Draft Films (Definition of “British Film”) (No. 2) Order 2006

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Mr. Foster: I do not want to repeat the hon. Gentleman’s point, but we should place on record the fact that, notwithstanding our concerns about the tax regime, the British film industry is in pretty good heart and is having significant successes—it is worth repeating, for example, that it is the fastest growing cinema industry in the developed world. Last year, eight of the 20 biggest box-office hits in the Britain were domestic products. Financially, in the first six months of this year there was £307 million of inward investment, up from £179 million in the same part of last year. Production spending in the UK in the first half of the year was £486 million, compared with£276 million in a similar period last year.
There have been enormous international successes on the silver screen—“Harry Potter”, “James Bond”, “Bridget Jones” and even “Wallace and Gromit”. This year, a British director, Ken Loach, won the Palme d’Or at Cannes for his film, “The Wind That Shakes the Barley”. We will all say “Hear, hear, yes, well done,” but I wonder whether Ken Loach would have received support under the order. After all, one of the criteria, for four points, is whether a film contributes to
“the promotion, development and enhancement of British culture.”
Considering that that film is about the growth of the IRA, I am not sure whether it would meet that criterion. Perhaps the Minister will tell us.
We know that there are enormous benefits of having a successful British film industry. One has only to talk to people in New Zealand about the huge impact that the “Lord of the Rings” trilogy has had on tourism there to know that that is another area of benefit. We look forward to the results of the work of the UK Film Council, which is looking at the impact of UK films on tourism in the UK.
I share many of the concerns raised by the hon. Member for Wantage. However, I was surprised to read in The Times today that this order has provoked a furious response from the film industry. The Minister challenged the hon. Member for Wantage on whether he had talked to many people in the industry. I assure him that I have spoken to a large number of people in the film industry about the issue, and there is not a furious response—they are just fed up and want something to get on with. After all, one of their biggest concerns is the fact that the previous tax regime was suddenly halted and that there has been a two-year hiatus without anything having been put in its place. That hiatus, plus uncertainty and lack of clarity, has been the biggest concern of the people to whom I have spoken.
Olympus Films, which is based in my region, if not in my constituency, in Bristol has had to lay off a large number of people. Many of its staff worked without any financial reward for a long time, waiting for what they hoped to get under the previous tax regime. However, when the previous scheme was brought to an end, the company had no alternative, because there was no new system in place, and it is now in serious financial difficulty—it will, of course, apply under the new tax regime, but it has experienced huge delays. The crucial thing that I have picked up has been a desperate desire for clarity and certainty about what is going to replace the old scheme. The industry hopes that we will agree this order, even though it is not happy with some aspects of it, so that people have the beginnings of clarity.
I share the concern expressed by the hon. Member for Wantage about the consultation. The Minister suggested in his response to the Select Committee Chairman, the hon. Member for Maldon and East Chelmsford, that there has been consultation on the order. It is clear from the explanatory notes that there has not been consultation on the system of cultural points. It is worth repeating, because it is crucial that hon. Members are aware of this point, that
“The Department carried out the full 12 week consultation on the existing cultural test”—
the old one—but that,
“Unfortunately, given the need to introduce the new relief quickly and the confidential nature of our discussion with the Commission it was not possible to carry out a similar consultation on the revised test prior to introduction.”
That is the bit that we have already heard. However, section 7.7 of the explanatory memorandum continues:
“Responses from the original consultation were borne in mind throughout the discussions with the Commission and consultees’ views have been reflected in the final test.”
I have spoken to a number of those people and they claim that their views about things that matter to them were not taken into account. The location of the filming, for example, was very important to some people who were consulted on it. In fact, location was so important that it was the issue about which the Government boasted in the old scheme. It is worth reflecting that in another place Lord Davies of Oldham said:
That is what the consultees wanted, and it was reflected in the earlier test. That cannot have been fully taken into account when the new arrangement was agreed, as the Minister and the explanatory notes suggest.
It is worth reflecting on paragraph 7.7, which gives an example of the type of things that the Department bore in mind:
“For example the need for certainty and clarity offered by the interim certification.”
Of course the industry wants that. It is desirable to know in advance whether the test is going to be met, and it is right that that continues. However, it was never in doubt under the previous arrangements. There are real concerns about the changes that have been made, notwithstanding the desire of most people in the industry to have some kind of scheme.
I shall raise a couple of further points, although I do not want to get into what constitutes Britishness. We will have to wait for the guidance, but I note that the explanatory memorandum states:
“Attached is a copy of the guidance on how the Department will assess the test.”
That guidance goes into a lot of detail about some things, but on the four points
“awarded in respect of the contribution of the film to the promotion, development and enhancement of British culture”,
it states simply that four points may be
“awarded in respect of the contribution of the film to the promotion, development and enhancement of British culture”.
