WITH LAME DUCK FILMS
Copyright 2002 www.ft.com
[ January 5th 2002 ]
scheme to boost investment in British film is
creating dozens of lame duck movies that allow
speculators to avoid tax at a cost of up to pounds
400m to the public purse.
is the popularity of the tax break - which allows
investors to claim savings of up to 20 per cent
regardless of the success of the film - the Inland
Revenue will pay up to eight times more this year
than it had estimated, according to a new survey.
The accountancy firm Grant Thornton calculates
the Treasury will return between pounds 200m and
pounds 400m to investors in the current tax year
compared with Gordon Brown's Budget estimate of
announced an extension of the system, called Section
48 relief, after coming under intense pressure
from the film industry. He told the House of Commons
that he aimed to boost the "unprecedented success"
of independent British films. Supporters of Section
48 claim that it has brought valuable capital
investment into the film industry by encouraging
money from traditionally reticent investors such
as the City.
films to have benefited include Grey Owl, which
was made by Lord Attenborough and starred Pierce
Brosnan as an Englishman who reinvented himself
as a native American Indian in the 1930s, and
To Walk With Lions, which starred Richard Harris
as the lion conservationist George Adams. Others
include Swing, the tale of a dance band starring
the singer Lisa Stansfield, and 81/2 Women, a
Fellini-inspired yarn about two men opening a
brothel, by the avant-garde director Peter Greenaway.
costing an estimated pounds 1bn will be made in
Britain this year. Movies such as Tomb Raider
and Harry Potter and the Philosopher's Stone helped
to increase production by a third last year. But
critics of the tax relief system say that the
scheme, far from sparking a renaissance in homegrown
cinema, is being used by opportunistic high earners
simply to avoid paying tax, with little or no
return for the public.
concession applies only to films with a maximum
budget of pounds 15m - far less than a Hollywood-style
blockbuster - resulting in a large number of films
that never see the light of a cinema projector.
Warburton, a senior tax partner at Grant Thornton,
said: "There can be no doubt that this scheme
is putting money into the film industry, but whether
it is getting money into the right films is a
different matter. "The way the system works means
that the film does not have to be successful for
participants to gain the benefits. As a result,
a lot of people are doing it and the Government
is paying out much more than it intended."
works through a complex arrangement that allows
producers to sell a completed film to a consortium
of investors, who then lease the negative back
to the production house. The investors, who on
average put up about a fifth of the funds themselves
and borrow the remainder, claim tax relief on
their investment at a rate of about 20 per cent.
The consortium also pays the producer a fee of
about 5 per cent of the film's cost - pounds 50,000
on a low-budget film made for pounds 1m. A similar
scheme allows consortiums to invest in a package
of three or more British films and claim full
relief on production costs.
say that the scheme has led to a flood of film
scripts that had been gathering dust on production
house shelves being used to meet the demand for
"investment vehicles". One senior accountant with
a London-based firm involved in the scheme said:
"The reality is that dozens of lame duck films
which would normally never have had a chance of
being made are being shot just because of this
scheme. Basically, you have City investors who
are using the scheme to increase their wealth
most don't even know the titles of the films they
are helping to make. It might be putting money
in the pockets of film makers and investors, but
the vast majority of these films go straight to
video or simply disappear. Very few make it to
general release at cinemas."
declined to comment on Grant Thornton's figures,
but a spokesman said: "The tax relief scheme was
set up to encourage investment in British independent
film. We are satisfied it is achieving that goal."
makers admitted, however, that the structure of
the scheme meant that it had succeeded in encouraging
people to make films, but not in ensuring that
the films were good. Eric Fellner, the co- chairman
of Working Title Films, which jointly made Billy
Elliot, said recently: "Sadly, quality and finance
don't go hand-in-hand. The tax relief is encouraging
production in the UK and it is up to us to come
up with the goods."