The role of the creative industries in rebuilding the UK economy

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By Helen Alexander, CBE, President of the CBI

This address was delivered as the Livery Lecture

to the Stationers’ Company, 8 March 2010

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The role of the creative industries in rebuilding the UK economy

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What are ‘the creative industries’?

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As the name suggests, the creative industries create! I don’t just mean that they create books, newspapers, magazines, films and all the rest of it. I mean too that they create jobs and careers. They help create our cultural identity and the social environment we live in. And they help create the wealth that our economy and society needs.

What do I mean by the creative industries? The Department for Culture, Media and Sport, which has responsibility here, has defined them as including: advertising; architecture; art and antiques; computer games; crafts; design; fashion; film and video; music; the performing arts; television and radio; and of course publishing. [2]

You may have your own views as to what should and shouldn’t feature on this list, but let’s stick to official lines for the time being. These creative industries grew at twice the rate of the economy as a whole between 1997[3] and 2004, averaging five per cent a year.

Even in the eye of the destructive economic storm we’ve just limped out of, the creative industries performed well.  Analysis from NESTA suggests that they will have grown at around four per cent this year and last year, and will continue to grow at the same rate until 2013 – that is more than double[4] the rate for the rest of the economy.  By 2013, NESTA expects there to be around 180,000 creative businesses in the UK, [5]contributing as much as £85bn of added value to the economy – and 150,000 new jobs.

Already, there are almost two million people employed in the creative industries, both directly and in related businesses. They contribute more than eight per cent of GDP, whilst[6] the financial services sector represents about the same proportion.

This is a hugely important fact, and one that bears repetition and recognition! And raw figures aside, these industries define an image of Britain abroad and help shape a brand defined by imagination, excellence, inventiveness and style. Think Working Title, the Financial Times, Framestore and Burberry.

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A day in the life of the creative industries

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Let me add some more colour and give you some examples of how the UK creative industries are all around you. You wake up to the sound of the BBC Radio 4 Today programme, one of the best current affairs broadcast in the world. Or you might prefer Chris Evans on Radio 2, or any one of our commercial radio stations.

On your train journey to work, you listen to British bands like Coldplay or the Arctic Monkeys on your iPod, as designed by Londoner Jonathan Ive. And you read one of our national or regional newspapers, or one of the magazines British publishing is justly famed for.

You might work in a state-of-the-art building designed by those twin pillars of British architectural excellence, Norman Foster or Richard Rogers. Your taste in clothes might include home-grown designers like Paul Smith, Vivienne Westwood or Ozwald Boateng, even if your pocket can’t always stretch to them.

You may well spend your free time enjoying the performing arts in London or Edinburgh, or visiting one of Britain’s many antiques markets and dreaming of the day when you get to make that successful bid at Sotheby’s or Christie’s.

Most of us here tonight might not be active computer gamers, but I bet plenty of your children or grandchildren will be fans of British-designed games like Tomb Raider or Grand Theft Auto. You might share with those children a love of Harry Potter, even if you assure your friends that you stick to the works of Salman Rushdie, Martin Amis or Ian McEwan.

And your family viewing may be dominated by Wallace & Gromit, Doctor Who and The Office, or any other of the visual treats that the BBC, ITV, Sky and Virgin bring us. Film buffs might escape to the cinema to watch a host of British stars in films made at the famous studios at Elstree, Shepperton or Ealing.

Of course I could go on and on. But the point is that some of the biggest, brightest and most successful brands and talents in the creative world are British-based, British-born or British-bred. And as befits our open economy, you do not have to be British to enjoy them!

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Celebrating the creative industries

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So that is my small celebration of our creative industries.

What I want to explore is whether we’re giving them enough support and encouragement.

What else might they need to flourish? Do we even recognise many creative businesses as being proper businesses at all? Or do we think there is somehow something different about selling music or designer handbags compared to selling washing machines or travel insurance?

At some levels, I’m quite sure that there isn’t. This is also about jobs, tax receipts and profit and loss, just as with any other part of the commercial world.

As CEO of the Economist Group, my performance was measured on shareholder return and performance in a financial sense. But – and there is a but – it was always clear that the special way we would achieve that would be by producing truly excellent products and services – in that case focussed on truly excellent independent journalism, with integrity.

Some challenges facing the creative industries are unique. What links many of them is that growth of the digital environment I’ve already mentioned. The ways in which we consume and share the creative industries’ products is changing.

