Film Production

HL Deb 26 February 1997 vol 578 cc1255-70

7.48 p.m.

The Viscount of Falkland rose to ask Her Majesty's Government whether the systems and safeguards in place for the proper distribution of National Lottery funds for film production would be the same if these funds were in the form of subsidy from central government.

The noble Viscount said: This is a short debate. I wish that it had more participants. I thank the two other other noble Lords, the Front Bench speaker, Lord Donoughue, and the Minister who is to answer my Question. I am particularly thankful to the noble Lord, Lord Donoughue, because I know that he has given up an important part of his busy and attractive social life tonight to be here. I am sure that his contribution will be extremely helpful.

I do not begin this debate with any antagonism towards either the Government or the Arts Council, although the framing of my Question may indicate otherwise. I wish to debate with your Lordships tonight the arrangements that are now in place, many of which are fundamentally good, for the film industry. Possibly now is the time to reflect on whether matters might have been done differently if more time had been given to consider the needs of the British film industry in relation to an unexpected amount of lottery money. When the announcement was made that money from lottery funds would be available for film production my friends in the film industry were genuinely astonished. Over the past 10 years it has become unfashionable to pursue government, perhaps out of total exhaustion, for anything other than like support mechanisms through tax relief and so forth. The idea of subsidy has become completely lost.

When I first began to talk about film in your Lordships' House shortly after I entered this place in 1984 the Films Bill was being debated. At that point the British film industry was at an extremely low ebb. Cinema attendances in this country were at an historic low; the production of British films was negligible; and many of the contributions made during the course of that legislation were, to say the least, dispiriting.

I seldom like to read what I have said in your Lordships' House but I did thumb back through to the Hansard of 1984. My speaking was somewhat muddled, and it probably still is. But, if I may claim some kudos, I made a prediction then that there would inevitably be a recovery but that it would have to be led through exhibition rather than any subsidy for film production.

I had no idea at that time—it happened some three or four years later—that the American concept of multiplex cinemas (multiscreen cinemas) would be introduced into this country, mainly by American and Canadian companies, and would have such an immediate impact on filmgoing. The multiplex system of film exhibition is very much an American idea. Any noble Lord who has been into one of these multiscreen cinemas will notice that not only is there a great deal of choice, a service aspect, a great deal of American-type food available (hamburgers, popcorn and so forth), but that most if not all the films in, say, a 10-screen multiplex, which is not unusual, are American.

British films, which are usually of a specialist nature, and foreign language films are rarely shown there because they do not sit easily with the American culture of exhibition. Exhibition and distribution—the two are often linked—are hard, competitive businesses run by hard-headed businessmen. One hardly ever hears anyone in distribution or exhibition, in this country or the US, talk about the cultural imperative, which is something one might hear among film directors, writers and so forth in both countries. They are interested in making money. They are the motor of the success of the film industry.

When one looks at it, no one made money out of producing films. The money is made out of distributing and exhibiting films. However good quality it may be, it is no good producing a film if it is not going to be shown and people are not going to see it. There are all kinds of reasons why a film may fail. I shall enumerate some of them in a second. Many films made in Britain with extreme difficulty and on a slender budget are good films in terms of their production values and in the way in which they create interest in their audiences. There are all kinds of elements which may affect their success, but fundamental to their success is that they must be shown.

Just under 50 per cent. of all British films fail to find distribution in cinemas. It is no accident that two of this country's leading film directors—this country is full of creative talent—generally fail to find distribution for their films. Ken Loach who is generally acknowledged within the film community—he is the director's director—is hardly known in Britain. He is known on television, but his films are seen by more filmgoers in Belgium than in the whole of the UK. The reason is that our distribution/exhibition system is not geared up for such films.

We are desperately under-screened in this country. There are just over 32 cinemas per million of population, which is just over half of what is available in France and about a third of what is available in the US. It is no accident that the film which will probably win the Oscar nomination—"The English Patient"—which has been seen by almost everyone in the world, has not yet been seen here. I think it is opening next week in London. It is a film which I would recommend to all noble Lords. It is an extraordinary success, with a British director and a British writer and yet it is not a British film: all the money comes from American sources.

