Funding of the arts and heritage

Written evidence submitted by the Royal Opera House (arts 197)

1. Summary

· The recent and future cuts, coming on top of the recession and extra costs arising from Government policy on tax, pensions and National Insurance, will challenge the ability of arts organisations to create new work, nurture new talent and to maintain the fabric of our arts venues.

· Arts organisations have a long tradition of artistic collaboration, from touring to co-productions, but arguably could do more to pool resources and expertise in developing infrastructure.

· There is a tipping point at which the cuts damage an organisation’s artistic output and so its ability to attract earned and philanthropic income. Estimates current in the sector lie at around the 10% mark, assuming that the cuts were of short duration.

· The arms-length principle has served the sector well and should be retained. Longer-term funding agreements and support for the development of endowments would further enhance the independence of arts organisations.

· The Royal Opera House supports the Government’s wish to restore the National Lottery to its original purpose and to restore the shares of the National Lottery Distribution Fund to 20% for each of the good causes of sport, heritage and the arts, but believes strongly that this should not be seen as in any way substituting for any reduction in Government funding.

· We do not believe that the policy guidelines for the National Lottery need to be reviewed, except to support the proposal contained in the Conservative Manifesto to make one-off endowment grants available on a competitive basis from the Lottery every year.

· We support any changes to the funding infrastructure that focus more monies on front line arts delivery.

· Businesses and philanthropists can play a long-term role in funding arts, but are likely to continue to focus their efforts on London and their funding will continue to be vulnerable to the vicissitudes of the economy.

· To increase philanthropy it is vital that the Government creates a tax regime that nurtures and rewards giving.

These and the comments below are confined to the Arts sector since our knowledge of the Heritage sector is limited.

2. The Royal Opera House

2.1 The Royal Opera House (ROH) is home to world class companies The Royal Opera and The Royal Ballet, and to the ROH2 programme which develops the artforms, nurtures new artists and provides a London platform as well as support for artistic partner companies.

2.2 In 2008-9 the ROH sold 700,000 tickets, more than half priced less than £50. In addition audiences around the country saw performances in cinemas and free on television and big screens.

2.3 The ROH runs important education and skills programmes and is a leader within the arts sector in developing digital access to all aspects of its work.

2.4 Public subsidy in the form of an annual grant from Arts Council England. In the last financial year this constituted just 28% of Royal Opera House income.

2.5 The ROH was reopened in 1999 following renovation funded by a mix of National Lottery funding and private philanthropy with the express intent of increasing public access to the building and to the artistic work taking place within it.

2.6 Following the reopening an endowment fund, the Royal Opera House Endowment Fund 2000, was created. This generated £790k in the last financial year.

2.7 The Royal Opera House has partnered with Thurrock Council in developing the ROH production facilities as part of the High House Production Park, a Thames Gateway regeneration project.

3. ROH response to the Committee’s questions

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

3.1.1 The Government spending cuts come at a time when a) the economic climate is depressing earned income, and b) other Government policies are impacting expenditure. In the case of the ROH the latter are specifically:

· reallocation of responsibility for VAT on imported services: cost to ROH is £1m pa

· rise in VAT to 20%: potential cost to ROH of £0.6m pa

· expiry of transitional relief on Gift Aid: cost to ROH estimated at £170k pa

· pensions auto-enrolment: potential cost to ROH of at least £0.5m pa

· National Insurance: 1% increase from April 2011 is an additional annual cost of £0.5m

3.1.2 It is also worth noting that the cuts are being imposed and proposed at a time when many arts venues created or renovated with Lottery funds in order to maximise public use are suffering from heavy wear and tear requiring increased capital investment. Deep cuts in arts spending will impair the sector’s ability to safeguard this investment in British culture for the future.

3.1.3 Sustaining levels of earned income depends upon maintaining the level of core public investment. Commercial exploitation depends in large part on the creation of new and original artworks, and this is exactly the purpose of public funding.

