A total of 130 producers, funders, trade bodies and studios have submitted recommendations to the UK government’s Culture, Media and Sport (CMS) Committee, which was launched in July, to look at what can be done to maintain the UK’s status as a global hub for international production and how independent producers and the struggling exhibition sector can best be supported.
It was created in the wake of the fall-out from the US WGA and SAG-AFTRA writers’ and actors’ strikes; the collapse of the Empire Cinemas group, Cineworld’s financial woes and the current closure of independent cinemas such as the Edinburgh Filmhouse and Light House Wolverhampton; and soaring costs damaging the independent production sector.
Common themes to emerge include the urgent need for bolstered support for the public film funds that underpin the independent production sector, an enhanced tax credit for lower-budget productions, streamer levies and a return to the Creative Europe Media programme.
Widespread support for an enhanced tax credit for low-budget productions
Pact, the BFI, Film4, BBC Film, Creative UK, Screen Scotland, Producers’ Collective UK, Paramount and the Screen Alliance North were among the many bodies who have thrown their support behind an enhanced tax credit for certain qualifying productions.
Producers’ trade body Pact proposed an increased credit by 30-40% for films with a budget of £1m-£15m, which it suggested would cost the UK government “very little” and would “see a net positive impact of £50m per year”, plus knock-on benefits, including tourism, increasing that rate even further. It puts forward the tax relief to be targeted at films on a lower budget level, rather than films defined as ‘independent’, which Pact said “could have unintended consequences and lead to a potential gaming of the system”.
The BFI pointed towards an as- yet- unpublished study by Alma for Pact as evidence of the significance of low-budget films for talent incubation. The study estimated every £1 spent on low-budget film is 140 times more likely to help to launch a new director and 440 times more likely to help to launch a new producer than the same spend on large budget film.
Warner Bros Discovery was also open to the idea, stating in its submission “WBD would suggest that a form of targeted production tax relief aimed at small- to medium-sized films (over and above the new expenditure credit regime) would merit further consideration to help such productions get made. However, WBD would also stress that consideration should be given to a holistic set of measures to help such productions.”
Producers’ Collective UK suggested “a sliding scale of tax credit from 35-45%”, for films of a certain budget level or that are “truly” independent.
Screen Scotland, Northern Ireland Screen and the Screen Alliance North put forward the idea of additional uplift for productions outside of London and the southeast, as a way of decentralising production.
..and one for independent distributors
The Film Distributors’ Association noted: “A long overdue policy intervention is required for distributors of UK independent films via a new targeted tax relief towards the P&A [prints & advertising] costs of such films where a film has a budget of £15m or less.” This call for tax relief and distribution support builds on the recent BFI Economic Review of Independent Film, and has cross-sector backing, including from the BFI, UK Cinema Association and British Screen Forum.
Call for urgent government support for film funds
There was a rallying cry throughout the submissions for the government to take serious strides in supporting the public film funds, including the BFI Filmmaking Fund, BBC Film and Film4. The BFI spoke of a 30% real term reduction in grant-in-aid funding over the last 10 years, while the amount of National Lottery funding it awards has also reduced by 10%. “And with UK government endorsing the expansion of the BFI’s work to cover wider screen sectors, including video games, this funding will become only more pressurised,” noted its submission.
BBC Film and Film4 are also under sustained pressure, with their budgets of £25m and £11m respectively declining in real terms, given the impact of high inflation.
“The BFI is one of the main sources of funding for independent film in the UK,” added Film4, which submitted its entry alongside parent broadcaster Channel 4. “Film4 is heaving reliant on BFI lottery funding and it is integral to getting many of our debut films greenlit.”
Growing unease the UK may become less competitive to studios and streamers
Specific concerns have been raised over the incoming Audio-Visual Expenditure Credit (AVEC) which is due to be introduced in January 2024 in place of the film and high-end TV (HETV) tax reliefs. At present, the film and high-end TV tax reliefs are a 25% cash rebate of up to 25% of qualifying expenditure, capped at 80% of core expenditure, for films of every budget level.
