Clause 39
Finance (No. 2) Bill
1:45 pm
Edward Balls (Economic Secretary, HM Treasury; Normanton, Labour)
It is a first, but I hope not a last.
It might help the Committee if I set out a little of the thinking behind the clause. It sets out the first condition that a film must meet to be eligible for the new tax relief: subsection (1) makes it clear that it must be intended for theatrical release. That is the same requirement that a film had to meet to qualify for the old relief. Both the old and new reliefs are intended to provide support to films that are made to be shown at the cinema, and exclude other films, which we discussed in our debates on clause 31, such as those made for television. The television industry is healthy and productive and was excluded from the old film tax reliefs in 2002, so this is not a new rule.
Subsection (2) gives more detail on this requirement. Theatrical release means exhibition to the general public at a commercial cinema—again the common-sense, generally understood definition—and a film is considered to be intended for theatrical release only if it is planned that a significant proportion of its income should come from cinema exhibition. This condition was originally imposed because the old reliefs were being abused, and claims were being made for soap operas, news programmes and even for doubtful productions that were clearly not intended to be viewed anywhere, by anyone.
We acted to narrow the scope of the relief to genuine cinema productions, which is what was always intended, and that intention remains. The question is: when should the definition of the film be judged? Under the old system of reliefs, that was done when the film was finished, which was when the old reliefs were claimed. As we discussed earlier, we mean the new reliefs to be claimable from the start to assist film makers with cash flow. That approach is based on a modern understanding of best accounting practice and the way in which TV and film makers work.
As a consequence of the decision to change the model for film tax relief—enhanced tax relief—the film maker now needs to take a view at the outset. But what if something changes? With the original drafting, we would have preserved the original judgment, which was made at an early stage, even when the situation soon changed. However, since the Bill was published, we have held discussions with the industry, and we accept that preserving the original judgment could have unintended consequences. We were particularly concerned that that might lead to film makers taking overly optimistic views in the early stages, so that makers of many productions that are inevitably destined for television or other media would claim film tax relief in the early stages of production. Our amendment will allow greater flexibility when the position changes. It will allow a film that was originally intended for the cinema to drop out of the film tax relief without losing any relief that it has earned to date. I invite the Committee to accept the amendment.
I turn to amendment No. 43. It will not surprise members of the Committee to learn that I think that the Opposition amendment, which I accept seeks to address the same issue, lacks clarity. The amendment would allow a theatrical release to be determined at any time, which means that it could well change back and forth several times, which means that the tax position could also change, possibly leading to payments, repayments and even re-repayments. The whole position could become confusing and lack clarity. Rather than our accepting the Opposition’s amendment, therefore, I hope that the Committee will reflect on my comments and instead support ours.
Amendment No. 44 seeks to make it explicit that expenditure incurred by a third party that is reimbursed by a film production company—[Interruption.] I feel as though I am caught in the crossfire in an exchange of semaphore messages. I hesitate to turn to the explanatory notes for guidance.