Mutant Prawns And Loopholes

Direct funding, not tax breaks to be exploited by accountants, is the best way for government to help the arts

Screen
Lost in adaptation: The film tie-in edition of James Hawes's novel "Rancid Aluminium"

Chris Smith is one of the nicest politicians I have met. The former member for Islington South was cultured, witty and kind. He was also brave in his way. Smith was the first MP to come out as gay, although admittedly that was easier to do in Islington South than Newcastle upon Tyne East.

When Tony Blair came to power in 1997, Smith was his natural choice as Culture Secretary. Smith’s first priority on taking office was to save the British film industry.

“Save the film industry!” Ah, how that cry once echoed. In the 1960s, the British “new wave” produced critically and commercially successful films. But the new wave turned out to be the last wave. Chariots of Fire in 1981 convinced the credulous that a British renaissance was beginning. It never came. James Bond and the odd independent production aside, the “industry” was reduced to being an offshore centre for Hollywood.

Those whom the vulgar call “Islington luvvies” convinced Smith to revive one of the nation’s greatest cultural assets. They begged him to fight Hollywood imperialism and defend dear old art itself. New Labour heard their call and gave investors in films the most extraordinarily lavish tax breaks.Smith was triumphant. He wanted to get “better British films into better British cinemas”, he declared, “with a specific target of doubling the market share”.

In Bertrand’s Russell’s History of Western Philosophy, the one Christian the old atheist had any time for was St Francis of Assisi. “Unlike most saints, he was more interested in the happiness of others than in his own salvation,” wrote Russell. He never showed any feeling of superiority to the humble and wicked. He loved the world and the world loved him.

As soon as he died, the Franciscans degenerated into corruption. “If Satan existed,” Russell concluded, “the future of the order founded by St Francis would afford him the most exquisite gratification.”

Satan might take an equal delight in the fate of Labour’s effort to revive the film industry. Instead of promoting culture, it unleashed one of the most greedily devoured tax scams in modern British history. Instead of producing films that might compete with Hollywood, it produced films that were rarely seen and, quite probably, never meant to be seen. Movies like Sex Lives of the Potato Men, Mad Cows and Love, Honour and Obey took advantage of tax breaks that, at their most extreme, allowed people to claim £1.40 in tax relief for every £1 they “invested”.

The comic novelist James Hawes described the process by which Soho filmmakers turned his fine novel Rancid Aluminium into a film in 2000. The result was not entirely happy. The Guardian said that by “universal consent, it was the worst film ever made in the UK. People who have seen it belong to an exclusive club. They cannot speak about the film — they simply shudder.”

In his next novel White Powder, Green Light, the chastened Hawes has his heroine learn that Soho wants to turn her book into a film (as Hawes learned). She throws in her job at a South Wales university and moves to London (as Hawes did) and is enchanted by the wealth she meets.

Jane sat back happily. More than happily. In her very own cab. Black and fat as a gondola, she felt like a female Nero, wildly throwing money to the wind. It was OK, it was fine: all against tax.

We got a hint of how much was “against tax” in 2008, when the private equity tycoon Guy Hands and his fellow investors went to court over Crust, a movie that may have challenged Rancid Aluminium for the title of Worst Film Ever Made on British Soil.

I cannot say for certain, because Crust was never released. According to the British Film Council, the plot involved a man in Norfolk who finds a seven-foot mutant prawn on a beach. He tries to make his fortune by entering the prawn into boxing matches, as any of us would. Crust was “the story of a crustacean suffering in silence” and “one man shedding his macho shell and getting back in touch with his emotions”.

Hands and his fellow investors were not modern Medicis outraged that the public was unable to see the masterpiece they had funded. Instead, they were furious that the film had not generated the expected tax gains. They claimed their financial advisors had failed to realise that Labour’s policy of allowing them to claim tax relief on the money they “pledged” to a film, rather than money they actually handed over, had ended.

The defendants replied that Hands and his partners were “extremely rich men . . . who were choosing to engage in a scheme with the sole aim of sheltering a part of their enormous incomes from tax”.

The parties settled out of court. As with Crust, we do not know what happened in the end. But the case revealed how the vastness of the tax concessions was in inverse proportion to the quality of the art the breaks produced.

Even though the state has cut them back, the effects of the tax breaks continues to this day. Last month, 100 footballers said they could face bankruptcy after HM Revenue & Customs claimed they were not entitled to the discounts they had taken for investing in films. Mr Justice Sales revealed that HMRC was seeking to retrieve £1 billion from one film-funding scheme alone.

Adam Curtis of the BBC told me that he was trying to persuade the British Film Institute to run a season of the tax-dodging films of the turn of the millennium. I hope he succeeds. It would be a lesson to every minister and lobbyist who has ever demanded a break on the futility of playing with the tax code.

If they want to subsidise the arts they should subsidise them directly. The National Theatre, the Royal Opera House, the great museums and galleries and the BBC are monuments to intelligent public funding. But in the arts as everywhere else, for God’s sake keep the tax system simple. Breaks just lead to commission-hungry accountants, Premier League footballers, off-shore funny-money men, chancers, gluttons, freeloaders and spivs pouring through the loopholes like a rampaging army. And all for no good purpose.

Almost 20 years after Chris Smith promised to revive British film, nothing remains of the once mighty industry — not even a mutant prawn boxing on a Norfolk beach.