Third Standing Committee on Delegated Legislation
Tuesday 20 July 1999
[Mr. Bill O'Brien in the Chair]
Draft Films (Modification of the Definition of ``British Film'') Order 1999
4.30 pm
The Minister for Tourism, Film and Broadcasting (Janet Anderson): I beg to move,
That the Committee has considered the draft Films (Modification of the Definition of ``British Film'') Order 1999.
The purpose of the order is to amend schedule 1 of the Films Act 1985. The schedule sets out the criteria that a film must meet to be certified as British and hence eligible for film-specific tax incentives. Compliance with the criteria is also a basic requirement for access to British Screen and Arts Council production funding. Our aim is to bring the criteria into line with the realities of modern film making, thus making life easier for film makers and helping to attract investment in British films. The proposal has been agreed with the Treasury, the European Union and industry representatives.
The key change is a move to criteria that are based on production expenditure rather than on a film's playing time, as at present. The main new requirement is that 70 per cent. of the production cost must be spent on film making in the United Kingdom. Under the current playing-time criteria, films that are made almost entirely in the UK can be disqualified because, for example, a small amount of the playing time is taken up by music recorded abroad. However, because of advances in technology, film makers increasingly use numerous soundtracks that are produced in different facilities, and some might be available only overseas when the film is made. Producers might also want to buy music on licence, which might account for only a tiny proportion of the overall production budget, but they could find that the statutory film definition does not allow them to do that.
The film ``Little Voice'', for example, is intrinsically British and won a Golden Globe for Michael Caine. It was, however, recently barred from qualifying because of the playing-time criteria. Other films that are clearly British in cultural and economic terms have failed to qualify or their producers have been forced to re-record music in the UK when they were already operating on tight margins. The industry has long objected to the constraints that the criteria impose.
It is, therefore, all the more anomalous that the current criteria allow films that are made largely outside the UK to qualify as British even though they provide little benefit to the UK economy. A qualifying British film can be more or less made abroad, provided that it is prepared and processed in the UK and uses equipment that is sourced mainly from the UK.
It is, therefore, necessary to modify aspects of the current criteria that are anomalous, unfair and out of touch with modern film-making methods. The proposed criterion—70 per cent. UK production spend—strikes the right balance between allowing much greater flexibility for films such as ``Little Voice'' and ensuring that films that benefit from tax breaks or production funding are substantially made in the UK.
The film business is fast moving and portable. The surge forward in modern technologies means that film making takes place in an increasingly international environment. Cast and crew need to move quickly from one picture to another after the main shoot. If we are to remain competitive, we must have the flexibility to allow a reasonable proportion of the film-making process to happen abroad while ensuring that we retain the lion's share of the economic benefits.
As at present, the new system will require film makers to spend the majority of their labour costs on European and Commonwealth citizens. Again, we propose a figure of 70 per cent. rather than the current 75 per cent. That brings the figure for labour costs into line with the production cost figure and allows a little more flexibility. We also propose the retention of flexibility to take into account that film makers sometimes need to employ expensive foreign talent.
The redefinition is aimed at removing unnecessary red tape. The legislation as currently drafted is highly confusing and difficult to understand, and some of its language needs to be updated. For example, it contains references to photographs and to sound recordings, although films no longer necessarily comprise photographs and may instead be shot on tape or consist of computer-generated images.
The proposed redefinition stems from a recommendation made by the joint industry-Government film policy review group. We consulted widely on the recommendation, and received overwhelming support for the proposals. Every detail of the redefinition has been checked with industry experts. We have considered the compliance costs carefully, and have concluded that they will be the same as under the current definition. The benefits of greater flexibility and user friendliness will, therefore, be genuinely additional.
We also propose a transitional period of 12 months, during which film makers can opt to apply for qualification under either existing or new criteria. We recognise that the sudden introduction of new criteria could create difficulties for some film makers, given the long lead time required to prepare for shooting a film.
The redefinition is in line with the key objectives of the Government's film policy. We want to help to create a commercially viable film industry that contributes fully to the national economy as well as to our national culture. Currently, the UK film industry is under-capitalised and lacks an integrated structure for making and marketing British films. Investment in film tends to be made on a film-by-film basis, with film rights sold in advance to raise finance for production.
Tax benefits and Government production funding help to spread the risk of financing a film, to attract partnership funding and to prevent the total leakage of rights before a film is even made. By retaining such rights, companies can build up slates of films and create an asset base that protects them from the fluctuations of the film market. That should help to create a more sustainable UK film industry and to encourage film making in the UK.
