IBC
The UK’s VFX houses warn that cost of visas under current
Brexit proposals risks the sector’s global competitiveness.
Whichever way you cut it, Brexit will curtail the
competitiveness of the UK’s VFX business.
Not immediately - there is no cliff-edge awaiting firms
after March 29.
But in either a deal or no deal scenario the cost of the
government’s current immigration proposals could see work relocated away from
Soho, denting the health of the wider creative industries.
“If there is a down-turn in the UK VFX industry as a result
of a restricted talent pool, I believe the loss will not only be an economic
one,” says Antony Hunt, CEO of the Cinesite Group. “The UK film industry will
also lose some of the ‘soft power’ – or cultural influence –we currently have
in the world. That loss cannot be quantified but will be hard felt.”
Sir William Sargent, Co-founder and CEO at Framestore, says,
“We take it for granted that everyone in the UK and Europe works on projects
together. We need to draw on European talent because the UK’s pool is not big
enough. Add in more expense and frictions where there were none before and
there is inevitable risk to our industry even if the impact is felt 3-5 years
down the line.”
The VFX and animation industry is particularly sensitive to
changes in immigration policy because a third of the 6000 artists employed at
UK houses are from the EU or EEA (excluding UK and Ireland) and 13% from the
rest of the world.
Framestore, which worked on two films shortlisted for the
Best Visual Effects Oscar, employs over 1000 staff in London, including 300
representing every member state.
UK VFX and animation companies are putting their arguments
to the government via trade body UK Screen Alliance. CEO Neil Hatton says,
“It’s bound to mean more bureaucracy, more people employed to manage the red
tape and a huge problem for small companies that don’t have the ability to
scale up the HR to deal with that.”
Transitionary arrangement
The building blocks of a visa and skilled migrant worker
scheme have emerged, but detail is still lacking in the case of the
transitionary arrangements in the event of no deal.
The Settlement Scheme for EU citizens already in the UK by
March 29 will run regardless of whether there is a deal or not. EU workers with
either Settled or Pre-Settled status can live and work in UK as they do now and
will not require a visa once free movement of people ends.
“There’s lots of flexibility in the settlement scheme as EU
citizens can be out of the UK for up to six months in any 12-month qualifying
period and still retain pre-settled status, allowing them to build up the five
continuous years necessary to achieve Settled status,” explains Hatton.
EU citizens can apply for the settlement scheme from now
until the end of 2020 (and potentially to June 2021).
The main difference in the Settlement scheme between deal or
no deal is the effective date of the end of free movement.
In the case of a deal, free movement ends at midnight on 31
Dec 2020, after which the new visa system proposed in the Immigration White
paper will come into force.
If it’s no deal, free movement ends on 29 March 2019. EU
citizens who are not in the UK prior to that point would not be eligible to
apply for settlement.
“I don’t believe the UK VFX industry is going to come to a
juddering halt,” says Hunt. “We have good people here. However, Brexit is a
real concern to us because Cinesite is growing exponentially.”
In the event of no deal and until 31 December 2020, EU
citizens can enter the UK to live and work for up to 90 days without a visa.
After 90 days they can apply for European Temporary Permission (probably
costing between £250 - £500) to live and work which will last for three years.
Thereafter they will need to apply for a skilled workers visa under the new system.
“While this avoids a cliff edge for recruitment it creates
difficult and potentially impossible obligations on employers when checking
documentation for the right to work, as EU passports are not stamped on entry
to the UK,” explains Hatton.
For example, it would be impossible to tell the difference
between an EU citizen who had been in the UK for over five years and had the
right to Settled status but had not yet applied and an EU citizen who had been
in the UK for more than 90 days after March 29 and therefore needs to apply for
European Temporary Permission to continue to remain and work.
Skilled Worker visa
It is the proposed new skilled worker visa, due to be
introduced in 2021, which remains the major cause of concern for VFX companies.
The costs are expected to be severe.
“Whilst there will be no quota restrictions, it is clear
that the lever of control on migration will be the visa cost and the salary
threshold,” says Hatton. “The system will allow companies to attract, in the
PM’s words, ‘the brightest and the best’, but only if you can afford them.”
A five-year skilled worker visa - the preferred route for
companies wanting to retain and develop promising talent - could cost around
£9000, but the cost to the company of running the bureaucracy of visa
compliance is even higher.
“It will place a considerable burden on HR and recruitment
departments who will need more staff,” Hatton says. “This is also a barrier for
smaller companies that may not be able to afford the overhead. If the visa application
process is outsourced [to a lawyer] it can cost £2,500 per visa.”
Hunt says, “A more flexible, affordable regime will be
particularly important for VFX studios as we’re particularly reliant on EU
talent and are unlikely to have the resources to cope with complex visa
applications.”
With a third of current EU workers in VFX on permanent
contracts and therefore likely to stay (as Settled status citizens), UK Screen
Alliance estimates at least 500 Skilled Worker Visas will be required every
year, adding up to £4.5m across the sector (more if the initial application is
for two years then renewed for three). This is because the proposed minimum
salary threshold of £30,000 is considered too high. Currently, 7% of the VFX
and animation workforce hired from the EU are paid less than this.
“To increase salary levels above £30k would cause
significant wage inflation as it would need to be offered to all workers at
that level and not just those from the EU and would also erode the
differentials with pay grade that are immediately above,” Hatton says.
UK Screen estimates that this could add 3-5% on payroll
costs, “seriously impacting competitiveness.”
The Alliance is lobbying the government to reduce the
minimum threshold to £20k or, failing that, link the threshold to appropriate
rates defined for Shortage Occupation List roles identified as compositor,
animator and technical director among others.