3.1.4 Equally, we cannot expect philanthropists to fill a gap left by Government funding. The level of individual philanthropic giving to the arts has increased steadily over the years, especially in the capital. But it is questionable whether the best way to encourage higher levels of giving is to ask philanthropists to replace monies previously provided by Government. Indeed there is a danger that philanthropists feel that their generosity is being taken for granted, and that could reverse decades of patient development of philanthropic habits in the country.

3.1.5 In addition, not all artistic work is equally attractive to philanthropists. It is much harder to attract funding for the work of lesser known artists or those performing in less established artforms. It is also much harder for regional venues and artistic companies. We know this from our own experience where we struggle to attract private funding for our work in developing new creative artists (choreographers, composers, librettists and directors), for national touring and for work which does not fit established models.

3.2 What arts organisations can do to work more closely together in order to reduce duplication of effort and to make economies of scale

3.2.1 The Royal Opera House is already a very good example of partnership working. The Royal Opera, The Royal Ballet and ROH2 all share the same resources, from Costume and Scenic workshops to Marketing, PR and Fundraising, IT HR and Finance and of course our ROH Orchestra. This results in considerable efficiencies and allows us to achieve a greater return on our public investment.

3.2.2 Co-productions and co-commissions significantly reduce investment and risk for performing companies. The Royal Opera regularly joins with leading opera houses across the world and with small and medium sized British companies in creating new shows for our main stage and our smaller Linbury Studio Theatre. The Royal Ballet is undertaking two co-productions this season.

3.2.3 ROH2 collaborates with a wide range of artists, companies and venues. For instance, composers nurtured through our opera development programme go on to work with small to mid-scale companies that can produce and tour their pieces cost-effectively, and new works commissioned by ROH2 tour to smaller regional theatres and festivals.

3.2.4 Many arts organisations have experienced the need or opportunity to invest in digital, and especially website, development in recent years. Given the fast pace of change in this field, many organisations find themselves running to keep up with customer expectations and commercial practice. The Royal Opera House is taking steps to establish an ‘Open Source’ approach in which collaborating arts organisations would work together to create new formats, new products and new opportunities for audience interaction and revenue generation.

3.2.5 For performing arts organisations in particular, the development of audiences and the delivery of effective ticketing, fundraising and customer relationship management (CRM) systems is of the utmost importance. The ROH is anticipating the need to make significant changes in its infrastructure to support these operations and has already taken steps to involve other arts venues in looking at new ways of working, including the possibility of pooling resources for the development of new systems or working together in a consortium to improve efficiency and capacity.

3.2.6 The Finance Directors of some of the major Regularly Funded Organisations are meeting in September to look at what potential there might be for further collaboration.

3.3 What level of public subsidy for the arts and heritage is necessary and sustainable

3.3.1 As noted above (3.1.3. and 3.1.4), sustaining levels of both earned and philanthropic income depends upon maintaining the level of core public investment. Though the business models of arts organisations vary, from recent discussions with colleagues in the sector a common consensus emerges that there is a tipping point in terms of the cuts, which if exceeded will destroy those business models. That tipping point for most organisations probably lies around 10%.

3.3.2 The Arts Council England has stated that in their reckoning there is a tipping point between 10% and 15% where the sector as a whole becomes less viable.

3.3.3 The organisation Arts & Business refers to the ‘gold standard’ of one third public funding, one third philanthropy and one third self-generated. An organisation such at the Royal Opera House, already generating 72% of its own revenue, exceeds that gold standard. But by the same token, since it is already actively exploiting those options it has less scope to open up wholly new revenue streams.

3.3.4 It should be noted that the risk to the sector increases if the cuts are sustained. This would compromise our ability to create new work and to maintain the fabric of our arts venues. With diminished artistic output and a poorer audience experience it would be hard to attract earned and philanthropic income, throwing the sector into a vicious downward spiral.

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

3.4.1 The arms-length principle has served the sector very well and we would not want to see that changed.

3.4.2 The current system under which the Arts Council distributes both Government and Lottery monies is both efficient and effective, enabling the Arts Council to maintain a holistic view of statutory funding of the Arts.