A world shaped by innovative companies like Google and Amazon undoubtedly brings with it massive and exciting opportunities. But, as is often the way, there are threats, too.

These industries are facing the dual pressures of structural change and cyclical downturn. For them to thrive, and to play their part in rebalancing the economy, we need to make sure government develops a coherent strategy to minimise those threats, and to get the environment for them right.

The first area to concentrate on is – piracy and protecting intellectual property.

Music and film piracy, online publishing rights, counterfeited goods and stolen designs are all  sources of concern. We need to act on copyright and protect ourselves. Why, for example, are we the only major country that continues to allow camcorders in cinemas?

Illegal downloads are perhaps the biggest problem of all. The government says some seven million people in the UK download illegally.[7] Industry sources suggest only one in twenty songs downloaded is actually paid for. [8] Six in ten music filesharers in the UK also illegally download films.[9]

High-speed broadband is great if people are downloading legally but bad news if they aren’t. The new generation of broadband access at 50 mega bits per second could allow the download of 200 MP3 music files in five minutes, a film in three and the complete digitised works of Charles Dickens in less than ten. [10]

There’s a disturbing acceptance of this, to the extent that for many people, it is simply the way they get hold of entertainment.

When Radiohead released its album In Rainbows, it decided to offer it for free, with contributions on a voluntary basis. Yet despite this, more people downloaded it illegally through file-sharing networks than did so from the band’s website. [11]

This may just have been habit, a result of familiarity with those networks. But it is clear evidence of a culture that needs to be challenged in order to ensure future viability.

Creative products of any sort can be expensive to produce. There’s a lot of misses for every hit. And if the hits produced are being stolen, then there’s no money to invest in the next wave of talent. The next Radiohead, the next Nick Park, the next J.K. Rowling, the next Russell T. Davies.[12]

Beyond film and the printed, spoken or sung word there are problems too. Counterfeiting designer goods is big business. And this is not just clumsily-produced goods with designers’ names misspelt and crooked logos. The mass sale of counterfeit goods online requires co-ordinated, international action. The taking down of 1200 websites selling counterfeit goods in the UK in the run up to the festive period last year was a good start[13] but the government needs to build on this if there is to be a bright future for our designers.

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We need a credible threat

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To deal with digital piracy, a credible threat is needed. It may come through the Digital Economy Bill. However, the issues are complex and finding a solution is not straightforward. We don not have the answers, but we do know that the solution is going to have to have three features.

It will have to be fair, enforceable, and future-proof.

That is, fair to content owners AND distributors. Enforceable, recognising that expectations in this area have changed and we can’t clog up the courts with this, and future-proof in that it is certain that, for example, tomorrow’s peer to peer will be very different from today’s, and there must be a democratic way to accommodate change.

Legislation is an important backstop, but ultimately what we need is innovation to deliver the services to customers that they want, to consume in an easy and accessible way. The second thing we have to get right is regulation. The regulatory environment the creative industries operate in needs to respond, then, to the new world. Traditional market definitions are changing.

For example, there is now more advertising in the UK [14]on the internet than on television, and this is something that will challenge the competition authorities.

We need to get a regulatory philosophy which will allow us to compete globally, and allows competition at the smallest entry level. Regulation is currently constrained by national definitions, rather than international ones which might be more appropriate.

The new digital environment likewise is reshaping boundaries and this new market needs to be recognised in competition policy.

The nature of many of the products created by people in this room means that they can be consumed across the world by anyone in any place simply by accessing the internet. In this environment not only do we now have access to international markets, so companies from other countries have access to UK consumers.

Overregulation of UK companies compared to foreign competitors will place British creative industries at a disadvantage.  Archie Norman, the new boss of ITV, recently said how frustrated he is with what he called the “inherited archaeology of regulation” in television, with structures such as contracts rights renewal, the mechanism that controls ITV1’s advertising rates, still in place.[15]

One good example is the debate about product placement. Here in the UK, it has been illegal to use product placement on television, even though much programming is bought from countries like the US where this is not the case. All this means is that the money from the product placement audiences see does not go to our programme makers, but to theirs.

I am glad to say that product placement should soon be allowed now that European rules have changed and we have opted in to the change.

We welcome the Ofcom statement that they are looking to see if there are justifiable reasons to keep advertising restrictions. If there is not a public interest reason for keeping them, they’ll get rid of them.[16]This overall presumption for deregulation unless there is a demonstrable issue that needs addressing is a very good one. I know you won’t want to hear about regulation all night, so let us move on!

