HC Deb 21 July 1978 vol 954 cc1064-72

1.20 p.m.

The Under-Secretary of State for Trade (Mr. Michael Meacher)

I beg to move, That the draft Cinematograph Films (Collection of Levy) (Amendment No. 6) Regulations 1978, which were laid before this House on 5th July, be approved. The Cinematograph Films Act 1957 provides for a statutory levy—popularly known as the Eady Levy—to be paid by cinema exhibitors in Great Britain. The levy is collected by Her Majesty's Customs and Excise from box office takings and is paid to the British Film Fund Agency, a statutory body established under the Act, which distributes it to makers of British films and other organisations to do with the British film industry.

The rate at which levy has to be paid is prescribed in the Cinematograph Films (Collection of Levy) Regulations 1968, as amended and is currently one-ninth of the price of admission in excess of 12½p, the calculation being made net of VAT. This portion of the net admission price which is not liable to levy had stood at 7½p since 1968, until it was increased last year in order to afford a measure of relief.

The regulations also provide for certain exemptions, the most important of which is in respect of cinemas whose takings in any particular week, or whose average weekly takings—calculated from the beginning of a levy period—are less than £900. Each successive period of 52 weeks constitutes a levy period.

The yield from the levy has been in the region of £5 million each year for some years past. This yield has remained more or less constant because the rise in admission prices has been balanced by a significant decline in the number of people going to the cinema. In recent years, large numbers of cinemas have closed, and in many areas the public are effectively denied access to cinema films.

Despite the relief given last year, many cinema exhibitors are operating either at a loss or at an unacceptably low margin of profitability. The trade associations concerned have therefore made representations that exhibitors should be afforded some further relief from levy liability.

I have recently had discussions with the two trade associations representing exhibitors, and we intend to undertake a joint accountancy investigation into the ability of cinemas to pay levy and whether some alternative method of calculating liability would be preferable.

I am also awaiting a further report from the Interim Action Committee on the Film Industry, which is considering, amongst other subjects, the exhibiting of films in the United Kingdom. Meanwhile, however, we have had to consider what steps would be immediately appropriate.

The Department of Trade not only has a statutory obligation in section 2(3) of the Cinematograph Films Act 1957 to pay regard to the prevailing economic circumstances of both exhibitors and makers of British films in deciding the level of levy, but also to consult the Cinematograph Films Council. This has been done, and the council has recommended, in view of the pressures exhibi- tors are under, that the total amount which would otherwise be payable by exhibitors in the coming levy year should be reduced by £1 million.

In recommending the particular methods for affording this relief, the council was mindful of the importance of giving help where it would be most effective—primarily the smaller cinemas which attract smaller audiences. But it also had to have regard to the damage to the production industry if larger cinemas operating on a marginal profit were obliged to close because, as I have explained, the Department has a parallel statutory obligation to the economic interests of makers of British films.

It was the Cinematograph Films Council's recommendation that the two methods provided in the proposed regulations would combine to achieve the best effect. First, total or partial exemption from payment of levy is presently allowed when a cinema's takings in a particular week fall below £900, or where they fall below an average £900 a week over the levy period.

Obviously, the main beneficiaries of this exemption are the smaller cinemas, though, regrettably, larger cinemas sometimes fail to attract big enough audiences in the course of a week to take even these small amounts. The council recommended that this exemption figure should be raised from £900 to £1,100, thereby increasing the number of cinemas which would pay no levy at all in any one week or more. It has been estimated that this increase should benefit the exhibitors to the order of some £650,000 in a year.

Secondly, any exhibitor paying a levy only does so at present on a percentage of the price of the cinema seat in excess of 12½p Further benefit can accordingly be given to the exhibitor by raising this levy-free portion of the seat price. The council recommended that this levy-free portion should be raised by a sufficient amount to increase the relief afforded by a further £350,000, making a total of £1 million.

It is, of course, not possible in advance to be exactly certain about the number of cinemas in the coming year which will be left paying levy once the exemption figure has been raised to £1,100. Thus there must be an element of estimation in considering how much the levy-free portion should be increased. It is estimated that an increase from 12½p to 17½p should produce approximately the desired relief.

This total of £1 million is, of course, industry money. Only if cinemas were able to reduce their prices—which is unlikely—would any reduction in the levy produce lower Exchequer receipts, and that because of the reduced VAT that would be incurred.

It is in the light of the economic circumstances of exhibitors and the advice of the Cinematograph Films Council that these draft regulations now come before the House. Their purpose is thus to reduce the amount of levy otherwise payable by exhibitors by approximately £1 million and to do that, first, by increasing from 12½p to 17½p the portion of the payment for admission net of VAT which is not liable to levy, and secondly, by increasing from £900 to £1,100 the amount by reference to which total or partial exemption from payment of levy is allowed.

