§ Motion made, and Question proposed, That the sitting be now adjourned.—[Derek Twigg.]
9.30 am§ Mr. Andrew Lansley (South Cambridgeshire)I am grateful for the opportunity to introduce this debate on such an important subject. I am interested in films, but I do not claim to have any expertise in such matters. I know the films that I like, but I shall not engage in a subjective examination of various films or the artistic merits of the British film industry compared with others. When we debate the film industry we usually discuss the artistic merits of respective talents in the industry, rather than concentrate on the character of the industry, which I want to do today.
I come to the debate not so much as someone who is interested in films, but as someone who is interested in the industry and how public policy supports it. I am a member of the Trade and Industry Select Committee and the film industry is not part of our remit. However, we have been examining biotechnology and the way in which British industry is changing and adapting. This country trades not on the basis of historical patterns of industrial activity, but on new patterns that are based on comparative advantages, especially creative and innovative talents. It is desirable to study the film industry in that context.
The Culture, Media and Sport Select Committee is now discussing the film industry, which it has not done for some considerable time. A few weeks ago, Sir Alan Parker set out the Film Council's changed strategy, which is why it is appropriate to focus now on how the film industry is supported. When talking about the film industry, there is a temptation to refer to current events. For example, we could wax lyrical about the British Academy of Film and Television Arts nominations, the extent to which "The Hours" did well at the Golden Globe awards or the prospects for British films or talents to do well at the Oscars.
I turn now to the creative business supplement to the Financial Times in which Alistair Owen quoted Bruce Robinson, the writer-director of "Withnail and I", who helpfully set matters in context when he said:
The British film industry is like the British weather… You get one hot day and papers say, 'Phew! What a scorcher! Hottest day on record!' Then next day it's raining again.That must be what if feels like to the film industry. Only a few weeks ago there was doom and gloom and talk of how difficult it was for the film industry, after which there were newspaper reports saying what a good year 2002 was and what a big increase there had been in the number of films doing well at the box office as well as in attendances at cinemas. There was also talk of new talents in production and so on. However, they are not necessarily long-term issues, and public policy has to avoid being subject to short-term enthusiasms, however 194WH great they may be. We must set up a framework within which the film industry in Britain can succeed. I do not want to engage in a romantic revisiting of Ealing Studios—however desirable it may be for Ealing Studios to be reborn—but to think about the structure of the industry and how public policy should relate to it.Sir Alan Parker's speech on behalf of the Film Council last November was a substantial and positive step forward. He was arguing that the renewed strategy for the film industry should be built around three objectives: the first was that the industry should be distribution-led, rather than production-driven; secondly, that support for the industry should be orientated towards skills; and thirdly. that we should have the right infrastructure, particularly for studios and technical facilities. I do not disagree with those objectives. He made a powerful and persuasive point when he said:
Now is the time to recognise that our industry's obsession with public funding for production is taking us nowhere.Sir Alan Parker was criticising, and rightly so, what had previously been a tendency, particularly of the Arts Council—prior to the establishment of the Film Council—to put money into films, not least through the premier fund, on the basis of subjective judgments about their merits rather than with any market-led anticipation that they would be successful films that would gain release and reach a substantial audience. We have to think again about the way in which we structure public policy; it should not be designed around a concept of what is a British film. The Culture, Media and Sports Select Committee is asking, "Is there a British film industry?" The proper question to ask is to what extent there is a film industry in Britain and how we can help it to grow.I am not being pedantic, but if we are not careful we will once again be trying to define the nature of a British film, as distinct from anything else. We should not do that. The recent film "Cold Mountain" is a good example of my argument. It is an American-funded film; it had a British cast and crew of 150, who conducted their work in Romania. Is that a British film or is it not? To me, in public policy terms, that is not the main question; the question is to what extent there is British content. When Nissan came to the United Kingdom, we did not say that the cars must be British; the market was concerned not with whether they were British, but with their quality. We were more bothered at the time with their British content than we would be now. It was content that mattered.
A year or so ago, the first Harry Potter film, "Harry Potter and the Philosopher's Stone", was a tremendous showcase for British talent, but it was an American film. We need to be concerned not with matters as set out by the Select Committee, but about stimulating British content. I do not want the British film industry to be put into a secret garden, where others do not enter and where we engage in positive artistic activity for our own benefit but find that the rest of the world simply ignores us and moves on. The British film industry will not profit by such action.
We must distinguish between public policy purposes. There is a risk that because we are dealing with something that has substantial artistic content, we treat that artistic content as if it were indistinguishable from 195WH our approach to industrial policy, but we can clearly separate the two. The separation partly involves public funding streams. For example, the Film Council has access to funding streams intended to support the artistic elements of the industry, such as the reconfiguration of the national film and television school, and the first light scheme which offers initial funding for first-time directors. Those are important and desirable developments.
I hope we will soon hear more from the Film Council about the proposals that were the subject of consultation last year. The proposals related to support for British cinema education for the specialised distribution of British films with an artistic and creative character, as well as support for those in exhibition. The number of screens in the United Kingdom has increased by approximately 50 per cent. in the past five or six years. Cinema attendance has also increased by more than 50 per cent. There are a substantial number of art-house theatres, and with the opportunities offered by multiplexes there can be a significant place for films with an art-house character. That is important for the development of United Kingdom creative activity.
The Film Council is right to contemplate using part of the capital fund to try to secure the physical presence—through the purchase or lease of screens—to establish places where art-house pictures can be seen. Some of the print and advertising that supports the distribution and awareness of those films is valuable. All of that is part of a context of support for the industry as an artistic activity. It would be no different if we sought to support music in its creative activity and the contribution that the music industry can make. They are simply two different types of artistic activity.
We must consider the nature of the industry as a whole, as Sir Alan Parker is doing. What is the role of the public sector in the industry? It is not to try to second-guess the market. Over recent years, we have seen comprehensive efforts put into trying to guess what type of films people want to see and to get the British film industry into the marketplace through subsidisation. Subsidy has not worked any more effectively in this case than it has for any other industry. We need something different, something market-led, something that recognises that the role of the public sector is to try to deal with what would otherwise be market failures.
