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Noble Lords: Hear, hear!

Viscount Mersey: My Lords, I last spoke on film in June 1995 in a debate which stemmed from the report

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of Sub-Committee B of the European Communities Committee on a joint European film and television industry. However, I should like to take noble Lords back further than that, to the time when my noble friend Lord Gowrie was Minister for the Arts. He gave a very forthright reply to a question I asked about grants for film. He said that film as art deserved, and received, a grant from the British Film Institute. Meanwhile, he continued, the British film industry was highly successful and did not need any help. I remember that at that time "Chariots of Fire" had just been released. Thus, my noble friend Lord Gowrie separated film into two different types: the rather fragile art film and the far more robust industrial film.

However, I have to tell the House that I believe that my noble friend was wrong. When, 10 years later, Sub-Committee B examined film, we found that there was not a robust British film industry at all. I apologise to the noble Earl, Lord Drogheda, for disagreeing with him slightly on this matter. We found that, as he said, Hollywood is the western world's film factory, and the only one. There is not really an industry in this country. There is a craft. As he said, we are good at winning awards, but we are not so good at winning audiences.

People quote the Ealing comedies, as the noble Earl did, as the epitome of the British film industry; but, sadly, those films lost so much money for Sir Michael Balcon that he was forced to sell his studios to the BBC. Without a doubt, we make isolated brilliant films: "The Third Man", "The Elephant Man", and recently, "A Close Shave", starring Wallace and Gromit. But these do not add up to an industry. Indeed, the only facet of film activity that does add up to an industry was defined for us, a little cynically I thought, by Michael Winner. He said that the British film industry consists of the "Hammer House of Horror", the "Carry On" series and the "Doctor in the House" series. Those were "product", to use an Americanism. That is what Hollywood is so good at.

It is sobering to think that Sir Lawrence Olivier and Audrey Hepburn were not the backbone of our film industry, but that Barbara Windsor and Sid James were. So indeed were Charles Hawtrey, Hattie Jacques, Kenneth Williams and the great James Robertson Justice. So I think it important that government refer to British film as "craft" or "art" and treat it as art, and assist it as art and forget about industry, because it is not an industry. British film as an art form will certainly be my standpoint for the rest of this short speech.

The question is how to help it. Not, my noble friend will be pleased to hear, by subsidy. That merely creates lame ducks, as the noble Earl said. In his evidence to our committee, Herr Elmar Brok of Bertelsmann said:

    "In Germany we have a subsidy programme for movies which is a disaster. You pay a lot of money for movies that will never see a cinema. And then you have a situation in which directors produce movies in order just to get the subsidies and have never the aim of coming to the cinemas".
We found that the same was true of French films, which did not make it to the big screen. And we found the same situation in Australia.

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So I am very pleased that the noble Earl, Lord Drogheda, excluded the word "subsidy" from his Question, but included "tax incentives". Since that was one of Sub-Committee B's principal recommendations, I am bound to agree with him. Perhaps I may quote from paragraph 131 of our report:

    "We recommend the introduction of 100% first year tax write offs for investment in qualifying British films. This would represent a considerable improvement over the current write off which is straight line over three years ... We further recommend that the incentives should be introduced at the earliest opportunity".

That was our recommendation just under a year ago, on 4th April 1995. Can my noble friend on the Front Bench tell us what has happened? We have not received a letter from the Government saying that they disagree with our recommendation; but nor have we had any indication that there will be 100 per cent. tax write-offs. We used the phrase "at the earliest opportunity". I do not call a 12-month delay early. I sometimes wonder whether anyone reads these reports apart from the committee members themselves.

A tax incentive would help British films. There is such an incentive in Ireland, as the noble Earl said. However, there is still a caveat. The films that go to Ireland are not Irish films. They are known as "mobile product". They generate a lot of work and a lot of income, particularly for the catering trade. But the films are not about Ireland. They do not employ Irish actors, technicians or equipment. They are not really Irish. The same would apply here, though probably not to the same extent. Mobile product arriving in Britain probably would use British technicians and equipment; and though it would not be a British film, it would generate a hive of British film activity. So certainly on balance mobile product would be welcome. I look forward to a positive response on tax from my noble friend on the Front Bench. Better late than never.

