Written evidence submitted by Felixstowe Spa Pavilion Theatre

 

 

Background and Executive Summary

 

We are a completely unsubsidized 900 seat seafront theatre in a small (pop.25,000) town in Suffolk. With much larger and better funded theatres in Ipswich (around 10 miles distant), unafraid to compete with us by putting tours on to a contract that prevents them from also visiting us and able to financially out-bid us due to their subsidy, our challenges were already substantial.

 

We therefore consider that the Covid-19 interruption to our business, and the associated damage to us and the industry, should be dealt with by a complete re-structure of all theatre and arts funding in the UK. Our view is that it will be many months and probably years before theatre-going returns to previous levels, and that only a total re-think of the way that the arts is funded will provide existing buildings and production companies with the means to survive, while also ensuring that the equality of provision, including the ability to create new buildings and save old ones, remains unaffected and perhaps even improves.

 

Our contention is that the current system creates dependency on state funding, acts a barrier to entry to the market (for example the Arts Council declined to even discuss any financial support for us because they already fund an organization in a neighboring town), distorts competition leading to unfair competition and illegal use of state subsidy, and is not fit for purpose generally. It is especially unfit for purpose in the current climate, as it will simply further entrench the existing disadvantages of the system.

 

In short, as an independent and completely unsupported David, against the huge Goliath that is state-funded arts provision, I think we have moved too far away from a system which ensures wide access to the arts, to one which simply entrenches the privileged and, frankly, makes them inefficient and unresponsive to the needs of their communities. That is obviously controversial, but also, I believe, accurate.

 

 

How well has the government support helped us during the crisis?

 

The coronavirus crisis brought our income to an abrupt halt. With around 30 staff, and income from café and bars as well as theatre, we had only just become financially sustainable after growing slowly for 5 years. Now we are trying to work out how we are to survive without taking on so much debt that even if we do re-open we won’t last a year afterwards.

 

The Arts Council announced huge lumps of cash for its ‘favourites’, ie NPO’s and other funded organisations, and it also announced a fund for others, but those others were limited to other bodies providing publicly-funded arts, therefore excluding us. When we opened in 2015 we had some discussions with the Arts Council, in the form of a short exchange of email, about how we might secure their support to our attempt at re-establishing live theatre in our town, but the answer was to the point and definitive. Go away, we’re not interested. And now we see their emergency funding being hoovered up by what we consider to be ‘rich’ organisations, we think that the time has come to reinvent the entire system.

 

We did get a £25k grant, but that is less than a week’s income for us. Our insurer will not pay out for our event cancellation or business interruption cover, as we did not have an ‘insurable event’ on our premises. So although we thought we had been prudent, and had everything covered, we did not have Covid covered. The only other help currently available is loans, and as we make hardly any profit, these will simply ensure our failure further in the future even if we are able to get one.

 

Therefore as it stands, the help has been almost non-existent. We have had to furlough all staff, but this simply prevents us from doing anything at all. The retention scheme was clearly better for the staff than unpaid leave or redundancy, but for us, it made little difference, except that we may have staff available for us when we are allowed to re-open. However, if we do not re-open with proper financial support, or if the retention scheme ends before our income is restored, it will have been a total waste of time, as the staff will end up with jobs anyway.

 

What is wrong with the current structure?

 

The question we keep asking ourselves, with no particular theatre in mind, is why should a 500 seat building have funding each year equivalent to all of it’s overheads and staff costs, and effectively to enable it to lose money of performance art, to then need yet more funding when the performances are stopped by the virus? It makes no sense to us on any level.

 

Most producing houses should be better off, instead many of them are talking about how they will need to move into yet more receiving, especially of live comedy and music one night stands, of the type upon which we depend for survival. Surely they should not be allowed to do this, at all even without the crisis, and especially not to increase their activity in this area when times are hard. We’re continually struggling to get the 70/30 or better that we need to survive pitching against well-funded venues just up the road able to exist on a far smaller slice of the take. According to my understanding of competition law that is just plain illegal.

 

It is of course much wider than just the Arts Council, and in my definition of state funding and support I include the system of business rate relief, the VAT advantages still available to some theatres, the provision of low cost or free buildings and staff and the actual handing over of hard cash. I have worked in several subsidized businesses, and in other publicly-funded and government bodies.

 

This isn’t any political aversion to state funding, nor is it based on any thought that we shouldn’t subsidise live performance art in all of its various forms to ensure that it is widely available and affordable for the majority of the population. In fact it is quite the opposite. We’re very pro state subsidy for things which are culturally desirable yet are not commercially viable, but also aware that if we’re not careful wanton subsidy distorts competition or even whole markets. That is what we see happening in the arts right now, made far worse by this crisis, where the favourites are looked after and the outsiders are left to rot.

