Draft Films (Definition of “British Film”) Order 2006

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Eighth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Ann Winterton

†Balls, Ed (Normanton) (Lab)
†Barron, Mr. Kevin(Rother Valley) (Lab)
Curtis-Thomas, Mrs. Claire (Crosby) (Lab)
†Ellwood, Mr. Tobias (Bournemouth, East) (Con)
Foster, Mr. Don (Bath) (LD)
†Irranca-Davies, Huw (Ogmore) (Lab)
†Jenkins, Mr. Brian (Tamworth) (Lab)
†Lepper, David (Brighton, Pavilion) (Lab/Co-op)
Morgan, Julie (Cardiff, North) (Lab)
†Moss, Mr. Malcolm (North-East Cambridgeshire) (Con)
†Purnell, James (Parliamentary Under-Secretary of State for Culture, Media and Sport)
†Sanders, Mr. Adrian (Torbay) (LD)
†Seabeck, Alison (Plymouth, Devonport) (Lab)
†Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
†Tredinnick, David (Bosworth) (Con)
Vaizey, Mr. Edward (Wantage) (Con)
†Ward, Claire (Watford) (Lab)
Glenn McKee, Committee Clerk

† attended the Committee

 
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Wednesday 15 March 2006

[Ann Winterton in the Chair]

Draft Films (Definition of “British Film”) Order 2006

2.30 pm

The Parliamentary Under-Secretary of State for Culture, Media and Sport (James Purnell): I beg to move,

That the Committee has considered the draft Films (Definition of “British Film”) Order 2006.

David Tredinnick (Bosworth) (Con): On a point of order, Mrs. Winterton. It is always a great pleasure to serve under your chairmanship. Is it in order for us to remove our jackets?

The Chairman: I should be more than delighted if you felt the need to remove your jacket, but I would be grateful if you removed nothing more.

James Purnell: It is a pleasure to serve under your chairmanship for the first time, Mrs. Winterton.

We are here to debate the modifications made by the draft order to the definition of “British film” contained in schedule 1 of the Films Act 1985. Films play a key role in British culture, how we see ourselves in a diverse society and how we invite the world to see us. The Government’s core aim for film is to promote the sustainable production of culturally British films, which is supported through three objectives: promoting a sustainable framework for British film, encouraging the production of films that otherwise would not have been made, and maintaining a critical mass of UK infrastructure and creative and technical expertise.

Under the current framework, the Secretary of State for Culture, Media and Sport will certify a film as British under schedule 1 of the 1985 Act, provided that the film meets the following requirements: it has a maker who is resident in a European economic area member state throughout the time of the film being made; at least 70 per cent. of the expenditure on film production activity is incurred within the UK; 70 per cent. of the labour costs are paid in respect of labour or services of EEA or Commonwealth citizens or residents; and no more than 10 per cent. of the footage comes from previously certified films or other makers unless the film is a documentary.

The maker test and the archive footage test will remain under the proposals in this order, but, for consistency with film tax relief, the maker test will be amended to reflect the provisions of the forthcoming Finance Bill. There are two key modifications set out in the order. It will remove requirements on labour
 
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costs and film production activity expenditure requirements, and it will replace them with a new cultural test.

Schedule 1 of the 1985 Act is being modified to introduce a more effective way to certify culturally British films and, in particular, to ensure that support given to film under that framework is consistent with the European Commission’s rules for providing state aid. The cultural test awards points for the cultural content of the film, where it is made and who makes it. That is a more effective method through which to identify culturally British films than the current structures, which simply measure where production expenditure is incurred and on whom. The general cultural test is set out in proposed new paragraph 4A of schedule 1, as modified by the order. Proposed new paragraphs 4B and 4C set out separate tests for documentary and animation films respectively.

During the public consultation on the cultural test, it was found that the nature of film making for animation and documentary films differs greatly from that for live action films. To prevent documentaries or animation films from being disadvantaged relative to live action films, we have created separate tests for those types of film, which offer alternative options when the general test is not applicable. For example, animation films rarely shoot on location, so the visual design, layout and storyboarding work are instead included so that they can be awarded points in addition to any photography that may be done in the animation studio.

