Spotlight on Mike Mawbey, Portfolio Risk Manager
// investment
When at the start of this year Jeremy Hunt outlined his ambition to turn the UK into the world’s next Silicon Valley, we all listened. The desire to grow the UK through innovation is indisputable, but where were the plans to help the Creative Industries – perhaps our most innovative sectors – to achieve game-changing innovations?
Our Creative Industries continue to be under-valued and under-capitalised – a fact that was reiterated by a House of Lords report published shortly after the Chancellor’s speech. Since that publication, Jeremy Hunt has identified the Creative Industries as one of five key growth sectors. But this is not enough. Those of us working in and representing the Creative Industries, know that both the demand and opportunity within our sector is immense. Our recommendations for the Spring Budget respond to this by outlining specific expectations.
As a start we need to:
- Unleash innovation by reforming R&D tax relief
- Support inward investment by building on and retaining our competitive tax credits
- Stimulate consumer spending by cutting VAT from cultural experiences
- Invest in our future workforce by delivering the £270 million Arts Premium promised in the Conservative Party Manifesto.
These needs will stimulate the Creative Industries, the economy and the whole country, but they in turn require the backing of the UK government.
Unfortunately, the rhetoric of political support for the Creative Industries isn’t consistently underpinned by policy change or investment in a way that responds to the scale and complexity of the opportunity. The Creative Industries now deliver more economic value than life sciences, aerospace and automotive sectors combined*, and yet access to finance for those in the creative sectors remains a major challenge. Why is this?
A false narrative?
For some, there is a false dichotomy between creativity and commerciality. This view completely misunderstands the symbiotic nature of the relationship. For, at the heart of creativity is the ability to envision and produce something from nothing – a concept that is also incredibly commercial.
The argument about whether the pipes (the tech) is more important than the poetry (the content) might seem redundant, but it continues to factor into investment decisions. Culturally, investors – be they government or private sector – are more comfortable with a tech offering than they are with investing in what is believed to be the risky part of R&D – ideation and content creation. In all aspects of the creative sector these two elements co-exist and are equally important.
Why some people under-value creativity
Research shows that creative businesses tend to rely more on informal sources of funding than non-creative SMEs and when they do ask for money they frequently ask for less than they need, despite the fact that they are heavier users of finance than SMEs generally.
It’s time for a collective effort to build a complete picture of the investment landscape in its entirety. This will enable lenders to realise the value and opportunity therein and it will enable the creation of financial products and services which meet demand. As the House of Lords report states:
“Data collection in both the UK Government and the sector is muddled and under exploited. Academic research funding does too little to encourage commercially orientated creative projects; it skews towards collaborations with large businesses rather than the small firms that characterise the creative sector.”
Innovation is at the heart of what Creative Industries do. Having a replicable business model – which gives investors confidence in future successes – can be very hard to achieve. In order to prove a concept they must test, trial, fail and then start again.
In such an iterative environment, testing and re-testing is vital. The UK government’s R&D tax relief programme is a huge help here, but it needs to go further. Our Spring Budget recommendations set out a number of actions to support innovation, including optimisation of the Creative Industries tax reliefs.
The importance of learning to fail
In outlining his vision for the UK, the Chancellor identified innovation as a key driver of success, saying “…if anyone is thinking of starting or investing in an innovation or technology-centred business, I want them to do it in the UK.”
It’s widely accepted that innovation is at the heart of industry, but we are not always patient enough when it comes to the failures that are inherent in the innovation process.
In my career, I have noticed time and again that we respect the need to fail in some spaces, but that not all failure is made equal. There’s less patience for creative projects failing than there is for innovations within, for example, STEM fields where the iterative process is more widely accepted.
The current tax reliefs available to creative companies do a great job of providing room for this iterative process, but they could go so much further. That is why we want R&D tax relief reformed to reflect the internationally-recognised Frascati definition.
How should we move forward?
Though there are serious challenges with access to finance, the UK nevertheless offers a range of funding options for creative businesses, from grants through to equity and loans. These funding options, though welcome, tend to be highly stratified. They are sector-specific, region-specific and sometimes they compete. In order to make the best strides forward for our Creative Industries we need a holistic approach which includes making the data about what is happening, where, and how, more clear, more comprehensive and more available.
To really grow the creative ecosystem here in the UK, we have to figure out how to make it easier for people to access the investment they need to grow and put specific solutions in place. This is exactly what we at Creative UK are working on – to drive innovation, investment and UK industry. We’re looking forward to the Spring Statement and hope to see some of the concrete proposals we’ve set out actioned: stabilisation and expansion of the tax credits; a better understanding of creativity within R&D definitions and delivery on the commitment in the Conservative manifesto pledge to the Arts Premium.
*https://publications.parliament.uk/pa/ld5803/ldselect/ldcomm/125/12508.htm, p50
