British Lion Films Limited

– in the House of Commons at 12:00 am on 22nd January 1959.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Gibson-Watt.]

10.12 p.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

We are raising this matter of the British Lion Film Company because, on. the evidence that we have at present, we are not satisfied that the Board of Trade has made enough effort to look after and safeguard the taxpayers' money which was invested, via the National Film Finance Corporation, in British Lion. As the Parliamentary Secretary knows, about £3 million of public money was lent some years ago to the then British Lion Corporation in order to rescue the British film industry. This now appears in the last balance sheet of the National Film Finance Corporation as an irrecoverable loan of £2,960,000.

When British Lion was reconstructed as British Lion Films Limited three years ago, the National Film Corporation—that is to say, the Exchequer and the taxpayer —received in return for this loan the whole of the ordinary share capital of 600,000 £I ordinary shares in the new company. No doubt there could have been many opinions as to what the company was then worth and whether or not it would be profitable in the future, but in our view the arrangement should have been based upon the principle that in so far as future profits were made, or the company was sold—as the present Government have often told us was contemplated—the profits or proceeds should return to the Exchequer in order to repay the £3 million of taxpayers' money which had been lent.

At the beginning of 1958, however, an odd transaction was entered into—and with this the Board of Trade concurred, as we have been told—which has never seemed to us fully to have safeguarded the public interest. Mr. David Kingsley who, until that moment, had been managing director of the National Film Finance Corporation, became managing director of the British Lion Film Company, together with four other new directors who were themselves experienced film producers. The Board of Trade explanation of this arrangement, as given in the debate last July, was that these gentlemen were to be given a chance of pulling the company round and making it more profitable from the Government's point of view, and they were therefore to receive a share of any resulting profits, as an incentive.

It would have been perfectly proper if the new directors had received some small percentage of any future current profits in addition to their salaries. This was not what happened—and this is our criticism of the Board of Trade.

The capital, as the Minister knows, was reconstructed. The N.F.F.C. 600,000 ordinary shares were converted into preference shares, and 200,000 1s. deferred ordinary shares were issued. The N.F.F.C. Report tells us that Mr. Kingsley and the other new directors were given an opportunity—that is the phrase used—to acquire these new shares. It does not say whether they actually did so. I know that Mr. John Woolf, who was one of the individuals concerned, did not do so because he has informed me of the fact.

Perhaps the Minister might tell us whether it is the fact, as seems to be assumed by those who have commented on this affair, that the other gentlemen concerned did acquire those 200,000 1s. deferred ordinary shares at par, and that they paid altogether £10,000 in cash for them. If that has happened, we are left with the arrangement that these directors get a substantial share of the profits of the company if it earns even a fairly modest figure.

Secondly—and I do not think the fact is in dispute—were the company to be sold—which is, I think, the Government's professed objective—any proceeds of a sale over £600,000 goes to the deferred shares. If the company were to be sold for £1 million, the directors would receive between them £200,000 in return for the £10,000 which they paid for the deferred shares about twelve months ago. The Minister said that it was most unlikely that British Lion would be sold for more than £600,000, but I do not think that is a sufficient answer to our anxieties or to those in the industry who feel anxious about this affair.

The N.F.F.C.'s last Report says that its investment in British Lion is worth "no less than" £600,000. It also speaks incidentally of its hope of selling its holding in British Lion on satisfactory terms. That appears to imply that these directors believed at that time that the value was not less than £600,000. We say that if British Lion were to be sold for any sum less than £3 million, the proceeds should go to reimburse the taxpayers and the Exchequer who put up the £3 million in the first place, and not to provide capital gains for private individuals, however deserving they might be.

Quite apart from that, it has never been shown convincingly by the Minister's predecessor—we have not yet heard him personally on this matter or anybody else from the Board of Trade—that a price higher than £600,000 might not conceivably, in any possible circumstances, be realised. I have been told that £600,000 has actually been offered for the company and that the offer has been turned down by the N.F.F.C. in the course of the last six or nine months. Perhaps the Minister could tell us whether that is true. If it is, are we to infer that, in the opinion of the N.F.F.C, the assets in question are worth more than that sum? Of course, there are many in the industry who argue that the British Lion's present property and rights in old films are worth more than the valuation which has been given them in the course of these transactions. We suggested to the hon. Gentleman's predecessor, when we had a talk last September, that there should be some sort of independent valuation to decide, at any rate, this part of the matter. The Parliamentary Secretary turned this down as being impracticable, and I can only say to the hon. Gentleman that so far that leaves that argument unanswered.

