Relief for theatres as treasury expands cultural policy

More of this? Eric Allix Rogers, CC BY-NC-SA

We are finally starting to see an emergent consistency in creative economy policy in George Osborne’s budget statement. The chancellor’s key innovation was the introduction of tax relief for theatres from September 2014.

In January, the UK government seized the news agenda with its Creative Industries Economic Estimates. With one voice, the media told us that the creative industries are worth £8m per hour to the UK economy and account for 5.6% of UK jobs. And with growth of 10% in 2012, the creative economy is said to be outperforming all other sectors.

Even if these figures are open to question, they explain why in this budget Osborne has taken measures to improve on them. The new theatre tax relief will support the production of plays, musicals, opera, ballet and dance at a rate of 25% for touring productions. Other theatre productions will receive 20%.

The tax regime will now treat live performance the same way as film and television. Osborne is therefore beginning to bring consistency of policy to the cultural sector as a whole, although video games tax relief, mooted since 2007, has not materialised, and still awaits a green light from the European Commission.

Osborne’s new scheme will allow producers mounting a show to claim the tax rebate on 80% of a production’s up-front eligible costs. The relief can be claimed either by offsetting it against corporation tax or as a cash credit.

The higher 25% touring rate is intended to assist regional productions – a quiet move, perhaps, to address the growing clamour over the overheating of London relative to the rest of the UK.

This is certainly a significant gambit, although it remains to be seen precisely how it will work. A consultation will take place before implementation occurs. Issues to be addressed include the definition of “regional” and whether old works as well as new productions are to be included in the relief.

The tax break has been hailed as a crucial move in theatre circles. Nicholas Hytner, director of the National Theatre, welcomed the “unequivocally good news” as an “imaginative response to the challenges of theatre production”.

Julian Bird, chief executive of the Society of London Theatre, sees it as a major boost to live performance, potentially attracting millions in investment. The relief allows investors to recoup their upfront costs more rapidly.

And according to Rachel Tackley, president of UK Theatre, commercial theatres will now be able to compete with film producers for investors, whereas the not-for-profit sector “will be able to get a cheque in the post”.

But there is some concern in theatre circles that the Chancellor’s largesse may result in less funding going to Arts Council England. ACE’s budget has been reduced by one-third since 2010 and many local authorities have cut their arts budgets.

Film policy has long had special treatment, being regarded with envy by other cultural sectors. Recent Oscar successes, such as Steve McQueen’s 12 Years a Slave and Gravity – made at Pinewood and Shepperton – are seen in industry circles as benefitting from a range of supports.

Aside from lottery finance and spending by BBC Films and Film4, tax relief has been overwhelmingly crucial in attracting inward investment. Consultants Oxford Economics have attributed more than 70% of film production to the government’s tax relief. Of £1.07bn spent on UK films in 2013, £868m was attracted by the UK’s tax regime.

The UK’s attractiveness to Hollywood, and the way the inflow of funds supports a range of production skills and ancillary businesses, has now led to a policy consistency across several cultural industries – HMRC offers creative industry tax reliefs in film, animation and “high-end” television.

To qualify for tax relief, all films, TV programmes, animations or video games must pass a “cultural test”. In short, they have to demonstrate their British cultural credentials. Brussels still has to be convinced that the games industry qualifies in this way.

In the budget, Osborne also announced that there would now be an increased rate of relief for larger budget films. All films will receive 25% of the first £20m of qualifying UK expenditure, and a 20% tax credit thereafter. Clearly, this increases the incentive to produce films in the UK.

Not surprisingly, this has been welcomed by the film industry. Adrian Wootton, CEO of the British Film Commission and Film London has underlined the boost this will bring to special effects, post-production and international co-productions.

The Department for Culture, Media and Sport will doubtless conclude, as we head towards the next general election in May 2015, that at least two vocal cultural sectors have something to be pleased about. While it may not stack up as votes, this positive reception for fiscally driven cultural policy might keep some of the luvvies relatively quiet.