 

This isn’t a whinge from someone without such funding, a ‘have not’ taking on the ‘haves’, actually I would be quite happy for many of the haves to have more. It is however a very big concern that some theatres don’t seem especially efficient and are unable to operate without subsidy, while others can. The virus has brought this into sharper focus. There is a vast differential between the best and worst performing theatres in terms of how much of the income which covers the annual cost of providing each seat is derived from sources other than the audience member who buys the ticket. If subsidy is providing art which would otherwise not take place, or making it more affordable or reach out more effectively to isolated groups, then it is doing its job. But if it is providing jobs for the boys or, worse, is a cause of inefficiency or unfair competition, then it is not.

 

With the current ‘death by a thousand cuts’ climate now followed by a virus crisis, I believe that there is a new danger, making it ever harder for efficient and lean theatres to survive, which is a type of mission creep by those who are state funded. By that I mean many theatres which previously enjoyed substantial funding are changing their offer, rather than reducing their overheads and reach. In effect many subsidized theatres are now moving more into receiving touring shows and one night stands of live music and comedy to make profit to replace their previous subsidy. In their subsidized state they can afford to outbid those without subsidy for the type of performances likely to be profitable, as their overheads and marketing machine tend to be covered by their state supported budgets, and they are simply looking to drive turnover and protect jobs.

 

In addition, many of these theatres have subsidized business rates due to their charitable status, but the Valuation Agency, the body that effectively decrees how much will be payable for rates, uses the same model to value a theatre whether or not it receives any subsidy. This alone has to be wrong as it means that any commercial theatre automatically has far higher overheads than a charitable one (which can gain exemption from 80 or even 100% of rates), and not at a level based on any profitability or rentable value, as was intended when business rates were introduced. The subsidy payable to a particular building will undoubtedly affect what any prospective tenant would pay to rent it and so business rating valuations must take this into account. Instead, the rateable value is based on an arbitrary scale derived from a false assumption that has gone unchallenged simply because most theatres do not pay rates and therefore haven’t bothered.

 

As a result of all this largesse, and the pursuit of a more commercial offer by even the best funded ACE theatres, previously middling ‘names’ now command twice what they did 10 years ago thanks to the ability of subsidized theatres to pay more than is commercially sustainable to attract them. As a struggling commercial theatre, we cannot justify paying the fees (and especially guaranteed fees) that many subsidised theatres pay, the maths would leave us with a loss or a ridiculously high ticket price. Many a mid-ranking show now asks for an 85/15 split or even more, so we are expected to live on 15% of the net proceeds and we have to pay VAT on most ticket sales unlike many charitable and subsidised theatres so a £24 ticket nets us £3. 10 years ago the average split was more like 65/35.

 

My contention is that it is this entry into the wider entertainment market by subsidized theatres that is driving a decrease in the potential earnings of all theatres from work which is not the type generally thought of as suitable for ACE funding. If it is allowed to continue I contend that it will force the few remaining unsubsidised commercial provincial theatres out of business.

 

In our case, this is in sharp focus, as there are three large subsidized or state-supported venues 10 miles up the road in Ipswich and we are being outbid all the time, especially by the Ipswich Council-owned venues. We also find that our local competition isn’t so charitable when it comes to us, often, insisting that acts grant them exclusivity within a sufficient radius that precludes them from also coming to us, and also doing deals with our own shows if they sell well, to take them away from us for the future wherever they can. We cannot see that this is a fair, desirable or appropriate use of state support.

 

As a 900 seat theatre, when we see a much smaller size venue putting on a comedian who we know won’t work for less than £10k we can be sure that they couldn’t afford to do this without either their subsidy or the VAT advantage which some theatres still enjoy. Allowing some theatres to escape payment of VAT on tickets, based on the proximity of the nearest purely commercial theatre is plain wrong. It might have been aimed at keeping a level playing field in ticket prices, but actually the fact that nearly the entire take can be paid to the artist without 20% going to HMRC raises their earning expectations. When aligned with the fact that subsidised theatres can pay more anyway, as their overheads are mostly covered before they sell a ticket, and we can see this is contributing to a quite serious problem.

 

The second issue is ACE and local Councils. Both are perfectly entitled to support theatres and their support is needed, but if we have a large prosperous town surrounded by chimney pots which can afford to support a theatre and a neighbouring smaller seaside town which cannot afford to make such a subsidy the competition is obviously going to be unfair. In Ipswich, which I know is not unique but is simply the example that we know best, the New Wolsey Theatre is supported by ACE and local authorities. The Wolsey have been supportive of us and allowed us to share shows on occasion but when we approached ACE for support the first reason for the instant refusal was that they already support nearby and do not perceive any need to make any other local investment. So, according to ACE, a beautiful art deco 1930’s theatre should become an old people’s home simply because of the accident of its birth which put it in close proximity (under ACE rules) of a subsidised theatre in a neighbouring town. That instantly rules out us forming our own production company and making the theatre sustainable as a producing house which leaves us with one night stands, amateur groups and commercial tours.

