BROADCASTING: ADDITIONAL PAYMENTS BY PROGRAMME CONTRACTORS

HC Deb 17 July 1986 vol 101 cc1198-205

.—(1) The Broadcasting Act 1981 shall have effect with respect to additional payments payable by programme contractors under that Act subject to the amendment made by Part I of Schedule (Broadcasting: additional payments by programme contractors) to this Act. (2) The transitional provisions made by Part II of that Schedule shall have effect. (3) This section shall be deemed to have come into force on 1st April 1986.—[Mr. Giles Shaw.]

Brought up, and read the First time.

Mr. Speaker

With this it will be convenient to take Government amendments Nos. 29 and 30.

4.54 pm

The Minister of State, Home Office (Mr. Giles Shaw)

I beg 10 move, That the clause be read a Second time.

I feel somewhat honoured to move a new clause to the Finance Bill which relates directly to the affairs of the Home Department, but that is the position I am in today.

New clause 18 and amendments Nos. 29 and 30 seek to implement proposals relating to the scheme of additional payments in the Broadcasting Act 1981, commonly known as the ITV levy. The Government's proposals for changing the structure of the levy were announced earlier this year by my right hon. Friend the Home Secretary.

When the levy was first introduced in 1964, it was based on ITV contractors' revenue. The revenue-based levy proved, however, to be a rather blunt instrument and it was replaced in 1974 by a 66.7 per cent. levy on profits from the provision of programmes within the United Kingdom. Subject to some minor modifications, the arrangements which were introduced then are those which now remain on the statute book. The problem with a profits levy with a rate as high as 66.7 per cent. is, however, that, taken together with corporation tax, it imposes a very high marginal tax rate on the ITV companies. While the Act contains safeguards against excessive expenditure, Ministers have for some time been concerned that the high marginal rate might act as a disincentive to cost efficiency, and this view has been reinforced more recently by the Peacock committee. Accordingly, a working group of officials from the Home Office, Treasury and IBA was set up in 1984 to look at the structure of the levy, and in particular at ways in which the marginal rate might be reduced.

The working group reported to Ministers in May 1985. Coincidentally, the Committee of Public Accounts also examined the levy in 1985. In the light of the Committee's report, which was published last autumn, and that of the working group, we decided that implementation of the working group's central recommendation would be a worthwhile exercise. Accordingly, the amendments to which I am speaking seek to reduce the standard rate of levy from 66.7 per cent. to 45 per cent., while removing the current exemption from levy of overseas profits and imposing on them a levy of 22.5 per cent. The reduction in the standard rate of levy will provide a worthwhile reduction in the marginal tax rate which should provide the companies with an increased incentive to efficiency.

We are well aware of the need to preserve an incentive for the companies to export programmes, and that is why we have set the second rate of levy at 22.5 per cent., exactly half the standard rate. There is no particular magic in this ratio between the two rates and we shall want to monitor the position carefully over the next year or so. Under the new provisions, as now, rates of levy can be changed by order subject to the approval of both Houses of Parliament, and if there are any unforeseen results we shall want to consider whether the balance between the two rates might be adjusted. The rates currently in the new schedule have been set so as to secure broadly that there is the same revenue to the Exchequer.

We have also made it clear that we intend to implement some of the working group's minor recommendations and — apart from the reduction of the ILR levy rate, the radio provision, to zero, which was achieved by a statutory instrument which took effect on 1 April — this too is done by the amendments before us. The cash value of the "free slice" of non-leviable profits is increased from £650,000 to £800,000, to take account of inflation since it was last altered in 1982. Any proportion of the free slice which remains after it has been set against profits in the main category may be transferred to the second category of leviable profits. There are provisions dealing with loss relief, and the working group's recommendations on the provisions of the existing legislation which deal with refunds from the Consolidated Fund of levy overpayments, and with excessive expenditure, are also implemented in these provisions.

It may be of assistance if I now give a brief explanation of the new provisions dealing with the levy. New clause 18 does no more than give effect to the new schedule, and provides for the arrangements to take effect from 1 April, as announced by my right hon. Friend the Home Secretary on 27 March. Paragraph 1 of the new schedule provides for leviable profits to be divided into "first category profits" which, broadly speaking, will be profits from the provision of programmes for broadcasting on ITV or the fourth channel, and "second category profits" which will be profits from the provision of programmes elsewhere in the United Kingdom and abroad. The new rates of levy and the new value of the free slice are set out in paragraph I, which also makes a number of minor consequential amendments to section 32 of the 1981 Act.

