Clause 45
Finance (No. 2) Bill
2:30 pm
Edward Balls (Economic Secretary, HM Treasury; Normanton, Labour)
I shall explain the purpose of clause 45, and then discuss the amendments. The clause allows the unrealised losses that will be available to a qualifying film in one trade to be handed to another qualifying film, when it is no longer possible to utilise them in relation to the original film. It will encourage films to be made and rights held together in a company or within a group. If a film production company chooses not to surrender losses for film tax credits, it will make use of the film tax relief by setting the losses created by the additional deductions against income from other films that it produces, reducing the tax that it has to pay on real profits.
If, and when, the trade ceases because the film is sold or is no longer capable of exploitation, it is possible that there will be unrealised film tax relief. If nothing were to be done, those reliefs would be stranded or lost for ever. One purpose of this chapter is to ensure that we not only support individual British films, but encourage individual British film makers to make slates of films: to implement a strategy for a series of films over time—even avante-garde films—and to use their losses appropriately.
One of the aims of the relief is to encourage films to be held as a slate, where risk and reward is pooled by producing and holding films at different stages, so that films that make losses can be balanced against those that are profitable. Under clause 45, when a qualifying film produced by a film production company is sold or ceases to be exploitable—that is, when the trade cases—and there are losses that could have been carried forward, they can be passed on. But it is important that the losses that would otherwise be stranded are passed on only in a way that recognises the purpose of the chapter, which is to support British films and thus meet our sustainability objective.
The terminal losses can be passed to another trade within the company, or to another company in the group only if that company is making another qualifying British film. It will not be enough to buy in rights to provide income against which to set the losses or to make any old film that will make a profit. In their original setting, the losses could only be set against the income of a British film so, in the trade that acquires them, the losses are similarly restricted in their use.
Although the drafting of amendments Nos. 36 to 38 is not quite right in that it would remove a reference to schedule 4 at the end of clause 45(6), it is clear that the intent of those amendments is to remove the requirement that, for terminal loss relief to apply, a film must be qualifying film. It should be clear to the Committee, on the basis of my remarks so far, that that is not acceptable to us. The terminal loss relief is part of a balanced package designed to encourage the British cinema and film industry. That is why it is restricted to films that qualify for the new relief in schedule 5.
On that basis, I urge the Committee to reject the amendment.