Banks fail Britain's creative industries

Music, fashion and games start-ups are seen as too risky – yet they are more successful than hotels

British fashion designers, music producers and gaming firms risk going bust or being poached overseas because of a myth that they are a risky financial investment.

A report will suggest start-up companies in the creative industries are no more likely to fail than the economy as a whole, and are statistically more successful than hotels and restaurants. The study, "Risky Business", by the think-tank Demos will claim that creative industries might even be less risky "as a result of the passion, dedication and skill of the individuals involved".

By mapping survival rates of new businesses, Demos found that 49.7 per cent of creative new firms in the creative industries were still trading after five years, compared with 46.9 per cent in the economy overall.

It will criticise the way the Government treats the sector, suggesting that the definition is confusing and ignores lucrative areas of business. It is also claimed that banks are too quick to write off firms looking for financial backing. Fashion and music companies are considered too risky, while video games firms often struggle to qualify for research and development tax credits. The report will also suggest the BBC be forced to commission more programmes from independent producers.

Last year, creative industries employed almost 8 per cent of the UK's workforce. The fashion industry alone contributes more than £20bn, double that of car manufacture. London theatres took £512m at the box office last year, generating £76m in VAT for the Treasury. The UK is a net exporter of music, accounting for 12 per cent of all global sales. UK television exports are worth more than £1bn a year.

Helen Burrows, co-author of the report, said: "Banks need to stop saying no to everyone who says they run a music company even before they have finished the sentence. And the Government needs to understand and take into account the sector."

Two years ago, Wez, who founded the Full-time Hobby record label with Nigel Adams in 2004, approached a bank for funding. "The guy said to us: 'Are you having a laugh?' We were asked to put up our houses as collateral. It was a step too far for us. I need somewhere for my kids to sleep."

It is feared successful British artists and creatives will simply move overseas or be taken over by foreign firms. Gaming giant Eidos, which launched Lara Croft through the Tomb Raider franchise, is now owned by a Japanese firm and run from California.

Ed Vaizey, the Culture minister, who will launch the report tomorrow, said: "When people say why can't we build a Google, part of the problem is you need to get finance to expand overseas and go global. I know personally of very experienced business people in this area who failed to raise money in the UK but raised substantial sums in America."

Last month, Doug Richard, an original Dragons' Den panellist, launched the School for Creative Start-Ups to help more than 70 firms. He said: "The notion that creative people are more likely to be bad at business is a nonsensical one. The UK has many strengths, but one is its creative industries which could play a key part in the recovery."

Key strengths

Music The industry is worth £4bn. Martin Mills, founder of the Beggars label behind Adele and Basement Jaxx, said: "We're not trying to sell music that customers want. We're trying to sell new music that they don't yet know they want."

Gaming Half the world's top studios are in the UK. Ian Livingstone, an investor in independent start-ups, said. "This industry plays to our strengths, and yet time and again I hear of people who are unable to get finance."

Fashion Officially, fashion accounts for 0.01 per cent of the UK economy. If retail is included, the sector contributes £20.9bn, or 1.7 per cent of GDP.