The noble Earl asked for a tax incentive on traditional cinema. I back him on that, as does my committee. But British cinema must help itself, too. I quote one more piece of evidence given to our committee by M. Cazes of Lumiere:

    "Each time I meet the United Kingdom producers the only thing they ask is 'How am I going to finance my film?' This is not the question. The real question is 'How am I going to make my film have enough revenue for someone else to finance it?'".

I have said that British film is a craft, not an industry. Perhaps it should be more of an industry. Perhaps our foremost directors should think less of Oscars and more of the box office. If they do not, the lasting epitome of the British film industry will remain Hattie Jacques as matron in "Doctor in the House".

7.27 p.m.

Lord Jenkins of Putney: My Lords, some 20 years ago, when I was Minister for the Arts, I somewhat astonished myself by deciding to find a sum of money for creating what later became known as the Association for Business-Sponsorship of the Arts. I obtained the money from my noble friend Lors Barnett, who was Financial Secretary at the time, and I was accompanied in that endeavour by the noble Earl's father, Lord Drogheda. Between us we managed

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to persuade Lord Goodman to take the chair, and the Association for Business-Sponsorship of the Arts prospered.

I was therefore more than delighted to hear the noble Earl speaking tonight on a related subject. The arts should, and do, embrace film, and much else besides. I believe the noble Earl agrees with me on that. I agree with the noble Viscount, Lord Mersey, who said that he hoped we should hear more from the noble Earl particularly on this subject.

The noble Earl put his finger on the two key points. One is the possibility of tax assistance; the other is the possibility of the recreation of something like the old Eady levy. I agree with him. Any remaining remarks I make are in reinforcement of that view.

Harold Wilson was a film fan. He asked me to carry out a survey of the wider scene, including films. As a result, he set up a working party, which endorsed the Eady levy, and discussed--although I do not think much was done about it--the question of tax relief, tax support, tax gentleness one might say, so far as the industry was concerned. As a result of that, it is my view that those two actions were the foundation of the prosperity and eminence of the British film industry which obtained in the succeeding years.

The Eady levy disappeared due to the collapse of the industry. It became no longer worth while to collect at the box office--which is how the Eady levy worked--a small sum which went back into production. The sum was small and the industry was disappearing. But the British film industry has always lacked production money. It became almost impossible for distinguished directors like my noble friend Lord Attenborough--whom I am sorry we do not see here tonight; I hope that his attendance in future will be more frequent--to raise money to produce films in this country. If we are to enable British films to be made in this country with British money, we must do something about it. That is the whole point of the operation.

If we accept the two suggestions, we will be able to do that. First, we are asking in the Eady levy merely for the redistribution of money within the industry. The levy consists of a small proportion of the box office money being passed back into British productions. The charm of the scheme is this. If, as in the present case, most of the films exhibited are American, the small percentage added to the price of the ticket is exercised with American films as well as British films. In that way we take a little return to put back into the British production industry, whether the film exhibited is British or American. It therefore reverses to a small extent the situation which is operating at the moment. Furthermore, it does not cost the Treasury anything. I hope therefore that when the noble Lord, Lord Inglewood, replies he will make favourable noises about the reintroduction of something on the lines of the Eady levy.

I am not qualified to judge the tax question; I am not a tax expert. However, I have a strong feeling that it would be possible to introduce a form of tax relief which would not need to be spread elsewhere. The concern of the Treasury is that if it gives on one

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point, it will have to stretch in other directions. It is possible, in relation to the film industry, to devise a form of tax relief which will not spread elsewhere. I hope the noble Lord, Lord Inglewood, will also think favourably about that.

That is all I want to say. As I am one minute within my time, as distinct from the speakers hitherto, I shall sit down.

7.33 p.m.

Baroness Wharton: My Lords, I thank my noble friend Lord Drogheda for introducing this Unstarred Question. If we leave the British film industry entirely to market forces, I suspect that we will continue to have a diminishing film industry. Most countries, including the US, actively step in to help their own film industries and in so doing they protect their own culture and encourage employment at home.

We are all now familiar with the famous Section 35 of the Irish Finance Act which encourages film production in Ireland. Under the original Section 35 tax incentive, corporate investors were able to write off 100 per cent. of their investment against taxable profits although that has now dropped, I believe, to 80 per cent. Investment is made through shares in an Irish domestic company and held for at least three years to avoid capital gains tax except for low budget films, usually under 1 million Irish pounds, where one year is the limit.

