Give Me a Break

Joanna Stephens explores the tax incentives that are reshaping the U.K.’s production landscape.

It just got a whole lot cheaper to make expensive television in the U.K. Under the country’s new high-end TV (HETV) tax-relief system, producers can claim a rebate of up to 25 percent of U.K. expenditure on scripted tele­vision projects that cost at least £1 million per hour. This offer cost the U.K. government close to £80 million in the scheme’s first year of operation.

With the possible exception of a couple of Treasury mandarins, nobody’s complaining—unless it’s to grumble that it is not as easy anymore to find first-rate crews, studio space and post facilities. “But that’s a nice problem to have,” suggests John McVay, the chief executive of Pact, the trade association that represents the commercial interests of the U.K.’s indies. “I’d rather have that than layoffs and mass industry unemployment. The net effect is that the TV credit is helping attract jobs to the U.K., which has to be a good thing for this country’s highly skilled creative workforce.”

McVay’s view that the HETV relief is “great news” for British companies will be shared by the on-the-ground agencies that worked closely with the government to craft a scheme that is simple, user-friendly and tied up with a minimum of red tape.

“Most of the systems on offer around the world require you to jump through hoops or work with local co-producers in order to qualify [for a credit],” McVay says. “By contrast, the U.K. credit is really easy and transparent. The cultural tests are straightforward, the credit is bankable immediately upon receipt, it’s safe, it’s secure and it’s been tested over the years via the film tax-credit system. We don’t hear any complaints.”

As McVay notes, the TV relief emerged from the longer established tax credit for feature films, which was introduced in 2007 in a bid to stop the hemorrhage of productions to countries with lower costs and wages. The HETV credit became available in April 2013, and it was enhanced last April, reducing the required minimum spending in the U.K. from 25 percent to 10 percent of a budget of at least £1 million per broadcast hour. Meanwhile, the gateway to HETV relief for drama, animation and documentary—a points-based cultural test—is in the process of being modernized to make it easier to assess whether a project is sufficiently “cultural” to access the credit.

The impact of the new tax reliefs for premium television and animation content was revealed earlier this year by the BFI, further underlining the scheme’s success in helping boost the U.K. into the production major leagues. In its first full year of operation, a total of 87 HETV programs commenced principal photography in the U.K., of which 22 were foreign, 60 were domestic and 5 were co-productions. The 22 foreign projects—“inward investment”—had the largest share of U.K. spend, with £286.7 million of the £615.2 million total. Among the major international dramas that contributed to the 2014 results were Downton Abbey, Outlander, Game of Thrones, Wolf Hall, 24: Live Another Day, Poldark and Grantchester.

Meanwhile, the Treasury doled out £79 million in tax credits to HETV projects. The payback, however, was a massive uptick in production expenditure, which reached more than £395 million—some £225 million of which consisted of inward investment—from an estimated £50 million the year before the new credit was introduced.

The HETV results come amid a very strong year for U.K. production across the board, with film production surging by 35 percent in 2014 to reach a record £1.47 billion.

“The statistics demonstrate just how popular the U.K. is for international film and television productions,” says Adrian Wootton, CEO of the British Film Commission (BFC). “Our tax reliefs, world-class crews, state-of-the-art facilities and award-winning talent are a formidable package.” And, as McVay observes, the tax credit is also allowing U.K. drama producers to “compete on more equal terms with our friends in the U.S.”

IN THE HIGHLANDS
One of those friends in the U.S. is cable network Starz, which has a long history of filming in the U.K., most recently with Sony Pictures Television’s Outlander. The drama, based on a series of novels by Diana Gabaldon, was shot on location in Scotland.

Carmi Zlotnik, the managing director of Starz, points out that the network started shooting another of its hit series—Da Vinci’s Demons—in the U.K. well before the HETV scheme was in place. “The U.K. has always been an attractive place to work, but this scheme has increased its attraction a significant degree,” he says, singling out the country’s “brilliant” pool of creative talent, both in front of and behind the camera. “When you’re shooting in Britain, you realize just how fine the actors are there,” he adds. “It’s not just the leads—you can get great actors in your third and fourth tiers of acting talent.”

