Film Studios Set For Crunch Talks Over Property Tax That Could “Torpedo” UK Status As Hollywood Rival
EXCLUSIVE: Britain’s biggest film studios are preparing for crunch talks with a government agency amid fears that a so-called “studio tax” could “torpedo” the UK’s booming production industry.
Pinewood is among an informal task force of UK studios that has been working with the British Film Commission (BFC) to avert potentially huge increases in property taxes. Representatives for the studios are due to meet with the Valuation Office Agency (VOA) this week to set out their concerns.
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The VOA has redrafted UK studios’ “rateable values,” an assessment of the amount a property would rent for if it were available on the open market. Rateable values are used to calculate business rates, a tax on non-domestic properties. The higher the rateable value, the higher the business rate.
Pinewood Studios’ rateable value will increase fourfold from £3.95M to £16.2M ($19.7M) under valuations set to be introduced by the VOA in April. Warner Bros. Studios Leavesden, home to The Batman and Netflix’s You, will see its rateable value rocket fivefold to £25.3M.
Smaller studios are facing similar hikes. Arborfield, where Netflix’s The Witcher was filmed, has been set a rateable value of £2.9M, more than seven times its existing valuation. Twickenham Film Studios’ rateable value is poised to quadruple to £1.75M.
The changes have dismayed studio chiefs and developers, who believe it will be a spectacular own goal for the UK government, which has worked to promote growth in a thriving £6.3B production sector through tax breaks and skills investment.
There is concern that higher business rates will have to be passed on to producers, making the UK a less competitive location to set up film and TV projects. Industry insiders said higher property taxes would also threaten investment in new facilities at a time when studio space is at a premium.
There is a view that business rates hikes could not be coming at a worse time, as studios grapple with eyewatering energy costs. There is also anxiety that demand for studio space may have peaked, as streamers like Netflix grip spending amid spluttering subscriber growth.
Superna Sethi, Joint Managing Director of Twickenham Film Studios, where Bohemian Rhapsody was filmed, said: “The VOA has thrown a grenade at the film industry. We would go as far as to say that this could be the death knell for a number of the UK’s most historic independent film studios.”
Barnaby Thompson, a partner at Ealing Studios, said the facility would have to reconsider plans to build a new 14,000-square-foot sound stage, should studios be unsuccessful in forcing a rethink. Home to Darkest Hour and Last Night In Soho, Ealing Studios’ rateable value will more than double to £2.8M.
“The UK has done such a good job with its creative industries, why would you do something to threaten the progress you’ve made?” Thompson said. “I am hoping it’s a misunderstanding in terms of how studios operate and that once they start talking to people who are familiar with the business, they will realize that the rates calculations are inaccurate.”
Nick Smith, Managing Director of Shinfield Studios, a Reading-based complex that opened the first of its 18 stages last year, said: “Putting in a rates increase that needs to then be passed on, because studios actually don’t make that much money, is going to be breaking for some businesses and productions. I would encourage the Valuation Office to look again at the rates. You might be able to double the rates for a UK studio, but what’s the value of the production that you’re going to lose?”
Ryan Dean, founder of west London’s RD Studios, agreed that it was “short-term” thinking. “Someone in a senior government position needs to look at this,” he said. “What is the point of having invested all this time, energy, and money into something that is working post-Brexit and torpedoing it?”
It is unclear how the VOA calculated the increases in rateable values, but there is speculation among studio chiefs that it was based on the revenue big studios are generating from long-term leases, such as Disney’s decade-long deal with Pinewood. The majority of UK studios do not have clients locked into similar agreements. Instead, they license their sound stages on a production-by-production basis, meaning they have fallow periods.
Pinewood, home to James Bond’s No Time To Die, and Warner Bros. Studios Leavesden are among the legacy studios that will receive some protection from rateable value hikes because their business rates will be capped at 30%. It is not clear, however, if Pinewood has a provision in its contract to pass on higher business rates to Disney, meaning it could have to swallow the cost. Pinewood and Warner Bros. declined to comment.
Studios that are operational after March 31 this year will not be protected by the 30% cap, which could put construction projects in jeopardy. Two developers joined the chorus of concern. Mark Quinn, who is behind the £250M Ashford International Studios, which begins construction in Kent later this year, said the rateable values are a “regressive move for investment in Britain’s film industry.”
Giles Dobson, a partner at property consultancy Bidwells, which is developing Hertswood Studios in Hertfordshire, added: “Rises in UK property taxes are threatening to dethrone Britain’s position as a global hub for the entertainment industry … Huge supply and demand mismatches have left multinational production giants vying for limited space, so the government should have an ambition to incentivize new studio developments, not discourage as the new taxes may.”
The VOA published the rateable values early to allow the film and TV industry to make representations. It calculates valuations using methods approved by the Royal Institution of Chartered Surveyors.
A VOA spokeswoman said: “A film or TV studio’s new rateable value will reflect changes in rental values from 2015 to 2021. Since 2015, the growth in streaming services and attractiveness of producing in the UK has led to an increase in rental values. We are engaging with industry representatives on the valuations.”
Adrian Wootton, Chief Executive of the BFC, said: “Following the Valuation Office Agency’s publication of the draft Non-Domestic Rates Revaluation List, the British Film Commission is actively engaged with business rates specialists, the studio sector, and government to work through the detail and implications to support a satisfactory outcome for all parties. To this end, a meeting has now been diarised between the VOA and the studios’ business rates representatives.”
The studio tax issue comes as the government mulls a wider shake-up of the UK’s film and TV tax credits system, which is causing wider concern in the industry. A consultation on the filming incentives closed last week, with the government considering raising the threshold at which producers can claim tax relief beyond its current level of £1M per hour.
The BBC, ITV, Channel 4, Sky, Paramount, and Netflix were among the industry leaders who wrote to the government to warn that raising the threshold would lead to fewer productions being housed in the UK. They said this would put at risk £1.3B of tax revenue and 30,000 jobs.
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