Public policy should respond to competitive pressures. For example, although countries throughout the world offer tax concessions that are designed—I suspect Canada is the classic example—to secure a physical presence for their film industry, the same competitive situation applies as for the trade support or export promotion of any other industry. The same contest applies to inward investment as would apply to Nissan—bringing a large film to this country can have the same beneficial consequences as bringing in a large manufacturing plant or service industry. The economic spread-out is equally important.
Let us look at where we need to act to sustain relative competitiveness. We must understand where our comparative advantages take us. In the context of public policy, we must consider where there are externalities that will not be re-appropriated by those in the 196WH commercial sector who would spend their own money. There is, therefore, an underlying rationale for investment by the public sector, because it would create the correct context for the whole industry. Let me start with one or two examples regarding training and skills.
I have already mentioned the National Film and Television School and the role of the Film Council in working with Skillset to bring forward a strategy to promote training and skills for the film industry and the audiovisual industries. That is important. We cannot expect there to be spontaneous training activity by commercial organisations to the extent that is necessary in the whole industry. It is a normal expectation that some organisations will train, to the extent that they need trainees, and that others will have a wider training role, but we need some degree of public sector support for the industry, especially as it comprises many small operators and firms. We need to get behind the industry. I hope we shall see a substantial push from the Film Council in redirecting some of its resources to get behind Skillset—I hope that that was its intention—and ensuring that there is substantial training activity in the film industry.
I raised the question of script development with the Minister's colleagues about a year ago. It could be said, in terms of the return for the money that is spent by the public sector, that script development should also be considered to be commercial. This country does not have the distribution-led companies—the majors—that exist internationally and in the United States. Those companies expect to have a couple of hundred scripts in development at any one time and they know that only a small fraction of those will come to fruition. Such companies have the resources and they put them into script development. However, the resources involved are not very dramatic. As companies would usually work only with individuals who are trying to develop scripts, £1 million spent on script development would go a long way.
A small sum of public money could also go a long way in generating much United Kingdom content. For example, let us consider UK writers, such as David Hare in relation to "The Hours", Julian Fellowes in respect of "Gosford Park" last year, or Ronald Harwood's scriptwriting in relation to "The Pianist". The quality of script development and the screenplays that are produced by UK writers are exceptionally good. We must trade on that and ensure that the US majors do not overlook much of the positive writing in the UK simply because there is so much scriptwriting activity in and around Hollywood. As we can see in respect of, for example, the Harry Potter series, which is set in Britain, writing can make Britain a desirable location in which to undertake a film. Many benefits have flowed from that series in terms of UK marketing, tourism promotion and so forth.
Training and skills are the first part of the strategy, and script development is the second. Sir Alan Parker was right to focus on the key issue of understanding the nature and structure of the industry. If we are going to influence the industry, we must work with it rather than contrary to it and in conflict with it. I do not dispute what Sir Alan Parker said—I am sure that he is right—which is that the industry is essentially distribution-led. If we were to ask the major companies what business they are in, they would say, "The business of 197WH distributing films and responding to markets." The key factor is that distribution is the linchpin of the market. Even large production operations with large portfolios are burning money in order to produce films. They are taking substantial risks at the production end, and even if they produce a portfolio there is a risk that companies will not produce enough successful films to make an overall profit. Companies have to do two things: generate cash to support production activity, and spread their risk. One way for a company to spread risk in distribution is to distribute not only its own films but everyone else's. That way, even a vertically integrated company would have the risk associated with production, but also the certainty of gaining from distribution activity when the industry is prospering. Distribution is the linchpin and is absolutely critical to the industry, so how do we deal with that?
In his speech, Sir Alan Parker said that we needed to reflect on the character of the tax relief offered. Some form of tax relief is essential for the long-term competitiveness of the British film industry. Certainly, that is the course that other countries are taking. International competition will get tougher now that New Zealand is on the scene and central eastern European countries are getting stronger. What is the character of the incentive that we want to give? When I read the speech, I was interested in—and thought I understood—the argument about the importance of distribution in the industry. It was argued that a tax concession should be related to distribution, because the incentive for the industry should be pulled by distribution, rather than pushed by production, which has simply failed to meet the market. What would the result be? We do not know; we have had no suggestion, and one of my purposes in securing this debate was to allow us to think about that.
I suggest that we take a step back and ask, "What is the character of distribution?" Distribution stands between two activities. The first is cash-generative activity, such as the distribution of films, their exhibition and cinema attendances. There is $1.2 billion dollars' worth of such activity in the UK. We have a big cinema audience—I read in the newspapers that it is now the largest in Europe—and have bigger box office takings than Germany. We are a big market, and a lot of cash is being generated. There is also production activity. The latest figures suggest that UK production has picked up again after a difficult period—difficult not so much for the British element, although it had its consequences for us, but because of the actors' strike in America and the reduction in American activity. There are also quite a lot of co-productions, as they, too, have picked up in the UK.
At the centre of the argument for being distribution-led is the ability to mesh cash generation with the burning of cash because of vertical integration in the industry. Should any tax concession not relate directly to that key element of the industry? Instead of focusing tax relief on writing off costs of production until 2005, would it not be better to be specific about promoting the UK as a place with strong cinema audiences? There is a powerful incentive to come to the UK for creative and technical reasons associated with the quality of our film industry and activities.
I am not a tax expert, and some might be able to give reasons why my argument is flawed, but as a starting point for discussion I believe we should consider not tax 198WH concessions that are ring-fenced for British films but tax relief incentives designed for film production activity in the United Kingdom. We should relate that directly to the cash being generated in the UK. Vertically integrated companies are the ones that matter most.
