UK Film Industry

Tuesday 9th November 2010 Westminster Hall

12:30

[Richard Harrington (Watford) (Con)]

I am honoured to be here, as people always say, but I am honoured in particular because this is my first Westminster Hall debate—and under your chairmanship, Mr Chope, which is much appreciated. I thank Mr Speaker for selecting me for once. It is a great honour. I suspect that there was no one else for the lunchtime slot, but one never knows.

I am here today to talk about taxation, and taxation to do with the British film industry in particular. I have a specific film interest in my constituency, which is the base for Leavesden film studios—recently acquired by Warner Brothers and, even now, one of the most successful film studios in Europe.

As I am sure the Minister is aware, Warner Brothers announced yesterday an investment in excess of £100 million in finally acquiring and developing the site. For the record, most people in this country are highly delighted that what has been Watford’s little-known secret—the filming of the Harry Potter films in my constituency, which has been going on for quite a few years—is now formalised. I have not yet been offered a part in the films, but I have had a close relationship with Warner Brothers, as the Government have—the managing director has met with Ministers several times in the past few weeks.

The value of the film industry to this country is significant. People might not be aware, but it directly employs about 36,000 people. If we include the multiplier effect, which studies do, 100,000 people derive their income from the film industry. The taxation commensurate with that is significant. The industry provides about £1.6 billion in direct revenues to the country and £440 million in taxation.

The industry is very significant, with highly skilled and highly paid workers—everything we are looking for in an industry in this country. It has weathered the recession quite well, unlike many other businesses, and production activity is pretty good, I am told.

We rely extensively on inward investment, which is what I want to talk about today.

[Andrew Griffiths (Burton) (Con)]

My hon. Friend is a doughty champion for the British film industry and he has already articulated its importance culturally and economically. It is a vast employer that brings a huge amount of investment and a lot of jobs to this country. Will he, therefore, join me in expressing some surprise that not a single Opposition Member is present—no shadow Minister or Labour politician to speak on behalf of the British film industry.

[Richard Harrington]

My hon. Friend makes a good point, as ever. Given the importance of the industry to this country, I had hoped that Opposition Members would be present. However, avid readers of Hansard they may be, so I am sure that they will be able to catch up in the morning.

[Mr Christopher Chope (in the Chair)]

Order. It is important to point out that this is a half-hour Adjournment debate, and it is not normally possible for Members other than the Member who secured the debate and the Minister responding to participate without having gained the consent of those people. Therefore, saying that Mr X or Mr Y is not present is not really a good point, because in a half-hour Adjournment debate people who could not participate would not normally be expected to attend.

[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.

[Neil Carmichael (Stroud) (Con)]

This is an important debate. Small businesses in my constituency are involved in film making. Like my hon. Friend, they have made the point that tax is the important issue, but there are other factors. One is simply creating the right environment for investment in the sector, and I would be grateful to hear what the Minister has to say about that. For example, there are the links that small producers have with the BBC and with other small producers. A feel-good factor encourages the right kind of investment, and we need to attract people to these high-profile industries, which also produce a lot of export work.

[Richard Harrington]

My hon. Friend makes a good point.

I should also mention lottery funding, although I am referring not to charitable or community-based assistance, but to a serious vehicle for serious investors. I know that my hon. Friend the Minister is besieged by people wanting handouts. I have spoken to the Treasury about this issue, and I am talking about not a handout, but something that would be hugely beneficial to the country economically—all the evidence is there.

[Angie Bray (Ealing Central and Acton) (Con)]

I am lucky enough to represent Ealing Studios, a very long-standing and famous set of film studios, and I agree with what has been said this morning. In America and Hollywood, there is so much money that people can afford to plan 10 years ahead. They know that a couple of the films that they take on will be duds, but they can afford to carry the duds because they know that somewhere in the mix there will be at least two or three films that make them a sensational fortune. What is it that they get so right over there that we need to look at so that we get it right here? We need a big enough investment and a big enough group of people who can plan ahead and take a couple of duds on the chin, but who can get the good films going as well.

[Richard Harrington]

My hon. Friend makes an extremely good point that goes to the nub of my argument.

For once in this country, we have all the infrastructure. We have studios such as Ealing, Pinewood, Shepperton and Elstree. Of course, no one would dispute that the Hollywood of the UK is Watford and Leavesden, which makes some of the lusher, more tree-lined roads in Watford very much akin to Beverly Hills.

[Jason McCartney (Colne Valley) (Con)]

I congratulate my hon. Friend on securing the debate. There has been a lot of talk about south of Watford, but I want to stand up for Yorkshire and the north. Probably one of the most successful British films of recent years was “The Full Monty”, which was filmed just down the road from me, in Sheffield, and I remember going to see it at Penistone picture house. However, my constituency has also hosted two long-running television series, which shows our expertise in film, with all the crew who were involved. We had “Last of the Summer Wine” in Holmfirth, which ran for more than 30 years, and the ITV drama “Where the Heart Is” in Slaithwaite. We have lots of wonderful skills—not just in the television industry—and it is important that we keep them employed in this country. Indeed, if we go on holiday to New Zealand or other English-speaking countries, we find that they also love our dramas, so this really is a good industry for us. Well done to my hon. Friend for securing the debate.

