Why should the government subsidize the games industry in the UK? As a UK tax payer I would be quite upset to hear of such an arrangement when the NHS and transportation systems are in such a poor state.
In Canada (where I have also worked in the games industry) the government actively promotes the games industry (and a number of other high-tech industries) with such incentives because it's a good way to increase Canada's skilled worker population, which is one of the governments' on-going goals. Additionally, I think that you'll find that a large portion of such breaks are actually offered by the Provincial Governments, rather than Federal. These breaks are not designed to attract such companies to Canada (the nationwide reduced operating costs relative to other western nations are enough to do that) they're simply an extra incentive to attract such companies to one province over another. In a sense, the provinces compete for the tickle down economic benefits of having high-tech companies around.
An incentive system like this would make no sense for the UK government. Here in the UK we already have a large financial sector which employs a lot of the best programming talent and pays them very well. Giving money to the games industry (or taking less money away from it in tax breaks) would be money well wasted from the point of view of UK economic policy, because it wouldn't create as much trickle down benefits as the finance sector (not even close!) and it might take talent away. Additionally, unless the breaks were *HUGE* Canada would still be cheaper.
The fact of the matter is that tax breaks or not doing anything in the UK is more expensive than doing it most other places in the world. If you're in an industry where the local economic environment influences your income as well as your operating costs, then this isn't a big problem. Although it costs more to staff a restaurant in London than in Vancouver, people pay more to eat at a restaurant in London.
This is not the case for games, no-one is ready to pay more for a game because it was developed in the UK rather than Canada.