If I remember rightly, the five largest cinema exhibitors consume something like 75 per cent. of the box office. Those five exhibitors are all directly related to major US production companies. They generate a lot of cash in the UK and they pay tax on it; they have various reliefs and concessions, but they pay tax. The companies are not British but international, probably US, companies. Should we not say that in the UK those companies should be able to offset the tax that they would otherwise pay on their cinema-related receipts against the costs that they pay in the UK in relation to film production? Should we not offer a tax concession that is directly related to that connection? We should say: "Come to the UK, where you will generate cash in cinemas. You need cash and you want a cash flow. The extent to which we relieve you of tax affects your cash flow. Let us enhance your cash flow through tax concessions so that you can fund films better in the UK. Come to the UK, where your qualifying expenditure will be matched with tax concessions." That qualifying expenditure would be film production expenditure in the UK, and it would be the basis on which tax relief could be offered on cash generated by film distribution. Technically, it would not be a tax concession for distribution; it would be a tax concession for the underlying economic rationale of being a distribution-led industry.
I freely confess that one of the advantages of being an Opposition Back Bencher is that one can fly kites and it does not do one too much harm if one is not successful. One can think about public policy and try to stimulate debate and a response from Government. In that respect, I have had some entertainment over the past few months with the Communications Bill. I have also had some fun with the Department for Culture, Media and Sport. Happily, it has been sporting about it; the Minister for Sport is here and 1 am happy to pay tribute to his Department. I do not know whether this sort of debate is his sport or not.
I should be attending Standing Committee E at the moment talking about the Communications Bill, but instead I am here talking about it, making two points that I feel are relevant. First, a provision in the early part of that Bill gives Ofcom a power to support training in the broadcasting industry. Skillset is the training organisation in the sector: it would be sensible for Ofcom to have a power to support Skillset training that is relevant to the audio-visual industries. There is substantial read-across between the technical requirements of broadcasting and film, although there are differences. The film industry would benefit from Ofcom having that power and being able to consider wider issues than the requirements of the broadcasting industry.
Secondly, clause 256 of the Communications Bill contains a provision that some hon. Members will recall. It relates to Ofcom's regular, probably five-yearly, review of the public service broadcasting remits—the ecology of public service broadcasting. As we know, public service broadcasting potentially has a significant role to play in the film industry. FilmFour is 199WH an instructive case. It was a brave attempt to create, off the back of the resources of a public service broadcaster, something akin to a UK integrated film production and distribution company. It was not on the scale of Polygram, although, as it turned out, even Polygram was not large enough to survive as an international company. FilmFour is a similar example: the volume was not there, and the range and size of activities were not great enough. One could argue about the relative merits of "Charlotte Gray". I am told that it did not lose money, but that is not the point. One should never reach, and one cannot survive in, a situation such as this when everything hangs on the success of one film.
The demise of FilmFour, in its previous form, shows that we cannot achieve a UK distribution activity on our own; we need to be part of an international context. About 80 per cent. of the revenue from a successful film will be derived from overseas box offices rather than from the UK's.
That is not to say that FilmFour will not carry on. Channel 4 may continue to put money into 10 or a dozen UK films a year, and the BBC puts money into films—after "Mrs Brown" we have "The Lost Prince". The BBC is quite well funded at the moment, all things considered. Things have moved on since the Edwardian era, and in the 21st century the BBC is the only organisation in Britain that can afford to put red carpets on a beach. If the BBC can afford to engage in the production of quality drama, which it does well—I did not mean to be disparaging; I thought "The Lost Prince" was very good—I hope that it does so not only for UK broadcast but for distribution to broadcast companies and channels overseas, and perhaps for wider distribution to cinemas and exhibitions, having regard to associated and ancillary rights.
Under clause 256 of the Communications Bill, when Ofcom considers public service broadcasters and the way in which their remits are fulfilled, it will have no regard to Channel 4's film making, except the part that is directly related to broadcasting in the United Kingdom. Ofcom will have only the same regard to the BBC's film production. That is wrong, and our experience of industry regulators tells us that if something is not mentioned in statute—as film is not mentioned in the Communications Bill—the regulator will not have regard to it. A regulator will not extend beyond its powers in legislation because of the risk of challenge and matters being ultra vires. In any case, Ofcom will have a great deal of work to do.
I do not suggest that Ofcom should become the film industry regulator, and I suspect that the film industries would hate that to happen. However, as Ofcom will examine public service broadcasters and their activities, I have no doubt that it should examine the way in which broadcasters interact with film industries because the broadcasters could be a substantial source of activity for the film industry.
I shall draw the threads of my arguments together. The Film Council has performed a great service by starting to redefine the public policy response to the film industry. It is important to distinguish between where and how support is given, although perhaps Sir Alan Parker's speech did not do that sufficiently. The support given to the art-house and creative side, per se, of the 200WH industry is similar to lottery-funded support given to artistic and sporting activity on its own merits. Good ideas relate to getting such productions into multiplexes and giving more support for subtitling, advertising and print promotion, all of which is excellent. However, that should be distinguished from the strategy for the industry as a whole, which is more about tax concessions, training and the development of the underlying industry.
I have proposed an idea about the way in which tax concessions could be implemented, but time is pressing. We are reaching a point when films that might benefit from existing tax concessions before they conclude in 2005 are going through production. Anybody who is presently contemplating making new films is probably not anticipating tax concessions from the UK Government. Decisions will be made quickly, which is why time is pressing. I hope that the Government will examine the form that tax concessions should take when they consider how to support the industry. I hope that they will also consider that public service broadcasters and Ofcom, through the Communications Bill, should be encouraged to work with the film industry as a joint venture to stimulate the UK audio-visual sector as a whole.
I hope that I have made some contribution to thinking about film policy, if from a somewhat amateurish standpoint. I hope also that people in the film industry will recognise that we understand that we have a role to play in helping them. The industry will rest not just on the creative talents of such people but on the public policy framework that we put in place. It has been nearly four years since the House of Commons held a debate on the film industry. The time is absolutely right not just for a debate but, through the Government's initiatives, for a substantive debate about film policy, perhaps in the context of the Budget.
