Funding of the arts and heritage

Written evidence submitted by the Country Land and Business Association (arts 137)

SUMMARY

1. This evidence considers only heritage funding, because arts funding is outside the CLA’s remit. Heritage and its funding are vital issues for our members, who collectively manage at least a quarter of England’s heritage.

2. Heritage in recent years seems to have been perceived by Government as a very minor subset – even an overly-publicly-funded subset – of ‘culture’. This is wholly misplaced. Firstly, heritage being almost ubiquitous – most of us experience it each day – is arguably more important to more people1 than other forms of ‘culture’ in DCMS’s remit. Secondly, and perhaps more importantly, the issues raised are very different, not least because heritage is overwhelmingly not publicly funded: unlike arts or museums, only a tiny proportion of heritage is funded as a ‘cultural offer’ by public bodies (see below). Heritage funding is primarily a market efficiency rather than a ‘public subsidy’ issue.

3. We need to be realistic about Government’s role in heritage. It has two responsibilities: (a) creating the right framework for the market to work, and (b) carefully-targeted action where there is market failure. Both are crucial, and neither has to be expensive. The vital point is that these two roles are directly connected: if Government gets the framework right, the market will take care of most heritage, and the extent and cost of dealing with market failure is greatly reduced.

4. The crucial point now is that the framework is not right. Our resource-hungry heritage protection system cannot operate with the low and decreasing level of resources allocated to it in local authorities, and is in crisis. Resources are clearly not going to be increased, so the system needs to be changed. Fortunately this can be done, in ways which increase, not cut, the effectiveness of heritage protection (see below).

THE CLA AND HERITAGE

5. The CLA’s 35,000 members are rural businesses, individuals, charities, institutions, and professionals. They manage and/or own a quarter to a third of all listed buildings in England and Wales, and an even higher proportion of monuments.

6. The CLA is thus by far the largest heritage ‘owner’ stakeholder group. Our members have a deep concern for heritage and fully support its protection. More importantly, they are on the front line: they actually have to manage heritage, and pay for it. This is astoundingly expensive: many of them are spending tens of thousands of pounds a year2, and collectively they are spending probably well over £1 bn.

HERITAGE FUNDING

7. Nobody will ever know the exact total cost of looking after heritage, and few attempts have been made to estimate this, though it is essential that we have figures. The 2008 Traditional Buildings Crafts Skills report suggests a current figure of some £5 bn a year for building work on pre-1919 buildings3. To this needs to be added (a) management, insurance, and other costs for all pre-1919 buildings, which would add at least a further 50 per cent; (b) total expenditure on managing and maintaining post-1919 heritage buildings and on non-built heritage like archaeology and parks; and (c) the cost of running the heritage protection system. In all, this might imply total expenditure on heritage of say £8 bn to £10 bn a year. This may be an underestimate, but we assume for the purposes of this evidence that it is correct.

8. Of this total of £8 bn to £10 bn a year, some £90m is publicly funded by DCMS, mostly via English Heritage (EH), via grants and via losses on the properties it opens to the public. Perhaps a further £100m is spent on operating the heritage protection system in EH and DCMS, and more especially in local authorities via CLG, and in various other forms of funding like DEFRA’s Environmental Stewardship. Adding these figures gives a total approaching £200m a year, around 2 per cent of the £8 bn to £10 bn total.

9. Public cultural4 funding of heritage via DCMS, CLG, and DEFRA thus contributes perhaps 2 per cent of heritage spending, a very low figure compared to other areas of cultural and environmental public spending (and half of this is regulatory cost rather than ‘subsidy’). The other 98 per cent is paid by owners, occupiers, users, and philanthropy, including about £180m (again about 2 per cent) spent by the Heritage Lottery Fund (HLF).

THE INQUIRY QUESTIONS

Q1. What impact recent, and future, spending cuts from central and local Government will have on heritage at a national and local level

10. Unlike most areas of public spending, the small amount of public funding for heritage has already been substantially cut in recent years. Heritage was ignored in the post-2002 expansion of public spending, or the ‘golden age of arts and culture’. In particular, funding for the heritage protection system via local authorities has been cut significantly in real terms (forthcoming EH/IHBC research suggests a 7 per cent staffing cut just in the 14 months to early 2010, following substantial previous cuts from a wholly inadequate base); DCMS funding to English Heritage was cut by some 10 per cent in real terms since 2002 (while DCMS funding to arts rose, by a much greater percentage); and DEFRA funding for heritage under Environmental Stewardship has been significantly lower than under the predecessor schemes before 2005.

