VIEW FROM THE HOUSE - A modest tax reform to boost the film industry
Introducing a simple tax incentive could result in investment inBritish film production rising by 32%.
Introducing a simple tax incentive could result in investment inBritish film production rising by 32%.
Budget purdah was a strange convention that allowed Treasury ministers to say absolutely nothing of any consequence in the run-up to the Budget every year. The idea was that anything said might be interpreted as indicating the likely contents of the Budget. This gave them a splendid excuse to turn down all speaking engagements.
It is to Kenneth Clarke’s credit that he has unceremoniously dumped this convention. As a result, it is a little easier to discern at least some elements of this year’s Budget.
There is a tricky balancing act to be performed. First, the public expenditure control total for 1997/98 will be a challenging one. While health, education and law and order will be protected, every other spending department will feel the pain.
Second, the PSBR must remain on a downward path. This is the year that will determine whether or not we meet the Maastricht criteria for a single currency. Borrowing must come down to 3% of GDP if we are to qualify.
Third, there will be modest tax reductions. The standard rate of income tax will be reduced to 23%. This will allow the Chancellor to claim the standard rate has been cut by a full 10p from 1979 to 23% in 1997 and that progress is still being made towards the target of 20% standard rate.
The threshold for inheritance tax will be increased by more than the rate of inflation but significant changes to capital gains tax seem unlikely.
In addition, the Chancellor will want to include one or two little nuggets to catch the imagination while costing very little. I have one such proposal to make: stimulate British film production.
Film and television are on the brink of a massive expansion based on digital technology and the explosion in the number of channels. The idea would be to capitalise on this by encouraging the production of more indigenous British films backed by British investors and by attracting more inward investment of ‘floating’ international film production finance.
The British film production industry enjoys the most comprehensive infrastructure, talent and expertise in the world outside Hollywood. This includes Pinewood film studios in my constituency.
However, the availability of tax based film production incentives in other countries puts Britain at a competitive disadvantage. At present, film production expenditure must be written off over three years following the completion of the film. What I propose is that all such expenditure should be deductible for tax purposes as it is incurred in the same way as programmes made for television.
The first year cost of this would be u5m while the benefit would be far more. According to an economic study undertaken by the British Screen Advisory Council, film investment would increase by 32% in the first year.
In the longer term, exports would rise by 33% or u320m.
This modest measure would be hailed by the film industry as the breakthrough it has been looking for. Let us hope that Kenneth Clarke overcomes Inland Revenue conservatism and goes for it.
Tim Smith is an accountant and Conservative MP for Beaconsfield.