Finance (No. 2) Bill

Lord Harrington of Watford Excerpts

Monday 11th October 2010 Commons Chamber

[Richard Harrington (Watford) (Con)]

I start by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith) on making such an excellent maiden speech. He was erudite, and he was absolutely correct in what he said about David Curry, a man I know. My hon. Friend described his experience from his constituency and as a small business man, and I have had exactly the same experiences myself. I could not disagree with a word he said, and he said it very well indeed.

I have listened to a number of speeches today—in fact, I think I was five years younger when I got here, although it was only a few hours ago. I did not want us to repeat the debate that we had on the Budget before the recess, because this debate is to discuss what the hon. Member for Wallasey (Ms Eagle) described as technical innards. However, we have heard about a lot more than technical innards, and much has been said about the economy in general.

I must say that I cannot believe the advancing amnesia among the Opposition. They seem to be in denial about what happened. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor of the Exchequer, decided that he wanted dramatically to expand the economy by borrowing a huge amount of money and spending it on almost anything that there was to spend money on, but it did not work. As soon as the Opposition’s denial ends and they say, “Okay, we tried it, but as it turns out it was irresponsible and did not work”, we can have serious budget debates. Instead, we have heard arguments such as those from the hon. Member for Wirral South (Alison McGovern) about people putting signs up in restaurants about a small reduction in VAT, which was apparently the great fiscal stimulus. I would love her to find one person in her constituency or in the whole country who said, “Oh, VAT is about 2% less, we’ll go and eat tonight.” Such things just did not happen.

[Alison McGovern]

I feel moved to defend myself. The point is that a VAT reduction would give the economy an immediate boost and signal temporary Government action to get us through. I believe that the hon. Gentleman is wrong about the impact of VAT cuts, but if he knows of some statistics or evidence I would be very happy to hear it.

[Richard Harrington]

Well, the cut cost in excess of £300 million, and it is common sense that people do not change spending decisions based on a 2% difference.

I shall move on, because time is running short and I wish to talk about two parts of the Bill. The first relates to the British film industry. The Bill contains a technical adjustment to film funding to allow more leeway in calculating the amount that is surrenderable for tax credit. That sounds complicated, but it is sensible. The real issue is the need for appreciation by this House of the film industry’s economic contribution.

I must confess to having a constituency involvement, in that Leavesden film studios, where much of “Harry Potter” was filmed, are in my constituency. The American company Warner Bros has announced that it is acquiring the site, and that there will be a big increase in employment. Hopefully those studios, as well as Pinewood, Elstree and many others, will continue their prosperity.

[Mr James Clappison (Hertsmere) (Con)]

My hon. Friend’s mention of film studios tempts me to intervene. As he knows, Elstree studios are in my constituency in Hertfordshire, and Hertfordshire as a whole has a world-class tradition of film making. “Star Wars” was made partly in my constituency, as were many other famous films—he mentioned “Harry Potter”. Does he agree that through financial incentives it is possible to build on that tradition and create considerable employment opportunities for many young people in a growing industry?

[Richard Harrington]

I thank my hon. Friend, and of course I agree with him. Our part of Hertfordshire is rapidly becoming the Hollywood of southern England—or its Beverly Hills, in the case of his bit.

There is no doubt that taxation of the film industry is important. According to a recent Oxford Economics study, the industry employs 35,000 people and makes a direct contribution of £1.6 billion to the UK economy. It pays about £445 million in tax, even without any multiplier effect being applied. The £110 million in tax allowances for it in the Bill and in previous Acts of Parliament represent very good value for this country.

Why am I speaking about the film industry, given that as far as I am aware the main political parties agree about the need to provide that assistance? It is because the industry provides an example of not only some of the best uses of Government credits, but some of the worst. Following an earlier Act of Parliament, the accountancy tax avoidance industry used perfectly acceptable vehicles for investing in the film industry as tax avoidance methods. Film and television producers have told me that their films or programmes, which were effectively pre-sold so that there was no financial risk whatever, were used to provide large tax benefits through comparatively risk-free investments. That opportunity was correctly removed about two years ago, but that does not mean that the Government should ignore the perfectly reasonable demand for very high-risk investors to have a tax-efficient vehicle to invest in the film industry. That is good for this country and leads to vast amounts of money and a lot of high-quality employment being brought in. I accept that the Government have much greater priorities at the moment, but I ask them to consider introducing a proper, tax-efficient vehicle for venture capital investment in the film industry, in a way that does not allow it to be used as a method for tax avoidance, which is quite unacceptable.

Secondly, I feel that because of my experience in business and the continual discussion in the press and the House about whether the banks lend enough money to businesses, I should tell the House of my experiences in Watford. I have spoken to most of the major banks there and to nearly 100 small businesses to find out the exact position. Members will know that a Bank of England document shows that the monthly average of new loans has gone down from a peak of £991 million in 2008 to £564 million in 2010, which is a significant reduction.

However, the real question is not the volume of loans being granted but the percentage of loan applications that are rejected. That figure is never seen. The banks’ criteria for lending used to be entirely based on property. Many business loans were really property loans in disguise, because they involved guarantees based on the personal houses of people who were borrowing money. Now the banks do not like lending money on property, so for the first time they are looking at small businesses’ balance sheets, cash flow and business plans. They are treating them as stand-alone instruments.

I observed the figures in Barclays bank’s main business lending office only two weeks ago. I saw people borrowing money and businesses having money advanced, but the reality is that the property-based loans, for the moment, have gone. That is one reason—not a macro-economic reason, but a practical reason—why lending is low. There is money available for small businesses. I agree that management fees are high. That is because banks have to spend a lot of time on a £50,000 loan, instead of just saying, “He’s got a house worth half a million, so we are not worried about anything else.” As we know, the spreads are high because banks can lend money to Governments for 2% over the base rate, so to lend to a small business banks have to consider a spread greater than that. There is more to bank lending than meets the eye, and we should consider the number of applications compared to the number of rejections.

I see that it is 8 o’clock. I know that other Members want to speak, so I shall leave it at those two comments.