Ed
Balls: I hoped that I had made that clear already. It is
common practice for there to be co-productions and for film makers to
work in “partnership” in its colloquial sense. As for the
legal use of the term applied for tax purposes, partnerships in that
sense will not qualify for the enhanced relief. To qualify, a company
must be a film production company as defined in clause 32. I am
grateful to my hon. Friend for allowing me to make that absolutely
clear, as I hope it now
is. Having spent a
few minutes bringing you up to date and clarifying a few of the points
debated on Tuesday, Mr. Benton, I shall deal with some of the
outstanding points made by the hon. Lady and others on
Tuesday.
The hon.
Lady suggested that the approach to defining UK expenditure in clause
35 was in some way determined by the European Commission. There was
absolutely no truth in her statement. On the contrary, the definition
of UK expenditure reflects our policy aim of encouraging producers to
make full use of film-making skills, facilities and infrastructure in
the UK. It is true
that, as is required, we have been discussing with the Commission the
securing of state aids approval for the new relief, but the Commission
has not indicated any concerns about how we define UK expenditure, nor
requested that we change the definition in any way. We have, for
example, reduced the qualifying limit from 40 per cent. to 25 per
cent., and we made that decision on the basis of the points put to us
during the consultation. In our view, the definition is well within the
ambit and requirements of the state aids rules. We are confident that
those discussions will proceed
apace. The hon. Lady
also referred to a recent British film, which she suggested would have
difficulty qualifying for the new relief because it was filmed largely
outside the UK. I cannot comment on any individual film, at least in so
far as it might or might not benefit from tax reliefs in future. On
Tuesday, comments were made on films that we had and had not seen and
enjoyed, but I shall not refer back to those discussions; at times,
they became a little lurid.
I cannot comment on any
individual film, nor speculate on whether it might have taken advantage
of tax relief in the past. However, productions for which filming has
taken place predominantly or wholly overseas will be entitled to a
level of benefit lower than that of productions filmed in the UK. That
is entirely in line with the Government’s policy aim, set out
clearly in the legislation, of encouraging film makers to make full use
of facilities and infrastructure in the UK. This is an enhanced tax
relief for making British films in Britain, so it is not our intention
to support overseas film industries.
9.15
am Julia
Goldsworthy (Falmouth and Camborne) (LD): I understand
from our discussions on the reliefs that the intention is not to foster
British talent—to get British film makers to bring things to the
starting line—but to help those production companies once
there has been a green light, everything is ready to go and all that
process has been secured; to make an Olympic analogy, it is not to help
with the training to get people to the starting line but to ensure that
they have the kit once they get to the start of the race.
Does the Minister think that
the post-production skills for which the UK is well known often mean
that companies are in a subsidiary partnership? Therefore, according to
subsection (5) they might not benefit from the relief because they
might not be the company that is “most directly engaged”
in the activities referred to in the rest of the
clause.
Ed
Balls: We discussed the development phase on Tuesday. The
Government do a number of things to support it, not least the different
ways in which the Department for Culture, Media and Sport supports the
fostering of new talent and supports new scriptwriters. That is done in
a range of ways through public
spending. We are
discussing the application of enhanced tax relief, which is for the
production of British films. In our view, the production starts from
the green light, pre-production phase. We discussed that at length on
Tuesday and I hope that the situation is clear. It is not a tax relief
that excludes from benefit films that have a part of that activity
occurring overseas or collaborators from abroad. An important part of
what we are doing is making Britain an even more attractive place for
Hollywood film producers to make their films in. This is about making
films in Britain, which I also wished to clarify in response to the
amendment tabled by the hon. Member for Chipping
Barnet. Having
addressed amendment No. 31 the other day, I turn to the specific
remaining amendments tabled in advance of the Committee. Amendment No.
32 seeks to weaken the definition of “film production
company” by removing the requirement that such a company must be
involved in negotiating, contracting and paying for the various rights,
goods and services that together make up the expenditure on making a
film. For the reasons that we discussed on Tuesday and again today, I
hope it is now clear that any company that is not involved in
negotiating, contracting and paying for the fundamental elements of a
film is not a film maker—a film production company—for
the purposes of the tax
relief. I stress that
this part of the definition does not include the word
“all”. There is no requirement that the film production
company must be responsible for all negotiating, contracting and paying
in relation to a film. That would not reflect film-making practice. It
is common for certain elements of a production to be delegated or
contracted out to a third party, but the intention is now clear to the
Committee. I urge hon. Members not to press the amendment to a
Division. Amendment
No. 65 also seeks to remove the requirement that a film production
company must be actively engaged in production, planning and decision
making during pre-production. For the reasons I set out today and on
Tuesday, I again urge the Committee not to press the amendment to a
Division.
