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

Blog Post

India’s trade ties with the UK and EU

As EU and Indian leaders meet in Delhi, we look at the figures on trade. The UK’s place in the relationship warrants special attention. EU-India trade has more than tripled since 2000, but UK-India trade is largely static. The shift is especially noticeable for EU exports to India, where the UK share has dropped from 29% to 10%.

By: Maria Demertzis and Alexander Roth Topic: European Macroeconomics & Governance, Global Economics & Governance Date: October 6, 2017
Read article More on this topic

Blog Post

Can roaming be saved after Brexit?

The referendum where UK voters chose to exit the European Union has many unanticipated consequences. One that is gaining visibility in the UK just now is the impact of Brexit on mobile roaming arrangements. How might the UK maintain roaming arrangements with the EU in the event of a hard Brexit?

By: J. Scott Marcus and Robert G. Clarke Topic: Innovation & Competition Policy Date: September 21, 2017
Read article Download PDF More by this author

Policy Contribution

Dutch Senate

Europe’s fourfold union: Updating the 2012 vision

The depiction of the euro area/European Union (EU) as a ‘fourfold union’ emerged in the first half of 2012 at the height of the euro-area crisis. In the past half-decade, Europe’s financial union has been significantly strengthened but remains incomplete and is challenged by Brexit. No consensus has been found on fiscal union and economic union has not made material progress, but political union might have advanced further than many observers realize.

By: Nicolas Véron Topic: Dutch Senate, European Macroeconomics & Governance, Finance & Financial Regulation, Testimonies Date: September 21, 2017
Read article Download PDF More on this topic

External Publication

Review of EU-third country cooperation on policies falling within the ITRE domain in relation to Brexit

What is the possible future relationship between the EU and the UK in light of Brexit? The report provides a critical assessment of the implications of existing models of cooperation between third countries and the European Union on energy, electronic communications, research policy and small business policy.

By: J. Scott Marcus, Georgios Petropoulos, André Sapir, Simone Tagliapietra, Alessio Terzi, Reinhilde Veugelers and Georg Zachmann Topic: European Macroeconomics & Governance Date: July 5, 2017
Read article More on this topic

Blog Post

Can EU actors keep using common law after Brexit?

English common law is the choice of law for financial contracts, even for parties in EU members with civil law systems. This creates a lucrative legal sector in the UK, but Brexit could make UK court decisions difficult to enforce in the EU. Parties will be able to continue using English common law after Brexit, but how will these contracts be enforced? Some continental courts are preparing to make judicial decisions on common law cases in the English language.

By: Uuriintuya Batsaikhan and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: June 22, 2017
Read article More by this author

Parliamentary Testimony

House of Commons

Exiting the European Union Committee

On 19 April 2017 Zsolt Darvas appeared as a witness at the Exiting the European Union Committee, the House of Commons, United Kingdom.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, House of Commons, Testimonies Date: June 20, 2017
Read article More on this topic More by this author

Blog Post

Brexit and the future of the Irish border

The future of the Irish land border has been thrown into uncertainty by Brexit. The UK's confirmation that it will leave the EU's single market and customs union implies that customs checks will be needed. However, there is little desire for hard controls from any of the parties involved. This is especially true for Theresa May's potential partner, the DUP. Creative solutions are needed to reach a solution.

By: Filippo Biondi Topic: European Macroeconomics & Governance Date: June 19, 2017
Read about event More on this topic

Past Event

Past Event

Substance requirements for financial firms moving out from the UK

In the run-up to Brexit, UK-based financial firms are considering how to organize their operations across the future divide between the UK and EU27. This event will discuss the regulatory requirements on how self-sustaining the operations in the EU should be, and implications for the single market and third countries.

Speakers: Gerry Cross, Simon Gleeson and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 2, 2017
Read article More by this author

Blog Post

Pharmaceutical industry at risk from Brexit

Pharmaceuticals are a hugely important industry for the EU and the UK. The sector creates thousands of jobs, billions of euros in exports, and is Europe’s most research-intense industry. But will Brexit mean for pharma? Border delays, disruption to R&D and regulatory divergence all pose hazards.

By: Jianwei Xu Topic: European Macroeconomics & Governance Date: May 31, 2017
Read article More on this topic

Blog Post

UK economic performance post-Brexit

What’s at stake: Almost a year after the UK voted to leave the European Union, its economic performance has showed mixed results. The risks of a Brexit-induced recession do not seem to be materialising. On the contrary, up until the end of 2016 the UK saw a continuation of strong consumer spending and strong output in consumer-focused activities. However, the UK economy is showing signs of slowing down in the first quarter of 2017, with weak growth in the services sector and business investments. In addition, strong consumption growth started to cool down as individuals’ purchasing power declines due to a weaker exchange rate. This leads to a question whether it is the beginning of the Brexit slowdown. We review the contributions made on this topic in the last year.

By: Uuriintuya Batsaikhan and Justine Feliu Topic: European Macroeconomics & Governance Date: May 15, 2017
Read article More on this topic More by this author

Blog Post

International arbitration is the way to settle the UK’s Brexit bill

The UK-EU financial settlement risks becoming a toxic stumbling block in Brexit negotiations. But there are actually much more important issues to discuss. To diffuse the issue, both sides should agree to independent international arbitration.

By: André Sapir Topic: European Macroeconomics & Governance Date: May 11, 2017
Read article More on this topic More by this author

Opinion

Brexit will change millions of lives. Our leaders must do more than posture

From the land border with Ireland to expats’ pension rights, there is much to negotiate.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 8, 2017
Load more posts