Activision Blizzard, the world’s largest video games publisher, said the government’s decision to scrap a plannedtax relief for the games sector could threaten the company’s plans to invest in the UK.

“For us to continue to invest in the UK there needs to be an incentive provided for us to do so,” said Robert Kotick, chief executive of Activision Blizzard.

“The talent pool in the UK is among the best in the world for what we do. But we really need to see some more incentives. We are seeing great incentives in Canada, Singapore and eastern bloc countries,” he said.

The group employs 700 people in the UK and owns studios in Liverpool and Leamington Spa, which have produced titles such as Blur, a racing game, and DJ Hero, follow up to Activision’s successful Guitar Hero franchise. This week the company joined Tiga, the UK trade body for games developers, which has been lobbying for the tax breaks for more than five years.

Executives at Sony Computer Entertainment Europe, which has more than 1,200 games developers and three large development studios in the UK, also said withdrawal of the promised tax relief could affect their plans.

“The existing plans will continue but any further new developments would have to be looked at. Maybe something that was planned for the UK would go abroad now,” said Ray Maguire, Sony Computer Entertainment’s UK managing director.

Mr Maguire said that many countries, such as Malta, were considering capitalising on the UK’s indecision and rolling out their own tax incentives to lure games companies.

In Canada, games companies can get around 30 to 40 per cent tax relief on items such as wages. France recently introduced a 20 per cent tax relief scheme for the industry, which has resulted in Ubisoft, the French games publisher, increasing investment in the country.

Meanwhile, the UK has slipped from 3rd to 5th place as the biggest global computer games developer. According to Tiga, 44 video game businesses, or 15 per cent of the UK total, closed between July 2008 and July 2009, at a loss of about 1,000 jobs.

Philip Oliver, chief executive and co-founder of Blitz Games, a Leamington Spa-based games development company, said the tax relief scheme would have helped change the perception of the UK as an expensive place to develop games.

“They got into the the habit of saying we were too expensive when the exchange rates were high and that attitude still persists today. If the UK government was seen as helping the UK games industry it would have been helpful to perception.”

Tom Watson, a Labour MP who has backed the games industry’s campaign, said that before the election, both Liberal Democrat and Tory shadow ministers had said that they would support a tax break.

“The industry made a very powerful argument,” he said. “The government have got to do a bit more to explain why they had to [cut] it.”

He said that Labour MPs would seek to amend the finance bill to reinstate the tax break, if only to force the government to more fully explain its reasons for the change.

But he said he was “very pessimistic” about the prospects for a reversal, especially given opposition from Vince Cable, business secretary, to central support for industry.

“Find me alternative jobs for highly qualified games developers in Warwickshire [where Activision has studios].”

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