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Adam Price: Does the hon. Gentleman accept the point made by the right hon. Member for Islington, South and

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Finsbury (Mr. Smith), that the reality of the industry is that there is strong tax competition and there simply will not be a film industry in the UK unless we offer tax relief to support it?

Mr. Davey: My concern with that argument is that the logic of it is that the UK Government should respond to every tax relief given by every other country and should engage in a competition of tax reliefs across the world. We live in a global economy and globalisation affects many industries, not just the film industry. If this is the first example of the Government and the country giving in to such pressures, it is a severe mistake. Rather than getting into that battle, we should invest in our people; that is the best way to secure our future.

As the Paymaster General said, one of the reasons why the Government gave the relief was because they believed that the risks faced by the particular type of companies involved were significant and that there were higher risks than in other industries. That creates a disturbing principle. Will the Government give a series of reliefs to industries involved in high risk? Should we have a tax relief for impresarios who take on the risk of a theatre production? Should we have tax reliefs for the risks involved in developing a new record, and for all high-risk industries?

Should we have tax relief for North sea oil companies, who are clearly engaged in risky ventures and do not appear to be enjoying the generosity of the Government tonight? If we are going to give tax relief because an industry happens to be particularly risky—in this case, the film industry—how far do we extend that principle? It is a worrying principle.

Mr. Chris Smith: The hon. Gentleman dismisses the point about global competition far too lightly. This industry is far more mobile than virtually any other industry across the world. The industry is ready to move a major investment in production from one tax environment to another, depending on the relative attractions of those tax environments; much more so than virtually any other industrial activity.

Mr. Davey: The right hon. Gentleman accentuates my concern. Will we have a new principle, concerning mobility of capital? There are many other industries that, arguably, are even more mobile than the film industry; for example the IT sector—later we will discuss IR35—in which we have seen the mobility of capital and labour. If we decide our tax policy simply and purely on that basis, we will be handing tax relief after tax relief to industry after industry. We have to be exceedingly careful.

The Government were ill-advised to go down this route in the first place. We will be coming back and passing further anti-avoidance legislation for this relief year after year until a future Government have the courage to say that enough is enough. If we are going to promote the industry, we should do so by investing in the training and education of the people who work in it, and not a few shareholders who may not be United Kingdom citizens.

Mr. Mark Field: I agree in part with some of the well-made points of the hon. Member for Kingston and Surbiton (Mr. Davey), particularly in relation to the worry that we may come back in years to come to try to correct other sorts of tax avoidance. Of course, that is the very nature of the tax advice given in all industries.

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5.30 pm

I represent the constituency in which the home of the British film industry—Soho—is located. Unlike the right hon. Member for Islington, South and Finsbury (Mr. Smith), I have no other declarations to make. I must confess that the Government have got things just about right. Because such relief was widely regarded as open to abuse, the film business's great worry was that it would be scrapped entirely, in the way that the hon. Member for Kingston and Surbiton suggests it should be in future years.

Mr. Iain Luke (Dundee, East): The hon. Gentleman mentions, as he did in Committee, that the film industry is located in Soho, but does he not accept that many small production companies in Scotland and elsewhere benefit from this relief, given the efforts of the Scottish Executive—and, indeed, of the Welsh Assembly—to encourage filming and film production as a means of stimulating the economy in areas outwith London?

Mr. Field: I was not trying to claim exclusivity for my constituency, and as we speak, new film businesses are doubtless springing up in every last suburb of Dundee.

As I said, the Government have more or less got the matter right, and the film industry's great worry was that, if widespread abuse were perceived, the relief would be scrapped entirely. I am glad that the Government took on board several of the issues concerning transitional relief that Opposition Members raised in Committee, and I am encouraged by the Paymaster General's comment that roughly 80 per cent. of film projects will be saved under her proposals. I take on board the comments of the right hon. Member for Islington, South and Finsbury, who knows a great deal about this subject. It is clear that the matter will have to be re-examined, and if evidence were to come to light that we were losing significant business, the Government would doubtless want to do so during the course of a future Finance Bill. The original intention was to ring-fence tax benefits for the film industry, and although one might argue that the film industry is part of a global communications world that includes television and the like, that intention has clearly been open to abuse.