Amendment No.
64 goes even further than the other amendments proposed by the
Opposition. It seeks to remove entirely the requirement that a film
production company must have any responsibility for pre-production,
principal photography and post-production of the film. Instead, it
proposes that a film production company should be required to undertake
only principal photography, post-production and delivery of the film,
including where it undertakes such activities on behalf of a third
party. As I said
this morning, a company that does nothave overall direct
responsibility for all stages of making of a film is not the type of
company at which the Government want to target the relief. A host of
specialist subcontractors exist in the film world, and undertake
various activities, but we are not targeting the relief at them either;
we are aiming it at the person who is making the film and the bringing
together of all those activities in the film production company. Again,
I urge the Committee not to press the amendment toa
Division. Amendment
No. 34 deals with a slightly separatebut not unrelated issue:
the types of production expenditure that form the basis for calculating
the film tax relief. It would include expenditure incurred on film
development under the definition of core production expenditure. We
discussed that at length when I explained where we have drawn the line.
The Government support young talent being brought on in the
pre-pre-production phase, the development phase. However, that is not
the target of the tax relief. I urge members of the Committee to reject
the
amendment. Amendment
No. 47 goes completely against the intention of chapter 3. It would
exclude from the basic tax treatment a film that does not qualify for
enhanced tax relief. It would do so by imposing a requirement that a
film production company must be making a film that satisfies the
conditions of clause 38—that the film is British, is intended to
be shown in a cinema and has spent at least 25 per cent. of its total
budget in the United Kingdom. Such conditions can be met with certainty
only on completion, and the new relief includes the mechanism to allow
provisional claims while a film is being made. However, the new relief
does not provide—as it would under the amendment—that
should one of the conditions not be met, a different set of tax rules
will apply. We
discussed such matters on Tuesday when debating the preamble to chapter
3, and clause 31. I made it clear that it is vital that we replace and
update the old legislation under section 40A to D of the Finance (No.
2) Act 1992, which set out the way in which taxable profits of all film
companies were previously calculated, whether or not they met the
greater stringency of the tests to qualify for the enhanced tax relief.
Those sections of the 1992 Act are outdated. They are cast in terms
that were appropriate to, and fitted in with, the language of the old
reliefs. We want a single modern system that creates a level playing
field for the industry. To have two different systems running side by
side, especially when there will always be a level of uncertainty about
whether a film will qualify for the full relief until the process has
been completed, would be cumbersome and overly bureaucratic. It would
make it difficult for film makers to operate. We therefore prefer not
to create a muddle
caused by two different systems. We urge the Opposition to reflect
further on the amendment and withdraw
it. Amendment No. 35
would amend clause 35, which sets out the meaning of United Kingdom
expenditure. The clause is subject also to Government amendment No. 26.
There is a case for explaining the Government’s rationale for
their approach towards United Kingdom expenditure for the purposes of
the new relief. The provision of relief only on expenditure in the UK
marks a significant shift in how the Government’s support to the
industry is targeted and delivered. Under the previous regime, when a
film was certified as British, relief was given on the entire
production budget including costs that were incurred by filming
overseas. United Kingdom film tax relief was unique in that
respect. When the
previous reliefs were withdrawn, every other country and jurisdiction
that gave support to film making through the tax system did so on the
basis of domestic rather than worldwide expenditure. Not only was that
an anomaly, it was an inefficient way in which to deliver the
Government’s objectives for supporting the British film
industry. Because tax relief was given, even when the film production
took place overseas, it failed to provide an effective incentive for
film makers to use the skills, infrastructure and facilities of the
United Kingdom. That was directly contrary to the objective of helping
to maintain a critical mass of film-making infrastructure and talent
within the UK. It is for that reason that the new relief is provided
exclusively on film making in the
UK. The aim of clause
35 is to provide the definition of UK expenditure for the purposes of
the new relief. However, representatives of the film industry have
pointed out that the opening subsection of the clause might be open to
misinterpretation and be problematic to operate in practice. The
clause, as drafted, makesa distinction between a supply of
services, which is treated as United Kingdom expenditure when it is
performed in the UK, and a supply of goods, whichis treated
as United Kingdom expenditure when it is supplied in the UK. In other
words, to determine whether an item of expenditure counts as UK
expenditure for the purposes of the clause, a film production company
must first establish whether it was incurred in relation to a supply of
goods or a supply of services. In some cases, that might not prove to
be straightforward. For example, if a film production company hires
costumes and props from a specialist supplier, which are then destroyed
completely in the course of film making, the question arises whether
there was a supply of goods or a supply of services. There are many
other such examples. The industry has made a fair point. The lack of
clarity was not intended. The clause could create uncertainty unless
amended. We have therefore considered how to do so in order to solve
that potential difficulty.
