Creative industries in Scotland Contents

4Reserved policy areas

43.Although culture is a devolved matter there are several reserved policy areas which affect the cultural industries in Scotland. These include creative industry tax reliefs, intellectual property and broadcasting. Other UK Government policies which witnesses have raised as issues affecting the creative industries in Scotland are immigration rules, the rollout of broadband and the Apprenticeships Levy.

Tax reliefs

44.There are a number of tax reliefs available to the creative industries for Film, Animation, High-end Television, Video Games Development and Theatre.60 They allow qualifying companies to claim a deduction, or in some cases a payable tax credit, when calculating their taxable profits. To qualify for the reliefs productions must pass a ‘cultural test’—administered by the British Film Institute—certifying that the production is British.

45.Our consideration of the role of creative tax reliefs in Scotland has been hindered by the fact that there is a lack of information on how these reliefs have been taken up across the UK, and also that the information that is available is not broken down to show uptake in different parts of the UK. HMRC has produced a summary of claims for the Film Tax Relief covering 2006 to 2014,61 and the BFI has produced a report looking at the economic contribution of those sectors eligible for tax reliefs, including an assessment of the benefit of these reliefs,62 but neither breaks down the data to a sub-UK level.

Benefit to Scotland?

46.A number of our witnesses told us that, despite high-profile productions such as World War Z and Skyfall benefitting from creative tax reliefs, in general these reliefs have been of limited use to the creative industries in Scotland.63 Witnesses have suggested that this is partly due to the smaller scale of most creative enterprises in Scotland and partly because tax reliefs do not incentivise locating production outside existing industry hubs.64

47.Although there is no minimum spend threshold to qualify for the tax reliefs (except for the High-end TV tax relief), there is some evidence that they predominantly benefit larger scale productions—for example, HMRC’s summary of claims for the Film Tax Relief between 2006 and 2014 stated that 11% of claims were from large-budget productions (those with a budget of over £20 million) and that these claims accounted for two-thirds of tax relief awarded.65

48.The Scottish Locations Network told us that they had received more enquiries about locating productions in Scotland as a result of the existence of the tax reliefs, but in the absence of high-quality studio facilities they struggled to accommodate these productions and therefore compete with other UK locations.66 In the absence of definitive data about how these reliefs have been taken up in Scotland it is not possible to say with any certainty whether Scotland is losing out compared to other parts of the UK but several witnesses suggested, as Highlands and Islands Enterprise did, that it is important to avoid tax reliefs simply driving activity to London, and that positive steps were needed to encourage greater dispersal of activity.67

Possible reforms to the creative tax reliefs

49.We have heard that there are a range of reforms which could be made to the system of tax reliefs so as to better support the creative industries in Scotland. These include:

that the level of tax relief should be increased, to further incentivise production companies to choose to base productions in the UK;68
that a differential rate be paid in Scotland, to rebalance uptake of the reliefs across the UK and encourage producers to consider locations away from London and the south east; 69
that the qualifying spending threshold be lowered, to make it more accessible for smaller enterprises;70
that a new tax relief should be created for productions filmed in an indigenous language, to benefit Gaelic productions;71
that an “SME Training Tax Relief” be piloted, to enable small enterprises to offset expenditure on training, Continuous Professional Development (CPD) for staff and education outreach activities against corporation tax,72 and
that the Government should introduce a tax relief for the music industry.73

50.The Scottish Government have also argued that the current system could be improved.74 Fiona Hyslop MSP told us the Scottish Government had “long argued for improved tax reliefs, both for digital and animation and for film”.75

51.Though the majority of those we heard from were in favour of the principle of tax credits, even if they wished to see improvements in implementation, this was not a unanimous view. One submission argued that these reliefs were “intrinsically bad because they favour those who can afford creative accountancy to exploit them” and that a straightforward and fair tax system would be preferable for low-income freelancers.76

52.When we asked Ed Vaizey MP about expanding the breadth of creative tax reliefs, he told us he would be happy to look at this and suggest it to the Treasury, noting that the Chancellor of the Exchequer was “rather a fan of tax credits”.77 When we asked the Minister if he would consider the merits of varying the rate of relief in different parts of the UK, he told us he would look at it but thought variable rates of relief could confuse the system:

I am certainly happy to take away that thought. What I would counsel the Committee about is that, as I said earlier, the great thing about tax credits—the reason why I think they are so effective—is that they are very simple and clear to understand. […]

If we went down the road of trying to vary the tax credit, it could end up causing an element of confusion. I do understand the point about differential reliefs. If you were able to get an extra x% as a tax credit if you decided to make your film in Glasgow as opposed to London, I could understand why that might skew demand towards areas that may or may not be underrepresented.78

53.Although the current tax reliefs for the creative industries were welcomed by most of our witnesses, we have heard that, in practice, they have been of limited benefit to the creative industries in Scotland because of the smaller scale of Scottish creative enterprises and the draw of existing hubs such as London. As the limited information available on take up of these reliefs is not broken down to a Scotland level, it is impossible to determine the extent to which these reliefs are benefitting different parts of the UK. Given the creative tax reliefs are a UK-wide scheme, it is important that they benefit the creative industries in all parts of the UK, not just those in London and other urban centres.

54.The UK Government should, in its response to this report, set out the benefit creative enterprises in Scotland have received from the creative industries tax reliefs, compared to the other nations and regions of the UK. We also recommend that the UK Government work with representatives of the creative industries in Scotland to assess how the creative tax reliefs could be adapted so as to be of greater benefit to Scotland. Options should include variable rates of tax relief for different parts of the UK, creating a tax relief for the music industry and piloting a tax relief for SMEs working in the creative sector.

Encouraging take-up of creative tax reliefs

55.The current tax reliefs were welcomed by many of our witnesses, but now they are in place it is clear that action needs to be taken to maximise their impact on the creative industries in Scotland. TIGA recommended that both the UK and Scottish governments should encourage Scottish games companies to take advantage of the tax reliefs.79 The Scottish Parliament’s Economy, Energy and Tourism Committee made a similar point in its report, highlighting the importance of Scotland‘s film, animation and TV industries being able to fully capitalise on the UK film and TV tax incentives, and encouraging Creative Scotland to ensure that companies were made fully aware of these tax incentives and their benefits.80

56.The creative industry tax reliefs have been welcomed by the creative sector in Scotland, but there is a need to take action to ensure that these incentives are taken up by companies based across the UK, including in Scotland. We recommend that the UK Government work with the Scottish Government, Creative Scotland and Scottish Enterprise to promote the availability of these tax reliefs and enable Scottish creative enterprises to benefit from them.

Intellectual property and the European Digital Single Market

57.Intellectual property (IP) is the term for content which fulfils the requirements for copyright, a patent or a design. The vast majority of IP in the creative industries is content which comes under copyright rules, covering original literary, dramatic, musical and artistic work, including illustration and photography, original non-literary written work (eg software, web content and databases), sound and music recordings, and film and television recordings. Being able to protect and monetise IP is essential to the economic success of creative enterprises, and the framework for its protection and sale is therefore a key interest of industry groups.

58.Intellectual property is a reserved policy area, and the Intellectual Property Office (IPO) is the government body responsible for IP policy as well as educating businesses and consumers about IP rights and responsibilities, supporting IP enforcement and granting UK patents, trademarks and design rights. The IPO is an executive agency sponsored by the Department for Business, Innovation and Skills. Baroness Neville-Rolfe is the Minister for Intellectual Property, a joint role in the Department for Culture, Media and Sport and Department for Business, Innovation and Skills.

59.The UK Government’s written evidence set out the role of the IPO and its engagement with agencies and businesses in Scotland:

The IPO operates and maintains a clear and accessible IP system in the UK […]. It communicates regularly with organisations based in Scotland […]. In addition to educating businesses and consumers on the importance of protecting and valuing IP, the IPO is also responsible for developing the framework to help rights holders and brand owners protect their IP. In Scotland the IPO works with Police Scotland and the Scottish Anti-Illicit Trade Group (SAITG) and its members, supporting their efforts to reduce the scale, impact and cost of illicit trade in Scotland.81

