British Film Industry

HL Deb 28 March 1996 vol 570 cc1889-905

7.6 p.m.

The Earl of Drogheda rose to ask Her Majesty's Government what proposals they have for long-term tax incentives to encourage and sustain the British film industry.

The noble Earl said: My Lords, I should like to put forward a proposal for a constructive and realistic way for the Government to help and encourage the British film industry. Before doing so I should like to reassure your Lordships on one point. Although it has taken me some time to summon up courage to make my maiden speech, I promise your Lordships that I shall not make up for lost time.

Your Lordships may well ask why I feel that the British film industry deserves a helping hand at this time. There are various reasons. On one level the cinema is an industry like any other. On another level it is entertainment, education, and, at its best, an art form. It is arguably the most influential art form of the 20th century. On yet another level it can be a sort of cultural ambassador for this country all over the world.

On the face of things one might question the necessity of helping British cinema at all as it seems to be flourishing at the moment. We see films with British actors, British directors, writers and technicians being nominated for Oscars every year; indeed, several won Oscars this week. I think the answer is that it could flourish far more and should be placed on a more solid base and, most importantly, British cinema should be able to share in the rewards it generates to a far greater extent than it does at present.

I hope I might be allowed to give a couple of examples. The film "Sense and Sensibility" is a most English story and almost, incidentally, a bucolic advertisement for the British tourist industry. It was made entirely in this country with a British cast and a screenplay written by Emma Thompson but it was produced in Hollywood. It will produce handsome profits, most of which will go back to Columbia Pictures. "Four Weddings and a Funeral"—a film that everyone assumes was English—cost 4 million dollars to make, grossed 400 million dollars, and was in fact produced by a Dutch company.

We are extremely fortunate to have in this country a great theatrical tradition. At the risk of sounding complacent, it is fair to say that our theatre is the envy of other countries today. Moreover, the National Theatre and the Royal Shakespeare Company are supported by a substantial state subsidy.

One might say that the theatre here is actively fostered by the Government. But cinema is a different matter from theatre production. It is infinitely more expensive for one thing; and with a few rare exceptions most British films rely today for their funding largely on television companies and Hollywood.

One has the impression that the cinema is looked on by the Government as a rather disreputable and tiresome relative of the theatre, a relative who is always asking for money. There is no significant state subsidy for the production of films, nor is it realistic to expect there to be one. We should not lose sight of the fact that film making is a gamble. It is, as one film critic succinctly put it, the "funding of hope over experience".

So why should the Government help film makers at all? In the Government's eyes, after all, the film industry is an industry like any other and should be treated no differently. If the risks are higher, so are the possible profits. Is it reasonable to ask the Government to encourage what the Treasury doubtless sees as reckless gambling? I believe that it is, not only for the sake of the film industry but for other considerations as well.

Let me emphasise that the Government would not be bringing help to a dying industry or even a sick one. They would be encouraging one which is full of vitality at the moment despite the lack of government support during the past years.

The creation of every new business is a gamble, and in a way the production of each new film is like the creation of a completely new business. Unfortunately, the capital investment necessary for the making of a film is large, and because of the high risk involved, the venture capital required for making films for the cinema almost always comes from abroad, where more favourable fiscal attitudes prevail.

The supply of talent that has been fostered by our theatre is now increasingly being tapped by Hollywood, which wisely makes use of British directors, actors and technicians and frequently makes films in British studios and on British locations.

This is obviously not something to be discouraged. However, it must be remembered that most of the profits from these American-backed films go back to the United States instead of staying here to be used to build up the British film industry.

In an ideal world, it would surely be preferable for the British film industry to be established and controlled in this country. In the 1930s, 1940s and 1950s the absence of a serious rival in the form of television meant that the profits from the cinema were larger and easier to come by, and this provided the necessary capital for reinvestment in films. For this to happen today, with the overwhelming presence of television, we need a real incentive for capital investment if the film industry is to flourish. As things stand, it is only in the United States and in other countries with a favourable fiscal attitude that there is the right climate to encourage the necessary venture capital to be invested seriously in films.

