Can IT get the UK out of recession?

In 2007 40% of the UK’s GDP came from the financial services sector. When the credit crisis hit there was a huge uproar, with many people pointing the finger in the direction of the finance sector. It was thought that the Investment bankers’ greed and self-gratifying nature was the root cause of the credit crisis. If the government had invested funds more evenly across the different sectors, could it be that the credit crunch could have been avoided, or at least been less severe?

In June 2009 Chancellor Alistair Darling announced that the Government has developed a £750 million Strategic Investment Fund (SIF) to advance the UK’s basic capabilities for industrial innovation, job creation and growth in a highly competitive economy. Out of the £750 million SIF, only £50 million is being apportioned to the Technology Strategy Board to invest in technological innovation. Is the government missing a trick here with the allocation of this budget? Should a larger proportion of the budget be invested into the IT sector?

The IT Job Board carried out some research to discover how much the IT sector actually contributes to the UK economy.

IT’s worth it

In 2007 the UK ranked 6th in the list of countries by GDP by the International Monetary Fund (IMF), generating just short of $2.7 billion. However, Office for National statistics (ONS) estimate that the computer services sector contributes only 3% to the UK economy annually. Yet according to MicroScope.co.uk IT and Telecommunications employ approximately 1.5 million people within the UK and there have recently been reports that the IT industry will help to pull the UK out of the recession. So could we not be making more of the IT sector in the UK?

Within the IT sector, there is one area in particular that has been booming in recent years.

As mentioned in an article on the National Endowment for Science, Technology and the Arts website (NESTA), the video games sector in the UK contributes £1 billion to GDP, more than the music and film industry combined.  An article on guardian.co.uk states that the global games market is worth £18bn with projected growth at a compound annual rate of 10.3% between 2008 and 2012. Therefore is this an area the UK could look to develop further?

Britain is currently the fourth biggest game producer in the world. An article on Ukinvest.gov.uk states that the UK is home to around 280 games companies and employs around 10,000 staff in creative positions.

An article published in September 2009 by BBC.co.uk, explains that the games industry generates £20 million a year for Scotland alone and employs over 700 people. Additionally, Dundee is home to one of the games’ market leaders Realtime Worlds, the company that developed Grand Theft Auto and Lemmings.

Richard Wilson head of TIGA, the industry body for the games industry, stated that the games industry is a highly successful and growing economic sector with great potential. Moreover, in Scotland, 36 per cent of the games industry’s revenue is actually generated from exports, this illustrates the level of importance the games industry has on the country and how necessary it is to protect this.

Problem emerging…

Ukinvest.gov.uk reported that globally the UK was ranked as the third largest producer of computer games, positioned just behind the United States and Japan until 2006 when it dropped to fourth place, having been overtaken by Canada. In addition to this, NESTA declared in a press release that the UK is still expected to fall another two places in the ranking by 2010. This is due, in part, to the increase of Brain Drain in the UK IT industry, meaning Britain is losing the creativity and talent of its developers that are moving to countries where the games industry receives generous subsides.

TIGA have argued that unless the sector receives help from the UK and Scottish governments the games industry could struggle. Wilson explained that the lack of tax breaks for the industry puts Scotland’s firms at a serious competitive disadvantage, the same could also be said for the UK as a whole. Interesting research from NESTA revealed that investment in privately held games companies has dropped by 60% since 2008.

Wilson explains further that without government intervention, the UK games industry faces serious challenges such as: skills shortages, brain drain and a competitive environment characterised by overseas governments giving substantial assistance to their games industries.

Potential solution…

TIGA have advised/believe that the UK government should impose tax breaks similar to those given to firms in France and Canada, as they believe this will help UK firms to remain competitive, as tax breaks can amount to up to 37 per cent of a game’s production costs. This would boost the economy, reduce brain drain thus leading to more jobs in this area of IT.

TIGA has posed a plausible solution to boosting the UK games industry, however, what are the potential ramifications of this solution to our economy as a whole? It could be that introducing tax breaks to one economic sector, could be detrimental to the success of another.

Is there hope?

An article by Computer weekly.com covered a speech by the new culture secretary Ben Bradshaw, where he stated “We do recognise the importance of the video games industry to the British economy. Research and development tax credits are available for the industry, and we are looking at introducing further tax breaks”.

So there is light at the end of the tunnel for the UK games industry. But what else can be done to enhance the development of this sector and further contribute to the UK economy? Are there also others areas of IT that are developing or that we could exploit further for the benefit of the UK economy?