When films have the ingredients to attract money, which is rare, because it is difficult to obtain finance for films, and when it is a property that people want, it is inevitably the Americans who jump in first. So it is no surprise that much of our young talent and some of our older talent too—we have many excellent older technicians as well as creative people—tend to go to America. Some tend to stay there if they can bear to live in California, because there is consistent and continuous work for them.

I am glad that I am speaking to the noble Lord, Lord Inglewood, as Minister with responsibility for film in the Department of National Heritage, because in the past I have spoken mostly to a Minister in the Department of Trade and Industry. Although I have spoken to some of the Minister's charming and helpful Front Bench colleagues, I got nowhere because they were the wrong people to deal with the issue. Since its creation a great deal has been done by the Department of National Heritage to address many of the problems.

I would just ask the Minister whether we have rushed too quickly to help the British film industry by focusing on film production as a means of using what is a relatively generous allocation of lottery funds. To date I believe that about 150 films have received lottery funding. The understanding in the film industry and my understanding—the Minister may say that I am wrong—was that 15 per cent. of all arts funding would be allocated to film. In fact I believe that about 7 per cent. has been allocated to those 148 films. I do not quarrel with that because much of that has gone to films which should not have been made.

In passing—I do not want to be sour about this—it was testing the Royal Family a little to put on the film "True Blue", which had been knocking around for a long time, for the Royal Command Film Performance, because it was an intolerable production. It is the only film in my memory which was put on, obviously because it was a Royal Command film, in one of the few big cinemas in Leicester Square, which could not complete its run. It had to be taken off because it generated so little interest. It was a project which probably fitted into the criteria of the Arts Council of England. I do not blame it for that, because it had all kinds of things: it was British; it had many aspects which might have related to the public good, something which I believe is mentioned in its guidelines, but, my goodness me, what a boring film!

Many other films have been put up for lottery funding and have been unsuccessful. Surely we are arriving at the time—because the time will surely come when people will see how much money is being put into films which have no chance of achieving—to take an overall view of the film industry from beginning to end, to look at every aspect of it, to see where funding is needed. I have no objection in principle to subsidy where it is needed, and where there is usually a cultural imperative. There may well be a cultural imperative in this country. I have argued that in the past, but it can only be part of a larger context. The larger part of that context must be a commercial cinema which creates employment and draws people into cinemas to see and enjoy those films.

I understand that the conditions for lottery funds are limited, but I suggest that a better way of dealing with funds would be, for example, to examine the development of films. Major American studios which produce 20 films a year usually have more than 100 films in development. It is an expensive area but the Americans can do that because they have a proper industry. A large proportion of those films will never be made. Development means obtaining scripts, rewriting them, getting treatments done and bringing the project to the point where it can be presented for finance.

In this country things are done on an ad hoc basis. You are lucky to get funding from wherever you can claw it. You make your film, you hope that it will be successful, but if it is not you go back to gather a few colleagues and try again. I suggest that we want to correct that procedure. I also suggest that the Department of National Heritage and the Arts Council agree because otherwise they would not have sanctioned the idea of franchises. The applications for the first of those will be decided this week.

I hope that other noble Lords speaking tonight will back my desire for a proper study covering everyone involved in film; the Government, the Arts Council, producers, directors, the Writers Guild and all those who have an interest. I suggest that the priorities are distribution and exhibition; development; training, which is extremely important because the cost of making films is enormous and if untrained people make films a great deal of time and money will be lost; and, finally, production. I believe that we have started at the wrong end. If the Minister agrees with me, how quickly can we put the situation right.

I have spoken for far too long. We have some interesting speeches yet to come and I look forward to hearing them.

8.2 p.m.

Lord Palmer

My Lords, I am grateful to the noble Viscount, Lord Falkland, for asking this important and complex Question. As the noble Viscount has a Scottish title, I hope he will approve of the Scottish flavour of my brief contribution. I must also declare an interest as I have a brother-in-law who appears regularly on the stage, in major feature films and on television. For those interested, he played the difficult role of Prime Minister Pitt in the stage and film version of "The Madness of King George".