In order to produce films of high quality on a consistent basis it is necessary to revive the British film tradition. A great film, or indeed any great work of art, is rarely produced in isolation. In the 1940s and 1950s, for example, for every "Kind Hearts and Coronets" (a film that may strike a chord with your Lordships), and "Whiskey Galore" (which may also do so), Britain produced dozens of amiable but now forgotten films which created the working soil out of which several good films and, a few great films emerged.

Two things are now needed. One is for the encouragement of investment in film by British production companies. The other is for greater encouragement for companies from other parts of the world to film in the United Kingdom. We lead the world in technology and expertise in the film industry. This is no empty boasting. Your Lordships may not be aware that there is a prize called the Cartoon d'Or which is awarded to the best animated film of the year. From the inception of this prize in 1990, it has been won by British, films every year with one exception, when it was won by a film made in France—for which the animator was British. And since we share a common language with the Americans and are regarded by them as not very different culturally, a very small incentive is needed to persuade American companies to come to film here.

Unfortunately in Great Britain, although lip service is paid to the idea of encouraging film production, in reality we have excelled at discouraging it. Let me give an example. In order to raise money, films generally need a star. Foreign film stars coming to work in this country get taxed at source and if the rate of tax here is higher than that in their home country, they are taxed at that rate. The net effect is that the producer has to indemnify the star, which costs him more and is an unnecessary discouragement for him to make his film here. Canada, France, Ireland and Germany have recognised this problem and apply a lower rate of tax in these cases. Although I realise that this offends the British sense of fairness, it seems an occasion when to act too rigidly according to one's principles may give one a momentary feeling of self-righteousness but in fact is a self-indulgent route to a hollow victory.

Much has been made, and quite rightly, of the British successes at the Oscar ceremonies this week. However, the story behind the making of one of these, "Braveheart", vividly illustrates our problem. The shooting of the film began in Scotland, where it should have been completed. It was based in Inverness, where the local economy enjoyed a boom as a result—illustrating, incidentally, the advantageous side-effects to the economy derived from film production. Half-way through filming, however, it was moved to Ireland. There were various reasons for moving to Ireland, not least the Irish fiscal incentives which, even with the considerable expense in the move, still made it financially worthwhile. Moreover, the producer was persuaded not merely by fiscal incentives but by other imaginative ones that helped the production generally. For example, 600 horses were provided free by the Irish army together with other practical assistance.

The solution that I should like to suggest for the Government to help the film industry is not unrealistic and certainly not a Utopian one. First, could we not begin immediately by creating a climate, financial and otherwise, sympathetic to film makers? Secondly, I would suggest reviving the Eady levy. By this, a proportion of tax from cinema tickets was returned to the film industry for re-investment in film production.

This levy worked well for nearly 35 years until it was discontinued in 1985. It was a highly ingenious device of the Civil Service which gave immense help to the film industry and was copied by nearly every European country. Although discontinued by us, it has been retained by the other countries, and I feel sure it could be re-introduced here without any loss of face to the Treasury, perhaps under another name.

The most realistic help the Government could give British films would be through tax concessions. I am not an economist and shall not bore your Lordships with what would certainly be confused economic arguments. However, I know that the repeal of Section 68 of the Capital Allowances Act 1990 would be an enormous help to the film industry, as would the introduction of 100 per cent. capital allowances in the first year of a qualifying investment.

Finally—and I hasten to assure your Lordships that my family connection plays no part in this suggestion—I believe that we should study the Irish example very carefully and extract all we can from it.

The Irish Government's attitude to the film industry has resulted in an enormous increase in the number of foreign films being made in Ireland, and also stimulated home grown production. Other countries are already beginning to emulate the Irish attitude since they have seen the many benefits that derive from it. Good films define a nation and establish a national identity in the eyes of the world. Film is both a tangible asset and an intangible one—like the BBC World Service or the British Council. The reputation of these two organisations as standards of excellence cannot be measured in purely financial terms. The benefits that derive from them extend far beyond what their aims are perceived to be.

It could be said that the survival abroad of the image of this country as an upholder of civilised values despite much evidence to the contrary is largely thanks to them. This in turn is of incalculable value to our trade, tourism and standing in the world. British cinema could, and should, enter this pantheon and become a symbol for excellence as well. I beg the Government to consider my suggestion.

7.20 p.m.

