The Future Of Film: British Film Will Thrive (If Tax Breaks Allow)

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Look at a map of filmmaking locations over the last 15 years or so and you will see a map of budgetary efficiency. Hollywood hasn’t been as money-conscious since the early days of the studio system, and right now the key factor in deciding where to film is the local tax regime, which is shaping film in quite a new way. It used to be labour costs that determined where a film shot. Increasingly, film production and post-production are following tax breaks around the world like surfers in search of an endless summer. On the cards is both an opportunity and a danger for UK film in particular, which could improve or devastate the future of film production in this country.

While the business of big films is still carried out chiefly in LA, and the big money still flows back there, film production these days is a global enterprise and one that is more mobile that you might think. Advances in technology – smaller, lighter cameras, digital shooting that doesn’t require you to develop celluloid locally – mean you don’t need quite as much infrastructure in place before you start shooting anymore, and innovations that are only just taking off – 3D set printing, for instance – means that the percentage of expertise that needs to be local will soon decrease even further.

HAS BECOME A TRAVELLING CIRCUS.“My experience of the film industry over the last ten years is that it's become a travelling circus,” says visual effects producer Emma Norton, someone who’s keenly aware of budgetary issues after working on the Harry Potter series, Gladiator, Black Hawk Down and more. “We’re nowt but carny folk, dragging our families with us. Filming has moved from LA to the UK, so the studios are booming and crews have never been so busy. Every big tentpole film I’ve been involved in at the budgeting stage over the last five years has been greenlit only by maxing out the tax incentives on offer.”

A decade ago, big Hollywood films often shot in Prague and Budapest. The stages of Barrandov in Prague, and its streets, were bulging with productions like Van Helsing, xXx, Hellboy and The League Of Extraordinary Gentlemen. Budapest, meanwhile, was host to Underworld, I Spy, Munich, Hellboy 2 and Transporter 3. Labour costs were cheaper in central Europe, exchange rates favourable and facilities eager to do business. Hollywood could save a fortune. But in 2006, promises of a tax break for Czech productions were broken and production dropped to 15 per cent of its former heights – devastatingly for Barrandov in particular, which had just invested heavily in new facilities. When Empire visited Prague back in 2004 to go on set of Roman Polanski’s Oliver Twist – a sprawling series of London streets on the Barrandov backlot – the bulk of the crew comprised Brits spending months each year in the Czech Republic. Now, it’s small-to-mid-budget indie films that shoot in the area – Snowpiercer, say – or stories actually set in Eastern Europe – Child 44, for example – or action B-movies starring Nicolas Cage with an odd haircut. Budapest has fared a little better, attracting World War Z, A Good Day To Die Hard and Hercules, but it’s still quieter than it was.

A big part of the change in both cities’ fortunes was the UK’s restoration and extension of its tax credits. The tax regime had been tightened and rebates reduced in February 2004, resulting in the collapse of a number of British productions of the day (one, Tulip Fever, has only recently gone back into production) and a huge amount of pressure from the British film industry for the government to restore the incentives that made filming possible.

The clincher came in March 2005. There was a very real threat that the fifth Harry Potter film, Order Of The Phoenix, might move to Prague to keep the cost of production down. By that point the franchise had become a cornerstone of the film industry in the UK. J.K. Rowling’s initial insistence on maintaining the British feel of Potter and making its film adaptations in Britain had proved more important than anyone could have imagined back in 2001. Five years in and a generation of effects artists and crew had been trained up at Hertfordshire's Leavesden Studios and in the special effects houses of Soho to serve Potter’s insatiable demand for magic. What’s more, the knowledge that another Potter would be coming down the pipeline to keep the moolah flowing allowed effects houses to take time out in-between films to work on new techniques and new technology, while crew members were soon able to advertise their skills in creating, well, just about anything. The UK film industry couldn’t afford to let Potter go and the government realised it.

Harry Potter And The Order Of The Phoenix
Filming Harry Potter And The Order Of The Phoenix: the film's production almost moved out of the UK.

In response, 2006's Finance Act put in place a tax regime that returned 20 per cent on 80 per cent of a film’s budget spent in the UK, making it frequently cheaper to shoot in the UK than in the US. Big-name directors had always raved about the professionalism of British crews; now they could use them and sell it to studios as a cost-saving measure.

In 2009 a report by the now-defunct UK Film Council said that the British film industry was worth more than £4.5 billion a year to the nation's GDP, generated £1.2 billion to the taxman and created 36,000 jobs – but it also said that that titan would collapse without those tax incentives. In 2011 the tax breaks were extended again to at least 2015, a decision that has seen the enormous likes of Gravity, Avengers: Age Of Ultron and Star Wars choose to shoot here. But that doesn’t mean the industry is now self-sustaining. “If the UK tax incentive got switched off it would be a disaster,” says Norton bluntly, “[even though] the industry has never been so strong or so well serviced.