Since the Scottish Arts Council lottery fund for film production was introduced in 1995 it has made a huge impact on film-making in Scotland. In just the last two years 16 feature films, 31 short films—and here I must declare a further interest as three of these were made at my family home—and 15 documentary programmes have been funded from this source in Scotland, representing awards totalling £9.3 million invested in production worth £38 million—a very large amount of money!

These funds represent a major public investment in the creation of a viable and vibrant film industry in Scotland, but it is now right to build on this success by improving the system to allow money made from these funded films to be ploughed back into the industry for further production. This is how the film industry should be enabled to make a real contribution to its own growth, and to the economy in general.

The fact that these funds are available has meant that in Scotland, since their introduction there has been a 42 per cent. increase in projects that went into production and a 20 per cent. increase in feature films that went into production. These are indeed impressive figures.

Tax incentives for the film industry would also make a difference to the level of business attracted to the UK and especially to Scotland. The Minister will not be surprised to hear that I am going to talk about Ireland. The Irish government, after they introduced tax incentives under the now famous Section 35 provision, saw film making in that country rise from almost nothing in 1989 to a production slate of over 40 major features in 1996, and a state of near overheating which has necessitated a certain tightening up of the rules of eligibility.

The Irish sensibly attach strict conditions to their scheme which has meant that any film awarded moneys under Section 35 has had to employ a shadow Irish crew in all the major positions, thus ensuring that Ireland benefits in real terms not only from the inward investment, but also from on the job training, enabling them to build up well trained and experienced film crews which are so vital for the long term future of the industry.

Similar schemes for the UK must be considered if we are to compete on a level playing field with our Irish neighbours. Although I acknowledge that the lottery funding for films has made a real impact, if we could add to that tax incentives or business development schemes to encourage both public and private investment in film, with the private investor being able to recoup first, there is no doubt that we could seriously compete for the international business which is presently passing us by.

To give but one example, the film "September", adapted from the Rosamund Pilcher book of the same name, is set entirely in Scotland, but the production company did not even consider filming it in Scotland. Instead, it went directly to Ireland to access the funds available under Section 35. What a shame, my Lords, what a terrible shame! I beg of the Government to look at this situation.

Business incentives schemes to attract private investment would have the added attraction of allowing slates of films to be compiled, featuring films with certain box office appeal, but also allowing for the more unusual or experimental films coming from young and hitherto unknown film makers to be made. This has the advantage of ensuring that the investor gets a good return on his money, and young talent gets the chance to be seen, and thus develop their skills. As the noble Viscount said, an investment in the future is surely well worth making.

In short, the film and television industry must be allowed and encouraged to compete at every level. As people have more leisure time in which to view the wealth of television channels now available to them, as more multiplex cinemas open around the country requiring greater levels of quality British production to keep them supplied, and thus as more homes have computers on which to view the vast amount of multimedia entertainment now available, we must support the industry which can and must be encouraged to supply this ever increasing demand.

This is an industry for the 21st century, which secures employment for a great many people. Today there are more people employed in the UK in the film, television and the moving media industry than there are in the car manufacturing industry. This statistic alone shows the vital importance of this industry to the UK economy.

Lottery funding for film and television has made a serious and quantifiable difference to this industry and to the economy of the country. Now is the time to consider further incentives to ensure its continued growth and prosperity.

I do hope that the Minister's noble friend Lord Lindsay and my right honourable kinswoman the Secretary of State for the National Heritage and their departments will take note of this debate tonight. This industry needs all the help it can get both from the Government and from the National Lottery.

8.10 p.m.

Lord Freyberg

My Lords, I too should like to thank the noble Viscount, Lord Falkland, for introducing this very timely debate about the most sensible way of funding the British film industry.