As a result of the new film tax incentive introduced by the Government in 1997, producers or buyers of qualifying British films can write off 100 per cent. of production costs over just one year on films costing up to £15 million. Qualifying films that cost more can still write off production costs, but over three years. Since the introduction of the 100 per cent. write-off, major companies such as Ernst and Young, Alliance and Leicester, Halifax and Societe Generale have been attracted into film investment for the first time. Ernst and Young cites up to £350 million of investment as already having been generated or currently in the pipeline as a result of the tax break. New investment partnerships are also helping small companies to access the tax benefits. It is therefore vital that the qualifying criteria are both 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. The Government want to make filming in Britain even more attractive, and our economy will undoubtedly benefit as a result. I commend the order to the Committee.
4.39 pm
Mr. Richard Spring (West Suffolk): I welcome you, Mr. O'Brien, to the Chair.
I thank the Minister for setting out the order so comprehensively. The Opposition are happy to accept it and to welcome it in principle. I am especially pleased that the Minister spoke of the transitional period, which will be welcomed by the Industry.
It is worth noting the background to the order. The definition of what constitutes a British film is important to film makers because it affects a number of important issues. First, it affects eligibility for the sale and lease-back provisions of the Capital Allowances Act 1990 and the Finance (No. 2) Act 1992. Secondly, it affects eligibility for production funding from the national lottery and for participation in certain treaty co-operations with foreign countries.
The Minister talked about anomalies—we have had situations in which a film could have been defined as British even though it was filmed largely outside the United Kingdom. Barbra Streisand's film ``Yent1'' qualified as British, even though it was shot in the Czech Republic and was financed by Hollywood. We welcome the fact that a wider definition of British films will enable incoming overseas productions to qualify as British. European Economic Area—EEA—and Commonwealth productions can already qualify; the changes are presumably directed substantially at American films.
The order, however, removes an existing provision under which British films shot partly outside the United Kingdom may qualify as British. Is that unintended? I wish to return to that question later.
We are happy to support the change in principle. Under the Films Act 1985, the accepted policy seemed to be that the British film industry was not simply about the use of British technicians and facilities, or about the making of films in Britain about British subjects. It was also about British producers' reaching out globally to make films on a broader canvas. The effect of the proposed change will be to change subtly the emphasis of that policy in favour of incoming foreign productions.
Article 6 will delete the requirement for studio shooting to be undertaken in the United Kingdom and will replace it with a requirement that 70 per cent. of the production budget must be spent in this country. That seems to recognise that many films are shot on location and do not use a studio, and it will close one route whereby a British film could be shot outside the United Kingdom provided that that was not done in a studio. Overall, the measure may have a marginally negative effect on the finances of British studios.
Article 6 will also reduce labour cost thresholds by 5 per cent., slightly increasing the sum that may be spent on non-United Kingdom, non-EU or non-EEA or non-Commonwealth personnel. That will enable British producers to use more, or more expensive, overseas citizens in cast or crew, and will enable incoming overseas productions to bring more, or more expensive, cast or crew with them. That may have a negative effect on British employment within the film industry.
Article 7 will replace paragraph 1 of schedule 1 of the Films Act 1985. When taken with the changes made under paragraph 6 of the order, it will eliminate another route by which British films may be partly shot overseas. That is a significant change. While a film shot outside the United Kingdom may have a British screen writer, director, cast, producer and finance, and have a story British in essence, it may no longer qualify as a British film. A big American special effects movie, shot and post-produced in Britain, fronted by a British producer but, to all intents and purposes, an American film, could continue to qualify as British. That will discriminate in favour of foreign films being made in the United Kingdom at the expense of British films being made partly outside the United Kingdom.
I accept that the Minister has consulted widely and that there has been a broad degree of welcome for the order, but I ask her to examine some of the details. I know that the matters are technical; if she feels that she cannot comment on them now, I would be grateful if she could write to me.
Concerns have been expressed that the policy change will disadvantage British producers wanting to film part of their British film overseas. It will rule out the possibility of sale and lease-back incentives for such films, or of lottery money for producers who do not want to participate in a treaty co-production. Nevertheless, we welcome attempts to simplify and to clarify the existing structures for the British film industry. We are concerned that the order may have implications that have not been fully thought out. I would be grateful for some comfort from the Minister on the points that I have raised.
4.44 pm
| 
