Brave hearts would help, but they'd really kill for tax breaks

Our film industry is getting its act together, says Ian Griffiths

THIS week the British Screen Advisory Council will submit a report to the Treasury comparing the climate for British film producers with that of their five main competitor countries.

There is nothing unusual in this: with a Budget approaching, it is almost a ritual. Every year the film industry asks for support by way of a more benevolent tax regime. Every year it is ignored.

This year, however, there is a sense that the argument for change has received a more sympathetic hearing. That in part is a reflection of the increased sophistication of the industry's arguments. Whinges and pleas for tax handouts have given way to co-ordinated and compelling economic arguments for targeted tax incentives.

The industry has also been helped this year by the work of the Advisory Committee on Film Finance. Chaired by Sir Peter Middleton, chairman of BZW and a former Treasury mandarin, it produced a report for the National Heritage Secretary offering an authoritative and independent series of recommendations which tended to reinforce and endorse the broad views of the film industry.

The committee was established to look at the obstacles to attracting private investment into the British film industry, and to suggest ways that these might be overcome. Included in its proposals were recommendations that the Government should introduce 100 per cent first-year write-offs of film-production costs and abolish withholding tax on overseas film stars.

The industry believes that these simple tax changes would have great pyschological and practical benefits. First it would begin to put the British tax regime on a par with competitor countries. Second it would send a clear signal that the climate was changing to one that actively supported film production.

Historically, the Treasury has been reluctant to introduce tax breaks in case it is accused of supporting one industry in preference to another. However, the arguments have been refined by the industry to ensure they are presented not as tax subsidies but rather as measures to encourage inward investment and improve international competitiveness.

Even the subsidy argument falls away when the figures are examined in detail. The Middleton committee's forecasts suggested that while there would be a small cost to the Exchequer at first, this would soon be replaced by higher tax revenues: a pounds 5m cost in year one becomes a pounds 52m surplus in year 10.

Also highlighted was the potential for significant indirect benefits. If more films are made in Britain it creates wealth, it creates jobs and it creates yet more tax revenues - a virtuous circle.

The industry points to the Irish experience with a combination of enthusiasm and pain. In 1993 the Irish government identified film as a promising area of economic activity and introduced fiscal reforms to encourage investors. Since then film investment has risen from $3m to $100m (pounds 65m). When Mel Gibson was making Braveheart he was keen to film it in Britain. But the tax breaks and support offered by the Irish ensured that the bulk of the $45m film was shot in Ireland.

The BSAC report to the Treasury demonstrates that Britain compares unfavourably with Australia, Canada, Ireland, France and Germany. The financial value of support mechanisms is lower than everywhere apart from Australia, which provides $1m less than Britain.

Britain has considerable attractions. Its language and historical expertise are important to the Hollywood studios, and its comparatively low employment costs are appreciated. Work being done by the Scott Brothers at Shepperton is upgrading its technological edge. However, the benefits are all too often outweighed by the tax disadvantages.

The romantic notion that we might yet recreate the British film industry of old has long been abandoned. A new realism recognises that beautiful films about the hedgerow are quaint, but if they are to be made they must be funded by movies that a lot of people want to see.

The City is slowly rediscovering the investment attractions of film production, but the money men both here and abroad are more likely to respond to a hospitable tax regime.

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