary for video game industry employees is about $90,000 per year.
These kinds of numbers are irresistible to governments looking to court new tax revenue from rapidly growing industries.
But unlike the Texas incentive program, which is all about generating revenue in Texas, the UK plan has a broader ambition. In addition to committing to hire staff in the UK and locate their businesses there, gaming companies qualifying for the incentive will also need to pass a cultural test to prove that their games are British enough.
According to the British Film Institute, which administers the cultural test, points for “British-ness” are awarded based on cultural content, cultural contribution, use of cultural hubs and use of cultural practitioners.
This is a first. Governments that have long been conscious of their global “brands” often consider the depiction of their images in the arts. The recent production of The Amazing Spider-Man 2 in New York City, which was the largest movie production ever shot in New York, was welcomed with big tax credits rumored to be as high as $45 million. Arguably, Manhattan is a main character in the Spider-Man movies, and that kind of Hollywood treatment definitely influenced the decision to offer tax credits to that production. But, the cultural component was always treated as secondary to the immediate financial impacts of the production itself. New York Governor Andrew Cuomo’s press release announcing the movie production makes that abundantly clear by touting the expected 3,500 jobs it would bring to the region and a detailed accounting of how much money would be spent on everything from hotel rooms to container storage.
With its new gaming tax incentive, the UK is inextricably linking tax policy with its cultural imperatives to create a sort of financial incentive for perpetuating the British brand. Current estimates suggest that the government will spend £115 million ($171 million) over four years on the program, making it a pretty safe bet that we’re going to see a lot more Union Jacks on gaming screens over the next several years.
