The economic madness of abolishing the UK Film Council

The abolition of the UK Film Council a curious decision; indeed, the government’s decision to scrap the UKFC is not just an act of artistic philistinism - it’s a case of economic vandalism too.

Our guest writer is Phil Burton-Cartledge, a blogger and jobless academic; he writes regularly on political, social and cultural issues, and is the political education and trade union liaison officer for Stoke Central Labour Party

The abolition of the UK Film Council a curious decision. This particular move will save the treasury all of £15 million a year, and was probably chosen because ‘it’s the arts’ and apart from liberal/luvvy-types, no one will give a toss. But this is a stupid decision from the standpoint of building on the economic recovery and securing tax receipts.

Since the UK Film Council was set up in 2000, some £160m of government money has been invested in film production. This money has been unevenly spread across approximately 900 pictures, which, according to the UKFC, has generated £700m in worldwide box office receipts.

Of course, the total number of receipts cannot be considered the return on the government’s outlay. The UKFC oversees the distribution of lottery money too, and it is very rare to find a film funded solely by this and tax monies. To borrow a phrase from another area of government, UKFC-funded films are public/private partnerships to varying degrees.

Permit me this small unscientific exercise; suppose all 900 films received an equal slice of public money. Of the £160m, each receives approximately £177,778 as a subsidy. If we treat this as capital, the economic criteria from the state’s point of view would be to receive a profit on that in terms of tax revenue generated.

The table below lists 11 well-known films that have received UKFC financial backing of some sort, with their budgets, worldwide box office takings, and gross profits:


Film

Budget

Box office

Gross profit

St. Trinian’s

£7.11m

£12.89m

£5.78m
Happy-Go-Lucky £1.41m £8.77m £6.22m
Man on Wire £1.20m £9.00m £7.80m
The Wind That Shakes the Barley £4.20m £12.05m £7.85m
Bend It Like Beckham £6.00m £50.00m £44.00m
The Last King of Scotland £3.16m £25.45m £22.29m
In the Loop £0.61m £1.50m £0.88m
Streetdance 3D £4.50m £11.59m £7.09m
This is England £0.79m £4.30m £3.51m
The Constant Gardener £13.90m £45.81m £31.91m
Gosford Park £14.14m £62.68m £48.54m

This yields a total gross of £185.87m.

Calculating the tax payable on this is a difficult business. The government taxes the companies that own the films, not the individual pictures themselves – but for illustrative reasons, let us suppose each film is equivalent to a firm taxable at the 28 per cent corporation tax rate.

Applying a corporation tax rate of 28 per cent gives us £52.04m that goes to the Treasury. That works out as an average of £4.34m per film, or a return of £24 for every pound of taxpayers’ money the UKFC invested.

Further, let us estimate the wage bill of these films account for 70 per cent of their budget. The total budget was £57.02m, of which £39.91m went out in wages. Assuming all staff were basic income tax rate payers (which, of course they’re not, but some actors and production staff are foreign nationals and/or not domiciled in Britain, they do not pay tax on earnings here – it serves as a rough equaliser), a further £7.98m makes its way back to the treasury.

That’s £60m off just 12 films. And that’s without counting the multiplier effects this has had in terms of their supply chain, VAT take, cast and crew’s spending, etc.

Nor does it account for future multipliers. Take Kiera Knightley, for example. Bend it Like Beckham catapulted her into the A-List and helped her become a big box office draw. Not only does the treasury benefit from the large fees she’s able to command, but also the cut it gets from monsters like Pride and Prejudice, Atonement, and Love Actually.

Her case shows the return on the UKFC’s initial Bend It investment will pay dividends for as long as Kiera makes films, and beyond. The same is true of other actors, directors, crews and studios whose pictures have received tax payers’ assistance, whether they meet the short-term criteria of returning a profit to the treasury or not – and returning to the short term, even if all the other 888 films were commercial failures they too had their multiplier effects.

The government’s decision to scrap the UKFC is not just an act of artistic philistinism. It’s a case of economic vandalism too.

33 Responses to “The economic madness of abolishing the UK Film Council”

  1. neil coley

    RT @leftfootfwd: The economic madness of abolishing the UK Film Council: http://bit.ly/bXcAWg #ConDemNation #FalseEconomy

  2. Neil O'Brien

    Feels like there is a missing question here: how many of these films would have gone ahead anyway? What is additional about it?

