Written Evidence Submitted by UK Screen Alliance/Animation UK to the Treasury Select Committee
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Written evidence submitted by UK Screen Alliance/Animation UK to the Treasury Select Committee 23/03/2020 1. About UK Screen Alliance/Animation UK 1.1. UK Screen Alliance in partnership with Animation UK is the trade association that represents Visual Effects (VFX), TV & Film Studios, Post-Production and Animation in the UK. It is the membership organisation for over 100 leading employers in the film, TV and advertising sectors and its primary purpose is advocacy for its member companies and the wider screen industries. 2. The impact of Covid-19 on the Film, TV and advertising supply chain 2.1. Our members rely on an inflow of business from film, TV and advertising productions, but as a result of the Covid-19 virus virtually all global filming has stopped. Film crews utilise large numbers of people working in close proximity, so social distancing measures have made them impossible to operate and insurers will not cover disruption from Covid-19. 2.2. This means that there is no raw unedited material flowing into post-production and VFX for them to work on. This has had an immediate effect on some companies and for others the effect will become apparent over the next few weeks as the projects that they already have in their systems come to completion and are not replaced by new work. Their business interruption insurance will not cover them in these circumstances. 2.3. This sector, which was vibrant until just two weeks ago, is about to come to a dead stop. VFX alone contributes more than £1 billion GVA to the economy and attracts considerable inward investment from the USA. 2.4. In order to keep the wheels turning, these VFX, animation and post-production businesses are having increased costs of working as they put in remote access solutions to allow their creative artists to work from home. These are not trivial, as processing video images is very data intensive. However, these solutions will soon be for nothing when the immediate work dries up. 2.5. For VFX and post-production companies, high occupancy rates are essential. They are not like retail where merchandise is still available to sell on another day. If a studio, or edit suite is empty for a day, a week or a month, that turnover is gone forever, but the overheads are still there. These companies will soon be losing substantial amounts of money if they do not immediately reduce their fixed costs. Typically, these companies can exceed 90% gross margin but with net margins between 4% and 15%. They have large numbers of permanent or long-term contract staff. There are more than 12,000 employees in this sub-sector and all these jobs could now be at risk. 2.6. Post-production houses, VFX companies and Animation studios all have high premises costs in city centre locations (mostly central London). This is their 2nd highest cost after payroll. Page 1 of 4 3. Coronavirus Job Retention Scheme 3.1. Unlike much of the creative industries where freelancing is commonplace, post-production and VFX companies employ large numbers of permanent or long-term contract staff, who make up 90% of the workforce in this sub-sector. Within animation, freelancing is more common. 3.2. It is our people who are our strength. The creativity and technical expertise of VFX artists, animators and post-production creatives are what attracts inward investment to the UK. The productivity of visual effects workers is usually £81,500 GVA per head, some £19.5k above UK average. 3.3. The Coronavirus Job Retention Scheme is very welcome, such that these workers with their specialist knowledge and skill are retained by the businesses to be ready for the recovery phase. However, we feel that more details are needed about how NI is treated within this scheme and what taxes will be levied on any top-up payments made by companies beyond the £2,500 cap. 3.4. As much creative work is short-term and project-based we also need to understand whether workers can be quickly bought back to full employment for a short-periods when required and then returned to furlough. 3.5. VFX work requires teams of people, each of whom bring specialist skillsets to the project. When work is short it is difficult to select which workers should be furloughed as this will inevitably lead to knowledge gaps within the team. There should be some way to provide financial support for people on temporary short-time working. 4. Support for freelancers 4.1. At the time of writing, the Chancellor has announced hardly any measures for the self- employed freelance workforce. The Creative Industries Federation have made strong representations on this issue and we support their suggestion for a Temporary Income Protection Fund for freelancers. 5. Business rates relief and cash grants 5.1. Second only to payroll costs, premises expenses are the next most significant fixed costs for VFX companies, post-production houses and animation studios. Most of these companies are based in city centres with a high concentration in London. 5.2. The Business Rates holiday measures and associated cash grants for companies in retail, hospitality and leisure do not apply to companies in the Film and TV supply chain and we are asking the Chancellor to extend these measures to all these companies that have seen demand for their services collapse in the last few days. 5.3. Many creative businesses operate from co-working spaces or serviced offices. Whilst they may qualify for Small Business Rate Relief (SBRR), it is usually the landlord/serviced workspace provider who pays the rates and therefore claims the relief on their tenants’ behalf, which should be passed on by way of reduced service charges. We ask that the Chancellor legislates that the £10000 one-off small business grant goes to the business claimants and not the landlords. Page 2 of 4 6. Support for employer representative bodies 6.1. We would also ask the Chancellor to support the important role which sector representative bodies, such as ourselves, can play in the management of this crisis. We note that employer membership organisations are specifically excluded from applying for CBILS. Trade associations provide a vital two-way conduit to disseminate relevant information to both government and businesses in their sector. However, most are not supported by any public money; funding comes from membership subscriptions and commercial sponsorship. Their members will be wanting to trim their costs to a bare minimum and may be forced to stop their membership subscriptions. Some member companies will cease to trade and there will be few immediate start-ups to replace them. 6.2. The government recognised the usefulness of trade associations when they introduced the Brexit Business Readiness Fund to inform businesses of the impending changes, so we are asking them to consider a similar intervention now. The Readiness fund was attached to particular activity, but now trade associations need support with running costs as their operational revenue also comes under pressure. 7. Measures to jump-start film and TV production once the crisis is over 7.1. The film and TV industry’s recovery from the 2008 financial crash was rapid and strong, and this growth which was twice that of the rest of the economy has continued ever since. Even in the final part of 2019 as the rest of the economy was slowing, our growth was contributing to keeping the UK out of recession. We have no doubt that this sector can deliver strong growth again on the other side of this crisis, provided that our infrastructure and skills base is not terminally damaged. 7.2. Whilst filming for motion pictures and TV can continue year-round on interior studio sets, the summer is traditionally the time for outdoor location filming with the better weather and long hours of daylight. This results in seasonality in the film and TV industry. It is likely that the peak of the virus outbreak will not subside until the autumn when the usually busy filming period has passed. It will be slow to restart and may not recommence in earnest until next spring. There will be further delays for post-production and VFX who will have to wait for this renewed activity to make its way into their pipelines. We are not expecting anything like business as usual until at least this time next year. 7.3. Territories outside the UK will be operating to different timescales in their recovery depending on the severity of the virus in their country and their measures to contain it. Territories could be exiting the lockdown phase in their spring season, so can offer long days for filming. It is important that the UK does not miss out on the post-production and VFX work this filming will generate because of barriers in our own screen sector tax reliefs. 7.4. We ask that the 10% minimum spend threshold for qualification for screen sector tax relief is temporarily suspended, along with the cultural test. This will remove barriers to bidding for inward investment post-production and VFX work if no filming is happening in the UK. 7.5. The requirement to have an SPV in place 6 weeks before filming starts to route the total production spend through, should also be suspended, so that the UK is in the most competitive situation against the global market for VFX and post-production. If filming is not taking place in the UK, no SPV will have been set up, so there will be no company in a position to claim the tax credit incentive.