 

We’re very lucky in having some truly heroic local groups who are professional in all but name and put on shows for next to nothing, but in the one night stands and tours we’ve got The Wolsey, which is a new and cheap to run building about half our size taking the smaller more specialist and arty shows, the Ipswich Regent and the Corn Exchange, with one of those nearly double our size, gobbling up the rest and ensuring that the most lucrative acts sign contracts which preclude them from coming to us at all. Both of these last two are subsidised in the most obscure way by their local Council, who allegedly hold some of their staff directly on their own payroll, and do not disclose the overall level of profit or loss. I am absolutely not suggesting that anything improper is happening, although if the venture was making a profit I would take issue with the way that the trading is conducted by the local authority

 

Our contention is that an arts funding system which allows venues to use a state subsidy in the provision of the type of entertainment which would have been commercially viable 20 years ago is simply ensuring that to survive all theatres need a subsidy. It is like giving everyone a lifelong disease that they will need to control with drugs or die.

 

The end game of this problem will be the demise of all commercial theatres outside of major cities, and their replacement with subsidised venues. This would be seen as a natural process by many, the inevitable result of the arts not competing in the modern world, but actually what is killing commercial regional theatres isn’t a lack of subsidy, it is the fact that an unsubsidised theatre cannot compete with theatres with financial and tax advantages not just for audience but for touring acts and shows. Clearly subsidy is badly needed in many theatres and perhaps more so in some regions than others, but it must be targeted at things that commercial theatre cannot or will not provide, otherwise as subsidised theatres become more hungry for cash they will simply encroach further on to the commercial feeding grounds and hoover up all the food. Equally, the well-funded theatres with their armies of bid writers and experience of raising funds are far better placed than us to milk the ‘machine’ that is state support in all its various forms.

 

What is needed is a complete re-think to prevent subsidies and tax advantages of all types being used to put on essentially commercial performances at subsidised prices. It may not be straightforward to achieve but I would contend that the alternative is the total disappearance of commercially-viable theatre outside the major population centres.

 

What support is needed in the future?

 

There are many things which need to be done to ensure survival and also to ensure that the future is better structured and fairer than the past.

 

Firstly, perhaps the remit of ACE should be altered to allow it to only fund production companies and producing houses, requiring them to produce a certain level of non-commercial output and incorporating a system of deductions for their income from external, bought in productions and shows, to reduce their incentive to do this.

 

Another organisation, perhaps the Theatres’ Trust, could be tasked with administering an arts building subsidy, to ensure that all venues receive equitable funding to stay open. Before we acquired the building here we spoke to them, and shared all of our plans, but they could offer no practical or financial help whatsoever and yet tried to claim the removal of our building from their At Risk Register as some kind of success of theirs. Equally it is a little galling to see that artists like Dara O-Briain, who will lend their name to bodies such as the Theatres’ trust and wax lyrical about the saving of iconic venues, show no interest in coming to our venue whatsoever despite many requests to both his agent and management company, probably, I would contend, because we are not state funded and are therefore seen as higher risk and/or less lucrative than our state funded friends.

 

Therefore, this crisis in our view provides a perfect opportunity to provide fairer funding, targeted where it is needed, separately from the funding which is used to create the performance art itself.

 

The business rates and VAT situations can be sorted very easily, by making sure every theatre building is valued for business rates accurately at what somebody would pay to rent it, without any subsidy, which for most will be close to zero and in some cases less. VAT should either be in or out, with no loop-holes or exemptions.

 

As for local authority subsidy, this is perhaps the trickiest. If a ’rich’ town really wants to support a purely commercial offer, with little or no output that might attract ACE funding, perhaps the complete operation of that should be something they have to buy in, rather than trade ‘in-house’ to ensure that all support is fully disclosed. In buying in, they would have to offer a lease on their building and put the venture out to tender with whatever level of financial and other support they are prepared to offer. This would not only be fairer, but they might find that this brings them a better, leaner operation than they currently have.

 

These changes will help, but hard cash will also be needed, I suspect for most theatres and venues all of the UK. How this is calculated to make it fair and to ensure that it does not provide unfair advantage will be key, but it is our belief that to separate the funding for productions and buildings will be an essential first step. We suspect that we will not be able to open much before the end of the year and that we may then have to get by on half the audience of less that we did previously. The trading losses that this will create will need to be funded with cash grants or we simply will not be able to trade.

 

One final point, is that VAT on restaurant food and takeaways provides unfair competition with supermarkets and food shops. People ask us how a steak & chips is £18, when the ingredients cost less than £10 at the shops, but forget that 20% of it is VAT, not to mention the cost of staff, pensions, paid annual leave and all of the other costs which are being increased outside of our control. We contend that VAT should be a flat rate on all food wherever purchased. Eating out is not a luxury, especially if you are a touring performer, why should all your food be taxed, but that of someone who lives at home not be taxed?

 

Conclusion

 

In blunt terms the whole system of support and subsidy creates a market with hugely unfair competition which ensure survival of the fattest not the fittest. It needs urgent review and improvement, or the crisis will speed up the process whereby state-funded arts organisations compete ever more unfairly with the likes of us, leading not only to many theatre closures, but to survival of the fattest, not the fittest, and certainly not those serving poorer areas or with less commercial outputs.