Making the UK the creative hub of the world economy
Damian Collins MP
You will remember from school other students preventing you from seeing their answers by placing their arm around their exercise book or exam paper. It is the same at work, people are secretive with ideas. “Don’t tell them that, they’ll take the credit for it.” The problem with hoarding is you end up living off your reserves. Eventually you’ll become stale. If you give away everything you have, you are left with nothing. This forces you to look, to be aware, to replenish. Somehow the more you give away the more comes back to you. Ideas are open knowledge. Don’t claim ownership. They’re not your ideas anyway, they’re someone else’s. They are out there floating by on the ether. You just have to put yourself in a frame of mind to pick them up.
I picked that up from Paul Arden’s book “It's Not How Good You Are, It's How Good You Want To Be”.
In some ways that sentiment is the driving force behind this ‘Growth Factory’ publication. We’ve asked people to give away their ideas, and their friend’s ideas, to help build a set of policies to help our economy grow and create more jobs. Our hope is that in turn other people will contribute their ideas in response to what we have set out here.
The best economies are the ones that produce the best ideas and for the UK to remain a successful creative economy it has to be a centre for ideas, risk taking and innovation. The role for Government should be to create the conditions which make the best creative people want to stay in or come to the UK. This can be achieved by supporting the infrastructure of the creative economy and providing incentives for the work to take place here, rather than in another creative centre.
My own interest in the creative industries comes from the 10 years I spent working at the M&C Saatchi advertising agency in London. Advertising is not just an important business service that helps companies across the economy to reach their customers, but it is also a commissioner of other creative services from photography and film making to digital design and recording music. My broader interest in the ‘making it’ economy comes in part from my upbringing. My father worked for the Hereford based drinks business Bulmer’s, where I also worked during university holidays and in my gap year in their production factory. My grandfather was a toolmaker at a precision engineering business in Northamptonshire that made parts for the motor industry.
In his Budget this year George Osborne set out his ‘industrial ambition’ that Britain becomes Europe’s major technology hub. It is right for the Government to give a lead in setting priorities for growth in the economy and to work with the private sector to help achieve them. This also recognises that if we are to support growth by effectively rebalancing the economy away from its over-reliance on financial services, there needs to greater emphasis on the ‘making it’ economy. This includes sectors like the creative industries where jobs and wealth come from our ability to make and sell our goods and services in a growing, but increasingly competitive global economy.
The UK is still a great centre for manufacturing and design and we are rightly recognised as one of the world’s leading creative economies. The UK is for example, only the 22nd largest advertising market in the world by size of population, but the fifth largest by spend on creative communications. The UK is also the most creatively awarded international advertising market in the world, by size of population.
‘Tech City’ in East London is now the world’s third largest digital business hub and Government support for this initiative has been important for encouraging international firms to invest here. In addition to this has been the Government’s investment in upgrading the UK’s high speed broadband and Wi-Fi network. The UK already has the most developed online retail sector in Europe. But George Osborne’s ‘industrial ambition’ is also sending out a strong message that in the 21st century Britain needs an industrial strategy, but one that is very different from the model we associate with the economic failure of the 1970s. Then, industrial policy was not about innovation but protection. It was designed to keep people in work, rather than removing artificial barriers to growth. Industrial strategy in the 21st century should be bold enough to look at fast growing sectors of the economy, where we already have dynamic businesses and a highly skilled workforce, and help them to go further. This is particularly important with industries that are highly international, and were opportunities can easily move to the most accommodating market.
Tax incentives for UK production
The creative economy is flexible, dynamic, driving exports and regenerating cities. It is worth about 6% of UK GDP, employs over 2 million people and brings in over £17billion a year for its exports. It is also creating jobs at twice the rate of the rest of the economy. Something to think on when you watch ‘The Iron Lady’ (filmed at Pinewood Studios) or play a game from the ‘Grand Theft Auto’ series (created by Rockstar North in Edinburgh). Like all industries, it needs a skilled workforce to draw from and a regime of tax and regulation that supports growth. We already have the talent, facilities and technology to compete with the best in the world, but had been losing business because we weren’t operating on a level playing field in terms of tax incentives.
