I have been film critic of the London Evening Standard since 1960. Before that, from 1954-59, I held the same post on the Birmingham Gazette and then The Birmingham Post. I have been a British film Institute (elected) members' governor, 1989-95, and written some 20 books. Two of them chronicled the British film industry from 1955 to 1984. I served on the Prime Minister's Interim Action Committee, and subsequently on the British Screen Advisory Council, 1977-92.

  I should like to comment on the Film Council and its work since its inception in 1999.

  To do so, it is necessary to comment on events preceding the Film Council and bearing on the funding of a film industry by public funding.

  I have always been in favour of judicious subsidy, but not to the extent of the past seven years. Funding for film-makers came about because "the money was there"—from the new National Lottery. Unfortunately, many, too many films were subsequently made simply because "the money was there." Under Arts Council patronage, 1995-99, some £120 million was spent in this manner, and most lost. Very little has been recouped by the films in which it was invested. Actual figures are hard to come by—mostly, because they are not kept. Also, they are shaming in the poor returns they represent. Peter Ainsworth MP, the former Conservative Shadow secretary for Culture, Media and Sport, managed to pry some from the then Secretary about two years ago: at that date, the return was under £10 million. I have so far failed to up-date this. The Film Council's policy is not to disclose figures relating to another government body, ie the Arts Council. The Arts Council spokespeople have not so far been forthcoming. The suspicion is, the sum recouped has not increased significantly.

  It is said, in defence, that this does not represent a true return. The return of moneys invested is a slow process, spread over years and other countries (to whom the films have been sold). This is true, but not quite relevant. The lottery moneys were invested in film-making so as to be of "public benefit." They were originally, from 1995, that is, intended to assist films which, because of their specialised nature, would have trouble attracting mainline investment. But from the start, the practice was to invest in almost any kind of film that the Arts Council panel thought looked "a good bet." Most were not. Most lost money. Too many were produced. Many—some 60%, it's been estimated—never got shown in the cinemas, and ultimately were sold direct to TV or to video. The "public benefit" was, in effect, enjoyed by the people who made them—producers and technicians. There was certainly advantage to the working economy of the film industry—next to none to the cinema-going public.

  As the Arts Council's remit was enlarged and (for want of a better word) "vulgarised," the films had less and less reason to be financed from public funding. Many were so bad they would never have attracted private equity investment, but "the money was there . . ." so they got made.

  Around the time when the film industry was declared eligible for a tranche of lottery funds, a sub-industry began to grow up—taking advantage of the new tax breaks in 100% first-year write-offs for British films under £15 million budget (all of them, save those financed by major American companies) as well as the "sale and lease-back" arrangements whereby the filmmaker sells his film to an institution (usually a bank) that's "in the money" and needs to lower its taxes due: the bank takes its tax write-off, then leases the film back to the makers, who pay rental for a period of usually 15 years, in turn writing off the rental charges. Both parties gain; the Treasury loses. Public money has largely financed this public loss in the last seven years.

  Ultimately this sub-industry, operated to the advantage of merchant banks, insurance companies and accountancy firms, increased to a dizzying proportion—to the point where there were not enough British films available to do tax deals on. The Inland Revenue has been compelled to revise its rules. But the downturn in the economy, which we are suffering at present, will probably be more effective—unfortunately, it will also have severe effects on film-making.

  The aim of all such public funding was to create what became known, in the mantra coined by the Film Council, as "a sustainable [emphasis mine] British film industry." It has not achieved that; and it never could have done—a fact perfectly well known to those who profited most from it.

  The purpose of film-making is often not understood precisely by those outside its charmed circle. Outsiders would say that one makes a film in order to make a profit. Not so. Films are made, usually, in order to generate income. The distinction has a shameful basis. Film industries the world over are systemically dishonest. Their financial accountability would rarely stand scrutiny by the usual principles. Accountability of moneys invested and received is subject to so many shadowy processes of substraction that it is extremely hard to keep track of. This works, usually, to the advantage of producers, distributors and exhibitors, three groups who each live off the others. Profit is more often than not "remote"—and frequently, if it exists, kept that way. Profit has to be declared, shared and have tax paid on it. Income, on the other hand, can be diverted and usefully, often plausibly, put to other good ends—usually the well-being of the film-makers.