11. The fact that public funding is small does not mean that cutting it does not matter. Above all, local authority cuts have further reduced the effectiveness of the heritage protection system, and the very malign effects of this on market efficiency (see below) cannot be quantified. And ‘subsidy’ albeit small matters too, because without correctly-targeted subsidy the market (or not for profit organisations) will not act. The over 50 per cent fall in HLF grant funding (from some £400m in 2004/05 to some £180m now) has been compounded by EH’s 36 per cent reduction in its grant expenditure in real terms between 2002/03 and 2008/09. Similarly, for example, EH’s 2010 cuts have included putting on hold its HET training scheme, which gave some hope of improving local authority conservation expertise in the future.

12. Some of these effects may have been mitigated by the economic and property boom up to 2007/08, since booms reduce the extent of market failure, and by efficiency increases. But the scope for efficiency savings in significantly-cut bodies is less than before, and in the continuing property market recession existing and future cuts will do real harm. Heritage is clearly not an easy place to find ‘low-hanging fruit’, and ‘sharing the pain equally’ between already-much-cut heritage and other sectors whose much larger public funding has actually increased would not be ‘equal’ at all.

13. It is also important to note that, because heritage projects are seldom wholly publicly-funded, cuts are likely to be resource-inefficient. If not making a £100,000 grant means that a £1m project does not go ahead, then £900,000 of private and other funding is potentially lost. Similarly, Environmental Stewardship funding comes mainly from the EU, so cutting £2m of UK Government spending would cut out about £6m of EU funding, as well as the private sector funding involved. Most important of all, cutting the heritage protection system has a geared effect because it makes changing, and working on, heritage even more difficult, discouraging potentially hundreds of millions of pounds of expenditure.

14. Finally, the VAT rise in January 2011 will remove from heritage in tax almost as much as the entire £200m of public cultural funding identified in above5.

Q2. What heritage organisations can do to work more closely together in order to reduce duplication of effort and to make economies of scale

15. Heritage organisations have limited funding, and most have limited or minimal paid staff, so duplication and inefficiency are unlikely to be wasting significant amounts of public (or non-public) money. There are opportunities for working together to increase efficiency, and the Heritage Alliance and its advocacy groups have made great progress on this over the last eight years. EH is making real attempts to work with these and other bodies, though there is scope for further improvement. Merging grant funding is considered in below.

Q3. What level of public subsidy for heritage is necessary and sustainable

16. The key point here is that, given the small proportion of public funding, heritage is not primarily a ‘public subsidy’ issue. Questions like ‘how can we increase non-public funding?’ are, if not irrelevant, not nearly as relevant as for arts. The issue instead is mainly persuading and encouraging the market to deliver a vital public good, the conservation and enhancement of heritage.

17. Firstly, therefore, Government needs to get the framework – primarily the heritage protection system – right. This minimises market failure because if the system works effectively the market can and will maintain most heritage, with some help from philanthropy and the HLF.

18. The system is not working effectively now. The new Planning Policy Statement 5 (PPS5) has improved the system’s policy basis, but has definitely not solved its most fundamental problem, the assumption that every change involving heritage needs expert scrutiny, alongside the failure ever to resource that scrutiny on the ground.

19. The malign consequences of this – unskilled staff having to take (or avoiding) decisions, unnecessary costs and delays, heritage decaying or losing value because of a widespread perception that consent for necessary change is unobtainable, much unauthorised work, and ineffective enforcement – have been spelt out in IHBC, ALGAO, CLA and other evidence to your Committee’s previous heritage Inquiries in 2006 and 2008. If the system now continues to deteriorate, accelerating market failure is likely.

20. More resource would be highly desirable, but the real key to solving the problem is getting the system right, so that it focuses scarce resources much more effectively on protecting what matters. Space does not allow a full discussion here, but this in particular means (a) greatly streamlining the listed building consent (LBC) system, using the impact threshold approach recommended in the Penfold Review6; (b) applying EH’s sensible and proportionate Constructive Conservation approach in all guidance and decision-taking; (c) solving teething problems with PPS5; (d) publishing more (and consolidated) guidance, a very cost-effective way of communicating good practice to local authorities, owners, and developers; and (e) better-targeted enforcement.

