Schedule 4
Finance (No. 2) Bill
1:45 pm
Theresa Villiers (Shadow Chief Secretary To the Treasury, Treasury; Chipping Barnet, Conservative)
I welcome a number of points in the Economic Secretary’s response to the debate. I welcome his clear indication that development costs for films that never go into production could be deducted according to ordinary tax law principles. Even if he is not prepared to accept my amendment, which suggests that they should receive the enhanced deduction, it is welcome that they have not accidentally been excluded from the ordinary regime.
I also welcome his reassurance that film production companies will definitely be able to correct estimates if they prove to be incorrect. That was my understanding of what he said. I still have some anxieties as to how that tallies with the Bill’s terms, but his reassurance on that point is welcome.
I take issue, however, with his repeated assertion that what is proposed in schedule 4 is in line with standard industry budget and accounting practice. As I acknowledged in my speech on the amendments, there are some structures that involve special purpose vehicles, where the proposed new framework might not produce a significant burden. However, as the British Screen Advisory Council points out, not all film producers will want to use that model. It states that if so, the requirement to look out for estimated income could be problematic both for independent film makers and large production companies. It is almost impossible to predict the success of a film in advance. The new obligation would run counter to the process of tax buying accounting treatment and could result in companies paying tax or receiving less by way of tax credit on income that never materialises or well ahead of receiving that income. It also questions its application to films, such as television programmes, that do not attract the tax credit. That illustrates the concern across the industry since that organisation represents a broad-ranging coalition of film industry interests. In contrast, the Economic Secretary seemed to imply that those issues were somehow dreamed up by an incorrect brief from KPMG. I wanted to assure the Committee that they are more widely felt.
I reassure the Economic Secretary that it is not the intention of any of my amendments to leave the Government scheme open to abuse. I stand entirely by what I said in opening the debate. My amendments have been tabled with a view to exploring important issues regarding the computation of profits for film production companies. At the end of the discussion, I remain to be convinced that the move to the new method of calculating profit and loss is necessary to prevent the abuse of the film tax scheme, but I take on board his comments. I will reflect on them, particularly those about amendment No. 41 and possible abuse relating to deferral.
In the light of that, I will not press any of the amendments, but I hope that the Economic Secretary will reflect with care on whether this punitive new regime is necessary to prevent abuse of the film tax scheme. I beg to ask leave to withdraw the amendment.