A number of people in the film world to whom I have spoken have expressed the same anxiety; namely, that although film-making in Britain is thriving, there is no proper distribution to enable these films to be seen except through the American studios. These naturally favour their own market-tested products along with the best of the independents. Indeed, at the moment, 92 to 93 per cent. of the box office goes to American movies. The American studios are in effect distribution companies, and control distribution. The money is in distribution and the cost is in production.

Thanks in part to lottery funding, film production in the UK is undergoing a mini-boom. In 1989, 33 films were made here, while in the first 10 months of 1996, the figure was 108. However, the fact that over 50 per cent. of those will not get distributed in cinemas and will therefore not reach audiences is a terrible market failure. Are we wise, therefore, to put so much emphasis on production? As the noble Viscount, Lord Falkland said, the distribution and exhibition of films are crucial. Exhibition includes films being received through satellite television, terrestrial television, video, CD-ROM or whatever. It is a huge market, something which the Americans got hold of and got the hang of very early on. Ultimately, the British film business has to be a distribution business as well as a production business if it is going to survive, and this is something we must try to embrace as part of our film policy.

It is the argument of many people in the UK film world that although lottery funding for film production has had a huge effect and increased the number of films being made, it is not geared to helping the industry as a whole in a way that funds in the form of subsidy from central government could do.

Recent reports have suggested that what is needed is an integrated system; namely, the creation of "integrated" British companies like small Hollywood studios, which are capable of distributing films as well as making them. However, critics of this system are nervous that such companies would become cosy cartels hoovering up handouts.

Perhaps more satisfactory, and less liable to collapse with the failure of individual films, would be the suggestions put forward by Wilf Stevenson, the Director of the British Film Institute. He proposes two initiatives that could only be created by direct funding—perhaps £20 million per annum—of film production via subsidy, and which would not be possible via the lottery.

In the first, a UK film distributor could be set up to try to link audiences to production. This fund, perhaps using half the annual tranche, would invest in prints and advertising for all films made in the UK judged to have commercial potential but not picked up for distribution (50 per cent. of films made in the UK fall into this category); and invest in production (by acquiring rights) when suitable projects are in development. No one currently does this in the UK, but it is the business in the United States.

Secondly, a guarantee fund could be established, to reduce the risk to commercial funders in UK films. At present, equity investment in such films is just too risky, and City money is never attracted. A guarantee fund, profiting from successful films, would greatly enhance City investment. If that could be combined with some form of tax break it could be a winner.

However, I must emphasise that any increase in UK film-making will come to nothing if all we are doing is creating a celluloid mountain. If the lottery money is going to have any lasting, rather than short-term, effect on the UK film industry, money must be found for distribution as well as production.

8.14 p.m.

Lord Donoughue

My Lords, I join other noble Lords in thanking the noble Viscount, Lord Falkland, for bringing before us this important subject. Ironically, the great social occasion of which I am deprived this evening is in fact a film première about an obsession with football, an obsession which I share. Therefore it has been painful but I have slowly convinced myself that the quality of speeches as well as the short list of speakers has made it worthwhile. The knowledge and lively presentation of the noble Viscount, Lord Falkland, make it a pleasure to hear him on this subject. The speech of the noble Lord, Lord Palmer, made his home life sound like a Hollywood of the north. I feel that the noble Lord, Lord Freyberg, was as perceptive and well informed as ever.

We must begin by celebrating the present success of the British film industry. Film production in Britain is at a very high level. British film makers are receiving international awards. Cinema audiences have doubled since the early 1980s. We should all cheer that. Indeed, it is a great improvement on the situation a decade ago when the Tory government inflicted grave damage by changing the tax status of films and abolishing the box office levy.

The present good times must be put in the longer-term context. As the noble Viscount, Lord Falkland, said, most films produced here are not British, however defined. They are Hollywood films. This is a feast year and, periodically, we have always had them. But, historically, they have always been followed by famine years and will be again unless and until our film industry is put on a sounder commercial footing to encourage sustained investment.