Mr. Deputy Speaker:Order. Perhaps it would be helpful if I were to remind the Chamber that it is the established practice in these 90-minute Adjournment debates to commence the first of the three winding-up speeches 30 minutes before conclusion, which means that we now have 25 minutes left for general debate. I ask right hon. and hon. Members who seek to contribute to bear those conditions in mind.
§ 10.5 am
§ Mr. Chris Smith (Islington, South and Finsbury)I begin by reminding the Chamber of my declaration of interests in the Register of Members' Interests and by recording my honorary life membership of BAFTA. In that context, I am extremely pleased that the three films that have received the most nominations for BAFTA awards this year—"Gangs of New York", "Chicago" and "The Hours"—all contain significant elements of British talent.
I congratulate the hon. Member for South Cambridgeshire (Mr. Lansley) on raising this very important subject. I agree with much of what he said, particularly his final remarks about the necessity of ensuring that Ofcom, in its overall role in the communications world, considers the relevance of film in the broadcasting environment and in other respects, too. I shall return to that in a moment.
201WH My first point is about the tax incentive regime. The hon. Gentleman described an intriguing scheme for developing Sir Alan Parker's comments on the way in which the tax regime could support distribution rather than just production. I am not sure whether the hon. Gentleman's scheme would work, but it certainly merits some attention.
However, I hope that in accepting Sir Alan Parker's absolutely sensible analysis that it is not just production but distribution and scriptwriting—the two ends of the film-making process—that matter, we do not throw the baby out with the bath water and remove entirely the measures in the tax regime to encourage investment in UK production. My right hon. Friend the Chancellor introduced the tax incentive regime in his first Budget in 1997. Its term has since been extended on a couple of occasions, but its effects were restricted in the most recent Budget because considerable abuse was occurring, particularly in the television sector. The regime is still in place, however, and I very much hope that it will remain. It has been instrumental in ensuring substantial investment in the UK film industry from British and other companies. Such investment would not have been made without the tax incentives.
Indeed, my right hon. Friend the Chancellor should go further. At the moment, the tax incentive is limited to movies that have an overall budget of £15 million or less. It might be sensible to change the provision to bring larger budget movies into the tax incentive regime, which could cover the first £15 million of expenditure. Instead of saying that only movies with a budget of £15 million or less should qualify for the incentive on production, the first £15 million of expenditure on any movie made in the UK, which has significant British content, should be eligible for the relief.
If we made that change, it would have one very significant effect: it would become even more attractive for big-budget movies, particularly those generated by American studios, to be made in Britain. As the hon. Member for South Cambridgeshire rightly observed, we are in a competitive market, particularly across the English-speaking world. Ireland, Canada, Australia and New Zealand are attractive locations for film making. They all have tax regimes, some of which are more attractive than ours. We have an advantage given the quality of the skills, personnel and technical expertise based in the UK, but that is not enough to make the UK the premier location for making large American movies. If we can put in place a tax incentive of the kind that I have suggested, it would have a positive economic effect. I hope that my right hon. Friend the Minister for Sport can take that idea to his discussions with the Chancellor over the next few months.
The second issue I want to touch on is the looming problem of the piracy of moving image material. It particularly concerns film but it applies also to television. The issue of piracy—the counterfeiting of material, particularly in a digital format—has bedevilled the music industry for many years. The music industry loses millions of pounds every week because of the unauthorised, illegal digital transmission of musical material, and the issue is beginning to affect the film and television industries in a major way. We know, for example, that there are already 40,000 illegally copied editions of "The Lord of the Rings: The Two Towers" in circulation around the world. We also know that many 202WH movies get pirated before they have been released in any location and are transmitted from computer to computer across the world well before they are issued for general release. It does not take a genius to understand that if that sort of illegal copying and distribution of pirated material expands, it will strike at the heart of the economics of the movie and television industries, in which case we will all be poorer because movies will not get made.
There are ways in which we can try to combat piracy. Technical solutions such as digital watermarking and signature systems can be included in material. Pirate copies can be traced back to the person who is doing the copying, but one can take action against them only if all parts of not only the content production industry, which includes the film industry, but the transmission industry, which includes servers and telecoms companies, cooperate in trying to stamp out such illegal activity.
Two things are necessary for that to happen. First, there has to be proper copyright protection in law. The European copyright directive, which was agreed in principle about a year or so ago, has recently completed its consultation process for inclusion in United Kingdom law. Something is expected from the Department of Trade and Industry on that, possibly in about a month's time. It is important that that is done, and that it is done quickly and in the right way.
Secondly, all parts of the relevant industries need to be encouraged to come together and agree common procedures and standards in order to combat the problem of piracy. Ofcom is ideally placed to carry out such a ring-holding exercise. Specific statutory powers are not required for Ofcom to do that, but I hope that Ofcom can be encouraged to do it. When the Communications Bill is on Report, perhaps the Government might view with some sympathy an amendment to give Ofcom the authority to engage in combating piracy. I hope that my right hon. Friend the Minister will take that suggestion back to his ministerial colleagues and that that is something that can be done.
We have a film industry of considerable strength and importance in this country. It has made a very important contribution to our economy and our culture over a number of years. We need to play to that strength and to nurture it and I have described two ways in which we might be able to do so.
§ John Barrett (Edinburgh, West)I congratulate the hon. Member for South Cambridgeshire (Mr. Lansley) on securing this debate. If it has indeed been four years since the previous debate on the film industry, that debate took place approximately three years before I was elected to Parliament. I declare my interest, which is mentioned in the Register of Members' Interests. I am proud to have supported the film industry in the past through my membership of the board of Edinburgh international film festival and the Lothian and Borders screen industries office. Like many others, I have also enjoyed many evenings at the cinema and I am glad that we have had a wide-ranging debate on the importance of the industry.