This is why the tax breaks for television and video games production announced in the last Budget, similar to those that have been enjoyed by the film industry for the last 20 years, where so important. A study produced by the Film Council in 2010 reported that the core UK film industry contributes £4.5 billion to the economy and over £1.2 billion in tax revenues. Without the Film Tax Relief against investment in production in the UK, it is estimated that film production would be 75% smaller, at a cost of around £1.4 billion to the economy and about £400 million in lower tax revenues. This investment is not only good news for the major studios like Pinewood and Shepperton, but also post production and sound production facilities across the country. However, there is considerable investment now in feature length TV series and it had become an anomaly that a film written by say, Julian Fellowes, like Gosford Park, qualified for the production tax relief but a TV series written by him, like Downton Abbey did not. In fact his new TV series Titanic was filmed in Budapest, where it benefited from production tax breaks offered by the Hungarian government. This location was chosen despite the fact there is now a film studio in the Belfast docks where the original ship was built. The American broadcaster of high quality drama HBO, and maker of series like John Adams and The Wire, also now invests 85% of its production spend in locations where tax incentives are offered. The industry estimates that introducing a net 20% tax incentive targeted for high end TV production would generate at least £350m per year in revenues. Based on this level of production spend and using the film industry multiplier calculated by Oxford Economics in their 2010 study: The Economic Impact of the UK Film Industry, the benefit of a new incentive would be £13 to the UK economy for every £1 of tax relief given. In other words, based on these numbers, this would mean a total return of approximately £1 billion per year.
The extension of production tax reliefs like this to the video games industry will also be important for their future success. Games series like Grand Theft Auto have sold over 100 million copies around the world. The UK has some of the industry's most talented games producers and developers. It is estimated that a 'games tax relief' would generate and safeguard over 4,660 jobs and lead to £188 million in investment expenditure by studios. This would increase the games development sector's contribution to the UK economy by £283 million and generate £172 million in new and protected tax receipts to Treasury. In other words this tax relief should more than pay for itself and would enable UK developers to compete on a more even playing field against government backed developers in other countries like Canada, France, Singapore and the USA. It should be noted that employment in the French video games development sector has grown by 500 since 2008 but declined by over 1,000 the same period in the UK. Games production in Canada has also increased by a third since it introduced a games tax relief.
We should also consider what further tax reforms could help encourage investment into innovation in the creative and digital economy. For example, we could consider extending the Research and Development tax credits to include any newly registered intellectual property in the UK.
Developing creative clusters
A 21st century industrial strategy for the creative industries should also recognise need for business clusters that can provide centres of excellence in a global economy. Government support can help to establish these centres and send a signal to the market to invest. We should have an ambition for a Silicon Valley in Britain based around and extending out of Tech City, so that the next Facebook could take shape in London rather than California. The support of the Government for this has helped to persuade companies like Google to invest in creative and digital infrastructure in the UK, rather than in other European countries. In March this year they opened their new ‘Campus’ centre to provide a workspace for start-up technology businesses. This includes space where people can work for free from their laptops to more formal workspace which people can rent. The power of the Campus is that it gives people who might otherwise the working from home, the chance to work alongside like minded people; to share, innovate, inspire and learn from each other. The Campus can provide mentoring programmes and training for the people who use the space.
In their 2010 report, NESTA demonstrated how important clusters are to the creative economy, where businesses are often small and entrepreneurial and require the support from other like minded organisations. You see this clearly in Soho in London, where the advertising, film and media industries work alongside specialist production studios, music makers, photographers and illustrators. The appeal of East London for digital businesses to locate will in part be driven from the access the city also gives to some of the best financial, legal and creative services in the world.
