HL Deb 23 July 1999 vol 604 cc1248-54

2.12 p.m.

Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 8th July be approved [25th Report from the Joint Committee]

The noble Lord said: My Lords, the purpose of this order is to amend the criteria in Schedule 1 to the Films Act 1985 in order to make them fairer and more user friendly. The criteria are linked to eligibility for tax incentives and public support for production. The proposals in the order have been agreed with the Treasury, the European Union and industry representatives.

The key change is a move to criteria based on production expenditure rather than the playing time of the film. Currently films made almost entirely in the United Kingdom can be disqualified because, for example, a small amount of the playing time consists of music recorded abroad. The film "Little Voice", which is clearly intrinsically British, was recently barred from qualifying because of that. The industry has long objected to the constraints imposed by the playing time criteria.

Against that background, it is all the more anomalous that the current criteria allow films made largely outside the UK to qualify as British if they were prepared and processed here, thus providing little benefit to our economy. The Government believe that it is necessary to modify aspects of the current criteria that are anomalous, unfair and out of touch with modern film-making methods.

The main new criterion is that 70 per cent of the production costs must be spent on film-making carried out in the UK. That strikes the right balance between allowing much greater flexibility for films such as "Little Voice" and ensuring that films benefiting from tax breaks or public funding are substantially made in the UK. British producers wishing to film abroad have the option of making their films under one of the UK's co-production treaties, which also confer eligibility for tax benefits and production funding.

The new system will still require film makers to spend the majority of their labour costs on European and Commonwealth citizens. We are proposing a figure of 70 per cent rather than the current 75 per cent, which is in line with the production cost figure and allows a little more flexibility.

The proposed redefinition stems from a recommendation by the joint industry-government Film Policy Review Group. We consulted very widely on the recommendation and received overwhelming support for the proposals. Every detail of the redefinition has been checked with industry experts. We have looked carefully at the compliance costs and concluded that they will be the same as under the current definition, so the benefits of greater flexibility and user-friendliness will be genuinely additional. We are also proposing a transitional period of 12 months during which film makers can opt to apply under either the existing or the new criteria.

The redefinition is in line with the key objective of the Government's film policy, which is to help create a commercially viable film industry that contributes fully to the national economy as well as our national culture. The soundings that we have taken suggest that the new film tax incentive introduced by the Government in 1997 has attracted substantial new investment in UK films. It is vital that the qualifying criteria for the tax relief are fair to film makers and effective in generating benefits for the UK economy.

The UK film industry has been going from strength to strength in recent years thanks to our wonderful array of acting and technical talent. We want to make it even more attractive to film in Britain. Our economy will undoubtedly benefit as a result. I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 8th July be approved [25th Report from the Joint Committee].—(Lord McIntosh of Haringey.)

Baroness Anelay of St. Johns

My Lords, I thank the Minister for explaining the order so clearly. As he said, the British film industry has a long-standing and demonstrable record of producing talented professionals in front of and behind the camera. I pay tribute to the high quality of our actors, our studios and our technical staff. The industry has a cultural, historic and economic impact on the country.

We support the order. Indeed, I welcome it. It seems to be a sensible revision, relating the test to production expenditure rather than playing time. The Minister was commendably brief. I shall try to be brief, but perhaps not quite so brief. In trying to assist him I shall not simply repeat the questions asked in another place by my honourable friend Richard Spring. My honourable friend invited the Minister there to write to him and did not require answers on the day. I await the results of that invitation with interest. If the answers need to be probed further, we shall do so by written Questions or debate.

I have some questions about the order for the Minister on three issues: why it was so long delayed; why it appears to be different in some respects from the model recommended by the film policy review group; and what its impact will be.

As the Minister has pointed out, the proposed redefinition was recommended by the Film Policy Review Group in May 1998. It is not unusual for recommendations to take some time to be implemented. However, interestingly, on 25th November last year the Department for Culture, Media and Sport made a commitment in a press release to lay the order in December 1998. The Government did not employ the usual formula of promising to act soon, shortly or when time permitted, which we are accustomed to. They gave a definite date. However, they did not stick to it. Some concerns were expressed, because we were hoping that the order would have a beneficial effect on the industry.

