Nick Martindale 5 Oct 2017 05:17pm

Creative accounting

The creative industries generate a lot of wealth. Nick Martindale looks at how the UK compares to international rivals – and the pitfalls ahead

Caption: "You have to run a thatre as a business. Cultural organisations have to be well managed, well governed and financially viable"

The economic significance of the creative and cultural sectors has been firmly established for some time. It is not just the direct impact – in terms of visitors, tickets sales and employment – but all the secondary activity that is harder to measure, in tourism and the growth of new businesses, including freelancers, around the sector that helps to add value to the UK economy.

According to figures from the Department for Digital, Culture, Media & Sport released in 2016, the creative industries are worth around £84bn to the UK economy a year, and account for around 5.2% of its total value, and some 1.8 million jobs. The sector has consistently been the fastest growing area over the past two decades.

There is also evidence of a direct link between the highly profitable industries – such as digital development, software and advertising – which come under the definition of the creative sector and the more cultural elements – such as music, art and theatre – that often rely on at least some degree of public support. A 2015 Report by the Warwick Commission on the future of cultural value set out to explore the connection, after there was a perception that a number of successful industries were effectively being lumped together with ones that were less so.

“We were able to show that there were critical interdependencies between the publicly-supported cultural industries and the hugely successful commercial creative industries,” says Jonothan Neelands, professor of creative education at Warwick Business School.

“The talent is very mobile and they’re all dependent on training and tax breaks. The argument was that some level of public subsidy and investment is absolutely vital to the continuing creative success of the creative industries, and that was largely accepted by government at the time.”

Neelands is now working with Coventry on its bid to become the UK’s City of Culture in 2021, helping to make the economic case around the package.

The UK generally does a good job of extracting value from its creative industries, says Shaun Beaney, manager at ICAEW’s Corporate Finance Faculty and co-author of the Creative Industries - Routes to Finance guide. It ranked second in the Portland Communications report – which measures countries in terms of their “soft power” – behind the US in 2016.

“A real step forward is the government’s new industrial strategy where for the first time the creative industries are recognised as one of the key industries, so you have got official recognition by the government of their significance,” he says.

Paul Owens is co-founder and director of Bop Consulting, a consultancy for the creative sector, and says the UK has generally been seen as a model for other countries to follow.

“What people think is good about the UK when it comes to the cultural sector, less so the creative industries, is that you have this three-legged model of public funding, box office and private sponsorship,” he says. “Most people in the world think we have a healthy mix.”

Much activity is driven by initiatives in individual cities, he adds, including Manchester, Glasgow and Edinburgh; his firm’s own research suggests the Edinburgh Festival alone brings in around £750m to the Scottish economy.

Graham Lamont, chief executive of Lamont Pridmore, has seen at close hand just how funding in the cultural sector works. Outside of his day job, he’s joint chairman of a 400-seat theatre in Keswick, in the Lake District, which turns over between £1.5m and £2m a year and generates around 80% of this itself, topped up by £600,000 a year from the Arts Council.

“You have to run a theatre as a business now,” he says. “It’s changed over the past 10 years, and cultural organisations have to be well managed, well governed and financially viable.”

The returns are significant: the Theatre by the Lake is now the largest employer in the town and has given those in economically deprived parts of the country access to careers that would otherwise have been closed to them, as well as working more generally with local social groups. “The economic impact we have in the area is in the millions,” he says.

Not all countries have adopted the UK’s approach towards encouraging its creative and cultural industries. Dr Tom Fleming, director of Tom Fleming Creative Consultancy, says a country’s approach is often driven by historic precedents.

“In northern and western Europe we’re a bit more relaxed about articulating different types of value, including the commercial value of arts and culture, and there has been a movement towards building a much more mixed economy,” he says.

“The Dutch and Nordic countries are very good at doing that.”

France has traditionally been reluctant to exploit the commercial value of its culture and creativity, says Catherine Morel, academic director of the MSc in cultural management and entrepreneurship in the creative economy at Audencia Business School, but things are starting to change.

“For a long time this idea that people would expect not only a cultural and social value but also an economic value wasn’t something they wanted to put forward in France,” she says. “But it’s now an argument that the public bodies are ready to use.” This approach is already paying off in places such as Nantes, she adds.