Looking specifically at the role of the Arts Council, we note that in a couple of years it has part-funded some 57 films involving £30 million of its investment and meeting more than 25 per cent. of the costs. It is well advanced with its scheme for four studio franchises financed by lottery money. It is on course to assist well over 100 British films. I hope that it can define "British" more succinctly than the Films Act 1985 did according to various criteria.

It appears that many in the film industry—and I suspect that the noble Viscount, Lord Falkland, was reflecting them—do not like much of that and certainly do not like the franchising concept. On this side of the House, we are not so opposed to it, especially in the short term. That is not to say that it is a perfect process or that the maximum of £8 million per film will ever change the film world; nor indeed that the Arts Council is perfectly equipped to make those judgments. I felt that the noble Viscount made a number of very telling points in that regard.

To me it is not clear what quality criteria the anonymous film panel on the Arts Council will apply. I am especially worried about bureaucracy and cronyism in the process and even whether the concept of national film is sustainable in a global industry, although I hope that it is.

The experience of the French film industry certainly demonstrates the capacity of central subsidised institutions to make films which even French nationalists do not want to see. Certainly we do not want the celluloid mountain, which was referred to nicely, of worthy but unseen British films.

In a practical world and wanting to help our film industry in the short term, it is not dazzlingly clear to me who is better than the Arts Council to handle that side of the matter. It is not clear that the industry itself would immediately agree on an acceptable body which was not seen by the media and the public as what they would call a cosy luvvies' tea-party. At least the Arts Council is there with a reasonable reputation and a track record in lottery distribution. And it has brought in industrial expertise, however secretly—I do not believe that we know their names—although the commercial production sector is still probably under-represented. If we are in government, we shall want to look at whether there is a better long-term solution to that which meets some of the reservations of the noble Viscount, Lord Falkland. His suggestion of an inquiry and the priorities which he puts forward would be a helpful start.

In the end, it is a question of how to select and back successful films. Obviously "True Blue" was not a good example. I saw it and I felt that the title was against it since they are losers. But nobody has solved the dilemma of selecting and backing successful films in a systematic way. In the world film industry the problem of selection is usually solved by individual mogul geniuses with a nose for a winner. Even the best of them in Hollywood, as was suggested, need to have many films on the boil, finally making only a few of them including some flops. We remember that even Lord Grade went down with his "Titanic". So the Arts Council process is imperfect but it is practical.

I should now like to look a little wider into the future of the film industry. It is clear that what we want our policies to achieve is a strong and expanding film production industry which produces successful British and international films on a sustained scale. We do not have that yet, despite the recent boom. Actually, we make fewer feature films even now in a boom than we should, given the rich talent that we have, much of which, as has been pointed out, is working almost permanently overseas. We also make too few British films about British subjects, although "Trainspotting" and "The Crying Game" show that we can succeed. It is certainly a crying shame that so many successful so-called British films—for example, "A Fish called Wanda", "Braveheart" and "Pride and Prejudice"—were in fact foreign financed, which means that their profits were not retained here.

Yet, as has been said, we have some of the world's best talent displaying great creative, technical and animation skills. Too many of them have been lost in the talent drain to America. So what do we need to do to keep them? Certainly, we need to strengthen our film industry infrastructure by improving training and raising the standards of weaker training courses to the high levels exemplified, say, in the National Film School or at Bournemouth, and we need to nurture regional production.

We should also look particularly at the foreign control of our film distribution and exhibition—I noted that the noble Viscount made that the first of his priorities; and I totally agree with him—and look to see how that relates to the fate of our domestic industry. As has been said, well over 80 per cent. of the current record cinema takings are for American films and will return to the US and nearly 50 per cent. of British films made, for example, in 1994, were still not released in British cinemas a year later. Can the Minister say whether the Government have any proposals to investigate the question of distribution and exhibition?

We can of course do other things to help. For example, we can take a more positive role in Europe by rejoining the Council of Europe's "Images" scheme which could lever up to £50 million per annum of production investment for a mere £2 million subscription. Perhaps the Minister can tell us why the Government ignore that benefit. We must also maintain the support for British Screen and for the Greenlight Fund and we should actively support the fast growing multi-media CD-ROM industry which currently is mainly US controlled in this country.

