The UK games industry will not be given any tax breaks under the new coalition government.

Chancellor George Osbourne delivered his budget speech at Westminster today and said "planned tax relief for the videogames industry will be cancelled".

Prior to the election, the Conservatives had supported the cuts and hoped to elevate the UK's game-making scene to a similar level that film-makers enjoy.

Other key points of the budget were the increase in VAT to 20 per cent and cuts to child and housing benefits.

"The years of debt and spending made this unavoidable," said Osborne.

The budget (available online) simply states: "Video games tax relief: not introduce." The document predicts this will save £40m in 2011-2012, and £50m in each subsequent year up to 2015.

Update: UK videogames trade body ELSPA is "puzzled" and "extremely disappointed" by Osbourne's decision to scrap plans for industry tax relief across the region.

"Bearing in mind the pre-election commitment towards tax breaks made by the Conservatives and the Liberal Democrats, we are extremely disappointed by the outcome of today's Budget," ELSPA director general Michael Rawlinson commented. "Our industry will be rightly puzzled as to how tax breaks can be lauded before an election, only to be seen as 'poorly targeted' and scrapped just six weeks later.

"We understand that this decision has been made in the context of the current economic climate, yet the Chancellor today spoke of the need for a more balanced economy. If this is to be attained, the government must acknowledge that the creative industries are of vital importance. Therefore in the absence of tax breaks it is the essential that the government work with our industry to ensure that the policies which we have outlined - such as addressing the skills gap and better access to R&D initiatives - are implemented."

Update #2: GamesIndustry.biz points out that this move by Osbourne could benefit small studios and start-ups.

Any companies set up outside of London, the south-east and east of England will be exempt from £5000 of National Insurance contributions for each of first 10 employees they hire, you see. And for larger companies, corporation tax will be cut by 1 per cent each year for four years starting 2011, bringing it down to 24 per cent. Employers' National Insurance threshold is also set to rise.

Updated #3: UK developer association TIGA is fuming. "The Coalition Government has broken pre-election pledges made by the Conservative Party and by the Liberal Democrats to support and introduce Games Tax Relief," offered Richard Wilson, CEO, according to GamesIndustry.biz.

"Unless the Coalition Government introduces Games Tax Relief or a similar fiscal measure then the UK will forfeit millions of pounds in inward investment, jobs will be lost and we will cease to be a leading developer of videogames. The UK videogames industry is export oriented, high tech, highly skilled and low carbon in output. This is an industry of the future which the Government should be supporting with action, not words."

Rebellion CEO and chairman of TIGA, Jason Kingsley, was "hugely disappointed" but said the organisation will not give up, and views Games Tax Relief as "the industry's top priority".

Gareth Edmonson, boss of Reflections and vice chairman of TIGA, said the UK government had "missed an opportunity". He's convinced, however, that the medium-term prospects for Games Tax Relief remain "positive".