I thank the hon. Lady for her remarks. The clause sets out two changes, which modernise the existing film tax relief and encourage the production of culturally relevant British and EEA films. Indeed, the Palace of Westminster has been host to a film production recently: I returned here on a Friday afternoon to find New Palace Yard overrun by suffragettes—and very welcome it was, too, to see all those additional ladies in the bounds of the Palace of Westminster. I do not know whether that film will benefit from the tax relief, but I am sure it will be good when it comes out.
The clause makes film tax relief available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter for all productions. The minimum UK expenditure requirement will be reduced from 25% to 10%. There was previously a cliff edge in the film tax relief scheme between small and large productions. A 25% rate was available for films with qualifying core expenditure of £20 million or less and 20% for all other films. That meant that a film spending £21 million received less relief than one spending £20 million. In addition, one of the qualifying criteria for film tax relief was that at least 25% of the qualifying core expenditure must be UK expenditure. That requirement had become outdated, as the way in which films are made has developed and cross-border productions are much more commonplace.
The global film market has seen large changes in its production methods and many mobile elements of film production, such as visual effects and digital film making, have started to migrate to jurisdictions outside the EEA. As we have seen from recent award-winning British films, those techniques and the skills they require are where the UK can excel, which adds significant cultural contributions to those films.
The changes made by the clause will ensure that film tax relief is available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter for all productions. That removes the distinction and the cliff edge between limited-budget films and other films. The clause also reduces the minimum UK expenditure requirement to 10%, which will encourage further investment in the UK and benefit visual effects and the wider industry. It will also help UK independent production companies to work internationally and encourage minority co-production where the UK spend is less than 25%. Elsewhere, we have complemented these changes by modernising the film tax relief cultural test. That test has been expanded to allow for European as well as British culture. We have also increased the points available for principal photography, which I think the hon. Lady mentioned, special effects, visual effects and the use of a European language.
Let me turn to the hon. Lady’s questions. She mentioned that US productions might benefit from these tax breaks. It is worth putting it on record—I was not previously aware of this—that approximately 90% of the films made in the UK are small-budget films, for which this tax relief is very important.
The hon. Lady also asked about anti-avoidance measures. Recent coverage of high-profile tax avoidance schemes using the film industry related to a series of cases involving film investment tax relief, which was repealed in 2006, since when anti-avoidance legislation has been introduced. Film investment tax relief was replaced by film tax relief—that is what we are discussing today—which provides targeted support for film production in the UK. That targeting is important. Film tax relief is no longer given on investment. The new rules apply only to expenditure on film production by a film production company. The Government support and encourage genuine business investment through the tax system—that is why we have tax reliefs. However, we have made it clear that we will not stand for abuse of those reliefs and HMRC will come down hard on anyone who tries to use them for tax avoidance.
The move from 25% to 10% is intended to allow more productions to benefit from film tax relief. Tax relief is available only on UK expenditure, including goods and services used or consumed in the United Kingdom. The change will have a positive impact on activity in the UK.
The hon. Lady asked how much more inward investment the changes will generate. I cannot give her an exact number—I am not in the film business—but gathering together the finance for a film, pulling it together and making it all happen is incredibly complicated and, from everything I have read, takes an awfully long time. It is difficult to predict the impact, but given the positive reaction she outlined in her speech—there is plenty of support for the changes—we expect there to be a positive impact on film production. It is difficult, because there are a number of other factors that will affect the numbers, including rate change, but the change in the Bill is important and has been widely welcomed. The film tax relief makes a valuable cultural contribution to the UK.