UK Film Investment (Tax Relief)

Debate between Tim Farron and Nick Harvey

Tuesday 16th December 2014 Westminster Hall

[Sir Nick Harvey]

I entirely agree with what the hon. Gentleman says. I think that this policy was a success and that one can visibly judge the tangible uplift in small film producing in Britain during the period that the tax relief existed. I think that the then Chancellor was right in March 2004 when he observed—this is widely recognised—that a minority of partnerships were abusing the tax relief, but they were a minority. This is the point: it is completely inexplicable and totally unacceptable that 10 years later, HMRC is treating the whole lot of them as though they were crooks, and when the Prime Minister gets up to respond at Prime Minister’s questions, he has in his folder a brief that says that all those involved were involved in abuse, and that they knew at the time that they were engaged in it. That is completely different from the experience of the Movision partners to whom I have talked and of my own constituent on whose behalf I have taken an interest in the subject.

[Tim Farron (Westmorland and Lonsdale) (LD)]

Does my hon. Friend agree that the important thing is to consider the future of the film industry and particularly the young people who are involved in it? Whatever is the case, it is certainly not the fault of young people looking for a future in the film industry. I spoke to a young man—a Kendal college film student—called Emilio Methven on Friday. He did a survey of his fellow students over the weekend, and they want investment in the film industry going forward and more apprenticeships. They want the UK Government to demonstrate that in backing the UK film industry, they are going to back UK film students. They do not want a sense of there being a retrospective potential attack on the film industry that makes their future much harder to establish.

[Sir Nick Harvey]

My hon. Friend makes a series of very good points. These small films are something that Britain is good at. We have an international reputation in it and the developing creative industries in this country are something that we should celebrate, and yet investment in film is an inherently precarious thing to do. If it had not been, it would not have been necessary to contemplate these sorts of tax reliefs in the first place. The reality is that this scheme was almost too much of a success. It ended up costing more in tax reliefs than had been anticipated at the outset. However, as my hon. Friend says, young people up and down the country are engaged as students and as workers in the early stages of careers in the creative industries, and it would be a very backward step if the UK Government, the Treasury and HMRC were seen to be having a crusade against this industry at the very time when we should be encouraging it further and trying to ensure that more jobs are created in this area in years to come.

Anyone who has looked at this matter will understand that a minority of those involved had, arguably, been seeking to avoid tax rather than to invest in film. There are companies—for example, Icebreaker and Eclipse 35—that have been ruled to have abused the reliefs. Rulings have been made and money has been clawed back. However, I believe that the majority, including Movision, acted in good faith, and they are now being tarred with the same brush in the eyes of HMRC, which is refusing to give them the reliefs and challenging the availability of them to those that claimed them.

HMRC’s current position is that all compliant Movision partners who entered into investment in terms of their tax returns are under inquiry for all years ending from 5 April 2003 onwards. Hon. Members will be aware of how rarely retrospective legislation is passed, yet in effect that is what HMRC is doing by applying regulations in such a way that they are having a retrospective impact on these genuine film partnerships, as they were formed and invested in before 2007, and the abolition of section 42 and 48 relief. However, the sticking point is that HMRC will not engage with the partnerships either to discuss the rationale behind its position or to engage in any meaningful settlement talks. Many of its actions could even be viewed as obstructive. HMRC’s inquiries into Movision have been going on for 10 years—since 2004. When HMRC asked Movision how it incurred 100% production expenditure on films, Movision responded in detail on 11 December 2006. HMRC did not respond to that until June 2013—more than six years later. That is completely unacceptable.

It subsequently transpired that HMRC had had a resolution discussion embargo in place from 2010 to 2013, but had chosen not to inform anyone about that; none of the partnerships was aware of it. Why was that? What was the purpose of the embargo? What benefit did it afford to HMRC or the taxpayer?

In 2013, HMRC trialled an alternative dispute resolution and found it to be successful. Following that, it offered a 55% settlement to all partners. Many phoned back and at first were told that HMRC would get back to them after 10 days. Those who phoned later were told six weeks and then two months, and those who rang after that were told that the settlement team had been disbanded—with no explanation.