  For these reasons, a film industry is not best suited to the investment of public money. If the risk yields advantages to those who take it, it's their money that should be put in the pot. To put the public's money into it is no better than laying a bet. Film-making is a gamble, a wager. William Hill, the bookmakers, would have understood this better than the Arts Council. The latter's civil servants who were in charge of dispensing lottery funding to film-makers are now mostly—and thankfully—retired from their job. They were simply incompetent to do it. That is not to say they were stupid or dishonest. But their experience as artistic patrons in no measure suited them to be entrepreneurs.

  I refer to a small but true anecdote. Lord Gowrie, when chairman of the Arts Council, once paid me the compliment by asking how I would deal with funding filmmaking. I said, "I would not give the huge amounts of money that you are dispensing at the moment to filmmakers. I would buy the circuit of former ABC/former Cannon/former MGM cinemas in Britain that are up for sale. Then, Lord Gowrie, you would own the "money box," since cinemas are where the money is to be made. You could show the British films you financed.

  "But, more important, you would also be making money from the Hollywood films you'd also show in your cinema chain. Cinemas usually take between 35-40% of the box-office gross (a higher proportion than American cinemas do)."

  Lord Gowrie's reply, if I recall it correctly, was "The Arts Council isn't permitted to run a business." My answer was, "Then why are you doing business with the film industry?"

  The Arts Council was not, of course: it did not know, in most cases, how the business worked, and was unwilling to acknowledge that it was basically a gamble. No one can know which film will be of "calculable benefit"—the touchstone of lottery funding. The customary formula is that out of 10 films that are made, seven will lose money, one or two will break even with luck, and one may be a runaway success and pay for the all the rest.

  This was certainly the formula adopted by the Arts Council in its later stages. The huge volume of films produced had as its rationale the belief that you were thus increasing the odds in favour of financing more successes than if you produced fewer films. It did not work out at all. It only produced congestion, waste and scandalously bad movies that brought the once considerable industry into disrepute at home and abroad. They also gave exhibitors in Britain—who now were accounted for, more and more, by North American financed companies that had built multiplexes from 1985 on when the Eady Levy was abolished, additional reasons for not "playing British."

  Most of these screens, right to this day, are tied to American film companies for the consistency of their supply of films. The big American blockbusters that pay for the American trash they show week in week out are pencilled in months, sometimes a year ahead on "the best dates." This, too, keeps any white-hope British film at a disadvantage. The situation has not changed in almost a century; it will not change until distributors/exhibitors here see advantage to themselves in changing it. So far, they show so signs of that. The few British films that do well are the exception, or else they were films financed by American companies who possess the financial means to pay for a large number of prints and a saturation advertising campaign. Even successful British producers cannot usually afford such necessities.

  The Arts Council only tardily recognised that making a film is distinct from selling it—and the latter process may require as big a budget as it took to make the product in the first place -or more. They hadn't got the money.

  In short, the Arts Council started at the wrong end of the business—at the glamour end, the production side. It should have considered far more carefully the realities of what it was getting into. No point in having a well made film if you cannot afford to advertise and distribute it.

  In 1997, when the Arts Council funding of films had become a laughing stock, three franchises were created: three distinct companies funded by the lottery and intended to rectify some of the scattergun funding by the Arts Council. The idea was that the filmmakers lucky enough to "win" a franchise by their business plan would turn themselves, over a period of six years, into "mini-studios." That's to say, they would produce a given number of films every year, having distribution facilities through links with a bigger (usually American) company, or through PolyGram Filmed Entertainment, a new British-based entity financed by the Dutch electrical giant Philips, which was building up a distribution system as well as a production machine.

  The three franchises were awarded lottery funds totally £95 million. One went to a consortium of film-makers (The Film Consortium, including names like Ken Loach, Simon Relph); another, the DNA Franchise, to the two successful producers of the Shallow Grave and Trainspotting films; and one to the French-owned entity, Pathe. The award of British public money to a French industry giant that had no need of it—but wasn't going to refuse it on that ground—caused criticism. The reason advanced was realistic, however; Pathe was one of the biggest distributors of films in Europe. The hope was that it would open markets to British films it made under the franchise.