  3. Guido Fawkes

    That isn’t unscientific, it is bollocks. If the yield is so good the private sector will do it.

    You talk about the multiplier forgetting it goes both ways, the taxes to pay for the subsidy reduced the same multiplier effect elsewhere – the net effect is negative because of the transaction costs inherent in the bureaucracy.

    What makes you think a quango is better than a producer at picking winners for films? A lot of public money was wasted on lemons that only happened because of the subsidy.

  4. Louise King

    RT @leftfootfwd The economic madness of abolishing the UK Film Council: http://bit.ly/bXcAWg #ConDemNation #FalseEconomy

  5. StephenH

    ‘That isn’t unscientific, it is bollocks. If the yield is so good the private sector will do it.”

    @Guido
    There are a lot of ‘ifs’ in that analysis– but your statement is closer to bollocks– because a private investment wont recoup 25% of the wage earnings plus any VAT spent on the total project (not just its input) — and it wont necessarily benefit from seeding future success whereas the government definitely does.

    So yes these are guesstimates but if you stop to think for a microsecond you can see that there are often investments that are worthwhile for government but not private companies.

  6. Marfalbo

    The economic madness of abolishing the UK Film Council http://bit.ly/bUrwjF

  7. Robster

    RT @leftfootfwd: The economic madness of abolishing the UK Film Council: http://bit.ly/bXcAWg #ConDemNation #FalseEconomy

  8. Mike

    The Tories believe Private sector good public sector bad – just dogma

    Who else would go to india tio try to get them to allow our banks to take over their state banks that kept India from the worst of the Crash

    just like privatised hospital cleaning the Tories dont care if private companies fail to provide acceptable standards

  9. Matthew Taylor (MTPT)

    @StephenH – Guido’s right; even treating this as a “guesstimate”, it’s patently obvious that it’s rubbish: for starters, the gross profit made by a production is not box office receipts less budget, it’s a fraction of that.

    By all means present a case study, but plucking numbers from thin air is not evidence based blogging – it’s just linguistic sleight of hand.

    There’s a perfectly valid argument to be made that the film industry generates tax revenue, and the government should “spend to make” in this sector. Unfortunately, the actual arguments made by film industry partisans, and now by Phil Burton-Cartledge, is bordering on the economically illiterate (the very label critics of the move are seeking to apply). One example is the oft-repeated line “for every £X the UKFC puts in £Y are generated”, usually involving figures which if accurate would see the UKFC self-sustaining – prompting the question of why it’s not.

    If this is an economic argument, why is the continued existence of the UKFC being made totemic? Here’s the numbers from UKFC’s own Oxford Economics report:

    “the UK Film Council has an expected income of around £60 million per year between 2010 and 2013 (£26.9 million Lottery, £25.6 million DCMS grant-in-aid, nearly £4.9 million recoupment and £2.5 million in one-off DCMS project grants).”

    (You can find that report at http://www.ukfilmcouncil.org.uk/media/pdf/i/r/The_Economic_Impact_of_the_UK_Film_Industry_-_June_2010.pdf – in case Phil wants to make the minimal effort to find real numbers to back up his argument. Chapter 4 – page 18 onwards – is the detailed statement of economic benefit).

    I’m not convinced scrapping the UKFC is as clearly sensible as the coalition claims, but I’ve yet to see anyone opposing the move provide evidence – as opposed to hyperbole – showing this. The longer we go on with film industry interests decrying the closure, but failing to provide evidence, the more likely it must appear that they know the numbers do not support them. Cutting the funding is a different and separate issue, and needs to be treated as such.

    And the argument that the UKFC should be preserved because it launched the career of Ikea Knightley?

    I think a moment’s silence should be observed for the author’s credibility and self respect.

  10. Phil BC

    Some bloke wrote this piece on @leftfootfwd http://bit.ly/bXcAWg

  11. StephenH

    @MatthewTaylor
    I’m sure the author can defend himself– my gripe was with Guidos ideological prejudice that if its not worth a private investment then its not worth government investment.

