Business Case for an Enhanced Video Games Expenditure Credit

Final Report
Business Case for an
Enhanced Video
Games Expenditure
Credit
Prepared for: Ukie
February 2025

1. Argument -in-Brief
Following major changes to the Audiovisual Expenditure Credit in March of 2024, Ukie commissioned
Nordicity to provide research and economic analysis supporting the development of Ukie’s recommendations
for an enhanced Video Game Expenditure Credit (VGEC) (i.e., a business case). This business case is
informed by Nordicity’s economic modelling, case studies, desk research, and a comparative analysis of
international labour-based rebate schemes . Using this information, the following report reviews six different
possible scenarios accounting for different VGEC parameters including changes to the nominal rate,
expanded eligibility criteria, and changes aligned with project budgets.
Any enhancements to the current VGEC scheme would necessarily need to reflect important macroeconomic
trends and market realities affecting the global – and domestic – video game industry . While many labour –
based incentive program mes have traditionally been implemented to attract and retain major game
development studios to a given jurisdiction,
the onus for industry support is beginning to embrace both
employment and export revenue from sales and IP exploitation as the latter represents an equally potent
avenue for industry sustainability and growth. Considering high volume layoffs and UK studio closures, the
risk -averse investment climate, the cascading effects of inflation, rising interest rates, and wage competition,
and the emergence of optimi sed indie game production processes, VGEC should equip the UK video game
industry to survive , and subsequent ly thrive , within this new market reality .
Nordicity modelled six distinct scenarios for an enhanced VGEC , modulating different nominal rates ( 34%,
39%, and 53%), extended eligibility criteria and qualifying expenditure types , and rates applied to specific
project budget thresholds. These scenarios were compared to effective rates for schemes used in other
jurisdictions, and were used to assess potential employment growth, GVA additionality , tax revenue and
additional revenue generation for the sale of new games developed by small, UK-owned studios from
reinvestment of the expanded claim allowance – all relative to the cost of implementing each scenario.
Ultimately, Nordicity’s modelling and research found that there is a distinct business case to be made for the
enhancement of the current VGEC scheme . The approach yielding the highest overall volume increase in
employment, GVA and tax revenue would be to
increase the nominal rate to 53% for project budgets up to
£10 million (“Games Growth Rate”) and increase the nominal rate to 39% on 100% of expenditures for
project budgets greater than £10 million (“Enhanced Primary Rate”) .
The proposed change s would result in higher lump -sum amounts of relief disbursed to companies to cover
expanded claims which would, in turn
be reflected in higher volumes of employment (additional FTE
generation), tax revenue, and GVA additionality. Based on Ukie’s knowledge of UK’s games industry. this
package of measures would more acutely address the needs of the UK video games industry at large; from
multinational studios, many of who m have a significant UK footprint following historic investment and higher
employment which has contributed substantially the overall GVA of the UK industry , to smaller, growing
British studios trying to scale , develop new IP, export and compete internationa lly.
Within this potential change , the new ’Games Growth Rate ’ that is included in this proposal provides the
highest per -pound economic return on investment of all of the scenarios we have considered , representing a
return of £2.12 per £1 in additional VGEC spend by the fifth year of implementation . This EROI figure reflects
the potential reinvestment effect from local studio development
, as smaller studios would be able to use the
increased VGEC disbursements to fund new projects or accelerate current projects – in turn, generating
more game sales and associated export revenue. This Games Growth Rate would increase the “on -paper”
appeal and utility of the VGEC scheme f or smaller studios in the UK.

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When this Games Growth Rate is combined with the Enhanced Primary Rate, the combined package would
create one of the most competitive tax incentives available to the video games industry , generate an
additional £ 530 m in GVA annually (over that which would be generated by the existing VGEC scheme) , and
pave the way for the creation of an additional 5,969 jobs in the UK ..
The following tab le demonstrates the anticipated outcomes related to this business case in a hypothetical
fifth year of implementation in comparison to the changes if they were implemented in isolation:
Industry Impacts
Projects for Year 5 of
Implementation
(Current VGEC)
53% Games Growth
Rate combined with
the 39% Enhanced
Primary Rate
53% Nominal Rate for
£10M and below
39% Nominal
Rate + 100%
Expenditures
Approach
Maintains status quo
for support
High volume growth,
increased comparative
international
competitiveness, focus
on employment
generation
Scalable focus on
support for smaller
studio development and
export revenue
generation
Impact solely
related to an
‘enhanced
primary’ rate
Effective Rate 14% 20.6% 16.8% 20.0%
VGEC
Disbursement
Costs
£937.3M +£367.6M +£151.2M +£302.6M
Total GVA £6,167.9M +£ 529.5 M +£247.3M +£430.5M
Total Tax Revenue £1,872.5M +£1 58.1 M +£72.4M +£128.8M
VGEC GVA ROI £2.46 +£1.44 +£1.64 +£1.42
VGEC Tax ROI £0.74 +£0.43 +£0.48 +£0.43
VGEC Total ROI £3.20 +£1.87 +£2.12 +£1.85
Total Direct FTEs 32,810 +2,550 +1,048 +2,098
Total Indirect FTEs 26,089 +2,027 +833 +1,668
Total Induced FTEs 17,922 +1,393 +573 +1,146
Total FTEs 76,820 +5,969 +2,454 +4,913

