Support for the creative economy

Written evidence submitted by Creative England [SCE 059]

Creative England welcomes the Select Committee’s decision to hold this Inquiry.

Creative England provides practical support for individual creative entrepreneurs and content businesses in all the regions of England outside Lo ndon and, on the basis of that work, seeks to contribute to the development of effective policies that will help grow the creative economy of England. Our particular focus is on three of the five sectors identified by your committee in connection with this Inquiry namely film, television and games.

Creative England is supported by the DCMS, via the British Film Institute (BFI), and the bulk of our programme costs and investment funds currently come from the Business, Innovation and Skills (BIS) Regional Growth Fund (RGF), the National Lottery, various European sources, local authorities and private investors

In its first year Creative England has worked with some 500 micro-businesses and small and medium-sized enterprises (SMEs) in these sectors, providing mentoring for skills and growth, enabling networks, fostering clusters, providing investment finance as well as assisting companies in gaining access to private finance and access to new markets. We are represented on the government’s Creative Industries Council and take a lead role in its ‘Access to Finance’ working group. We work in partnership with many companies in the private sector and with a broad range of institutions in the public sector including National Endowment for Science, Technology and the Arts (NESTA), the BFI, Creative Skillset, the Arts and Humanities Research Council, the Technology Strategy Board, the BBC, Channel 4, local authorities, Local Enterprise Partnerships (LEPs) and universities.

In this submission, we concentrate on six of the issues raised in the Committee’s call for submissions:-

"Barriers to growth … such as difficulties in accessing private finance …"

The generation of intellectual property in the Creative Industries tends to come from a large number of small or start-up enterprises. These companies rarely have fixed assets and the intangible assets they generate are often difficult to value, making it difficult for financiers to invest if they do not understand the business models of the sector.

There is ample evidence, for example in the 2011 report commissioned jointly by BIS and Warwick University, that smaller businesses in a range of creative sectors, including film, TV and games experience disproportionate difficulties in raising finance. In our first report to the Creative Industries Council (CIC) on this issue we identified the common challenges as:

· Imperfect information on these businesses leading to high costs of assessing loan risks in the case of creditors and high costs of due diligence for investors.

· Lack of evidence of financial track record and additional loan collateral.

· Significant difficulty for start-ups and small businesses seeking small sums of money, again because the due diligence costs are too high to justify the investors’ time. Typically this results in a funding gap for businesses seeking anything between £250,000-£5m

Other factors include:

· An absence of good quality data on the sector and the variations within different sub-sectors

· The lack of recognised frameworks to assist financiers IP and business values; skills and business abilities

· It’s a "hit" business and therefore difficult to predict success

· Fear-too many financiers fear that creative entrepreneurs are more focused on creative success than commercial success

"Whether lack of co-ordination between government departments inhibits this sector"

While the establishment of the CIC is a welcome and positive step forward in inter-departmental co-ordination, there is still much that could be done to improve the engagement of BIS and the Treasury with the creative sector, the contribution it makes to growth, employment and innovation, the contribution it makes to other parts of the economy, and its wider social and cultural impacts.

There appears to be a lack of understanding on how to value IP-related businesses and many of the excellent interventions and programmes developed by successive governments to support the business sector generally fail to be taken up by creative businesses.

The apparent ‘exceptionalism’ of much of the creative sector, itself the root of the scepticism that still exists amongst some officials in BIS and the Treasury, is re-enforced by the fact that its sponsoring department is DCMS. BIS feels little or no sense of ‘ownership’ towards the creative sector and this is reflected, for example, in the fact that there is relatively little appetite or interest in BIS to examine the growing number and significance of collaborations between creative content businesses (especially in the games sector) and other sectors of the economy from health and well-being to hi-end manufacturing and the delivery of public services.

"The extent to which taxation supports the growth of the creative economy … and whether the targeted tax reliefs in the 2012 Budget should be extended"

We welcome the new tax reliefs proposed in the 2012 budget. In our view, arguments for revising or extending them should be based on three main criteria; (1) an understanding of the pace and extent of convergence across parts of the creative sector, especially digital media, and the consequential need to ensure that the parameters of tax reliefs accord with the way in which businesses actually work and trade. In this context, the recognition that the dividing line between a ‘feature film’ and a high quality TV drama is, for all practical purposes disappearing, was sensible and is to be welcomed; (2) the international context. Films, games and some television genres all exist in an increasingly competitive global market and one in which a growing number of governments are targeting growth in their creative sectors as a priority, whether for sound economic reasons, or for national vanity or because of a belief that they are essential feedstock for the wider ‘knowledge economy’. Without getting into a crude global game of tax-relief auctions, UK tax policies for these sectors need to be planned with full and continuously updated understanding of the wider strategies for creative industry growth being pursued by the UK’s competitor countries, large and small. (3) Changing business models. The current tax reliefs are predicated on attracting inward investment into the UK. As business models change interventions need to be continually reviewed to ensure that they respond to the change in business models within the sector, rather than solely as a yard-stick for international competition-important though this is.

Both these criteria require a relatively detailed, systematic and continuous flow of reliable data and analysis to ensure that they are appropriately targeted and, if necessary, fine-tuned. Too often in the past, arguments for special tax relief have been, and have been seen by the Treasury to be, nothing more than industry lobbying. So, the need is for data and analysis that is not just evidence-based but can be trusted as objective, under-pinned by government itself or by reputable independent agencies.