The industry is important for several reasons. To most people in this country, the film industry means a good night out. Once a year they see a lot of glitz and 203WH glam at the Oscar ceremony or the Cannes film festival. However, the fact that there are many more column inches in the press about the lives of celebrities than about the industry itself means it is not surprising that often the industry feels left out in the cold. The film industry is important, both in the UK and worldwide. Earnings not only provide jobs and income, but add a diverse cultural dimension to life. We all benefit from cultural diversity and from enjoying the talents of others. Film allows us to see around the world and into the lives of some and the imagination of others. One of the most memorable descriptions of cinema and film television that I have heard was from Bernardo Bertolucci talking about his work in Edinburgh. He said:
In the cinema we dream with our eyes open.Many individuals and organisations are doing good work on behalf of the industry, and cries for a level playing field with other countries are often heard. The tax regime has already been well explored this morning and I hope that the Minister will take on board what has been said. We must support the industry to stop jobs going elsewhere and being lost to this country. Certain films belong in this country. I hope that the Minister will explore not only the alterations to the tax regime raised this morning, but any other options raised by experts in the industry. Sir Alan Parker has already been mentioned and there are also a number of experts and people working in the industry worldwide who would like to film in this country. However, for financial reasons, films are sometimes made elsewhere, or made partly here and partly elsewhere. It was ironic that, as a Scot, I should watch a film called "Braveheart", knowing that part was filmed in Scotland and part in Ireland.There are many jobs in the industry, and Britain has a reputation for world-class skills, both traditional and high tech, in film making. Those skills have not only resulted in productions being brought to this country but have provided jobs abroad for people from Britain, who have gone on to perfect their skills with top international companies, such as Industrial Light and Magic.
Although the names of those in the spotlight are the ones that come to mind, there are many workers behind the scenes. Names like Sean Connery and Ewan McGregor, both from Scotland, trip off the tongue, but possibly more important than the few with a high profile are the many writers, directors, producers, camera operators, lighting and sound technicians, wardrobe and set designers and those involved in the finance, right down to those who provide the catering on sets. They all contribute to an industry from which we all benefit, if it thrives.
Schoolchildren ask me who is the most famous person I have met. I tell them that it is not the Queen or Tony Blair but that some time ago I met the current James Bond, Pierce Brosnan. Films and television make a big impact on their lives. Although I have had the pleasure of meeting some of the celebrities in the industry, what has stuck most in my mind was a documentary called "This Mine is Ours", which I worked on some years ago with the miners of Monktonhall colliery outside Edinburgh, 3,500ft underground. I was a minor part of 204WH the crew, but the film won a BAFTA award for best documentary of the year. It was a privilege to gain an insight into that workers' co-operative, which struggled to regenerate a mine closed by the National Coal Board, and to see the story shown on a television screen and shared with an audience throughout the UK and possibly the world. We must not undervalue the importance of the documentary in the film industry.
Some years ago Michael Winner was asked by a budding young film maker for advice on how to progress in the industry. The answer was stark. He was told to leave the country and go to the United States: British films did not make money, there was little or nothing left of the industry and the future was not here. We must ensure that what is left of the industry is encouraged to grow.
One way to realise the full potential of film is to acknowledge the impact that the right film can have on tourism. Tourism is accepted as a major employer, with thousands of jobs depending on the promotion of a quality service, yet advertising budgets for tourism authorities often cannot provide the profile that would bring financial rewards and result in more jobs.
I have no doubt that there will be a huge spin-off for New Zealand following the production of "The Lord of the Rings". Not only did tourist attractions in Scotland record significant increases in visitor numbers when "Braveheart" was released in the cinemas, but the numbers increased again when it was released on video and when it was shown on television. There is widespread acceptance of the importance of tourism, and there is much evidence of the importance of the publicity generated by a television programme or film in that connection: film maps of regions where productions were made are now common, as are tours of film and television locations.
Whenever public money is linked to the film industry, there are stories of financial disaster waiting in the wings. As I said, I shall not go into the problems caused by the changes in the tax regime or into those of films funded through the lottery, except to say that the successes of most film studios are based on a large slate of productions and that disasters are the norm. Usually, one blockbuster will not only pay its way but will cover the cost of the turkeys. In this country the volume of production does not enable that to happen. Therefore, large-scale productions such as those made by the Hollywood studios are not the way forward.
There has been discussion about whether we should support only British films, but it is difficult to say what constitutes a British film. There have been many memorable ones—the Bond series, the Harry Potter films, "Bridget Jones's Diary" and "Trainspotting", part of which was based and filmed in my constituency. One might not have thought that that kind of film would produce tourists for Edinburgh, but I am assured that Japanese tourists want to see what happened where.
The industry has a long and proud track record of participation in world film festivals. I have been involved in the Edinburgh international film festival, which is the longest continually running festival in the world. Film festivals provide shop windows for important but less glamorous aspects of the industry. Apart from feature films, there are documentaries, short films and animation, which often provide a good 205WH introduction to the industry. Recently, many films have been produced using high-tech special effects, but we saw what Wallace and Gromit could do with plasticine alone when they came to life on the screen. Even pop videos can be at the cutting edge of film production.
Some of the most dynamic and creative people in the world work in the industry. We have made a significant contribution to it in the past; I hope that the Minister will assure us that we shall do so again.
Mr. Deputy Speaker:Order. The two previous speakers quite properly drew attention to their entries in the Register of Members' Interests, and I am grateful to them. As approved moderator of our proceedings, I have the benefit of having a register before me to which I can refer, but other Members do not have that privilege, unless they have had prior notice. In the most polite way, I must point out that it would have been helpful to other Members if those two Members had spelled out the range and nature of their interests.
§ Mr. Chris Smith:On a point of order, Mr. Cook. I apologise for having been too brief in my introduction. The register records that I have a position as an adviser to the Walt Disney company.
§ Mr. Adrian Sanders (Torbay)I congratulate the hon. Member for South Cambridgeshire (Mr. Lansley) on securing the debate and on introducing the subject in a non-partisan and extremely helpful way. The quality of debate has been high—although it will go downhill from here.