Under the AVEC, films and high-end TV will have a headline credit rate of 34%, but will only be 25.5% after tax is paid, a tiny increase. Various bodies, including the British Film Commission (BFC) and Bectu, expressed unease that such a small increase may make the UK less attractive as a location for international production, particuarly when combined with the growing cost of studio space due to a 300% rise in business rates.
The BFC is worried AVEC will be “less generous than the current creative sector tax reliefs, particularly in relation to new clauses covering connected party transactions. If introduced as drafted this would make the UK significantly less competitive globally.”
The new measures have introduced an exclusion of expenditure that represents ‘connected party profit’. For example, if company one pays connected company two £100 for a service, and providing that service costs company two only £75, company one’s qualifying expenditure will be £75. The remaining £25 is the connected party profit. Connected party profit is not excluded from being eligible expenditure for relief if it is incurred on renting, hiring or otherwise securing the use of premises or land as a location for principal photography.
NBCUniversal is also opposed to the changes that would restrict qualifying spend for the profit element of connected party payments. This could have a significant impact on certain special purpose vehicle (SPV) structures, such as post-production houses, animation companies, camera and lighting businesses.
To add to the concern, the BFI flagged a significant backlog as it struggles to have enough resource to effectively administer the cultural tests for those applying for the tax relief, and market and promote the reliefs and the incoming expenditure credits.
“In recent years the volume of applications the BFI receives a year has increased dramatically, placing significant pressure on the administration of the scheme,” said the BFI. “We have yet to receive an uplift in grant-in-aid to reflect this increasing demand for the service. Without additional resource, this has resulted in a backlog of applications and turnaround times increasing from four-six weeks (originally listed in 2011 and maintained up to 2019 -2020) to up to 18 – 20 weeks and increasing monthly.
“While industry has been understanding throughout and immediately following the pandemic, there is a significant risk that studios will seek faster processes when considering where to make future productions especially as other countries are making large investments in production infrastructure to attract inward investment.”
On a local level, Screen Scotland called for the removal of the 80% cap which it says has seen VFX work outsourced abroad. If this cannot be done nationwide, it called for regional variations.
Along with Doc Film Council and Doc Society, Screen Scotland also expressed concerns around a change in definition to what qualifies as a ‘documentary’ in the AVEC proposals as too narrow.
Meanwhile, Bectu and the Writers’ Guild of Great Britain (WGGB) would like to see the qualifying UK cutural test tightened up. According to Bectu, “Cultural tests should be applied more rigorously,” while the WGGB argued “the current arrangements facilitate the UK becoming a cut-price off-shore production centre for the US”. To counter this, WGGB proposes “the Cultural Test should prioritise projects where the IP was just not created in the UK, but which is owned and/or remains in the UK.”
Warner Bros and Amazon are clear in what they need
Warner Bros Discovery and Amazon were explicit in what they need from the UK. The importance of keeping the tax incentives “clear and dependable” to maintain inward investment was underlined by Warner Bros. Discovery, which pointed out the impact shooting Barbie in the UK had on the UK economy – during its production in the UK, the film contributed over £80m in direct spend to the local economy, creating 685 jobs, involved over 6,000 extras, supported 754 local businesses and generating over £40m in local wages. Its box office revenues in the UK alone surpassed £95m, and it is Warner Bros’ most successful theatrical release of all time.
Amazon, the only US streamer to submit, was more explicit: “The production landscape is hypercompetitive, with jurisdictions continually looking for ways to attract high end TV and film productions,” it said. “Short- term policy changes or additional costs to doing business could see an immediate impact on productions moving away from the UK, and at short notice.”
Streamer levy support grows
Several UK organisations are now calling for the introduction of a levy or investment obligation on the US streamers, to help ease the financial strains facing the UK independent film sector. Producers UK, Bectu, Film Export UK and WGGB are among those who wish to see the streamers making an annual financial contribution to independent film development and production funds. Doc Society suggested a 2% levy on SVOD revenues.
