A Labour MP has accused the Coalition of putting jobs at risk in the videogame sector following its decision earlier this year to cancel proposed tax relief for the industry.

Tom Watson called it “a reprehensible decision based on ignorance” and he went on to say that it would cost jobs and potentially break the industry.

The backbencher made the comments following a meeting of leading game publishers at Westminster organised by the gaming trade body, TIGA.

He said: “When you see a nine per cent downturn in jobs in the UK videogame sector and in the same period of time a 33 per cent growth in jobs in the Canadian sector, something is institutionally wrong with the relationship between government and the industry in allowing that to happen.”

The games industry contributes £1bn annually to UK GDP and some of the biggest titles in videogaming were created in Britain including Tomb Raider and Grand Theft Auto.

But the industry has faced financial problems and it was starkly felt at Realtime Worlds in Dundee which closed in September. US-based Activision is currently deciding on the future of its development studio Bizarre Creations in Liverpool despite it producing critically acclaimed titles such as Blur.

Dr Richard Wilson, CEO of TIGA says: “We've had a fantastic tradition of developing Triple A titles and the workforce is second to none - which is why the Canadians keeping trying to poach our staff.

“The risk we run is losing out on the growing share of the videogame market and we should be attracting more overseas investors to fund studios and game development in the UK and if we have games tax relief we'd be in a better position to do that.”

Figures released by TIGA show there are now 278 games companies in the UK, up from 264 in 2008. There has also been a net growth in the number of games companies with 145 start-ups as opposed to 131 closures.

But the majority of the new companies are small teams, often formed out of closures and between July 2008 and September 2010, the UK's studio headcount fell by nine per cent, the survey claims. In 2008, 9,900 people were employed in gaming but that is down to 9,010 today.

Watson, MP for West Bromwich East, said action is needed and added: “MPs know we need exports and growth and the financial services industry are not going to plug the gap any more. Where are high school jobs going to be coming from in the future? We happen to have a national mindset that allows us to develop some of the best games in the world.”

He added: “Cancelling tax relief was a reprehensible decision based on ignorance. It will cost jobs and I just hope it doesn't break the industry.”

Watson has been a keen backer of a tax break for UK game production and he tabled an Early Day Motion in February calling for such a move.

In March, then chancellor Alistair Darling announced plans for tax relief in the final budget before the general election.

It was cancelled, however, by Chancellor George Osborne who said the original plans had been “poorly targeted”.