In early March, news of the order surfaced in the press and a rumour went round that it was being held up because of the need to obtain the European Commission's permission for aspects of it. To solve the mystery of the phantom of the order, I tabled a written Question in April. The Minister's Answer gave the July deadline that we now face for bringing the order into operation. He referred in that Answer to the need to get clearance from Brussels.

My questions are as follows. What were the issues that needed to be resolved at EU level? Were there any objections to any part of the order, and were any changes made as a result? Secondly, why did the Government reject the Film Policy Review Group's own recommendation as regards the percentage of expenditure that acts as a qualifier with respect to the order? The Minister has of course mentioned that the percentage is to be reduced from 75 to 70 per cent, but the Film Policy Review Group recommended 60 per cent. Will the Minister tell the House why the different percentage was adopted?

Article 4 of the order states: For the purposes of this Schedule the production of a film is completed when the film is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public". At first sight that seems a perfectly sensible thing to do. However, the film industry has pointed out to me that it feels that that makes it look as though the Government rather lack confidence that British films which obtain tax concessions under this new scheme will not then be distributed. What estimate have the Government made of the risk that the changes introduced by the definition in this SI will encourage investment in films which then do not have much chance of securing distribution? I am sure there is no danger like that of the old quota quickies of the 1930s. But certainly worry was expressed that this might be presented as a sop to the British industry, which of course I am sure it would never need.

Article 5 of the order amends former paragraph 1 (4) of Schedule 1 to the 1985 Act to allow for up to 26 parts running for up to 26 hours to be considered as a single film if the Secretary of State is of the opinion that the series constitutes a self-contained work or that it is a series of documentaries with a common theme. At present there is a maximum of 16 parts, with a maximum playing time of eight hours. The Secretary of State had to be of the opinion that the film constituted a self-contained work when shown in the intended sequence. I am aware that in this country we have a liking for long-running series on geographical and touring subjects, but even so this seems rather a lengthy period for films to run.

What representations were received from the industry to persuade the Government that this change was both helpful and necessary? Were the Government given any examples of projects that would be adversely affected if the change were not to take place? The public may find it difficult to envisage film-making that would fall into the category of 26 hours on a related subject.

The references to "member state" in paragraphs 4 and 7 of Schedule 1 are expanded to include states party to association agreements with the European Community in cases where those agreements require film makers in those states to be treated in the same manner as film makers in member states for the purposes of the schedule. I have one simple question on this. Which states is it estimated will be covered by this that were not previously covered?

I have one question concerning transitional provisions. I welcome transitional provisions and I am delighted to see them included in the order. However, I feel that even the existence of them means that the Government recognise that there will be losers as well as gainers by this order. What are the Government's assessments of who will be the losers after the transitional protection expires?

With that in mind, my final question relates to the overall impact of this order. What assessment have the Government made of the net increase in investment which should be achieved in years one, two and three of the operation of the order, taking into account the losers and gainers in the transitional period, and beyond?

I should be grateful if the Minister could clarify the issues I have raised. However, as I said earlier, we welcome the making of this order.

Viscount Falkland

My Lords, I have a special interest in the order, which I welcome I thank the Minister for explaining it so succinctly. When I entered your Lordships' House some 15 years ago, the Films Bill was the first measure into which I had some input. I see that the Minister also remembers that. At that time I took part in discussions on the definition of film. As we all know, the definition of what constitutes a British film is an intractable problem. The Government have made a good effort in the order to tidy up what we did then. Since that time, the climate for films has undergone extraordinary changes. It may have been my relative youth and optimism, but I said at the time that cinema admissions, which were almost at an all-time low, would recover. My reason for thinking that was that cinemas were so dirty and disgusting, and badly run that if they improved, there would be an improvement in admissions. That is indeed what happened.

Although I agree with the Minister and the noble Baroness, Lady Anelay of St. Johns, that the great recovery in British film-making is thanks to the talent of British artists, the environment in which people see films is also important. The purpose of making films, apart from cultural considerations, is to bring people into cinemas and achieve turnover at the box office. That is something that we have not always succeeded in doing, for various reasons.