Paragraph 2 implements the working group's recommendation that it should be possible for refunds of overpayments of levy to be made during the accounting period in which the overpayments were made. Paragraph 3 makes two sets of changes to section 35 of the 1981 Act, which contains the Home Secretary's power to prescribe —subject to the approval of Parliament—a company's minimum levy liability in the case of excessive expenditure.

The first change is to implement the working group's recommendation that it should be possible for an order under section 35 to be made for a limited period after the end of the accounting period to which it relates; the time limit is now to be six months from the date on which the contractor submits his audited accounts to the IBA.

The second set of changes is designed to deter second category levy avoidance by providing the Home Secretary with the power — subject again to the approval of Parliament— to make a section 35 order where a contractor's second category levy payments are deficient as a result of transfer pricing. I should stress that this is a weapon very much of last resort against levy avoidance of a kind which I hope will not occur. It is to be seen as a deterrent rather than a provision of normal use. I do not believe that it has been used to date.

Paragraph 4 contains the necessary detailed definitional changes consequent on the division of the levy into two parts. It also removes the current exemption for profits arising outside the United Kingdom, and implements—although these provisions are not backdated before I April —the working group's recommendations on loss relief. The definitions of first and second category profits are mutually exclusive, and the first category is defined rather more narrowly than the existing category of leviable profits since it will, in future, consist only of profits from the provision of programmes for broadcasting on ITV and the fourth channel.

Profits from the sale of publications such as the "TV Times" will, however, continue to come within first category profits. "Second category profits" are defined in such a way as to ensure profits from the sale of formats — the ideas behind a television programme, a kind of synopsis on which they are able to sell programmes abroad —are treated in the same way as profits from the sale of programmes. The profits of certain related companies will be relevant for the calculation of a company's second category levy liability. This is because programme sales are frequently handled not by the contractor himself but by a connected company.

Under the loss relief system in the new paragraph 2C of schedule 4 to the 1981 Act, companies may carry forward losses in either category provided they have first set them against any profits in the other category for the accounting period in question. Losses may not, however, be carried between one contract period and another.

Paragraphs 5, 6 and 7 make consequential amendments to provisions in the current legislation. Paragraph 8 redefines "subsidiary" for the purpose of the levy provisions, and defines the connection which will be sufficient to bring a related company's profits into the calculation of second category profits. A subsidiary of a contractor is defined as a company in which the contractor has 10 per cent. of the shares or the voting power; and a "connected person" consists of a subsidiary of an ITV contractor; an investor who holds 10 per cent. of the contractor's shares or voting power; and a subsidiary of an investor of this kind. Companies engaged in programme distribution by wireless telegraphy or cable do not, however, fall within this definition. Paragraph 8 also contains an apportionment rule where a single person falls into more than one category of programme contractor.

Paragraphs 9 and 10 contain transitional provisions dealing with existing contracts between the IBA and programme contractors, and with profits or losses occurring in accounting periods which straddle the change in levy arrangements.

Finally, amendment No. 30 consists of consequential repeals to the existing legislation on the levy.

Mr. Michael Morris (Northampton, South)

My hon. Friend referred to the report of the Public Accounts Committee. I have taken a particular interest in the subject since it originally came before the Committee. This is the second time that it has come before the Committee.

I welcome the new clause. I shall cite one figure from the report of the Comptroller and Auditor General entitled "Independent Broadcasting Authority: Additional Payments by Programme Contractors" dated 29 April 1985. Appendix I referred to the year 1982–83 and said that Thames, which is not a small station by any yardstick, managed to have a levy payment of absolutely nil. The report showed that Central, which serves a marginal part of my constituency—again, it is hardly a minor contractor — paid £211,000. That showed the Public Accounts Committee that the machinery available — there is nothing wrong with that necessarily — was used to ensure that the Revenue received little benefit from the levy.

I think that my hon. Friend is right to have a substantial differential between the export levy and the domestic levy. I am told that for the first five months of the current year revenue is up 22 per cent. The figure for June is extraordinary. Revenue is up 28 per cent. Given that the Peacock committee never addressed the problem of the inflationary increases in television advertising rates, compared with the retail price index, my hon. Friend must recognise that careful monitoring of work is required. It is a buoyant area of revenue. If my hon. Friend is prompted, as a result of the Peacock committee, to extend the life of the existing contractors, he must consider forecasts of revenue and watch them carefully. I shall be urging my colleagues on the Public Accounts Committee to review the position at a convenient date. If there is to be an extension of the existing licences, a further review will be necessary.