Amendment No. 26 will entirely
remove the distinction in clause 35 by replacing the rule with one that
is simpler and easier to apply. Under our proposed approach,
expenditure on goods and services will be judged based on whether they
are used or consumed in the United Kingdom. If they are, the
expenditure will be treated as UK expenditure under the rules set out
in the clauses. Conversely, if they are used or consumed
outside the UK, they will not count as UK expenditure. As we discussed
on Tuesday, they will still count as a cost for the purposes of normal
tax relief, but they will not qualify for the enhanced tax relief
detailed in the
clauses. Mr.
Philip Dunne (Ludlow) (Con): I rise on a point of
clarification about whether a specific type of service will be covered
by the clause. I think that I know the answer, but I was seeking an
opportunity to raise the issue during this part of the debate, and this
is the right
place. Next month,
the filming of “Atonement”, based on the book by Ian
McEwan, will commence in my constituency. A number of my constituents
will benefit from supplying their own properties as rental
accommodation to actors, actresses and production staff. Will the
Economic Secretary clarify that that supply of service will be covered
under the Government’s new definition and that relief will be
available to the production company? I add that if he would like to
visit my constituency during the filming, he might enjoy meeting Keira
Knightley, as I hope to. Unfortunately, I shall not be able to benefit
from the provisions, although it did occur to me. [Interruption.]
The hon. Member for Tooting (Mr. Khan) asks whether I will need to
declare a personal interest in that respect, and I assure him that I
will not, despite my attempts to persuade my wife that we should move
out.
Ed
Balls: As a novice to such proceedings, I found that to be
one of the longest, most eloquent and most attractive declarations of
an interest that I have ever come across. I congratulate the hon.
Gentleman on having his constituency chosen as the site for the making
of that film. I am a great fan of Ian McEwan’s books, and hope
that the film does justice to a good read. I should love to visit the
hon. Gentleman’s constituency. Maybe we could go to the Long
Mynd and have a walk on the Stiperstones. As a fan of the novels of
Malcolm Saville, I probably have some knowledge of the
area. I shall
reassure the hon. Gentleman and ensure that my earlier remarks do not
worry his constituents. I referred to the reason for needing to resolve
the ambiguity, using the example of a supplier of a specialist good
whose good was completely destroyed in the course of film-making,
although I hope that such an unfortunate event will not befall any of
his constituents who are allowing their houses to be used. Those houses
will be used but not consumed during the making of a British film in
Britain. I cannot comment on the details of that situation, but using a
house to make a film in Britain is exactly the kind of expenditure that
will now clearly come under the definition in Government amendment No.
26. I think that I can give him that
reassurance. The hon.
Member for Dundee, East (Stewart Hosie) asked whether the fee for
writing the script for a British film would be treated as UK
expenditure even when the screenwriter in question was based in
Hollywood. We have deliberately adopted an approach to UK expenditure
that reflects the international nature of contemporary film-making. We
recognise that a film production company will use skills and people
from many countries as well as the UK. It is essential that we
do so to ensure that international films are made in Britain and qualify
for enhanced relief. Our approach means in practice
that UK expenditure will cover all goods and services used in the UK
irrespective of nationality. That will include, to take the hon.