Movision has made two settlement offers to HMRC: one for £2.4 million and another for £3.95 million. It was told by HMRC that its offers were unsatisfactory, but not why, which obviously makes it very difficult for it to negotiate. The latest development, in the last fortnight, is that HMRC has issued a new embargo on discussions with film partnerships if the partnership has investment in films via anything similar to sale and leaseback. Sale and leaseback is a perfectly conventional method of generating financing whereby the owner of an asset sells the asset but then leases the asset back from the inquirer, thus freeing up some capital. It is commonly used in financing films, and HMRC recognises it in its own business manuals. It is unclear why the embargo has been issued, but it will certainly delay even further any meaningful discussions.

As I said at the outset, there remains a misapprehension about film tax relief. I fully understand the importance and, indeed, the necessity of putting a stop to tax avoidance. That is more pressing than ever in the current financial climate. It is clear that a light needs to be shone on these partnerships. HMRC needs to take immediate steps to identify those who were genuine investors as opposed to those who cynically abused the tax system. The Treasury must be clear that film partnerships that applied the correct legal procedures before 2007 are and remain eligible for the tax reliefs that they were promised by Her Majesty’s Government. With 65,000 cases of tax avoidance identified and a record 27,000 tax disputes waiting to be heard at tribunal, it seems clear that HMRC should be either prosecuting or moving towards a settlement with partnerships.

As I said, for the 500 partners involved in the Movision scheme, the average individual subscription was just £50,000. We are not talking about the super-rich; we are not talking about pop stars and footballers, who are advised on how to seek opportunities for aggressive tax avoidance. With every year that passes, the impact on some of the partners, with the HMRC sword of Damocles hanging over them, will worsen. Many have already become ill, suffering nervous breakdowns and stress-induced illnesses, and have seen marriages and businesses fail. That is a very high price to pay for responding to the call of “Cool Britannia”. Furthermore, it will no doubt make investors less likely to make use of current tax reliefs to invest in industries that the Government want to grow, of the sort that the hon. Member for Huddersfield (Mr Sheerman) suggested, and let us not forget that that is how this whole business started.

HMRC should stop prevaricating and engage with the film partnerships to resolve the inquiries. That should include the aim of either settling or prosecuting within two years, because this has already gone on long enough. I hope that the Minister will consider the steps needed to bring clarity out of the current chaos and rectify unfairness caused to genuine partnerships and investors.

HMS Affray

Debate between Tim Farron and Nick Harvey

Tuesday 24th January 2012 Westminster Hall

[The Minister for the Armed Forces (Nick Harvey)]

I commend my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) on raising this important issue through the vehicle of an Adjournment debate. I acknowledge his concerns for his constituent, who lost her first husband in this tragedy. I would, of course, like to pass on my sympathy to her and to all the families and relatives of those who were affected by this loss. I also have a constituent affected by this, Mr Kevin Cook, whose father went down on the Affray in the months before he was born. He has approached me for help with this issue as a constituency MP.

As my hon. Friend explained at the outset of his speech, it is now 50 years after the Affray was lost with all hands. However, what passes as history for many can remain a fresh concern to some, particularly if they feel—as clearly my hon. Friend’s constituent does—that there remains unfinished business. We have a duty to ensure that concerns are addressed as fully as they can be and that they are dealt with sensitively, within the bounds of what can reasonably be achieved this far after the event.

Let me set out a little of the background. HMS Affray was an A-class submarine completed in 1946. The class had originally been designed to undertake operations in the far east during the latter part of the second world war. The submarine used diesel-electric power-plant. Diesel engines were used for surface propulsion and charging of the electric batteries, which were used to power electric motors for propulsion when dived. Subsequently, Affray was fitted with a snort mast, which was a breathing tube to permit the submarine to run its diesel engines while at periscope depth, much reducing the chances of it being detected.

