FILM FINANCE CORPORATION (REPORT) (Hansard, 15 July 1958)

§ Mr. Harold Lever (Manchester, Cheetham)
I desire to call the attention of the House to certain aspects of the Report of the National Film Finance Corporation It is with some diffidence that I do so in view of the lateness of the hour and the fact that I have no startling novelty in the Report to mention or that it shows a return for the taxpayer's money.
I appreciate that the Corporation has a difficult job and is struggling against the idleness of the Government in failing to produce any reasonable policy for the film producers. The Corporation may be said in general to be doing a competent job of work, doing it very intelligently, as far as one can make out, and as successfully as the absence of any Government policy on the subject makes it possible.
One aspect, however, of the Report which, I feel, should be brought to the attention of the House is the sections dealing with the British Lion Film Company, which, it appears, was taken 1197 over by the Corporation—I shall use rather popular language—in satisfaction of a £3 million debt and interest which was lent to the British Lion Company by the Corporation. The Corporation therefore has, as part of its activities at the present time, the complete ownership of the British Lion Company. This is a company which owns, I believe, some of the finest studios in the country and also owns a good-sized cinema library, which is valuable in that it produces large sums of rent for old films. It is also one of the leading renting and financing organisations in the film industry.
Although the cost was somewhat high, at least we had the satisfaction of knowing that after the storm in the House concerning the outrageous provisions in the Finance Act relating to the National Film Finance Corporation, against which I protested at the time and which would have enabled the Corporation to accept a settlement from British Lion, the President of the Board of Trade did not have the temerity to implement them and he ended up as the reluctant owner of British Lion Films Limited.
It appears that this company, having run fairly successfully until last year, for various reasons, probably beyond the control of the company, lost £300,000 in the last twelve months. It is at this point that the matter with which I shall deal briefly arises: namely, the proposed sale of the company's shares. It is perfectly in order for the President of the Board of Trade to hold the view that this is not a suitable company to be publicly owned and that the sooner it is safely sold to private interests the better. That is perfectly within the right hon. Gentleman's political competence. In his anxiety to give effect to his views on the subject, however, he must have a care that he gets full value for every piece of public asset of which he disposes. In this respect, it would seem, on the face of it, that he has been guilty of a neglect of duty.
I must preface my remarks by making it unmistakably clear that I am not casting any sort of slur, imputation or sneer at any of the private persons involved in these transactions. They are all men of considerable reputation and achievement in the cinema industry. I am told that the cinema industry is always in difficulties and that we must not say anything to hurt it. I am not in the least anxious 1198 to do hurt to this industry, which, we are always told, is on the borderline of poverty, although I confess that the representatives of the industry that I have the fortune to meet do not seem among the more spectacular victims of malnutrition. Nevertheless, I readily accept the assurances, which are freely given, that but for State intervention we would have great difficulty in producing the mass culture achievements like "Blood of the Vampire" and "Dracula" with which people are now happily sustained.
However, that is far from the purpose of my Adjournment debate, which is to deal with the sale by the Corporation of part of its interest in British Lion. I repeat, so that it shall not be open to any sort of argument, that the only criticism I am making is directed exclusively at the President of the Board of Trade and the Minister who is responsible with him for these affairs and who is to reply to the debate tonight.
It appears that on 1st January, 1958, or at about that time, the managing director of the National Film Finance Corporation was made managing director of British Lion. It appears that around that time a deal was done by the Corporation with its own ex-managing director and its own appointee and full-time servant, to sell him shares in the British Lion Company.
Now, on the face of it, I would have supposed that this was a transaction not to be undertaken without at any rate some discussion in public about it, other than a report ex post facto. Without casting any reflection, except on the President of the Board of Trade who sanctioned it, it seems to me not conducive to the highest standards of public finance that full-time officers of a public Corporation should buy assets of that Corporation in the form of shares.
I should be very comforted to be able to say to the House that the price paid for the shares was so outstandingly excellent that any fears on the subject must be regarded as of a purely technical character. In the limited time available I cannot enter into all the intricate calculations, but I assert as a fact, upon analysis of the articles of association of the Film Finance Corporation, that the deal which the Corporation did converted £600,000 ordinary shares into preferred ordinary, and, subject to £600,000 of preference interest, that is, 1199 £600,000 at 6 per cent. not cumulative until 1963 and cumulative thereafter, it sold half of the equity of the concern for a total sum of £10,000. It is a sum so ludicrously small in proportion to the kind of value to be attached to the whole of the assets of this undertaking that the deal amounts for the buyer to nothing less than "Heads I win, tails I do not lose."
I ask the Minister to tell us whether he had the assets valued up to date before he did this deal. I do not know whether he is aware of it, but the deal results also in people having not only half the equity earnings of the company for £10,000 but half the capital surplus over £600,000. I hope that the Minister will not fob us off with talk about the book value of these assets, because that is completely meaningless. The book value of assets has no relation whatsoever to their possible real value. For all I know, these five experienced and very distinguished gentlemen in the film-producing world have made a bad bargain. On the other hand, subject to what the assets are worth, they may have made a most fabulous bargain.
Examination of the balance-sheets of the subsidiary companies is most suggestive that the assets of this company are very substantially in excess in market value of £600,000 today. To buy for £10,000 half the interest in the equity and half the surplus earnings of the company seems to me quite out of proportion to anything one would expect in the commercial world.
In fairness, I fully realise that these gentlemen are producers and might introduce business into the company, but it is a little worrying to read the complacent euphemisms of this Report. It is all very well to talk of strengthening the board of British Lion by bringing producers—these customers—on the board, but it is a very odd proceeding, because British Lion has to do business with these gentlemen. It may be very beneficial business, but in future there will be the chronic difficulty that the board of British Lion, now consisting overwhelmingly of producers, will have to drive bargains with producers. There will be a continuous, chronic conflict of interests. It causes me considerable anxiety.
1200 This is always said to have been done as a preliminary to resumption of negotiations for the sale on satisfactory terms of the whole share capital of the company. It seems an odd proceeding that as a preliminary to selling off the whole of the shares at the best price—which is perfectly right in accordance with the Minister's political views—the company should be shackled for a mere £10,000 with a change in its memorandum of association which gives half the equity away in return for this trumpery sum.
There is another point. This company has sustained enormous loses, which have been largely financed from the public purse. These losses are carried forward for taxation purposes, as I understand, so that whoever owns the equity of the company will never pay tax in the foreseeable future. Until they have made millions of pounds in profits they will trade tax-free and Profits Tax-free. That is an enormous advantage. It is a special advantage in this case—I do not want to talk technicalities—because the equity is supposed to be subject to £600,000 in 6 per cent. preference or preferred ordinary shares. The company will be able to deduct tax on the interest on those shares. It will not have to pay it to the Revenue because of the losses it has already suffered. It therefore really holds, for £10,000, half the equity of the company, and it is 6 per cent. and not 3 per cent., because it will be paying only net tax on these shares.
I give this example only because I feel a real sense of anxiety about this matter. If the company earns £61,000—as it did not so long ago—the preference shares will receive a net dividend of approximately £20,000. There would be £40,000 to share between these people and the Corporation. In other words, for a £10,000 investment they will get £20,000 tax-free in one year, if the company earns £60,000 in a year.
In those circumstances, there is real ground for anxiety, and I very much hope that I can be given some assurance that the Minister had the assets valued before agreeing to this transaction. Secondly, I will not rest at peace until I am sure that the matter will go before the Public Accounts Committee for an impartial examination in order that that Committee may see that no further transactions are undertaken on such unfavourable terms.

