TAX NEWS - June 2010

UK Tax: Losing film tax credits could cost the UK £1.4bn a year

The importance of the Film Tax Relief to supporting the continued success of the core UK film industry is clear when we consider how UK competitiveness would be affected if there was no tax relief in place.

In this case, the UK's cost advantage vis-à-vis the US would fall significantly, and the UK would fall back behind the Czech Republic in terms of competitiveness.

We estimate that this loss of competitiveness would reduce the UK's share of global film production by around 5-10 percentage points by 2015, to around 5%.

That would be equivalent to a loss of inward investment of about £600m a year by 2015.

In addition, investment in domestic production and co-productions would also be seriously undermined by the loss of the tax relief and the knock-on benefits that inward investment films would have brought to the UK.

Overall UK film production might be reduced by 75% were there no Film Tax Relief. A decline in production of that scale would have substantial economic effects:

- It would reduce the direct contribution of the core UK film industry to GDP by about £1.2bn and by £2.45bn taking account of impacts on the supply chain and on the spending of workers who lose their jobs. Similarly, employment in the core UK film industry would be expected to fall by around 25,000 jobs directly and 50,000 taking account of multiplier effects.

- While many of those currently working in the core UK film industry could find jobs elsewhere and so continue to pay taxes, our research suggests that perhaps one-quarter of the most highly skilled would move overseas to be based in or near film production centres, having a detrimental knock-on impact on other parts of the film sector and audio-visual content production industries. As a result, UK GDP would be directly reduced by around £200m a year.

- Over time, tourism and exports would be undermined as they lose the promotional support provided by UK films.

- In addition, the UK's cultural life would suffer as a result of the loss of UK films.

- Overall, UK GDP would in the medium term be reduced by around £1.4bn a year. That compares with a current cost of the tax relief to HM Treasury of around £110m a year, meaning around £13 in GDP is generated for every £1 invested.

- These losses in turn would reduce exchequer tax revenues by about £400m a year, taking account of multiplier impacts and effects on merchandising.