Viscount Mersey

My Lords, it is my privilege to congratulate the noble Earl on behalf of the whole House for such a thoughtful speech. We remember his father as a Knight of the Garter and, perhaps one should say, the King of Covent Garden, at both the Royal Opera and the Royal Ballet. It is in a way curious that the noble Earl has continued a royal association with his photography. I notice that he has photographed a royal publication on the Queen Mother's garden and, more recently, was photographer for the official brochure on Buckingham Palace. To the noble Earl I say simply: his father would be proud of him tonight. We hope to hear him often in the future.

Noble Lords

Hear, hear!

Viscount Mersey

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

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. Cazès 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 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 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 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 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.

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 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.

Lord Graham of Edmonton

Colin Welland.

The Viscount of Falkland

My Lords, I am reminded by the noble Lord, Lord Graham, of the name. However, I should not like to go down on record in Hansard as having blackened his name in such a way—an admirable man, I may add.

People who are enthusiastic about films do not care whether they are British. They want to be entertained by good products, in good surroundings, and in a language they can understand. English is the language which we understand. Subtitled and dubbed films do not do very well outside London. In this country we are always in the shadow of the American industry. Because films are one of their largest exports, the Americans see to it that we do not become too powerful. They always have done so. When Lord Willis (who made such useful contributions) was in the House, he always used to stress that. We have to find a niche for ourselves in this area with the kind of films that we do well.

I see from the Clock that time is running out. I remind your Lordships of films like "Sense and Sensibility". That is the kind of film we do well. It is a relatively low budget film and shows our acting skills. That is the kind of film that should be supported. Pressure should be put on exhibitors to show it as much as possible. That is the only way we can hope to compete with the American majors. I hope that that point will be taken on board.

7.49 p.m.

Lord Donoughue

My Lords, I join other noble Lords in congratulating the noble Earl, Lord Drogheda, on his excellent maiden speech in opening the debate. It was a brave way to make a maiden speech but I was not surprised, having known and respected his father greatly.

The British film industry, or art, is not big but it is not inconsequential. It is, for instance, bigger than our motor vehicle industry. It periodically employs some of the world's best directors, writers, actors and technicians. It has great potential, not least because it uses the world's prime language. We also have in the UK a booming consumer market for film, but those audiences are watching American films distributed by mainly American distributors. I agree very much that that is of crucial importance and often under-estimated. Those audiences are in fact starved of British films.

When looked at more closely, and given the enormous potential, the condition of Britain's film industry is far from satisfactory. In fact, very few British films are made here and many of those great directors, actors and so on, have to work abroad. The recent upward blip in US film making here, which the Minister will certainly make much of, is mainly because of weak sterling since the EMU débâcle. The reality is fundamentally unsatisfactory. We do not seem able to finance our own films, let alone secure national distribution for them. Nothing the Minister says tonight, I fear, can disguise the fact that this Government have done little to help, and some things to harm, our film industry.

In 1984 there was at least government policy activity, which subsequent experience in the industry suggests was not overwhelmingly helpful. Then we waited 11 years until last year's response to the Select Committee report, and that did not add up to much either. There was in that response welcome support for a London film commission and for a so-called West End showcase. I ask the Minister where that is. It was supposed to give a high profile to British films, but itself demonstrates a very low profile. The BBC was prompted to help save Ealing Studios, the National Lottery to give money to films, and that was puny in total and little of it was in fact given by the Government.

Above all, at the heart of the Select Committee report were proposals for self-financing fiscal incentives to promote production, which is at the centre of our debate tonight. The Government ducked all of that. Mr. Dorrell, in another place, as relaxed over film as over beef, said that the Chancellor would, in his Budget, carefully consider the Select Committee recommendations together with the logic which underpins them. We waited for the Budget and found nothing. I hope today that the Minister is not again going to say that we must wait for the Budget because the Government cannot keep ducking out that way.

The most amusing and, perhaps with hindsight, the most ominous aspect of Mr. Dorrell's announcement of 6th June 1995, was that he had in fact dramatically set up a new committee within his department to ensure that the needs of the industry, "are better understood by Government". That, I must say, was a really major initiative. It was also an interesting admission, by implication, that the film industry's needs had not been properly understood over the previous 16 years. I ask the Minister what this great new team has achieved? Are they responsible for the subsequent total silence and total absence of constructive Government proposals?