Probably much the most important of all British Lion's assets, certainly if it were to be sold as a growing concern, is its tax loss. A company buying it would, if the proper conditions were satisfied, acquire the right to make profits without paying tax on those profits up to a very substantial amount, and might well be willing, since we all know that this does happen, to pay quite a lot for that tax business. Indeed, in the Parliamentary Secretary's letter to me of 8th December, he admitted that this was one of the chief assets of the company at the present time. Therefore, it seems to us that if that were to happen, and if the losses of public money already sustained were to be purchased as an asset by a private firm, which by virtue of them could deprive the Exchequer of further tax revenue, and if the proceeds of this purchase, made possible by this double loss to the taxpayer were then to provide tax-free capital gains for a few individuals, the whole story and the whole arrangement would be open to very serious criticism indeed.

We therefore say—and I am putting this briefly to give the Parliamentary Secretary and my hon. Friends time to join in if they wish—that the issue of shares to persons other than the National Film Finance Corporation should never have been made at all. Secondly, we say that both now and in the future, in our opinion, British Lion should not be sold to any private interests, and, in any case, the taxpayer should have a prior claim to any profits or assets until the public money loaned has been repaid.

We should therefore like to have an assurance, because the hon. Gentleman gave us only a provisional and temporary one, naturally, before Christmas, that British Lion is not to be sold to private interests, and we should also like to hear what the Board of Trade are going to do from now on to safeguard the public money that has been invested in this way in the film industry.

10.23 p.m.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Nobody begrudges the Government the right to their rather stupid gesture in the direction of doctrinal purity by relieving themselves of this publicly-owned film making company, which was such a fantastic and extravagant flop in private hands—and I realise how tragic it would be, from the Government's point of view, if it were to achieve success under public ownership—but we are entitled to demand that the Government should show some prudence, one might almost say sanity.

I should like to have from the Minister an undertaking that in no circumstances will he sell this company into private hands, when he has admitted that its chief asset probably is its carry-forward tax loss, for a sum less than the amount which the Inland Revenue will lose in Income Tax if that loss is made good. I understand that the loss is about £3½ million, and, therefore, any company buying it is likely to save upwards of £1¾ million in taxation. Can we have an undertaking from the Minister that he will not engage in an imbecile sale for about £600,000 or £700,000?

Secondly, I wish to ask the Minister whether he intends to ensure that the company shall be sold at a profit to the deferred shareholders? Unless that sale is deferred for some time the natural inference must be that those deferred shareholders are making a capital gain which already existed at the time they entered into the company, and the reason they are making it is that the company was sold at too low a price. If it is sold shortly after they have acquired their interest, any capital accretion cannot be due to their efforts, but to the fact that the Government, without taking any proper valuation on the assets, have sold it too cheaply.

Can we have an undertaking from the Government that if the company is sold in the near future the whole proceeds shall go to the Government and equity shareholders will benefit only if it is held and we recognise that their efforts have justified some sort of reward of that kind?

10.26 p.m.

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

I am very glad that hon. Members opposite have raised this matter, because I have known from correspondence and telephone calls that there is much concern about the reorganisation of British Lion and I much appreciate hon. Members views about the future of British Lion Films.

I should like to begin by explaining why the Board of Trade thought it necessary to reorganise British Lion Films Limited in the spring of 1958. The company's managing director, the late Sir Arthur Jarratt, to whom I should like to pay a posthumous tribute for his many public services, resigned to take up another appointment. The British Lion studios were in need of extensive repairs and the company's films were losing money. In the past, the old British Lion company lost £3 million of public money and it was essential to take definite action to make sure that there were no further losses.

To the National Film Finance Corporation and to the Board of Trade by far the best scheme seemed to be to reorganise the board of the company by bringing on to it some of Britain's most successful film producers and giving them a financial interest in its success. The company was exceedingly fortunate in being able to obtain the whole-time services of the Boulting Brothers and Messrs. Launder and Gilliat. Those gentlemen became, in effect, full-time employees of the company and they now produce films exclusively for British Lion. Deferred shares were sold to those gentlemen on terms which, we were well aware, would put them in a favourable position if and when the company again becomes profitable. If any profits are made it will be the result of their skill and their efforts. Their position is by no means exceptionally favourable by the standards of the film industry and the Board of Trade is grateful to them for having agreed to put their services at the disposal of British Lion.

The details of the tax loss position of the company are not relevant to the main argument. The suggestion that the directors of the company as deferred shareholders are in an exceptionally favourable position depends entirely on the supposition that the company is making profits or that they make capital gains by the sale of the company, particularly having regard to the big tax loss. In fact, at the time of the reorganisation it was not making profits and it is still uncertain when it will start to do so. Any profits will only be created by the efforts of the directors and in this event their favourable position will be their reward, which was fully foreseen and intended. The Board of Trade would have been rejecting the best independent professional advice available if it had refused to agree to the reorganisation on those terms. I shall deal later with the possibility of capital gains on a sale.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Will the hon. Gentleman say why it would not have been sufficient to have given them a share in any current profits?

