Written evidence submitted by Culture East Sussex
DCMS Call for Evidence Covid 19 Response
Compiled on behalf of Culture East Sussex by East Sussex County Council.
Culture East Sussex is a sub group of Team East Sussex, the federated LEP and is a Cultural Education Partnership. It brings together cultural businesses, local authorities, public health, police, LEPs and inward investment organisations.
Main point of contact: Sally Staples
Cultural Destinations/Festivals/Venues/Touring companies
Covid 19’s impact for that part of the cultural sector reliant on the tourism, service and leisure sectors was felt in advance of other parts of the economy. Audiences began to retreat, seeking refunds and not making future bookings, weeks before the official lockdown began. This means that these businesses began to experience financial hardship earlier than most and have been experiencing financial strain for longest.
Most businesses operate on narrow financial margins and commit to future costs far in advance. Any pausing of business does not mean an instant ability to cease all expenditure as costs often relate to expenditure to other small businesses (eg marquee hire) or freelancers (eg performers, educators, artists, web and marketing design). Reneging on contracts has further detrimental impact – felt instantly in the case of freelancers.
Most businesses in this category predict insolvency by June . If furloughing is not extended beyond June they will become insolvent.
Many of these businesses have collections to protect - environmentally controlled storage of artefacts, galleries and rooms in historic houses to monitor, representing an ongoing cost both in utilities but also in terms of staffing. They are custodians of the nation’s history, they cannot just turn out the lights and go home. Furloughing has meant that maintaining environmental controls, cleaning and security have suffered and it is unclear if insurance policies are voided by the change in circumstances.
Case Study: Farleys House & Gallery Ltd (FHGLtd)
FHGLtd was the home of Lee Miller (WW2 photographer) and Roland Penrose (surrealist painter). It operates as a visitor attraction in the summer months and year-round tours Lee Miller’s work internationally as well as managing the IP rights of the collection. Not only has FHGLtd lost all income from having to close as a visitor attraction ( 1/3 of annual turnover, essential for creating a reserve to carry the business through winter closure) but just under 1/3 of FHGLtd other business is working with public museums in Europe and the USA to provide them with exhibition loans and materials. Most of FHGLtds loans committed this year have been postponed to later in the year, 2021 or 2022. Other exhibitions that were due to go out in 2021 or 2022 have been cancelled. FHGLTd has already invested up to 3 years work into these bookings and cannot recoup those losses. Preliminary work is pre-contract leading to a loss of £100,000 worth of income associated with these. These fees usually go towards the care, insurance and storage of the archives and collection.
The image licensing and publishing sector of the business is also struggling. The only income that FHGLtd currently has is online merchandise sales, a few exhibition loans and picture library licenses which is achieving only approx. 20% of usual revenue.
The house season is April – October so 15+ part-time guides and assistants (who are mostly artists and arts/cultural sector-based freelancers that work for Farleys to supplement their income) are not eligible for the government furlough scheme. Several of them also do not earn enough to receive freelance assistance.
Micro SMEs like FHGLtd with a turnover of only £330k are expected to have the functionality, resources and reserves of larger businesses. Those in the arts sector that are not usually in receipt of public funding are at a disadvantage when it comes to writing ACE funding bids as no guidance is available.
The only assistance received so far is the small business rate based grant of £10k for Farleys House. They have applied for scheme 2a’s grant for the gallery/café but have yet to find out if successful. They have applied for £35k from ACE for core funding and a small amount towards creating a patron scheme but even if successful with all of this (along with the furloughing scheme) it will only keep the organisation afloat to November at best. If furloughing is not possible after June FHGLtd will have to lay off staff. Current cash flow predicts a deficit of £200k by March 2021.To get through winter, they will need further financial assistance.
FHGLtd expects to be feeling the financial impact until at least 2022 as the exhibitions program is hit for that year. FHGs business model allows for one third (one of its three strands of operation) of its trading to have a bad year but not three quarters of it.
Freelancers and SMES
This is a sector that works as a network, so when the network is damaged it has reverberations across it. The immediate loss of work has had an impact across the network and some of the individual freelancers have been hit hardest as they have no job security, and few have insurance to protect them from this type of event.