On that basis, I recommend this order for approval of the House.

1.28 p.m.

Mr. Cecil Parkinson (Hertfordshire, South)

I start by declaring two interests. The first is a personal one in that I am a very enthusiastic film-goer, although nowadays—like the Minister, I suspect—I do not have quite as much time to go to the cinema as I used to have or I would like to have. Secondly, I have a constituency interest in that Elstree studios and ATV studios, where many films are made, are in my constituency, and it is a matter of pride to me and my constituents that some of the most successful films in Britain have been made in the constituency.

I think that the Minister will agree when I say that the film industry at the moment is troubled. It is a much-examined and much-reported-upon industry. I looked up the list of reports commissioned and issued since the war, and there is a staggering number of them. It is an industry in which there is a certain amount of controversy. But there seems one area about which there is no controversy—the Eady Levy—which must be widely accepted as being perhaps the best thing that has been done for the industry since the war. Wherever one goes and to whomever one speaks, there seems to be agreement about that.

It is interesting that the levy does not just support the making and the production of films but that quite substantial and worthwhile amounts have been diverted from it in recent years to the Children's Film Foundation, the National Film School, the Film Institute Production Board and the National Film Development Fund. This levy is playing a very important part in producing or financing the training of technicians and in the production of specialist films, as well as in the production of a range of British films.

There is controversy about whether most of the levy should go to the most successful films. Some people argue that it is slightly illogical that the films which make most money should also receive an additional topping up from the levy. I was interested to read the 1973 report of the Cinema Films Council, in which this topic was considered. It said that the present arrangements were not satisfactory and that it felt that if there were a change in them, and if a substantial part of the levy ceased to be an addition to earnings and if it were diverted to backing new films, it would probably do more damage than good. On the whole, it felt that although this was a subject which deserved consideration, the present method of distributing was the best yet devised.

As the Minister suggested, the problem is to strike a balance between the exhibitor and the maker of films. There is obviously absolutely no point in producers producing films if there are no cinemas open in which they can be shown, and the Minister has to make this delicate judgment about the amount of the levy that should be taken out of the industry and redistributed. The present suggestions will result in just another such redistribution.

I should like the Minister to tell us whether last year's redistribution has still resulted in a levy of approximately the £5 million to which he referred, or whether that redistribution produced a reduction in the levy. Those figures certainly were not available to me. I think it is a measure of the industry's problems that the Minister is now having to come back to the House with regularity to seek this distribution.

It is interesting that the figures of 7½p and £700 were fixed in 1968 and stayed until 1977, when they were increased to £12½p and £900, yet within a year the Minister is having to come back to suggest yet further redistribution. It is an example, one would suggest, of the mounting problems of the exhibitors, and especially of the problems of the smaller cinemas. Perhaps the Minister would confirm this.

The industry seems to have difficulties at the moment. There is nothing particularly new about that. There are some who doubt whether the suggestion of a British Film Authority, as proposed by the former Prime Minister's working party, will help. The industry certainly does not seem to be short of controlling bodies or consultative bodies, any more than it has been short of reports, but it still seems to retain its problems.

I was interested—particularly in the light of the Chancellor's performance today, when he came to the House and gave us all the impression that the Government had inherited a great number of problems and spent the last four years solving them—to read a letter which the Association of Independent Producers sent to the Chancellor in August 1977. I should like to quote very briefly from one paragraph of that letter. It said very simply: The 1974 Finance Act did more to destroy the film industry than any other single event in our history. We forced highly paid actors, actresses, producers, writers, directors and other talent to go and live and work outside the United Kingdom. There is no industry without the creative talent and, consequently, we created more unemployment than we had ever seen in the industry before, and we have lost the foreign revenue earned by the talent, and we don't collect any tax at all. We hope you will do everything to help to restore the position we had prior to 1974, because none of us are better off in real terms when valuable talent, labour and capital are forced out of the country by excessive taxation. That is one very important group in the industry which regards the present Chancellor of the Exchequer as the source of most of its problems and as the person who was responsible for the most disastrous measures ever introduced by a Government, which damaged the film industry.

Labour Members, few though there are in the Chamber, may not be terribly im- pressed by a group which sounds as wellto-do—but is not, in fact—as the Association of Independent Producers. Perhaps, however, they would be more interested in the views of a man whose Left-wing credentials are absolutely unimpeachable, namely, Mr. Alan Sapper, who would in no way regard me as criticising him by describing him as an extreme Left-winger. Mr. Sapper would be proud of that label.