  12. Matt London

    @Mike: The Tories believe Private sector good public sector bad – just dogma

    As a Disraelian tory I’d say that that wasn’t so much a dogma as a response to old Labour – and post 2005 GBrown – who believed, dogmatically, “Public sector good, private sector bad”.

    Look at Conservatism over the 150 or so years of its existence and when it was opposed principally by the (laissez faire, low tax) Liberals it was often more ready to accept the public spending/ public sector/public intervention solution. Conservatives in my experience are pragmatic – not idealogically driven: look at the long years of Butskellism, look at the actual levels of public expenditure year on year under Mrs Thatcher.

    But because they are not so idealogically committed to public sector spending as labour they need to be convinced that the public sector solution is the most appropriate one and offers best value for money.

    Matthew Taylor’s analysis makes sound sense – Mr Burton-Cartlidge’s analysis is pathetic.

  13. C H Ingoldby

    Your figures assume that the films would not have been made without the subsidy and attribute all revenues from the films to the subsidies.

    That is clearly absurd. It isn’t even taking account of the difference between revenue and profit.

    Frankly if this is the best defence of the UK Film Council then good riddance.

  14. Matthew Taylor (MTPT)

    @StephenH: In principle I share Guido’s view/prejudice, but in practice (until we manage to achieve an anarcho-capitalist world) there can be a case for “spend to make” on the basis you suggest.

    I am unclear, however, why the film industry is treated as a special case. At a gross over-simplification, any economic activity which actually costs £X, could return tax revenue of >£Y, but which will not be conducted if it costs more than £X-Y, could recieve government funding of £Y to enable it to take place, with a net profit to the government. Frankly, funding films seems less efficent than, say, funding training courses for plumbers or chemists.

    (I appreciate that in reality the “creative industries” get this money for complex combination of reasons – including politician’s vanity and desire to associate themselves with the magic of the movies, EU rules on state aid, international rules on state aid, and the (ab)use of the existing tax reliefs.)

    ’tis interesting in passing to note that many of the same people who make noise about the “subsidy” enjoyed by private schools constituted as charities do not appear to have the same objections to film production enjoying tax reliefs. Direct funding by the state (or the lottery) has to be considered in the context of the tax regime, and more broadly in terms of direct and indirect subsidy of the film industry by state institutions like the BBC and Channel 4.

  15. Matthew Taylor

    Interesting discussions under this @LeftFootForward piece http://bit.ly/cL8H19 and this @CharonQC post http://bit.ly/arDTou.

  16. Lee McIvor

    Interesting perspective on the shortsightedness of closing the UK Film Council: http://bit.ly/93VHX7

  17. David Baines

    RT @leftfootfwd: The economic madness of abolishing the UK Film Council: http://bit.ly/bXcAWg #ConDemNation #FalseEconomy

  18. Michael Burke

    This s a very valuable piece.

    Matthew Taylor’s contribution, despite the useful link, is otherwise very foolish. The UKFC cannot be ‘self-financing’ since the beneficial fiscal effects of film production go directly to the Exchequer, not he UKFC.

    If he’s read the report he recommends, he would see that the core film industry contributed £445mn in all taxes in 2009. Once multiplier effects are taken into account this rises to £1.21bn, compared to which the UKFC’s £60mn budget is chicken-feed.

    As usual, Guido stumbles across the answer to the obvious question, why, if it is so economically benefical, does the coalition abandon public support for the film industry? The answer is, of course, that their idology is one in which the government retreats and the private sector wlll advance, picking up profits on the way. But if the private sector won’t invest, too worried about its returns, as is the case, then the assumption that the private sector will automatically fill the breach is false.

  19. Clive Grimshaw

    how did Gosford Park make so much money? It was crap. http://tinyurl.com/25u56ld

  20. Mike

    if the profit motives work

    How come hospital privatisation never worked –

    why are hospital’s dirty and killing thousands of patients through cross infection every year

    when 90% are cleaned by private companies ???

    While the cleaning staff are often on the minimum wage ??

    Yet private hospitals have directly employed staff cleaning their hospitals ??

  21. Neil Hughes

    On the #UKFC closure – economic madness as well as just bad decision making http://bit.ly/avKVNH

  22. Vinny

    RT @politicsofuk The economic madness of abolishing the UK Film Council . #ukpolitics http://bit.ly/drJXo2 < pls signup to save ukfc

  23. Matthew Taylor (MTPT)

    @MichaelBurke: I have read the report, unlike – on appearances – you or the author of the original piece.

