Film world savours victory of tax U-turn

Served croissants and platitudes at Tate Modern early on Tuesday morning, leading film producers and investors seethed as Tony Blair lauded a "renaissance of British culture". He was making a rare rhetorical foray into the art world but his words rang hollow to an industry that was still struggling to digest the shock axing of a valued tax break.

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Barely a day later, many of the same luminaries burst into applause as news reached an industry conference of a Treasury about-turn that would rescue the financing of more than 100 films.

The film industry had used its considerable muscle to persuade Gordon Brown to execute one of the fastest government U-turns on record. "It's one of the most effective lobbies in the UK. It punches well above its weight. Who wants to be publicly mauled by [Lord] Dickie Attenborough?" one insider mused yesterday.

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The lobbying had been swift and organised, triggered when Revenue & Customs used a somnolent Westminster Friday afternoon to announce seemingly innocuous changes. They concerned "sideways loss relief", used to offset trading losses against income and capital gains.

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That evening "I got my first call from a film producer. The first e-mail landed on Saturday. And the first letter was in my mailbox Monday morning," Hugo Swire, shadow culture secretary, told the FT. The industry swiftly realised that the seemingly technical tax changes would hit the funding of more than 100 British films, including blockbusters such as the latest James Bond Casino Royale. While many of the movies were already on release, tax-deferral "sale and leaseback" schemes used in their financing were still being finalised ahead of the April end of the tax year. 字串7

Actors and suppliers for many independent films risked being left out of pocket. Payments on such films are often deferred until the tax benefits come through, according to Pact, the independent producers' trade body. Some production companies risked insolvency. "I was called by someone at the weekend who has three subsidiary companies, each used to finance a film and each with deferred obligations. He told me: 'I'll have to let those companies swing'," Tim Willis, Pact's director of film, said yesterday. 字串2

Investment companies offering the schemes were quick to point out to the Revenue that it had explicitly endorsed their use. Indeed, according to the British Screen Advisory Council, the government encouraged inv-estors who were affected by the new "culture test" for films - limiting a tax break to movies that pass a so-called "Britishness" test - to use sale and leaseback as an alternative.

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The industry organised itself quickly. "I spoke to the Treasury on Friday. People spent the weekend counting up the films affected and the amount of money involved and then agreeing the approach that should be taken. Most of the industry issued letters on Monday and Tuesday," Fiona Clarke-Hackston, director of the Screen Council, said. "We're delighted with the outcome."

That outcome - concessions announced on Wednesday, designed to ring-fence sale and leaseback films deals from the new rules - was a "clarification" rather than an admission that the rules had been badly drafted, the Revenue insisted yesterday. "This is not an about-face. We listened to film industry concerns and acted decisively and quickly," an official said. 字串1

But leading industry figures take a less charitable view, arguing the scale of the "collateral damage" inflicted by the Revenue's rules had forced the chancellor to backtrack. The U-turn was a "complete statement of the obvious. It was a real volte face because they screwed it up by issuing the rules in a hurry," Patrick McKenna, the founder and chairman of Ingenious Media, the investment and advisory group, told the FT.

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Mr McKenna warned that industry relish over Wednesday's victory was likely to revert to anger, as producers realised the effect of the loss of the tax break on future films. The concession for sale and leaseback will not help movies due to start shooting. Friday's "seismic change in tax policy" will "mean a huge reduction in inward investment into films", Mr McKenna forecast. The film industry lobbying will now be directed towards scrapping the change altogether.

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Brown's history of second thoughts on tax

By Vanessa Houlder 字串2

November 1999 After pressure from hauliers and motorists, Gordon Brown abandoned the 'fuel duty escalator' which had seen fuel taxes rise automatically since the Conservative government introduced it in 1993. He had embraced it in earlier Budgets. Environmental activists say that the Treasury has remained in the sway of the motoring lobby ever since. Critics say that 'green' taxation has fallen under Labour, in spite of a pledge to increase it in 1997.March 2004A tax loophole for self-employed people was closed two years after Gordon Brown had created it, in a U-turn which infuriated small businesses. In the 2002 Budget he had set up a zero rate of corporation tax for companies with taxable profits below 拢10,000. The change led thousands of self-employed people to set up as companies and take advantage of the tax break, at huge cost to the Treasury. The zero rate was scrapped altogether in April 2006.December 2005A decision to exclude residential property and other 'exotic' investments, such as fine wines and stamps, from self-invested personal pensions shocked the pension industry. In the pre-Budget report, Mr Brown announced that anti-avoidance and fraud measures would address the misuse of Sipps schemes to purchase second homes. Tax planners argued that, rather than abusing the rules, investors were merely making use of the new freedoms that the chancellor had designed. March 2006 The abrupt removal of tax relief on home computers in last year's Budget was greeted with widespread dismay by suppliers and companies. The relief, which had been first introduced in 1999 and had been given a further push in 2004 with the introduction of the government's home computer initiative, was designed to encourage computer literacy. As the cost to the Treasury exceeded expectations, it became a victim of its own success. 字串8

June 2006The Treasury back-tracked on highly controversial reforms concerning the taxation of trusts. It said that trusts set up for children following the death of a parent, as well as some trusts used in divorce, would escape tax charges. Tax experts had feared millions of wills and trusts would have to be rewritten or face tax penalties. The government insisted the amendments were 'technical changes'. But experts interpreted them as a significant climbdown.