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2. Introduction
Ukie commissioned Nordicity to provide research and economic analysis suppor t for the development of a
business case for an enhanced Video Game Expenditure Credit (VGEC). The business case demonstrates
ho w potential enhancements to VGE C would make the UK video game industry more competitive and
sustainable. Nordicity’s research and economic analysis explores several possibilities for enhancing VGEC,
includi ng increases to the tax credit’s nominal rate, the expansion of eligible expenditures, and the use of
VGEC for other processes and services related to game development. This report also explores the use of
VGEC within the context of current market realities for international game development , addressing the new
avenues for growth via targeted support for smaller Bri tish studios and scalable projects.
F ollowing change s made by the UK Government to the Audiovisual Ex penditure Credit (AVEC) in the March
2024 Budget , there arose an opportune moment to review and advocate for enhancements to VGEC . AVEC
enhancements raised nominal relief rates for film and television vi sual effects from 34% to 39% and rates
for independent film production from 34% to 53%. Animation and children’s television production was
already subject to a previous enhancement and other creative sectors (including theatres, orchestras,
museums, and galleries) saw once- temporary tax reliefs made permanent following the pandemic.
Ult imately, the UK video game industry would equally benefit from similar enhancements, as it competes
with other international jurisdictions to offset labour costs associated with labour -intensive video game
development activities .
To analyse the effectiveness of the current VGEC relief scheme and to evaluate the impacts of possible
enhancements , Nordicity utilis ed a combination of methodologies, both qualitative and quantitative. The
following methodologies include:
1. Effective relief rate modelling using the Ersatz Game Project tool : To compare VGEC ’s effective relief rate
compared to other jurisdictions, Nordicity utilised its video games incentive program me calculation tool,
called the Ersatz Game Project . The Ersatz Game Project was developed over the course of previous
engagements and consultations with industry professionals and simulates the finances for a plausible
project of a video game studio with a budget of approximately £ 10 million . The simulation allows Nordicity
to compare effective tax credits/labour rebates across benchmark jurisdictions and pays specific
attention to the way project b udgets breakdown of development activities and other eligible expenses (as
permitted by the various support mechanisms).
2. Industry engagements : Nordicity conducted interviews with game companies in the UK as to 1. provide
case studies that describe the current and intended uses of VGEC and 2. to inform quantitative findings.
3. Additionality modelling of t op -line gross value added (GVA ), tax generation impact and reinvestment
effects : T o calculate GVA and tax impact s, Nordicity created a n impact model that assessed how much
potential labour would be supported or created as a measure of relief paid out. Since labour is a key
driver of production in the video games industry, the model used the allocation of relief to labour to
measure how much GVA and tax revenue would be generated from labour productivity in certain
scenarios. Nordicity also developed a n impact model add -on that tabulated GVA and tax from potential
sales of new projects created from the proposed additional enhancements added to the current VGEC
programme.
4. Jurisdictional scans and desk research : To provide a complementary understanding of the current
landscape of the video games industry in the UK and in comparable jurisdictions, Nordicity conducted

5
region -specific research and reviewed broader international trends related to game development
processes, wage competitiveness, and the impact of recent macroeconomic shifts.

6
3. The Baseline: How the UK’s Games
Industry Competes Internationally
3.1. The State of the Global Games Industry
The rise and growth of the video games industry, culminating in its 2021 peak, has been driven by a two –
decade paradigmatic shift marked by diversification, technological advancement, and evolving consumer
habits. The video games industry is the largest entertainment industry in the world.
Traditionally centred around “games -as -a -product”, where titles were developed, published, and sold as
complete packages, the industry transformed into a multifaceted ecosystem. Developers embraced a
spectrum of production and business models, from indie and AA projects to blo ckbuster AAA productions.
Major publishers focused on consolidating talent and intellectual property (IP), creating iconic franchises that
extended across media and merchandise, and attracting and growing audience.
The past 15 years saw the rise of live- service models (“games-as-a -service”), where games evolved
continuously post -launch, supported by subscriptions and in- game monetisation schemes. Consumer
acceptance of these models grew alongside the ubiquity of smart devices and strong global network
infrastructure, which democrati sed access to games. Casual and mobile gaming emerged as dominant
modalities, attracting broader demographics and driving revenue growth, as illustrated by the following chart.
Figure 1. Global Game Revenue ( $USD)

Source: Newzoo, 2024
The macroeconomic landscape in North America and Europe, two regions with high concentrations of AAA
game development and publishing, further fuelled the accelerated growth of the industry up to 2021 . Low
interest rates made capital abundant and accessible, encouraging investment despite the inherent risks of
game development. Digital distribution platforms, such as Steam, the Epic Games Store, and mobile app
stores, allowed developers to bypass tradi tional gatekeepers, reaching global audiences directly. These
factors converged to create an industry that was not only resilient but increasingly innovative, setting the
$101.1Bn $108.9Bn$138.5Bn
$145.7Bn$159.3Bn$192.7Bn
$182.9Bn$183.9Bn$187.7Bn
$0Bn
$50Bn
$100Bn $150Bn $200Bn
$250Bn
201620172018201920202021202220232024F