Zlotnik’s first experience shooting in the U.K. was with HBO’s seminal miniseries Band of Brothers. But for all his enthusiasm about British production capabilities—which, he notes, are being constantly upgraded due to the amount of work now flowing into the country—he acknowledges that “things work differently” on the U.K. side of the pond. There are differences not only in creative culture (“British directors are used to taking more possession of a show”), but also in the practicalities of how hours, shooting days and budgets are structured.

Comparing the U.S. and U.K. paradigms, Melissa Harper, Starz’s senior VP of original programming production, says U.K. TV budgets have historically been smaller than their U.S. counterparts, and have been structured over series rather than episodes. “It’s manageable to track a six-episode limited series with, say, a $6 million budget to be spent over the course of the project,” she adds. “But with the very high-end series of the sort that you’d find on Starz, which could run up to $4 million per episode, the spend is so significant that it can’t be looked at on a series basis, but [must be considered] on an episodic basis.”

Harper calls the lowering of the HETV credit’s qualifying threshold in April a “fantastic move” for U.K. competitiveness, one that will “continue to mark the U.K. as a leading destination for us to generate premium content.”

The next example of that premium content comes in the form of Close to the Enemy, by the award-winning writer and director Stephen Poliakoff. The six-part series for Starz and the BBC is set in bomb-ravaged London at the start of the Cold War. Filming is taking place in and around Liverpool and London for a 2016 broadcast.

TALENT POOL
The booming demand for crews, studios and post-production facilities as work floods into the U.K. is certainly “part of the conversation” when considering where to shoot, Harper says. “Fortunately, the U.K. is one of a handful of places in the world with the depth of talent and the educational resources to support growth.”

Indeed, the British government is investing heavily in training people to develop the skills needed to handle the increase in production generated by the new incentives. Via a series of Skills Investment Funds targeted at film, high-end TV, children’s content, animation, games and VFX, the government pledged in 2013 to invest up to £16 million, matched by industry funding, bringing the total investment to £32 million over two years.

Meanwhile, studio space remains at a premium, with both pop-up and established facilities filled to capacity. The new Pinewood Studios expansion—a £200 million scheme that will add a total of 100,000 square meters of new facilities, including 12 large stages, to the U.K. stock over the next 15 years—will help ease the squeeze when the first phase opens in early 2016. But, for the time being, “there is simply not enough good studio space, or enough crews, to accommodate demand,” says Tim Halkin, COO of Munich-based TANDEM Productions.

The STUDIOCANAL production company recently shot the drama Spotless in the U.K.—a decision, Halkin says, that was directly influenced by the HETV credit. “The tax scheme really opened up the U.K. as an option where it hadn’t been before. Given the higher costs associated with shooting in London, the credit has made it affordable and, more importantly on a creative level, has permitted a story set in London to be shot there. We can now consider going to the U.K. to shoot the U.K., rather than going elsewhere to simulate a British look and feel.”

AIMING HIGH
So what’s the take on the HETV credit within the U.K.? Andrew Critchley, the managing director of U.K.-based RED Production Company, speaks for many producers when he says the new incentive will help them achieve “bigger, bolder series.” With such gems as Last Tango in Halifax, Happy Valley and Queer as Folk in its portfolio, RED is known for its ambitious, daring and engaging dramas—precisely the sort of content that the HETV credit is designed to foster.

“The scheme helps us to realize our creative aspirations,” Critchley adds—a sentiment echoed by Kate Harwood, the managing director of iconic production brand Euston Films. “It’s a real game changer,” Harwood says. “It’s enabling us to pitch higher than we would previously have done. For example, I’m currently pitching on a very big show against a major U.S. studio, and the only reason we’re in the game is because of the tax break. And if we get the project, we can now afford to shoot it here, using British talent to tell a British story.”

The production company behind such classic British series as The Sweeney and Minder, Euston Films was relaunched late last year by FremantleMedia UK after a 15-year hiatus. BAFTA-winning Harwood—formerly the BBC’s head of in-house drama—was brought in to run the revived brand, with ex-BBC colleague Noemi Spanos as head of development. Building on Euston’s legacy of producing groundbreaking content, Harwood and Spanos are looking to create high-end, high-profile dramas with global reach.