“In the long-term the current visa programme will fall
short,” asserts Hunt. “Cinesite will need non-UK VFX artists for many years to
come, we will always benefit from highly-skilled overseas artists with the
knowledge they bring and share. We must be able to continue to attract the very
best talent and make hiring decisions based on artistic talent and merit rather
than on sovereignty.
He adds, “Expensive visas with unrealistic minimum salary
thresholds would significantly add to our operating costs and impact the UK’s
wider VFX sector’s competitiveness in the global market.”
UK workforce
Balanced against the need for skilled migration from the EU
is the need to develop a home-grown workforce. The VFX industry has made
considerable efforts to build a coherent pipeline for UK talent. The NextGen
Skills Academy is industry supported and provides specialist courses for 16-18
year-olds in VFX, games and animation.
“There have been some significant individual successes with
apprentices, but scalability of the scheme remains a problem,” says Hatton.
“There remains a significant sum of unspent Apprenticeship Levy that is all but
impossible to deploy. The Levy needs to become more flexible to cover all
training needs and not just apprenticeships. There also needs to be a more
coordinated partnership approach between industry and universities to ensure
that UK graduates are more work-ready.”
While investment by UK facilities is on hold amid the
uncertainty, few believe the industry will stall post-Brexit. Neither does the
sector appear to have experienced a reduction in demand for its services. This
reflects recent BFI figures that show the UK’s high-end television and film
production benefitting from £3.1 billion spend last year.
Total VFX spend in 2016 was £510.7m generating £1.043bn in
GVA for the UK economy and supporting 17,940 direct and indirect jobs,
according to the UK Screen Alliance.
Powerhouse facilities like DNeg, MPC, Cinesite and
Framestore could potentially shift work to their divisions in Canada or India,
but Sargent dismisses the idea. “We already spread work round. Some work has to
be done in the UK. There are all sorts of logistics and reasons why you’d
locate jobs in one part of the world or another and much of it does come down
to talent. Adding friction into the system where it doesn’t exist now will take
competitiveness out of the UK.”
The government has promised a year-long consultation around
some contentious elements of the visa but if greater flexibility toward
creative industries is not forthcoming the impact on facility operating costs
would undermine the UK’s wider VFX competitiveness in the global market.
“The UK has strength
and depth across the film industry, with access to some of the best creative
talent, as well as world-leading financial, legal and professional services,”
says Hunt. “I think it’s unlikely that any other EU centre will strongly
challenge us in the short-term. In reality, the precise impact of Brexit won’t
be clear to Cinesite for some time yet – much will depend on the type of Brexit
we get.”
Production work has already become global with tax
incentives, regional low labour costs and lower computing costs, which put
pressure on houses to reduce costs and set up sister facilities in tax
advantaged or low-cost regions. This is a model which is increasingly being
tapped by content producers.
“In the long-term, the most effective action the government
could take to safeguard UK VFX jobs would be to make the UK comparable to other
tax advantage regions,” urges Hunt, citing Montreal as the strongest example.
There, rebates are as high as 40% which is why UK companies such as Cinesite,
Framestore, MPC and DNeg have established studios there.
There has been an increase in facilities opening in Montreal
and Australia, a trend set to continue but not necessarily as a direct impact
of a no-deal Brexit. Cinesite last year bought German VFX house Trixter for
clients to tap rebates as high as 45% for animated and visual fx.
Framestore, which has Chinese investment, came in at the
ground floor of UK post a quarter of a century ago and has helped build itself
along with the whole of UK VFX into a world class location to do place the
highest profile work.
“It took us 25 years to get where we are and if we start to
dilute it, it will not be easy to maintain our dominance of the sector in
Europe,” Sargent says.
Would Brexit affect UK film and TV tax relief?
The UK screen sector tax reliefs are written in UK law and
will therefore be untouched by Brexit. However, these reliefs are constrained
by EU state aid law.
“The boom in inward investment production shows that for
productions conducting principal photography, the tax credits are very
effective at attracting work to the UK,” says Hatton.
“That success means that productions shooting in the UK
often reach the EU state aid cap which is set at 80% of the budget. This was
supposedly designed to spread work around the EU but often drives post and VFX
work to Canada, as once capped-out in the UK, the effective tax credit here is
0%.”
Reliefs of 40% are available for VFX in Montreal and Germany
has also increased their available relief to 40% in Stuttgart and Munich.
Larger VFX companies that have international operations can
simply switch the work overseas, typically to Canada, where the production can
receive still receive the 40% incentive. This option is not open to smaller VFX
companies that only operate in the UK, who then miss out if the bulk of
shooting has already occurred in the UK.
“Only in the hardest of Brexits is the UK likely to be
entirely unshackled from EU state aid regulations, which could allow the
freedoms that other states like Canada have when legislating their tax
incentives,” says Hatton. “Even then there would need to be careful analysis of
the political risks and financial impacts, both positive and negative, before
proposing any adjustment to the UK tax credits for film and TV.”
The £9000 cost of a Skilled Work Visa under current UK
government proposals breaks down as:
Certificate of sponsorship £199; Application £464 (if less
than three years or £928 if more than three years); Biometric Residence Permit
£56; Biometric enrolment £19.20; English Language test – approx. £200;
Immigration Skills Charge - £1000 per year payable up front - £5000 for five
years; Immigration Health Surcharge £400 per year payable up front (£2000 for
five years which is also payable for each dependant of an artist if they come
over with them (and facilities don’t usually cover dependent’s costs).
To this, UK Screen Alliance have added an allowance of £1000
for in-house admin. It costs between £536 and £1476 to have a licence to
sponsor Tier 2 visas plus the staff overhead to ensure compliance.
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