policy
Staying
connected?
Implications of the
EU Referendum
for the UK Games
industry
Contents
03
About Ukie
03
About this paper
03
Introduction
03
What will be the impact on
the UK economy and foreign
direct investment?
04
What is the regulatory impact
on business?
04
What does change look like
post-Brexit?
05
Which option is good for
business?
05
Regulatory issues for games
industries
07
Conclusion
About Ukie
UK Interactive Entertainment (Ukie) is the trade
body that represents over 250 businesses and
organisations involved in the games and interactive
entertainment industry in the UK.
Ukie exists to make the UK the best place in the
world to develop and publish games and interactive
entertainment. Ukie’s membership includes games
publishers, developers, console manufacturers and
the academic institutions that support the industry.
About this paper
The campaign for the UK’s continuing membership
of the EU began in earnest on 15th April. Ukie takes
no position on the EU Referendum (Brexit) and is
not advising on how to vote on 23 June. This paper
provides an objective analysis on how the debate
relates to the industry.
Introduction
Our existing membership of the EU involves a tradeoff between full access to the continental market
of 560 million citizens and the collectively-decided
rules business operate under and consumers enjoy.
The debate about whether the UK remains or leaves
the EU can be said to pose ‘known knowns’ (things
we expect to happen); ‘known unknowns’ (issues
which are recognised, but poorly understood) and
‘unknown unknowns’ (issues or events which cannot
be expected because there has been no prior
experience).
What will be the
impact on the UK
economy and foreign
direct investment?
The most hotly contested ground between the
camps is the direct economic impact of Brexit
and a number of studies have been produced by
the ‘Remain’ camp. Advocates of ‘Leave’ argue
a depreciated currency could prove a boon for
exporters and provide an economic stimulus as UK
businesses become more competitive internationally.
HM Treasury, supporting the government position,
argues the impact of withdrawal would most likely be
felt in areas such as foreign direct investment and the
UK’s contribution to the EU Budget.
A decline in economic activity could lead to lower
tax receipts which may encourage the government
to intensify spending cuts or raise taxes. Spending
cuts associated with the austerity regime have
already impacted the games industry in that we have
already seen a tightening and refocusing of public
funding in government departments. However, the
‘Leave’ camp points to the reinvestment of the UK’s
£8.5 billion contribution to the EU in 2015 (around
1% of total public expenditure, equivalent to 0.5%
of GDP). It is unclear how the UK tech or creative
industries would fare from any such redistribution
of funds, which would face strong competition from
other sectors for prioritisation. This also needs to be
balanced against the loss of EU funds, which provide
substantial support to the UK regions1.
In addition to the UK’s competitive strengths, foreign
firms also look to use the UK as a base for selling to
the rest of Europe. A full-blown exit could tarnish the
UK for many foreign organisations based here, or
be seen as removing existing trading and regulatory
foundations that make the UK an attractive bridge
to the EU. The role of the UK both as a base
for European operations and a force-for-reform
within the EU is an important factor for ‘Remain’
advocates2.
1. See, e.g. LSE Europe Blog, “Should the UK stay or go: the
economic consequences of Britain leaving the EU” http://blogs.lse.ac.uk/
europpblog/2015/03/24/should-the-uk-stay-or-go-the-economic-consequencesof-britain-leaving-the-eu/
2. London First, Jobs and Growth for London http://londonfirst.co.uk/wpcontent/uploads/2016/02/Jobs-and-Growth-for-London-London-First-report.pdf
4 Staying connected? Implications of the EU Referendum for the UK Games industry
What is the
regulatory impact on
business?
The second major area of consideration is the impact
on business regulation in the UK. Here we have
to consider both the current/future impact of EU
regulation on business and the impact of potential
changes were the UK to leave.
In considering this subject we have to weigh up
the particular characteristics of the games industry
outlined in Ukie’s Blueprint for Growth3:
++Preponderance of small and micro-studios in the
games industry
++Pan-European and global nature of platforms and
sales
++Relative youth of many studios and
interdependency with other tech and creative
sectors
++Importance of access to finance, investment,
talent acquisition and retention
The policy areas in which the EU operates and
may legislate, known as competencies, are set out
in the Treaty on the Functioning of the European
Union (TFEU - formerly the Treaty of Rome) and the
‘Four Freedoms’ – freedom of movement of goods,
people, capital and services.