I hope that the Paymaster General is comfortable with the amendments. We will have to see how things pan out in future, and I shall continue to look towards the interests of a film industry that, hopefully, will remain strong in the years to come.

Chris Grayling (Epsom and Ewell): I begin by thanking the Paymaster General, and congratulating her on listening to the discussions in Committee, and to the other representations that she received. Through these measures, the Government have addressed the transitional issues in an admirable way, and I am grateful to her for that. I am also particularly grateful for the reference in new clause 21 to documentary programmes in which the dramatic content is substantial. There is an increasingly grey area in production, in terms of programmes with a substantial mix of documentary and drama, so that measure is especially welcome.

However, I retain two anxieties about the provisions in the clause, which were reflected in the comments of the right hon. Member for Islington, South and Finsbury (Mr. Smith). The Paymaster General said that the relief is

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used by large companies to gain financial benefit, but I remind her of what I said in Committee. It is not simply the majors that invest in and produce such programmes; we also have a thriving independent sector. Television mini-series, major television dramas and cinematic films are often made by the same companies. My anxiety is that we may lose some of the higher-quality international productions. More to the point, we could put our own industry at a disadvantage in competing in substantial markets—in which it is much easier to get major productions off the ground, as in the United States—and in those that offer tax incentives to their own industries.

I accept the Paymaster General's decision, but I ask the Treasury to keep the matter under review, and to be receptive to representations from the industry, in case there is a significant adverse effect on the production of major dramas in the United Kingdom. Should that happen, I hope that she will remain sufficiently open-minded to revisit the issue.

I would be grateful if the Minister would also give a commitment to keep the issue of different distribution channels under review. I mentioned the issue in Committee, because it is far from clear that cinema will continue to be the sole driving outlet for independent producers. I gave the Minister examples of the development of online technology, which may lead to theatrical productions being produced not for the cinema but for an environment in which the same risks are taken—perhaps pay per view or as part of a subscription service, but not the conventional linear television channels that we have known for many years.

I hope that the Minister will keep under consideration the changing nature of outlets and seek to be sure that the restriction of the relief to productions destined for a theatrical release is not stifling creativity in the independent sector. That sector is seeking new outlets and opportunities to develop its talents.

I am grateful to the Minister for what she has done, but I hope that she will keep those two points in mind.

Dawn Primarolo: A great misunderstanding has arisen about what we are discussing today. We are discussing a relief that was introduced following the Middleton report on film finance in 1996, which focused especially on the long-standing structural problems of the British film industry. The main relief sought to redress market failure and respond to the fact that British film-makers are denied access to the market and can make films only at considerable risk. That is because of the structure of the industry and, in particular, the distribution of films.

The main relief, which we are attempting to return to its original intention, is intended to stimulate the production of low-budget British films for distribution in the cinema. If the House wishes to have a discussion on whether to have a tax relief for high-value drama on television, that should be a separate discussion. The issue before us is the relief and whether it should be returned to its original intention, as the Government have sought to achieve.

The UK is not unique in using the tax system to overcome those specific problems. Many other countries do the same, including Australia, Canada and Ireland. Increasingly, eastern Europe is introducing similar reliefs for the same reasons.

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We do not need to have a long debate about the value of encouraging the British film industry and, especially, the production of low-budget films. The relief was never intended to help to subsidise American companies' inward investment in making dramas for television. The hon. Member for Kingston and Surbiton (Mr. Davey) thought that the £50 million cost of the transition to 2003–04 was enough. However, if the Government had decided to allow relief to the production of high-value television drama, which is what attracts the inward investment, and had put a figure of £1 million per hour on that, the cost to the Exchequer would have been £100 million-plus a year. That investment by the Exchequer for £150 million of inward investment from film production and financing companies would not be a good deal for the taxpayer.

We have to consider whether the United Kingdom has the skills and critical mass to attract the production of those films—we do—and whether we have a structure that helps. We are talking about films costing £15 million. That is what we call a low-budget film. We are trying to encourage those films and help the industry to blossom and grow.

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