EVERY BIG TENTPOLE FILM I’VE BEEN INVOLVED IN AT THE BUDGETING STAGE HAS BEEN GREENLIT ONLY BY MAXING OUT THE TAX INCENTIVES ON OFFER.For post-production VFX, the situation is even more precarious. Explains Norton: “If you shoot in the UK, you get a credit for 80 per cent of your budget. Of course, this means that they don’t get a tax break on 20 per cent, so the producers always see VFX as a movable feast. Take the VFX to Canada and get 30 per cent or more rebate on that section too! It makes sense. Most of the London VFX houses have bigger presences overseas, in Canada, Singapore and Bangalore, than they do in London these days. What would benefit the industry more is to give a UK tax break of 20 per cent to 100 per cent of the show. That way you might actually be able to keep the VFX in the UK as well.”

It’s not just about the direct gain in jobs or tax income from film production either. There can be knock-on effects for tourism – Breaking Bad fans suddenly eager to visit Albuquerque, Lord Of The Rings lovers headed to New Zealand, or Potterites planning day trips to Watford – and there’s the potential long-term benefit of a solid film industry. Pitch your tax breaks too low, however, and that industry dies away. New Zealand had momentum after the Rings films, with Peter Jackson choosing the bigger projects on his to-do list largely to keep his crew in work, while The Chronicles Of Narnia, 30 Days Of Night and Avatar followed him down under. But with relatively meagre tax breaks, it never quite established itself in the way that the UK has over the last decade.

And if you want an example of the sort of tax-wrangling that countries vying for film production work will increasingly face, consider New Zealand’s experience with the Avatar sequels. James Cameron’s first film shot in New Zealand, but with tax breaks there of only 15 per cent there was talk of the sequels moving to Australia or the UK. The New Zealand government responded by guaranteeing a memorandum of understanding to keep Avatar in the country and increased its tax breaks to between 20-25 per cent (the final five per cent depends on various factors in a points system). It is all, in the nicest and most legal way, a bribe to studios to keep filming in the country.

Star Wars Episode VII Clapper Board
Star Wars Episode VII, one of many blockbusters filming in the UK - but that doesn’t mean the industry is now self-sustaining.

But how long can states keep this up? Already, not all tax breaks are created equal. In the wake of Hurricane Katrina, part of Louisiana’s recovery programme saw the state create tax breaks for film production that have lured studios to New Orleans and Baton Rouge ever since – everything from Jonah Hex to Ender’s Game to Fantastic Four and Jurassic World. In 2013, more Hollywood movies were shot in Louisiana than California (in response, California has recently tripled its incentives to draw production home). But over-generous credits can end up costing the economy rather than providing a positive return and there are reports that Louisiana’s tax credit is essentially costing the state money. Quebec, where incentives recently reached a total of 50%, recently dialled back the allowance for future productions back down to about 30%. Michigan, New Mexico and North Carolina all cut their film tax credits after reaching the same conclusion, and if Louisiana reverses its stance, production there could die back to a trickle.

IF THE UK TAX INCENTIVE GOT SWITCHED OFF IT WOULD BE A DISASTER.The trick then is for countries and states to set tax incentives at a rate high enough to attract business, but not so high that it offsets all the benefits of getting that business. If they can walk that line, everybody wins. If not, entire industries will pack up and move to the other side of the world, potentially devastating local output. With studios playing hard ball, China offering lavish production facilities and considerable advantages for local productions and new territories vying for the big films, this is becoming a high-stakes game of international chicken. What if an India or a Sri Lanka suddenly enters the game, and combines tax relief with lower labour costs? Some effects houses already have outposts in India or Singapore, a sort of support industry: MPC and Double Negative both have offices there. Or what if a New Zealand or an Australia decides it’s a prestige thing to have a thriving film production industry and throws budgetary balance to the wind?

There's some evidence that the market is reaching a point of maturity. "I think countries have realised now that everyone's just pulling the same business across the world," says Norton. "After Rhythm & Hue went down after Life Of Pi, there's a global awareness now that the system, especially for visual effects, is eating itself. There are only so many places you can go for the rebate, then it will stop and level out. Then globally you have a general settling. Canada will probably remain a hub because everyone has moved their families there, and the UK."

We already know that the first Harry Potter spin-off based on Fantastic Beasts And Where To Find Them will shoot at the franchise’s home of Leavesden for its November 2016 release. Star Wars, meanwhile, is settling in at Pinewood, while Marvel looks increasingly at home in Shepperton. But if the government suddenly decided to remove or restrict its tax rebate in 2015, all those franchises could melt away; unlike the original Potter series, these stories aren’t actually set in the UK. "It's all anyone talks about, so the pressure on the government will be enormous," says Norton. "I would actually be surprised if they didn't extend them, but if they didn't it would be a disaste, and those companies will look to move sideways into Europe. It does come down to whether they think it's worth it. I get the impression that the UK industry is pretty solid and it would be unthinkable that they wouldn't extend it. It just trickles down so far."

We can only hope that Potter proved the value of British film production to the government, and that they will continue to support the industry through more franchises to come. If not, the increasingly itinerant industry will move on to pastures new and leave only empty backlots behind.