The laws of the UK and the EU have been entwined
since Parliament passed the European Communities
Act 1972 (ECA), giving EU law supremacy over
national law. There are two main types of EU
legislation – directives and regulations. Directives
require implementation into UK law through primary
or secondary legislation in order to have effect, in a
process known as transposition. The UK’s exit from
the EU would not result in the automatic repeal of
this legislation. The government would need to make
a conscious decision to repeal them on a case-bycase basis.
In most cases, the EU legislation is in the form of
directives but where they are regulations they have
direct effect and would automatically be repealed on
withdrawal from the EU. If the ECA were repealed,
then all EU regulations would cease to have force
3. Ukie, Blueprint for Growth http://ukie.org.uk/blueprint
unless saving legislation were to be implemented.
This would be an unprecedented situation and
seems highly unlikely given the legal uncertainty
it would cause. A more orderly transition through
transitional arrangements or new legislation seems
more probable. It is likely that the strength of these
laws will be the subject of national debate between
those who see Brexit as an opportunity to deregulate
and those who would resist that vision.
What does change
look like post-Brexit?
It is likely that some EU legislation may need to
remain in force as part of any trade agreement
negotiated following the exit, particularly if the UK
were to remain in the European Economic Area
(EEA). The final status of the UK post-withdrawal
could take some time to determine – the minimum
time period for withdrawal as stipulated in Article 50
of the Treaty of the European Unit is 2 years – and it
seems unlikely that legislation would be repealed until
a decision were taken on whether to remain in the
EEA.
The table below outlines some alternative scenarios
set out by HM Treasury4.
The most likely options for UK trade with the
EU following Brexit are as follows:
1. membership of the European Economic
Area (EEA), like Norway
2. a negotiated bilateral agreement, such
as that between the EU and Switzerland,
Turkey or Canada
3. World Trade Organization (WTO)
membership without any form of specific
agreement with the EU - like Russia or Brazil
4. HM Treasury, Analysis on the EU referendum, https://www.gov.uk/
government/uploads/system/uploads/attachment_data/file/517415/treasury_
analysis_economic_impact_of_eu_membership_web.pdf and https://www.gov.uk/
government/news/eu-referendum-treasury-analysis-key-facts
Which option is good
for business?
Advocates of ‘Remain’ argue that EU-level rules create
benefits for British businesses, for example by removing
barriers and creating common standards to sell to
560 million consumers. However, the Confederation
of British Industry (CBI), even though campaigning to
‘Remain’, point to the negative effects on business
of existing EU legislation, both individually and taken
together, when they cite that 52% of businesses believe
that, were the UK to leave the EU, the overall burden
of regulation on their business would fall. Areas where
UK firms are frustrated with EU regulation include
labour market regulation, highlighted by nearly half of
businesses as having had a negative impact – with
particular frustrations around the Temporary Agency
Workers Directive and Working Time Directive. The
Federation of Small Businesses also argues that current
regulations on employment, health and safety and
data protection are particularly burdensome for small
businesses, something Brexit could remedy.
Advocates of ‘Remain’ have modelled the negative
economic impacts of leaving, the most notable being
the April 18 HM Treasury analysis. PwC estimate that
total UK GDP in 2020 could be between around 3%
and 5.5% lower under alternative scenarios than if
the UK remains in the EU, representing a reduction of
around £55-100 billion in UK GDP5.
“By 2030 this post-exit uncertainty should be
resolved, but they estimate that the net longer term
impact of other changes related to EU exit could
result in total UK GDP in 2030 being between
1.2% and 3.5% lower than if the UK remains in the
EU (around £25-65 billion, at 2015 values). This
reflects the potential negative economic impacts
of increased barriers to trade and labour mobility
after EU exit, offset in part by potential benefits from
lower regulatory burdens and fiscal savings from
no longer paying net budgetary contributions to the
EU.”
Open Europe’s modelling speculates that any
deregulatory boost to the UK economy is dependent
of future decisions by UK governments6: 5. CBI, Leaving the EU: implications for the UK economy http://news.cbi.org.uk/
news/leaving-eu-would-cause-a-serious-shock-to-uk-economy-new-pwc-analysis/
leaving-the-eu-implications-for-the-uk-economy/
6. See Open Europe, Britain and the EU: what if there were Brexit? http://
openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/ and
http://openeurope.org.uk/today/blog/where-do-the-costs-and-benefits-of-brexitcome-from/
“the economic impact of Brexit is not as clear cut in
either direction…Instead it will depend on a number
of tough decisions in the UK and Europe. This
includes whether the EU itself will embrace reform
and whether UK politicians and voters are willing
to turn Britain into the deregulated, free trading
economy it would need to become outside the
EU.”