As we have heard, on 16 April 1951, Affray left Gosport on a training exercise under the command of an experienced submarine captain, Lieutenant Blackburn. There were 75 men on board and she was scheduled to make a surfacing report by radio at 10 o’clock the next morning, 17 April. When that was not received, Operation Subsmash was ordered in accordance with standard submarine search and rescue procedures, beginning at 11 o’clock the same morning. Over the next few days, many ships and aircraft were involved in the search for the Affray, but, sadly, to no avail. On 19 April, the Admiralty accepted that the Affray was lost, with no reasonable hope of any survivors. It was not until 14 June that the wreck of Affray was detected and identified north of Alderney in the Channel Islands, lying in 260 feet of water. In the following months, divers from HMS Reclaim spent much time investigating the wreck, hoping to discover the reasons for her loss. That was considerably dangerous work.

The board of inquiry convened to investigate the loss of HMS Affray presented an interim report on 19 July. The board considered a number of possible causes. Material failure was considered the most likely cause. That was not, however, a definitive finding. The board also considered issues of human error or the possibility of collision. The board of inquiry continued to seek further evidence. Diving continued to be carried out on the wreck, using some of the most advanced techniques available at the time, but no firmer conclusions could be reached and diving was brought to an end in early November 1951.

The final report of the board of inquiry reached conclusions that were broadly similar to those of the interim report: that the submarine was lost because of the material failure of the snort mast, which broke off without warning, and that the resultant rapid influx of water resulted in the submarine dipping markedly by the stern, becoming increasingly heavy and sinking to the bottom. The board also concluded that the rapidity of events did not allow the release of position indication signals, that the crew died rapidly and that the search organisation was rapidly and energetically implemented.

The report was laid before the House on 14 November 1951 by the First Lord of the Admiralty, Mr J P L Thomas. It noted that there was no certainty about the reasons for her loss and that the broken snort mast might be either the cause or the consequence. The Government judged that any attempt to salvage the Affray would be dangerous, expensive and not at all certain to be successful. With the extra risk to life that salvage would have incurred, the Government decided that it was best not to proceed. As a result, the definitive cause of the loss of the Affray could not be proven and the wreck of HMS Affray would therefore be the final resting place for the 75 souls on board.

As I am sure the House will agree, it is fitting that that grave is now protected from being disturbed under the Protection of Military Remains Act 1986. I took note that my hon. Friend told us that his constituent’s clear preference was that it should not be disturbed. As Members may be aware, claims were made in print in 2007 alleging that the true cause of the loss of the Affray was known but suppressed to spare the embarrassment of senior naval officers. A study of those claims has been carried out by the Naval Historical Branch of the Royal Navy, but it has concluded that there is no reason to disagree with the findings of the original board of inquiry. Indeed, scrutiny of the paper trail around the inquiry found that it was far from a review carried out by the Admirals for the Admirals, which was, I think, the expression my hon. Friend used. In fact, far from the Royal Navy hierarchy encouraging the board of inquiry to the conclusion that what happened was caused by the mast snapping, they were, on the contrary, very sceptical about that account. They did not encourage the inquiry down that line, but continued to question whether that was the true explanation. Some people have called for a new inquiry to be launched on the basis of those various allegations.

I listened to the points that my hon. Friend has raised today. He stated very confidently that this was an accident that could easily have been avoided and that the lives were lost needlessly. I cannot see any evidence that enables so bold a statement to be made. It is perfectly true that there had been problems with the condition of the vessel, but it had spent three months in the dockyard earlier in 1951, during which time most of the serious problems were addressed.

Furthermore, it is true—this is, effectively, common practice—that the Affray was booked in for further repairs to be carried out. However, the decision on whether or not she was fit to go to sea was not taken by the hierarchy of the Admiralty in the fashion described by my hon. Friend; the decision rested with the commander of the vessel, who was, as we know, a popular, decorated and extremely experienced captain. He judged that the vessel was in a fit condition to go to sea, although it is also true that there were more people on board than usual because the exercise was going to combine two different training exercises: one for the submarine crew and one for a small number of Royal Marines who were on board for that purpose. Again, the captain made the decision that the size of the crew was reasonable in all the circumstances, and that it was appropriate to go out to sea with that number on board.

Some of the issues that have been raised, and some of the points that were made separately in the Bennington letters, were known to the Board of Inquiry when it was considering the events that led up to the tragedy. We cannot say with any certainty at this point what the board members made of each of those pieces of information, but we can say with reasonable confidence that those factors were known about at the time, and were considered by the Board of Inquiry. I am struggling to see that new evidence is available today that was not available to the Board of Inquiry when it looked into the matter. It is my duty to tell the House that in the absence of any new evidence, it would not be possible to authorise a new inquiry. The main purpose of a Board of Inquiry is to ascertain the cause of an incident so that a recurrence can be avoided.

