The UK film industry has had more ups and downs than Robbie Williams has had anti-depressants.
2003 was the biggest year ever. More than £1.1 billion was spent on production. Among the 45 major UK films produced that year were box office favourites Bridget Jones: Edge of Reason and Harry Potter and the Prisoner of Azkaban.
There was further UK involvement in 177 films with budgets over half a million, and a 21 percent increase in the number of indigenous films being made. The money spent on British productions rose a whopping 77 percent to £277 million compared with £156 million in 2002.
But the figure that generated by far the most pats on the backs of Britain’s elite movie executives was the staggering increase in inward investment from international filmmakers.
Productions based in the UK brought in nearly £410 million up from £221 million the year before (an 85 percent increase). An additional £319 million was generated through films co-produced with the UK.
The rennaissance of the British film industry under New Labour seemed in full swing. Perhaps dreams that it would one day rival Hollywood weren’t just celluloid daydreams after all, with everything so rosy what could go wrong?
In a word ‘tax.’ Or, as the Inland Revenue (IR) put it, tax evasion.
On 10th February 2004 the IR issued a press release announcing the closure of a loop hole, which it later claimed was being used by international investors to avoid paying tax. The International Tax Review described the IR’s actions as ‘a surprise attack on relief for trading losses’ and whilst ‘the measure was not targeted specifically at the film industry, which the government has repeatedly pledged to support with tax incentives, funding for many UK films was jeopardized…’
The announcement took the industry by surprise. A public outcry ensued.
In the face of pressure to grant concessions to films that were scheduled to start filming before the IR’s decision, The Treasury held firm, and despite the Secretary of State for Culture, Media and Sport getting heckled by Tory MP’s in the Commons, a consensus did emerge that tightening the regulations was the right thing to do.
To be fair, the loop hole closure was as inevitable as getting a parking ticket even when you’re only five minutes over the time limit. The Treasury estimates it’s decision saved taxpayers around £100 million. In effect that amount was ‘lost’ to filmmakers.
However, the industry’s rennaissance had, in large part, been orchestrated by the government and it was therefore politically expedient to repair any damage to investor relations that stemmed from closing the loop hole.
By summer’s end The Treasury had ‘rubber stamped’ proposals for a new tax break it hoped would incentivize foreign investment and lead to a ‘more sustainable’ film industry. Suddenly the enthusiasm that had so dramatically been snuffed out by the IR decision had returned. The Guardian’s Dan Milmo even speculated, ‘New tax break will help British film-makers take on Hollywood.’
The new tax regime, approved by the European Union, was unveiled by Gordon Brown in last year’s budget and was plugged by the UK Film Council. It came into effect last month.
Under the new system tax breaks, or credits, will be offered to films that meet standard and ‘cultural’ eligibility criteria. Films will be graded according the amount of production expenditure incurred either within or outside the UK. The more aspects of films production, pre-production and post-production taking place within the UK, the higher the tax credit.
The Government has also amended the Films Act to enable it to introduce a new cultural test to determine how British a film is using a points system. Essentially, films intending to qualify for the greatest amount of tax relief must clearly represent (any facet of) British culture.
Already the new system appears to have reaped results. After a 30 percent dip in UK film production in 2004/5, Accountancy Age reported that spending increased 48 percent to £840 million in 2006.