§ Mrs. Eirene White (Flint, East)
I do not want to stand between the Minister and the House for more than a moment or two. We should be grateful to my hon. Friend the Member for Cheetham (Mr. H. Lever) for having drawn public attention to this matter. Although he has been fortunate in the Ballot and has thus been enabled to bring the matter before the House, he is by no means the only person who has made representations about the report on the British Lion transactions.
We would not wish to say a word against the ability or integrity of Mr. Kingsley, but it must be recognised by the Government that this is something which requires a fuller explanation than can be Oven in the Report of the Film Finance Corporation—when a public servant suddenly changes from one body to another and does so upon terms which give him a share in the body to which he has moved, and which, as my hon. Friend has pointed out, may prove to be a very handsome bargain.
We would also like to have some assurance from the Minister on the question of the true value of the assets of British Lion. I say this because, when the new company was formed in 1955, we had reason to believe that the assets were fairly substantially undervalued. We are fortified in this supposition by studying the later balance sheets, in which the assets, as far as they concern films and reissues, have been considerably revalued. The original assets in 1955 are therefore shown to have been undervalued. We would like to know the true position with regard to the physical assets, in the form of studios, and so on. An apparent loss might not be a real one.
Finally, we do not accept the premise, on which the Government are working, that it is desirable to dispose of British Lion, in private hands, as soon as possible. On the other hand, following their philosophy, they of course wish to do that. They are, however, I think, obliged by the standards of public life which we observe in this country to make it perfectly clear that even though they may have that end in view they are, nevertheless, dealing with a matter which is a public asset and they should not dispose of an interest in it except on terms which can be fully explained and fully defended in this House.

