ISE09/19-20

• A vibrant arts sector helps inspire culture and creativity, which are increasingly recognized for their roles in fostering social inclusion and achieving environmental sustainability.^{1Legend symbol denoting For example, culture and creativity enable environmental sustainability through its influence on consumption pattern and foster social inclusion via increased engagement in cultural activities across different sectors of the community. In addition, the cultural and creative sectors play a major role for economic growth as they are an important lever for job creation and cultural tourism., 2Legend symbol denoting The contribution of culture and creativity to the society is acknowledged by the United Nations Sustainable Development Agenda for 2030 as well as the 2005 Convention on the Protection and Promotion of the Diversity of Cultural Expressions. The latter Convention has been ratified by China. See United Nations Educational, Scientific and Cultural Organization (Undated).} In recent years, many developed economies have formulated strategic plans to guide the development of the local arts sector, as well as provide a steady stream of funding to support the delivery of arts forms and cultural expressions. For example, the arts councils in Singapore and Australia introduced their latest five-year strategies in 2018 and 2019 respectively, featuring the provision of a range of multi-year, project-based, and special purpose funding.
• In Hong Kong, the Government sets out a vision to develop the territory into an international cultural metropolis conducive to the wide participation in and balanced development of arts and culture. In 2019-2020, an estimated HK$5.14 billion or 1% of total government operating expenditure was allocated to arts and culture. The funding covered provisions for public libraries and museums, venue support for arts activities, subventions to the nine major performing arts groups ("MPAGs")^{3Legend symbol denoting The nine MPAGs are Hong Kong Philharmonic Orchestra, Hong Kong Chinese Orchestra, Hong Kong Dance Company, Hong Kong Repertory Theatre, Hong Kong Sinfonietta, The Hong Kong Ballet, City Contemporary Dance Company, Chung Ying Theatre Company and Zuni Icosahedron. Theatre Ensemble was originally granted MPAG status in 2007, but it was renamed PIP Cultural Industries and graduated from the Government's subvention system in 2008.} from the Home Affairs Bureau ("HAB"), and grants to small and medium arts groups ("SMAGs") by the Hong Kong Arts Development Council ("HKADC").^{4Legend symbol denoting The government's funding also includes provisions for the Arts Capacity Development Funding Scheme and the Art Development Matching Grants Scheme. See Budget (various years).}
• In recent years, there have been concerns over the existing funding arrangement for arts groups in Hong Kong. These include (a) the adequacy of funding support for SMAGs and the calls for a more proportionate funding allocation to arts groups of different size; and (b) the lack of an accessible funding ladder for budding arts groups to grow into SMAGs and further to MPAGs. Furthermore, there is also some concern over the lack of a dedicated mechanism to evaluate the performance of SMAGs against the development objectives they have identified when applying for funding support from HKADC.
• This issue of Essentials begins with an overview on the funding arrangement for arts groups in Hong Kong, and the related concerns in recent years. This is followed by a discussion of the support for arts groups in England of the United Kingdom ("UK"). The UK is the first place in the world to establish an arm's length public agency - Arts Council England - to fund the arts sector^{5Legend symbol denoting Prior to 1994, Arts Council England was known as the Arts Council of Great Britain. It was established under the arm's length principle, where public funds are disbursed through semi-autonomous government bodies to non-governmental arts institutions. The arm's length principle was first conceived by the economist John Maynard Keynes, who also became the founding chairman of the Arts Council of Great Britain in 1946. Arts Council England was formed in 1994 following the division of Arts Council of Great Britain into separate bodies in England, Scotland and Wales. See Upchurch (2004).} . Arts Council England provides a range of regular, project-based and strategic funding schemes which are aligned with its long-term strategies and available to all arts organizations in England.

