Brexit and the Future of Finance
On 24 October, Animation UK and CMC teamed up for the ‘Be Ready for Brexit’ event in London, to help the animation and kids’ content TV and digital production communities learn about and discuss the implications of Brexit on their businesses – whether the UK exits the European Union with or without a deal.
At the time of the event, 31 October was still looming as the deadline for the UK’s withdrawal agreement to be ratified – and a no-deal crash-out if it were not. Since then, however, the UK’s request for an extension to 31 January has been approved by the EU, pushing back that deadline.
The second session at the event explored the future of finance, with a panel including Liz Brion, head of media tax at Grant Thornton; Alison Warner, MD of Blue Zoo Rights; and Huw Walters, director of Industry Media. Anna Mansi, Head of Certification at the BFI was unable to be present due to illness The moderator was journalist Kate Bulkley.
The session began with a discussion of Brexit’s implications for the cultural test that productions must pass, in order to qualify for tax reliefs in the UK – based on aspects including the cultural contribution of the project; the content itself; where it’s been made; and who’s working on it.
Liz Brion explained that one important change has already been made: to wording in the cultural test that refers merely to citizens and residents of the European Economic Area (EEA), with productions gaining points towards passing the test for staff who are from the EEA.
“The problem comes that if there is a no-deal Brexit, at that point, we will cease to be EEA citizens. Which would mean, bizarrely, that you could have a project that was wholly staffed from the UK, and if you had to claim points as a result of the UK people involved in that project, you wouldn’t be able to claim points for them, because we’re not EEA residents!” said Brion. Thankfully, the wording has already been tweaked to avoid that situation.
Brion also said that the UK tax credit position for British companies is not under threat. “A lot of Brexit is doom and gloom, but this is a good news story in terms of the tax credit,” she said. “The UK tax credit is enshrined in UK tax legislation, and there isn’t going to be a change of that… Should there be a no-deal, my understanding is that the state aid will then be administered by our Competition and Markets Authority, so essentially there won’t be any difference.”
The conversation moved on to whether British producers and animation companies’ efforts to forge co-productions with European counterparts may be hit by the uncertainty around what form Brexit will take. Alison Warner offered an optimistic view, pointing out that finance is not the only driver for co-productions: it’s also about the talent, and the fit between different producers’ capabilities.
“Producers out of Europe, out of Canada, Australia, still reckon that the UK is a creative hub. They want to come to us because of our writing, because of the fact that we animate brilliantly, we have fantastic broadcast platforms… the desire for us all to work together is still there,” she said. “I think there is an ability to be creative.” That even extends to some firms opening offices in Dublin, to prepare for the various post-Brexit scenarios.
Liz Brion noted that it’s the uncertainty that’s the biggest challenge. “Some other sectors actually are impacted arguably far more than the creative industries, particularly those sectors that import and export to a large degree. they’ve obviously had to put proprietary steps in place in the event of a no-deal,” she said. “However, there is still an impact, and I think it’s just the continuing uncertainty… everyone would love to just have some clarity to be able to move forward.” She also suggested that scrambling to set up shop in Dublin is “quite an extreme move, unless you’ve got a good commercial rationale for needing to do that anyway”.
In terms of tax reliefs for British companies, Brion counselled that Brexit is not the only thing that could change the current situation. “There could be a change of government, and that probably poses the next biggest question mark in terms of continuation of the tax reliefs that are available,” she said – speaking before the confirmation that the UK will hold a general election on 12 December. Brion is hopeful that, with successive recent governments having shown their commitment to the creative industries, and with “evidence coming through of the difference that this industry is making in terms of GDP… if it’s a force for good, why should there be a change?”
Huw Walters talked about another possible (positive) effect from Brexit: that the UK government might have even more freedom in terms of providing state-aid to individual industries.
“State aid is a double-edged sword, potentially. I think a lot of UK funding initiatives have been hampered by [EU] state-aid rules in the past. I can think of several examples where public authorities in the UK have been probably over-keen to be compliant compared to entrepreneurial attitudes in some European countries – particularly west of Great Britain!” he said. “Even without those state-aid restrictions within the EU, there are still World Trade Organisation rules that you have to abide by. And although they’re not as restrictive as EU state-aid rules, they’re still there. You can’t suddenly create a wild west, just because you’re not part of the EU.”
The panel were asked whether there are other opportunities that might come with a no-deal Brexit, but they expressed scepticism about the prospect. “My personal view is that the disruption caused by a no-deal will probably far outweigh any benefits that might be there,” said Brion. “At least in a deal scenario, there is that in-built flexibility, and I think more importantly it’s almost a psychology of working with the other partners in the EU, as opposed to a no-deal scenario.”
The panel scotched some myths: for example, around the EU’s Audio Visual Media Services Directive (AVMSD), and its definition of ‘European works’ – with broadcasters in the EU under obligations to make those works a certain percentage (often 50%) of their output. By exiting the EU, will the UK be putting its producers at risk of not qualifying as ‘European’ works?
Huw Walters sought to reassure, noting that the UK is a party to the European Convention on Transfrontier Television (ECTT), which does not depend on EU membership. “Even if UK production companies aren’t in the EU, the definition of European Works will continue to apply,” he said. “There appear to be very few risks to UK producers in either a no-deal or a negotiated settlement… The fact that it’s not going to change the status quo as far as the ECTT is concerned is clearly a positive thing for UK producers.”
Co-productions were high on the panel’s agenda. Huw Walters pointed to the UK’s existing bilateral co-production treaties with countries including Australia, Brazil, Canada, China, India, New Zealand and South Africa, none of which are dependent on EU membership, and pointed out that there are a lot of different ways to structure a co-production nowadays, which are not even treaty-dependent. Warner agreed, and said that one of the main challenges is not Brexit-related, but rather one of information: “We need to make sure there is more communication, and that people recognise who the production companies are in the UK and what their skillset is,” she said. It’s a case of saying: “We’re here, we’re open, we’re available for business. This is what we do, and this is how we can fit with what you guys do. And that is much more down to the creative process, the production process, the pipeline. And of course finance is a very integral part of it, but it’s all those other elements that we need to think about.”