The final framework of the cultural test was published by the Department alongside the Treasury’s announcement of revised and more generous rates and levels for the new tax relief of film in the pre-Budget report on 5 December. The UK Film Council and the film industry at large have welcomed both those announcements and the positive impact they are expected to have on the UK film industry. The full details of the new tax relief will be published in the Finance Bill shortly after the Budget.

The aim of the new cultural test is to apply objective criteria to the measurement of cultural attributes to identify culturally British films. Points will be awarded to all those elements that contribute to the cultural value of the film.

Alison Seabeck (Plymouth, Devonport) (Lab): In the explanatory notes, paragraph A4 of the cultural content section talks about original dialogue in the English language, which seems completely reasonable, but there is no reference to sign language. Is that a recognised language? If a film is produced solely in sign language, will it fall into that category and obtain a point accordingly?

James Purnell: We have used the official languages covered by the Council of Europe’s recognition of minority languages in the UK. Languages such as Cornish or Gaelic will be recognised. I am happy to write to my hon. Friend to tell her whether the test covers a film produced entirely in sign language.

 
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Mr. Tobias Ellwood (Bournemouth, East) (Con): The objective of the order is sound—it is to ensure that the film is British. The Minister mentioned proposed new paragraph 4A, and a phenomenal number of tests must take place to determine that a film is British. Comparing the two systems—the old system and the one proposed in the order—how many more civil servants will be needed to confirm the tests? I presume that they will be watching the films in the depths of the Department for Culture, Media and Sport. What extra cost will be incurred between the old and the new systems?

James Purnell: We think that the new test will be simpler than the previous one and that its implementation will require no extra resources. There were a number of comments about the previous test—how well it was adapted to and focused on identifying British films. That will be clearer to the industry, and people will be able to pre-apply to be told whether their budget will in theory meet the test. That will also help to provide the industry with more certainty. Overall, our regulatory impact assessment concluded that this provision will not create a greater burden on either the industry or the civil service.

Mr. Ellwood: The Minister’s remarks are helpful. Is there to be a reduction in the Department’s budget next year?

James Purnell: The Department is already operating under a stringent headcount reduction, and as the hon. Gentleman knows it is also increasing its activities to cope with the Olympics. I am not sure that the order will lead to a direct reduction, but the industry will welcome the fact that there is to be no increase in its burden.

As I said, the aim of the new cultural test is to apply objective criteria to the measurement of cultural attributes. There are three sections to the test, and a film maker will require 16 points out of 32 to pass. The first section assesses whether the content of the film is British, the second awards points where the film has been made in Britain, and the third considers who made the film and whether they are British or EEA residents.

The introduction of a new, more culturally focused test should benefit the UK film industry and British film culture by encouraging the use of British content, practitioners and facilities. A sustainable British film industry should have a long-term impact, using the wealth of talent emerging from training courses in media and film to make up the film industry of the future.

The cultural test offers a more predictable system through which to qualify as a British film, as I was saying to the hon. Member for Bournemouth, East (Mr. Ellwood). A system of interim approval will be introduced for schedule 1 films. It is worth clarifying the fact that it will be interim approval. The final decision will be based on the budget and how the film is delivered.

The test strikes a fair balance between the interests of domestic film makers and inward investors. It is an effective way to obtain culturally British film without
 
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being parochial or setting the expenditure bar too high and discouraging a globalised industry from investing in culturally British films. The British film industry succeeds not by choosing between inward investment and domestically British films. We make both types, such as “Batman Begins” and “Vera Drake”, and this cultural test is flexible enough to enable that to continue.

Mr. Brian Jenkins (Tamworth) (Lab): I am reading article 4 with some interest. Under it, proposed new paragraph 4A will award up to 15 points. Sub-paragraph (a) uses the words

“up to six points depending on the percentage of principal photography that is carried out in the United Kingdom as follows”.