However, we really need more than those micro policies, although they will help. I believe that we need a complete change of attitude by government, with more enthusiasm and energy to fly the flag for the British film industry. As has been mentioned, the dramatic growth in the Irish film industry—which has increased 30 fold in five years—is as much, I believe, because of the enthusiastic leadership of the culture Minister, Michael Higgins, as because of the fiscal incentives under Section 35. I agree with the noble Lord, Lord Palmer, though a Scot, that Ireland, as in many cultural things, does it very well. I should add that I include horseracing in culture.

Even so, fiscal incentives need further and sympathetic investigation, not as a permanent regime or as a debilitating subsidy, but, perhaps, over a short fixed term, as a way of kick starting investment. Moreover, faster write-offs for failed investment would encourage financial backers to take the risks.

So our film industry is a complex one which is doing well in the short run but which needs to be put on a better commercial basis to thrive in the long term. The role of the Arts Council is only a small part of that process. Perhaps we should give the council longer before judging it as being inappropriate or as having failed. It is to be hoped that new eyes will, before long, have the responsibility for viewing the council and making those judgments.

8.25 p.m.

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

My Lords, in his opening remarks, the noble Viscount, Lord Falkland, promised that we would focus on quality and have a quality debate. The contributions that we have heard this evening vindicate that hope and, indeed, indicate the prescience of the noble Viscount in introducing the debate.

The past 18 months have been an exceptionally successful period for the British film industry. One has only to look at the success that has been achieved at some of the major film awards during that period to see that that is true. Clearly, with film making in Britain flourishing, the advent of the National Lottery has come at the right time to give the industry a further stimulus. How appropriate it is that, in a year when we are celebrating the centenary of the cinema, the National Lottery should fund more than 100 films and that on a day when the Secretary of State visited the National Film and Television Archive at Berkhamsted (which has just received a £13.8 million lottery award for its restoration and preservation work) we discuss film and the National Lottery in your Lordships' House.

I am sure that we would all agree that the National Lottery has been a tremendous success. It has certainly had an enormously beneficial effect on the British film industry, as in so many other areas of life. To date, more than £81 million has been awarded to film and cinema projects. That includes about £40 million for some 109 film productions, including features, shorts and documentaries. That is a tremendous amount in so short a time, which I know is welcomed by the film industry.

Of course, even more will be available over the next few years. The Arts Council of England plans to invest more than £150 million in the sector over the next six years through its film production franchise scheme and there will also be money available for individual projects, as well as money from the other three Arts Councils. With a forecast gearing ratio of 2:1, the lottery could generate additional investment of some £450 million in the UK industry over the next six years.

The noble Viscount, Lord Falkland, asked whether it was right that 15 per cent. of lottery money for the arts should go to film. I can tell the noble Viscount that the figure of 15 per cent. is an unofficial aim for the Arts Council which has been suggested from within the film industry. In itself, it is not any kind of official target.

What I have found most encouraging is that the lottery has allocated its resources across the widest possible spectrum of film makers. Awards have ranged from £10,000 apiece for the production of a number of short films by the Scottish Arts Council up to £2 million for the feature film "Amy Foster". The latter was one of a small number of films financed through the Greenlight Fund, to which the noble Lord, Lord Donoughue, referred. This important development in the administration of the lottery proceeds was established by the Arts Council for England and British Screen Finance Ltd, initially on a trial basis for one year, with up to £5 million of lottery funds. The aim of the fund is to support established film makers in producing larger scale films which will be able to compete in the international market. That distinguishes it from British Screen's usual finance which is aimed at helping develop new talent. Grants are made in the form of loans which will generate a return when films are successful. Support will be limited to a maximum of 30 per cent. of the film's total cost, up to a maximum of £2 million. I am delighted that the Arts Council and British Screen have recently decided to extend the Greenlight Fund for a further year.