Funding support for arts groups in Hong Kong

• In Hong Kong, the Government began supporting the arts sector in the 1970s when the first professional arts groups emerged. From the beginning, funding support for arts groups has been administered by two separate authorities. Initially, the Urban Council funded the four largest MPAGs^{6Legend symbol denoting} , whereas the Council for the Performing Arts^{7Legend symbol denoting The Council for the Performing Arts was an advisory body under the Government's Broadcasting, Culture and Sport Bureau. The Council was founded in 1982 to sponsor arts groups and advice the Government on aspects of performing arts. See Ho (2017).} financed the remaining MPAGs and SMAGs. In 1994, the Council for the Performing Arts was replaced by HKADC^{8Legend symbol denoting HKADC commenced operation initially as a non-statutory body in 1994, and subsequently as an independent statutory body in 1995 to support the broad development of the arts in the areas of grant allocation, policy and planning, advocacy, promotion and development, and programme planning. The Council (i.e. 藝發局大會) is the principal decision-making body of HKADC, which comprises 27 members appointed by the Chief Executive, of which 10 are elected by various arts constituencies. See Hong Kong Arts Development Council (2020).} . Subsequently, the Urban Council was dissolved in 1999 and its funding responsibility for the four MPAGs was transferred to HAB.
• The revised funding and administrative framework had brought with it concerns over the lack of a level-playing field for arts groups of various sizes to compete for public funding.^{9Legend symbol denoting The Government set up the Committee on Performing Arts in November 2004 to review, among others, the funding mechanism for performing arts groups. In 2006, the Committee recommended setting up a single funding and assessment mechanism governing the four MPAGs subvented by HAB's Leisure and Cultural Services Department and the six MPAGs supported by the then HKADC's Three-Year Grant. The Government accepted the Committee's recommendations in principle, and consolidated grants have been provided to MPAGs by HAB since 2007. At the same time, HKADC continued to provide funding support to SMAGs. See Committee on Performing Arts (2006) and Home Affairs Bureau (2008).} The Government reshuffled the funding streams for MPAGs and SMAGs in 2007 and has generally maintained the funding mechanism unchanged since then. Currently, all MPAGs are subvented and monitored by HAB, whereas SMAGs and individual artists are funded by HKADC primarily under its Year Grant (one-year or three-year) and Project Grant Schemes.
• In recent years, the Government has bolstered its funding support for arts groups by increasing the recurrent provision for MPAGs and SMAGs.^{10Legend symbol denoting Between 2013-2014 to 2019-2020, the total recurrent funding for MPAGs and SMAGs increased from HK$356.3 million to HK$507.2 million. See Budget (various years)., 11Legend symbol denoting In light of the adverse impact of COVID-19, HKADC has earmarked HK$55 million under the Support Scheme for Arts & Cultural Sector to ease the financial burden of arts groups and practitioners which are (a) funded by HKADC; (b) affected by the closure of Leisure and Cultural Services Department cultural venues; or (c) affected by the closure of other legitimate cultural venues. The funding primarily subsidizes arts organisations, groups and practitioners having work from February to April 2020 impacted by COVID-19, including performances, exhibitions, rehearsals, preparation and post-event work. However, the Scheme does not cover instructors of arts courses in schools, or arts groups and practitioners affected by the closure of commercial venues such as the Hong Kong Coliseum and AsiaWorld-Expo. These groups or persons may be supported by measures introduced during the Second Round of the Anti-epidemic Fund. See Hong Kong Arts Development Council (2020).} Notwithstanding this, the funding for arts groups has accounted for a diminishing share of the Government's total recurrent expenditure on arts and culture,^{12Legend symbol denoting This is partly due to the Government's increased spending in other culture-related areas such as public heritage, museums and exhibitions. See Home Affairs Bureau (2020).} falling from a high of 11.8% in 2014-2015 to an estimated 9.9% in 2019-2020. Added to this, there have been discussions about whether the funding support for arts groups, primarily that of SMAGs, is conducive to their long-term development.^{13Legend symbol denoting For example, see Ho (2017).} The specific areas of concern include:
  