I was very amused when in 1975 I received a letter from Mr. Sapper in which he said, in effect, that the 1974 Finance Bill, one of the Chancellor's first measures —identified by the Association of Independent Producers as a disaster for the industry—was indeed a disaster for the industry.

Mr. Sapper wrote to me urging me to use my influence on the Labour Government—I was very flattered by that suggestion—to get them to change their minds. He went on to point out to me one of the enormous problems which had arisen for the industry. He pointed out that on the very large earnings associated with talent in the film industry—he was talking about foreigners who work here—this would result in a United Kingdom effective rate of tax of 62.25 per cent. He went on to say: This must be compared to the maximum tax rate of 50 per cent. which Americans pay to the US Government. He went on to argue with me that we really must do something, otherwise all these very talented people would either leave this country or refuse to come to it.

In my reply to Mr. Sapper I said that I was very sympathetic to his case and that I would make a bargain with him. I said that I would argue about the disincentive effects of high taxation for foreigners in this country if he would use his much greater influence with the Labour Government and point out to them the high disincentive effects of taxation on talented British people. I pointed out that it was utterly absurd for him to be writing to me, asking me if I was aware of the damage that high taxes do to foreigners, while at the same time being in the business of promoting high taxes for talented British people. I made him an offer. I said in my final letter to him: I am surprised that you, as a Left-winger, can apparently cheerfully write a letter of the kind you wrote to me but continue to urge discriminatory policies against other sections of the community which will have exactly the same effect on their industries. Mr. Sapper did not reply to my letter, and I was not surprised. He obviously feels that high taxes are very bad for foreigners but very good for the British, for some peculiar reason.

The Conservative Party shares the view that direct taxes, and the rate of them, in this country have a major disincentive effect on investors. We agree with the Association of British Film Producers that our present tax system militates against private investment in British films. We believe, as the Chancellor believes half the time, that direct taxes must be cut. For the other half of his time, having advocated cuts, he criticises us for advocating them. We believe that a reform of the tax system in this country is a major necessity if industries such as the British film industry are to attract private investment and to attract talented people whose services are in demand all over the world, and who will just clear off, as Mr. Sapper points out, if we retain our present tax system.

The Opposition support the introduction of these regulations. However, a lot more than this will have to be done if the British film industry is to become viable, profitable and worthwhile, because the tax system operated by the present Government has had a very damaging effect on this important industry.

1.40 p.m.

Mr. Meacher

It is clear that the hon. Member for Hertfordshire, South (Mr. Parkinson) has had stored in a drawer a speech about the film industry which he has been itching to make. The fact that scarcely anything of what he said is relevant to these regulations is another matter. Perhaps I ought to say, since nearly all that the hon. Gentleman said related to levels of direct taxation which have nothing to do with these regulations, that taxation has not reduced the high level of foreign investment in the British film industry which is related to these regulations and the benefits of Eady, nor has it affected the fact that the quality of both personnel and facilities in the British film industry is as high as anywhere in the world.

Perhaps I might reply to the one point relating to the regulations which the hon. Member made, which was to ask the effect of last year's relief in practice this year. I can tell him that as from September 1977, the exemption limit was increased from £700 to £900 and the exempt part of each seat price from 7½p to 12½p. This relief was considered necessary because the fall in attendances was seriously affecting the profitability of cinemas, and further closures would have deprived the public in some areas of access to films. Total relief of £1 million was aimed at, and it was estimated that each of these reliefs would reduce the yield by about £500,000, although it was realised, as I said when I introduced the regulations a year ago, that there was some element of double counting.

It is impossible to say that any given measure of relief appears to have been achieved until after the end of the levy year, for obvious reasons. But accepting various imponderables which are involved in forecasting, my Department is fairly confident that there is not likely to be a significant shortfall from the proposed £1 million relief. This is also the advice of the Cinematograph Films Council.

The levy yield for 1977–78 under present regulations will be about E5.6 million. As I have indicated, the proposed changes will reduce this to aid film production in 1978.79 by a further £1 million. But the amount left will still be about £4.6 million, which I am glad to say will be more than in most years in the past, even with this reduction. Therefore, I think that we have got the balance right. I think that the hon. Member for Hertfordshire, South was right when he repeated what I had said, that we were seeking essentially to find a balance.

As I indicated, we are looking at the long-term effects of the Eady levy by agreeing with both the CEA and the AIC, which are the two trade associations representing exhibitors, to undertake a joint accountancy investigation of the capacity of the exhibitors to meet the levy and to see whether there are better alternatives.

Question put and agreed to.

Resolved, That the draft Cinematograph Films (Collection of Levy) (Amendment No. 6) Regulations 1978, which were laid before this House on 5th July, be approved.