We are now on the threshold of closer liaison with Europe and the order makes much mention of Europe and member states. National cinema is still rather more important in Europe than any concept of European cinema, although there have been attempts to create one. The area of co-productions is important.

I still believe that the looser the definition of a British film the better, because we must acknowledge that much of the film activity here is in the form of inward investment. Many foreign productions are based here, which provides much employment for British technicians. They are valued throughout the world for their expertise and enthusiasm, and long may that continue. We need to ensure good training for those technicians so that that happy situation continues generation after generation.

When considering the definition of a British film, we should not only look at recent films, such as "The Full Monty" and "Four Weddings and a Funeral", but further back at films such as "The Third Man". If your Lordships have the time, I recommend the new print of the most accomplished and thought-provoking British film that I can think of. It is always acclaimed as one of the greatest British films of all time but, although it had a British director, it had an American star, American money, an Italian leading lady and a British scriptwriter who was an emigré. Was it a British film? We claim it as a British film, because it had a British flavour and it fitted in with the cultural traditions of our cinema.

Deciding on a definition is a difficult business but it is not necessary to treat cinema in the same way as football teams or tennis players. Cinema is a global cultural activity in which we play an important part. Long may we continue to do so.

I have nothing to criticise in the order. It excludes various items that are now unnecessary and it makes certain adjustments that accord with the needs of the present time. It is a sensible idea to have a transition period of a year, in which film-makers can choose to use the current definition or the new provisions. The great need at the moment is to encourage the financing of British films. It has always been a problem—as it has in other areas of activity, both cultural and economic—that we often devise products of great ingenuity, skill and creativity but find it difficult to finance, sell and market them. I hope that the order will help us to attract more investment to British films and build on the good progress that has been made in the past 15 years.

2.30 p.m.

Lord McIntosh of Haringey

My Lords, I am grateful to both noble Lords for their welcome of the order. No one has any criticism of it, only questions. The noble Baroness, Lady Anelay, asked why it was so much delayed. As she indicated, the reason was that objections were raised by the EU Commission at a late stage and the proposal had to be resubmitted. The Commission said that the original proposal was too "culture-sectorally specific" to justify a cultural exemption under the Treaty of Rome. The treaty was drawn up a long time before some of our competition rules, so we had to simplify from two to one the single production expenditure test and make it 70 per cent.

The noble Baroness pointed out that the film policy review group suggested a 60 per cent cut off. In fact, it suggested two; one of 60 per cent and one of 75 per cent. Naturally, it will go for the widest definition. But we are dealing with public expenditure—we are talking about tax exemption—and we had to reach a conclusion which benefited the film industry, yet protected taxpayers.

I turn to transitional arrangements, which are failsafe. Anyone can choose either the old or the new definition for a 12-month period. That is not to suggest that there will be losers after that period because they will choose the old method probably because they have budgeted for it, rather than budgeted for the new system, and do not want to change immediately.

As regards the production completion date in Article 4, there has to be an end point for the calculation of total production expenditure. It does not imply that there will not be distribution. Indeed, no one in his right mind would engage any expenditure, tax exempt or not, unless he was doing his best to secure distribution for what he was producing.

The noble Baroness asked about the countries concerned in co-production. We have co-production treaties with France, Germany, Italy, Norway, Canada, New Zealand and Australia. We have signed the European Convention on Co-production with many member states.

I have dealt with the change in the film policy review group and I turn to the definition of "series". There are long series because current industry format has changed, reflecting the way in which films and series of films are being produced. It is a reflection of what the industry wants.

Finally, the noble Baroness asked about an assessment of the benefits of the order. Provided that we have made it clear that there are no additional compliance costs, the view of the industry that these will provide additional benefits for both the film industry and the UK economy must be taken seriously. We shall keep the benefits under review and shall continue to monitor and evaluate the effects of the order. However, it would be premature to make that assessment now when we do not know how many film producers will take advantage of the order.

I am also grateful to the noble Viscount, Lord Falkland, who did not ask so many specific questions. However, I want to respond to his final point; that the sale, marketing and distribution, in addition to the production of films, is critical to the film industry and its benefit to the UK economy. I assure him that we are still working on that and propose to make further announcements by the end of July or August. I commend the order to the House.

On Question, Motion agreed to.