§ The Parliamentary Secretary to the Board of Trade (Mr. F. J. Erroll)
If am to do full justice to the interesting speeches of the hon. Member for Cheetham (Mr. H. Lever) and of the hon. Lady the Member for Flint, East (Mrs. White) I must be rather general in my opening remarks, because I think this is, in fact, a most useful opportunity for reviewing the workings of the National Film Finance Corporation since it acquired its fresh obligations and opportunities under the Cinematograph Films Act, 1957.
During the Third Reading of that Bill—perhaps I may remind him—the hon. Member for Cheetham said that he welcomed the improvements made to the Corporation's standing and its style of business. We were very much heartened to secure the hon. Gentleman's support as, for a number of years, he had taken a very close interest in the workings of the Corporation and of the film industry as a whole. I do not think anything that has happened since need cause the hon. Gentleman any regret.
It is true that the Corporation has suffered a loss, but that is not inconsistent with its new obligation, which is to carry out its functions in such a manner as appears to it best calculated to avoid defaulting on any loan made to it—not actually by it—that is to say, it must try to avoid defaulting on any loan received from the Board of Trade. That is what it has to do and what we must see that it strives to do if it possibly can. It is not, however, obliged to make a profit every year.
In looking at this matter, one must bear in mind the very severe fall in cinema attendances which has taken place over the last year. This has borne very hardly on the film industry, and it would be surprising indeed if the Corporation had escaped its share of the burden. Fears that the Corporation would restrict its activities to films which were certain winners were freely expressed last year by hon. Members opposite, but, in fact, we find the Corporation recording that it has approved during the year loans totalling more than £2,450,000. In fact, this is the largest sum since 1950, the year in which £3 million was advanced to the former British Lion Film Corporation.
1203 In any case, the loss incurred by the Corporation last year arose in the main from loans made in earlier financial periods, before the passing of the Cinematograph Films Act, 1957. This loss is unfortunate, but it is understandable in a year when cinema attendances dropped so sharply.
The hon. Member for Cheetham has focussed attention on the recent changes on the board of British Lion Films Ltd., and I would like in the few minutes that remain—and if I can speak above the general noise on my right—to say a few words about this matter. The Corporation in its Report has made it plain that the Board of Trade was kept informed of these proposed changes and concurred in the arrangements made. The point of that item in its Report is to show that we were aware of what was proposed. I should like to underline the fact that it was for the National Film Finance Corporation to make the running in the matter.
The Board of Trade accepted the general contention of the Corporation that the best way of maintaining British Lion distribution facilities for the benefit of British films seemed to be to tie to it the product of a number of the most successful independent producers. Thus, by giving them a share in the equity a real incentive would be provided for them to make the company profitable. The detailed arrangements to this end were an appropriate subject for the Corporation itself to work out with the producers concerned. The Board of Trade has no reason to think that this is other than satisfactory for the purpose intended.
I wish to mention another matter which was raised by the hon. Member, namely, the question of the future of this distribution company.

§ Mr. Douglas Jay (Battersea, North)
Before the hon. Gentleman goes on, will he come to the point, which I think is the real point, and answer my hon. Friend's questions? In particular, did the Board of Trade have a valuation made of the assets before approving this transaction? What was the value paid on the assets, and what was the price paid for those shares by the directors who received the new deferred ordinary shares?

§ Mr. Erroll
The right hon. Member is the third hon. Member to refer to that point; I propose to come back to it, admittedly only briefly.

§ Mr. Jay
rose—

§ Mr. Erroll
I am pressed for time. I want to refer to this next point and then to come back to that matter. The Government make no secret of the fact that they would like to see this distribution company sold back to private interests. We make no secret of that fact, but how soon that can be done is the question. In our view, the new arrangements should improve the chances of an early sale.

§ Mr. H. Lever
Why?

