Tax breaks for video games development in the UK have been under discussion in the industry for several years now, with some progress seeming to be made of late with the formation of an all-party parliamentary group for video games and various positive notes in the Digital Britain report earlier this summer.

　　As part of the ongoing consultation, the National Endowment for Science, Technology and the Arts (NESTA) today revealed the results of its own investigation into the state of the industry and how the implementation of a similar tax break to the UK film industry might improve things. The current picture, according to NESTA, is a grim one. Since 2006, investment in privately held games companies in the UK has dropped 60 percent, and three-quarters of the executives questioned in the course of NESTA's research said they felt that development of original intellectual property had declined in the past five years. This is coupled with the UK's decline in global standing for game development, from a recent third place to a likely sixth place in 2010, in part due to a brain drain to countries, such as Canada, who offer significant corporate and personal tax breaks to developers.

　　According to NESTA, two-thirds of studios who took part in the survey expressed a view that tax credits would help original IP development, and three-quarters of independent developers said it would help in retaining original IP. All of these independent studios also said that a tax break would ease the shift to new business models that address the increasing trend of online and mobile gaming.

　　It's not just UK-based studios who were singing the praises of a potential tax credit; investors questioned by NESTA were unanimous in their belief that tax breaks would increase overseas investment in British development houses, while some local and international publishers said that "a tax credit could well make the difference between investing in or passing over UK games development opportunities." Ian Livingstone, Eidos' life president, added weight to NESTA's findings saying, "In the past we were able to develop a world class video games sector in the UK even as development costs increased and without any form of government support ... [but] it is time for the government to invest in the digital future of video games." Livingstone has previously been critical of any potential tax break that was tied to a cultural test but did not respond to requests for comment as to whether this statement indicated a change of position or simply acceptance that some support is better than nothing.

　　Support for these findings came from TIGA, the trade association for UK game developers, which played a key part in setting up the all-party parliamentary group and has led the lobbying for tax breaks. TIGA CEO Richard Wilson said, "NESTA's research confirms that while the UK video game sector remains a world leader it has been under enormous pressure for the last five years. This is because our key overseas competitors have benefited from generous tax breaks for games production. The unfavourable tax environment has also led to a decline in the development of original intellectual property on the part of the UK games industry."

　　Wilson also said that TIGA is also preparing to submit evidence to the Department for Culture, Media and Sport later this week, which "will provide [the] government with a clear framework and rationale with which to introduce a cultural tax break in the UK."