Wednesday, 28 July 2010

Economic Vandalism and the UK Film Council

When the Tories said they were building a bonfire of the quangos they weren't kidding. That a number of health-related bodies were axed in Monday's cull was disappointing but not surprising. In their ideologically-driven cuts agenda if you haven't got a (narrowly-defined) economic value then you're fair game, regardless of the social value you possess.

Which makes the abolition of the UK Film Council an even more curious decision. This particular move will save the treasury a whopping £15m/year, and was probably chosen because "it's the arts" and apart from liberal/luvvie-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 other areas of government, UKFC-funded films are public/private partnerships to varying degrees.

So permit me this small *unscientific* exercise to illustrate the kinds of damage the coalition government's short sightedness is about to inflict.

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, from the state's point of view profit is defined by the increased tax returns over and above the initial outlay.

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

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. Cinemas take a slice on ticket sales too. But for illustrative reasons I will suppose each film is equivalent to a discrete firm taxable at the 28% Corporation Tax rate.

Applying that rate to total gross profits 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 (assuming the subsidy is constant).

There's more. Let us estimate the wage bill of these films account for 70% of their budget. Their total budget was £57.02m, of which £39.91m was expended as 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 tax off just 12 films. And that's without counting the multiplier effects all this economic activity has had in terms of supply chain, VAT take, cast and crew's spending, etc.

Nor does it account for future multipliers. Take Keira 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 the stardust she's sprinkled on 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 Keira 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. As their reputations are built, so is their bankable value and with it their taxable pay. And returning to the short term, even if all the other 888 UKFC-funded films were commercial failures they too had their multiplier effects by virtue of their economic activity.

This may be an unscientific experiment, but it illustrates how the government's decision to scrap the UKFC is not just an act of artistic philistinism. It's a case of economic vandalism too.

NB All figures are taken from Box Office Mojo and individual wikipedia pages. Where the only available figures have been given in dollars, they were converted to sterling using the exchange rate pertaining at the time.


Jim Jepps said...

The figures are really interesting in themselves. This is England and In the Loop both brilliant films and both made for less than a million - amazing!

Not the highest grossing films ever of course, but great quality. I'd be interested in seeing the figures for films like Being Eric for example which may have been a bit more commercially successful

luna17 said...

Really useful info - thanks. As Jim says, the numbers tell a story.

I've just blogged at Luna17 about the threatened cuts to arts funding here in the North East. Lee Hall and others are justifiably objecting, on economic grounds as much as anything. Hopefully they will persist in making a fuss, and reach out for wider support.

Lawrence Shaw said...

Great stuff Phil, this sort of thing truly exposes the deeper Condem philosophy. I suspect Cameron is here carrying out one of Murdochs orders so that 20th Century Fox can be given a clearer run at the cinema with its usual glittering array of shite for the masses.

Is there any reason you mentioned Kiera Knightley specifically? ;)

Phil said...

Ignore this shallow flattery, Keira - the man can't even spell your name right!

Daniel Hoffmann-Gill said...

As an actor, I expected the Con-Dem alliance to stab the arts in the eye.

They have done so.

Thus, I can rage on.

Chris said...

"This may be an unscientific experiment"

No I think you made the point quite nicely. This shows the total lack of thinking that is going into these cuts, it is staggering.

Incidentally you used the word estimate when assuming the % of the wage bill. According to Boffy this makes you a troll.

IVOR said...

This is very interesting and, as you say, exposes this act of cultural and economic vandalism.

The problem is that, while the UKFC worked in box office gross figures and was always keen to big-up multiplier effects, the overwhelming majority of the profit in the film industry goes to the distributors and these are primarily large US-owned companies. The UKFC showed itself to be entireley comfortable with effectively subsidising their profits, directly through tax incentives and production finance, and indirectly through training a large, casualised workforce.

The UKFC has been - quite rightly - widely criticised for its exclusively market-centred approach to film. But protecting British film-making depends on other arguments: cultural, social, political. There are other ways to generate multiplier effects.

skidmarx said...

Alex Cox says:
It's very good news for anyone involved in independent film. The Film Council became a means by which lottery money was transferred to the Hollywood studios. It pursued this phoney idea that James Bond and Harry Potter were British films. But, of course, those films were all American – and their profits were repatriated to the studios in Los Angeles.

Phil said...

Phil - no one likes a smartarse, lol.

Loz - I would have much preferred Sally Hawkins of Happy-Go-Lucky fame but I think the point is better made using Ms Knightley as the illustrative example.

Ivor - I completely agree. The UKFC's approach was far from unproblematic. But the Tories chose to attack the public subsidy for film on a very narrow basis, and it's this that needed showing up.

monkeyofold said...

That's some fairly reasonable estimating there.

Thought you might be interested in this report, should you want to try and refine your numbers;

It's about the tax relief, rather than the spending that the UKFC does, but it may be reasonable to assume that money spent by the UKFC has the same effect as money not spent by a film company in tax.

Some numbers from it; the UK film industry supports 100,000 jobs, the tax relief costs the government around £100m a year, but it receives £400m because of it and without the tax relief the film industry would be 75% smaller. The report is from UKFC, so you may want to take those numbers with a pinch of salt though.

But I do agree with Ivor, it's about much more than tax revenue.