7
stage for unprecedented growth and culminating in a surge during the pandemic era, as demand for digital
entertainment skyrocketed.
Since its peak in 2021, the global video games market has experienced a more nuanced form of growth and
has begun to face new challenges such as market saturation, aggressive consolidation , and a lack of
financing opportunities . Indeed, the pandemic -era surge in demand for games has subsided, exposing
companies to the sharp rise in the cost of speculative capital. This downturn notably translates into massive
layoffs , studio closures, and corporate consolidation.
The headlines around the video game industry throughout 202 2, 2023 and 2024 have been dominated by
news of layoffs . To mitigate losses and make their operations more sustainable through the industry’s
market recovery period, many companies started reducing the scope or cancelling projects, shedding the
related employee s or shuttering the studios responsible for their development. The initial wave of layoffs,
starting in 2022, amounted to 8,500 jobs; subsequent years saw continuous increases in the volume of
layoffs, with 10,500 layoffs in 2023 alone, and another 14,000 estimated to have happened in 2024.
1. In
the advent of these layoffs, many developers are turning to freelance or contract- based employees to fulfil
forthcoming project roles as teams are becoming more distributed ( and amenable to fully remote roles) in
the post- pandemic world. Subcontracting has become a more feasible employment arrangement for both
small British and AAA developers – subcontracting labour can help fill expertise gaps in small teams or can
supplement unforeseen and short -term development processes respectively.
Figure 2. Global Video Games Industry Layoffs

Source: Games Industry Layoffs Tracker
Finally, the global games industry is contending with a reduced volume of investment and a risk -averse
financing climate. Following years of inflated investment, further exacerbated by the end of the pandemic
boom in home entertainment and a growing scepticism over speculative technologies, the industry is
experiencing a significant market correction. Venture capital investment dropped off significantly as interest
rates began to rise, leaving many companies without the financing to continue or start new projects.

1 Games Industry Layoffs Tracker
8,500 10,500 14,000
–
2,000 4,000
6,000
8,000
10,000
12,000
14,000
16,000
2022 20232024F

8
Figure 3. Video Game Venture Capital Investment Volume Worldwide ($USD billion )
Source: Pitchbook, 2024
The current context reflects a global race among jurisdictions to recover and revitali se their respective game
industries. Accordingly, any industry will need to adapt their support mechanisms to the emerging landscape
– a landscape that is much less advantageous for multinational developers or employment- based growth
strategies than it once was . However, this landscape also provides new avenues for industry growth as the
market stabilises and achieves its own “new normal”, particularly to developers with more streamlined and
scalable production processes and the maintenance of global distribution systems.
One such avenue for growth is to leverage the competitiveness of indie games in the global market . Indies
and solo -developed games are now competing for attention with AAA offerings from major multinational
studios, with the percentage of full game revenue from independent games sold on platforms like Steam
almost doubling since 2018.
2 Small studios are less dependent on initial publisher buy-in for their titles,
using a udience engagement processes and developer -friendly online platforms to create and sell games in a
more flexible and timely way, while ca pitalising on current player preferences and trends to de -risk titles and
ensure market fit.
Figure 4. % of Full Game Sales Revenue from Steam Games by Year
2 https://gameworldobserver.com/2024/10/16/indie -games -revenue- steam-vs -aaa -titles -vg -insights
$1.2B
$0.7B$3.3B
$2.4B$3.7B
$3B$5.3B $7.8B
$5.1B$7.2B
$3B$1.4B $1.1B$1.5B
$0.9B$1.1B
$1.2B$1.8B
0 50
100
150
200 250 300
350
400
450 $0B $1B $2B $3B $4B $5B $6B
$7B $8B $9B Q1
2020 Q2
2020 Q3
2020 Q4
2020 Q1
2021 Q2
2021 Q3
2021 Q4
2021 Q1
2022 Q2
2022 Q3
2022 Q4
2022 Q1
2023 Q2
2023 Q3
2023 Q4
2023 Q1
2024 Q2
2024
Deal value Deal count
24% 27%
28%29%32%
31%48%
76%
73%
72%71%68%
69%52%
0%
10% 20% 30%
40%
50%
60% 70% 80% 90%
100%
2018 201920202021202220232024
Indie AA & AAA