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

I was about to deal with the position of the deferred shareholders. The National Film Finance Corporation has been trying actively for some months to find a buyer for its shares in the company, but although two offers were received neither was considered acceptable by the N.F.F.C. It is not true that there was a firm offer of anything in the region of £600,000.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Were the offers considered not acceptable because the amount was not enough or because the buyer was for some reason unsuitable?

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

I should not like to give a categoric answer. The amount was not large enough, but there may have been other reasons.

The N.F.F.C. has now announced that no sale of British Lion is contemplated at present. This is its own decision, reached after it became clear that no commercially acceptable offer would be forthcoming for the time being. I should like to make it clear to hon. Members, however, that in our view the film industry is one of the least appropriate for Government ownership or Government direction. It remains our desire to sell British Lion to private interests if and when this is possible on satisfactory terms. We recognise the importance of British Lion as a financier and distributor of independent British productions and have always envisaged that it would be a condition of any sale that this business should be carried on.

Other factors which would have to be taken into account in negotiating a sale are the value of the rights of the old films, especially from the point of view of television showing; the availability or otherwise of the tax loss; the position of the deferred shareholders; and the possibility of recovering some of the public money that has been previously lost. The Board of Trade is acutely aware of the importance of all these and other matters. No sale will take place without the public interest being properly safeguarded.

It has been said that if the tax loss is sold the Government will lose the money twice over. This criticism is, however, based on the threefold assumption that the tax loss is made available to the buyer, that the buyer does not pay its full value and that he makes sufficient profits in film production and distribution to be able to make use of it. I cannot say whether the Government would be willing to sell the tax loss with the company—it will have to be looked at in the light of the circumstances existing at the time of the sale—but certainly if they did sell the tax loss they would have very much in mind the risk to which the right hon. Gentleman has drawn attention.

It is premature, however, to criticise the Board of Trade about hypothetical aspects of the terms of sale when it is still quite uncertain whether it will be impossible to sell the company at all, ever. I realise that if the company is sold for substantially more than £600,000 the directors may make a capital gain, but that will be part of their reward for having rebuilt the fortunes of the company. The offers which were received were far, far short of £600,000, and as far as these are any indication, the company is worth considerably less than this at present as a going concern.

The right hon. Member for Battersea, North has made the suggestion that the working directors should be remunerated for their contribution to British Lion and the deferred shares cancelled.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I did not quite say that. I said that in our opinion it would have been better had there never been any deferred shareholders and if these people had been remunerated in terms of a share of the profits.

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

That is a different form of words meaning the same thing. I do not want to mislead the right hon. Member, and I should make it plain that the working directors are already receiving some remuneration as employees and also as directors. On the other hand, the company is not making any profits, and at present they are not receiving any return on their shares. Their total remuneration now is much less than they would normally receive as successful film producers.

As I have tried to explain, however, the reorganisation was largely based on the principle that the way to restore the profitability of the company was to obtain the services of some of the country's most successful film producers and give them a direct financial interest in its success. I personally should like to acknowledge a debt to these people who agreed to give up their previous interests and join British Lion at considerable risk to themselves and their own reputations. The deferred shares could not be cancelled without breaking the terms of contracts which have been made, and it is by no means certain that the directors would agree to this or would continue to make their services available under some fundamentally different conditions. Nor do I think that it would be reasonable to suggest that the whole basis on which these film producers joined the company should be changed. British film producers of their standing are very rare indeed, and the essential need now is that they should be left alone to get on with the job of trying to make good British films.

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

It has been suggested by hon. Members opposite that, when the share capital of the company was reorganised in the spring of 1958, deferred shares were issued to some of the directors without any formal, independent valuation of the company being made. It is correct that the company was not formally valued, but the reason is simple. It is not practicable to make a formal valuation of British Lion as a going concern. For example, so long as it is carrying on business, it is precluded from selling its stock of films for television showing in the United Kingdom, because of the virtually unanimous threat from the film industry to boycott any company which allows its films to be shown on television.

Secondly, both the distribution side of British Lion and the studios were making losses at the date when the valuation might have been relevant, which would have made it very difficult to assess the degree of liability represented by the company's guarantees. The difficulties are, indeed, increased by the falling level of cinema attendances. The greatest asset from the point of view of a buyer might be the very large taxation loss, but few buyers would be able to make use of a loss which amounts to about £3 million. The valuation of a tax loss of this size is very difficult, quite apart from restrictions which we might place on its use.