  The franchise scheme has also failed to create a "sustainable" film industry—for a variety of reasons. In the case of The Film Franchise, the company was eventually "bought"—by buying out the shares of those who had applied and got public money—by a limited company, at one time called White Cliff Film and TV, that had formerly had interests in football club management, then in meat rendering, and now decided there was money in movies. For about £1 million, it thus got access—at the pleasure of the Arts Council, and later, the Film Council—to some £33 million of public money.

  The DNA people did not manage to get a single film on to the screen in the first three years of owning the franchise. Part of the reason was the difficulty of finding film scripts worth producing—the endemic problem of the British film industry, since producers prefer to start a film when the money is there rather than when the script is right: and the lottery only encouraged them to begin production earlier and earlier.

  But the other reason for DNA's comparative failure to live up to its franchise was the time that its two heads spent producing large-budget and successful films—Notting Hill, The Beach—which were financed by major Hollywood companies. They have released four films only, instead of the several dozen they promised to make over the six-year term of the franchise. PolyGram, the potential distributor, was closed down by its parent, Philips, in 1998.

  The Pathé franchise has probably, on balance, done best, partly because it is the best run, but, more significantly, because it can count on the security of its vastly wealthy parent company in Paris. In fact, it had no need at all of British public money: the money, as noted earlier, was a kind of access fee to Pathe's distribution facilities in Britain and Europe.

  An actuarial survey of the franchises was to take place at the half-way mark: ie around 2001-02. Chris Smith, then Secretary of State for Culture, Media and Sport, promised it would be "robust." It was nothing of the sort. It was simply a once-over-lightly survey, according to reports. The actual reports on the three franchises have not yet been published, and the Film Council, which was by then up and running, has declined to make them public.

  The film community talked for many months, with bewilderment and amusement, how the accountancy firm employed by the Film Council had managed, for example, to estimate the success of the DNA franchise which had not a single trading result (or a film) to show at the time of the accountancy examination.

  Another reason why some of the franchises failed was their failure to retain "rights" in the films they did produce, thus building up a "library" of product on which revenues could be raised. They often had to sell the rights in order to find distributors here and abroad. The Film Consortium, or Civilian Content plc, as it is now known, has seen the light and largely turned itself into a sales company for the few films it now finances with its remaining franchise money, as well as for the films of other producers who do deals with the consortium's wholly owned sales company known as The Works.

  Not only has the original vision of the franchises come to nothing, but in two cases the franchise holders have converted themselves into the kinds of operations that were never envisaged when they were floated with lottery money.

  They are now in the process of devising "exit strategies" to hold on to as much of this money as remains once the franchises expire. Pathé, for example, have "inherited" a bunch of films that were victims of the demise of Channel 4's FilmFour production set-up when it was closed last year. Pathé will probably be allowed to keep the remaining £10 million-odd of its franchise money in order to distribute these films. Again, there is no need for Pathé to receive public hand-outs: it is rich enough to pick films it thinks will make money for it. But the £10 million at least solves the problem of films left in the lurch without a distributor by FilmFour. It is a cause of concern to the Film Council, and rightly so. The Film Council has always said it had no legal powers to terminate an unfulfilled franchise before its time was up. However it is believed the Film Council would dearly have liked to do this, particularly if the moneys remaining could have been transferred to it.

  The Film Council, which "came live" in May 2000 had some six months previous to that to mull over what had gone so scandalously wrong with the previous financing of films through lottery moneys distributed by the Arts Council to individual film-makers, and to the the franchise experiment.

  Alan Parker was appointed Film Council chairman toward the end of 1999; he was then chairman of the British Film Institute. John Woodward was appointed chief executive of the Film Council around the same time: he was then director of the British Film Institute. The withdrawal of both men from the British film Institute posts—one after only 19 months, the other after 20—greatly weakened the British Film Institute—but not as much as some of the Film Council's subsequent policies have done.

  The British Film Institute postponed its 1999 election for a member's governor in 1999, giving as its reason the withdrawal of its chairman—though one member of the institute's board of governors could scarcely be said to cause the edifice to totter. It was widely believed among the 33,000 British Film Institute members eligible to vote that the undeclared reason was to prevent opposition being mustered to the take-over of some of the institute's oldest and most treasured functions by the Film Council—by those individuals who had been the British Film Institute's chairman and director only months earlier.

