Financing of British Films Under Business Expansion Scheme

New Clause 15 – in the House of Commons at 9:45 pm on 15th July 1991.

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'Where a company carrying on a trade qualifying under section 297 of the Taxes Act 1988 is engaged throughout the relevant period (for the purposes of that section) in the production of relevant films within the meaning of section 3(7) of the Films Act 1985, subsections (1) and (4) of section 290A of the Taxes Act 1988 (restriction of relief under business expansion scheme where amounts raised exceed permitted maximum) shall have effect as if for the amount there specified there were substituted £5 million.'.—[Sir Anthony Durant.]

Brought up, and read the First time.

Photo of Mr Anthony Durant Mr Anthony Durant , Reading West

I beg to move, That the clause be read a Second time.

I begin by declaring an interest: I am the chairman of the Back-Bench committee on the film industry, which is why I am moving the new clause.

The new clause seeks to exempt film companies from the upper limit for tax relief in the business expansion scheme. The current limit of £750,000 is inadequate for would-be investors in film production—the average cost for a medium-budget film is closer to £5 million. The new clause aims to make it easier and more attractive to invest in British films. That is an urgent need. Investment in our film industry has slumped badly.

Film is increasing in importance—there were about 100 million attendances at the cinema last year. People are watching films on television, satellite broadcasts and videos, both bought and rented. In the past 10 years, expenditure on video alone increased from less than £100 million a year to more than £1,000 million a year.

The British film industry has expertise and creative talent. Blockbusters such as the "Indiana Jones" trilogy and "Batman" were made in this country with largely British crews and "The Last Emperor" was written and produced by British talent. But because there is no finance and investment from the United Kingdom the profits from those films returned to the countries which put up the money.

The British film industry is too small to compete effectively with our European rivals. The decline in investment has, of course, affected production levels. Last year fewer than 30 films were made here and that total is set to go down still further this year. This low level of production does not provide enough throughput for an industry with a high risk factor, uncertain returns and high unit costs.

The industry comprises many small production companies, each incurring development costs without economies of scale, trying to produce prototypes for an unpredictable market. Sustained commercial success depends on being able to produce a continuing flow of films over a wide range of styles and audience appeal, so that the few successes pay for the ones which do not cover their costs. Other countries with small domestic markets bridge the gap with a range of subsidies, fiscal incentives and investment schemes which ensure a reasonable product flow and create a mass of film activity. There is therefore an overwhelming case for some form of Government action through tax incentives.

The stakes are high. Film is a key British industry with the ability to create products which can succeed in the European market place and can reach across the Atlantic to the American market. After 1992, the single European market will be larger than the US market and Britain will need to be well placed to exploit the opportunity. Presently, the United Kingdom cannot participate in European co-productions because we have no money to bring to the negotiating table. However, given that success often depends on selling one's film to the Americans, we have the advantage of language which should make the United Kingdom a natural partner in most European co-productions. We have the entrepreneurial and creative talent, the facilities and the commitment to make the industry successful. We can be certain that the film industry has the potential to compete effectively in Europe and in the USA. It could be as important to the United Kingdom's economy as Hollywood is to the US Exchequer.

The amendment is a simple but effective step which the Government could take to assist and stimulate the industry. It is one of the suggestions that arose from the former Prime Minister's working party following the meeting at No. 10 Downing street. I shall listen with interest to the Financial Secretary's response to my new clause.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

I support the new clause which the hon. Member for Reading, West (Sir A. Durant) so eloquently addressed. This is a crucial time for the film industry and the new clause would ease and encourage the industry. However, I think that the hon. Gentleman would be the first to concede that the new clause could be regarded only as a first step.

The new clause appears not a minute too soon. My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) and I served on the Standing Committee dealing with what is now the Films Act 1985. That followed a declaration by the present Home Secretary, at that time one of the many Ministers responsible for films at the Department of Trade and Industry, who said in responding to an Adjournment debate that the Act would lead to the renaissance of the British film industry. We have not seen a renaissance, quite the reverse.

Last year's Downing street seminar was regarded by many as highly successful. It is a great pity that it has not been followed up. The Minister may have some more information for us this evening. There were high hopes at that time, encouraged by the right hon. Member for Finchley (Mrs. Thatcher), but since then there has been little encouragement for the British film industry.