9
Source:
VGInsights, 2024
3.2. The UK Games Industry in 202 4
The international video game industry experienced a period marked by turmoil, contraction, market
correction, and econom ic recovery , especially over the span of the last four years. The United Kingdom’s own
domestic industry was not sheltered from the resulting layoffs, studio closures, and decreased investor
activity , but in following with the broader trend , the UK games industry has seen an optimistic increase in
both consumer market value and development activity. Per Ukie’s reporting, the UK games consumer market
was worth £7.82 billion in 2023, representing an increase of 4.4% from 2022 .
3 Per TIGA’s reporting, the UK
games development sector grew to 25,419 full-time equivalents in 2024, a n increase of 4.8% over the
course of the previous year.
4 Against the backdrop of difficult macroeconomic conditions, the current UK
games industry can be characteri sed as resilient and adaptable; as a measure of game revenue, the UK
remained the sixth largest gaming market in the world in 2023.
5
Despite the encouraging portrait painted by increased consumer market valuation and development sector
growth, it is worth acknowledging that th e industry has had to make some compromises. As headcounts
have recovered across the sector, the composition of the workforce has changed: between April 2023 and
May 2024, the number of freelancers working in the UK games industry almost tripled, from 4.4% to 12.7%
of the workforce.
6 Studio closures and restructuring also affected the broader industry workforce: 248
companies closed down between 2023 and 2024, but 678 companies grew their headcounts in the same
period, indicating that employees were able to find employment elsewhere in the industry.
7 Changes in
workforce composition, including increases in freelance labour arrangements and higher headcounts in
established studios, may have implications for the deployment of labour- based relief programmes, but the
long -term impact of these changes remain to be seen.
3.3. Games vs AV: Geographic Distribution in the UK
A significant attribute of the games sector’s value to the UK economy is in its geographic distribution. While,
like most sectors in the UK, there is a significant concentration of business in London, there are large hubs
of games activity around the count ry, offering levelling-up opportunities and a wider distribution of economic
impact derived from a highly skilled, highly paid workforce. In particular, there are concentrations of games
development spend in Scotland, The West Midlands, and Yorkshire and T he Humber Regions, as well as in
the South East.
Indeed, game business activity in the UK is more evenly distributed than film and TV production and
postproduction business activity , where outside of London, there is comparatively less activity away from
cities like Manchester, Bristol and Cardiff (as illustrated in Figure 5) . The Film and TV sector has benefitted
from increases in tax incentives, so a similar increase in the games sector incentives has potential to result
in an even greater geographic distribution of comparison to film and TV production.

3 https://ukie.org.uk/news/2024/04/2023VideoGameIndustryValuation
4 https://www.prnewswire.com/news -releases/weathering- the-storm -tiga -research -reveals -uk -games -dev -sector -continues -to -grow- despite -global-sector -downturn- 302304483.html
5 https://newzoo.com/resources/rankings/top -10- countries -by -game- revenues
6 https://www.gamesindustry.biz/number -of -uk -game- dev-freelancers -triples -amid -layoffs -and -studio -closures
7 Ibid

10

Figure 5: Comparative regional distribution of business activity in the AV and game development sectors

Source: ONS, UK business: activity, size and location (2024)
3.4. Wage Competitiveness
As the UK’s game industry leverages labour -based relief programmes, wage competitiveness factors into the
broader efficacy and appeal of VGEC. Historically, labour -based tax credits have been introduced by
jurisdictions to offset costs associated to employ ee salaries, with the added — and perhaps intended — effect
of incentivi sing multinational studios with lower relative costs for a highly skilled workforce. Thus, not only
does the UK have to consider how their relief programme fairs against other jurisdictions with similar
schemes, but it must also contend with important macro economic changes affecting wages.
Overall, the UK and comparative jurisdictions have all faced the same issues: inflation, higher interest rates,
and an increased cost of living. As a result, wages have mostly increased in tandem with these
macroeconomic trends. Figure 6 demonstrates that since 2013, the UK has seen the steepest increase in
wages relative to competing jurisdictions. It has also increased at a rate outpacing the average of all
jurisdictions’ consumer price index.
37%46%
63% 54%
Games Sector Audiovisual
London Rest of UK

11
Figure 6: Comparative indexed wage growth 2013 -2023 (2013 base = 100)
Sources: StatsCan, Institut national de la statistique et des études économiques, Central Statistics Office Ireland, Australi an Bureau of
Statistics, Office for National Statistics.
Figure 7 maps comparative average wages across jurisdictions starting in 2013. Initially, wages in the UK
were only slightly higher than its closest geopolitical competitor, France. Over the course of the following ten
years, UK wages increased significantly, as t he gap with France almost tripled from £3,000 to £11,000.
While the UK has maintained the second -highest average wages among competitors (just behind Canada),
the increasing gap between it and other jurisdictions have made the UK less and less comp etitive over time.
Figure 7: Comparative average wages for game industry workers 2013 -2023
Sources: StatsCan, Institut national de la statistique et des études économiques, Central Statistics Office Ireland, Australi an Bureau of
Statistics, Office for National Statistics.
Between historically high comparative wages and trends indicating continuing wage inflation, the UK games
industry has also had to contend with the long -term implications of Brexit, and the resulting – mostly
120.4
143.2
100 105
110 115 120 125 130
135 140
145
2013 2014201520162017201820192020202120222023
Indexed Wage Growth (2013 -2023)
Canada France Ireland Australia United Kingdom
£38k
£51k
£33k
£48k
£25k £30k £35k
£40k £45k £50k £55k
2013 2014201520162017201820192020202120222023
10 Year Average Wage Comparison (2013 -2023)
Canada France Ireland Australia United Kingdom