§ Mr. Erroll
Because we believe that the chances of this company operating profitably have been improved and, until it is operating profitably, it is unlikely to be possible to sell it back to private interests. We do not believe it is appropriate for the Government to be directly concerned in the business of film distribution. That is why we believe it ought to be sold back to private interests as soon as it can.
The hon. Member who initiated the debate, the hon. Lady the Member for Flint, East and the right hon. Member for Battersea, North (Mr. Jay) raised a number of detailed points. I should like to make it plain that I do not think this is the appropriate forum to deal with those detailed points because they relate to matters between the Film Finance Corporation and British Lion Films Ltd.

§ Mr. Jay
rose—

§ Mr. Erroll
I should like to finish this point and then I shall give way. The hon. Member for Cheetham wrote to the President of the Board of Trade on this matter only a few days ago. I suggest that he and other hon. Members, if they wish to accompany him, should follow up the suggestion he made and act on the offer of the chairman of British Lion to see him, which was conveyed to the hon. Member by by right hon. Friend. I suggest these are matters of detail on which the Corporation has rightly full jurisdiction and on which detailed explanations can properly be given.

§ Mr. Jay
The Report of the National Films Finance Corporation says that the 1205 Board of Trade has been kept fully informed of and has concurred in all the arrangements. Surely we in this House have the right and the hon. Gentleman has an obligation to debate the arrangements in the House.

§ Mr. Erroll
I beg to differ on that. The Board of Trade was certainly informed and did not disagree. That could be taken as concurring, but it could not be said that we concurred in or refused to concur in the arrangements because we were informed of them.

§ Mr. Jay
Surely the hon. Gentleman is not denying that the Board of Trade concurred?

§ Mr. Erroll
I would like to point out that it was their report and not ours, which surely makes a slight difference.

Several Hon. Members
rose—

§ Mr. Speaker
Order.

§ Mrs. White
Does one take that to mean that no matter what had been proposed the Board of Trade would have concurred and, therefore, that its concurrence is meaningless?

§ Mr. Erroll
I would invite the hon. Lady to realise that I never attempt to answer such hypothetical questions. We are dealing with a particular situation, one in which the hon. Lady and hon. Gentlemen are quoting from the report of the company. It is quite correct to say that we concurred. There was no reason why we should not, because we thought it in the best interests of the Corporation and of British Lion to do so, but it was entirely within their discretion to do what they thought best in order to try to make this a profitable undertaking—

§ Mr. H. Lever
As I now understand, what the hon. Gentleman now says is that the details of this transaction were not the concern of his Department, but that the Department just concurred in the general arrangements and the detailed checking of values and so forth was left solely to the Finance Corporation?

§ Mr. Erroll
We are dealing with directors, and it is the fact that within the context of that report the N.F.F.C. are referring to changes in the board. It was with the changes in the board that we concurred—and with the share 1206 transactions—because we recognised that it was important to provide some worthwhile inducement to the people who were joining the board, who would, we believed, better be able to make this a profitable concern if they had a stake in the future prosperity of the concern itself—

§ Mr. Glenvil Hall (Colne Valley)
I am obliged to the hon. Gentleman for giving way, as I know that he has been interrupted many times, but this is really a most astonishing discussion. Am I right in understanding that the hon. Gentleman is now saying that one or two Members on this side who have become interested in this can interview the chairman of British Lion and get all the facts privately from him. Surely, that is not good enough. Public money is involved here, and this House, and not just a few of us, are entitled to know the details.
I should like to remind the hon. Gentleman that my hon. Friend the Member for Cheetham (Mr. H. Lever) sent the President of the Board of Trade full particulars of the points he intended to raise. Therefore, if I might say so, it was rather unfair for the hon. Gentleman to use a lot of his time for a general discussion, which was not really the point of the debate at all; and we are likely to be very frustrated by his answer.

§ Mr. Erroll
I am very sorry if the right hon. Gentleman feels frustrated, but the letter which the hon. Member for Cheetham sent to my right hon. Friend asked for information as to the names of the directors. He said that he would be generally satisfied by a list of directors and the memorandum and articles of association of the company. A list of directors was supplied to him, together with a copy of the memorandum and articles of association.
I thought that that met the case very well, particularly as in reply it was suggested that detailed matters would be provided gladly by the chairman of the company concerned. It was intended to be a helpful reply, and if it has not been a helpful reply I can only apologise and say that I nevertheless hope there will be a further opportunity when I can more adequately meet the wishes of hon. Gentlemen.