    The Oxford Economics report does not causally link the tax revenues you quote to the existence of the UKFC. If you have read and understood the report, you know this – so you are presumably making the same deliberate error most of those publicly decrying UKFC’s closure have made to date – conflating and confusing government funding, lottery funding, and the existence of UKFC itself.

    At the core of this debate is a question as to whether the tax revenues produced by the film industry, and indeed the multiplier effects arising from it, have any direct causal relationship with the existence of the UKFC, or the funding it disburses.

    What the report makes clear is that the real engine of growth for the UK film industry is tax relief, not UKFC or the funds it disburses.

    It is undeniably the case that if the funding UKFC disburses is removed – and remember that half of that £60M you referred to is money from the National Lottery, not DCMS – a small number of productions which are not economically viable would not take place. To leap from this to claiming that all of the tax revenue and multiplier effects would be put at risk is empty hyperbole.

  24. Phil BC

    What is tax relief if it isn’t a subsidy by another name?

    The UKFC is not perfect by any means, but what it has been able to do by directing public and lottery money is ensure a wide range of films have been made than would otherwise be the case. Yours and Guido’s ideologically narrow view of value *does* blind you to the real benefits of multiplier effects.

    Let’s take a UKFC funded bomb like Franklyn. It cost six million quid to make and barely did £100k worth of business in UK cinemas. A turkey for the studio? Yes. But bad for the economy and a waste of the DCMS contribution? No. The budget was six million spent on wages, goods and services. A proportion of this would make its way back to the treasury, but more importantly it kept people and businesses in productive economic activity.

    Another point, not answered by the critics, is the potential of further multipliers. A small bit of tax payers cash now can ensure future big names get their break or at least a foot on the ladder.

    As I stated in the opening paragraph, this post was an *unscientific* and *illustrative* exercise of the dangers abolishing the UKFC could have for the film industry because it is driven by a narrow penny-pinching exercise. Getting rid of the UKFC won’t destroy the British film industry, but there will be pictures that won’t get made, actors and directors who won’t get their breaks, and so on.

    PS Given all the nit-picking going on, I’m surprised no one’s noticed I’ve misspelled Keira Knightley’s name.

  25. Michael Burke

    Matthew

    setting up staw men to knock them over doesn’t really advance the debate. No-one claimed that the UKFC is directly responsible for all film output nor the tax revenues that derive from it. It often doe play a decisive seed-corn element in film financing.

    The sleight-of-hand was your own, using the UKFC’s inability to be ‘self-financing’ as supposed evidence of its redundancy. To repeat, the revenues go to the Exchequer.

    The UKFC plays an important role in financing (and in training, see p.38 of the Oxford Economics Report). This can be decisive. As the House of Lords 2009 Communications Comittee report put it, ‘An independent British film producer has to build up a patchwork of financing in order for a film to be made. He (sic) is likely to be eligible for film tax relief and can approach the UK Film Council, and BBC Film and Film4, the film investment arms of the BBC and Channel 4, who may be prepared to invest in the film. Beyond this, the producer may have to seek equity investment and pre-sale of the film to one or more distributors, against which he can obtain funding. This may still fall short of the finance required. Until the recession, banks might have been prepared to provide “gap funding”, but the Committee was told that they had virtually withdrawn from film finance.’

    This latter point is decisive, with banks having withdrawn from film financing (as so many other areas) the hope that the private sector will fill the hole left by the UKFC is just wishful thinking

  26. Matthew Taylor (MTPT)

    @PhilBC: You’re still persisting in the same conflation: doing away with the UKFC is not the same as doing away with the DCMS grant, and doing away with that grant is not the same as doing away with National Lottery funding. Your comment, and original piece, simply ignores those distinctions.

    Given you seem to be concentrating on funding, would you acknowledge that abolition of UKFC qua quango is a red herring – as distinct from the question of direct state funding of the film industry?

    (The UKFC’s own press release on its demise certainly seems to acknowledge that it is the money disbursed by the body, not the body itself, which is the issue.)

