PP105/10 STANDING COMMITTEE ON PUBLIC ACCOUNTS REPORT ON THE MEDIA DEVELOPMENT FUND AND PUBLIC INVESTMENT IN THE FILM INDUSTRY, 1995 TO 2009 REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS ON THE MEDIA DEVELOPMENT AND PUBLIC INVESTMENT IN THE FILM INDUSTRY,1995 TO 2009 Mrs C M Christian MLC (Chairman) Mr Q B Gill MHK (Rushen) (Vice Chairman) Mr D M Butt MLC Mr G D Cregeen MHK (Malew & Santon) Mr R W Henderson MHK (Douglas North) Mr J P Watterson MHK (Rushen) The powers, privileges and immunities relating to the work of a committee of Tynwald are those conferred by sections 3 and 4 of the Tynwald Proceedings Act 1876, sections 1 to 4 of the Privileges of Tynwald (Publications) Act 1973 and sections 2 to 4 of the Tynwald Proceedings Act 1984. Copies of this Report may be obtained from the Tynwald Library, Legislative Buildings, Finch Road, Douglas IM1 3PW (Tel 01624 685516, Fax 01624 685522) or may be consulted at WWW.tymvald.org .im All correspondence with regard to this Report should be addressed to the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas IMI 3PW. REMIT OF THE COMMITTEE (1) There shall be a Standing Committee on Public Accounts. (2) The Committee shall have - (a) a Chairman elected by Tynwald, (b) a Vice-Chairman elected by Tynwald, (c) four other Members elected by Tynwald, and a quorum of three Members. Members of Tynwald shall not be eligible for membership of the Committee, if, for (3 ) the time being, they hold any of the following offices: President of Tynwald, Speaker of the House of Keys, member of the Council of Ministers, member of the Treasury Department referred to in section 1(2)(b) of the Government Departments Act 1987. (4) The Committee shall - (a) (i) consider any papers on public expenditure and estimates presented to Tynwald as may seem fit to the Committee; (ii) examine the form of any papers on public expenditure and estimates presented to Tynwald as may seem fit to the Committee; (iii) consider any financial matter relating to a Government Department or Statutory Body as may seem fit to the Committee; (iv) consider such matters as the committee may think fit in order to scrutinise the efficiency and effectiveness of the implementation of Government policy; and (v) lay an Annual Report before Tynwald at each December sitting and any other reports as the Committee may think fit. (b) be authorised in terms of section 3 of the Tynwald Proceedings Act 1876 and the Standing Orders to take evidence and summon the attendance of witnesses and further to require the attendance of Ministers for the purpose of assisting the Committee in the consideration of its terms of reference. (5) The Chairman, Vice-Chairman and any member of the Committee shall not sit when the accounts of any body of which that person is a member are being considered. TABLE OF CONTENTS 1. INTRODUCTION 1 2. THE EVOLUTION OF FILM FINANCING ARRANGEMENTS IN THE 4 ISLE OF MAN: KEY EVENTS AND DATES 3. SUPPORTING THE FILM INDUSTRY IN THE ISLE OF MAN: 6 DESCRIPTION OF THE FOUR FINANCIAL MODELS USED SINCE 1995 1995 to 1997: Tax credit schemes 6 1997 to 2003: Direct grants from DTI to producers 6 2003 to 2007: Isle of Man Film Limited 7 2007 onwards: CinemaNX Limited 9 4. KEY ISSUES OF CONCERN (1): GOVERNANCE ISSUES 14 Transparency and accountability 14 Performance management, targets and approvals 16 Potential conflict of interest 17 Investments by CinemaNX Limited 19 Resilience and succession planning 19 5. KEY ISSUES OF CONCERN (2): RETURN ON INVESTMENT 21 Local spend 21 Sustainability of the Media Development Fund (1): before 2007 24 Sustainability of the Media Development Fund (2): after 2007 25 Sustainability of the Media Development Fund (3): conclusion and 29 recommendation 6. POSTSCRIPT: FOLLOW-UP ON PAC'S 2006 RECOMMENDATIONS 32 (ISLAND FILM STUDIOS AND RELATED MATTERS) 7. CONSOLIDATED LIST OF RECOMMENDATIONS 37 Appendix 1: Letter dated 29th January 2009 from Chief Secretary's Office about 41 Island Studios and Associated Matters, with attachments Appendix 2: Treasury response to this Report, dated 10th November 2010 55 Appendix 3: List of documents available in the Tynwald Library 65 1. INTRODUCTION 1.1 The film industry is one of the Isle of Man's most high profile marketing initiatives. Since 1995 the Island has built a worldwide reputation for co-financing and co-producing feature film and television dramas. 