What we see in operation here is the lottery being used both as seed-funding to develop new talent and as a means of helping our established talent compete in the international market place. It is, of course, too early to make any judgments about the commercial success of films funded from the lottery—only a handful have so far been released. But we should not forget that the Arts Council will benefit from those films that are commercially successful. Any profits will be returned, pro rata, to the Arts Council and may be used to fund further film projects. The National Lottery will, therefore, not only help to discover the stars of tomorrow, it will also further stimulate excellence in the sector as a whole.

Both the noble Viscount, Lord Falkland, and the noble Lord, Lord Donoughue, in asking about the systems and safeguards for the allocation of National Lottery proceeds, raise an important point. While it is one of the underlying principles of public support for the arts (and I include the lottery in this) that the bodies responsible for distributing funds operate at arm's length from the Government, situations could of course arise which might lead to questions being asked about the objectivity and disinterestedness of those taking decisions on awards. The UK film industry is a tightly-knit community and those advising on lottery applications might also have projects of their own which could qualify for lottery funding or have close links to other applicants. It is essential, obviously, that the best advice is secured on the use of public money but it is equally important that clear arrangements must be in place for dealing with conflicts of interest. The four Arts Councils have introduced such arrangements to ensure that they have access to advisers and film panel members who are actively working in the industry without undermining the objectivity and fairness of their decisions.

Lottery distributors are required, under the financial directions made under Section 26 of the 1994 National Lottery etc. Act, to put in place codes of conduct covering both their members and officials. These cover arrangements for dealing with conflicts of interest. Lottery distributors, as non-departmental public bodies, must also abide by the guidance issued by central government on these matters. This requires that registers of interest are open to public inspection. I am confident therefore that there is little or no potential for "cronyism" in the award of grants to film.

On the particular question of safeguards, the National Lottery financial directions also require that grants for film from the lottery must be accompanied by a comprehensive set of terms and conditions. These conditions ensure that the funds are correctly applied and allow grant to be recovered by the lottery distributors should those funds be misapplied or other material conditions infringed. All grants are subject to regular monitoring and evaluation to ensure that work is being carried out within the conditions specified and the strategic objectives of film funding are being achieved.

Lottery moneys, while additional to and outside the control total, are public funds. In terms of accountability they are treated as if the funds were directly voted by Parliament. The systems and safeguards I have outlined for dealing with conflicts of interest and for policing grant, are consistent with those that would be applied to a direct grant from public funds.

The noble Viscount, Lord Falkland, has rightly pointed out that the difficulty of securing adequate distribution is one of the main obstacles to the growth of the British film industry. That point was echoed by the other speakers this evening. The Advisory Committee on Film Finance, which the Government set up last year under the chairmanship of Sir Peter Middleton, identified this as a key strategic issue. The Middleton Report noted that the industry in Britain largely comprises small independent producers, whereas the distribution and exhibition sectors are dominated by multinational companies. In this context, competition policy applies and the Monopolies and Mergers Commission has looked at the exhibition sector in this country. There is no restriction on anyone being a film distributor in this country; it is part of the general warp and weft of commercial life.

The Middleton Committee recommended that a studio or several mini-studios should be established to help link production more effectively with distribution, for the reasons we have all touched on this evening. The National Lottery franchises provide an opportunity to take forward the spirit of the Middleton recommendations and to formulate a strategy to influence structural change within the industry. The overall aim of the franchises is to correct the current structural imbalance within the industry by strengthening the independent production sector, so that it can more easily attract investment, spread risk across a slate of films, and build up better and more long-lasting working relationships with the distribution and exhibition sectors. The Arts Council of England drew up its franchise plans after in-depth consultation with the industry.

The franchise arrangements allow for up to 10 per cent. of annual allocations to be spent on development projects, and additionally for money to be spent on pre-production expenses. The conditions of lottery grant also stipulate that all productions must make a contribution to the independent production training fund and employ trainees recruited from a recognised training body. The council has invited bids for up to four film franchises which will allocate lottery funds to companies over a number of years to part finance slates of films.

As has already been mentioned, the deadline for applications is this Friday. No doubt your Lordships will have read comment in the press about some of the applications that may be being made. Clearly I am in no position to comment on the way in which that process is going forward. However, I am encouraged by the reports that many leading players from all sectors of the industry are working together on bids.