    I don’t understand what you mean by Guido and my “narrow view of value”. Yours has been an expressly economic argument, so if this intended to pull in some measure of cultural value this is a late addition. My argument has not been about whether it is possible to “spend to make” by funding the UK film industry –if you care to look back, you’ll see that I was acknowledging that possibility at the start – but rather about whether the UKFC and with direct state funding of the film industry has any causal relationship with the multipliers you’re focusing on.

    As to ‘Franklyn’ (in respect of the contribution of £1M of the £6M budget), you’re arguing that this money – which unarguably did not, in this case, generate any return on investment in the form of tax revenue from profits or ticket sales – should be treated as a kind of fiscal stimulus measure, very much in the “bridge to nowhere” category: a job and demand creation scheme.

    If that is what this resolves to, it is incumbent on those advancing such an argument to explain why we should expend stimulus in such an inefficient fashion. At least with a literal “bridge to nowhere” we spend capital and obtain an asset, albeit one of limited value. In the case of the contribution to Franklyn, we have in effect spent capital as revenue.

    I acknowledge that it is difficult to anticipate which productions will fail to achieve their goals, but trying to defend the UKFC and the funding it disburses on such a basis invites failure: give the money instead to ITV to spend on production of “Midsomer Murders”, or the BBC on “Doctor Who”, and you will produce the same stimulus effect in the same industry, causing the same job and demand creation, but be all but guaranteed a profitable outcome.

    You could also simply spend the money on tax relief – and yes, to answer you, it is analogous to subsidy. However, as I’ve noted above and nobody seems to dispute, tax relief has been causal in growing and preserving the UK Film Industry in a way which the UKFC’s existence and direct state funding has not. It is also clear that the rate of return on the “cost” of tax relief far exceeds anything that can be hypothecated for direct state funding.

    As for the argument that we should maintain the UKFC and state funding on the basis that we might produce wealth creators (such as Ikea Knightley), I assume you’ve anticipated just how easily that argument gets holed below the waterline: if you wished to produce wealth creators in order to increase future revenue from taxation on their income, you wouldn’t give the money to aspiring actors or producers, but rather to trainee plumbers, lawyers and accountants.

    Finally, I don’t dispute that you declared your analysis to be “unscientific” and “illustrative” upfront, but the problem is that it is so unscientific, and so divorced from the facts, that it is not illustrative of any underlying reality and so is of no value in informing or advancing a debate about abolishing the UKFC.

    (Sort of the homeopathic alternative to evidence based blogging; some people argue it’s harmless, but it isn’t!)

    @Michael Burke: See above.

    On straw men, it was you, not me, who advanced the proposition that UKFC’s existence and budget had a direct relationship with the revenues from the UK Film Industry. You said:

    “…the core film industry contributed £445mn in all taxes in 2009. Once multiplier effects are taken into account this rises to £1.21bn, compared to which the UKFC’s £60mn budget is chicken-feed.”

    My response (“It is undeniably the case that if the funding UKFC disburses is removed – and remember that half of that £60M you referred to is money from the National Lottery, not DCMS – a small number of productions which are not economically viable would not take place. To leap from this to claiming that all of the tax revenue and multiplier effects would be put at risk is empty hyperbole.”) was not positing a straw man, it was tearing one down.

    As to my alleged sleight of hand, if you go back and parse the relevant passage, you’ll see that I was pointing out that the line about every £1 of funding generating £X is misleading – because if this were genuinely true the UKFC would be self-sustaining; the return on its investment of money would fund future investments.

    In reality the money “generated” refers to revenue generated for private investors, companies, and contractors, and some it then returns to the exchequer. However, this return is also attributable to the existence of tax reliefs, and – as the UKFC’s own research shows – the tax relief is by far the most important factor.

    You implicitly assert that UKFC must exist for the state to provide gap funding. Unless you care to explain the basis of this assertion, I can’t see that needs rebutting. In terms of the existence of gap funding itself, we are back to the discrete question of that part of the UKFC’s current budget which is DCMS grant, rather than National Lottery (since the National Lottery funding is unaffected). As with PhilBC’s argument that money disbursed by UKFC can be treated as fiscal stimulus, it is incumbent upon you to explain why we should focus gap funding on this industry, rather than any other.

