Blog Post

Brexit and the UK creative industry

The creative sector is important for the UK in terms of employment and share of exports. However, it has mostly been overlooked in Brexit negotiation discussions, despite the fact that a hard Brexit could risk slowing down one of the UK's most consistently growing sectors over the last decades.

By: and Date: January 18, 2017 Topic: European Macroeconomics & Governance

UK Prime Minister Theresa has begun to set out her vision for Brexit. She was clear that the UK will be leaving the Single Market, but she also alluded to a possible sector-by-sector approach to trade negotiations with the EU.

Presumably this will focus on sectors of great economic relevance. The financial and automotive industries have already received much attention, and various sectors have been analysed. However, one key sector has so far slipped largely under the radar: the creative industries.

In this blog we show that the creative sector is important for the UK, in terms of both employment and share of exports. We compare the relevant numbers with those of the financial sector. The financial sector is already understood to be of crucial importance to the UK economy and vulnerable to the consequences of Brexit. But how important are the creative industries, and what Brexit risks do they face?

If the UK leaves the Single Market, we see three main “unknowns” that will define the impact on the UK creative sector. First, will it still be able to tap into foreign talent for employment purposes? Second, will it still be able to export as much as it has done, or will it lose access to EU markets? And third, will the creative sector still have access to European funds?

The creative sector is systemically relevant to the UK economy

The creative sector is defined in the UK Government’s 2001 Creative Industries Mapping Document as:

The formal definition is based on the UK Standard Industrial Classification (SIC) of 2007 and includes advertising and marketing activities, architecture, crafts, design, film, TV, radio and photography, IT, software and video games,  publishing, museums, galleries and libraries, music, performing and visual arts.

“those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property”

At the end of 2015 employment in creative industries represented about 7% of total UK employment, compared to 3.5% for the financial industry. Figure 1 below shows that the industry has grown constantly over the last 40 years, even during the years of the financial crisis that started in 2007. In fact, the creative sector is one of the fastest-growing sectors of the UK economy, as reported in the latest Brexit report from the Creative Industries Federation.

The creative sector also makes a large contribution to UK economic output. Its production, captured as gross value added (GVA), amounts to £84 bn per year in 2013. This is around 5% of the UK’s total GVA, and the share is growing (figure 2). In this case, the financial sector industry is larger, producing about 8% of UK total GVA. That finance generates a greater proportion of GVA, despite employing far fewer workers, shows the large differences in remuneration between the sectors.

The creative sector is also a major exporter. Figure 3 shows that the creative industries accounted for 17% of total service exports in 2012, the last year for which we have data. The corresponding number for the financial industry is considerably higher at 46%.

Both the creative and financial sectors are intensive exporters: a considerable amount of what is produced in the UK is exported. Figure 4 shows that in 2012, exports accounted for 24% of the creative sector’s total GVA, while the financial industry exported 43% of its GVA. Both sectors are much more export-oriented than the service sector as a whole. It thus follows that a “hard Brexit” which is not accompanied by a good trade agreement, at least for these two sectors, will have adverse implications for their economic output and employment generation.

The unknowns: employment, exports and funding

Based on the last Brexit report from the Creative Industries Federation, 6.1% of the creative sector’s workforce is EU nationals, which is similar to the 6% level of EU nationals employed in the financial industry, and the 6.6% share of EU nationals in the workforce as a whole. A further 5% of the creative industry workforce originates from outside the European Economic Area.

As the report shows, businesses are already reporting an impact on recruitment. Successful candidates from the EU are turning down job offers because of uncertainty over their future status in the UK. There is a real risk that businesses dependent on non-UK workers will relocate operations if changes to UK visa laws restrict recruitment.

This risk is compounded by the potential loss of easy access to EU markets. The EU is as an important destination for UK creative sector exports, with just under half of the industry exports going to the EU. Multinationals are especially likely to shift production, which could bring significant losses to GVA and jobs in the UK creative industries.

For example, after a hard Brexit an advertising and marketing company might find itself unable to employ a talented designer from Spain. It could also face tariffs when exporting its services to Germany. Lower quality and higher prices are both a risk to that company’s ability to win business, and this may lead it to slow expansion or scale back employment. As the Creative Industries Council reports, “UK advertising and marketing created £13.3bn of Gross Value Added (GVA) in 2014 – up from £8.35bn in 2008”.

Access to EU funding is another question for the UK creative sector. European programmes like Creative Europe and Horizon 2020 have played a significant role in encouraging UK creative companies to export. Indeed, they have represented an important overall source of finance for the industry in recent years.

Britain has been a major recipient of EU funding both from designated culture schemes and general funds for regional and social development, innovation and business support. The UK was one of the main beneficiaries of funding through Creative Europe, and it is second only to Germany in the amount it receives from Horizon 2020 (an £80bn pot of research and innovation funding). It seems probable that a hard Brexit would deprive the UK creative industries of this funding, affecting the viability of investments and employment.

