Leading article

Director’s cut: why do our taxes pay for loss-making films?

13 October 2018

9:00 AM

13 October 2018

9:00 AM

‘The role of government is not to pick favourites and subsidise them or protect them.’ So says the government’s industrial strategy, published last year — a document which was supposed to distinguish between a free-market approach and the interventionism favoured by Jeremy Corbyn. Yet in one industry, at least, the government is doing exactly what it says it should not: it is showering firms with subsidies in the hope of generating growth.

This week the British Film Institute (BFI) published a report making grand claims for the government’s ‘tax reliefs’ for the film industry. Under this scheme — which is misnamed because it involves subsidies paid out whether or not a company has a tax liability — taxpayers stump up 25 per cent of the cost of making a film so long as 80 per cent of the budget is spent in Britain. This scheme, claims the BFI, cost taxpayers £632 million in 2016 but ‘helped’ the film industry generate £2 billion in tax revenues. These two figures are put together to suggest that, without the taxpayer support, such tax revenues would not have been forthcoming.

Dig deeper, and a different picture emerges. You might ask: how many of the films which are subsidised through this scheme actually make a profit? We have an answer because the BFI presented some figures in 2013. Of the 613 British films made between 2003 and 2010, just 43 — a mere 7 per cent — actually made a profit. Taxpayers, in other words, are being obliged to subsidise a business whose output results in financial failure 93 per cent of the time.

Of the films that did manage to recover their costs, we are not told how many would have been made without subsidies. But it is spurious to add up the taxes paid by the film industry, balance them against the subsidies paid by the taxpayer and declare it a great success if the former is bigger than the latter. If the film industry did not have hundreds of millions of tax money thrown at it, fewer films would be made. But those which were made would almost certainly be the financially viable ones — the ones whose makers were confident would attract an audience.

Such points matter because, at present, Labour seeks to nationalise the energy market and rail network in their entirety and also part-nationalise every other major company by demanding that the state is given a 10 per cent stake. The argument that government ‘investment’ in subsidies pays for itself could equally well be applied to any other industry. There is nothing magical about the film industry. Yet few Conservatives would argue that the coal, steel or shipbuilding industries should be showered with public cash, still less that the government would make a profit if they were.

The idea of propping up poorly performing UK industries, thereby protecting them from foreign competition, was thoroughly discredited in the 1970s. But in championing subsidies for their pet projects, the Tories are acting as useful idiots for Corbyn.

Theresa May has promised that ‘workers’ will have representation on company boards (as if executives never do any work), and forced firms to conduct equal pay audits. Her industrial strategy promises ‘sector deals’ for particular industries which the government believes to be especially deserving of backing. Why do ministers think they have a better idea what will succeed than private investors, whose fortunes depend on making the right decisions?

Corbyn is taking it further, but not much further. He wants procurement policies in the public sector (to be greatly expanded through his renationalisation programme) to favour UK firms, whether or not they are cheapest or best: a form of protectionism. State aid would be used to support industries through difficult times. His policy, at least, can be said to favour poorer parts of the country where unemployment is higher. The film and video game industries are concentrated in London and a few other large cities, where there is no justification at all for state-financed job-creation schemes.

Many scoffed when Mrs Thatcher tore up Labour’s industrial policy and allowed services to prosper at the expense of manufacturing. But a free-market approach ushered in a new era of prosperity in ways that no politician had imagined: the average British salary is now double what it was, in real terms, before Conservative reforms started. The only Tory blueprint, then, was to trust and empower the people — rather than imagine that politicians who struggle to run a government could then run the economy as well.

The only ‘industrial strategy’ worth having is one which accepts, in theory and practice, the limitations of political knowledge. And accepts that the public, collectively, are the best people to pick winners, and back the right industries. Copying Corbyn through heavy taxes and regulation while picking out favoured industries for special treatment is a horror movie in the making.

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