12
negative – effects it has had on labour mobility, access to markets, subcontracting arrangements, and
exchange rates. Figures 2 and 3 both indicate a more significant increase in average wages in the UK around
2020, with the impacts felt into current day.
Video game development is labour- intensive, and as such, wages become a major point of consideration for
companies seeking to establish studios or start projects in other jurisdictions. As the UK ha s become less
competitiveness, safeguarding the domestic game industry will require support mechanisms like VGEC to
maintain the viability of the UK games industry (namely, by working to restore wage competitiveness and
anticipate ongoing macroeconomic trends).
3.5. UK Video Game Industry Relief Mechanisms
The Video Game Expenditure Credit was introduced in January of 2024 to replace the previous Video Game s
Tax Relief (VGTR) scheme. Since HM Revenue and Customs has not yet applied the new VGEC rules and
companies are still applying for VGTR claims for the current fiscal year, the methodology found in this report
examines the potential effect of the current VGEC scheme compared to the soon- to-be defunct VGTR.
3.6. About the Ersatz Game Project Tool
Through previous engagements and consultation with industry professionals, Nordicity has developed a
video games incentive program me calculation tool, called the Ersatz Game Project.
The model simulates the finances for a single plausible project of an AA (“double A”) 8 video game
studio with a budget of approximately £ 10 million (vetted by industry stakeholders). As many video
games studios are beginning to focus on smaller and more nimble teams to lower development costs
and shorten production timelines , Nordicity assumes that the £10 million is a comfortable budget level
for studios to produce quality games at faster production pipeline. The simulation notably compares
tax credit rebates of the benchmark jurisdictions through the budget breakdown of development
activities and other eligible expenses (as permitted by the various support mechanisms). The model
also assumes that companies that are eligible to apply for relief will apply, providing a fuller portrait of
each incentive if uptake is maximi sed.
The budget assumptions are estimates based on Nordicity’s experience with working with industry
stakeholders over the past decade. Through industry surveys and direct consultation, Nordicity has
engaged with over 900 video games studios across more than 10 years – from international ‘AAA’
studies to micro enterprises. This has allowed Nordicity to develop industry profiles – and these were
recently validated through interviews with video games studios and a n industry survey.
Through this simulation, Nordicity applied the estimated deduction based on the criteria/requirements
provided by each jurisdictions’ tax credit frameworks, integrated local nuances (e.g., need for foreign
outsourcing, average industry salary, etc.). From there, the research team was able to illustrate the
effective rebate for each jurisdiction.

8 This industry designation is used to describe the relative size of video games products (just as the most ambitious Hollywood productions are
referred as blockbusters). AAA are usually understood as projects with a budget greater than 50 million pounds , AA projects have a budget
between 10 and 50 million pounds , and A projects or small British projects have budgets under 10 million pounds . This classification
remains informal and various standards and ranges can be found. The ranges selected for this study reflect the most common
understanding of these terms at the time of writing.

13
The calculations of the Ersatz model to determine the effective rates from nominal rates are developed
as follows:
Step 1: Labour and Non -Labour Expenditure
Total Game Budget (A) – Development Labour Budget (B) = non-labour development budget (C)
This first step separates the labour component from the non- labour expenses.
Step 2: Eligible Labour Expenditure
(B) x Eligible Labour Percentage = Eligible Labour Expenditure (D) . This second step determines the
actual labour expenditure that can be claimed according to the incentives’ guidelines. The Eligible
Labour Percentage is validated by industry stakeholders.
Step 3: Eligible Non -Labour Expenditure
(C) x Eligible Non-Labour Percentage = Eligible Non -Labour Expenditure (D)
This step calculates the amount of non- labour costs that can be claimed according to guidelines. The
Eligible Non-Labour Percentage is validated by industry stakeholders.
Step 4: Relief Allocation
[ (D) + (E) ] x Nominal Funding Rate = Relief amount (F)
The nominal rate is then applied to the total eligible expenditures (labour and non- labour)).
Step 5: Effective Rate
(F) / (A) = Effective Rate of Funding Mechanism
Finally, the amount returned (calculated in the Step 4) is compared to the total budget of the project.
This ratio is the effective rate of the incentive.
Calculations may vary in cases where several mechanisms can be stacked to ensure that the modelling
does not allow double counting.
The Ersatz Game Project T ool calculates and examines the most optimal scenario under which an “ersatz”
video game project with a hypothetical budget size can claim rebates and relief. The model is different from
the modelling tool used in the BFI’s 2021 Screen Business r eport as Screen Business measured impact and
growth rate based on historical data received by several sources. Instead , the Ersatz model calculates t he
actual relief rate that a hypothetical game studio might receive after all eligibilities and restrictions are
added to the budget amount . In comparison, the aim of the modelling used in the Screen Business report
was to examine the estimated economic impact of the VGTR based on historic data gathered.
3.7. Key Assumptions of the Ersatz Project
The assumptions underlining the Ersatz Project model are informed by the years of research and
engagements conducted by Nordicity related to the global video game industry. Accounting for insights
pertaining to development cycles, R&D spend, labour vs. capital spend, use of subcontractors, and in –
practice uses of claimed relief – among others – Nordicity’s Ersatz Project Tool model is adapted to, as
confidently as possible, project effective rates for tax relief programmes across different jurisdictions .
Specific assumptions related to the use of the Ersatz Project Tool are as follows:
 Nordicity assumes that labour cos t of an Ersatz project is roughly 72% of the total budget cost.
 Nordicity estimates the R&D cost to be 10% of the labour cost.
 Nordicity also assumes that the breakdown of labour costs is based on the division of labour and other
non- labour costs of a typical £ 10m budget.