The Arts Council's guidelines on the franchises make clear that it is seeking to attract new and additional investment and not to substitute for existing finance. The guidelines also specify that the inclusion of credible plans for achieving theatrical distribution will be one of the key criteria for assessing bids, which I trust will encourage those of your Lordships who have spoken this evening. Partnership between producers and those involved in distribution and international sales is encouraged, and I understand that many of the bids which are coming in will involve distribution companies. I very much hope this will help to allay the concerns which have been expressed.

The Government are also taking forward other recommendations made by the Middleton Advisory Committee on Film Finance. These include the establishment of a forum for discussion between representatives of the film industry and the City. The Middleton Committee itself demonstrated how useful it was to bring the film and financial sectors together. Traditionally there has been little dialogue between them and we hope the new Film Finance Forum will be an excellent way to establish it. Some financial support to help get the forum off the ground has been included in my department's budget for the next two years. We are delighted that Sir Peter Middleton has agreed to act as chairman of the new forum and continue the excellent work he has done to date. We shall be making an announcement soon about the membership of the forum.

The noble Lord, Lord Palmer, reinforced by the noble Lord, Lord Freyberg, raised the issue of further tax incentives for the film industry. The Middleton Report put forward a well-argued case for further incentives of this kind, but this of course must be looked at in the context of wider economic policy. Government policy is to maintain a neutral tax system with as few distortions as possible, thus enabling tax rates to be kept low. That policy has delivered the right climate for business growth across all sectors of the economy, with low taxation, low inflation and low labour costs, greatly improving our international competitiveness. On the question of investment schemes, I note that the Middleton Committee concluded that benefits which might accrue from such a scheme would not justify the additional cost to the Exchequer.

The noble Lord, Lord Donoughue, asked about rejoining Eurimages, which I believe is the communautaire way of describing it. As I have explained to your Lordships on a previous occasion, the decision to withdraw from Eurimages was difficult but one we felt we had to make to make necessary savings because it was seen as the weakest element of our films expenditure.

I should also at this point like to refer briefly to the recent efforts of my noble friend Lady Denton of Wakefield to develop the film industry in Northern Ireland. In December of last year my noble friend announced a £4 million development package. Part of this will go towards establishing a pilot Film Commission to market and promote Northern Ireland locations, talent and facilities. A Film Development Fund will also be set up, which will act as the primary incentive to locate productions in Northern Ireland. A final part of the package will be directed towards training.

I understand that the publication of the guidelines for the new Film Development Fund will take place before Easter. There will also be an announcement about the setting-up of a company to undertake new responsibilities for the development of the film industry in the Province.

The British film industry should look to the future with confidence. Last year, for instance, some 127 films went into production in this country, the highest number for 40 years. Between 1990 and 1994 the UK was one of only 4 countries among the top 20 film-making nations to show an increase in the number of films produced. Although there are still obstacles to distribution and profitability, which we are addressing, as I have described, the potential for further growth is clearly there and it is an exciting prospect. We have in Britain the best technical crews and studio facilities in Europe, one of the lowest effective rates of corporate tax, and the lowest labour costs in the EU's main markets. With production booming and our studios full, Britain is starting to achieve commercial success commensurate with the creative talent that we have always had in abundance. Let me reassure your Lordships that the Government intend to do all they can to sustain and build on this success. The continuing expansion of the National Lottery as a source of finance for film production and distribution will be a major factor in the continuing growth and well-being of the British film industry.

Britain is once again becoming a major player in world cinema. I leave your Lordships with one very striking statistic: in 1996, the most successful film worldwide, in terms of profit to cost ratio, was a British film—"Trainspotting". The noble Lord, Lord Palmer, declared an interest in the film "The Madness of King George". I should like to end by wholeheartedly endorsing these sentiments from another performer in that film, Nigel Hawthorne: May the spotlight be pointed in our direction for a change, and let us show the rest of the world why they should envy our rich and unique talents".