Gentleman’s example, the cost of a script written by a Hollywood
screenwriter and used to make a British film in the UK. I am sure that
Committee members, as well as the film industry and Hollywood, will
welcome the measures. I commend amendment No. 26 to the
Committee. 9.30
am Opposition
amendment No. 35 covers the same ground as the Government amendment and
is, I assume, motivated by some of the same concerns that we picked up
during our consultation. It takes a different approach by making
explicit the way that a film production company incurs expenditure on
renting equipment. Such expenditure will be treated as UK expenditure
where the equipment being rented is used in the United Kingdom. I fully
sympathise with the desire to clarify that treatment, but Government
amendment No. 26 provides a better way of doing so that clears up all
the ambiguities that might arise. Unless the hon. Member for Chipping
Barnet wants me to go into more detail, I urge her to ask leave to
withdraw her amendment and accept that amendment No. 26 does the job
for her. Opposition
amendment No. 33 would, if adopted, allow the Treasury by regulations
to amend the definition of a film production company. I think that we
all appreciate the Opposition’s generous assistance in seeking
to provide us with amending powers that we have not asked for, but on
this occasion we will decline. We do not see the need to amend the
definition of a film production company at this stage. I referred
earlier to powers that we will take later on to amend some of the
definitions, but, as we have heard in the debate over the past hours,
the definition of “film production company” is a
cornerstone of this chapter; it drives the whole new, modern approach
to supporting the British film industry. If we were to revise that
definition, we would be revising the intent of the legislation. It
would be appropriate at that point to come back to the Finance Bill,
rather than simply have a power generously offered by the Opposition,
which we decline. I urge the Committee to reject the
amendment. Mrs.
Theresa Villiers (Chipping Barnet) (Con): Just reflecting
briefly on the debate on this group of amendments, we had a lively
discussion on the border line between development and pre-production
costs. I felt that the Economic Secretary was bravely trying to give an
answer to the various questions raised on this side of the room about
which services and activities fell on the development side and which
fell on the pre-production side, but he was in some difficulty. That is
no reflection on him, but on the practical difficulty of distinguishing
between those two things. I continue to be concerned about the
exclusion of development from the scope of core expenditure, because of
the uncertainty of that border line and for the reasons that I
illustrated in my speech.
I welcome what the Economic
Secretary has said about a flexible interpretation of what is meant by
“is responsible” for the activities contained in the
clause. I welcome his comments on Tuesday that an absolutist approach
will not be adopted and I acknowledge that the absence of the word
“all” in the clause is relevant and helpful. I welcome
his reassurance that this is not a blanket exclusion of subcontracting
and that the film production company can engage with other people to
undertake certain activities without danger of losing its status.
However, I continue to be worried about the requirement that a film
production company is responsible for pre-production, because of the
possibility that it may be set up after pre-production has been
completed, as I outlined in my speech. I feel that the flexible
interpretation that the Economic Secretary would adopt does not deal
with the problems in relation to direct negotiation and directly
contracting. The terms of the statute explicitly require that direct
relationship, so that precludes any possibility of
subcontracting. I
welcome the Economic Secretary’s positive assurances that
co-productions will not be affected by the ban on the use of
partnerships in this context. There may still be some problem with
drafting, and I hope that we do not, as he indicated at one point in
his speech, end up having to clarify this matter in the courts, because
that costs a great deal of money and is undesirable. If there were any
way that further reassurance could be given by guidelines as to how the
term “partnerships” is used in that context, that would
be welcome. I also welcome his indication that hedoes not
anticipate a problem with the European Commission in getting the rules
cleared. I urge him to ensure that a final decision is taken on that so
that the uncertainty is removed as soon as
possible. The
Economic Secretary referred to the difficulties that would occur under
amendment No. 47 if there were a dual regime for different companies. I
take his point that it would make the system more complicated and it
might be better to tackle the matter by reforming the novel way of
computing profits and losses under schedule 4. That has led to concern
about its impact on television production companies and if we amended
that for all production companies, whether or not they qualified for
the tax relief, we would not be left with a dual
regime. In
conclusion, I shall not press the lead amendment to a Division, but I
shall be grateful if the Committee is prepared to vote on amendment No.
31. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Amendment
proposed: No. 31, in clause 32, page 29, line 18 [Vol I], leave out
‘pre-production'.—[Mrs.
Villiers.] Question
put, That the amendment be
made:— The
Committee divided: Ayes 10, Noes
15.
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