21. Secondly, even the right system cannot eliminate market failure entirely, so Government also needs to ensure that unavoidable market failures can, where appropriate, be tackled. This is not a question of routine handouts, but of carefully-targeted subsidy. Market failure in heritage assets7 arises particularly where there is a conservation deficit (ie the value of the asset once repaired would be less than the cost of putting it into repair, so that the market cannot repair it unassisted). EH has attempted to quantify part of the problem, for Grade I and II* listed buildings, in its Heritage at Risk (HAR) programme, and the 2010 HAR report identifies 1,218 such buildings at risk, only one eighth of them repairable without subsidy, with a total conservation deficit of £465m (10 per cent up on 2009). Because Grade I and II* buildings are only 7 per cent of all listed buildings, and less than 1 per cent of all heritage, the total conservation deficit for all heritage is clearly far more than £465m, certainly many billions of pounds.

22. The extent to which Government subsidises this is clearly a political decision, but several points are relevant: (a) the limited evidence available8 suggests this is not a low public priority; (b) public funding is a small fraction of the heritage-led tourism expenditure which might be deterred if heritage decays; (c) as above, the conservation deficit is usually much less than the total repair cost, so £1 of subsidy implies a much greater value of repair, as well as the wider economic benefit to the local and national economy; and (d) deferment is possible but may be expensive: the cost of (say) putting on an arts event in 2015 may be much the same as in 2010, but the cost of rescuing a building may be 10 times greater as decay takes hold.

Q4. Whether the current system, and structure, of funding distribution is the right one

23. Public heritage funding is as above small, a tiny part of the expenditure of three Departments, CLG (mainly via local authority planning services), DCMS (mainly via English Heritage), and DEFRA (mainly via Environmental Stewardship). There is also Lottery funding, which is not public money but comes under DCMS.

24. There are two potential questions here. Firstly, given as above that heritage is primarily a market efficiency rather than a ‘cultural subsidy’ issue, Government should examine the case for amalgamating responsibility for heritage, probably under CLG or in an Environment department, rather than leaving it split between departments as it is now. This raises a number of issues, but the current division causes problems: heritage does not fit naturally into the DCMS remit, and CLG has tended to deprioritise it, seeing it as ‘a DCMS issue’.

25. Secondly, there may be a case for amalgamating grant-giving. This at first seems obvious, given that the cost of handling an application is high and that there would appear to be savings from this being done only once, but it raises a number of problematic issues, for example a need for fundamentally different criteria for different kinds of project, that many funders refuse to support market failure if it is in private ownership, that many funders are independent charities, and a monopoly provider problem. This may repay further work, but there are unlikely to be many ‘quick wins’.

Q5. What impact recent changes to the distribution of National Lottery funds will have on heritage organisations

26. Solutions to market failure have been badly affected by the massive diversion of funding from the HLF to other causes. We welcome the new Government’s intention to restore HLF funding, given the HLF’s huge positive impact on the landscape over the last 15 years (but see Q6).

Q6. Whether the policy guidelines for National Lottery funding need to be reviewed

27. There are two important points here:

28. Firstly, publicly- and lottery-funded projects tend to be procured in artificially expensive ways. The need to prove "best practice" and "value for money", and be seen to prove this, leads to projects being conducted in a risk-averse, belt-and-braces manner which has the unintended consequence of substantially increasing project costs (this ‘paradox of public funding’ is of course definitely not peculiar to the Lottery, or to heritage). Ironically, moreover, this risk-averse approach is often far from low-risk in practice. Accepting a higher degree of apparent risk could allow more projects to be funded from a given amount of money, without an unacceptable increase in real risk.

29. Secondly, lottery distributors relevant to heritage have largely ruled out funding the private sector because of fears of private benefit. Given that many other funding sources also take this approach, this means that there is little funding for market failure where this occurs in the two-thirds of heritage which is privately-owned. This problem now has to be solved by transferring heritage at risk to public or charitable bodies, but this is not always appropriate, or willing bodies cannot always be found even where it is. Moreover, because it is less affected by the issues in above, the private sector may be able to deal with market failure more cheaply. The private sector should be eligible for lottery funding, in appropriate cases where sufficient public benefit can be created (usually, but not only, by public access) to balance any private benefit; EH and some other funders already do this without significant problems.