I have been concerned with the work of the British Overseas Trade Board. If my hon. Friend is to garner revenue from the export activities of our contractors—may they continue to be highly successful—I hope that a proportion of that revenue will go to the BOTB, because it has had a cutback. The board does major work in the interests of United Kingdom exports.

Mr. Robert Rhodes James (Cambridge)

I congratulate my hon. Friend on keeping a straight face when he introduced the new clause. Paragraph 10(2), page 2050, of the extraordinary document entitled "Consideration of Bill" shows X over X plus Y. At that stage, X is obviously a good person. The subparagraph continues: the amount payable by him on the assumption that that section was in force throughout the accounting period and that both his first category profits for that period and his second category profits for that period were reduced by multiplying them by Y/X+Y; where (taking any odd four days or more as a week)". My hon. Friend and I were at school together. How does one take any odd four days or more as a week? Enlightenment follows: X is the number of weeks in the accounting period falling before 1st April 1986"— that is a significant date in the new clause— and Y is the number of weeks in the accounting period falling after 31st March … For the purposes of the application of paragraph 2C of Schedule 4 to the Act of 1981 in relation to losses incurred by the programme contractor during the accounting period, those losses shall be reduced by multiplying them by"— wait for it— Y/X+Y where X and Y have the same meaning as in sub-paragraph (2) above. With all respect to my hon. Friend and the Chancellor of the Exchequer, words fail me. It is a seven-page new clause. How on earth is it possible to ask Parliament to pass a new clause that is absolute gibberish, and require the courts to enforce it? I suggest strongly to my hon. Friend, to whom I am devoted, that it is absolute nonsense and completely inexplicable.

Mr. Michael Morris

rose—

Mr. Rhodes James

Does my hon. Friend wish to explain it? Does he know whether it is X or Y?

Mr. Morris

The Public Accounts Committee looked into this matter in considerable depth. I urge my hon. Friend to read the report; he might be enlightened.

Mr. Rhodes James

I shall be grateful for any enlightenment, but this is to be an Act of Parliament. I feel strongly that Acts of Parliament should he written in the English language. The new clause is not. If my hon. Friend knows what X or Y is, that is fine. However, Parliament should not willingly or silently allow new clauses like this to pass without comment.

Mr. Robin Corbett (Birmingham. Erdington)

Like the Minister, I am a rare intruder into debates on the Finance Bill. I spend most of my time very much backstage in the quieter, calmer waters of home affairs. It is a rare treat to be able to look at this new clause and new schedule.

I deeply sympathise with the elegant remarks of the hon. Member for Cambridge (Mr. Rhodes James). The timing of the debate is interesting. It enables us, however briefly, to comb through the rubble of what is left of the Government's broadcasting policy after the botch-up over community radio and the nonsense of the Peacock committee report.

It is as well to remind ourselves of the purpose of the levy. It is, as Peacock noted in a rare, clarifying comment in paragraph 68, to provide the public with an appropriate share in the monopoly exploitation of a profitable public asset"— and then, in case we had not got the point, the words (ie the airwaves) were added in brackets. We understand the arguments behind the changes in loss relief, overpayments and minimum levy liability. However, I ask the Minister to confirm—and to that extent to repeat and refresh—the Government's continued support for the idea of the levy, in the terms set out in the Peacock report. Will he assure the House that whatever the changes in the levels of levy and the mechanisms by which it is calculated, it remains the Government's policy to require commercial television companies to continue to give hack to the public purse a share of the profits made from their monopoly position?

The levy is important on those grounds, helping—as I believe it does—to sustain our complementary rather than directly competitive system of public service broadcasting through the BBC and the commercial sector. It is not clear whether the levy charges—a cut of 21.7 per cent. in the main rate, a rise of E150,000 in the free slice and a rate of 22.5 per cent. on the second category of profits that are earned overseas—will mean more or less revenue for the public purse.

I believe that the Minister said that the revenue effects would be broadly the same as the present position and that his estimate was that the levy changes may mean that more money will be left to the contractors. I do not necessarily object to that. However, if that is the case, what assurances have the IBA and the programme contractors been able to offer about how much of that windfall, if it turns out to be a windfall, will find its way hack into programmes? That is what it should all he about: trying to ensure that the range, variety and quality of programmes improve and expand.