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 The model assumes that an Ersatz project will optimally claim the maximum amount of relief from all
eligible costs that can be incurred.
 The model assumes that an Ersatz project does not offload certain labour costs (e.g. localis ation) to
publishers or third -party companies.
As these assumptions are informed by Nordicity’s experience with the video games industry, and accounts
for how video games studios finance their projects, the modelling process provides an assessment that is
uniquely attuned to smaller UK -owned studios and its related impacts. Since smaller studio s typically
perform all , if not most, of the labour needed to produce their game, the model accommodates these costs
in the effective rate calculation. Furthermore, since smaller UK studios sometimes do not rely on third party
publishers to outsource some of their costs, the division of costs for their project tends to align with the
Ersatz model.
However, one limitation of the model is that the £10m budget calculation may not have the same results as
another Ersatz project with a significan t difference in budget (e.g., £500k, £1m, £100m).
Based on the Ersatz model used to calculate both VGTR’s and VGEC’s effective rate on a £10 million project
budget, the model determines the effective rates for the current and future relief programmes as follows:
UK VGTR UK VGEC
Nominal Rate 25% 34%
Nominal Rate + 80% Expenditures 20% 27.2%
Effective Rate + 25% Corporation
Income Tax (for VGEC)
12.2% 14%
While VGEC includes several generous allowances and improvements compared to the VGTR, including
allowing subcontracting costs as eligible expenditures, VGEC includes a 25% corporation income tax on any
claims paid out . A dditionally , VGEC also no longer allows expenditures incurred from the European Economic
Area (EEA) as part of claimable expenditures. As such, while VGEC has a better nominal rate, the effective
rate is closer to a 1.8 % improvement from the previous relief programme.
The Ersatz model indicates that a significant reason for VGEC’s improve d effective rate is the inclusion of
subcontracting and freelancing costs to the eligibility of a project’s budget. Considering the high volume of
layoffs that occurred in 2022- 24, the video game industry workforce is shifting towards smaller teams and
freelancing (see section 2.2) . Nordicity anticipates a greater increase in the subcontracting segment of VGEC
eligibility costs. As such, the effective rate of VGEC will be higher compared to VGTR , especially due to
s ubcontracting cost eligibility.
When looking at the impact of VGEC, the model estimates that the relief claims in 2024 -2025 (when VGEC’s
assessments will be implemented) will potentially sustain over 15,684 direct, indirect, and induced full -time
equivalents (FTEs) of the UK video games industry . Furthermore, VGEC will potentially add £1,259.3M to the
GVA based on the FTE labour that VGEC potentially supports in the UK.
3.8. Competing Internationally
Labour-based financial incentives have been introduced to support the development of video games in
jurisdictions around the world. While an incentive programme is tailored to the realities of each jurisdiction’s
own economy, bureaucratic systems, and political objectives, they all operate on the same premise: game

15
development is a labour- intensive process that requires a large amount of artistic, technical, and managerial
work.
DPS Games: A Case Study on International Competitiveness
Surrey based DPS Games has historically used the VGTR as an essential puzzle piece in any business
development conversation with international partners. The VGTR is viewed as a lifeline and something
that helps mitigate the high wages and other costs of making games in the UK, to essentially stay
afloat.
In 2018, Cypriot- based AAA game developer, Wargaming, acquired DPS Games as part of a strategic
move by Wargaming to pivot into Western markets. Following this transaction, VGEC/VGTR was no
longer the mechanism that simply kept DPS afloat. However, as the games industry responds to a
changing geopolitical landscape and increasing globalisation, VGTR has remained the vehicle by which
the UK stays competitive in the international market. DPS/Wargaming offers a useful case study into
the value of VGEC as a mechanism for helping UK games companies attract foreign direct investment.
Wargaming are the developers of a multi -billion -pound grossing franchise, World of Tanks, and the
majority of their development team was based in Eastern Europe, mostly in Russia, Belarus and
Poland. In a drive to entrench themselves in the Western market, under the premise that to be
successful in a market one should develop in that market, a mandate was given to set up a physical
presence in a Western European country. The UK was chosen on account of its rich history of video
game production and associated talent pool, and Wargaming subsequently acquired DPS. DPS is based
in Guilford, an ideal location, close to Heathrow and Gatwick, and with good school and housing options
available. Despite the enduring non -financial factors that make the UK attractive to games developers,
the UK is one of the most expensive jurisdictions in the world. For a company like Wargaming, who
chose to relocate over 200 members of staff from St Petersburg to the UK at the start of the war in
Ukraine, VGEC was critical in offsetting the significant costs accrued by this process, including the costs
of relocation, flights, visas and, of course, the rising consumer price inflation as a result of the war.
Without a VGEC/VGTR, the UK would not be viewed as an attractive -enough business proposition for a
company of Wargaming’s size and scale. The upshot of this is that , as stated by a DPS representative,
the company is now near the top of the list of Wargaming’ subsidiaries and offices in jurisdictions
around the world to face relocation or closure if there are either any further geopolitical or economic
shocks. Either way, should Wargaming not be able to claim VGEC on a significant proportion of i ts
development spend on their upcoming projects (in the region of £1 million in spend/month or a £200k
in VGEC per claim), then the UK would lose an economic asset.
DPS Games’ value to the UK economy and the Exchequer is significant. DPS employs over 200 skilled
and well-paid staff in an office costing around £2 million a year to run. In terms of economic impact ,
DPS is an asset that is at risk if VGEC does not continue to mitigate the risk of developing games in the
UK. As per DPS representatives, “m oving people around the world is not as hard as it used to be ”.
Wargaming closed their Australian studio at the start of the war in Ukraine, with cost of the Australian
dollar cited as key reason for mov ing operations. DPS’s studio will not be far down the risk register.
When studios like DPS spend millions on developing a product , that if successful can run for a decade ,
a significant economic impact is generated for the UK. Any enhancement to VGEC package will help
preserve economic assets such as DPS and prevent the UK games industry from losing AAA developers
to more competitive jurisdictions.