Outside government there has been no shortage of constructive proposals for tax incentives for the industry. Apart from the excellent Select Committee report, there were the recommendations of the British Screen Advisory Council last October for fiscal measures. There was also, last May, the British Film Commission paper on the economic case for stimulating investment in the UK film industry. The latter seemed to involve some loss of tax revenue, but the Select Committee's recommendations were aimed to be self-financing, as are Ireland's famous Section 35 reliefs, which have been frequently referred to tonight and which have certainly had a dramatic effect on the Irish film industry and employment in it. The cost to the Irish Treasury trebled to £19.9 million, but the additional revenues to the Treasury also trebled. So I ask the Minister what is the Government's approach to such self-financing, or nearly self-financing, fiscal incentives. We cannot accept that subventions from the lottery constitute a proper Government response. We cannot accept another invitation to await another Budget. We would like some precise response today, even if it is only to say "goodbye".

In 1918, the American President, Woodrow Wilson, introducing legislation specifically to benefit the US film industry said, when people see American movies, they buy American products". I fear that with this Government a more relevant quote is from Bette Midler who said, when it's 8 p.m. in New York it's still 1938 in London". I hope that that is not true in Whitehall and Westminster. I ask the Minister to think about 1996. After 17 years of non-incentives to the film industry, have the Government still nothing to offer?

7.56 p.m.

The Parliamentary Under-Secretary of State, Department of National Heritage (Lord Inglewood)

My Lords, I must begin by saying how grateful we all are to the noble Earl for giving the House the opportunity to discuss this important topic today. It is one which my Secretary of State and I both feel matters a great deal to this country. Perhaps I may pick up the comparison made by my noble friend Lord Mersey. We believe that it is both an industry and an art. It is also important to our culture and, as has been explained, to tourism.

The noble Earl made a bold and interesting maiden speech, which no doubt owes a lot to his own profession: photography. That is an occupation for the "best" people. I can say that with confidence because it is my wife's profession as well, and I know from her how well known he is. Certain reference was made to some of the subjects of his photographs. On one occasion, which he will have forgotten, he took a photograph of me, but I do not believe that that entitles him to any great accolade!

This has been a tremendous week for the British film industry. Our actors, actresses, directors, writers, designers, animators and technicians, have mounted their annual raid on the Academy Awards, and I am delighted that they have once again come away with so many richly deserved prizes. I am sure that the whole House would want to join me in congratulating all of our winners and all of those who received nominations. I would particularly like to congratulate Nick Park, of Wallace and Gromit fame, as a distinguished graduate of the National Film and Television School, for his incredible achievement in winning a third Oscar. I believe that this means that Nick Park has now won as many Oscars as the film "Jurassic Park"!

Perhaps I may come down more to earth. Your Lordships will be aware, as has been debated through most of the contributions this evening, that the question of changing the tax system for film was most recently considered at the Committee stage of the Finance Bill in another place on 7th March. At that time my honourable friend the Financial Secretary reiterated that the Government take the needs of the film industry very seriously. He explained that the industry already enjoyed a tax régime which is more favourable than that for many other industries, and that the Government provided assistance to the industry in a number of ways.

Finally, he made clear that the Government would keep the situation under careful review, which I hope explains the Government's position that was asked for by my noble friend Lord Mersey. The Government will always consider the case for further assistance in the light of developing circumstances. While I know that my colleagues in the Treasury have made it clear that they do not see a case for any action now, they will keep the matter under careful review as they consider future budget proposals.

Much has been made by a number of contributors this evening, not least by the noble Baroness, Lady Wharton, about the tax incentives offered by the Irish Government. This is a system which rewards people and companies which invest in film production companies. It is not a relief for the cost of making a film. Furthermore, a report commissioned by the Irish Government shows that the cost to the Irish Exchequer for special reliefs to encourage investment in the film industry has far outweighed the benefits. The report estimates that the measures cost the Irish Exchequer around £19.4 million during 1994–95, while the benefits that arose totalled no more than £13.5 million, which I notice is the definition of "nearly self-financing" used by the noble Lord, Lord Donoughue.

As a result of this report, changes to the scheme have been introduced in the recent Irish Budget to improve targeting and cost effectiveness because there has been great concern that it is not actually the film industry, but the big middlemen, who have been the beneficiaries of much of what has occurred.