That is especially important for our regional commercial television contractors. There is an increasing and, in my view, a proper demand within the regions for more bespoke, regionally made programmes which better reflect the diversity and difference of interests within our regions. I am a strong supporter of that demand and in my area I was glad that when the last franchise was awarded Central Independent Television was required to treat the east midlands as a centre in its own right rather than simply as a place at the end of the motorways from Birmingham.

Of course, regional programme makers also compete for networking, and perhaps the latest and most brilliantly successful example—which happens to be from Central Independent Television — is "Spitting Image", which lately swept the nation with its puzzling invitation to us all to hold a chicken in the air.

5.15 pm

May I ask the Minister whether decisions have yet been taken on the next round of franchises? There are anxieties among the franchise holders over reported Government plans to try to extend the present franchises for an extra two years, as the Government ponder the ponderous Peacock proposals. Is the Minister able to announce any decisions today, or is he able to give an undertaking about when a statement will be made? Will he assure the House that any such statement on franchises will be made on the Floor of the House? The Opposition would not be in favour of fiddling the franchises, although there are some changes in their allocation and perhaps in their duration which we would think sensible.

I welcome the inclusion in the new schedule of advertising receipts and income from direct broadcasting by satellite contractors. Again, this is on all fours with the principle of paying the public for the exploitation of public property.

Finally, I should like to express the hope that these levy changes will both enable and encourage programme makers and commercial contractors to develop and produce a range of programmes that can help us in the years ahead to sustain our claim to have one of the finest television services in the world. That position was hard won by the BBC and the commercial companies, and it will only be with care, dedication and innovation that that reputation will be sustained.

Mr. Giles Shaw

With the leave of the House, may I comment on the points raised by my hon. Friend the Member for Northampton, South (Mr. Morris). I thank him for the welcome that he gave these proposals. He is well versed in the mechanics of the levy system and also, through his assiduity as a member of the Public Accounts Committee, in the examination of the existing levy. I have to remind him that the vagaries of advertising revenue sometimes surprise all of us.

My hon. Friend will recall that only about nine or 12 months ago there was a major downturn in advertising receipts for the television companies. Now, as he rightly pointed out, they are fairly buoyant. It would be difficult for us to take into account a more flexible assessment of the levy system if we were to look merely at one year's performance compared with another. My hon. Friend will be aware that with this instrument, which is variable by order, there is a mechanism whereby adjustments can he made to suit what looks like a trend, if that trend requires changes to be made.

I noted my hon. Friend's welcome of the differential between the home levy base and the overseas levy base. When companies come to terms with the change, they will find that it is not inimical to development. We hope that it will contribute to the thrust of ensuring that cost pressures of one kind or another prevail within an industry which, at the moment, lacks competitive pressure. I shall turn to that point when I deal with the speech of the hon. Member for Birmingham, Erdington (Mr. Corbett).

I understand the anxiety of my hon. Friend the Member for Cambridge (Mr. Rhodes James) about the algebraic formula in the amendment. With his profundity he will recognise that this system lends itself to a form of expression which he and I find pretty miserable. However, we shall have to settle our differences by saying that this is merely corroborative detail and that it adds artistic verismilitude to an otherwise bald and unconvincing narrative.

I am able to give the hon. Member for Erdington the assurance that he sought. No decision has been taken on franchises and no decision will be taken for some time. However, in my right hon. Friend's initial response to the Peacock recommendations he told the IBA that there must be room for franchises to be looked at, should the Government subsequently decide that changes are required.

Therefore, there will be discussions to see that the current round would not be started without some assessment being made of the position. I think that the hon. Gentleman will recognise also that significant changes are likely to involve amendment to the current statutory framework which will probably not happen soon.

Monopoly characteristics lie behind the levy system which is designed to ensure, to some extent, on behalf of the consumer and the taxpayer, that where local monopolies granted for television advertising are in the hands of the programme contractors, there will be a mechanism to cream off surplus profit. How such profits are spent is a matter for the contracting companies only and it is not for the Government to determine whether they should all go into programme production, or into other forms of expenditure.

However, over the considerable period of time that the levy system has been operating, the quality of programming has improved, which shows that the companies are keen to compete on the basis of quality as well as upon audience numbers.

The House will be kept informed of any major changes in Government policy on ITV, much of which would relate to legislation which hon. Members would have an opportunity of shaping. This new clause appears to command reasonable support, and I therefore commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.