It is important that we address these problems because we have seen the industry weaken badly. In 1985, £272 million was invested, but in 1989 it was only £79 million. No industry can withstand that lack of investment, of training and of opportunity. This was once a great industry, and it is an industry that still offers enormous potential. In many ways The Observer yesterday told us a great deal. It said that there is to be a new version of the film "Wuthering Heights". This was given enormous prominence in that such a film would boost the British film industry. That is splendid news. We all welcome it, but it is a sad reflection on the state of the industry and it shows how little we have achieved and how few films there have been that a remake is greeted with the excitement that The Observer understandably thought was appropriate. It said: Paramount's decision is the most important for the British film industry for many years. However, a great deal more needs to be done. Scotland also has reason to be worried, for only one feature-length film has been made there in the past 18 months—"Tickets for the Zoo" by Brian Crumlish. It is the only Scottish film to be shown at the Edinburgh film festival.

I hope that, if this worthy new clause is accepted, the Minister will ensure that it encourages investment in this vital industry. As the hon. Member for Reading, West said, the industry is facing a great deal of change and competition, not all of it fair. The new Europe that will come in 1992 is all about competition and opportunities. The Department of Trade and Industry is letting the world go by in the film industry. It does not seem to realise that there are splendid opportunities there and that we should be encouraging indigenous talent within Britain and Europe, in competition with the United States, in an industry that has been sadly neglected for several years.

In 1990, United Kingdom film production was at its lowest level since 1981. A strong film industry influences overseas earnings and the balance of payments, and that is quite apart from the attraction of seeing a vibrant film and cinema industry. Whereas blockbusters like "Superman" and "Batman" were made with British expertise, over the past two years there have been times when there has been no major film production in the United Kingdom. Both as a source of new features and as a service centre for making foreign films, the industry is in a parlous state. We are reaping the cost of neglect.

As the hon. Member for Reading, West courageously suggested, our Government, unlike those of other countries, have treated film as an interesting luxury rather than as an industry and a producer of wealth. They have done this in the face of some unfair competition. The fiscal policies of other European Governments do not match ours and the concession that the new clause would introduce would help us to meet such competition from Europe and elsewhere. That is the very least that our filmakers are entitled to expect.

Even if the new clause is accepted, as it should be, there should be more encouragement for the film industry. The new clause is a first step in revitalising an industry in which there has not been a strategy for many years. The industry is facing the reality that many people are out of the habit of going to the cinema. Attendances have, I am happy to say, increased in recent times but the trend not to visit the cinema is one that we must try firmly and steadfastly to reverse in the interests of this indigenous industry. For the most part we rely on fiscal incentives, and that is why the new clause is so important.

10.15 pm

There has been an absence of strategy. With the Films Act 1985, which is mentioned in the new clause, we rightly abolished the Eady levy. It had had its day. It was appropriate to patterns of cinema-going when it was in operation, but we have not replaced it with a modern approach to film production in Britain now or in future. I believe that it is vital to introduce a realistic replacement.

When we come to think of the future of the industry we must think also of those who use it. In the days of the Eady levy we thought that those who went to the cinema to see a film should make a contribution to the production of the next film. It seems remarkable, especially given the Government's fiscal policies and demands on a difficult industry, that television contributes so little to investment in the film industry and to film production.

I do not believe that there is a need for a permanent subsidy for our film industry, and I know few people who think otherwise. However, films should be recognised as the products of a key British industry. The industry should have the resources to create products that will succeed in the European market place. When we talk of Europe it is vital that we remember eastern Europe and the new influence that it will have on our ability to export and to make a contribution in a wider European scene. Our industry should have the potential to reach into the United States market and to reap the rewards that are available there. We have the talent and I believe that we have the commitment. The industry has the potential to be as important to the United Kingdom industry as Hollywood is to the United States' Exchequer.

Given incentives and a commitment by the House to some of the best film talent that is available anywhere in the world, progress can and should be made. By encouraging that we would see restored to Britain a once-great industry that would still give joy and pleasure to many millions.

Photo of Mr Alex Carlile Mr Alex Carlile , Montgomery

I support the new clause of the hon. Member for Reading, West (Sir A. Durant) and the remarks of the hon. Member for Monklands, West (Mr. Clarke).

You will know, Mr. Speaker, that many celebrated feature films have come from popular television programmes. After the televising of the proceedings of this place for some considerable time now we might be seeing as competition to Superman III and Rocky IV, House of Commons V or even, dare one say it, Mr. Speaker VI. I say that merely to highlight the fact that there are many programmes on British television, apart from the proceedings of the House, and many aspects of British life that have been dramatised for television that lend themselves to British film making.