60.There are serious issues around enabling IP owners to protect their property and take enforcement action against those who are using IP illegally, particularly now so much content is available digitally. We have heard that the scale of online copyright infringement is “vast”, with nearly 6,000 copyright owners having made over 55 million requests to Google to take down URLs linking to domains hosting material which infringes on copyright.82 The risks of copyright infringement to IP owners are significant, and can be particularly damaging if IP is stolen before the creator has been able to widely release it themselves.83 The Alliance for IP told us that “it is important that rights holders and enforcement organisations have the right tools available to tackle the complex network that can enable online infringement of IP rights to thrive,”84 a point which was mirrored in many of the other submissions we received.85 We have also been told that there is a need for creative enterprises to be better informed about IP issues.86

61.The Scottish Government and Creative Coalition Campaign have argued that IP is an area where greater engagement between the UK and Scottish governments is necessary. The Creative Coalition Campaign told us that better engagement would enable the two governments to take a joined up approach to tackling piracy and promoting legal content.87 Fiona Hyslop MSP told us that IP “is one of the areas where we need to be able to have better access” because it was a reserved matter.88

62.Intellectual property underpins the economic potential of the creative industries in Scotland, and it is essential that creative enterprises are well-informed about the UK’s intellectual property framework, and that the interests of the creative industries in Scotland are considered by the Intellectual Property Office (IPO) when changes to IP are being considered.

63.We were encouraged to hear that the IPO already engages with Scottish industry and colleagues in Scotland, but both the Scottish Government and a number of other witnesses have told us there is a need for more effective communication with creative enterprises regarding IP issues. We recommend that the IPO work with the Scottish Government and Scottish industry groups to explore how Scottish enterprises can be supported to secure and capitalise on their intellectual property. We expect the IPO to review its operations in Scotland and respond to the concerns we have received about the need for better communication between the IPO and creative enterprises in Scotland.

European Digital Single Market

64.The European Commission has stated that there is a need for a European Digital Single Market to allow the free movement of goods, persons, services and capital and ensure that individuals and businesses can seamlessly access online activities under conditions of fair competition, and are covered by a high level of consumer and personal data protection, irrespective of their nationality or place of residence.89 The Commission has argued that this would enable better access for consumers and businesses to digital goods and services across Europe, and maximise the growth potential of the digital economy.90 Of particular relevance to the creative industries are proposals for modernising copyright to “ensure the right balance between creators’ and consumers’ interests”.91

65.We heard from John McVay, representing the Creative Coalition Campaign, that having a single European market through which IP owners could monetise their IP would substantially limit the flexibility for the sale of rights at different levels across Europe.92 Mr McVay told us that any uncertainty around the ability to monetise intellectual property would hinder investment in developing creative content.93 Amanda Nevill, Chief Executive of the BFI, told us that some of the proposals were putting the audience first and rights of IP holders second.94

66.The Scottish Government’s written evidence stated that the EU’s proposals presented both opportunities and challenges, and that it was taking steps to ensure that the interests of Scotland’s creative industries were represented as the proposals developed.95 The evidence further stated that the Scottish Government would work with the UK Government to ensure their consultation included Scottish stakeholders, and called on the UK Government to ensure that all administrations in the UK are able to feed into the processes that will inform the UK’s negotiating positions on this proposal. Fiona Hyslop MSP told us that “one of the areas on which I have real concern is that particularly in relation to the digital single market, we need the UK Government to appreciate the concerns of the screen sector in particular.”96

67.When we put the concerns we had heard to Ed Vaizey MP, he told us:

We do not want a top-down system of European licensing—we would resist that. We want the industry to make its own arrangements in order to get the right financing that it needs.97

68.We have heard concerns that some of the European Commission’s proposals for a Digital Single Market could adversely affect the creative industries in Scotland, by hampering the ability of IP owners to monetise their property in different ways across Europe. The UK Government must, in its response to this report, consider and respond to the concerns we have heard. This should inform the UK’s position on the European Commission’s proposals.