To qualify, 75 per cent. of the work has to be done in Ireland. However, the government remain closely involved in all aspects of the feature film industry and producers have to obtain advance consent from the authorities before being able to take advantage of the tax incentives being offered. The arts ministry scrutinises everything, making sure the production industry benefits the country as a whole.

There are other areas of finance such as the Irish Film Board, though the amounts are considerably smaller. Another attraction is a favourable corporation tax of 10 per cent. as against our 40 per cent. Various other bodies in Ireland have targeted the film industry, offering financial support. The rules were modified after a thorough investigation by the Irish Treasury. In spite of that, the scheme has been extended for another three years.

What we need are tax breaks for foreign companies and private individuals investing in British production and companies wishing to establish permanent production bases in the UK. We also need a system of accelerated tax write-offs against production costs to be made available to UK corporate investors and international film companies.

Will the Treasury consider that? Will they consider relaxing the rules on withholding tax? As the Irish have shown, tax incentives are a powerful and proven method of stimulating production provided their use is constantly monitored in order to avoid abuses. Our own Secretary of State concluded that small independent production companies need to be encouraged to develop into larger, more sophisticated operations if the industry is to be viable. If that were so, we would be able to put forward package deals with maybe half a dozen films to

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potential investors rather than the usual one-off which, from an investor's point of view, is not attractive. I am sure the finance would be there if the tax advantages were in place.

Will the Government examine not only the Irish experience but also the approach of other countries to their film industries and consider something similar? We have a skilled workforce and wonderful studios. But all, or nearly all, investment is foreign with profits being exported. To survive we need to be more than just a service industry.

There is much more I could say. But as, over the years, I have taken part in many debates on film and media issues in your Lordships' House, I do not wish to detain the House any further.

7.37 p.m.

Lord Freyberg: My Lords, I too add my thanks to my noble friend Lord Drogheda for giving us the opportunity tonight to debate tax incentives to encourage and sustain the British film industry. Although buoyed by our recent successes at the Oscars, we should realise that film-making in this country is at an important crossroads. While British creative film-making skills are keenly sought the world over and our flexible labour laws are favourable to film work compared to other nations, Britain is rapidly becoming an uncompetitive place in which to make films. Thanks to our present tax system, low and medium-budget films and television programmes cost 10 per cent. more to make here than in America or almost any other European country. The governments of those nations give special treatment to their film industry. We must act to compete with them. We are not looking for subsidies but generous tax breaks and incentives without which the British film industry will decline.

In 1993 seven major American studios compiled a joint paper in response to the question, "How does the UK compare as a competitive location?" Their answer was:

    "For much of the time, it compares poorly. There are insufficient fiscal incentives to produce in the UK ... natural attractions--local talent base, availability of studios and technical staff--are not powerful enough magnets to overcome the sheer financial disadvantage of producing in the UK".
They went on to call for a constant factor which would enable them to use the UK's natural attractions and shift production here.

The Government must realise that foreign film companies are no different to large multinational companies such as Nissan which have been attracted to Britain by generous tax breaks and favourable deregulated working practices. If we could offer a 10 per cent. inward investment incentive to foreign film companies wanting to work here, we could increase the number of projects being made tenfold. One need only look at Ireland to appreciate the immediate effect legislation can have. After the introduction of tax incentives for film production, investment grew from £3 million in 1992 to £100 million in 1994. It is salutary to remember that the recent Oscar-winning

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film "Braveheart", which should have been shot in Scotland, was actually filmed in Ireland because it was cheaper to do so. That cost the UK some 45 million dollars. The key reason for Ireland's success is that it is an English language production base in Europe. The United Kingdom should be the first port of call for American film finance seeking a European location.

It is worth pointing out that besides introducing substantial investment incentives to encourage film production in this country there are a number of anomalies in the tax system which currently put off film makers thinking of shooting in this country; for example, "withholding tax". This means that if a singer, such as Michael Jackson, wants to record a disc here, he does not have to pay tax on his earnings, whereas for a live show he would. The film industry argues that this should apply to film. At the moment an actor is taxed both if he performs live--for example, in the theatre--but also if he comes here to make a film. To be on a par with the music industry, he should not pay tax on the latter. The fact that he does puts off many big stars from coming here.