Harwood makes the point that the HETV credit is good news not only for the U.K. industry, but also for U.K. audiences. “It has to be a blessing for us culturally to see our stories represented in an authentic way, rather than being presented in inauthentic locations, so I think an interesting indirect benefit of the scheme is that it will encourage more larger-scale British-based storytelling.”

Another interesting side effect of the scheme, Harwood adds, is that it has provoked several foreign tax funds to be more generous, because they are now competing against the U.K. system for English-language drama.

“All in all, it’s fabulous for production in this country,” Harwood concludes. “Studios are filled, and actors and directors are employed. It has also coincided with a big boom in long-form TV drama, so it’s happy days all around.”

NOT THE USUAL SUSPECTS
The love is also spreading to various regions of the U.K., as producers look beyond the production heartlands of London and South East England for affordable—and available—facilities and locations. Creative England reports a record year of filming inquiries across the regions, with requests up 54 percent on 2014. “There’s no prejudice these days about producing in the regions,” says Pact’s McVay. “Game of Thrones, for example, was shot in Ulster and Da Vinci’s Demons in a converted car factory outside Cardiff. It’s about the right project at the right place, in the right facility.”

For ITV Studios’ Beowulf: Return to the Shieldlands, an epic reimagining of the life and times of one of literature’s great heroes, that right place is up in the rugged landscape of northern England. “We are shooting around Northumberland and Durham, as [Beowulf] is set in an 8th-century fantasy world, and the magnificent landscapes and varied locations make it ideal for our needs,” says Katie Newman, who co-created and is executive producing the project with James Dormer and ITV’s Tim Haines.

The series is set in mythical Shieldlands, where fantastical creatures live alongside the heroes and villains. Newman says the HETV credit was a major factor in the decision to produce in the U.K. For a 13-part series of the scale and ambition of Beowulf, “it’s unlikely we would have been able to afford to shoot in the U.K. without the new tax-relief scheme,” she adds. “We would have had to look at other countries with tax breaks.”

Francis Hopkinson, creative director of drama at ITV Studios, points out that five years ago dramas set in the U.K. were mostly filmed in Eastern Europe. “It was the only way producers could afford to make them,” he says. “Now, for a drama set in Britain, like Lucan or Jekyll and Hyde, the scheme makes it possible to film it here.”

Other high-end ITV dramas that were filmed in the U.K. regions and that benefited from the HETV incentive include the crime series Shetland, shot in Scotland and, appropriately, on the Shetland Islands themselves, and Jericho, filmed in North Yorkshire.

Gail Kennett, who has worked on a host of ITV Studios’ dramas, praises the HETV credit’s user-friendliness. “We’re now pretty familiar with how it works,” she says. “It’s comparable to other European and international incentives, but the major advantage of the U.K. scheme is that we can use the same currency, so we aren’t subject to exchange-rate fluctuations.”

In the end, however, the decision as to where a drama is filmed should be a creative rather than a commercial one, ITV Studios’ Newman says. In the case of Beowulf, there was no doubt in the minds of the creative team that the U.K. was the best and most authentic place for it to be shot.

The latest BFI figures, released in late July, indicate that the U.K.’s production boom is set to continue in both film and TV. In the first six months of this year, £594 million has been spent on 79 films and £279 million on 30 HETV productions, including the final season of Carnival Films’ Downton Abbey, Daybreak Pictures’ Churchill’s Secret, Starz/BBC’s The Dresser and the third installment of Mammoth Screen’s Endeavour.

“There’s a sort of gold-rush feel at the moment,” says Euston Films’ Harwood. “Until things settle down, there will inevitably be strains on crews and studios, and costs are bound to rise. But generally, it’s a blessing.”

Pact’s McVay agrees: “It doesn’t take much for the world to change, as we saw with the recession. But at the moment I’m seeing a very buoyant, very confident production industry across the U.K., both indigenously and in terms of inward investment.”