The impact on freelancers and SMEs has been significant and immediate - with work cancelled or put on hold, and questions over where any new work will come from. Freelancers have lost income immediately as events are cancelled and are left with the longest wait to secure income support. There is great uncertainly and upset.
A large section of the volunteer workforce is in the older age bracket and were amongst the earliest to choose to self-isolate leaving organisation with immediate reduced capacity.
Children and Young People
In normal circumstances the sector plays a pivotal role in tackling the equalities gap for children and young people across a wide range of domains, principally education, public health, social care and skills. The sudden forced closure of venues and the furloughing of key learning and participation personnel (total loss of freelance workforce), has impacted massively on delivery for vulnerable children and young people.
There will be less money circulating in the economy as businesses recover and so discretionary spend on culture will be reduced. This in turn will impact on High Street footfall, visitor, retail and the night-time economy.
Local authorities (key supporters of culture) have also seen their budgets significantly affected with reduced income, increasing costs, and savings targets not achieved.
A lot of creative content went online rapidly and the cultural organisations have looked to be supportive of each other. New responses have been set up eg Towner Gallery sending out art supplies to disadvantaged groups, Hastings Isolation Station, etc but it is important to note that this is all being delivered through good will.
An initial rush to move business “online” has been temper by the challenges this presents and the competition in the “virtual” space. For some, the time in lockdown may allow for planning for a “post-Virus” world but uncertainty over the timescale makes some nervous of this approach.
The celebrated and well covered upsurge in cultural participation (reading, dancing, singing etc) reinforces that cultural activity is essential to our core welfare and lends resilience in testing times.
In the period just before lockdown when COBR advice was for the public to stay away from public places, businesses were left floundering, not instructed to close and yet with their audience instructed not to visit them. The announcement to close public venues needed to come hand in hand with the advice to the public. Even if this did not make it possible for businesses to claim on insurance it would at least have removed an unnecessary period of uncertainty.
Recognising the importance of the freelance economy to East Sussex and to SELEP as a whole, we had been supporting start-ups. These have now fallen through the net which will affect the creative pipeline on new business growth. SMEs are currently furloughing staff but know they have no order book so will be making those staff redundant once furloughing ends.
Freelancers have been poorly served: the scheme does not cover those with less than one year’s trading history (these are harder to evidence due to no tax return to base assumptions on). Many will not be entitled to access the Government’s scheme for the self-employed covering income/costs of up to £2,500 per month from 1 March 2020 to 1 June 2020. Freelancer are ineligible if they do not earn enough from self-employment or they declare for example income from other sources e.g. renting part of a property alongside their other self-employed earnings. If this constitutes over 50% of their declared income they do not benefit from the scheme. They are ineligible if they earn more than the £50,000 threshold; or only started out working for themselves within the past year and therefore missing the threshold to prove their past income to receive wage subsidies.
Some grant programmes have not responded to the current issues but carried on as normal. Government grants expect freelancers to wait until June for payment, when cashflow is a major issue for many and too many fall through the net due to the conditions set out. E.g. Directors of Ltd Companies cannot furlough themselves if they are trying to save the business, also if they claim just dividends then they are ineligible to apply.
The speed in which ACE, HLF and CIF responded was excellent, they have done so without additional Government funding and should be applauded for that. The process for applying has been quick and simple. Conversely, the reallocation of Arts Council grants to support organisations will have a knock on effect to new projects in the future.
Current grants are focused on the next 6 months but what happens beyond this?
The South East LEP’s South East Creatives business support programme is currently continuing with “business as usual” (within reason). The Workshop and Mentoring offer has moved online and there seems to be a positive uptake.
The Grants offered continues to attract interest. Some see the current situation as an opportunity (for example, digital businesses or those wanting to move online) and the South East Creatives Grants as a way of funding this business growth. For others, whilst SEC Grants are attractive, they are concerned about making an investment in their business when cashflow remains uncertain.
The Programme is signposting to the various support being offered by central and local government. The impression is that whilst businesses found the wealth of information and offers from government initially confusing, it is becoming better understood.