  Not having a members' election prevented candidates who opposed the British Film Institute being brought under Film Council authority from stating their case in their election "manifestos" circulated to all the voting members. Potential opposition within the British Film Institute was effectively silenced. This interpretation has been rejected by the Film Council. But the effect of the transfer of important British Film Institute functions to the Film Council has undoubtedly weakened the former.

  It has effectively lost to the Film Council a number of its educational responsibilities as well as its production board (subsumed into the Film Council's three funding bodies) which had had a long and often successful history of producing low-budget movies by new directors.

  In fact, there is a fear that the Film Council's erosion of the British Film Institute's raison d'etre—it currently gets £14.5 million subsidy, now in the "gift" of the Film Council—will eventually reduce it to primary functions of archival and library research, preservation of old films, and the exhibition programmes at the National Film Theatre. Its larger brief—and its power—is being deliberately diminished by the empire-building of the Film Council.

  When the Film Council was established, the main source of finance for independent filmmakers, apart from those lucky enough to be funded by the Arts Council-administered lottery, was British Screen Finance. This was the successor to the old National Film Finance Corporation. It had been set up in 1986-87 with small sums of money contributed by the then principal British film companies, Rank and Thorn-EMI Screen Entertainment, Channel 4 and a grant of about £2 million from the government. Its funding resources probably did not amount to much more than £4-5 million a year: yet, under Simon Relph and, from 1991, Simon Perry, it enjoyed considerable success through its knowledge of where to place small amounts of money—usually no more than £400,000—in films, as well as which film-makers it could trust or bet on, and so leverage its budget up to a sizeable investment by partnership with other film-making companies and equity investors.

  Under Simon Perry in particular, it formed useful links with film-making companies in Europe. It was not anxious to develop the American side of the business—though some American producers of distinction were glad to work in Britain under its auspices. To my surprise, when I questioned Simon Perry, it was disclosed that it had roughly a 50% return on its investments. By the standards of the industry, this was doing very well indeed.

  Perry always said he could do with more money "but not that much more." He recognised that large sums of cash are not always blessings. Better to seek filmmakers who wished to make large sums rather than receive state hand-outs. (There are some.)

  Instead of setting up at huge public expense a Film Council that costing £50 million a year, it would have made much more sense to build on the proven track record of the more frugal and successful British Screen Finance.

  Unfortunately Simon Perry and John Woodward, each one heading a public-private entity, though of disproportionate values, would not have made comfortable partners. Moreover, the Film Council has looked hankeringly to America: perhaps this is influenced by the presence of a chairman, Sir Alan Parker, who has made virtually all his important films for American companies and whose own company, Dirty Hands Ltd, is acknowledged in the Film Council's register of directors' interests as being funded by a major Hollywood studio, Universal Pictures.

  Anyhow, British Screen Finance was summarily closed down before the Film Council "came live": thus it lost the invaluable experience of Simon Perry who, by choice or rejection, has played no part in the Film Council's deliberations or policies. However, it gained some £500,000 in revenues that British Screen Finance had currently in hand from its own investments, as well as from moneys returned from rentals of the National Film Finance Corporation library, which it owned.

  Again, I had to ask Peter Ainsworth MP to obtain for me the figure of revenues passed by British Screen Finance to the Film Council when it was taken over. Such information was not forthcoming from the Film Council.

  I may mention here that it is very difficult for the media to keep track of financial investments by the Film Council. The money is "transparent" when the Film Council announces it is putting it into such-and-such a film; it them becomes "opaque" when the film is being produced and its total projected cost is not divulged; and finally it becomes "invisible" when enquiries are made as to how successful (or otherwise) the film has been.

  This defeats "transparency" and limits "accountability." The latter is interpreted as referring to mainly intra-mural disclosure: yet the media should have access to (a) the total project cost; (b) the box-office gross that the film has accrued in Britain, if only as a rough gauge of how successfully it has met the remit of "public benefit"; and (c) the moneys (if any) recouped after a reasonable period for sales abroad and to ancillary industries like TV, DVD and video.

  The media are hampered by unnecessary secrecy. In my own case, attempts to seek information that the Film Council may consider "commercially privileged"—though available in European government organisations—or simply "not in the interest of the media to know," are increasingly difficult to pursue.