  

  (a)	distribution of funding to arts groups: in 2019-2020, the amount of funding disbursed to MPAGs and SMAGs accounted for 8% and 2% of total government recurrent expenditure on arts and culture respectively. The subvention provided to the nine MPAGs (HK$404 million) was about three times more than the funding provided to over 300 SMAGs and individual artists (HK$104 million). Some practitioners in the arts sector have expressed concerns that government funding on arts and culture should be distributed in a more proportionate manner to arts groups of different sizes;14Legend symbol denoting For example, some MPAGs have suggested that the Government's Contestable Funding Scheme for the Major Performing Arts Groups should be directed to smaller arts groups instead. See South China Morning Post (2004), 主場新聞(2014) and 文化同行(2018).
  (b)	project-based and short-term funding for SMAGs: SMAGs can apply for funding from the Year Grant Scheme (one-year or three-year) and Project Grant Scheme administered by HKADC. In 2018-2019, the majority of SMAGs supported by HKADC relied on short-term funding under the One-Year Grant Scheme or one-off funding under the Project Grant Scheme15Legend symbol denoting See Hong Kong Arts Development Council (2020) for the funding situation of SMAGs in 2018-2019. . The lack of a more stable and long-term funding might make it difficult for SMAGs to realize their plans of sustainable development;16Legend symbol denoting In 2019, HKADC launched the Eminent Arts Group Scheme to support the sustainable development of distinguished arts groups with a five-year (2019-2024) operational grant. However, the Scheme is launched on a one-off basis only and whether it would continue is subject to HKADC's review and the availability of funding after five years.
  (c)	artistic and organizational progression of arts groups: an accessible funding ladder may help arts groups achieve artistic and organizational progression if they so choose. According to the Government, its initial policy intention17Legend symbol denoting See Home Affairs Bureau (2008). was to provide incremental funding support to help budding arts groups to start small and grow into SMAGs and even attain major status (i.e. MPAGs) eventually. Yet, there is only a limited funding ladder for arts groups at different stages of development.18Legend symbol denoting In 2012, HAB commissioned a study into the funding mechanism for performing arts groups in Hong Kong. The study identified that the Government had no holistic plan informing the allocation of resources through a tiered funding structure for arts groups at different stages of development. It further recommended that a clear process should be introduced to enable arts groups receiving HKADC's multi-year funding to be admitted as MPAGs. See Positive Solutions & GHK (2012). For instance, there is currently no options for entry or exit between SMAGs funded by HKADC, and MPAGs subvented by HAB. In 2012, the Government stated that such an entry and exit mechanism is a future direction, but it has thus far not implemented the changes;19Legend symbol denoting Apart from the six Three-Year Grantees which attained major status in 2007, no other HKADC-funded arts groups have since then progressed to become MPAGs. For the Government's position, see Legislative Council Secretariat (2012). and
  (d)	alignment of funding schemes with sector-wide development: the functions of HKADC includes, among others, formulating and implementing strategy for the development of the arts groups. Under the Year Grant Scheme, SMAGs are required to identify one or more sector-wide development objectives in their funding proposals, such as fostering artistic development, enhancing audience building, and/or promoting public and community art. Yet, there is currently no dedicated mechanism in place to evaluate the performance of Year Grant recipients against the development objectives they have identified, notwithstanding the requirements to submit annual reports, audit statements and minutes of board meetings. This has given rise to concerns over the need for more proactive measures to align the funding schemes with the development of the arts sector.20Legend symbol denoting See明報(2011 & 2012).

