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Dawn Primarolo: The amendments respond to a detailed Standing Committee debate on clause 99 and representations made by the British film industry. I promised in Committee that I would reconsider two issues: relief for high-value television drama, and the possibility of introducing transitional relief where filming has already commenced. I explained to the Committee the difficulties of finding a secure means of providing for those two principles while returning the film relief to its original intention.

The new clauses and the amendment make changes to the proposals for film relief. On high-value television drama, as I said in Committee, it was not clear to us from the evidence presented by the industry that television production companies were subject to the same structural problems and risks as those faced by British film makers. We have subsequently received further evidence from the industry, which indicates that, although television production companies often incur some risk of budget shortfall, such risks are generally not comparable to those taken by British film makers.

Making films for the cinema remains a very high-risk venture. The typical British film is still made by a small, one-off production company. The producer has to stitch

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together a complex web of funding and the company is at considerable risk of not getting the film screened and recovering its costs. Some 60 per cent. of British feature films completed in 2000 have yet to achieve theatrical release.

In contrast, high-value TV drama—drama costing more than £1 million an hour to make—is usually made by major broadcasters and production companies or combinations thereof. We accept that those companies often fund individual productions with some degree of deficit. In other words, they take some risk in making sufficient overseas sales to cover their budget and make profits. However, they are guaranteed television broadcasting and can usually spread the risk over a wider slate of other productions and commercial interests. Classically, such producers have more than one film in production and make their profit from a range of products.

In considering the further evidence, therefore, the Government do not accept that the industry has made a case for suggesting that television drama of any value should benefit from the special incentives intended to counter the very particular problems of making films for the cinema, so we do not intend to make any changes to the Bill in respect of high-value drama.

Adam Price (East Carmarthen and Dinefwr): Does the Paymaster General accept that that decision could not have come at a worse time for the independent television sector? Commercial revenue is down by 25 per cent. in the wake of problems in the media and advertising, so is this not the worse possible time to edge television production out of support under section 48 of the Finance (No. 2) Act 1997?

Dawn Primarolo: Television drama was never intended to be covered by the relief, which was specifically provided for the British film industry, in which there is very high risk. It was intended neither for television drama nor game shows, soaps or any of the other productions in respect of which claims were made. The cost to the Exchequer of the use that was made of the relief, even though everybody in the industry knew that such use was not intended, rose hugely last year and this year. In 2001, the cost was £180 million, and it is estimated to rise to £290 million in this financial year. The cost rose very steeply, very quickly for two reasons. First, there was a time-lag between production completion and claiming the relief and, secondly, there was a piling in of those who wanted to make use of it. Although I accept the hon. Gentleman's point about the difficulties faced by some in the industry, the Government had to make a judgment on whether they should allow a relief that was not intended for TV drama to be used for that purpose and on whether that was a good use of taxpayers' money. For the reasons that I gave on Second Reading and in Committee, we do not accept that that massively growing cost represents a sensible use of taxpayers' money. However, we accept the need to secure the film relief for its intended beneficiaries—British films—and we are trying to achieve that.

I turn to the transitional relief. We were not prepared to cross the boundary to say that the relief is now for films and for high-value drama. If that issue needs to be addressed, there is another place to do that—it is not the purpose of the relief. The Government announced the returning of the relief to its original intended use with

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effect from 17 April, Budget day. Some companies were in production and therefore faced quite serious financial hardship whereby they had committed to sell the product for a price that assumed a tax relief that was no longer there. Whether they should have done that is another matter. The question then arose, and was discussed in Committee, as to whether the Government had an obligation to say that they had noted the situation and that transitional protection would be given. As I explained in Committee, the problem is that the normal way of trying to determine whether transitional relief is applied is the existence of a contract. No contracts were in place. The whole point of the misuse of the relief—if I may put it that way—was that the contract was always drawn up at the end of the process. The producers took the risk in between times because they wanted to maximise the amount of relief that was ultimately available.

The Government accept that there is an obligation to try to deal with the issue of transitional relief. In Committee, I promised to look again at the practical difficulties of devising a relief that could be targeted to those instances for which we have sympathy. I am pleased to report to the House that, following further constructive discussions with the industry, we have found a way of protecting the position of the vast majority of the projects concerned. New clause 21—which, by virtue of amendment No. 13, will replace clause 99—will protect the position of drama series costing more than £500,000 an hour to make, provided that shooting on the production began by 30 June 2002.

Mr. Mark Field (Cities of London and Westminster): The Paymaster General says that the vast majority of projects will be saved by new clause 21. Can she quantify the precise proportion of projects that will be thus saved, given the representations that she has received and the statistical analysis on which she is no doubt relying in making that statement?

Dawn Primarolo: Yes, approximately 50 production companies would have experienced severe difficulties. We settled on £500,000 as the break point because I was keen to ensure that the game shows, soaps and other productions that were clearly not even drama did not fall within the scope of the transitional relief. Perhaps hon. Members believe that I have been rather stubborn, but including a transitional relief to protect soaps, however enjoyable they may be, was not the intention.

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I understand that we are considering approximately 80 per cent. of the productions of the 50 companies. The problem when we devised the relief was that the costs became astronomical if the transitional relief was extended further down, in a way in which the House did not want. That was also clear in Committee.

The monetary limit excludes continuous productions that are below budget, for example, soaps. We have used the principal photography device to try to identify the contractual start of the drama. It would risk abuse to base the relief entirely on contractual arrangements. It would also be too complicated to operate.

The proposed transitional relief is sensible and a fair solution to a complex matter. It will be simple to administer and will provide certainty. It will not allow

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further abuse; that is important. It will cost £50 million in 2003–04. Hon. Members must understand the scale of misuse that was beginning to build up. I stress that the relief is transitional and that the commitment will therefore not be continuing.

New clause 21 clarifies whose intention is relevant for determining whether a film is intended for theatrical release. Clause 99 provided that the relevant intention was that of the film maker, as defined in the Films Act 1985 and copyright law. On reflection, that provision would restrict relief beyond our intention. We were therefore happy to adopt the industry's suggestion and change it.

I mentioned new clause 22, which is an anti-avoidance provision, in Committee. Film makers generally have access to relief under section 48 of the Finance (No. 2) Act 1997 via sale and lease-back arrangements with film partnerships. The partnership claims relief on an amount that is equivalent to the total production expenditure on the film and passes part of it on to the film maker. There is nothing wrong with that and the new clause will not affect it.

Let me simplify complex arrangements for hon. Members. The abuse that the new clause tries to prevent consists of the film partnership subsequently selling the film to another partnership for no commercial purpose, solely so that the second partnership can claim relief on the total production expenditure. The chain is far more complicated than that, and means that the first partnership is able to avoid tax liability on disposal. Through a long chain, the ownership of the film is passed on to prevent the application of the final tax liability on disposal. In theory, the chain could go on for ever.

We spotted that possibility early, and realised that such schemes were beginning to be marketed. We have taken the opportunity of today's debate to introduce an anti-avoidance mechanism.

The Government remain committed to supporting the British film industry, recognising the real challenges that British producers face, and the high risks that they take in producing British films. We are also, however, sending a clear, firm message to the industry—it is regrettable that it has to be done through legislation—which is that, when we intend a relief to be used for films, we shall make sure that that is precisely how it is used in the industry.

I hope that the House is satisfied with my explanation of why we are unable to make any concessions or arrangements in relation to high-value television dramas. I also hope that hon. Members will accept that we have made a fair and proportionate response on the question of transitional relief, and that they will agree with the Government that this relief should be returned to the use for which it was originally intended.


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