3.4.3 One helpful change would be longer term funding contracts for organisations like the ROH that plan and make financial commitments many years in advance.

3.4.4 From our experience of partnering with local authorities, we suspect that there might be value in closer collaboration between the Arts Council and local authorities in meeting shared objectives in the most cost-effective manner.

3.5 What impact recent changes to the distribution of National Lottery funds will have on arts and heritage organisations

3.5.1 The Royal Opera House supports the Government’s wish to restore the National Lottery to its original purpose and to restore the shares of the National Lottery Distribution Fund to 20% for each of the good causes of sport, heritage and the arts. However we believe that the restoration of Lottery shares is justified in its own terms and should be viewed independently of proposed Government cuts. That is to say that the restoration of Lottery shares should not be seen as in any way substituting for any reduction in Government funding for the arts.

3.5.2 In particular we believe that the additional monies which will be forthcoming to the Arts Council from the Lottery will enable the Arts Council to assist otherwise thriving arts organisations that are encountering funding difficulties due to a) the continuing difficult economic climate, or b) the need for exceptional capital investment to maintain the fabric of important arts venues (see also section 3.1.2).

3.6 Whether policy guidelines for National Lottery funding need to be reviewed

3.6.1 No. Overall we believe that the current policy guidelines have served the sector well.

3.6.2 We do however support the Conservative party pre-election pledge to make one-off endowment grants available on a competitive basis from the Lottery every year.

3.7 The impact of recent changes to DCMS arms-length bodies – in particular the abolition of the UK Film Council and the Museums, Libraries and Archives Council

3.7.1 These changes do not apply directly to the performing arts sector. However in general we support the policy of focusing monies on front line arts delivery.

3.8 Whether businesses and philanthropists can play a long-term role in funding arts at a national and local level

3.8.1 Businesses and philanthropists already play a long-term role in funding arts, though more at a national level and more in London.

3.8.2 Private funding is especially vulnerable to external factors, as demonstrated by the recession in the UK and, even more strongly, in the United States. In the US, where the balance of public and private funding is more heavily weighted towards philanthropy and sponsorship, arts administrators say they are experiencing a funding crisis. Originality and creativity is suffering in the US as a consequence. The maintenance of a steady and more even balance of public and private support protects organisations, and more importantly their artistic output, against such vicissitudes.

3.8.3 Business support in the UK has been particularly hit by the recession and current economic forecasts suggest that it is unlikely to pick up significantly in the foreseeable future.

3.8.4 Private funders rarely support core costs. Even an organisation such as the Royal Opera House that has a really strong membership base finds that the bulk of its private funding is project based. Moreover this tendency is increasing with the shift from commercial sponsorship to individual philanthropy.

3.8.5 Over dependence on private funding can lead to strategy and practice becoming overly-driven by private donors, to the detriment of the public interest.

3.8.6 In particular such over dependence can put pressure on organisations to favour the interests of certain sections of their audience, to the detriment of the broader public. In the case of the Royal Opera House, it is public monies that ensure that our building and our programmes are open to the public and that our ticket prices are affordable.

3.8.7 However, carefully managed, private funding can and does play an important role in enhancing the quality, ambition and reach of our work.

3.9 Whether there need to be more Government incentives to encourage private donations

3.9.1 Yes. The most effective way that Government can encourage private giving is through changes to the tax regime.

3.9.2 The higher-rate tax rebate currently available to donors through Gift Aid incentivises donors and so maximises the amount of philanthropic monies available to the sector. Its removal could quickly unbalance established patterns of giving.

3.9.3 The tax regime must continue to encourage the setting up of new charitable foundations, both to increase the number of such foundations and to replace major expendable funds that are due to conclude in the foreseeable future.

3.9.4 Incentivising long-term, committed giving could provide the financial security to arts organisations to take bold, inventive and long-term artistic decisions. Such philanthropic commitments would also boost Britain’s ability to compete for artistic talent in a tough international market.

September 2010