1 During that time over 90 feature films and TV dramas have been produced here. The advantages the Isle of Man can offer to potential producers include varied scenery and architecture readily accessible within a small area, good support and low costs. The potential advantages of the film industry to the Island include the generation of local spend within the Island's wider economy (for example, the hospitality sector), the creation of job opportunities for Island residents, and the development of film tourism. The industry has benefitted from public investment, rising from relatively modest beginnings in the mid-1990s to what is now a more significant level of investment and strategic use of the Media Development Fund. 1.2 We started looking at this issue in 2008 in the context of an investigation of the management and use of reserve funds in general. We reported on that wider investigation in March 2009 (PP39/09) but concluded that the fund associated with the film industry, the Media Development Fund, merited a separate investigation because of the complexity of the arrangements associated with it. It subsequently came to our attention that the Public Accounts Committee had looked at this issue in 2004 to 2005, although it had not produced a Report on it at that time. 1.3 The Committee did report to Tynwald on a related matter in 2006. Its Report on Island Film Studios and associated matters (PP135/ 06) made 14 recommendations related to the procedures to be adopted by the DTI in considering applications for grants. All the recommendations were approved by Tynwald on 17th October 2006. The present Report includes as a postscript an update on progress with those recommendations. 1.4 This investigation sits within the remit of the Public Accounts Committee as set out in the Standing Orders of Tynwald Court, and in particular within the Committee's duty I This report was completed in July 2010. Following the procedure agreed by Tynwald in July 2006, it was then submitted to the Treasury and Tynwald was notified. The response of the Treasury is at Appendix 2. 1 under paragraph 4.4(1)(iii) of the Schedule to those Standing Orders to "consider any financial matter relating to a Government Department or Statutory Body as may seem fit to the Committee". In the terms of reference which we initially set ourselves we identified a number of issues, which are picked up later in the Report: (i) a 2004 Internal Audit study of what was then known as the Film Fund raised questions as to the sustainability of the Fund in the medium to long term. Now is an appropriate time to follow those questions up; (paragraphs 5.10 to 5.14) (ii) after receiving the Internal Audit Report in 2004 and considering the accounts of Isle of Man Film Limited in 2005, the previous Public Accounts Committee picked up on some other points including succession planning. There could be value in following up on this now to see what has been done; (paragraph 4.17 to 4.19) (iii) the accounts for the fund (page 35 of Appendix 5 of our report on Reserve Funds, PP39/09) and for Isle of Man Film Limited (included within Appendix 7 of PP39/09) show significant income under the heading "recoupment" (09.8 million in 2007/08). There was a critical question as to whether "recoupment" represented real income to the Island from outside investors, as was claimed; (paragraph 3.11) (iv) given the changes in fiscal policy affecting the transfer of revenue funding to reserves and the Media Development Fund in particular, we believe questions should be asked as to how well prepared the fund is to be able to sustain film investment into the future (paragraphs 5.15 to 5.28) (v) we noted the unclear division of responsibilities which existed between Treasury and DTI in respect of this fund which may have obscured respective roles and responsibilities of the two departments; (paragraph 3.19) and (vi) the accounts are complex and we considered that there was potential for that complexity to inhibit transparency and accountability. (paragraph 4.6) 1.5 We had appointed a Sub-Committee in January 2008 to lead our work on reserve funds in general. The Members of the Sub-Committee were Mrs Christian (chair), Mr 2 Henderson and Mr Watterson. Following the conclusion of its work on the wider reserve funds Report (PP39/09), the Sub-Committee recommended to the full PAC that it continue in operation in order to lead work on the Media Development Fund. This recommendation was accepted by the full PAC. Under Standing Order 5.11 of Tynwald Court a sub- committee cannot report to the Court. Accordingly the Sub-Committee reported to the full Public Accounts Committee and this report represents the considered conclusions of not only the Sub-Committee but the whole of the Public Accounts Committee. 1.6 The Sub-Committee met to consider the current investigation on eleven occasions. The Sub-Committee's draft report was considered by the full Public Accounts Committee at four meetings. 1.7 The Sub-Committee took written evidence from the Treasury, DTI and CinemaNX Limited.