I hope that the full guidance will contain more information.
Peter Bottomley: The hon. Gentleman will recall that the Minister said that the idea was not to distort the market. Does he agree that the point of the scheme is to get more people to invest? And is he as interested, as I am, to hear from the Minister, either now or by letter, how long after people make an investment they will get the tax break?
Mr. Foster: That is certainly going to be important, but I hope that the hon. Gentleman agrees that an early indication of the likelihood of a tax break via an interim notification is crucial to investment. That is why I asked the Minister if film makers will get a quick response in which they can have a fair degree of confidence that, if they do what they say, they will receive that tax break. Investors need that information, rather than knowledge of when they will get the money, although that is clearly important, too.
We have not touched upon a couple of concerns that have been expressed to me. The first relates to co-production, which is particularly important to small firms. The Film Council reports that co-production activity is likely to remain subdued in the second half of this year, reflecting the reform of the incentive regime. It is concerned that co-production, which is clearly very important to many people in this country, might not benefit from the scheme. Will the Minister comment on that?
Post-production work could also lose out significantly. It employs about 5,000 people in this country, and concerns have been expressed to me that the revised cultural test will remove any likelihood of filmmakers coming to the United Kingdom for purely post-production work—work on films made elsewhere, whose makers will not have the opportunity to come here.
I end where I began: I am uncomfortable with a lot of the cultural test and preferred the earlier version. I understand the difficulty that the Government have had in negotiations with the EU, but, frankly, they should have got those right earlier. However, everyone I have spoken to is desperate for us to do something, and the order will at least give a degree of certainty to the industry so that it can continue to be successful—hopefully, even more so than it has been in recent years.
5.19 pm
Mr. Whittingdale: I share many of the reservations expressed by my hon. Friend the Member for Wantage and the hon. Member for Bath. I shall start, however, by being slightly more positive.
First, it is generally welcomed that the Government have put in place tax incentives for the production of films. The industry was in a state of deep depression for a long time when uncertainty was created by the original scepticism expressed by the Chancellor about the value of such tax reliefs, but it welcomes the fact that we now have a cultural test and it can begin to move forward with some certainty.
I agree with the hon. Member for Bath. The test does not represent what the industry would most have liked, but the industry is resigned to accepting it, as the last thing it wants is to open any more debate about it. It has got a test and it might as well take what is on the table. There is no great enthusiasm for the proposal but at least it is an achievement that we now have a definition of what is a British film, an issue that has featured in every debate about the film industry for as long as I can remember.
There have always been two views. The first is those of people who regard a British film as essentially a product that is clearly about Britain: it is set in Britain and it involves British people and includes such films as “The Full Monty”, “Brassed Off”, “Billy Elliott” and, most recently, “The History Boys”, which is in cinemas at the moment. Those films often have a niche audience and a certain quirky charm, and no one would argue that they are not British films.
Secondly, however, there are those who believe, as I do, that the economic contribution of the British film industry stems as much, if not more, from the big budget films which are internationally mobile and which producers chose to make in this country. Such films as “Star Wars”, “Superman” and “Batman” are not obviously British, but they were made here.
I refer to the report on the British film industry by the Culture, Media and Sport Committee, which I now chair, but which was prepared under the chairmanship of the right hon. Member for Manchester, Gorton(Sir Gerald Kaufman). He said:
“None of the criteria set out in law are aimed at the subject matter of the film and some British-qualifying films (i.e. Judge Dredd, Gladiator, Troy, Lara Croft Tomb Raider...) therefore do not focus on stories an audience would recognise as particularly 'British'.”
Yet those four films all qualified as British films, therefore benefiting from the fiscal incentives which must have been a large part of why the production companies chose to make them in this country. However, it is highly doubtful whether any of those four films will qualify as British under the revised cultural test.
I accept that in drawing up a cultural test there has to be a points system, because there are so many different components which contribute to whether a film is British. In respect of the original cultural test proposed by the Government, I may have argued about whether the points system properly reflected the importance of that criterion rather than another, but in general we could all agree that the Government had made a pretty good stab at the test.
The Minister said that the cultural test we are debating has been widely welcomed, but it bears no relation to the one proposed originally; in fact, it is completely different. For example, the hon. Member for Bath pointed out that cultural hubs—essentially whether or not the film was made here—originally counted for 15 points and now count for only three. The cultural practitioners—whether the people making the film, the actors and the crew, are British—originally counted for 13 points and now count for only eight. As a result, those two factors, which originally accounted for 28 points out of 31, now count for less than half, and alone would not be sufficient to make a film British. That is a huge change, which is difficult to justify. It has led to some speculation that “Macbeth”, for example, would qualify as a British film but “Hamlet” would not, because one is set in Britain and the other is set in Denmark.