[Richard Harrington]

I greatly appreciate that point. Everything that is made in Colne Valley, and every television programme and film that is made, shows research and development working on the spot. A lot of the world-class facilities that this country has developed for graphic arts and special effects have come from films, rather than from laboratories or other fields.

There is a compelling argument here. The Government have done an excellent job on the film producer credit, which the industry is grateful for and which works, but we should look carefully at creating an industry that is British financed and British made, and whose profits remain in Britain. Thank you very much for your time, Mr Chope.

12:39

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)]

It is a great pleasure to serve under your chairmanship for the first time, Mr Chope. This is perhaps a poacher-turned-gamekeeper moment for you, and I hope you will not take too many points of order during what remains of the debate.

I congratulate my hon. Friend the Member for Watford (Richard Harrington) on a stunning debut in Westminster Hall and on bringing the success of the UK film industry to the attention of the House. He talked knowledgeably about the film industry and some of its technical details, which does not surprise us at all, given that he is the vice-chairman of the all-party group on the film industry and the hon. Member for Watford/Hollywood.

I also thank all other hon. Members for their valuable contributions. My hon. Friend the Member for Hove (Mike Weatherley) talks so much about piracy that he should perhaps take a starring role in “Pirates of the Caribbean 4”—a £200 million film being filmed in the UK. He is extremely knowledgeable and has, indeed, worked in the film industry. My hon. Friend the Member for Ealing Central and Acton (Angie Bray) represents the highly successful Ealing Studios, which are run by Barnaby Thompson. My hon. Friend the Member for Stroud (Neil Carmichael) made an important point about film. My hon. Friend the Member for Burton (Andrew Griffiths) helpfully pointed out that not a single Labour Member could be bothered to come to the debate. My hon. Friend the Member for Vale of Glamorgan (Alun Cairns) has not spoken, but his presence simply illuminates the debate, and I take this opportunity to congratulate him on his strong campaigning on behalf of S4C, another broadcaster whose future the Government have stepped in to secure.

My hon. Friend the Member for Watford began by noting the investment by Warner Bros in Leavesden Studios in his constituency. The studios are quite a well-kept secret in the United Kingdom. They are the place where all the Harry Potter films have been made and have, therefore, been responsible for a massive amount of inward investment into this country. Yesterday, Warner Bros announced that it was going to invest £100 million in Leavesden to make it the only major US studio outside Hollywood, so my hon. Friend’s remark about Watford being the Hollywood of the UK was in no way facetious. That announcement is a real milestone and a fantastic vote of confidence in the UK film industry.

The success of the UK film industry is built on a number of factors. We are, for example, the third-largest cinema-going nation in the world, but we also have a huge range of technical expertise. When my hon. Friend talks about the number of jobs that are directly related to the film industry, it is worth remarking that we have built a highly successful film industry that is fit for the 21st century on the back of the success of the tax credit and the inward investment from Hollywood studios. That includes elements that we might not necessarily consider as part of film, such as the computer graphics industry and world-class companies such as Double Negative Visual Effects, which provide visual effects to the film industry. That is another reason why so many people want to make films in Britain. My hon. Friend also mentioned Pinewood-Shepperton, and it is instructive that the studios are full at the moment. People who want to bring films to the UK are having to negotiate for space with that highly successful organisation.

It will not have escaped the attention of my hon. Friends—I can say that, as all Members in the Chamber are Conservative—that the film industry has been somewhat in the news because of my Department’s decision at the end of July to announce the abolition of the Film Council. One film director said that it was akin to abolishing the NHS. However, as the dust has settled it has become apparent that we took that difficult decision because we wanted to ensure that as much money as possible went to the film industry itself and that we spent as little as possible on overheads.

We will shortly be making an announcement on the future structure of support for the film industry. However, the decision to abolish the Film Council in no way reflected on its leadership. It was superbly led, and is still led, by Tim Bevan, its chairman; and was superbly led by its recently departed chief executive, John Woodward. I pay tribute to John Woodward; having been on the front line of the British film industry for 15 years, both in the British Film Institute and the Film Council, he can take a large part of the credit for the success that we currently enjoy.

Nevertheless, there have been some bumpy rides along the way. My hon. Friend the Member for Watford pointed out that the film tax credit lost its way in the mid-noughties, and that it was seen more as a tax avoidance scheme than a way of investing in the British film industry. I am glad to say that it now works incredibly effectively, and is the main reason for inward investment. We have made it absolutely clear that we guarantee its continuation. The scheme has to be approved.