3. What will the likely long-term impacts of Covid-19 be on the sector, and what support is needed to deal with those?
Impact: Cultural Destinations
As we start to plan for assumed phased lifting of lockdown, businesses who rely on visitors will want to advertise and attract footfall, particularly targeting a London market which will be eager to escape the city. But, judging by other destinations (eg: South West) this may well run contrary to the desires of local residents and may be of concern to the emergency services.
Without these key visitor destinations operating, overall visitor footfall will drop (even after social distancing is relaxed) impacting on supply chain of bed space, hospitality, food and drink suppliers, cleaning companies, transport (eg taxis/hairdressers/florists for Glyndebourne).
China’s theatres have reopened at 50% capacity but this is not a viable proposition financially.
Destinations and event organisations (festivals) rely on the visitor season (Easter to October half term) to earn reserves which see them through the leaner winter months (in some cases partial or total closure). So whilst the immediate financial help may keep businesses afloat to the autumn, they will need significant help over the winter months in order to start to rebuild in summer 2021, assuming that restrictions have been lifted by then.
Businesses with charitable governance models rely on philanthropists and grant funding bodies – many of which are equally in trouble.
Longer term some of the shift to on line may well continue and so how do we persuade viewers/audiences to pay for on line content?
People have become accustomed to not spending and this trend may well continue, particularly as they seek to recover financially from the crisis.
Impact: SMEs and Freelancers
CCI has very high proportion of SME’s who we know will be hardest hit by this. European wide 50% cultural organisations expect a 10-20% loss of revenue and the rest expect 20%+ loss (European creative business network).
The huge army of freelancers that cultural organisations support are without income, often there is a mutually beneficial relationship where freelancers have zero hours contracts (eg a musician working behind the bar at the De La Warr Pavilion). All those contracts are now on hold.
For freelancers and SMEs in the cultural sector dependent on project work from larger arts and cultural organisations, there are many possible impacts. These organisations may not be able to commission new projects, or they may not even exist in their current form. For artists and makers who depend on the visitor economy (particularly in the seaside towns), there is the possibility of little (if any) tourism in summer 2020. Income will be negatively impacted. Even if the business survives, the galleries or shops that stocked their work or the pubs that hosted their gigs may not be there in 2021.
Some digital companies are excited about the possibilities this brings for cultural output but also how this influences how all industries will operate in the future with a new dependence on digitised options. TV production companies are looking at low-fi style of content creation- already being seen for Ads on TV but film and theatre/music/live performance of scale all concerned due to potential restrictions around mass gatherings and public trust.
There are bigger questions about the role of creative businesses not just in the Creative Economy but the innovation, creativity and sustainability they offer to the wider economy.
In East Sussex many freelancers and small businesses earn the majority of their income from London based companies or internationally. The supply chain beyond our County has been affected so what opportunities are there to create work locally?
Impact: Cultural engagement for children and young people
School and CYP provider closures has removed the primary gateway for the sector’s cultural education delivery. In the longer term and as the lockdown eases, it is likely that:
Flexible funding arrangements: whilst we recognise and are grateful for the flexibility shown by Arts Council England, Heritage Lottery Fund and other funding and charitable bodies we believe there are further flexibilities to be negotiated with BEIS (LEP based funding sources – particularly with regard to loan repayment agreements) and MHCLG ERDF funding – we are seeking amongst other measures:
• What lessons can be learnt from how DCMS, arms-length bodies and the sector have deal with Covid-19?
Understand the make-up and structure of the sector better: 40-50% are freelance therefore put freelancers in the heart of the response. Ensure data informs future responses to a crisis. The sector had been fighting underinvestment and living hand to mouth with little in the way of reserves. Infrastructure is poor, lack of workspace, lack of investment in buildings, fragile labour market means the sector is fragmented and less than resilient. Let us use this crisis to plan for a more resilient sector for the future.
The flow of information needed managing, with identification of central information points. In the early stages information was chaotic and added to the stress for businesses already in meltdown.
Exit strategy: an indication of the possible phases of an exit strategy, even without a timeline, would allow for business modelling and predictions.
• How might the sector evolve after Covid-19, and how can DCMS support such innovation to deal with future challenges?