As Oscar ceremonies have shown in recent years, we in the United Kingdom have proportionately the richest array of talent of any country in the world. We have actors who can stand with the best. We have writers who are sought after in the United States to write films for Americans. We have the best film music makers, ranging from the traditional to the avant garde. We have photographers, camera people and editors who have won prizes for the very best of films. We have directors who are in daily demand throughout the world.

British film excellence applies not only to blockbusters which were mentioned by the hon. Member for Reading, West; British directors have produced films which are perhaps of minority interest but which would have great potential if they received just a little more funding. We have produced film makers such as Peter Greenaway who is regarded as being among the best in the world even though he has hitherto made his films on a small budget.

It is perhaps also worth noting that for shipping companies the business expansion scheme limit has been raised to £5 million. Therefore, what the new clause seeks is not exclusive to the film industry. We are asking for something which is perhaps analogous to the shipping industry—the opportunity to invest more favourably in an industry which, like the shipping industry, was once very large and great but which has declined significantly in recent years for economic reasons and because of competition from elsewhere.

The new clause does not seek short-term measures. The idea behind the raising of the BES limit is to enable the film industry in the United Kingdom to regenerate itself over a period of years. My understanding of the proposal is that the film industry hopes to establish a £100 million fund for film making channelled through 20 BES production companies, each with a £5 million budget. The five-year plan would merge the 20 companies at the end of that period into one over-arching film production business with large investment funds and a "slate" of 25 films a year.

Although one might not see the BES funds on the approved list of funds in which local authority treasurers should invest their local government money, they would nevertheless catch the imagination of the public. There is plenty of evidence from the video boom and from the increasing attendances at many cinemas that the British public still want to see films. I believe that the British public would take pride in seeing more British films and that, above all, they would be prepared to invest in more British films. The French film industry is, relatively speaking, thriving and it produces many excellent films. That is an example of just one film industry elsewhere in the world which is galloping away from the British film industry.

People are prepared to invest in schemes as chancy as football pools and horse racing, and the BES is certainly a better bet than they are. I believe that the public would regard investing small amounts of money tax free in the film industry as well worth the gamble and if it is, indeed, a gamble it would be one which for some would bring the highest possible rewards imaginable if a British film became a blockbuster success at the box office.

The BES is tailor made for financing an industry such as the film industry, although I hope that the Minister will agree that it is self-evident that the present financial limit would not buy one fifth of a decently financed film which means that it is not a reality for the British film industry in its present form.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

As the joint secretary of the all-party group on the film industry, I support the new clause which was moved so ably by the chairman of that group. As always on these occasions, I must declare an interest, because the Association of Cinematograph, Television and Allied Technicians, now transmogrified into BECTU, makes an annual contribution to my constituency Labour party.

For many years, I have criticised the Government for neglecting the British film industry. It is ironic that at the very time when British cinema attendance is flourishing, investment in British-made films has effectively collapsed. In 1985, the figure was £220 million. In 1989, it was just £79 million. As a result, film production in this country is at its lowest level in a decade. Overseas earnings have fallen from £104 million in 1986 to a mere £42 million in 1988, and the figure is still falling.

It is not that we do not have the talent to make good films in this country, but that sufficient investment income is not available to allow that talent to be put to good use in film production.

Labour wants to create a long-term British film fund for the purpose of investing in domestic film production, matched by private sector finance. That would provide certainty of funding, which would assist producers to plan and to raise private capital. It would also allow production on a sufficiently large scale to overcome the problems inherent in making films for a market as small as that of the United Kingdom.

Much of the money required for such a fund could come from the industry itself. However, the proposal in new clause 15 to introduce business expansion scheme funds, with tax incentives, as part of a much larger scale strategy to aid British film production would go a long way to ensuring that the fund could get off the ground and operate effectively.

The fund's income would need to be matched by private capital from outside the industry, which is why fiscal incentives are so important.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

The Conservative Whip mutters from the Treasury Bench.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

My hon. Friend is right. The hon. Member for Sheffield, Hallam (Mr. Patnick) would do well to acknowledge that 30 per cent. of film production costs return to the Treasury through value added tax, PAYE, and corporation tax. Before the hon. Member for Hallam jumps to any rapid conclusions about the supposed cost of such a proposal, he should do his sums more carefully than Conservative Members appear to have done so far.

My hon. Friend the Member for Monklands, West (Mr. Clarke) stressed the importance of expanding the British film industry's geographical base. At present, the industry is heavily concentrated in London. Labour local authorities in places such as Birmingham and Sheffield understand much better than the Government the potential role that the film industry has to play in the economy, and they have introduced media development agencies that encourage and assist the growth of film making in their areas. Those are innovative ideas, and we would do better to build on them nationally.