The hon. Gentleman mentioned Sir Alan Parker. who effectively drew three conclusions in his recent speech—the industry should be distribution-led, there should be an emphasis on skills, and more needs to be done about the infrastructure. I took the hon. Gentleman to agree with Sir Alan, and so do I. The hon. Gentleman posed the old question of what is a British film. The debate has shown that we cannot define it, but we can say that Britain needs to be involved in the industry in any way it can.
The right hon. Member for Islington, South and Finsbury (Mr. Smith) suggested a change to the tax regime, giving concessions on the first £15 million of production costs rather than a concession for productions that cost under £15 million. That sounds like a bright idea and I shall be interested to hear the Minister's response. The right hon. Gentleman also raised concerns about piracy, a global problem that requires a global solution. Will the Minister say what has been done at European Union level to help tackle that problem?
My hon. Friend the Member for Edinburgh, West (John Barrett) referred to the people behind the media spotlight—those who earn their living in the industry and are important to it. He also mentioned the importance of documentaries. He probably does not know that I have visited Monktonhall colliery, and I shall talk to him about it after the debate. Not many 206WH people will remember the struggle of the Monktonhall miners' co-operative but I had some involvement in it in my previous life.
The film industry's impact on tourism is vital. Harry Potter has done a marvellous job in creating a map of places around the United Kingdom. Indeed, King's Cross station has visitors looking for platform nine and three quarters. My constituency has a connection with Agatha Christie, but we may not have exploited that enough. The films have not been made there, but the scripts for many movies originated in the work of Agatha Christie and that gives us a movie connection. I am sure that all of us can find some such connections in our constituencies.
The Film Council takes the lead in enhancing Britain's film-making credentials. Britain markets itself as a highly skilled place for film making with lots of people in production, location work, special effects and technical aspects. Many US companies use Britain to make films, bringing in American money. However, the success of those Hollywood films often means that profits leave the United Kingdom. Sadly, Britain cannot compete with Hollywood.
Sir Alan Parker, as chairman of the Film Council, recommended in his speech in November that Britain should focus on improving infrastructure, developing a highly skilled and flexible work force, developing ways to counter the effects of studios moving shoots to cheaper locations, and revising the definition of what constitutes a British production so that more money may remain in the UK economy.
Given high British costs, the danger is that our film industry will suffer unless what we can offer is "value added". That point is echoed in the Relph report, which suggests that British bargain budget production facilities are not bargain enough. There is a risk that if the UK trades on high-quality facilities, it will lose business elsewhere.
In 2001, the British film industry suffered as a result of many films not gaining a high return on production costs. That was exacerbated by the strike in the US film industry, which reduced work opportunities, and by the decision of many Hollywood studios not to locate productions outside the US after 11 September 2001. However, recent figures suggest an upturn in the industry's fortunes. Although only 43 films were made—many co-financed rather than solely British—the Americans are back. In 2001, American studios spent about £230 million in the UK; last year, they spent about £270 million.
Other areas of concern cited in the past include the amount spent on films in Britain through lottery funding. The criticism has been that those films have not seen a return on the £100 million spent on them over the past five years or so. More generally, the Film Council shows that in 2001 the average solo British production cost £3.5 million but netted £755,000 at the box office. In 2002, Film Four was closed by its parent company, Channel 4, for not being viable.
My party, like all parties, wants a strong and comprehensive film industry that uses all the skills, trades and talents that go into film making. Policies could be developed to ensure that existing talent is used and that the available money goes further. We still produce great film makers. Our technicians and actors 207WH still feature in successful major films made here and overseas. What is lacking is a comprehensive long-term plan for the UK film industry. We can attract new money. For example, we could build on the great support that exists among the public for British film making. Have the Government considered how many members of the public might be prepared to invest small amounts in the film industry, knowing full well that they are not likely to see a return, but hoping that their investment would mean that films were made and that there might be a small percentage chance of one of those films turning out to be a blockbuster?
The hon. Member for South Cambridgeshire had the interesting idea of having tax concessions on cinema seat receipts to help UK production. We have talked a great deal about distribution problems, but it was not clear from the hon. Gentleman's comments how those tax concessions would relate to those problems. However, in terms of providing extra revenue to help production, his idea seemed a good one.
I hope that the Minister will explain what more the Government can do to attract investment into film. I would like to know his long-term vision, and that of the Government, for the UK film industry.
§ Mr. Malcolm Moss (North-East Cambridgeshire)I congratulate my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) on his success in securing this debate. It was mentioned earlier that we had not had such a debate for some four years, so this one is long overdue.
As many contributors have said, there is some perplexity over what actually constitutes the British film industry. Sir Alan Parker, in the well-documented speech that has been referred to this morning, said that we should not be thinking about a British film industry but about British film industries, in the plural.
The right hon. Member for Islington, South and Finsbury (Mr. Smith) established the Film Council and a great deal of credit must go to him for having had the foresight to make that move. It is now easier to focus on the areas in the British film industry that need to be focused on. If it considers Sir Alan Parker's speech, and the aspirations behind it, the Film Council will offer extremely good leadership. Speaking as an outsider, I think that it will carry the industry kicking and screaming into the realities of the 21st century.
The UK has a successful film industry, as can be measured by the number of people who visit cinemas to watch films—films made here and films made elsewhere in the world. The latest figures show a 13 per cent. increase in cinema admissions last year and a 10 per cent. increase in box office takings for the exhibitors. If cinemas are to grow and develop, we need them to show American mega-movies and blockbusters, but we still need them to show films that are made in the UK and reflect our culture in stories about us.
In the past 40 years, we have been obsessed with public funding for our film industry. That funding has been concentrated on production. Many people contend that the funding has not taken us very far. Over the past seven years, we have had lottery subsidies, and over the 208WH past five years we have had production-focused tax breaks, which the right hon. Member for Islington, South and Finsbury introduced when he was Secretary of State for Culture, Media and Sport. Those subsidies and tax breaks have been successful in some ways, but it is questionable whether either of those sources of funding has delivered the fundamental structural changes that will be needed if the film industry is not to continue to suffer recurrent crises every five years or so.