[Alun Cairns (Vale of Glamorgan) (Con)]

I am grateful to the Minister for giving way. I congratulate my hon. Friend the Member for Watford (Richard Harrington) on securing the debate. We are talking about inward investment in the UK film industry, but does the Minister recognise the fact that the industry is UK-wide and that we should not focus on any one region? Every nation and region of the UK can play its full part in film-making; it can be an effective way of spreading prosperity away from the south-east of England.

[Mr Vaizey]

My hon. Friend is quite right. His intervention further illuminates the debate by ensuring that I put on the record the huge success of the Welsh film industry, Welsh television productions and the Film Agency for Wales, and the way that Wales is forging ahead with its digital agenda—no doubt ably supported by my hon. Friend, who is a strong voice for Wales in the House.

The film tax credit is due to expire, on a technicality, on 31 March 2012. If anyone is worried by that statement I can tell the House that, as part of the European state-aid rules, we are required to re-notify the European Commission that we intend to continue implementing it. Officials have already begun the process of ensuring that the system continues beyond 31 March 2012 and is cleared again without a gap.

The film tax credit stands at the heart of inward investment, and I pay tribute to the team currently residing in the Film Council that implements the tax credit, dealing with the nuts and bolts and ensuring that the t’s are crossed and the i’s dotted. Those people do a superb job. I hear again and again from the film industry—this is perhaps for the team’s benefit—that instead of saying, “The computer says no,” it says, “How can we help?” That is to be commended.

There is another strand that supports British film, particularly those films with an essentially British content—national lottery funding. I am delighted that the Government decided to increase significantly the money available from the lottery for the production of UK films. The total sum available, which includes an element for training, will rise to £40 million in 2014; that is a 40% increase. Because of our decision to rationalise the bureaucracy that supports film in the UK, a far larger proportion of that money will go directly to supporting the British film industry.

It is worth pointing out that, as well as the £40 million that will eventually be available from the national lottery and the £100 million or so from the tax credit, the British film industry is supported by BBC Films and Film4. I was delighted to hear Film4 announce recently that it would increase its investment in film from £10 million to £15 million a year for the next five years; that is a 50% increase every year for the next five years. That decision, too, was taken after we announced the abolition of the Film Council. It is a huge vote of confidence in our film industry.

Sadly, one gap remains. I note that Sky now has 10 million subscribers. I hope this successful British broadcasting company will follow the lead of BBC Film and Film4 and establish its own film fund. I am sure that, in a 10-minute conversation with Sky, my hon. Friend the Member for Watford could explain that with the tax credit, the ability to leverage in private investment and possibly the ability to gain lottery funding, a small financial commitment could see substantial British films being made in this country.

As for direct grant in aid, the Government will be putting in about £73 million over the next four years. That includes our support for the British Film Institute. The institute is another important element in preserving our film archive and heritage, but it also promotes British film, particularly with the highly successful London film festival, which garnered a lot of attention this October and brought many film financiers and investors to London.

We also want to ensure that we are known in the world. We have a highly successful British film commissioner in Los Angeles, who helps with inward investment. He is aided by Film London, ably led by Adrian Wootton, and I put on the record my commendation of his work. Pinewood is expanding, with Pinewood Toronto studios becoming a leading production facility for film and television in Canada. We intend to work closely with UK Trade & Investment to ensure that British film has a presence throughout the world.

A side effect of our decision to abolish the Film Council is our wish to establish a more direct relationship with the British film industry. I was pleased to announce recently that we are to have a biannual ministerial forum on film, where all elements of the British film industry can discuss important matters with Ministers.

The key thrust of my hon. Friend’s excellent speech was that we need to build a sustainable British film industry. We want to take it, as it were, beyond the cottage-industry state. It is a highly successful industry that makes excellent films, but the perennial question—the gold at the end of the rainbow—is how to make it sustainable. It is difficult to replicate the US model, which integrates distribution and, with the huge amount of capital that is available, allows investment in a slate of films. However, we shall not take our eye off the ball.

We need to consider a number of the imaginative measures that have been proposed. The Producers Alliance for Cinema and Television proposes what it calls a lot-box; the key to its proposal is that producers should keep some of the intellectual property in their films. Too often, it is given up in order to raise private finance. We need to consider imaginative proposals on leveraging private investment on the back of the substantial money that is available from lottery funding. We must also keep close scrutiny on the need for a distribution model that works for British film, because without distribution the job of making a successful film is only half done.

The film industry in the UK is highly successful—one of the most successful in the world. We have a huge range of talent, not only in our brilliant actors but in our formidable technicians and fantastic world-beating companies. I am delighted to say that through our increase in lottery funding, our guarantee for the film tax credit and proposals that we hope to announce shortly, we intend to build on that success, maintaining and increasing it.