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:

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. 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.