The Scottish Development Agency has already helped to establish Scottish Screen Locations—which attracts film makers to Scotland for individual productions. I hope that will help to reverse the decline in Scottish film making to which my hon. Friend the Member for Monklands, West rightly drew attention.

The Government should also realise that training is a vital factor in the recovery of our film industry. The industry has traditionally depended on loose apprenticeships in which people have learnt on the job, earning little or no pay. A number of initiatives have helped—not least the establishment of the North East Media Training Centre, which has pioneered new courses as part of an ambitious attempt to use the audio-visual media in regional development. The Labour party is committed to a training policy allowing employers to invest in their work forces, as they should in other parts of British industry.

10.30 pm

The new clause proposes exactly what Labour proposed when we debated last year's Finance Bill: the raising of the business expansion scheme limit for investment in the film industry from £750,000 to £5 million. What is good enough for private property under the present Government should be good enough for the film industry. It is very difficult to make a feature film for £750,000—extremely difficult, for any film maker worth his salt. A more reasonable BES limit should be introduced. If it is good enough for shipping and for private rented property, it must surely be good enough for the film industry.

Our film industry ought to be one of the most flourishing parts of British industry as a whole. We have the talent, the audiences, the traditions and the people—people with skills, ready to make the films. The new clause would provide the finance that would ensure that the industry could indeed flourish.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

I sympathise with many of the sentiments expressed in this short debate. I congratulate my hon. Friend the Member for Reading, West (Sir A. Durant) on the way in which he presented the proposal. Many tributes have already been paid to the skills, talents and abilities of those who work in the British film industry; let me pay my own warm tribute to those people, whose performance—as has been mentioned—has been regularly recognised in various award ceremonies.

What should be done to assist the industry, and, in particular, to encourage British investors? We would all applaud an increase in British investment. The new clause proposes an increase in the business expansion scheme limit from £750,000 to £5 million. As far as I am aware, no investment in films through the BES has been prevented by the existing limit, although I should be glad to hear from hon. Members who have any evidence to the contrary. The hon. Member for Islington, South and Finsbury (Mr. Smith) implied that there was a huge, dammed-up demand for investment, which had been frustrated by the limit.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

Surely the Financial Secretary realises that the present level is so low in relation to the normal costs of producing a film that the great majority of film-makers would not begin to consider establishing a BES fund. The problem is that the limit acts as a disincentive. If the limit is raised, I suspect that we would see more interest in using the BES as a vehicle.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

The hon. Gentleman may well be right. I can say only that before the £500,000 was introduced in 1988, there was virtually no investment in films through the BES. That may be different now and I do not reject the interesting proposition.

When my right hon. Friend the Chancellor of the Exchequer presented his Budget in March, he said that we could not introduce any specific taxation measures to help the film industry, but that we recognised the strength of the case and would look sympathetically at any taxation propositions by the industry and a proposition has now been made. As I have said, we are not fundamentally out of sympathy with the approach. There may be a means, through the proposition, of tapping into funds that would otherwise be funnelled into the film industry, but which are being prevented or discouraged from doing that at the moment.

Photo of Tom Clarke Tom Clarke Shadow Minister (Disability)

Nineteen eighty eight was three years ago. Some of us believe that the reference to that in the Chancellor's speech was a slip of the tongue. I do not know whether that was the case, but will the Financial Secretary tell us about the progress made by the Department of Trade and Industry's working party? If he cannot, the high hopes that were raised at the Downing street summit will have been dashed. We have heard nothing in the debate so far to offer us encouragement.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

The hon. Gentleman will hear plenty about the work of the Department of Trade and Industry working party from my right hon. Friend the Secretary of State for Trade and Industry. I cannot report to the House about that this evening. I can report to the House about the state of the Government's mind on taxation issues and I am ready to do that.

My right hon. Friend the Chancellor of the Exchequer said that we would continue to pursue and discuss with the film industry what taxation measures might be introduced to assist the industry. It appears that the industry would support the measure. As I have said, we are not fundamentally out of sympathy with it. I am prepared to look carefully with the industry at the possibilities to discover whether the proposition offers an answer.

Photo of Mr Anthony Durant Mr Anthony Durant , Reading West

My hon. Friend the Financial Secretary's response was not as forthcoming as I had hoped, but at least there was some sign that the proposal would be examined as part of the general examination of fiscal measures to help the industry. On the strict understanding that the proposal will not be lost in the discussions, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.