Immigration

69.The Scottish Parliament’s Economy, Energy and Tourism Committee report on the economic contribution of the creative industries noted that “the key policy instruments for retaining talent in Scotland, like immigration, remain reserved” and called on the UK and Scottish governments to “work together on policies that would allow the Scottish video games industry to attract and retain world-class talent.”98 Scottish Enterprise told us that: “there is not only a perception that the immigration rules act as a barrier” but that “the rules can be an actual barrier in attracting international talent.”99 Dr Jo Twist, CEO of Ukie, told us that the “current climate around immigration debates is potentially damaging to our ability to attract overseas talent”.100 The written evidence from Creative Scotland suggested relaxing visa restrictions on those from outside the EU who would be creating new businesses, and on bringing skilled staff from outside the EU, would be beneficial to the creative industries in Scotland.101

70.When we asked the UK Minister about the impact of immigration rules on attracting international talent, he told us:

We are still part of the single market and free movement of people, so obviously UK companies can tap into a pool of talent throughout Europe. I am sure it is your experience as much as mine that, when you visit a video games company, you will have pretty international experience in terms of the range of people employed there. We certainly do try to [keep] immigration policy up to date in terms of skilled immigration, in terms of shortage occupations and in terms of tier 2 visas, and I personally want to keep doing that.102

71.We note the concerns raised by a number of witnesses, including Creative Scotland and the Scottish Government, that UK immigration rules act as a barrier to attracting and retaining talent to Scotland. We will be looking at these issues in more detail as part of our inquiry into post-study work schemes for international students.

Rurality and broadband

72.Scotland’s geography and the challenges faced by creative enterprises in rural, as compared to urban, Scotland was one of the topics raised in our evidence. For example, the written evidence from the University for the Highlands and Islands stated:

Within Scotland it is necessary to make a distinction between the creative industries in urban Scotland […] and remote and rural Scotland […]. The situation in these two environments is very different.103

Common themes in those submissions which addressed the challenges for creative enterprises in rural areas were the higher cost of working in a rural areas and the inadequacy of digital infrastructure, particularly broadband provision.104 Charlotte Wright, Director, Highlands and Islands Enterprise, told us that “Having next generation broadband, having good connectivity, is as important as having electricity or water”,105 and that delivering broadband was “the most important project that Highlands and Islands Enterprise is involved in at the moment”.106

73.The evidence from the UK Government noted that £1.7 billion was being invested by it and other public bodies in better broadband and mobile coverage.107 The UK Government aims to provide basic broadband (2Mbps) for all by 2016 and provide superfast broadband to 95% of the UK by 2017, and the Scottish Government plans to deliver next generation broadband to 95% of Scottish premises by 2017.108 Rollout of broadband in Scotland is being delivered by the Scottish Government, and is jointly funded by the UK and Scottish governments, as well as BT, local authorities and a number of other agencies.

74.Access to broadband is an important issue far beyond its impact on the creative industries, but we have heard that poor internet access is a particular barrier to creative enterprises in rural Scotland. It is essential the UK and Scottish governments work together to ensure the successful rollout of broadband across Scotland.

Apprenticeships levy

75.Although skills policy, including apprenticeships for the creative industries, is a devolved matter, the UK Government recently consulted on an apprenticeships levy, the consultation document for which stated that the levy will “apply to larger employers across the UK”.109 The paper noted that skills policy was devolved to Scotland, but gave no indication of how funds gathered in Scotland through the levy would be distributed. The 2015 Autumn Statement stated that the levy would be introduced in April 2017, and would be set at a rate of 0.5% of any portion of an employer’s payroll bill which is over £3 million.110 The written evidence from Creative Skillset—a body which seeks to develop skills and talent for the creative sector—stated that the Government’s proposal was “an interesting example (and test) of a UK-wide policy [that] could have a unique Scottish perspective”.111

76.When we asked Ed Vaizey MP how the proposed levy would function in Scotland, he told us that Nick Boles MP, Minister for Skills, was responsible for the policy, but that businesses were “keen that the levy that is raised from them—whether it is a country like Scotland or a large business—is spent in their area”, and he expected the Skills Minister would be receiving those kind of representations when he is considering the final shape of the levy. We subsequently wrote to the Skills Minister asking him to detail how this levy would work in Scotland. He told us that Rt Hon Greg Hands MP, Chief Secretary to the Treasury, had raised the apprenticeships levy with the Finance Ministers of the devolved administrations, to “work through the practical issues of implementing the levy and its interaction with devolved skills policies”, and that the UK Government “want to continue to work with the devolved administrations to put in place fair and transparent funding flows and as far as possible to develop a system for administering the levy which complements the skills and apprenticeship policies of each of the devolved administrations.”112 He told us that the levy would raise £3 billion by 2019–20, £2.5 billion of which would go to England, with “Scotland, Wales and Northern Ireland receiving their fair share.” The response did not clarify how Scotland’s share of proceeds from the levy would be calculated.