  Recently, on 5 November, 2002, at one of the most important public announcements made by the Film Council's chairman Sir Alan Parker, at which he announced a "step change" in the council's funding outlook, my newspaper, the London Evening Standard, was not invited to be present, despite its being the earliest and most assiduous commentator on the wisdom and folly of financing filmmaking from the lottery. The given reason was (a) lack of room at the 220-seat auditorium at the head-quarters of the British Film and Television Academy; and (b) it was not a national newspaper.

  I cite this not out of rancour, but to demonstrate the Film Council's poor appreciation of its accountability, particularly toward a newspaper that has called the latter into question—and with reason—on various occasions.

  The Film Council's chairman on that occasion admitted what the Standard had said repeatedly: that parcelling out huge sums of money to individuals, devoid of financial recourse to exploit their product, would never create a "sustainable" film industry.

  This has been evident to anyone who knew the industry and to those in it right from the start of the lottery funding. But in spite of the Arts Council and the franchises confirming the wasteful folly of it all, the Film Council has taken over two years, since it "came live" in May 2000, to revise its policies and announce that in future things must change. It obviously takes a long time to halt the gravy train.

  How things will change—and how far they can change—should be one of the tasks of the Select Committee to enquire. For I confess that though I have read the Film Council chairman's 5 November speech, I (and others) are no clearer about what the council intends to do. It is ill thought through. It seems to acknowledge that distribution is at least as important as, and perhaps more so than1 film production: this is true. But it gives only a very hazy hint of how distribution can make good the failure so far of film producers to exploit their product to a "sustainable" extent.

  If I read the auguries right, it seems to hint at a tax break for distributors akin to that enjoyed by film producers—though the latter's perks are to be revised and maybe phased out in 2005, much to their dismay. It may be that distributors will be encouraged to invest money in British movies for a fiscal quid pro quo. Especially American distributors.

  It may be that the financial cap of £15 million on the budgets that enjoy a 100% write-off will be raised so as to tempt and accommodate big American producer-distributors to make more films here. If so, that will certainly not help create any indigenously British film industry that is "sustainable." It will merely indulge big and rich American companies who will make films and reap profits from tax breaks, employ British crews, yes, but send their receipts home to Hollywood and have their bags ready and packed to take off for the same place if the financial winter sets in—as happened disastrously at the end of the boom-time 1960s.

  The Film Council's investments have so far not really come to fruition, since few of the films in which its three production funds have yet reached the screens. One or two have done well: notably Gosford Park (in which it had £2 million); and others have won prizes, such as Bloody Sunday (in which it had £285,000), the fictitious re-creation of the deaths by British army soldiery of 13 citizens of Londonderry in 1972: a film that takes the Republican line well in advance of any conclusion the current Saville Tribunal may reach.

  One of the ill-fated franchises, DNA, has at last produced a moderate hit with the film 28 Days Later, a so-called "horror-flick" dealing with plague-ridden zombies taking over Britain. It has made well over £5 million in Britain. But one wonders why such a film needed public subsidy at all, given its formulaic subject. And its success with audiences has certainly been assisted by the fact that it is distributed by the subsidiary of a major American company, 20th Century-Fox, which has the distribution power and the money to advertise it in media depth.

  Let me end by underlining that seven British films grossed more than £10 million at the UK box-office, despite American films colonising our screens 95% of the year. This has never happened before. But as the columnist Adam Dawney, in the authoritative American trade publication Variety pointed out, there is a catch in it.

  The big seven included the two Harry Potter films; the James Bond film Die Another Day; the Hugh Grant comedy About a Boy; Gosford Park; the Anglo-Indian comedy Bend it Like Beckham; and the TV comic's film debut, Ali G Indahouse. The catch is that six of these aren't really British—only Bend It Like Beckham. The rest are financed, developed and produced by American companies, or British-based companies owned by American major studios.

  In other words, British hits can be made—but they seem only to be made with American money.

  I doubt whether even the resources of the now diminishing National Lottery resources can challenge or change the established state of things.

  The Variety "leader" draws the same lesson that I would draw: "What's clear from 2002 is that there is no possibility of creating a `sustainable' British film industry . . . without the active participation of Hollywood."

  But if this is true—and I believe it largely is—then there is less and less reason why British public money from the lottery should be devoted to assisting it. There are better things needing lottery money—schools and hospitals for instance—than trying to beat Hollywood at its own game or offer it attractive "terms" to continue to dominate our screens and fix the terms of play against us.

9 January 2003