The government is pressing ahead with controversial plans to levy a £6 a year tax on all phone lines in Britain in order to fund the introduction of next generation broadband networks, Alistair Darling, the chancellor, confirmed today. 

The levy was proposed by Junes's Digital Britain report, but while the Darling confirmed today that he will be implementing that proposal, his pre-budget report also contained a glaring omission. 

Lord Carter's Digital Britain report recommended a tax break for the computer games industry, to help it fight a brain drain caused by increased competition from countries such as Canada and France who are offering fiscal incentives for developers to relocate. 

As feared by the industry the so-called "cultural tax break" proposed by Lord Carter was absent from Darling's speech to MPs. 

The full pre-budget report makes it plain that although the industry makes a valuable "economic and cultural" contribution to the UK and "while recognising the challenges currently faced by the sector in competing internationally, the government is not currently persuaded that the evidence is sufficiently compelling to justify the introduction of a tax incentive for the development of culturally British video games at this time". 

The government's decision, however, has caused consternation among games developers and experts. 

Richard Wilson, head of computer games trade association TIGA, branded Darling's decision to turn his back on an industry that does more for the UK economy than the film business, which does receive tax breaks, a "serious mistake and a failure of imagination". 

"While the public finances need to be brought under control primarily through spending cuts, the UK economy desperately needs to go for growth," he said. " This means creating a tax environment that supports and sustains wealth creating and intellectual property generating businesses.  In the games industry's case, this means enacting a games tax relief." 

"We have consistently warned the government that without the introduction of a games tax relief the video games development sector will probably decline by 5% each year over each of the next five years.  Conversely, if a games tax relief is introduced, then the industry will eventually enjoy annual growth of 4%. 

"The government has shown itself willing to support the UK film industry through tax relief, the oil industry with tax breaks, declining manufacturing businesses with loans and grants, and has spent billions bailing out the banking industry.  The UK videogames industry is inherently successful, highly skilled and bursting with potential.  It is the entertainment industry for the 21st century.  The UK video games industry has the potential to be world-beating.  The government must invest in the industry if it wants it to remain world-leading." 

"We need to see tax breaks to remain competitive," added Dominic Davenport, chief executive of Escape Studios, which trains computer graphic artists. " Other countries already have them, allowing their industries to compete on a global level by offering huge salaries and benefits, the likes of which UK companies can not hope to match. 

"When a developer or animator, who has worked hard for a decade plus on his or her skills, is suddenly offered not only a salary bump, but also bonuses, relocation costs and a host of other benefits, it becomes very hard to turn down by even the staunchest patriot. 

"The gaming industry needs tax breaks.  Without them, the very thing that makes our gaming industry among the best in the world – the talent – will no longer be British – it'll be Canadian, American, French, Russian, Korean, and the companies (and ultimately the economies) to benefit will be from those countries as well." 

Though he showed no appetite for helping the games industry, Darling did reaffirm the government's commitment to helping build the next generation of super-fast broadband networks, which will let consumers download songs in seconds and HD movies in a few minutes – saying that next year's budget will include plans for a levy on all phone lines. 

"We are modernising the UK's digital infrastructure and, in the process, creating thousands more skilled jobs," he told MPs. " We have provided funding to help extend the opportunities of the broadband network to more remote communities." 

"We now want to go further, so we can provide the next generation of super-fast broadband to 90% of the population by the end of 2017.  This will be funded through a duty of 50 pence a month on landlines which will be included in the finance bill." 

BT has already announced plans to spend £1.5bn putting the latest in fibre optic networks within the reach of 10 million homes by 2012, while Virgin Media's existing cable network already passes half of UK households.  But both companies have made it plain that beyond about 60% of the country, the case for installing super-fast broadband is very hard to make. 

As a result, the government is hoping to raise up to £175m a year from a tax on all phone lines.  The cash will be made available to any company that wants to build super-fast networks in rural and remote areas.  In return for a slug of public cash, any successful bidder would have to make its network available to rival ISPs so they can run their services over it. 

The plan, however, is controversial as people with more than one phone line, such as anyone who runs a businesses from home, will be hit more than once.  Last month, leaked HM Revenue & Customs documents showed that there are more than 1.7m households who have more than one line.  The tax will also incur VAT, making it even more burdensome for cash-strapped consumers. 

The Conservatives are opposed to the plan, saying they will scrap it if they win next year's general election.  Jeremy Hunt, the Conservative shadow culture secretary, has said he wants "the market" to take charge of rolling out the next generation of telecoms infrastructure, starting with services to major cities before moving on to rural areas.