  27. Debbie Hayes

    The economic madness of abolishing the UK Film Council | Left Foot …: The abolition of the UK Film Council a cur… http://bit.ly/bSMKRf

  28. Starting Long Films » o galerie de gânduri neclare

    […] it. It’s time to quit the shit and do the thing, squeeze the cash outta thin air. British Film Funding’s down, Romanian Funding’s down. It’s all down. Somehow, spirits are still up from what I can […]

  29. Jonathan Stuart-Brown

    The Government has put tax money into Uk films even under Margaret Thatcher. It was just done much better before UKFC. The nonsense in the article is 2 = 2 = 2222 economics which illustrates the writer has zero knowledge of the industry and commerce of the film industry. The UK can easily have 250 000 employed in the British Film Industry but for that you need SAVE THE BRITISH FILM INDUSTRY’s crystal clear infrastructure to be implemented. http://www.savethebritishfilmindustry.com/ The so called UKFC bunch of aristocrats had no interest in a truly UK wide film industry emerging as they just wanted a very small south-east only in-club. The fact a 760 acre studio in South Wales nearly emerged on their watch horrified them as it would have taken the Hollywood inward investment away from the south-east. This investment does not follow tax credits or Lottery subsidy (although Hollywood will take it if offered) but rather sound stages. We had in 2000 the best in the world (albeit all west London and North London) but now 34 of our 44 are in danger thanks to UKFC. Indeed UKFC have been a real gift to The Malaysian and French and German and Canadian Film Industry which have all built sound stages while UKFC got into bed with a property developer who wants to sell ours off. This happened to 80% of Elstree Studios just after it made STAR WARS and INDIANA JONES. UKFC was a poor leader.
    http://www.savethebritishfilmindustry.com/2010/08/the-uk-film-council-betrayal-of-the-british-flm-industry-is-about-to-be-fully-exposed-in-the-battle-for-pinewood-shepperton-sound-stages/
    UKFC was useless as it lost money in the most profitable period ever for the global film industry. It failed to get access to UK cinemas (third biggest revenue in the world) for UK films.
    http://www.savethebritishfilmindustry.com/2010/09/princess-diana-the-stig-top-gear-lady-gaga-simon-cowell-and-why-the-facebook-campaign-to-save-the-uk-film-council-was-a-total-flop/

  30. Jonathan Stuart-Brown

    Just to cheer people up and inspire them as British film talent is thriving because of sheer desire and courage, Aruna Shields (London model and actress was Aruna Who ? so she got on her 150 mph motorbike and become a top Bollywood star in action pic ‘Prince’ with a follow up art house smash.
    http://www.savethebritishfilmindustry.com/2010/09/aruna-shields-is-the-new-angelina-jolie-and-a-must-for-the-next-007-james-bond-movie/
    Aruna Shields then starred in a French movie (a caveman flick) and is now going to Hollywood.
    Furthermore Vic Armstrong has worked on over 200 big budget blockbusters and if you watch what he does for 9 minutes, you will never again question what a second unit director is. Maybe Left Foot forward will campaign for him to get a knighthood as the crew always get snubbed.
    http://www.vicarmstrong.com/show-reel/

  31. Jonathan Stuart-Brown

    The Select Committee on Culture, Media and Sport yesterday was very revealing on UK Film Council and the coming BFI control of Lottery Money.
    Louise Bagshawe, Conservative, Corby was magnificent. http://www.savethebritishfilmindustry.com/2010/10/the-british-film-industry-is-much-safer-than-we-thought-now-louise-bagshaw-mp/
    Given she is a best selling author, WGA accredited screenwriter, well connected in Hollywood, then it helps. But even given this pedigree, louise bagshawe was outstanding.
    The LEFT does have a rising star on the film industry. Shabana Mahmood Labour MP for Ladywood Birmingham was superb on the film industry in a private meeting. Although a Shadow Home Office Minister, Shabana would make a great Culture Secretary in future government.

  32. Labour: Arts cuts have led to a “scaling back of ideas, innovation and creativity” | Left Foot Forward

    […] The economic madness of abolishing the UK Film Council – Phil Burton-Cartledge, July 29th […]

  33. Eighteen months late, coalition finally announces its plan for British film | Left Foot Forward

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