The US is one of the most successful countries in developing its creative industries – New York set up its Department of Cultural Affairs in 1976 after realising the economic benefits in the wake of the success of Broadway, says Owens – but other nations including Brazil and China are also looking to build up their own sectors as a means of encouraging further growth.

“The Chinese more than anyone else have recognised that IP is the new oil, and in their crusade to go from ‘made in China’ to ‘designed in China’ they’re pulling out all the stops,” adds Neelands.

“Beyond that, what is particularly interesting is the growth of the creative industries in cities, rather than nations,” he says. “Cities like Shanghai, Sydney and Toronto see the creative industries as being their future, in the same way that London does, so the real growth is in those global cities rather than across nations. But in all of those cities there is a recognition that there has to be some level of public investment.”

Other nations are now starting to build up these sectors almost from scratch. “We’re doing some work at the moment in Malaysia where the Ministry of Culture and its spending power is minimal, and the organisations in the cultural sector are having to build relations with sponsors and with private firms that can co-invest in them and develop mutual values,” adds Fleming.

Owens points to the move in South Korea to create the K-pop music phenomenon, which fuses Western music styles with Asian performance values, as an example of a deliberate approach to build up and exploit a source of culture.

In the wake of such competition and the potentially damaging ramifications of Brexit (see box, page 44), the UK cannot afford any complacency in its approach to encouraging cultural and creative initiatives. Beaney identifies three key areas that he believes need to be addressed: greater effort around emerging creative technologies (he’s chairman of the finance and investment working group of ImmerseUK, which has been set up to encourage public and private investment in this space); building up the financial skills of those working in the sector; and ensuring that creative subjects are not sacrificed in schools in the drive to push up standards in other areas.

“Since 2010 at least there has been a focus on STEM subjects, and there is at least a perception that arts and creative subjects have been downgraded in state secondary schools,” he says. “That is potentially problematic in terms of encouraging young people to move into cultural or creative sectors.”

Others believe there is too much prominence placed on the financial return of culture and creativity. Robert Hewison, a cultural historian and author of Cultural Capital: The Rise and Fall of Creative Britain, believes that, while it is clear that the creative sector makes a strong contribution to the UK economy, it is wrong to attempt to measure this in pounds and pence.

“The justification for culture and creativity is not cash,” he says. “It’s in terms of meaning. We should value it through a critical approach, which tries to understand what this activity means to individuals and groups in society. We have gone too far, and that’s the way to kill creativity.”


London has been regarded as one of the leading cultural cities in the UK. But for the past three years, the Arts Council has diverted more of its funding to areas outside the capital; a strategy new chairman Sir Nicholas Serota has continued in its most recent funding round. This allocated an extra £42.5m a year to be spent outside the capital, while The National Theatre, Southbank Centre, Royal Opera House and Royal Shakespeare Company took a combined hit of £2.5m.

It is controversial, although few would argue with raising spending outside the city. “I wouldn’t support an argument of taking money away from London but there clearly has to be some emphasis on building up the cultural and creative industries’ potential in the regions, and not just in the big cities of Birmingham and Manchester but places like Coventry, Reading, Oxford and Leeds,” says Jonothan Neelands, of Warwick Business School.

“There is a lot of consciousness of the need for regional redistribution, but you don’t solve this by taking money from London. It is a global city that competes with Shanghai, Hong Kong, Sydney and Toronto and other huge global centres.”

Brexit is also likely to prove difficult for London, particularly any form of restriction on the free movement of travel; something Serota highlighted at a Creative Industries Federation conference. “A two-way flow of talent is crucial to the arts in Britain,” he says.

“It is the interaction of forces that has made British culture so rich and increasingly complex. Cultures that cut themselves off may become exquisite, like a rare breed of animal; but ultimately they stagnate and are irrelevant to a changing world.”

Dr Tom Fleming, of Tom Fleming Creative Consultancy, says Brexit is affecting London’s standing as a cultural leader. “It’s a catastrophe,” he says. “In the past generation or so London has rebuilt its identity with culture at the forefront and it’s not just the museums, galleries and festivals but the smaller independent cultural offering that has been so key.”

For EU nationals working in the city, this has been a tipping point, he says, and many are now heading to Paris, Amsterdam or the Nordic countries.

Reduced funding and Brexit could hit smaller organisations hardest, warns Paul Owens, of Bop Consulting. “If there’s less money to fund those, there will be less activity and less talent coming through. That’s where the real risk is.”