77.It is troubling that the UK Government is taking forward a UK-wide apprenticeships levy on employers without setting out how proceeds from the levy will be distributed to Scotland, where skills policy is devolved. This has created a situation where it is known that Scottish employers will have to pay the levy, but it is not clear how Scotland will benefit. This indicates a lack forethought about the relationship between the UK-wide policy and the devolved area of responsibility that it relates to. We note that the UK Government is now engaging with Scottish ministers about how the skills levy will operate in Scotland, and welcome the Minister for Skill’s statement that Scotland will get its “fair share” of proceeds.

78.We recommend that, in its response to this report, the Government clearly set out how proceeds from the apprenticeships levy will be distributed to Scotland, where skills policy—including apprenticeships—is a devolved matter.

60 UK Trade and Invesment, Creative Sector Tax Reliefs, April 2014

61 HMRC, Film Tax Relief, Summary of tax credit claims: 2006 to 2014, August 2014

62 British Film Institute, Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors, February 2015

63 Scottish Locations Network (CIS0034), Producers Alliance for Cinema and Television (PACT) (CIS0039)

64 Creative Scotland (CIS0050) para 20, Producers Alliance for Cinema and Television (PACT) (CIS0039), &Creative Scotland (CIS0020)

65 HMRC, Film Tax Relief, Summary of tax credit claims: 2006 to 2014, August 2014

66 Screen Facilities Scotland (CIS0034)

67 Highlands and Islands Enterprise (CIS0025), Producers Alliance for Cinema and Television (PACT) (CIS0039), UK Music (CIS0041) para 42, Scottish Government (CIS0056), Q6

68 TIGA (CIS0052) para 6.2

69 University of the West of Scotland (CIS0013), Independent Producers Scotland (CIS0043)

70 Caledonia TV (CIS0057)

71 MG ALBA (CIS0027)

72 TIGA (CIS0052) para 5.2

73 UK Music (CIS0041) para 40 and BPI Ltd (CIS0058) para 56

74 Scottish Government, Scottish Government response to the Economy, Energy and Tourism Committee Inquiry into the Economic Impact of Scotland’s Creative Industries, May 2015

75 Q210

76 Ronald Turnbull (CIS0008)

77 Q269

78 Q268

79 TIGA (CIS0052) para 4.7

80 Scottish Parliament, Economy, Energy and Tourism Committee, The economic impact of the film, TV and video games industries, March 2015

81 Scotland Office (CIS0066) Annex D

82 Alliance for IP (CIS0044)

83 Q116

84 Alliance for IP (CIS0044)

85 Nesta (CIS0022) para 9, Design and Artists Copyright Society (CIS0029), Creative Skillset (CIS0032) para 3.33, Advertising Association (CIS0038) para 33, UK Music (CIS0041) para 25, Channel 4 (CIS0047), Scottish Government (CIS0056), Alliance for IP (CIS0044), Creative Coalition Campaign (CIS0060)

86 Q167 [Iain Hamilton]

87 Creative Coalition Campaign (CIS0060)

88 Q219

89 European Commission, A Digital Single Market Strategy for Europe, July 2014

90 European Commission, Digital Single Market, accessed January 2016

91 European Commission, Digital Single Market Strategy: European Commission agrees areas for action, March 2015

92 Q106

93 Q106

94 Q240

95 Scottish Government (CIS0056)

96 Q207

97 Q281

98 Scottish Parliament, Economy, Energy and Tourism Committee, The economic impact of the film, TV and video games industries, March 2015

99 Scottish Enterprise (CIS0035)

100 Q21

101 Creative Scotland (CIS0050)

102 Q270

103 University of the Highlands and Islands (CIS0012) para 1

104 Written evidence from Ukie (CIS0016), Nesta (CIS0022) para 22, University of the Highlands and Islands (CIS0012) para 1, the University of the West of Scotland (CIS0013), &Creative (CIS0020), Highlands and Islands Enterprise (CIS0025), Edinburgh Napier University (CIS0026) para 9, Professor Robin MacPherson (CIS0031), Dumfries and Galloway Council (CIS0037) para 4.2, Scottish Locations Network (CIS0034)