The third thing the government must get right for the creative industries is tax

The way the creative industries are taxed makes a difference. For the government the top priority is to reduce the national deficit, and there is a broad point about tax competitiveness. We do not want to see further evidence of talent and jobs and their tax-raising potential being lost overseas, as many fear will happen in the financial sector as the 50p income tax rate kicks in next month.

The creative industries, like others that have people at their heart, need to think about the cost of employing staff. So the increase in employer National Insurance contributions due in April 2011 is the exact opposite of what is needed if we are to create new jobs as well as protect and enhance existing ones.

We should also look carefully at the impact that other countries’ policies are having on our creative industries. Canada has tax breaks for the computer games industry, recognising its potential for growth – and this is why it has overtaken the UK as the third-biggest games producer in the world.[17]

Here in the UK we do have film tax credits, and we are pleased that both main political parties have committed to their retention. France and Ireland have similar policies, and have enjoyed success as a result. The bigger point here is about recognising that tax matters for creative companies just as much as it does for the likes of pharmaceuticals and aerospace, not least in how they build intellectual property.

The CBI wants to see any future tax policy pass a test, which is: “Will it make the UK a more attractive place for businesses to invest in, develop and exploit IP?” We must have a stable and competitive tax framework if we are to incentivise IP development and exploitation. Change and uncertainty undermine the confidence of those making long- term investment decisions.

We currently have a strong research and development tax credit scheme. But other countries are fast catching up, and are becoming more innovative in how they set tax structures to encourage IP development. We need to keep up the pace!

So that’s piracy, regulation and tax.

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Access to finance

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For the creative industries to thrive they also need access to finance

Keeping to the subject of money, access to finance is a particular issue for the creative industries, dominated as they are by SMEs. Medium-sized companies have found access to finance particularly hard to come by, and there is no indication this is easing greatly.

On top of this, there are risk factors involved that are peculiar to the creative industries. Music, films and books are not seen as safe bets – and so don not attract investment from banks keen to reduce their exposure to risk.

The government’s Enterprise Finance Guarantee Scheme is meant to help alleviate this, but evidence on the ground from CBI members suggests this is not the case. To pick up on my earlier point, this is particularly damaging at a time when the traditional funding from within the industry is under threat as the music labels struggle under the onslaught of online piracy.

It is not all about money. Finance is not the only input the sector needs. Perhaps even more than any other, people are the creative industries’ greatest asset. And for the future the creative industries need skills. Skills gaps are a particular focus of the CBI’s work, and the biggest ones in recent times have been in science, technology, engineering and maths. We’re understandably concerned that the proportion of young people studying these STEM subjects has fallen in the last decade, and by more than for most of our OECD competitors. [18]

And the point here is that STEM skills are not just needed to ensure we have enough engineers or lab technicians. The ’T’ and the ’M’ of technology and maths are important to the creative industries, too.

The computer games industry needs technology graduates and mathematicians. As I mentioned, the UK has the fourth-largest such industry, and it needs good people to thrive and not slip further down the world rankings. [19]. The same needs apply to many parts of the design and architecture worlds. Companies like Benoy, Zaha Hadid Architects and Arup need good people too. We need vocational skills as well, for example in fashion, crafts and film. The Pinewood Studios Group relies not only on a supply of top-notch film scripts, directors, actors and producers, but also on skilled trades people such as carpenters and drapers to bring the sets to life.

And as with other parts of the skills debate, there needs to be a relentless focus on employability. Ordinary things like turning up on time and other lessons need to be taught earlier, at college or university, not left to employers, who get frustrated with new employees’ attitudes.

So it is a concern that the creative industries often lack adequate general business skills. I am loathe to mention creative accounting, especially with the play Enron enjoying a run in the West End, but a better understanding of even fairly basic financing methods, book-keeping and office management is needed if more ideas are going to be translated into products.

Here intellectual property is again a consideration. IP is the basic currency of creative companies, and we must make sure people leaving education with first-class creative ideas and skills know how to protect or commercialise them. Members tell us that IP is not part of creative or even most business courses. The IP Institute is attempting to change this and is speaking to business schools to try to get this included in their programmes.

Conclusion

So these are some of the strands that need to be pulled together. Better IP protection. Helpful regulation. Improved access to finance. A competitive tax regime. The right skills.

