How to get the West End show back on the road
As Central London begins to open up, it is vital we play to the great strength it displays in normal times: that of having an interconnected ecosystem of world-class attractions, which, when combined, add up to more than the sum of their parts. Central London’s retail, hospitality, and cultural sectors depend on and feed off each other, and their success is inextricably linked.
Some cultural institutions have opened while others are looking forward to opening up and welcoming back visitors. But they do so in uncertain times. They know that a West End show could be cancelled at short notice – for instance, in the event of a localised spike of COVID cases or the emergence of a new variant. For this reason, they cannot get the insurance they need to put on these shows. Until insurance providers come back to the market with viable products for COVID related cancellation and business interruption – which, according to the main providers in the market, will not take place until 2022 – producers will be unable to finance shows even though there is consumer demand, and many theatres and concert halls will consequently remain shut.
The West End Arts and Cultural sector's GVA amounted to an estimated ￡4.8bn in 2018, detailed in our report published in 2020 on the economic benefits of the arts and culture sector to the wider economy. One of the key contributors to that is the theatre industry, which surveys suggest that without insurance, the largest three quarters of shows, representing about 90% of the industry’s economic value or ￡1.3bn nationally, would not proceed. This has a direct knock on impact on Government receipts: the loss of VAT from direct sales is estimated to be ￡217m yearly, with a further ￡282m loss within the restaurant, hotel and travel sectors, all of which gain significant revenue from cultural tourism. Allowing also for the loss of VAT through lower inbound tourism, the figure could be in the region of ￡1bn yearly. In addition, there will be considerable loss in PAYE and NI revenue.
Live events are a unique industry. The lead times and costs associated with putting on a show back on the stage are significant. There is a roughly 3-4 month preparation time, which includes recasting and re-costuming where necessary, re-contracting artists, musicians and show staff, rehearsals and technical checks. Industry estimates the average large-scale musical costs around ￡1.2m to reopen, in addition to the c￡2.5m cost per show incurred due to not having been able to earn any income throughout the lockdown. It is also worth noting that each production employs approximately 90 people, on top of the circa 75 people engaged by the theatre. This is emphatically not the same situation as a store being forced to delay opening its doors: for the live events industry the costs and efforts involved are significantly larger.
This matters, not just for the industry, but also for the wider ecosystem in Central London and more generally for the UK economy. Live cultural events bring in people who spend money in hotels, bars, restaurants, and shops. Successful shows bring in export earnings and give a boost to Global Britain. A situation where COVID rules allow live events to take place but market failure stops them coming to market would place a dampener on economic recovery which would be felt right across the UK.
The situation could be remedied by a time-limited, Government-backed contingency insurance scheme to protect against further unscheduled closures and ensure live events have the backing they need to open in uncertain times. This could best be done via an identical indemnity arrangement to that concluded for film/television, which fits State aid constructs best. The order of magnitude of risk that Government would have to underwrite is relatively small compared to the cost of other COVID business support measures: industry estimates that for a national lockdown covering a period of 4-5 weeks, ￡66.8m would be required to cover costs.
As the threat of closures diminishes owing to the vaccine rollout and reduced infection rates, and as the insurance industry develops new products to meet the need of theatres, Government intervention will no longer be needed. But at the present moment, lack of intervention to help resolve this instance of market failure is the principal barrier to cultural institutions reopening their doors this summer.