Specialist business incubator space can often be support the development of creative businesses. The Workspace Group, who own and run over 100 spaces like this in London, produced a report based on their tenants’ business activities. This report demonstrated that 94% creative businesses in London employ fewer than 10 staff, and that 55% of sales in the creative industries are business to business. Also, that businesses working out of one of their creative incubator spaces will see spend nearly £1 out of every £5 of their expenditure with other businesses working in the same location.
More of these incubator spaces have developed around the country and in large cities they can give a new focus to the creative and digital industries in that area. They have be an important resource for economic regeneration and setting them up can provide a real opportunity for government and the private sector to work together. This kind of public/private partnership is also behind the establishment of successful new creative hubs like Media City in Manchester. This city is now the fastest growing media centre in Europe, as well as being the second largest behind London. Manchester City Council has also supported the creation of The Sharp Project, in a former Sharp Electronics warehouse, and this space has become a successful incubator for digital and creative businesses.
In Birmingham the Custard Factory and Fazeley Studios in Digbeth has developed into a creative hub for the city covering nearly 500,000 sq ft and whilst it has been private sector led had been supported by public money from Advantage West Midlands. In my constituency former SAGA chairman Roger De Haan’s ‘Creative Foundation’ is leading a multi-million creative regeneration of Folkestone’s old town and harbour. This investment has provided space for new digital and creative businesses, but was only possible because of the resources at the disposal of this charitable foundation and its long term vision. Their investment has been beyond what current market forces and normally expected rates of return could have justified.
Even in the USA, it was work from the navy, NASA and the support of Stanford University that helped create the research centres that led to modern Silicon Valley. Out of this companies like Hewlett Packard and Xerox were born and it was from their research facilities that the next generation of companies like Microsoft and Apple followed.
We should have an ambition to see incubator space designed around the needs of creative and digital businesses in every large city and region of the country. This is something that could be supported by the local enterprise partnerships and even local authorities using their new powers to invest future business rate receipts into local economic development. It should certainly be a priority for areas benefiting from Enterprise Zone status and financial support from the Regional Growth Fund.
Creative rights in a digital age
The internet is helping to drive growth in the creative sector, but new technology is also facilitating the copying and distribution of original work. The creators have the right to receive the rewards for their work, or else the incentives to produce new work and its quality will diminish. This requires action to be taken against people who seek continually to access and or make money from illegally obtained content. It also means that there should be a fair system for licensing the use of ‘orphan works’ should the original creator become known after the use of their material by a third party. The internet is a great resource for innovation and we should want it to bring together people whose ideas and creativity can support each other. This is why the digital copyright exchange can be such a useful tool
The Government should look to bring into force the technical measures set out in the Digital Economy Act which would require internet service providers to restrict access to those customers who are persistent offenders in illegally downloading content from the internet. Search engine operators should also continue their dialogue with content providers to ensure that search terms do not direct users to illegal downloading sites, before they have actually come across the legal source of the material they are looking for.
Access to finance
Access to finance to support business development and start-ups is important across the economy, but particularly in the creative industries. Although the main banks will always be one of the first calls for funding non bank lending is an attractive source of investment for entrepreneurs. Greater awareness should be made of new schemes like the ‘Seed Enterprise Investment Scheme’ through which investors in a UK company can input £100,000 in a single tax year rising to a maximum £150,000 over two or more tax years in to a single company. Investors cannot control, the company receiving their capital but they pick up 50% tax relief in the tax year the investment is made, regardless of their marginal rate. The Virgin Media Pioneers programme has also championed a ‘Start-up loans’ scheme to support young people who want a small loan to help them start a business. The scheme would allow people to borrow money on similar terms to a student loan, and also receive mentoring and support in starting their business. The Government has allocated £10million to fund a pilot for this project, and if successful should consider how this could be extended across the country.
Conclusion
A 21st century industrial strategy for the creative industries should focus on four priority areas
1) Creating a competitive tax regime to encourage international businesses to work in the UK and to keep home grown talent here
2) Partnership in the development of creative incubator work spaces and clusters to support business development
3) Protection for the interests of content creators in the digital economy
4) Improving access to finance for start-up businesses and entrepreneurs
Published and sponsored by TLG Lab