Spring in our step
The Spring Budget was good news for those in the film and TV sector. Mainly for two reasons: firstly, the tax relief on film (FTR) and high-end TV (HETV) was maintained at the same rates, and secondly, it reformed the system ahead of planned changes to global corporation tax. However, it also threw a light onto the ineffectiveness of encouraging film and TV production in the UK through tax incentives.
The chancellor announced that our “film and TV industry has become Europe’s largest, with our creative industries growing at twice the rate of the economy”. There is much to be celebrated here. Game of Thrones, Bridgerton, Downton Abbey, and I May Destroy You are just some of the global TV successes that have their production imagery rooted in the beauty of our natural landscape. Indoors, major studios spaces like Pinewood, Shepperton and Warner Bros. Leavesden have been the home to franchise such as James Bond and Disney. These productions are often undertaken by major foreign-based film and TV companies such as Netflix, Amazon, Disney and others. Incentivising these companies to base their productions here is a major strategy in encouraging UK film and TV making. Therefore, the news that the tax relief will continue at similar levels was greeted with relief itself.
Furthermore, the news that the tax relief would be merged into a single ‘audio-visual-expenditure-credit’ (AVEC) was welcome. New ‘Pillar Two’ global tax rules which establish a minimum tax for all corporations worldwide, could have undermined this tax relief had it continued under the old regime with some foreign-based production companies at risk of double taxation. However, by being ahead of the game, the Treasury has ensured that tax is calculated as a proportion of expenditure in the country of production, rather than something more akin to state aid. This prevents any risk of double taxation for major production companies filming in the UK and keeps the UK competitive.
However, the reforms do shine a light on the ineffectiveness of tax reliefs for film and TV. Some see it as a poor policy decision. One estimate from HM Treasury details that tax breaks for filmmaking cost the UK £480 million in 2006-2007, a figure which will be far higher today. With interest rates still high, a cost-of-living crisis, and public sector workers striking over pay, indirectly subsidising Netflix subscriptions could be controversial. Moreover, a 2023 screen report detailed that tax reliefs don’t necessarily benefit either the UK economy or UK companies. Many of the applications are submitted by Special Purpose Vehicles (SPVs) from foreign-based production companies. These SPVs are companies set up exclusively for the purpose of receiving tax breaks on productions in the specific territory. These companies then claim any relief on the production and funnel the money back to the overseas parent film studio – hence the indirect subsidy of a US-based TV subscription.
Therefore, the UK film and TV industry finds itself in a conflicting situation. Only by continuing tax relief for eligible productions will the UK be competitive in the global film and TV-making marketplace. If the tax incentive isn’t there, then the major film and production companies will base their productions in more tax-favourable territories. Therefore, continuing the incentive means that overseas based film studios will continue to film their productions here and use UK facilities. However, the price for doing so is high. The profits, jobs and opportunities are usually more beneficial to the parent company’s home territory than the location of production. Additionally, the logistical disruption that some on-location filming causes can even have a negative-economic impact.
The answer to this is a dual approach of grassroots change combined with effective policy making. UK-based publishers, content providers and producers need to be incentivised to retain the intellectual property of their content within the UK. This generates more ‘home-grown’ productions and both content producer and production are of economic benefit to the UK. This requires change from the bottom and the top. Sometimes, losing business is an opportunity if it in turn creates an opportunity in the market for another player. All too often large companies crowd out small companies. The UK has hundreds of independent producers and production companies that could benefit from such a change. So, whilst the chancellor’s statement is a welcome break to the UK film and TV industry, it should merely be the starting pistol for future reform.