16
Accordingly, Canada, France, Australia, and Ireland have all introduced their own relief- based incentives for
game developers, leveraging the strengths and mitigating the weaknesses of their respective game
industries.
Country Rebate Year(s)
Introduced/Revised
Current
Posted Rate
Rationale for Comparison
Canada MTC/IDMTC 1996/2024 (QC),
1998 (ON), 2010
(BC)
37.5% (QC),
35% (ON),
17.5% (BC)
Leading employer of video game
talent and attractive to multinationals;
provincial incentives provide insight
into how programme s are tailored to
regional realities
France Video Game
Tax Credit
(VGTC)
2008, 2017, 2022 30% Key regional competitor with
established multinationals and a large
talent pool
Ireland Digital Games
Corporation
Tax (DGCT )
2023 32% Recent entrant showing interest in
intentionally growing their sector
Australia Digital Games
Tax Offset
(DGTO)
2023 30% New entrant with an incentive that
builds on the experience and
successes of other jurisdictions
It is worth understanding the context within which these jurisdictions administer their rebate schemes, as
they are all tailored to the historical development and current operation of their own video game industries.
Further, several jurisdictions have adj usted their rebates over the years to account for important changes in
the video game production process, including funding models, talent needs, wage competitiveness and other
macroeconomic changes.
3.9. Canada
The Canadian video game industry is characteri sed by strong development hubs across the country’s urban
centres in the provinces of British Columbia (Vancouver), Ontario (Toronto), and Québec, (Montréal). These
hubs are sustained by robust and cooperative production ecosystems, regional financial instruments such as
tax credits, and well-developed workforces and training pipelines. Canada’s cultural proximity to and
linguistic compatibility with the American, UK and French markets have also attracted many multinational
publishers, such as EA, Ubisoft, WB Games, and Krafton, among many others, who have established or
acquired Canadian development studios.
In 202 4, the Canadian video game industry accounted for 821 active video game companies , generating an
estimated £2.88 billion in revenue.
9 While the industry in Canada directly employ s 34,010 full -time
equivalents, it is worth noting that the largest 25 companies employ ed 58% of all FTEs in the industry
10. Thi s
proportion demonstrates how the Canadian industry utilis es AAA multinational studios as a centrifugal force,
developing a skilled workforce and partnership networks that lend themselves to successful local studios
and flexible talent pipelines.
A unique feature of the Canadian game development landscape is that available financial incentives are
reversed compared to other jurisdictions: public funding programme s are offered and administered by the
9 https://theesa.ca/resource/canadas -video- game- industry -2024/
10 Ibid.

17
Canada Media Fund at a national level, while labour- based tax incentives are provided by select provinces at
a regional level. While seven of Canada’s 10 provinces offer some tax credit for interactive digital media
production, there are three that are competitive between each other and at an international level: the
Ontario Interactive Digital Media Tax Credit (OIDMTC) , the British Columbia Interactive Digital Media Tax
Credit (BCIDMTC), and Quebec’s Production of Multimedia Tax Credit (MMTC) .
3.10. France
The French video game industry is characterise d by marquee game companies (such as Ubisoft, DontNod,
Vivendi, and Focus Entertainment) , robust training and education pipelines, and many different types of
financial support mechanisms . Combined, this has enabled France to build a n industry with both a strong
domestic presence and with international reach. The latest survey conducted by the Syndicat national du jeu
vidéo (SNJV) accounted for 1000 video game industry companies, including 580 game development
studios.
11 27% of these development studios saw revenues exceeding £834,000 in 202 2 and 12% of
studios crossed the threshold of £8.34 million.
12
The SNJV survey also indicated that 85% of companies consider France to be an attractive territory in 2022;
the most cited factors of attractiveness are tax incentives (31%), the quality of training provided by
educational institutions (23 .4%) and the country’s overall quality of life (21.9%).
13 These factors reveal the
role that financial incentives, access to talent, and relative cost/quality of life play in growing and
maintaining a strong national game industry .
France maintains a slate of financial support mechanisms, available at the national and the regional level,
across the development cycle for companies of all sizes. Companies surveyed by the SNJV noted that 31.3%
of their company financing came from private equity, followed by 15. 8% and 15.5% from regional and
national subsidies, respectively.
14 The national level of support is best characteri sed by its production -based
Video Game Tax Credit ( the Crédit d’impôt jeu vidéo (CIJV)) and it’s CNC- administered Video Game Support
Fund , while regional support is more inclined towards providing funding at the ideation, conception, and
prototyping stage of independent development.
3.11. Ireland
The Irish games industry has capitali sed on its low corporate tax rates, its proximity to the United Kingdom
and the European Union, and its talent availability to intentionally and strategically grow their domestic
ecosystem. The current landscape of the video game industry in Ireland is characteri sed by an entanglement
of establishments: independent video game studios, middleware developers and third -party service
suppliers, regional customer support offices for multinational game companies , and headquarters for major
developers such as Playrix and service companies such as Keyword s Studios . In 2024, Irish games industry
revenue is expected to reach £243 million, with additional revenue (not accounted for in this figure)
attributed to industry -related service and support work.
15
The growth of the Irish games industry, especially over the course of the last decade, has led to the creation
of a “two -tiered” system that categoris es work around development and production, and quality assurance
and localisation, respectively. Ultimately a result of an industry that boasts a higher number of middleware
11 https://frenchgamesmap.fr/en/barometre
12 https://www.gamesindustry.biz/over -12- of-french- games-studios -report -sales -above -10m
13 https://frenchgamesmap.fr/en/barometre
14 https://frenchgamesmap.fr/en/barometre
15 https://www.statista.com/outlook/dmo/digital -media/video -games/ireland?currency=EUR