"The importance of clusters and hubs …"

The importance of clusters has long been recognised and accepted as a basis for policy and investment at local and national level. As a feature of some creative business sectors and some towns, cities and regions, they have self-evidently played a central role. But much of the policy-making and investing has been based on anecdotal evidence alone and we welcome the growing range of more objective and rigorous analysis now being undertaken in this area, in which we are taking a leading role.

We have a developing research programme in partnership with the Arts & Humanities Research Council (AHRC), Economic and Social Research Council (ESRC) and Engineering and Physical Sciences Research Council (EPSRC). We are lead partners in a European programme, Cluster 2020, which is building a solid evidence-base for the impact of clusters in cities and regions across the EU. And we have recently completed, with the AHRC, an analysis of the relationship between universities and creative clusters in England which shows that while many HEIs express interest in the benefits of clustering with local creative businesses, the reality is that depressingly few are actually engaged in practical collaborations that generate revenue, value or jobs.

We welcome other initiatives of the AHRC and the Creative Industries KTN, supported by the Technology Strategy Board. But much more needs to be done if the UK is to maintain any kind of international lead in developing closer links between formal education and the creative economy, or understanding some of the other dynamics that promote the growth of effective clusters.

"Whether there is too much focus on hubs at the expense of greater geographical spread …"

A valid repose to this question is obviously dependent on the work referred to in the pervious paragraphs. The undoubted significance of clustering, and simple common sense, suggests that identifying and nurturing centres of excellence is a necessary part of any balanced strategy for support of the creative industries. However, two other points should be made in this context; the first is that for some businesses, or for some parts of their business processes, it is equally obvious that ‘clustering’ can be achieved in the virtual world as well as in the physical world, underlining the extent to which an open and inclusive strategy for hi-speed broadband access is important for the creative economy. The second point is that creative businesses are disproportionately dependent on individual creative talent and ‘talent is everywhere’. The key issue for public policy, therefore, is to develop networks, escalators, ladders-or whatever they may be called-that optimise the opportunity for talent to find its place and achieve its full potential. This is one of our central tasks at Creative England and we are actively exploring the range of partnerships and networks that can most effectively-and cost-effectively-connect talent, wherever it is located, with business environments in which it can flourish.

"The work of the CIC and other public bodies …"

While we welcome the establishment of the CIC as strong evidence of the government’s commitment to and interest in the creative economy, its membership highlights the extent to which the terms ‘creative industries’ and even ‘creative economy’ are less than precise, concealing a multitude of different and sometimes competing policy agendas between content businesses and service businesses, between the multitude of micro-businesses at one end of the spectrum and the handful of very large, (and mostly non-UK owned) business at the other; and between those that are publicly owned or have a specific cultural and social remit and those that are purely commercial. We welcome the valuable work that has already been undertaken by the smaller working groups set up by the CIC, including the ‘Access to Finance’ group in which Creative England has played a leading role, and we welcome the ad hoc working groups established by Ed Vaizey to further underpin the value of the CIC by, for example, re-visiting the accepted definition of the creative industries; looking at systematising the collection of data and the international marketing of the creative sector; and building on the synergies between the handful of publicly funded agencies that support creative industries (including Creative England). These smaller and more focused groups could make a substantial contribution to a policy-making environment that is better informed, better targeted and better organised.

Our view, as expressed above, is that further initiatives are needed to get the BIS ‘machine’ more fully engaged in seeing the creative industries, as currently defined, as an integral part of the UK economy. Two issues are worth mentioning in this regard; the first, referred to above, is the growing phenomenon of cross-overs and collaborations between creative content businesses and a much wider spread of businesses in technology, health and well-being, hi-end engineering and many areas of design; the second is the continuing failure to harness the capacities of creative individuals and SMEs in delivering public services. The work of the Design Council with the NHS has been a shining exception. Despite this, and other modest initiatives, the public procurement system fails to exploit the opportunities that undoubtedly exist for reducing costs and, at the same time, improving the quality of publicly purchased goods and services by using the talents of many of the UK’s most creative entrepreneurs. Indeed, the system positively discourages the engagement of creative entrepreneurs. This issue was highlighted by Sir George Cox in his 2005 report on innovation, and has been referred to by the Prime Minister and other senior government figures on a number of occasions, but has not yet been addressed.

We welcome many of the recommendations in Lord Heseltine’s recent report ‘No stone unturned in the pursuit of growth’. There is little doubt that the most effective public policy instruments for supporting growth and innovation in the creative economy over the last 10 or 15 years have been at local and regional level, or that the most effective of them was the system of Regional Development Agencies (RDAs). While we welcome the contributions that some LEPs are making (Creative England has productive and growing partnerships with several of them) they fail to match the range, reach and depth of support that the system of RDAs, at their best, provided in the regions. Building alliances which can work effectively at regional or certainly city-region level is, in our view, an urgent need. We attempt to do this in our own field of activity, building partnerships with LEPS, local authorities, universities, broadcasters, other public agencies, major companies and private investors. Our strong recommendation is that the government, working with the grain of Lord Heseltine’s proposals, should explore ways of incentivising and assisting these broad partnerships. In this context, the public procurement issue mentioned in the previous paragraph, has an obvious role to play.

It is clear that on a political level the importance of the Creative Industries as drivers of growth and innovation is recognised, as evidenced by the establishment of the Creative Industries Council. However, on a very practical level our experience has been very simply an absence of officials within the government’s main department for growth-BIS-dedicated to and knowledgeable about the creative economy. Creative England would welcome an opportunity to work more closely with both government departments to provide the executive support required to support this sector more effectively.

We would be happy to provide further evidence and thinking on any of these issues if the Committee feel that would be useful.

November 2012

Prepared 17th November 2012