Conclusion

The Creative Industries Federation expressed concerns about the effects that Brexit may have on the ability of the UK creative sector to produce and grow. Our analysis shows that the impact on employment, exports and the sector’s funding for growth might be significant. In effect, a hard Brexit risks slowing down one of the UK’s most consistently growing sectors over the last decades.

Indeed, the sector appears remarkably in agreement in fearing Brexit. 96% of the Federation’s members voted to support the remain campaign in a survey run prior to the referendum.

Prime Minister May’s speech pointed in the direction of a hard Brexit, favouring controls on immigration over trade and investment. If such a vision becomes reality, there will be an impact on the UK creative sector and its ability to create welfare. However, if there is to be a sector-by-sector approach to EU-UK trade arrangements, then the creative industries have a strong case to be on the government’s radar.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic

Blog Post

Why a good Brexit outcome matters (and it’s not just the economy, stupid!)

Uncertainty still reigns over the future shape of the EU-UK relationship, as Brexit negotiations rumble on. Though the two parties are parting ways, a more cooperative approach from both would greatly improve the longer-term economic and political prospects for all concerned

By: Maria Demertzis and Nicola Viegi Topic: European Macroeconomics & Governance Date: February 22, 2018
Read article More on this topic More by this author

Podcast

Podcast

Brexit consequences for EU climate and energy policy

Bruegel fellow Georg Zachmann joins Richard Tol, professor in the Department of Economics at the University of Sussex, and Pieter-Willem Lemmens, head of analysis at the climate policy think-tank Sandbag, for this episode of 'The Sound of Economics', to discuss the impact of Brexit on climate and energy policy in the European Union.

By: The Sound of Economics Topic: Energy & Climate Date: February 15, 2018
Read article More on this topic More by this author

Podcast

Podcast

European Parliament: More representative post-Brexit?

Bruegel director Guntram Wolff features in this episode of 'The Sound of Economics', highlighting how a reallocation of seats in the European Parliament following Brexit provides the opportunity to make the institution more representative of EU citizens.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: February 5, 2018
Read article More on this topic More by this author

Blog Post

Difficulties and opportunities in reallocating European Parliament seats after Brexit

The European Parliament must carefully consider the reallocation of seats after Brexit, allowing for a potential shift in political alignment and working within parameters already agreed with Member States.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 5, 2018
Read article More on this topic

Blog Post

Does the European Parliament miss an opportunity to reform after Brexit?

While Brexit negotiations are beginning to progress, the European Parliament is preparing to vote on the possible reallocation of seats following the UK's departure. With many of the current proposals reflecting Member States' concerns about losing seats, this paper advocates for options that could better achieve equality of representation even within the constraints of the EU treaties.

By: Robert Kalcik, Nicolas Moës and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: January 10, 2018
Read article More on this topic More by this author

Opinion

Opportunities and risks in Europe in 2018

The new year could very well see the positive story of 2017 continue in Europe – but a number of looming policy and political problems cannot be ignored.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: December 30, 2017
Read article Download PDF

External Publication

European Parliament

The Impact of Brexit on the EU Energy System

What will be the impact of Brexit on the EU energy system? With or without the UK, the EU will be able to complete its market, to achieve its climate and energy targets with feasible readjustments, and to maintain supply security

By: Gustav Fredriksson, Alexander Roth, Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, European Parliament, Testimonies Date: December 19, 2017
Read article More on this topic More by this author

Blog Post

Optimistic UK business confidence indicators predict smooth Brexit

UK business confidence indicators hardly fell after the Brexit vote in 2016 and have been increasing steadily since. The most likely reason is an expectation of smooth Brexit deal, especially for industry, while there is more uncertainty for services.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 19, 2017
Read article More on this topic

Blog Post

Brexit, phase two (and beyond): The future of the EU-UK relationship

Whether it looks more like ‘CETA-plus’ or ‘EEA-minus’, the trade deal that emerges from phase two of the Brexit negotiations should not be the limit of ambition for future partnership between the EU and the UK

By: Maria Demertzis and André Sapir Topic: European Macroeconomics & Governance Date: December 13, 2017
Read about event More on this topic

Past Event

Past Event

The impact of Brexit for Research & Innovation in Europe

This event featured a new and interactive format, with a restricted and high-level on-site audience and in parallel, it has been livestreamed on our website to remain public and attract the widest participation.

Speakers: Alastair Buchan, Matt Dann, David Earnshaw, Kurt Deketelaere, Maryline Fiaschi, Martin Muller, Christian Naczinsky and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 12, 2017
Read article More on this topic More by this author

Opinion

Brexit: When the banks leave

More than a tenth of the City’s business is now bound to go, but how much worse could things get?

By: Nicolas Véron Topic: Finance & Financial Regulation Date: December 1, 2017
Read article More by this author

Blog Post

The impact of Brexit on the Irish energy system – pragmatism vs. principles

Brexit promises pain for Ireland that could be cut off from the EU internal market and be left exposed to market instability in the UK. Georg Zachmann assesses the scale of the possible damage for Ireland, and how the UK and EU might use the special energy relations on the Irish island to commit to a pragmatic solution.

By: Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance Date: November 21, 2017
Load more posts