If the present structure has not worked, what solutions will sustain a successful film industry in the future? The debate has recently been opened up within the industry. As we all know, the industry needs to embrace significant change, but the debate has also covered the future role and influence of Government. The Government have an important input into a large range of issues. As has been mentioned many times this morning, perhaps the most important input is in fiscal policy. The existing tax breaks have been extremely helpful. The 100 per cent. first-year write-offs were introduced under section 48 of the Finance (No. 2) Act 1997. That has certainly generated employment and delivered successful films. It is due to end in July 2005, which seems to be some time away, but in terms of film production it provides a window of opportunity of only another 18 months. It is important that, when the Minister responds, he informs us how the Department for Culture, Media and Sport regards the matter. If only 18 months of active space is left within which the film industry must operate, some consideration must be given to how to extend that period. Section 42 of the 1997 Act continues to attract the big American productions to our shores and keeps both Shepperton and Pinewood studios open.
However, although tax breaks have been useful and helpful, they are considered in some quarters to be inefficient. There is a view that the underlying philosophy of sale and leaseback is not helpful, and is rather flawed as regards the film industry. In his winding-up speech, will the Minister explain the Government's thinking on tax breaks? The way forward, as envisaged in a recent speech by the chairman of the Film Council, is on three fronts, which were well covered by my hon. Friend the Member for South Cambridgeshire.
Sir Alan Parker believes that distribution, not production. should be the leading force. In his words, there should be a pull factor, not a push factor—which means that the industry should be market-led. That is how most businesses and industries operate throughout this country and the world: they look at the market and they produce things that people want to use or to see.
§ Mr. Simon Thomas (Ceredigion)On the creation of a market, particularly a greater market for UK-based films, what value does the hon. Gentleman place on festivals? For example, yesterday was Wales cinema day; three quarters of cinemas in Wales took part in it. Since it was introduced two years ago, the numbers attending have doubled year on year. Surely there is a role for festivals to play in creating the market, but can there be that pull factor for the industry as a whole?
§ Mr. Moss:The hon. Gentleman makes an important point. He more or less answered his own question by saying that Wales cinema day has been a tremendous success, and I have no reason to doubt that. I think that it was a point well made and the Minister will no doubt take it on board.
The other two matters listed by my hon. Friend the Member for South Cambridgeshire were skills and infrastructure. The film industry needs to examine how it does things and its internal structure. There is a particular problem with low-budget films, particularly low-budget British films, whose principal, or only, market is the United Kingdom. The Relph report, commissioned by the Film Council last year, concluded that, unless there were fundamental changes, British film making at that level could cease to exist in a few years' time. The report showed that film makers in France, Denmark and Germany all made films more cheaply than we can in this country and that the essential need is to make films whose budgets reflect their market value.
As for skills and training, the film industry—as we all accept—is a people business. In this country, we have a good record of producing people with great talent, but there is now a dearth of skilled people. The Film Council admits that there are not enough good writers, new editors, cinematographers and production designers. Training is now a critical consideration and the Film Council needs to work more closely with the Government to develop a strategy for the future. Perhaps more lottery money should be diverted into training, as well as contributions from the industry itself. It is a surprise to learn that until now the film industry itself has not invested in training as a way forward. Training should be developed across the board, and that includes script development, production, distribution and exhibition.
On infrastructure, it is obvious from the comments we have heard this morning that film production is extremely mobile—New Zealand was mentioned in that context. Many Governments are dreaming up tax incentives to attract big-budget Hollywood film productions. Investment is pouring into new film studios in countries as diverse as South Korea, Thailand and Australia as well as New Zealand. We must establish working partnerships with those countries as well as develop critical financial incentives for the home-based infrastructure. The trend will not be reversed. As traditional trade barriers come down and digital technology frees up film production, it will go, literally, anywhere in the world.
Serious challenges face the film industry. However, we have a good record and immense talent. Working in partnership with the Government and the DCMS in particular, the British film industry should have an exciting future ahead.
§ The Minister for Sport (Mr. Richard Caborn)I congratulate the hon. Member for South Cambridgeshire (Mr. Lansley) on initiating this morning's debate, which has been constructive and excellent. I will make sure that comments are conveyed to the powers that be in the Treasury and other Departments. I convey the apologies of my hon. Friend 210WH the Minister for Tourism, Film and Broadcasting, who would normally be present for such a debate. He is in a Standing Committee this morning. I have drawn the long straw while he has drawn the short one.
I thank my right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) for his contribution. The hon. Member for South Cambridgeshire tried to highlight how the sector is a major contributor to wealth creation that has a strong industrial base, and how it should be evaluated against those criteria. My right hon. Friend took that on board some years ago when I served under his leadership on the creative industries task force, which brought together several Government Departments. The Film Council and other initiatives came out of that task force, which was driven by two factors: new technologies—information technology and computerisation—were converging with the arts in ways that needed to be managed, and a tremendous amount of talent was domiciled in this country. My right hon. Friend also understood that globalisation was on the agenda in ways that we had never envisaged because of the ability to move information at the drop of a switch. The technologies interfacing with the arts and creative industries needed to be directed in new ways.
The comments of the hon. Member for South Cambridgeshire about the film sector were of particular relevance to the way in which we should develop future public policy. If we do not proceed in the way in which he described, which the Film Council supports, we will not be able to capitalise on this major industry. I must admit that I checked my notes when he mentioned the extent of the film industry. The global market for film is worth approximately $50 billion, of which we have approximately $4 billion. More importantly, some 44,500 people are employed in film and video production in this country. Those are quality, skilled jobs, and that underlines their importance to the economy and to wealth creation.