Although no formal valuation was made, the Board of Trade was advised that, at the time of the reorganisation, in December, 1957, in the opinion of the National Film Finance Corporation, the company was worth not more than £610,000. The N.F.F.C. annual report stated that as at 31st March, 1958, the company was worth not less than £600,000.

Following criticisms made some months ago by certain hon. Members opposite, the National Film Finance Corporation asked Mr. Lawson, a senior partner in Messrs. Binder, Hamlyn & Co., and an independent accountant of the highest repute, as I think all would agree, for his advice on the possibility of getting a formal valuation of British Lion. Mr. Lawson confirmed that in his view and for the reasons I have already given it was doubtful whether it would be practicable to make a worthwhile valuation of British Lion as a going concern. He pointed out that it might be practicable to have an independent valuation made on a liquidation basis, but there is no point in undertaking this so long as there is no question of the company being liquidated.

I hope that the right hon. Gentleman and his hon. Friends will believe that the Board of Trade has very much in mind the need to safeguard the position of the taxpayer in this matter, although it will not commit itself at all as to what the future conditions of sale of this company might be. I think that it would be quite wrong for any Government, of whatever persuasion, to tie itself at this particular juncture.

In the past, British Lion has been responsible for many good British films. In spite of the decline in cinema audiences, about 15 million people in Britain still go to the cinema each week, and I am hopeful that under its present control the financial strength of the company will be rebuilt and it will not only produce but continue to distribute many more first rate British films.

10.38 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

In the few minutes which remain, I should like to say that, for my part, I regard the answer of the Minister as totally unsatisfactory, because he does not seem to have appreciated two essential points. He said that his purpose and the purpose of the Government was to see that film making continued. That is our purpose, and I am sure that it is the purpose of everybody on this side of the House. He has not been prepared to give the undertakings which are essential to ensure that that purpose is achieved.

He has not been prepared to give the undertaking that, in no circumstances, will the Government sell the tax loss. He has no need to sell the tax loss. If a sale has to take place, for reasons which we cannot now foresee, he can quite easily sell the various assets; he can quite easily see that the continuation of the leases and the rights to the films and all the rest are dealt with, without selling something which constitutes freedom from payment of taxes so far as the Revenue is concerned. He has refused to give that undertaking, and we fear, therefore, that he does not appreciate the fundamental point.

He talked about selling the tax loss, and then proceeded to say that, of course, he would not sell it except at a proper figure. Nobody except a lunatic would pay for a tax loss the full amount of so many shillings in the £. The market price is one-half or, probably, one-third of that. Therefore, the effect would be that for every £ I that the Board of Trade received, the Treasury would lose £3, or £4 or £5, as the case may be. We do not regard this as good business. The hon. Gentleman should consult some business advisers.

The second point that he has not appreciated is that the whole thing is geared to encourage a sale instead of geared to encourage hard work and production. The inducement to those who are interested in the company at the moment is to find a buyer, not to continue making good films. There is no need for the Corporation to have its thoughts at all moments of the day on how to improve the quality of the films, but on how to find a buyer and to get round the difficulty of the Opposition seeing through the sale of the tax loss, which the Government, apparently, do not do.

If the hon. Gentleman concentrated on giving inducement for good hard work, nobody on this side would object. The inducement he has given is to find a buyer so that the previous loss of £3½ million, which by their work, apparently, the present directors are increasing, should be increased and sold. We do not regard that as a good thing. In fact, the whole thing is totally unsatisfactory.

Photo of Mr John Rodgers Mr John Rodgers , Sevenoaks

With permission, may I say that while I am not prepared to give an undertaking that we would never in any circumstances sell this tax loss with the company, I think it is most unlikely that the Government would agree to sell the tax loss. I am not, however, prepared to give an undertaking.

It is absurd to suggest that the Government have no policy for continuing to make good British films. Substantial help is given in many ways, as the hon. Member for Gloucester (Mr. Diamond) knows. I will not enumerate them now, but this is not the only way in which we try to encourage the production and distribution of good British films. The record of the Government is quite good in this matter and I take exception slightly to the remarks of the hon. Member for Gloucester that we do not care as much as hon. Members opposite for the production or distribution of good British films. We certainly do care, and we do all that we can. That view would, I think, be endorsed by the Cinematograph Films Council, whom we meet from time to time, as the right hon. Member for Battersea, North (Mr. Jay) knows, and from whom we get advice on this matter.

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order,

Adjourned at eighteen minutes to Eleven o'clock.