18
and game services companies than comparable jurisdictions, this divide has led to what some have called
“growing pains” of the industry ; the two-tier nature of the industry has its own implications for pay
discrepancies, crunch, and IP creation.
16
However, the introduction of the Digital Games Corporation Tax (DGCT) in 2022 has demonstrated the
country’s commitment to scaling up their industry.
3.12. Australia
Australia was o nce characterised as a cost -effective destination for major American multinational games
companies to set up production studios . T he 2008 financial crisis and the sunsetting of the traditional
console, games -as -a -product model prompt ed multinationals to shutter their Australian studios . Within this
vacuum, the renewal of the Australian game industry was largely sustained by a tight-knit Australian
development ecosystem, a turn towards mobile and indie games, and regional funding support schemes.
17
In 2023 , the sector generated £177.7 million in revenue, with 111 companies representing 2 ,458 full -time
employees.
18 The sector also prioritises the creation and export of original IP: 89% of game companies
develop their own IP and 87% of revenue from games produced by Australian developers came from outside
the country.
19
To address the concerns expressed by game developers and to accommodate the rapid expansion of the
industry, the Australian government announced a new, national tax offset scheme, supplementing existing
regional funding schemes. Australia’s industry trade body, the Interactive Games and Entertainment
Association (IGEA ) ha s also been a dvocating for improvements to Australia’s occupations classification
system and immigration policy to streamline the recruitment of speciali sed workers from abroad.
The Australian government announced a new tax credit in 2022
20, which outlined a tax offset available to
Australian game developers for development, completion, or porting of digital games. This announcement
prompted “increased interest from international business, more job positions on offer across the market,
and increase investor engagement” according to IGEA.
21 Following royal assent in June of 2023, the
Australian government enacted a law introducing the Digital Games Tax Offset (DGTO) . Since the
announcement and enactment of the DGTO, Australian businesses have reported a marked increase in
plan s to undertake more projects and interest from international businesses.
22
3.13. Comparison of Relief Rates
The Ersatz model allows for the equitable comparison of these jurisdictions by running the rebate criteria
through a hypothetical project to determine which of these jurisdictions offer the best effective rate. The
current VGTR’s and future VGEC’s relief programme s compare to the other jurisdictions as follows:
16 https://www.breakingnews.ie/ireland/long- hours-and -low -pay -the -growing- pains-of -irelands -gaming- industry -1325946.html
17 https://www.abc.net.au/news/2023 -07- 08/australias -video -game- industry -saved -by -indie -developers -mobile/102575770
18 https://igea.net/wp -content/uploads/2023/12/AGDS -2023 -Report -Final.pdf
19 https://igea.net/wp -content/uploads/2023/12/AGDS -2023 -Report -Final.pdf
20 In particular, the introduction of a Digital Games Tax Offset to support growth in large -scale games development was announced through the
fifth pillar (Engaging the Audience) of Australia’s Cultural Policy five -year strategic plan, Revive.
https://www.arts.gov.au/sites/default/files/documents/national -culturalpolicy -8february2023.pdf
21 https://igea.net/wp- content/uploads/2022/12/AGDS -2022 -Report -Final.pdf
22 https://igea.net/wp -content/uploads/2023/12/AGDS -2023 -Report -Final.pdf

19
France Australia Canada
Quebec
Ireland Canada
Ontario
UK
VGEC
UK
VGTR
Canada
British
Columbia
Nominal Rate 30% 30% 37.5% 32% 35% 34% 25% 17.5%
Effective Rate 20.2% 18.4% 18.2% 17.8% 15.8% 14% 12.2% 6.6%
Based on the effective rate shown, the VGTR’s effective rate (1 2.2%) is the second lowest effective rate
compared to all other comparable jurisdictions for a typical project budget as described. While VGEC’s
effective rate is an improvement compared to the VGTR (14%), the programme still measures as the second
lowest compared to all the other programme s (not including VGTR).
Right now, VGEC’s effective rate is still underperforming compared to the two largest video g