The British film industry and the US studios which finance most film investment are also seeking an acceleration of the tax write-off which is currently available to film makers. In the 1993 Finance Act, the Government accepted the case for providing financial incentives for film production in the form of tax write-offs in order to allow the UK film production sector to compete on equal terms in international markets. At the moment only a third of film production costs can be written off. By accelerating this benefit--allowing 100 per cent. of the cost to be written off in the year of production--the film maker would benefit from a 6 per cent. saving on his budget.

The American studios have made it clear that this saving would be enough to persuade them to bring substantial new film investment to Britain. It is estimated that an acceleration of the tax write-off available to film makers would generate at least 1,200 new jobs in the first year that the regime was effective. This would be achieved with no revenue cost to the Exchequer. Acceleration of the existing tax write-off would have only a small "cash flow" effect for the Treasury.

As a revenue earner for Britain the film and video industry is potentially enormous. At present it generates an annual turnover of more than £1 billion with annual growth of some 17 per cent. It also employs 250,000 people in Britain. For every extra £1 brought in, 38 to 43 pence would go to the Government, while every job created in the film industry would create a further 1.7 in the community. Film making also provides a fantastic showcase to promote Britain's attractions.

In conclusion, 70 per cent. of films worldwide are made in the English language and yet the UK has a market share of just 4 per cent. Even this tiny percentage is more than £1 billion a year. It is clear that any increased share of the market would be a substantial boon to the British economy. I hope the Government will now take action.

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7.42 p.m.

The Viscount of Falkland: My Lords, I congratulate the noble Earl on his very fine maiden speech. If I did not agree with everything he said in his speech, I certainly would not take him up on any of those points now. I agreed with much more than I disagreed with. I hope to follow that up outside the Chamber.

The British film industry has undergone quite a change--and a change for the better--over the past 10 or 11 years. The noble Viscount, Lord Mersey, and I, and possibly the noble Lord, Lord Jenkins, took part in the proceedings which led to the Films Act 1985. In those days film attendances were down to almost rock bottom. It looked like the British film industry would disappear. Admissions were down to about 50 million a year. I made a very intemperate speech one day blaming that almost exclusively on the main exhibitors in this country, which at that time were EMI and Rank, for having such disgusting cinemas which discouraged people from going into them, and for seeking to sell them, if possible, for their real estate value. Whether I was right or wrong, it was extraordinary that within three years there was an enormous investment in this country, mainly by American and Canadian companies, which resulted in a completely new way of going to the cinema. The multiplex, a multi-screen building, sometimes having as many as 14 screens, was introduced. People now go to the cinema possibly with no specific film in mind. If the film they have as their first choice is booked up or the time is not convenient, they can go to see another and they can have a meal in the same building. The pattern of cinema-going has changed.

During all this time British film production has been extremely patchy. As the noble Viscount said, to call what we have an industry would be an error. If we have anything approaching an industry we must thank Channel 4 and the BBC for it. They have held the ship together during this troubled voyage. That has led to an interesting and difficult overlap between television and film--two vastly different areas in terms of the way the product is produced and indeed the way the product is viewed. Time being limited, one cannot go into that now.

I wish to confine my remarks to exhibition in the first instance. We now have the multiplex, and there are plans to build more multiplexes all over the country. Investors, who are mostly American, although some are British, are always on the look out for sites on which to build new multiplex cinemas. One of the problems British films have is that they find it extremely difficult to get distribution and exhibition. It is not perhaps unknown to your Lordships that one of our most distinguished film makers is a name abroad but is virtually unknown here. He wins prizes all over Belgium and France. There are others in the same category. We have young film makers who are achieving extraordinary success at festival level but find it extremely difficult to get the kind of commercial exposure that they deserve. Would it not be an idea, when planning applications are made for multiplexes, that local authorities or others should look for an

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undertaking by the multiplex company to allow at least some provision for the showing of films which are not American first-run films?

One can see why the multiplex companies want predominantly to show American first-runs. That is basically what people crowd in to see. Probably one of the most foolish things that was said about the British film industry in the past 10 years was said in the vernacular of the football field by the writer of "Chariots of Fire". He said, "The Brits are coming". But the Brits never came. It was a very foolish thing to stick out his neck in such a way.

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