The Minister will be aware that although a film might take many days to shoot, much of it will end up on the cutting room floor. Does 75 per cent. of the final film have to be made on location in Britain or does this refer to 75 per cent. of the time spent filming?

James Purnell: It refers to days of shooting. It means the activity rather than what eventually ends up in the film, otherwise there is a danger— My officials are shaking their heads. Otherwise there is a danger that people will have to include unwanted scenes merely to meet the photography test.

Mr. Jenkins: We must be mindful of the fact that it might be tax advantageous for a producer to shoot 75 per cent. on location and then axe it because it has no relevance to the film. If so, the provision might be used as a tax loophole.

James Purnell: A back-stop provision in the legislation allows the Secretary of State to disqualify films that have used the rules merely as a way to qualify, cosmetically as it were, without delivering on the spirit and detail of the provisions.

The Chairman: Order. I would be grateful if the Minister addressed the Committee—and me as Chairman.

James Purnell: Thank you for that stricture, Mrs. Winterton. The legislation gives the Secretary of State the power to disapply that qualification under the cultural test if people abuse the rules.

Mr. Ellwood: I shall give an example. If I wanted to make a serious film, but not a documentary, about the Guatemalan dung beetle, I would need to go to Guatemala. However, I could spend 75 per cent. of my time filming in my constituency in Bournemouth, where we do not see many such beetles. There is a loophole, and the Committee needs more assurance that it will not be explored in an attempt to gain such tax privileges.

James Purnell: The simple answer is that there are three ways to qualify under the cultural test. The first is where the film is made, the second is who makes it and the third is whether it uses facilities in the UK.

If the hon. Gentleman’s film was made by British or EEA residents who used British post-production facilities, and if it accumulated 16 points, it could
 
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qualify as a British film. He will know of a number of British successes that have included much location filming done outside the UK—for example, “Bend It Like Beckham” includes a scene in Germany. We do not want to restrict people to making films shot only in the UK. We want the test to allow films to qualify either by being British in content or by being British because of who made them or where they were made.

The new cultural test will help to build a sustainable British film industry. We believe that it is a better targeted mechanism than the previous expenditure-based test. It will be less burdensome on the industry, and we think it complements the tax incentives announced in the Budget, which were widely welcomed by the film industry.

2.44 pm

David Tredinnick: I welcome the fact that the Government appear to have consulted widely. [Interruption.] Am I in error, Mrs. Winterton, in rising to speak?

The Chairman: I called you because you stood to catch my eye.

David Tredinnick: I am glad to hear that the Minister has consulted widely. Unlike with some measures, such as the amalgamation of police forces, the ambulance service or regional government, on this occasion the Government have consulted widely. I have been in contact with various people in the film industry, and I believe that there is a wide acceptance of the fact that something had to be done.

The regeneration of the British film industry goes back nearly to the tail end of the 1987 Parliament, when we were all lobbied about the parlous state of the industry. The 1992 tax regime started the regeneration, and various tax breaks were introduced by the Conservative Government and the subsequent 1997 Labour Government. A good illustration of how the regime has worked is a British film, “These Foolish Things”, which is showing in the west end. I went to see it the other evening. In fact, I know some of the people involved in the production. When I spoke to them yesterday and today, they made the point that the film would not necessarily have been made under the new arrangements that come in on 1 April. I shall refer in a moment to problems to do with definitions.

I commend that amusing film to the Minister. It is set in the 1920s and deals with life at that time, and struggling writers and actors. Not all the reviews have been positive, but some—in The Times, the Daily Star and one of the women’s magazines—have been favourable. It is a good example of a small-budget film; I believe the budget was about £10 million. It was put together by a private individual, Nigel Milne, on his own idea.

Mr. Milne managed to take it through successfully using a tax vehicle that the Minister has not mentioned—the enterprise investment scheme—and the tax breaks under legislation from 1992 and 1997.
 
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However, the arrangements are changing, partly because of this order and, as the Minister said, because of Treasury rates and what will happen in the future.

