A review of the potential of R&D tax policy to support the creative industries

Creative industries represent a vital segment of the UK economy, contributing to the growth of local economies (Mateos-Garcia et al., 2018) and the country’s competitive advantage (HM Government, 2018). In 2018, the creative industries comprised 6.2% of the economy of the United Kingdom in terms of employment (DCMS, 2019) and 5.8% in terms of gross value added (GVA) (DCMS, 2020). Additionally, the creative industries are fast growing – employment in the creative industries grew by 30.6% over the period 2011 to 2018, while the GVA in real terms increased by 43.2% since 2010 (DCMS, 2020). Creative industries tend to be innovative (Bird et al., 2020) and can be highly productive, although they constitute a diverse sector of the economy embracing a wide range of productivity levels (see Section 2 below). Currently, the creative industries, and arts, humanities and social sciences more generally, are ineligible for R&D tax policy support in the United Kingdom (Bakhshi, Breckon and Puttick, 2021). This report will explore the potential of R&D tax policy to support the creative industries.
The first section of the report provides definitions of the creative occupations and the creative industries, identifying the main characteristics of both and the links between the two. Additionally, the features of the firms in the creative industries, especially features relevant for the purposes of the policy making, are discussed in detail in this section.
The second section discusses the creative industries in the United Kingdom – their importance, main characteristics, and R&D and innovation in the creative industries.
The third section discusses R&D tax policy more generally, how it can be used to promote innovation, and the effectiveness of the scheme. Additionally, the section will discuss the main applications of the policy in the United Kingdom and the changes over time.
The fourth section details public support measures for creative industries other than tax credits. Finally, Section 5 offers policy recommendations.