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.
“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,” Antony Hunt, Cinesite
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.”
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.”
“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.” Sir William Sargent, Framestore
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.”
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.
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.
“[Brexit] is 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.” Neil Hatton, UK Screen Alliance
“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.”