Q7. The impact of recent changes to DCMS arm’s-length bodies – in particular the abolition of the UK Film Council and the Museums, Libraries and Archives Council

30. These recent changes have not affected heritage. But on this subject, we would have concerns about some kinds of change to English Heritage. For example we see little commercial case for splitting apart EH’s roles as regulator and as owner of historic sites, and there is no substantive ‘conflict of interest’ between these two roles, and indeed significant advantages because it helps to make EH aware of some of the problems faced by owners of heritage. In addition, despite the now very small scale of EH funding for the private sector, we would not wish to see EH’s grant-making role abolished or moved to the HLF unless the problems in above are tackled.

Q8. Whether businesses and philanthropists can play a long-term role in funding heritage at a national and local level;

31. As in paragraphs to above, heritage already is and always has been funded overwhelmingly by businesses, individuals, and philanthropy: almost all is maintained by its owners and users, because they live in it or it provides a direct or indirect flow of income as apart of a business or other private or public enterprise. See also Q9 below.

Q9. Whether there need to be more Government incentives to encourage private donations [funding]

32. Firstly, by far the most important incentive to encourage funding to flow into heritage and minimise market failure is reform of the heritage protection system (see - above).

33. Secondly, as already noted, in cases of market failure carefully-targeted subsidy can encourage substantial amounts of private investment.

34. Thirdly, there is a case for tax incentives where these prevent market failure cost-effectively; areas worth long-term examination include Gift Aid, Maintenance Funds, Acceptance in Lieu, and tax reliefs on expenditure.

35. Finally, it is also relevant that Government currently provides a colossal disincentive to maintain or enhance heritage in the form of the VAT differential of 17.5 (soon to be 20) per cent between the standard rate charged on heritage repair and the zero rate charged on demolition and rebuilding. There are no heritage-specific figures9, but we know from anecdotal evidence from CLA members that VAT is a great disincentive to repair heritage, and we expect the 20 per cent rate to have a more than proportionate effect, stopping much heritage repair and thus increasing market failure. Since 2009, EU VAT regulations have allowed member states to apply a reduced rate of 5 per cent on works to domestic property10. The wider implications of this are obviously beyond the scope of this evidence11, but implementing this would have radically positive effects on heritage maintenance expenditure and greatly reduce the current market failure problem.

We would be happy to enlarge on this evidence if asked to do so.

September 2010


[1] This evidence takes the importance of heritage largely as read, partly because we have no doubt that your Committee will receive much evidence on this from others.

[2] In a CLA member survey Who pays for heritage? in 2006, the 243 respondents were each spending £33,000 pa on average (at pre-2005 prices) on the maintenance and insurance of listed buildings. This figure may be greater than the average for all listed building owners, but it does not include their spending on unlisted buildings, or on all other forms of heritage.

[3] Traditional Buildings Crafts Skills report, National Heritage Training Group, 2008, Table 7, line D. http://www.nhtg.org.uk/uploads/NHTG_skillsresearch_England_2008_fullreport_tcm27-11115.pdf

[4] This obviously excludes the cost to Government of heritage property it occupies , like town halls, Courts, or the Treasury building in Whitehall , because this is maintained for occupational not cultural purposes, and the public heritage benefit , though significant, is incidental to the main purpose .

[5] A 2.5% tax rise on £10bn of spending would be £250m, though of course some of this expenditure is zero- or reduced-rated, and some is recoverable. VAT is also considered in 35 below.

[6] Penfold Review of Non- P lanning C onsents (2010, Recommendation F). Other Penfold recommendations like merging conservation area consent into the planning system would have some impact, though merging LBC with Scheduled Monument consent offers limited practical benefit.

[7] There are other forms of market failure in heritage, like the market’s inability to provide enough skills training, but the principles are not dis similar , and space does not allow discussion here.

[8] e g the DCMS Taking Part survey, and a DEFRA survey of public priorities for rural development.

[9] The February 2010 Experian report The Opportunities and Costs of Cutting VAT: a Report for the Cut the VAT Coalition gives figures for repair and maintenance works to domestic property (ie not just heritage) . It suggests (in paragraph 1.3.6, ‘A worst case scenario’) that increasing VAT to 20 per cent would destroy 34,000 jobs by 2019, and , though the report does not set out specific figures, destroy hundreds of millions of pounds of economic stimulus.

[10] This restriction to domestic property is not fatal in heritage terms because half of heritage is domestic, and much of the rest is occupied by businesses which can reclaim VAT.

[11] Again, see the Experian report.