To home in particularly on the UK film industry, it is quite successful. If we consider how far we have come, such success is pretty impressive. For example, last year British productions were nominated for no fewer than 20 academy awards. Three of those nominations—best supporting actor, best original screenplay and best make-up—show how the industry is coming on. In 2002, 175 million cinema tickets were sold. That is the highest number since 1971, which shows how much growth there has been. Total spend on film production in the UK in 2002 was up by £22 million on the previous year, rising from £410 million to £433 million. That represents an increase by a factor of four since 1992, when total spend was at just less than £98 million. The Government believe that a successful film industry is good for Britain in various ways. That has been clearly outlined in this debate.
The impact of film on tourism and related developments, which was picked up by the hon. Member for Edinburgh, West (John Barrett), is an important consideration, but what have we done to encourage the industry? Sustainability is a word that has not been used this morning, but it encapsulates much of what has been said. Sustainability is important, particularly in respect of the recent history of the film industry. We are trying to ensure that the industry is sustainable in respect of intellectual property and that it is focused. We introduced tax incentives in 1997, which to date have provided the industry with more 211WH than £100 million-worth of direct benefits to film production. That tax relief was due to end in 2002, but it was extended until 2005 by my right hon. Friend the Chancellor of the Exchequer.
Section 48 of the Finance (No. 2) Act 1997 allows producers of films that cost less than £15 million to claim relief in one year of 100 per cent. of the production costs. That relief is used primarily by UK producers who make lower-budget films, and it will remain in place until July 2005 for films that are intended for cinema release. Section 42 of the Act allows producers of films with budgets of any size to claim relief over three years on 100 per cent. of the production costs. That relief is often claimed by the larger US production teams. It is not unlimited, but it remains in place for films that are intended for cinema release.
The tax regime has been central to this debate. The issue was sparked, to some extent, by Sir Alan Parker's speech in November 2002. Where are we taking tax and how can it be used more creatively to become a pull-through factor in distribution? The hon. Member for South Cambridgeshire and my right hon. Friend the Member for Islington, South and Finsbury made some valid points about that.
This year, Film Council officials are planning to discuss such issues with my Department, the Inland Revenue, and possibly the Treasury, with a view to firming up their thinking and developing it into hard proposals. I will ensure that this morning's contributions are fed into the early stages of that discussion along with Parker's suggestions on strengthening distribution rather than focusing on the production side. A balance must be achieved. I am far from expert in this area, but Parker's speech last year opened up the debate and we want to move it forward.
The question of skills has also been covered. People will know that the Film Council has established a programme to improve skills throughout the industry and to deliver training on film business skills. The council has co-financed new development agencies in each of the English regions in order to improve the coordination and growth of the film industry across the country. I speak from experience of my city of Sheffield, which now has a strong cultural industries quarter.
We have not yet mentioned, and should factor in, the role of our higher education structure. Sheffield Hallam university, which has a major faculty on the subject, is now linked to the creative industries quarter. There are more than 2,000 quality jobs in that area, and that number is growing. Together with the regional development agencies, we are trying to increase access to venture capital, as that was another of our major problems in developing the industry.
The Film Council has taken the issue of training seriously. To ensure that the younger generation is enthusiastic about film making, it has set up the first light scheme, which encourages young people to learn the practical skills of film making. Children from across the country have benefited from what is proving to be an extremely popular scheme. The Film Council funds the British Film Institute, which provides education about, and access to, the moving image; it, too, is quite successful. The BFI promotes greater understanding 212WH and appreciation of, and access to, film and television culture and is renowned worldwide for its work. The BFI also operates the world's most extensive film and television archive with the National Film Theatre. There is also the Regus London film festival.
The hon. Member for Ceredigion (Mr. Thomas) referred to what happened in Wales yesterday; such events about the promotion of films are to be welcomed, wherever they take place. The subject of film studies is now on the national curriculum, and there are special programmes for the further understanding of films. With the aim of providing a focus for encouraging foreign production companies to come to the UK, and to build relationships abroad, the Film Council funds the British Film Commission and the British Film Office in Los Angeles. When I was Minister for Trade, I met several people from that office, which has been extremely helpful in stimulating inward investment into the UK. That in turn feeds into the UK production infrastructure and nurtures a more richly skilled work force. Such cross-fertilisation is necessary in this global industry.
It is worth noting that inward investment from international film makers locating productions in the UK increased by some 16 per cent. from £230 million in 2001 to £267 million in 2002. That is more than four times the £58 million spent on inward investment in 1992. That is the background of our achievements to date.
If I have time, I will set out further plans for the film industry, but I should now like to concentrate on aspects of the film industry that the Government are supporting. The Government, working with the industry, set up the skills investment fund to support a number of priorities identified by the industry, including new trainees and a health and safety executive. All British productions are asked to contribute to that fund, and public funding for training through the Film Council now more than matches the contribution from industry. I welcome that partnership, which is now tangible, and can be measured.
The Government have also significantly increased investment in Skillset—the sector skill council for the audiovisual industry, which has already been mentioned—and that has been welcomed across the board. Skillset and the Film Council are mapping the key training needs for the film industry, and plan to develop a comprehensive training strategy this year. We look forward to the outcome, and to working with them and taking forward their conclusions. We also fund the national film and television school, which provides high quality post-graduate education opportunities for those entering the industry.
The Government are keen to ensure that the industry takes full advantage of the new digital technologies. My Department, which works with the Film Council, commissioned a research study to identify the implications of digital technology for the film industry with the aim of provoking discussion. That information can be accessed on the DCMS website.
There is much to be proud of, but we cannot afford to be complacent. The number of UK film productions fell in 2001-02 after the record in 2000. The reasons why that happened. which include foot and mouth and the problems with the Screen Actors Guild in the US, have 213WH been articulated today. Nevertheless, many in the industry recognise that the fall in production does not represent a return to the industry's recession of the 1990s. As I mentioned earlier, inward investment by international film makers increased by some 60 per cent. in 2002, which was a vote of confidence in the industry.
Alan Parker, the chairman of the Film Council, made it clear in his speech to the industry on 5 November that the UK film industry—