It has been rumoured that certain films have been shot in Ireland in preference to this country because of the reliefs available there to the investors. However, the evidence is that factors other than tax are in play, such as the availability of members of the Irish armed forces as extras at very little cost to film makers. In this context, it is as well to remember that the incidence of VAT has come as a nasty surprise to one or two people.

Reference has been made to other countries. International comparisons are notoriously difficult. Looking round the world, it is difficult to compare one country with another in this respect. It has been suggested that Canada provides a good model for this country. However, that is based on an entirely different approach to taxation from that which we have in this country. I understand that in certain circumstances it is possible to receive a tax credit that exceeds the cost of the film.

The noble Baroness, Lady Wharton, and the noble Lord, Lord Freyberg, referred to the withholding tax. The withholding tax merely exercises our taxing rights over people who earn money in this country. Before its introduction, our experience was that some foreign actors made films here, returned home and the tax was rarely paid. That led to significant loss of tax which was due from people who could well afford to pay it. Because these are difficult matters, the Government have brought together, in an advisory committee under the chairmanship of a former permanent secretary to the Treasury, Sir Peter Middleton, key figures from the film and financial sectors to discuss the obstacles to obtaining private finance for films and how they may be overcome. The committee is currently consulting the film industry and potential investors and is due to report to Ministers in July. We look forward to seeing some practical and effective proposals at that time which we hope will be of interest to the noble Lord, Lord Donoughue.

I should like to explain briefly what the Government are doing to help the British film industry. We believe that the industry is in very good shape. The number of films being produced in this country has increased in each of the past three years. That contrasts with figures for other leading film-making countries such as the United States and France where production has fallen since 1990. Part of the reason for that investment has been the changes to the tax regime introduced by the Finance Act 1992. Big budget productions like "Rob Roy" and "Judge Dredd" have been filmed in this country as a result of those changes. Our confidence in the strength of the British production sector is reinforced by the fact that currently our studios are so busy that two major new investments in studio facilities are planned. I refer to the proposed developments as Leavesden and Hillingdon. The latter is an American proposal, which hardly suggests a United States antipathy to doing film business in this country. They will add significantly to our production capacity and, along with the best technical support available in the world, will help to ensure that even more films are made here in future.

As the noble Viscount, Lord Falkland, pointed out, cinema admissions are buoyant. They have recovered from the slump in the mid-1980s. Admissions in January of this year were 29 per cent. up on January 1995. We are delighted that British film makers are rising to the challenge of producing high quality films for which there is such a strong demand. I say to the noble Lord, Lord Jenkins of Putney, that this has been achieved without the reintroduction of an Eady levy, for which we understand there is no great clamour from the industry.

Reference has been made to the National Lottery. We estimate that in the next five years about £70 million could be invested in film production in England alone by the Arts Council. If one takes the whole of the United Kingdom, the figure should amount to something like £80 million.

In addition to looking at more general problems about overcoming obstacles to attracting finance, Sir Peter Middleton's committee will look in particular at one proposal in advance of its final report. I refer to the proposal of the European Commission for an audiovisual guarantee fund to attract additional private finance by reducing the risk involved for individual investors in single film productions and the development of portfolios of film investments. The proposal is an interesting one, and we look forward to receiving Sir Peter's report next week.

The noble Lord, Lord Donoughue, asked about the showcase cinema. A feasibility study is to commence next week to look at whether or not a cinema dedicated to showing British films can be viable and what other complementary activities may be undertaken to ensure the best use of it. We expect the consultants who undertake the study to report before the end of May. In addition, the Government have announced their pump-priming support for a new London film commission which has already opened its doors and is very busy, although the formal launch will not take place until the summer.

The Government are very proud of the British film industry and the highly talented and internationally renowned people who work within it. One remarkable statistic that is often repeated, but is none the worse for that, is that over the past 20 years 30 per cent. of all Oscars have gone to British talent. We are delighted that this tally has been added to this week. We wish to ensure that the industry continues to thrive. I have explained this evening the many important initiatives that are being undertaken. I conclude by reiterating what I said at the beginning of my remarks. We in the Department of National Heritage believe that film matters. If there are things that we feel can properly be done, we shall not hesitate to do them.