Over the next few months, there will be an animated discussion about the role of industrial strategy in boosting GDP. But the current obsession with investing in things you can touch and build might cause us to overlook what, in policy terms and growth terms, make Britain great: creative products and services.
Take steel as a contrast, and consider the following statistics. The UK steel industry, championed by MPs and think tanks, exports goods worth between £3.5 billion and £4.5 billion per annum, while the British music industry – with no political champions – exports between £2.5 billion and £3 billion annually.
The steel industry employs between 30,000 and 35,000 people directly. If we include indirect employees, the figure rises to 50,000-60,000. The music industry employs 190,000-200,000 people. And music is just one big part of the wider UK creative industry. The creative economy employs two or three million people, and has been growing at a terrific rate in recent years. It makes up 5%-6% of gross value added, a gauge of output used by productivity-focused economists.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The creative sector is also key to trade. Creative exports typically account for around 10%-12% of our total exports of services, with the UK ranking as one of the top exporters of creative goods and services globally, usually in the top five countries. Exports of creative goods and services increased by 150% between 2010 and 2017. One crucial last aggregate measure: 90% of the value of exports from the creative industries is produced domestically. The creative industries are self-sufficient and focused on the domestic economy, yet they have a significant positive impact on trade.
Creative industries are a boost for the local economy
As we dig a bit deeper into the various subsectors, this vital role becomes even more obvious. Take the film and television sector, which employs 180,000-200,000 people. According to the British Film Institute (BFI), an industry body, the combined spend by film and high-end television production (HETV) in 2023 reached £4.23 billion, 32% down on 2022 (due to Covid and a writers’ strike), but almost level with pre-Covid output.
Of that, the lion’s share was “contributed by HETV shows with £2.87 billion, or 68%, with feature film production contributing £1.36 billion, or 32% of the total spend... Inward investment and co-production of films and HETV shows combined delivered £3.31 billion, or 78% of the combined production spend, [demonstrating] the UK’s global reputation as the world-leading centre for international film and TV production”.
Another recent report from Knight Frank observed that films with a £60 million-£100 million budget generate more than £750,000 in daily spending, and those with budgets over £100 million generate over £1 million in daily spending. The slight fly in the ointment is that 70% of film and TV studios are in the southeast and London alone. And those big numbers could grow much bigger.
An optimistic estimate by Knight Frank sees film production spending reach £8.7 billion in 2028, which would require 2.6 million square feet of additional TV and film studio space. The upshot is that we are now mid-way through a boom in new studio construction in London and the home counties. The top 10 schemes underway in 2023 and 2024 involve the construction of at least 160 sound stages and a total rollout of a staggering 3.77 million square feet.
Some schemes, though, are facing local opposition. One big project in Marlow has already been halted. Buckinghamshire Council has denied permission for a proposed film studio at Marlow quarry. The BBC says that during a “meeting at the Strategic Sites Committee, concerns were raised that the site was an inappropriate development for greenbelt land and would have a significant impact on the local road network”.
Councils are encouraging investments in big studios
Still, many other councils are jumping at the chance to host big studios. That’s partly thanks to all that local spending I mentioned earlier, but mostly it’s a matter of simple logic. Film studios are big-box sites that realistically are only likely to be used for one of three purposes: a logistics and distribution warehouse, a data centre or a film studio close to the M25 and an airport.
The first involves lots of jobs, many of which are relatively poorly paid. The second is vital for the UK economy to keep up in the world of artificial intelligence (AI), but it doesn’t involve many jobs (just lots of imported Nvidia chip sets). The last involves a lot of highly paid, highly skilled workers, many of whom might want to live locally.
And of course, film and TV are just part of a broader creative-services economy. Alongside music, there’s also the UK’s other great crown jewel – its gaming sector, which directly employs tens of thousands of very highly paid workers, with estimates often ranging from 20,000-30,000 direct employees, but maybe indirectly reaching as much as 40,000-50,000.
Exports are also at roughly the same scale as the music industry’s at about £2 billion-£3 billion per annum, powering a huge export drive into the US. We should also not forget the crucial importance of another part of the creative industry – the fashion industry. According to the UK Fashion and Textile Association, the fashion and textile industry in the UK supports 1.3 million jobs, one in every 25 jobs in the country.