There are three major problems related to this order, although not expressly stated in it, that affect the industry. First, I understand from directors in the industry that there is no definition in the tax credit regime that will come in on 31 March of the tax credit on qualifying British expenditure. As such, it is impossible for the industry to make proper arrangements for the future. That is exactly the same problem that dentists have under their new regime. They cannot get any new forms for the dentistry proposals that are coming in soon. I shall not pursue that point. [Interruption.] I am obviously exciting some concern among those who are interested in dental care.

The second problem is that the tax credit is supposed to be paid to the maker of the film, but there is no technical definition of who is the maker. Notwithstanding the fact that the order is intended to help to clarify the status of a British film, we have a ludicrous situation in which the industry is left luffing in the wind on two absolutely crucial points because of the Government’s negligence and inability to bring things forward in good order and in good time.

I shall leave it to my colleagues to pursue the other issues to do with dentists, police authorities and all the other matters on which you might call us to order, Mrs. Winterton. [Interruption.] It is nice to hear murmurs of support from those on the Labour Benches. I do not always get that when I rise to speak. I shall now rest my case.

2.49 pm

Mr. Malcolm Moss (North-East Cambridgeshire) (Con): Thank you, Mrs. Winterton, for calling me. I apologise for not leaping to my feet quickly enough. This is the first time that I have served under your chairmanship. May I welcome you to the Committee, and may I wish you belated birthday greetings of last week? [[Hon. Members: Oh!”] We just happen to share the same birthday. Is that all right?

We welcome any new measures that make it easier for any industry, in this case the film industry, to understand what it needs to do—which boxes it needs to tick and which rings it needs to jump through—to qualify for the tax breaks, which is the most important thing that we are discussing. Everyone hopes that those tax breaks will come as and when the Chancellor gets on his feet in a few weeks’ time—[Hon. Members: “Next week.”] So time is not of the essence in this case.

The order is about tax breaks, and whether it is appropriate and right for taxpayers throughout the United Kingdom to contribute to films made in this country. Films qualify for that financial involvement only if they are “classified as British.” I can understand that there were problems with the earlier definition, whereby there was a 70 per cent. threshold over which it had to be demonstrated and justified that the money had been spent in order to qualify for the definition of British.

 
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We are also in favour of any measure or legislation that is deregulatory and simplifies what was a complex system. After reading the order, we could be forgiven for thinking that it is far more complex than what it replaces. In the final analysis, the outcome of the inspection and arrangement may be simpler for the industry to follow, but to the layman the order looks incredibly prescriptive and very complicated.

My hon. Friend the Member for Bournemouth, East asked how much it will cost for the industry to go through the procedure of ticking the right boxes to prepare a case for the DCMS, which has historically considered such applications. It will now have to examine in detail which boxes have been ticked and to verify that the box that has been ticked has been delivered in the final analysis. What input did the DCMS have into the order? Did it accept a report from a quango, the film industry, the Film Council or Uncle Tom Cobleigh and all, which is how it seems in parts, or is it the Minister’s own blueprint? Is it something into which he has had an input and is, therefore, more than happy to stand by the content?

I accept and agree that the cultural test is a better way of proceeding than the old spend test. The cultural test, as defined, seeks the total involvement of those people who are involved in the British film industry, from the top end of the scale—the producers, directors, investors, actors and scriptwriters; all those with whom we identify closely when we see a film—right through to the people at the other end. I was going to say those who work at the bottom end, but I do not mean that because they are as important as everyone else who is involved in the industry. The cultural test ensures that the input into making a film is measured across the spectrum of employment within the United Kingdom. That is a better way of going about it than trying to measure up who spends what.

One of the difficulties historically within the British film industry is where the investment originated. Technically, in the past, if Hollywood moguls wanted to spend huge amounts making a film in Britain, it did not qualify as a British film because the spend did not originate here. The Minister will no doubt put me right if I am wrong, but the analysis in the order delivers a better definition of the “British” context and content of what we are trying to achieve.

