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Clause 32 - Film tax relief

Part of Finance (No. 2) Bill – in a Public Bill Committee at 5:00 pm on 6th May 2014.

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Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 5:00 pm, 6th May 2014

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate the Minister on her appointment. It is wonderful to be debating with two Front Benches that are all female, except for our Whip.

Clause 32 introduces additional changes to the highly successful film tax relief, introduced in 2007 under the last Labour Government, to promote the sustainable production of British films. It is clear that the tax relief has been an enormous success in attracting and supporting the production of films here, not just by British but by worldwide companies. An HMRC note from last July summarised the headline benefits of the relief to date: 1,390 film productions have become eligible to claim the new tax relief; the total production expenditure by films claiming the relief was £9.8 billion, of which 72% was incurred in the UK; production expenditure averaged £86.6 million per film for large-budget films, or £2.3 million for limited-budget films.

The British Film Institute told the House of Commons Select Committee on Culture, Media and Sport:

“The film tax relief has been an undisputed success story, supporting the UK film industry and the UK economy.”

In its report, “Supporting the creative economy”, the Select Committee highlighted the benefits of the film tax relief in attracting big-budget promotions, principally from the US. The Committee concluded:

“We strongly support the film tax credit. The benefits it has brought in terms of film production have spread across the country, from Glasgow to Chatham, from London to Liverpool.”

The Opposition wholeheartedly support those sentiments, and we therefore welcome any measures that build on the success of the film tax relief introduced under the last Government.

I have one or two questions to put to the Minister for clarification. The second key provision in the clause provides for the UK expenditure requirement in section 1198(1) of the Corporation Tax Act 2009, the minimum UK core expenditure, to be reduced from 25% to 10%. For the purposes of clarity, “expenditure” includes that spent on filming activities such as pre-production, principal photography and post-production, 10% of which must take place in the UK for the film tax relief to apply. Can she say how many more film productions might benefit from the relaxation of the minimum spending requirement within the UK, and what assessment has been made of that? HMRC has published a detailed note on who, what films and what companies have benefited to date from the relief, so I presume that the Government have also assessed the potential future impacts of extending the relief. It would be useful if she could comment on that.

That said, the policy costings document published alongside the Green Book and autumn statement 2013 suggests that the cost of modernising film tax relief will rise to £25 million a year by 2016-17, yet concedes that there are many areas of uncertainty:

“The main areas of uncertainty in the costing relate to the number of films that will claim FTR in future years and the level of inward investment following the policy change.”

Can the Minister give any Treasury estimates of how much additional inward investment the UK can expect as a result of the additional film tax reliefs?

I appreciate that we have discussed tax avoidance at great length in many Finance Bill Committees, including this one, but it is worth briefly mentioning some reported instances in which investment schemes have been set up apparently to exploit the UK’s film tax reliefs. The list of such schemes runs potentially into the hundreds, some of which, such as Eclipse 35, have already been shut down. They often involve “sale and leaseback”, whereby clients are encouraged to invest money—supposedly to support the UK film industry—and then loaned that money back to exploit the film tax reliefs that we are discussing.

HMRC is rightly concerned about that and has taken action to close down some of those schemes. The Public Accounts Committee has returned to this issue in the last few weeks as part of its inquiry into tax reliefs and their administration. In the light of the risks associated with those schemes, has the Minister made any provision to ensure that such a successful, valuable and well-intentioned tax relief is not further exploited for alternative ends? What action have the Government taken to ensure that the welcome provisions to extend availability will not be exploited? The tax information and impact note does not appear to make any reference to anti-avoidance measures; indeed, the permanent secretary to the Treasury has suggested that HMRC has seen no evidence of such schemes. None the less, given the growing public awareness of such schemes in the past couple of years, it would be helpful if the Minister clarified those points.