Lib Dems and lobbies

To my perplexity and incredulity, I have been accused by various sources of being politically partisan in my criticisms of the Liberal Democrats' policies on tax breaks for film-making. One critic asks rhetorically: 'There are literally hundreds of people that Kamm could have picked on over this issue - so why choose [Liberal Democrat Culture spokesman] Don Foster? Is he really that obsessed with the Lib Dems that he's incapable of seeing the wider picture?'

I'm astonished. I genuinely thought I had devoted adequate space over several months to the assessment of Liberal Democrat policies, but clearly I was mistaken and ought to write more. The reason I chose Don Foster is that, whereas the Government appears to be removing a policy that was indefensible even when Gordon Brown introduced it, Mr Foster's party believes the original measure did not go far enough. So far from being an unexceptionable call for - as I have advocated in my discussions of various aspects of economic policy - a framework of rules rather than government discretion, Mr Foster's demands have been for the opposite: maintained discretionary intervention in support of the British film 'industry' (from now on I shall call it a business rather than an industry, to make it clear what we're talking about). Ten days ago he stormed (emphasis added):

Last year [Arts Minister] Estelle Morris gave clear support to the tax break system. Now we're witnessing another Government U-turn on an industry in need of real support.

The film business is not an industry, and it's in no more 'need of real support' than any other service business - say, investment banking. If there are genuine considerations about aesthetic standards of excellence - which I consider are a public good that tax revenues ought to susidise directly - then they need to be argued for case by case, with the support coming in the form of a direct cash transfer rather than a tax concession. But in truth, we're not talking about an arts policy at all: the issue is one of a populist venture that politicians ought never to have succumbed to, and that the Liberal Democrats can be almost guaranteed to support regardless of economic considerations.

If you think that's too harsh a judgement, consider what by my reckoning is the most economically extraordinary statement made by any serving politician so far this year. It comes from a Scottish Liberal Democrat MP, John Barrett, who came up with this hair-raising series of assertions last month:

The Film Industry is important both for the UK and world wide economies with earnings from entertainment not only providing jobs and income but also adding a diverse cultural dimension to life.

Some years ago, Michael Winner was asked by a young budding film maker for advice on how to progress in the industry and the answer he gave was to leave the country and go to the United States. There are many individuals and organisations who are doing good work on behalf of the industry but who cry out for a level playing field with other countries to stop films being made elsewhere.

The Film Industry also has a major impact on tourism. Often, advertising budgets from tourism authorities can't provide the profile for an area in the way that can bring financial rewards. However, the publicity generated by a television programme or film is now clear.

The film industry has some of the most dynamic and creative people in the world working in it. The Government must recognise the positive impact the industry makes to the country and in doing so, must provide as much support as possible.

I won't bother with this one point-by-point, other than to note in passing the cliche that perhaps more than any other in recent western economic policy (especially in trade policy) has been responsible for causing avoidable damage - that 'level playing field' again. I merely want to draw attention to that final sentence: the Government 'must provide as much support as possible', apparently.

Astonishing, is it not? Democratic politics concerns trade-offs and the exercise of choice (including the opportunity costs of options not chosen). Economic policy concerns the allocation of scarce resources to competing uses. Yet this MP - who has a vested interest in the matter he speaks of, being a member of the Advisory Board of the Edinburgh International Film Festival - resolves such questions by wishing them away. 'As much support as possible'? Well, there's always the overseas aid budget that could be abolished to make room. What about the health budget too? And while we're at it, why not invent yet another use for those taxpayer receipts the Liberal Democrats dream will be generated by imposing a 50% tax on incomes over £100,000? All of these things are possible: but as the former Chancellor Nigel Lawson once aptly remarked, 'To govern is to choose. To appear to be unable to choose is to appear to be unable to govern.'

I hope this addendum makes my position clear. It gives me no pleasure, and causes me some pain, to have to criticise the Liberal Democrats. But I regretfully conclude that there are few more reliable repositories of bad ideas in British public life than that organisation, and I have a duty of candour to my readers.

I should finally add that I do not agree that where a bad policy is in place its supersession ought to be strung out. This comes back to the point I started with. There is market failure, but there is also government failure. Watch an edition of Question Time on BBC television and you cannot fail to notice the number of times that the participants - almost all of them - conclude that government must act in some respect or another. And so it must, in many: yet government is a self-interested agent like any other, and it may be captured by lobbies and what economists term 'rent-seekers'. Keep a bad policy on the books, even with the intention of allowing its value to depreciate in real terms, and the likelihood is that it will become a focus for the demands of interest groups. A perfect example is the pensioners' £10 Christmas bonus introduced by Edward Heath's Government and - despite one brief attempt at abolition - still with us.

Comments

[Michael Brooke]

I'm intrigued to see that despite you citing me as one of your critics, you then went on to completely ignore the main thrust of my criticism.

As I said, I don't have any particular argument with your position on tax breaks for film finance in general - a great many industry insiders thought the system was being abused as well. My (and their) main beef with this issue is the way that the government suddenly scrapped them with no warning, causing a great many people to be thrown unexpectedly on the dole as of today (i.e. the already-hired cast and crew of 'Tulip Fever' and 'The Libertine') and at least one company with a distinguished film-making record - both artistically and commercially - to be seriously considering bankruptcy.

By all means scrap tax concessions for productions that haven't yet gone beyond the initial glint in their producers' eyes, but moving the goalposts after the initial financial agreements on big-budget productions have already been made and significant (seven-figure) sums of money have already been spent is hugely damaging not just to the individual productions but also to the business as a whole.

Regardless of one's stance on tax concessions, such a decision can't help but put people off investing in British films in the future. The reality is that people (not even those at the National Lottery or Film Council) don't just hand over wodges of cash and expect the film-makers to go away and spend it - film financing is frequently a hugely complex tangle of investments from a great many sources, many of which are government-regulated in some form or other. Not necessarily the UK government: clued-up producers are well-versed at sniffing out the most attractive deals in any given country - that's just the nature of the business (especially if the film is likely to have more artistic than commercial merit).

For the Treasury to suddenly rewrite the rules like this makes British films a far less attractive investment, especially from the point of view of international financiers – not so much because of the missing tax concessions but because investors can no longer be certain of the terms under which they're investing their money. After all, if the government can make snap changes once, what's to stop them doing it again under different circumstances?

That's the issue that people are most exercised over at the moment, which is why it's curious that you ignore it altogether in favour of a swipe at the Lib Dems.

[Oliver Kamm]

So far from ignoring the main thrust of your criticism, I thought I'd made it pretty clear that I agreed with it. If government policy takes the form of discretionary intervention rather than a framework of rules, where the investment climate is predictable, then as you rightly say enterprise will be less keen to invest (or to be precise, it will require a rate of return on investment that incorporates a premium to reflect the risk of unanticipated changes of tax regime). That's bad policy. This blog is, moreover, concerned with questions of political and economic policy, and thus I criticised the party that is the most fervent advocate of such a policy. That seems to me a fair, disinterested and considered comment, consistent with the task I set myself in covering Liberal Democrat issues; I am shocked that it could be interpreted as mere partisan politics, which is a pursuit I scrupulously eschew.