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Creative Industries Tax Relief: more than just Wallace and Gromit?

Spencer Thompson

21 March 2012

Today the Chancellor extended tax relief to three sections of the UK’s creative industries, animation, videogames and high-cost drama. Broadly this makes a lot of sense. As The Work Foundation have argued in the past, the creative industries have a particularly wide role in the economy, generating significant positive spillovers. We have some world-leading production capacity in these areas, but recent industrial activism in other countries such as Canada and Ireland has moved some key business abroad from the UK.

There are, however, some questions marks over the potentially perverse incentives this policy may generate, as firms alter their product and financing arrangements to qualify. Despite this, it should be viewed as a good measure. This is mainly because it complements other, less sector-specific measures such as seed enterprise investment and national loan guarantee schemes. These target small, vibrant businesses which dominate the creative industries.

Also implicit in this decision is the recognition that industrial policy of some form is a tool central government can use to encourage and promote growth in targeted areas of the UK economy. It admits that key ‘opportunity’ sectors such as the creative industries may need some specific attention from the government in order to fulfil their potential.

It also reflects the economy’s changing nature. Much support for research and development has been criticised for taking a disproportionately ‘hard technology’ view of which sectors need encouragement for growth. This neglects the great capacity for less traditional innovations in our service sectors. For instance, the CBI recently highlighted how much of design is not currently covered by R&D tax credits, despite its central importance to innovation.

Tax relief for animation, videogames and other creative industries may seem like small change in the grander scheme of economy-wide tax changes and deficit reduction priorities, but it is small, targeted measures such as these that may offer the sector-specific stimulus needed to rejuvenate parts of British industry.

 

 

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