The Minister may not be able to answer this question now, but it would be helpful if he could tell us how many films did not meet the criteria of the definition of British in the past five or 10 years which would have qualified under the new definition. Given time, I am sure that he could trawl back and dig that information up. Perhaps he could answer me in writing as I should like to know what difference the new definition would have meant to those British films.

The key issue is whether, by defining a film as British, it qualifies for tax breaks from the Treasury. The recent history of Treasury involvement is not that good. The Chancellor, frankly, has a lot of ground to make up with the industry for what he did two years ago when, at a stroke, he made immense changes that caught the industry completely unawares. People who were making films that were in gestation and
 
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predicated on receiving tax breaks realised that they would not get those tax breaks. There was some furore and the Government backed off. In the end, they made a contribution to help those who had in all good faith embarked on a film-making process on the understanding that they would get some tax breaks. I suspect that they are hopeful that he will be extremely generous next week, or whenever it is, to make up for that. Only time will tell.

Ed Balls (Normanton) (Lab): I am grateful to the hon. Gentleman for his generous comments on the importance of providing support for the film industry. In making the point that it is important that we get the regulations and definitions right, and that we do not want wrongly to advantage films that are not being made in Britain, does he recognise that in terms of both the amount of taxpayers’ revenue that goes to supporting British films and the number of British films that have been made in the past eight years, there has been a substantial renaissance in the number of British films being made, which is in no short measure to do with support from the Exchequer? I think he implied that, but will he be explicit in congratulating the Government on their work in supporting the British film industry?

Mr. Moss: I was not going to get political, but I have been given the opportunity to wax lyrical on that front. It would be wrong for anyone in my position to say that the Labour Government’s record on financial investment in the film industry, either through tax breaks or in any other way, is as good as it ever has been. I hope that the hon. Gentleman is satisfied by that. That does not negate my point that there was a hiatus not so long ago caused by his chef d’équipe at the time. It caused problems. They were rectified to a degree, but I stand by the point that the Chancellor has a bit of ground to make up with the industry. The hon. Gentleman nods in agreement, so I seem to have satisfied him.

On some detailed points, I pick up the point ably put by my hon. Friend the Member for Bosworth (David Tredinnick) about the definition in article 4(2), which refers to the maker of the film. Helpful definitions are given later in the text in proposed new paragraph 4D, but not the definition of “the maker”. It might help if the Minister could define the maker of a film. I am not an expert on such things; to my mind, the maker might be the producer, who packages the thing together. Then there is the director, who actually makes the film by directing it. Who is “the maker” in the context of that article?

On the inflexibility about the way in which the system is set out, only time will tell whether the Department has got it right. Having points for British characters might mean that scriptwriters will fudge things and introduce a British character when the context of the film does not really require it. There are also points for a film that “depicts a British story”. I can understand why we want the British film industry to look at important British stories, but I do not understand why that should be given points under the system.

 
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The question of what photographic material constitutes principal photography has been raised. There is no definition of the word “principal” in proposed new paragraph 4A(4)(a). It would be helpful to know what is meant by “principal photography”. As has been asked, is it the material that ends up in the final cut of the film, or the material that is photographed before cutting?

One hopes that the draft order is a step in the right direction. We certainly support anything that makes it clearer and easier for the industry to put itself forward for tax breaks and financial assistance. I understand from talking to people in the industry that they are happy with the order. They believe that it moves the balance from the spend equation to the input of British content through the work force, the participants and so on.

We welcome a stricter definition, but have questions as to whether the order is over-prescriptive and whether, because it is so finely detailed, as my hon. Friend the Member for Bournemouth, East said, it will lead in the end to more civil servants being employed by DCMS simply to comb through the detailed submissions from the industry. The idea and thrust behind the order may be right in its focus on cultural input, but I am not sure why we need to have 32 points. Perhaps there should be fewer, with the threshold be set at 50 or 60 per cent. Some tweaking may be necessary, but in essence we support the measure and wish it well.

3.3 pm

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Prepared 16 March 2006