The political environment in Europe could very much
shape how future treaties are drawn up. Elections
in France and Germany next year are both likely
to feature a challenge from Eurosceptic parties,
meaning that reaching agreement around Brexit may
be more difficult in practice than Leave advocates
suggest.
Regulatory issues for
games industries
A useful overview of the possible impact of postBrexit legislative changes is provided by Osborne
Clarke7. Building on that analysis and from other
sources, we highlight these important areas for
games firms:
1. Digital Single Market
The Digital Single Market (DSM) is a project to
remove digital trade barriers between EU countries.
Consumer law, competition law, copyright law,
audio-visual content regulation, data protection law
and more are all being reviewed, with the role of
games-critical online platforms also coming under
scrutiny. HM Treasury estimates that an expected
addition of 0.9% of UK GDP is estimated as the
benefits are realised, although the effect could be
greater since the UK could benefit disproportionately
as one of Europe’s leading providers and users of
e-commerce8.
In the short term, while these rules are being drawn
up leaving the EU would take away any ability of
the UK to influence this agenda. Were the UK to
re-join the EEA post-exit, or make a separate trade
agreement, we would be subject to any changes
made under the DSM project without our input.
Experience of the project so far has seen the UK
taking a crucial role in holding back changes that
would be very negative for the games industry,
7. Osborne Clarke, http://www.osborneclarke.com/connected-insights/blog/
commercial-legal-implications-brexit-your-business/
8. HM Treasury https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_
membership_web.pdf
6 Staying connected? Implications of the EU Referendum for the UK Games industry
particularly around consumer law. The UK games
industry would lose any ability to influence, through
the UK government, the rules governing how we
could sell to the rest of Europe digitally.
However, if the UK were to rely on WTO rules alone,
the government would have the ability to remove any
DSM requirements they felt were unfair on business,
including for the games industry. Several of these are
discussed below, as this question covers a large area
of potential regulation. New copyright exceptions
introduced by the EU, for example, could be refused
by the UK (although no games-relevant exceptions
are currently being discussed).
Overall, although the UK is a substantial digital
market in its own right, adoption of any changes in
the DSM may affect a business’s decision whether or
not to launch or base online services or operations in
the UK. Significant departures from rules on crossborder commerce and/or access to content, for
example, may make it more difficult for UK-based
companies to offer games direct to the whole EU
market. Ultimately, it may affect UK consumers
(e.g. if it were to become more expensive for online
businesses to include UK content in a European
bundle of services).
2. Consumer Law
A huge amount of UK consumer protection
regulation is derived from the EU, for example,
directives implemented in the UK protect consumers
from unsafe products, unfair practices, misleading
marketing practices, distance selling etc. UK
Consumer Law was updated in 2015 in the light of
EU directives, business activity will need to comply
with this unless changed or repealed by a future
government.
3. Data
Rules governing the use of data are fundamental to
new business models in the video games industry.
The UK’s Data Protection Act 1998 has its origins
in the 1995 EU Data Protection Directive. The latter
will be replaced by the General Data Protection
Regulation in 2016 which as a regulation will not
require any new UK legislation. In the event of Brexit
the UK would, as above, have to a seek alignment
through alternative treaties.9
9. Osborne Clarke, http://www.osborneclarke.com/connected-insights/blog/
data-protection-and-privacy-legal-implications-brexit-your-business/#sthash.
R89TCnQ7.dpuf
4. State Aid
The State Aid rules are critical to how the public
sector procures goods and services and delivers
public services. They are designed to prevent
government in the member states from unfairly
subsidising economic activity. The Video Games
Tax Relief (VGTR) is a UK incentive implemented
in compliance with EU law governing State Aid
(e.g. the ‘cultural test’). State Aid issues also
have arisen in Ukie’s dealings with Local Enterprise
Partnerships in England. Lifting State Aid rules
could be a benefit to business should government
adopt a more activist approach to industrial policy,
however this also risks more difficult negotiations
around trade agreements with other trading blocks.
There is also clear precedent from EU agreements
with 12 Mediterranean countries and South Africa
(for example) that the EU will insist on its state aid
rules being respected in any free trade agreement.