Funding support for the arts sector in England

• In England, Arts Council England ("ACE") was established in 1994 as an arm's length, non-departmental public body which champions, develops and invests in arts organizations, museums and libraries with public money from the government as well as the National Lottery^{21Legend symbol denoting The National Lottery was launched in 1994 as the UK's state-franchised lottery. It is regulated by the Gambling Commission and part of its proceedings contribute towards good causes and/or the public coffers as lottery duty.} . It supports England's vibrant arts and culture industry which employed some 329 000 persons in 2018.^{22Legend symbol denoting See Department for Digital, Culture, Media & Sport (2019).} According to the latest figure available, ACE's real per capita arts expenditure increased from £5.9 (HK$70.3) to £8.2 (HK$97.2) between 1995 and 2016.^{23Legend symbol denoting See House of Commons (2016).}
• ACE provides a range of regular, project-based and strategic funding with the objective of presenting a well-defined pathway to address the needs of arts organizations of various scales. As shown in Figure, ACE committed £576 million (HK$6.03 billion) in total funding to arts organizations in 2018 under the following three streams:
  
  

  (a)	National Portfolio funding which provides essential core investment to the arts organizations in England. In 2018, ACE committed around 71% of its funding to 828 National Portfolio Organizations ("NPOs") in England;
  (b)	open access funding which supports organizations not included in the National Portfolio to deliver arts-related projects. Open access funding is always open for application and has a short turnaround time of 6 to 12 weeks. In 2018, ACE committed around 12% of its funding to open access funding; and
  (c)	strategic funding which finances arts organizations to achieve ACE's strategic goals in the areas of leadership development, organizational resilience, and delivering arts in areas with low levels of engagement. In 2018, ACE committed some 17% of its funding to strategic funding.

  
  
  

  Figure - ACE's investment portfolio in the arts sector, 2018 Source: Arts Council England (2018).

Salient features of ACE's funding schemes

• ACE has positioned itself as a development agency which formulates strategic plans and aligns them with the funding schemes for the arts sector. In 2010, ACE published its first 10-year strategy^{24Legend symbol denoting ACE's first 10-year strategy was initially released in 2010 and subsequently updated in 2013. A second 10-year strategy was released recently in January 2020, which has yet to be aligned with ACE's various funding streams.} outlining five strategic goals focused on artistic excellence, accessibility, resilience and sustainability, diversity and skills, and arts for children and young people. The strategy provides a general framework which guides ACE's investment priorities, funding criteria, and performance monitoring for arts organizations.^{25Legend symbol denoting For instance, all NPOs are required to help deliver cultural education programmes for the young because the strategy has recognized the need for children to experience art regardless of social circumstance.}
• In recent years, ACE has enhanced its funding schemes according to the needs of both arts organizations and the wider sector. According to a review conducted by the UK government, this sector-wide approach has received positive feedback from stakeholders of the arts sector.^{26Legend symbol denoting See Department for Culture, Media & Sport (2017).} The salient features of ACE's funding schemes include:
  
  

