UK Film Industry

Debate between Lord Harrington of Watford and Mike Weatherley

Tuesday 9th November 2010 Westminster Hall

[Richard Harrington]

Thank you, Mr Chope, but I ought to explain that I mentioned to the Minister whom I thought would be present—my hon. Friend the Member for Faversham and Mid Kent (Hugh Robertson), who told me that he would be here—the fact that I thought there would be one or two interventions. I hope that has not caused offence to the Chair, and thank you for the clarification.

The first item of which people should be aware is the current taxation, which is a producer film relief for companies making films that qualify in the UK as British films. The relief is in place, and the industry supports it and hopes that the Government will leave it in place. My understanding is that the industry has made suitable representations to the Secretary of State and that that will be the case, although I hope for clarification.

The taxation position, however, has been complex. In 1997, when the Labour Government came to power, they decided to reward what some would say was the electoral help of media “luvvies”—but I am not one of those. Some would say that there was a lax film taxation regime, allowing high-net-worth individuals to get 100% tax credits for investing in films. That situation was, I think it is fair to say, abused by the tax avoidance industry, rather than by the film investment industry. To quote Charles Fry of Pinder Fry, a legendary accountant in this field:

“The fact that we’re investing in films is irrelevant. If we could get the same tax relief investing in cauliflowers, we’d do it.”

To mix my metaphors, there was a chink of light and that industry drove coach and horses through it. The end product was that in 2006 the previous Government pulled down the drawbridge—to use another cinematic analogy—and cut off the tax break for investor funding for high-net-worth individuals.

The vehicle left was the enterprise investment scheme, which is quite well used but very much on a small scale. The average investment through the EIS is between £5,000 and £10,000, so it is a good way to get small investors. However, small films are the type that tends to be funded. While they are very useful, the fact is that, while we have amazing facilities in this country and all the infrastructure, we are providing a vehicle mainly for foreign investors to do their production here while the profit, quite understandably, returns to the investors, who are abroad. Today, I am speaking to the Government about how we need to achieve a situation in which British investors can invest in British films tax efficiently.

What we need to understand about the British film industry is that the budget for a film is now about £1.5 million—the average, median cost of a British film. It was £2.9 million in 1993. With due respect to some fantastic operators, we have gone down to a kind of cottage industry.

To give an example, Mr Martin Carr, who has given me some excellent evidence from his company Formosa Films, explained to me that it is a question of finding many investors to do one film. Films have 600 or 700 investors putting in small amounts of money. While that is obviously useful in employment terms and in benefit to the economy, we have the facilities and capabilities to do much more.

[Mike Weatherley (Hove) (Con)]

I congratulate my hon. Friend on securing the debate. Does he agree that one of the biggest threats to the film industry is piracy? While I welcome the Gowers report and the Digital Economy Act 2010, we could do many things to improve the Act. That should also be addressed by the Government.

[Richard Harrington]

The Oxford Economics study, which was commissioned by the film industry last year, proved that very point. Piracy and the infringement of copyright are the major reasons why money disappears from the system and why film makers are not getting the benefit of any of their films. In many cases, that is a criminal matter and the Government will have to make progress on it—like shoplifting, it is theft, and just like any other crime.

What I am really talking about, however, is how we create an independent film industry in which the vast number of high-net-worth individuals who will take risks can have a vehicle to invest in. What went wrong last time was that clever accountants came up with a device whereby schemes were risk free. People were doing sale-and-leaseback schemes. We are talking about not risky films—everyone knows that films are risky and that people either make or lose a fortune with a film—but series of television programmes that were pre-sold to television companies, so there was no risk at all. Accounting firms were making use of the provisions, which really ruined things for genuine film operators, who are now spending all their time making presentations all over the country to get investors to invest small amounts.

There is no question but that films are risky. In this country, we have a tradition of people investing in one film, which comes from the days of theatre angels, who would invest in a particular west end play. However, serious private investors need a vehicle that bunches a group of films together, because some films obviously work and some do not. People can make a very risky investment, for which they will get some tax relief, and there will be huge benefits for the country in employment and everything else. That is what I am asking the Minister for. A working party should be set up. I and people in the industry would be happy to take part, along with the Treasury and Her Majesty’s Revenue and Customs, to see whether a suitable vehicle could be devised.