The BFI stopped short of committing itself to a specific form of intervention. However it said: “It would be valuable to examine if any voluntary or regulatory interventions might help secure a healthy relationship between international and domestic production,” suggesting measures that be relevant to examine from other countries such as quotas, prominence obligations, levies, direct investment obligations and standard terms of trade.
Keen desire to return to Creative Europe Media programme
While the UK Global Screen Fund (GSF) has offered some post-Brexit support, all corners of the industry are crying out for a return to the Creative Europe Media programme, which offered funding for sales agents, distributors, exhibitors, and production companies.
Non-EU countries that have signed agreements to be part of the Creative Europe programme include Iceland, Norway and Liechtenstein.
“GSF was conceived as a replacement to Media, its resources are less than half of that programme, and they do not cover all the areas that Media supported,” said Screen Scotland. “Moreover, it is impossible to replace participation in a Europe-wide collaboration with a standalone programme for a country outside of the EU.”
Film4 added “whilst the £7m pa investment has provided invaluable export to independent distributors and sales agents, it is significantly less than the €22 million invested by the Media desk to distribute UK films into Europe.”
Triangle Of Sadness’ UK producer Mike Goodridge of outfit Good Chaos wrote an impassioned entry: “I cannot compete with my European producer counterparts when it comes to accessing funding from the Global Screen Fund on projects. The fund they have is so small compared to France, Germany or even the Netherlands and Poland that when international partners ask me to bring UK public funding to the table, I have to tell them how slight are the chances of doing so.
“I would love to develop more UK film projects but I have a company to support and that ambition will not get salaries paid. I have to look overseas to tell stories and work with overseas talent to survive.
“UK producers need help. I look jealously at my European counterparts who are so well- tended by their local public funds, and I shake my head in sadness that all our talent is working on US movies and series and that our rich and wonderful UK movie tradition is collapsing so visibly on the world stage.”
Tax relief on cinema tickets would be popular
The Independent Cinema Office (ICO) said: “We could investigate the use of a levy on cinema tickets as part of VAT, or even just on releases of scale to then reinvest in independent productions and independent cinemas. The TSA, or taxe sur les entrées en salles de spectacles cinématographiques [the CNC takes a levy on cinema tickets and puts it back into local industry], that is operated in France, ensures support for both film production and exhibition.”
The UK Cinema Association has called on the government to re-introduce tax relief on cinema tickets, bringing back the reduced level of VAT on cinema tickets for all films, to give the sector some “breathing space”, while Film4 suggested “a new zero rate of VAT on exhibition of UK independent films, incentivising exhibitors to showcase applicable films and thus exposing them to a wider audience”.
Widening the film industry out of the south-east would reap dividends
Regional bodies expressed dissatisfaction with the progress that’s been made in decentralising the industry from London and the south east. Northern Ireland Screen bemoaned an “over emphasis on London as the production centre,” while Screen Scotland questioned: “If we seek a truly British film industry, one that represents all four nations and contributes to the creative economies of each, is it adequate that 85%+ of those films are made in or near London, where 13.5% of the British population lives?”
Production outfit Fulwell 73 also added its voice to the need to broaden out the geography of the industry, stating in its submission: “Having so much of the UK industry centred in the Greater South East makes productions more expensive and threatens the survival of the sector.”
Screen Scotland said it “recognises that the BFC team is even handed in its approach to promoting the whole of the UK to inward investment clients. However, we see the need for a UK-wide strategy that levels the playing field with regard to studio and crew availability. Having the BFC based solely in London and with a shared CEO/communications function with Film London causes perceptional issues and structural bias. A UK-wide inward investment strategy requires a UK-wide governance model, more stringent nations and regions-based targets and a more regular presence across the country, and to be funded accordingly.”
The BFC noted: “A UK-wide approach is central to everything the BFC does. At the most fundamental – and often overlooked – level, the BFC plays a vital role in explaining to new US clients the extent, structure and geography of the UK. As the national agency responsible for promoting the whole of the UK to inward investment clients, we have been working in close partnership with the devolved nations and English regions since our inception. These long-standing connections have helped to drive production activity to all four nations of the UK, supporting levelling up even before this began to dominate political agenda.”