Briefing
Levering funding for the Arts:
a note on European approaches
1. Introduction
The current period of economic austerity, and the ongoing pressure on public funding, is focusing attention on alternative methods of funding arts and cultural activity. One response is to encourage grant‑aided organisations to reduce their dependency on public support, either by increasing earned income or developing additional sources of income. This mixed funding model, if it can be achieved, is generally felt to offer a better prospect of financial sustainability and resilience.
This briefing note focuses on the primary tools adopted across Europe to encourage and incentivise private investment in arts and culture.
The information set out in this note has been informed by discussion between the Arts Council of Wales and colleague members of the European chapter of IFACCA (the International Federation of Arts Councils and Cultural Agencies). It also draws on data and information contained in Encouraging Private Investment in Cultural Sector (European Commission 2011).
Our European peers confirm that ongoing financial pressures are obliging most countries to experiment with different mixes of public/private support. However, the financial context is reported as being “challenging” and the results of this experimentation “mixed”.
Two sources of funding in particular – sponsorship and trusts/foundations – are reported as being under increasing stress. In the 1980s and 1990s levels of business support in European countries were generally on the rise. Now, however, it is diminishing. Private foundations in Europe have also tended to cut grant‑giving, albeit on a temporary basis, as they nurse their capital during an era of low interest rates.
This has tended to focus attention on the incentives (usually around taxation) that governments can enact to stimulate individual and corporate investment. This is explored in more detail below.
2. Defining terms
For the purposes of this note, “private investment” refers to the investing in, giving to or spending on culture undertaken by individuals, businesses or non-public organisations.
It should be noted that investing, giving and spending are driven by different motives. Investing is driven by the principle of gain measured in terms of profit or return on investment. Giving is prompted by different motives, usually driven by the principles of individual or corporate social responsibility.
Public support
This includes direct and indirect support:
- Direct support is the support to arts and culture made by government and/or other public bodies, such as the Arts Council. This support includes grants, subsidies, awards etc.
- Indirect support consists of measures, adopted by governmental and/or public institutions for the benefit of the arts, that usually involve legal instruments or interventions. Indirect measures usually revolve around the treatment of taxation – the income that local and national governments forego because of tax reductions and/or exemptions granted to arts and cultural institutions.
Private support
Private support includes business support, individual giving and support from foundations and trusts:
- Business support usually refers to direct financial investment designed to achieve specific outcomes. These can vary from involvement in public-private partnerships, sponsorship, donations or the commissioning/purchasing of works of art
- Individual giving includes all transactions made by individuals with the intention of donating or contributing arts activity. (This is different to purchasing tickets for attendance which would generally be described as earned income.)
- Foundations and trusts are predominantly intermediary bodies, charitably constituted and usually founded by law. They nearly always supported by private endowment and serve specific purposes defined in the body’s founding objectives.
Earned income
This would include all individual spending for cultural purposes, such
as entry fees to cultural institutions, the purchase of tickets or the buying of cultural objects.
3. The political context
There are a number of EU documents addressing cultural industries that refer to partnerships among the arts and business sectors. The European Parliament Resolution on cultural industries in Europe (2007/2153(INI)) calls on:
“the Council, the Commission and the Member States to take the action required, recommending mixed methods of funding and financial security, and promoting a regulatory and fiscal framework that favours cultural industries as well as creative communities, and more particularly by applying tax credits and reduced rates of VAT to all cultural products, including online works.”
Business and arts cooperation is also referred to in the European Green Paper on Unlocking the potential of cultural and creative industries, COM(2010) 183, as well as in the European Council’s observations regarding the contribution of the cultural and creative sectors to the achievement of the Lisbon objectives. The latter pay special attention to promoting
“contacts and cooperation between the creative sector and the business world in order to increase the awareness of the latter regarding the potential of the cultural and creative sector.”
4. Encouraging private investment
The principal means of encouraging private investment in the cultural sector area as follows:
Examples across Europe include tax reliefs, tax breaks, tax deductions, tax exemption, tax allowance and tax incentives etc and specifically branded schemes such as the transfer of art in lieu of payment of tax.
Example: Throughout the 1990s Sweden had applied its standard VAT rate of 25% to books. Lowering the VAT on books in Sweden was intended to lower prices and increase sales, in order to promote readership, quality of books and diversity of content. In 2002 a decision was reached to bring down the level of VAT on books to 6%. The VAT reduction was immediately reflected in lower prices and in the following year sales rose by 16%.
Sponsorship generally represents a small proportion of the incomes of most arts organisations. It is also more prevalent in the metropolitan centres and in support of larger, higher profile arts organisations. A small community based organisation in a rural area would generally struggle to achieve significant levels of corporate sponsorship
Example: The Office for Cultural Sponsorship, established by the Greek state, encourages private sector sponsorship of the arts. The value of the sponsorship is deductible from the taxable income of the ratepayer or the gross income of the business offering the sponsorship. Once a year, the Minister of Culture awards prizes for particularly enterprising examples of support.
Levies can be voluntary and mandatory.
Another variation of this approach would be initiatives such as % for Art that seek to identify a specified amount of the funding of a larger development to be available for public arts work. % for Arts schemes were widely adopted by a number of local authorities in the 1990s and coincided with the launch of the National Lottery
Example: The Community Infrastructure Levy allows local authorities in England to raise funds towards infrastructure needed to support the development of their areas. The Community Infrastructure Levy allows charging authorities to raise funds, usually through planning gain and developer contributions, towards the cost of infrastructure needed to support an area’s development. The Planning Act (2008) defines cultural facilities as within the definition of relevant infrastructure.
Example: In the Netherlands, the integration of art in state buildings has been an element of government policy from the beginning of the nineteenth century. The current percentage for art scheme stipulates that for the building, conversion or renovation of state buildings, depending on the total building sum, 0.5 to 2% of the budget must be spent on the visual arts. As a result of the percentage scheme the Rijksgebouwendienst (Government Buildings Agency) is the biggest commissioner in the field of the visual arts in the Netherlands. More than 2,500 works of art have been realised in the last 40 years in the context of this scheme.
Example: In 2007, the Nonprofit Information and Training Centre (NIOK) Foundation conducted a research study evaluating percentage legislation in the five Eastern European countries identified above. The study concluded that, in societies with no tradition of donation and no models for the population to follow in order to take part in philanthropy, application of percentage legislation can be an effective way to stimulate giving.
Example: In December 2014 artworks worth around £45 million were left to the nation in lieu of tax. They included an early work by Vincent Van Gogh, a collection of political posters and more than 40 sketches and paintings from the personal collection of the late Lucian Freud. Van Gogh's oil painting Head of a Peasant Woman dates to around 1884 and has been given to the National Gallery. The collection of 99 political posters, which mostly date from the first quarter of the 20th century, were collected by Bristol University librarian Geoffrey Ford and have been given to the university.