Talk to bosses in all of these subsectors and they tend to offer the same narrative. UK governments have, to their credit, been innovative in encouraging inward investment. In the film industry, the recent initiative for UK independent films involving a 53% production credit on their expenditure wins many plaudits, yet it only applies to films with budgets up to £15 million.
Likewise, the gaming sector has benefited from generous tax credits, but the Treasury keeps huffing and puffing about the credits and threatening to rip up the rule book. TV, which helps power much of the creative sector, largely misses out on these generous schemes.
Challenges facing the creative industries
Two topics keep popping up in industry forums. The first is business rates. Film studios pay huge amounts in rates, with some facing 600% increases in recent years. Rumours abound that at least one major studio development is being canned because of those costs. One insider says the problem isn’t with the government as such, but with a quango called the Valuation Office Agency, which many accuse of hampering development.
But skills also matter. The broadcasting trade unions, for instance, complain that huge numbers of freelance workers are underemployed. The issue is the quality of training. There are too many low-quality, media-based courses, and not enough on-the-job skills training. There is too little funding for further education, yet sustained demand for skilled vocational training. It’s wonderful that universities are churning out experts in media studies, rather less encouraging that we don’t have enough highly skilled game developers.
What makes that problem much worse is that, bar a few exceptions – the e-games segment in Dundee – too much of this highly skilled work takes place in the southeast, east and, to a lesser degree (in TV), the northwest. If ever there was an argument for levelling up, it would be in the creative sector. Studies have shown that there are creative clusters in Oxford, Bristol, Edinburgh and Sheffield, along with as many as 709 microclusters around the UK, in places as diverse as Carmarthen in Wales and Louth in Lincolnshire.
Maybe the sensible thing to do for a new government focused on speeding up growth is not to spend hundreds of millions of pounds on single-place, megascale manufacturing facilities that sound “important”, but employ a relatively small number of people. Focus instead on creative clusters and sectors using lots of skilled, well-paid people whose offerings sell well worldwide. It’s time to create creative enterprise zones
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
8 of the best houses for sale with home cinemasHouses for sale with home cinemas – from a modern oast-house style property in Kent to a house in Buckinghamshire with Dolby sound and bespoke seating
-
Rachel Reeves faces £23 billion capital gains tax “black hole” – will she be forced to look elsewhere?The fiscal watchdog has downgraded its forecast for capital gains tax revenues, leaving chancellor Rachel Reeves with £23 billion less than previously expected
-
Large cap stocks start to struggle – is it time for investors to reassess their focus?Buying quality large caps worked very well last decade. A more volatile world will be a bigger challenge for these star stocks, says Cris Sholto Heaton
-
How to generate income with fixed-interest investmentsPublic debt is overvalued, but other fixed-interest investments now look like a bargain, says Max King
-
Spring Statement: Rachel Reeves 'must turn good intentions into effective measures'Opinion Chancellor Rachel Reeves understands the economy’s structural problems but is unlikely to solve them, says Max King
-
Three top-notch Taiwanese companies cashing in on the advent of AIOpinion Eric Chan, investment director and co-manager of the Aberdeen Asian Income Fund, highlights three potential Taiwanese winners in the technology industry
-
Weight-loss drugs could revolutionise the economy – the investments to buy nowThe new generation of weight-loss drugs are a boon for the overweight, but they also promise to change our relationship with food and revolutionise the economy
-
England's department stores return – but do they have a future?Opinion The great traditional retail shops of Middle England have bounced back for now. Don’t get too carried away though, says Matthew Lynn
-
Labour's 'Project Chainsaw' begins by abolishing NHS England – will it backfire?Keir Starmer is taking the fight to the blockers, the NIMBYs, public sector workers and the unions says Emily Hohler. What happens if Labour fails to deliver?
-
Find tomorrow’s Asian giants while they are still smaller companiesOpinion Nitin Bajaj, portfolio manager of the Fidelity Asian Values trust, picks three Asian companies to invest in.
