January 31, 2013 9:02 pm

UK film production spending falls 30%

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Spending on UK film production fell 30 per cent in 2012 as Hollywood studios and other foreign groups scaled back investment in the country, according to the British Film Institute.

The BFI said the UK was “feeling the reverberations of a slowdown in film production globally”. But industry figures said government policy, including a clampdown on aggressive tax structures in film finance, was having a big impact.

The tightening of tax rules “certainly has had a chilling effect, no doubt,” said Alice Enders, analyst at Enders, the research company.

The tax authorities last year launched high-profile crackdowns on partnerships set up to make high-risk investments in technology, films and music. In April Her Majesty’s Revenue & Customs secured a tribunal victory over Eclipse 35, a film partnership whose members claimed interest relief on loans they took out to acquire distribution rights to two Disney movies.

Under rules introduced in 2007, British film productions enjoy relief of about 20 per cent on corporation tax, a discount estimated to be worth about £100m to the industry each year.

But uncertainty about tax treatment was having a “huge impact” on investors’ willingness to fund UK films, said Stewart Mackinnon, chief executive of Headline Pictures, which is producing Ralph Fiennes’ The Invisible Woman.

However, Paul Brett, a director of Prescience, a film production and financing company, said worries about tax structures had little to do with the decline in investment in 2012. Instead, investors were put off by the UK government’s decision in 2010 to scrap the UK Film Council – the public body that channelled funds into film – as part of the coalition’s “bonfire of the quangos”.

“People don’t like change,” he said. “The closure of the Film Council two years ago caused Hollywood to catch a cold. It has taken diligent work . . . to calm them down.”

The BFI has taken over from the Film Council and distributes lottery money for projects across the UK, making 195 awards worth £24m for development and production funding in 2012 alone.

The total amount invested in UK-based film production last year was £927m, down from a record-breaking £1.29bn in 2011. Inward investment made up £630m of the 2012 total, with domestic UK productions and co-productions making up the remaining £297m.

The figures also show the UK film industry is moving towards big-budget films. Just 94 films with budgets under £500,000 were produced in the UK last year, half the number made two years ago. The numbers may be revised up in the coming months as the BFI collects more data.

Amanda Nevill, chief executive of the BFI, said the figures looked worse than reality because big productions such as Skyfall, the James Bond blockbuster, were included in the 2011 figures. “Is there a worrying trend there? Absolutely not,” she said. “The industry is very relaxed.”

Indeed, UK studios are ramping up their capacity. Warner Bros opened its £100m Leavesden Studios last year while Pinewood announced plans to double its film-making space.

Simon Oakes, chief executive of Hammer Films, which produced last year’s top UK independent film The Woman in Black, said 2013 was shaping up to be a great year for UK film, partly thanks to tougher tax regulation. The need for businesses to show they were genuine film makers was “a great thing”, he said. “I see it as a bit of a cleaning of the Augean stables.”

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