We are privileged to have on the Committee one of our great actresses, the hon. Member for Hampstead and Highgate. One or two of her best films—I am thinking of the Ken Russell films—probably would not count as British films under the revised cultural test. That is an extraordinary change. I do not propose that we should oppose it, but I express some sorrow that what started off as a reasonably good stab at defining a British film has now been amended beyond recognition. It also leaves out one or two key factors which in the past were regarded as rather important, such as the source of the finance that goes into the film. That does not now appear to have any relevance at all and yet it previously occupied enormous amounts of time in debate about whether a film should be regarded as British.
My hon. Friend the Member for Wantage was speculating about whether “The Sound of Music” would qualify. It seems to me that it certainly would not qualify under this test but “Mary Poppins” would. The two films are both essentially Hollywood musicals, but one is set in London while the other is set in Austria and so one is a British film and the other is not. This definition of what constitutes a British film seems very difficult to justify.
My final point is another word of welcome. One of the complaints that I have had from producers, particularly those involved in co-production, is that it has been almost impossible to obtain guidance from the Minister’s Department in advance as to whether a film will qualify as British. There have been cases where large sums have been committed and yet a film which may in all respects be identical to films which previously have been accepted as British is suddenly ruled not to be British by the Department. That has caused considerable financial losses, and in some cases films have never reached the screen.
The Minister emphasised that a higher priority will be attached to giving guidance to the industry so that producers can proceed with a certain degree of confidence that a film will qualify as British under the test. That is badly needed and has been absent until now. It will be particularly important in the co-production sector which the hon. Member for Bath mentioned. I finish merely by echoing the reservations that have been expressed by both the previous speakers. We cannot do much about it now, but this will do much less for the British film industry than the proposal that was originally put forward by the Department.
5.27 pm
Glenda Jackson (Hampstead and Highgate) (Lab): I had not intended to make any kind of contribution to today’s debate, but I felt that I should respond to the hon. Member for Maldon and East Chelmsford who referred to me. I must thank him for his most courteous definition.
The greatest strength of the British film industry is probably its technical expertise, and if we are genuinely concerned with ensuring that it has a future there has to be a continuum of production. We have markedly failed to create that over many decades, regardless of who was in government. If I look back to the time when I was appearing in front of a camera, I would be hard pressed to find a single film that was financed by British money. Virtually every film that I appeared in was a co-production and the majority of the finance came from America. There is a concomitant to that. If that is where the bulk of the finance comes from, that is where the bulk of the profit goes.
The hon. Member for Maldon and East Chelmsford referred to major blockbuster movies that have been made in this country such as “Star Wars”, “Superman” and many others. They were all made in this country because the financial structure here made it feasible for the producers so to do. There was a huge bulk of brilliant technical expertise to enable them to be made and to be brought in on time and on budget. As a nation, we gained not one penny piece of profit for the continuation of our own film industry from the vast profits that were made by these films.
Hon. Members have been much exercised by the fact that the points system is based on cultural definitions of what constitutes being British, but everyone in this room knows that what we are talking about is money. That is all that is being discussed here. How can a production company qualify for tax breaks for financial support? I would have thought that hon. Members should welcome this. In my perception, the order is not going to play terribly well with American studios or producers who are looking exclusively at huge, big-budget films, which they will probably make all around the world. The idea that the pre-production and post-production of the film “Gladiator”, for example, took place exclusively in this country is nonsense: it was shot all around Europe. A wide range of countries contributed to the completion of that film.
A large proportion of our young people are interested in participating in the future film industry, as my hon. Friend the Member for Stoke-on-Trent, North, said. If there is to be a viable industry in which they can participate, we have to ensure that there is bread-and-butter film production in this country year in, year out.
Nobody has mentioned the major shift in film production, which is towards films that are made to be released directly on DVD, not to go into cinemas. In the future, those films will go directly on to CDs. A point has been made about niche films that are produced in this country. Sometimes, they have huge international success, but nine times out of 10 they do not. They certainly make their money back, however, and in many instances make a not inconsiderable profit. People could put that money back into the film industry.
The order is, I suppose, a way of meeting European Union requirements and I have no problem with that, but I am stunned at the lack of imagination that has been shown by British film makers in entering into more co-productions with our European partners. However, that is a whole other debate. If the order means that we are able to ensure that there will be more bread-and-butter films made year in, year out, which will reach a wide variety of audiences and make their production costs back and make a profit, we should welcome that. Let nobody be under any illusions that what we are talking about has anything to do with culture or entertainment, however. It is about money. That is how the film industry manages to make films; that is the big driving force. I must admit that I see no reason why makers of massive, billion-dollar films should cry because they do not get a particular tax break from a particular country, but I am concerned about the independent producer or director who has an idea for a film that does not meet the bottom line of most people’s cost-benefit analysis. If the order encourages the creation of a much more solid British film industry that can work year in, year out—
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