Any trade agreement the UK sought post-Brexit,
including joining the EEA, would require keeping
to the existing rules under which VGTR has been
secured.
5. Labour market regulation
Much of the UK’s employment legislation stems
from EU covering areas such as annual leave,
agency worker rights, part-time worker rights,
fixed-term worker rights, collective redundancy,
paternity, maternity and parental leave, protection
of employment upon the transfer of a business
and anti-discrimination legislation. This legislation
is mostly in the form of Directives. The UK has a
partial opt-out of the Working Time Directive. The
‘Leave’ campaign signals that Brexit will deliver
more labour market flexibility due to less onerous
rules on employers. Were this to be the case, there
would be significant challenge from unions and the
centre-left on which regulations should stay and
which should go. Osborne Clarke questions whether
Brexit would necessitate a redrafting of contracts of
employment10.
6. Immigration
Talent is one of the most important issues for UK
games companies and the source of much industry
lobbying. The most detrimental aspects of a Brexit
are perceived to be the new difficulties this would
bring in sourcing high-skilled EU workers – such as
software engineers – who play a big part of the UK’s
tech sector. As part of the Treaty on the Functioning
10. Osborne Clarke, http://www.osborneclarke.com/connected-insights/blog/
employment-legal-implications-brexit-your-business/
of the European Union, EU citizens have the
automatic right to work in other EU member states.
Withdrawal from the EU would remove this, which is
a major aim of both ‘Leave’ campaigns. This would
have a major but as yet unknown impact on games
industry employers depending on if and how visa
requirements for EU citizens would be implemented
post-withdrawal. It is not known at present what
proportion of the games industry workforce are
citizens of EU member states other than the UK
and the Republic of Ireland. However, it is known
that talent acquisition and retention are number one
priorities for the sector and that the ability to recruit
from across Europe is of benefit to the industry to
grow business and secure work globally, at the
moment.
Osborne Clarke set out a series of important
questions for businesses11:
++How would Brexit affect my current staff and
ability to recruit? What proportion of existing
staff might need visas and/or residence permits?
Would they be required to leave the UK and reapply?
and promote regional development. Businesses
can access EU structural funds allocated to and
administered by the Local Enterprise Panels.
The European Regional Development Fund, for
example, will provide around £2bn (€2.4bn) to boost
innovation, broadband access and small businesses
across the UK from 2014 to 2020.
Conclusion
There is much uncertainty in this debate for the
UK games industry. Fundamentally, the decision
revolves around whether there are is the possibility of
negotiating a potentially better, more tailored national
regulatory regime when pursuing an independent
agenda; and whether this outweighs access to
the single market and high-skilled labour currently
experienced by our sector.
++Will further tightening of UK immigration rules
make it more difficult or costly to employ EU
citizens?
++Might there emerge a two-tier Europe, with
preference given towards nationals from (for
example) Germany and France over Romania?
++Can I protect myself and my staff by securing
permanent status and/or UK nationality now?
The counter-argument is that a standalone UK could
have the option to redefine its immigration laws
away from those mandated by Brussels, providing
more opportunity to attract technologically-skilled
workers to the UK, perhaps through a system like
the Australian Skilled Immigration Points scheme.
However, immigration would be the source of much
political debate in a post-Brexit UK and it is uncertain
whether this outcome would be achieved.
7. Regional Policy
Regional Policy is an EU competency which is
largely carried out through instruments such as
the EU structural funds rather than legislation. The
purpose is to compensate for the uneven impacts
of the single market in goods, services and capitals
11. Osborne Clarke, http://www.osborneclarke.com/connected-insights/blog/
immigration-legal-implications-brexit-your-business/
What further guidance is there for
business?
The two official campaigns are:
+ Remain: Britain Stronger In: strongerin.co.uk
+ Leave: Vote Leave, Take Control:
voteleavetakecontrol.org/campaign
+ Ukie is a member of the CBI which has
produced an information pack with FAQ on
how to prepare businesses for the Referendum
outlining the arguments in further detail. CBI, EU
Referendum Information Pack: news.cbi.org.uk/
business-issues/uk-and-the-european-union/eubusiness-facts/cbi-eu-referendum-information-packpdf/
@uk_ie
search Ukie on facebook
search Ukie on linkedIn
ukie.org.uk
21-27 Lamb's Conduit Street
London
WC1N 3NL