  (a)	well-defined funding bands: the National Portfolio supports NPOs of all sizes, including established theatre groups such as the Royal Shakespeare Company and smaller-sized groups such as Poetry London. These NPOs are classified into four funding bands according to the amount or type of funding they apply for.27Legend symbol denoting Band 1 organizations receive up to £249,999 (HK$2.5 million) per year; Band 2 organizations between £250,000 and £999,999 (HK$2.5 million and HK$10.0 million) per year; and Band 3 organizations more than £1,000,000 (HK$10.0 million) per year. However, the introduction of bands does not mean there is a hierarchy or progression route from one band to the next. There is also a separate category for Sector Support Organizations, which is defined as organizations providing support services such as professional development, analytic tools or online resources to the arts, museums and libraries sectors. See Arts Council England (2016). The four categories are Bands 1, 2, 3 and Sector Support Organizations, each subject to different requirements as set out in the funding agreements with ACE. In general, they are required to submit a business plan and fulfil monitoring, reporting and delivery requirements during the funding period. According to ACE, the classification of NPOs is to ensure that the amount of funding received by them is commensurate with their contributions to the arts sector. In particular, smaller NPOs are subject to fewer requirements from ACE, thereby easing their difficulties in applying for funding from the National Portfolio. This has in turn benefited budding arts organizations, as evidenced by the increase in the proportion of new National Portfolio entrants from 7% in 2015 to 22% in 2018;
  (b)	proportionate and sustainable funding support: ACE provides funding support to arts groups based on the understanding that organizations of different sizes and disciplines are vital to the arts ecology. As illustrated in Figure above, large NPOs (i.e. Band 3 Organizations) received 54% of the total National Portfolio funding in 2018, whereas small and medium NPOs (i.e. Bands 1, 2 and Sector Support Organizations) received the remaining 46%. Furthermore, all NPOs receive four years of recurrent funding regardless of their size or prior experience. According to ACE, the longer funding period28Legend symbol denoting This represents a new change implemented in the latest National Portfolio (2018-2022). In the prior National Portfolio (2015-2018), NPOs only received three years of regular funding. helps reduce the uncertainty for arts organizations and gives them more time to plan and deliver artistic works;
  (c)	monitoring contribution to the arts sector: ACE also has in place a dedicated monitoring mechanism to ensure that arts organizations contribute to the wider arts sector, and are held accountable for the funding they receive. As part of their funding agreement, NPOs are expected to deliver art that is engaging, diverse, and accessible. NPOs are evaluated throughout the four-year funding cycle in terms of, among others, (i) engagement with diverse communities; (ii) adoption of digital media, audience data and other technologies; (iii) support for the arts workforce; and (iv) contribution to the education of children and young people. In order to provide feedback and guidance, ACE has designated relationship managers who maintain contact with NPOs on a regular basis. ACE may also pursue follow-up action29Legend symbol denoting ACE's range of follow-up actions includes imposing increased monitoring and reporting, placing extra payment conditions, withholding payment, withdrawing investment, and demanding repayment of funding. See Arts Council England (2016). including the withdrawal of investment for unsatisfactory performance in delivering the above goals; and
  (d)	supporting the development of ancillary services: apart from artistic creation, ACE also recognizes the importance of organizations that deliver support services for the arts sector. During the 2018-2022 National Portfolio funding round, a dedicated funding category - the Sector Support Organizations - was introduced to enable investment in ancillary services such as audience building, careers and skills development, and promotion and marketing. For instance, ACE has financed the development of a web-based audience data insight platform which enables arts organizations to reach potential audiences and optimize programming strategies. The platform presently comprises data drawn from over 800 participating arts organizations.30Legend symbol denoting See The Audience Agency (2018).

Concluding remarks

• A vibrant arts and cultural landscape contributes to the diversity, wellbeing and sustainable development of a place. In Hong Kong, the Government has supported the development of the arts by subventing arts groups of different sizes through HAB and HKADC. There are views that the current funding arrangements may not be conducive to the long-term development of the arts sector. Specifically, there have been concerns that (a) public funding on arts and culture should be distributed proportionately to arts groups of different sizes; (b) the majority of budding arts groups rely on short-term or one-off funding, and has encountered difficulties in progressing along the funding ladder; and (c) there is a lack of measures to align funding support for SMAGs with the long-term development of the arts sector.
• In England, ACE has positioned itself as a development agency which formulates strategic plans and aligns the plans with the funding streams for the arts sector. Arts organizations of various sizes are supported by the National Portfolio which offers four years of regular funding. The National Portfolio is further divided into four different bands so that NPOs may gain access to appropriate levels of funding without undue administrative burden. Dedicated monitoring mechanisms are also put in place to ensure NPOs help contribute to ACE's long-term development goals. Furthermore, those arts organizations not covered by the National Portfolio may seek open access or strategic funding which provides project-based support. Apart from artistic creation, ACE has in recent years actively supported the development of ancillary services such as audience data insight for the arts sector.

Prepared by Charlie LAM
Research Office
Information Services Division
Legislative Council Secretariat
12 June 2020