FILMS (EXEMPTION FROM QUOTA) ORDER 1977, (Hansard, 28 July 1977)

§ Baroness STEDMAN
My Lords, with the permission of the House, I propose that both of these orders—the Films (Exemption from Quota) Order 1977, and the draft Cinematograph Films (Collection of Levy) (Amendment No. 5) Regulations 1977—be considered together. While the former order stems entirely from the rise in the levy of prices, and while the latter is necessary due to the unfortunate reduction in the volume of cinema business, both concern the same industry and both are concerned principally with the economic position of a particular section of the industry—film exhibitors.
Dealing first with the order regarding exemption from quota, I think it would be helpful if I were to sketch in the background. The Cinematograph Films Act 1948, now consolidated with the Films Act 1960, provided that all registered cinemas must show a prescribed quota of British films. This is still a requirement, although since we joined the Community eligible films from EEC countries also qualify for quota requirements. At present the quotas are 30 per cent. for feature films and 25 per cent. for supporting programmes.
1194 It has always been the case that small cinemas with a limited turnover might find difficulty in acquiring sufficient British films to enable them to meet the quota requirements, and for this reason the Act of 1948 included a provision whereby cinemas whose weekly takings were less than £100 could apply for exemption from the quota requirements. The exemption limit was raised to £125 by the Films Act 1960 and to £150 in the Films Act 1966.
In 1967, the first year in which the revised exemption limit of £150 became effective, there were 1,774 licensed cinemas in Great Britain. In that year 181 cinemas, nearly 10¾ per cent. of the total cinemas licensed, were granted exemption from quota. This year only 22 cinemas out of a total of 1,571–1.4 per cent.—have been able to claim exemption under the existing limit.
The 1960 Act prescribes that the quota exemption limit may be varied by order, and the object of the order now before the House is to raise the limit to £350. This proposal for a rise in the exemption limit was very thoroughly considered by the Cinematograph Films Council, who felt that £350 was a realistic figure under present-day conditions. I agree with that view and commend the order to your Lordships.
I shall now turn to the draft regulations which are before your Lordships. The Cinematograph Films Act 1957 provided for a statutory levy to be paid by cinema exhibitors in Great Britain for eventual payment to makers of British films, and to others. The rate of levy, prescribed in the Cinematograph Films (Collection of Levy) Regulations 1968, as amended, is one-ninth of the price of admission in excess of 7½p, the calculation being made net of VAT. This portion of the net admission price which is not liable to levy has stood at 7½p since 1968. The levy is calculated on the weekly takings of each cinema.
The regulations 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 the levy period) are less than £700. Each successive period of 52 weeks constitutes a "levy period".
The yield from the levy has been just under £5 million each year for some years 1195 past. This yield has remained more or less constant because the rise in prices has been balanced by a significant decline in the number of people going to the cinema. But many cinema exhibitors have for a long time been operating at a loss or at an unacceptably low margin of profitability and, as has already been demonstrated, large numbers of cinemas have closed and others are unfortunately likely to close. The trade associations have therefore made representations that exhibitors should be afforded some further relief from levy liability if they are to remain in business.
The Department of Trade 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 as well as the prevailing, level of production. It is in the light of the economic circumstances of exhibitors that the draft regulations now come before your Lordships' House.
The Department has consulted the Cinematograph Films Council as it is required to do by Statute. The Council have recommended that the total amount which would otherwise be payable by exhibitors should be reduced by £1 million. In recommending particular methods for affording this relief, the Council were mindful of the importance of giving help where it would be most effective—primarily the smaller cinemas which attract small audiences. But they 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 allowed when a cinema's takings in a particular week fall below £700 or where they fall below an average £700 a week over the levy period. Obviously the main beneficiaries of this exemption are the smaller cinemas, though regrettably larger cinemas occasionally fail to attract a big enough audience in the course of a week to take 1196 even these small amounts. The Cinematograph Films Council recommended that this exemption figure should be raised from £700 to £900, thereby increasing the number of cinemas who would pay no levy in any one week or more. It has been estimated that this increase should benefit the exhibitors by the order of some £500,000.
Secondly, any exhibitor paying a levy only does so on a percentage of the price of the cinema seat in excess of 7½p. Further benefit can accordingly be given to the exhibitor by raising this levy-free portion of the seat price and it is proposed that this should now be 12½p. On statistics at present available it is not possible to be certain about the number of cinemas which will be left paying levy once the exemption figure has been raised to £900. Had the number of cinemas remaining liable to levy stayed the same, the effect of raising the levy-free portion of the seat price by the amount proposed would have been of the order of another £500,000. Obviously, with a smaller number of cinemas liable to levy, this second sum of £500,000 will be an overestimate because it includes double counting. Clearly the overall reduction in the yield from what it would otherwise have been and with these two changes operating together must be somewhat less than £1 million. The practical impact must await further review. The Department will see how the position develops in practice. Should the shortfall prove significant, further draft regulations will be placed before the House.
My Lords, the purpose of these draft regulations is thus to reduce the amount of levy otherwise payable by exhibitors by approximately £1 million, and to do that by first increasing from 7½p to 12½p the portion of the payment for admission net of VAT which is not liable to levy; and secondly, increasing from £700 to £900 the amount by reference to which total or partial exemption from payment of levy is allowed. My Lords, I commend both of these orders to your Lordships.

§ Lord TREFGARNE
My Lords, the House will be grateful to the noble Baroness, Lady Stedman, for bringing these orders before your Lordships tonight. I think that they are desirable and appropriate, although clearly they are the natural result of the very high rates of inflation which have obtained in the past few years throughout all sections of our economy, including the film exhibiting and producing industries. I do not think that there is any detailed comment which I could or should make on these orders. I am happy that the Cinematograph Films Council have clearly been fully consulted. Indeed, if I heard the noble Baroness aright, it seems that it was at their instigation that these orders were prepared and laid before your Lordships. I am equally happy to hear that the Government are prepared to keep the matter under review. It may be that we shall have further orders or draft regulations before us in due course. Having said that, I hope that your Lordships will agree to approve this order and these draft regulations.

§ The DEPUTY SPEAKER (Lord Alport)
My Lords, with your Lordships' permission I shall put both the Motions to the House together.