UK Film Industry In Crisis As Producers Fear Delay In New Tax Incentives

by Robert Lee, Tax-News.com, London

30 November 2005

According to some members of the British film industry, the UK Treasury will delay the announcement of a new system of tax relief aimed at encouraging investment in British productions, sparking fears that Hollywood producers will shun the UK in favour of other locations as uncertainty continues to cloud the investment landscape.

Following the Treasury's announcement earlier this year of a review of film tax reliefs in Budget 2005, a consultation document was published, setting out proposals for new tax incentives for the production of films which make a cultural contribution to Britain.

The new proposals were initially viewed as a lifeline for the film industry in Britain, which has faced mounting uncertainty after the Treasury decided to scrap the system of tax incentives known as Section 48, because it felt that they were too readily abused by film financiers.

It was hoped that Chancellor of the Exchequer Gordon Brown would outline these new proposals in his pre-Budget report next week, in time to be introduced in the 2006 Budget. However, according to a report in the Daily Telegraph, speculation is mounting within industry circles that Brown will extend existing arrangements while the government continues to fine tune the new plans, a situation that has alarmed many production companies which have been losing business to other countries.

Describing the current situation as "a mess," Peter James, a producer whose credits include Al Pacino's Merchant of Venice, told the Telegraph that: "We are hearing that the current regulations will be extended because they [the Treasury] have not found a replacement."

Peter Watson, managing director of Recorded Picture Company, told the paper that the industry was "in a dangerous state."

"We have never faced such a landscape. It is cataclysmic," he warned.

The continuing uncertainty has led to both job losses and falling profits for British studios. The Film Council estimates that in the past 18 months the number of people employed in the UK film and video industry has fallen by 20% to about 25,000. Meanwhile, Pinewood Sheperton plc, one of the UK's leading studios, revealed in September that operating profits before exceptional administrative expenses, finance costs and taxation had sunk to GBP1.9 million for the six months to June 30, compared to GBP6.6 million for the same period last year.

Total industry turnover has declined from a peak of GPB2.2 billion in 2003 to about GBP700 million in 2005, the Telegraph reported.

"Overseas producers have lost confidence and gone abroad. We have made ourselves look silly." Mr James was quoted as observing by the Telegraph.

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