The House will understand that submarines of the same class as Affray have been out of service for more than three decades. Indeed, we do not even have any diesel electric submarines in the 21st-century Royal Navy. The subsequent safety record of the Royal Navy submarine service since the sinking of Affray has been excellent—Affray was the last submarine lost at sea—so it is exceedingly unlikely that a new inquiry could make recommendations that would materially affect the running of our modern nuclear-powered Vanguard, Trafalgar or Astute class submarines. A new investigation, even with new technology, would involve significant expense and significant risk, and we would have to be realistic about what it would be capable of discovering, particularly if we respected the wishes of those who would not want graves to be tampered with.

My hon. Friend also raised a question about the Affray fund. It is an independent fund, and is not controlled by the Ministry of Defence. The trustees are the Lord Mayor of Portsmouth, the mayor of Gosport and the Public Trustee. If he wishes to pursue any matters pertaining to the fund, it would be best if he addressed them to the trustees.

Submarines are complex ships, operating in an environment that is extremely dangerous, even in peacetime. Submariners operate at the limits of human ingenuity, and that is to their credit. They are among the bravest men in the Royal Navy, and soon to be the bravest women too. The loss of Affray and the men who served on her was a national tragedy, as well, of course, as a personal tragedy for many. We all understand only too clearly why those who were personally affected want definitive answers, but nothing can bring the fallen back, and after more than 50 years, there seems to me to be no realistic likelihood that we can ever provide the answers that, for understandable reasons, they crave. I cannot see that any new evidence is available to us now that was not available to the original Board of Inquiry. The passage of so much time seems to me to make the prospect of discovering anything new infinitesimal.

[Tim Farron]

The Minister is right to say that there is not much in the way of new evidence, but there are two clear sides that were never really put together. He referred to Affray’s dubious service and maintenance history, and the technical and mechanical problems that it experienced. It is the marrying together of sending the craft out in that state with a crew that was oversized and, probably crucially, under-experienced—25 trainees and a crew that was two thirds inexperienced in that ship—that makes Mrs Tower and me believe that those in charge were culpable. I accept that the argument about the inquiry is one thing, but an apology should be made for that poisonous cocktail of an inexperienced crew and an unfit vessel.

[Nick Harvey]

I have already touched on the points about the condition of the vessel. The records of its condition were all available and properly documented at the time. They were available to the Board of Inquiry to consider. It is true that Affray had had some service and maintenance issues, but there is no particular evidence that their number was unusually high for submarines at that time. Therefore, the decision by the commanding officer and the chain of command was based on their judgment at that time about the safety of the vessel. There is no evidence that anyone can see that they were pressed to take the vessel out. According to the standards of the day, the risk was within the parameters of what they considered to be normal. It is also true that there was quite a large number of relatively inexperienced trainees on board at the time, but again that was not radically out of the ordinary. The captain judged at the time that the blend of experience and trainees on board was acceptable, and that the vessel was fit to set sail.

I would be hugely regretful and deeply sorry if either of those factors contributed to the loss of the Affray, but there is no evidence in truth that either factor did. We must be realistic about what we can hope to establish as definitive fact 50 years after the event when a Board of Inquiry conducted in the immediate aftermath with all the information at its disposal at the time was not able to say with certainty exactly what the cause was. It remains a huge tragedy for the Navy and a personal tragedy for those involved, but after more than 50 years, I just cannot see any new evidence or any realistic prospect that we would be better able to identify the cause of the disaster now than we were at the time.

I am delighted that in April some of the relatives will go out to commemorate the anniversary. I hope that my constituent, who is planning to go with them, finds the experience moving and meaningful, but I just do not think that there is anything we can do to put to bed the unanswered questions, because I do not believe that any more information is available to us today than was available then. I fear that the 75 souls who were lost will have to be left in peace on the sea floor, and that we will not find out anything new as a consequence of the allegations that have been made in the recent few years.