We have a new young chancellor and it was his first budget this week. He made at least one schoolboy error. Did you spot it?
He forgot that profit = revenue – costs.
This is an important accounting concept often used when making accounts, financial plans, and budgets.
In scrapping the planned tax breaks for the game industry he claimed an estimated saving of £190 million. That figure is the predicted cost over five years, of introducing the tax break scheme. The figure came from the TIGA pre budget report and represented their best estimate of the cost.
But he forgot about the estimated revenue of this scheme. The same report put that figure at £400 million in additional tax. Using the accounting equation above, he has not saved £190 million, he has lost £210 million. (What are they teaching kids these days? We could have done with that extra money. For example, we could have used it to help fund hospitals.)
The global game industry remains profitable despite the recession. PricewaterhouseCoopers predicts continued growth at a compound rate of 10% over the next four years. However, the UK’s share of the industry has fallen dramatically. And it will continue to fall while game companies get better deals in other countries. So in addition to £210 million he could have won, he has also lost us the tax from our falling share.
The game industry is not one that needs government support. The new chancellor has merely thrown away an opportunity to profit from it. He also claimed the scheme was poorly targeted. He may be right about that. But, while the country is effectively broke, it is still better to have a poorly targeted scheme that pays for itself and brings in millions than no scheme at all that brings in nothing.
What a plonker!