The recalibration of the UK economy and the building of robust business growth in the years ahead need our creative industries to play an active and increasing role. We want to see far greater recognition of the creative industries and their significance. More coherent strategies are needed to realise the huge potential out there.

I believe the creative industries are a serious, grown-up, dynamic and innovative part of the  British economy.

I believe that they’re a success story which all of us should be proud of, and the part they play in the economy is under-recognised. The CBI will call for recognition and will be doing all it can in the months and years ahead to tell this success story.

We will be a clear voice that can speak up for the whole sector whose diversity and breadth of activity is both a strength and sometimes a limitation. This is a critical part of UK plc that should and must be championed – must form part of the government’s plans for a more balanced economy.

So thank you all for listening to me tonight, and thank you to the Stationers’ Company for the opportunity to deliver your annual lecture. It’s been a great honour.

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HELEN ALEXANDER CBE

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Helen Anne Alexander CBE, was born on 10 February 1957. She was educated at St Paul’s Girls’ School, where she is now deputy chair of the Governors and chair of the Education Committee.

She obtained an MA from Hertford College, Oxford and became an Honorary Fellow in 2002. She obtained an MBA from INSEAD in 1984 and is currently chair of the Business Advisory Council of the Said Business School, Oxford University.

Helen began her publishing career at Gerald Duckworth and Faber & Faber. She moved to The Economist in 1985 as marketing manager. She became managing director of The Economist Intelligence Unit in 1993 and in 1997 became chief executive of The Economist Group. Helen was chief executive for 11 years until she stepped down in June 2008. She was awarded a CBE for services to publishing in 2004.

In addition to her experience at the helm of an international business, Helen also has extensive board experience across a range of sectors. She was a non-executive director at Northern Foods plc (1994-2002) and at BT plc (1998-2002). She is currently non-executive director and chair of the remuneration committee at Centrica plc (2003) and Rolls-Royce Group plc (2007).

In 2008, Helen became vice-president of the CBI and senior adviser to Bain Capital. Helen is also senior Trustee of the Tate Gallery and is married with three children

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[1](http://www.culture.gov.uk/what_we_do/creative_industries/default.aspx/ )

 

[2](http://www.culture.gov.uk/what_we_do/creative_industries/default.aspx/)

[3] and IPO (2009) The future: developing a copyright agenda for the 21

Century, )http://www.ipo.gov.uk/c-policy-consultation.pdf

[4] (NESTA (March 2009), Demanding Growth: why the UK needs a recovery plan based on growth and innovation,p.9, http://www.nesta.org.uk/library/documents/PP%2001%20020Demanding%20Growth%20print

[5] (Ibid p.13)

[6] (IPO (2009) The future: developing a copyright agenda for the 21  Century, http://www.ipo.gov.uk/c-policy-

consultation.pdf ; http://www.statistics.gov.uk/downloads/theme_economy/BB09.pdf

[7] http://news.bbc.co.uk/1/hi/technology/8073068.stm

[8] http://www.bis.gov.uk/the-future-of-the-creative-industries

[9] International Federation of the Phonographic Industry (2010), IFPI Digital Music Report 2010

[10] SABIP (May 2009) Copycats? Digital consumers in the online age

http://www.sabip.org.uk/home/press/press-release/press-release-20090529.htm

[11] http://www.independent.co.uk/arts-entertainment/music/news/radiohead-sales-show-fans-loyalty-to-

illegal-sites-884239.html

[12] Writer behind Queer as Folk and revitalised Doctor Who – http://en.wikipedia.org/wiki/Russell_T_Davies

[13] http://www.guardian.co.uk/money/2009/dec/03/police-shut-scam-shopping-websites

[14] http://www.guardian.co.uk/media/2009/sep/30/internet-biggest-uk-advertising-sector

[15] http://www.guardian.co.uk/media/2010/mar/03/bbc-cuts-itv-archie-norman

[16] http://www.ft.com/cms/s/0/f1ea0d6e-2696-11df-bd0c-00144feabdc0.html

[17] http://www.totalvideogames.com/TVG/news/PM-Praises-UK-Game-Industry-15010.html

[18] http://www.totalvideogames.com/TVG/news/PM-Praises-UK-Game-Industry-15010.html

[19] After the US, Japan and Canada – http://www.ukinvest.gov.uk/Feature/4032102/en-CA.html

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