Tax-break riddle a flaw in Pinewood script

THE HOUR is dark. Darker, I think, than most years in my lifetime.' It could be the pay-off line in a classic film. But it was said last month by Michael Kuhn, one of the British film industry's leading figures.

The founder and former president of Polygram Filmed Entertainment warned that a lack of funding and uncertainty over tax breaks for such funding meant the UK industry was suffering its worst year in two decades.

Yesterday came confirmation as Pinewood Shepperton, the country's leading studios group, issued a stark profits warning - which had analysts slashing forecasts for this year and next. The interim dividend has been axed and the final payout could be in doubt.

While the strength of the pound against the dollar over the last year has not helped, Pinewood made it clear it is the tax breaks issue which has had the most effect on it failing to win its share of blockbuster movies in recent months.

While the Pinewood-produced Batman Begins rang up healthy box office sales around the world on release last weekend, other major movies are looking to shoot in lowercost eastern Europe or even returning to Hollywood.

Chief executive Ivan Dunleavy said: 'As an industry we are very appreciative of the support we get from Government, but we are keen to start working with them on the consultation they have planned to improve the fiscal regime for film makers.'

Chancellor Gordon Brown has closed several tax breaks he felt were abused by wealthy individuals. He also announced in the last Budget that he would extend Section 48, which covers films with production budgets, until next March.

But for big-budget films, covered by Section 42, there is a lack of certainty over current rules which can save up to 20% of production costs.

Dunleavy explained: 'While there is certainty about the current legislation, people would like to know the benefits will still be there when the film is completed. From the start of production to completion is usually between 12 and 18 months. Producers cannot risk starting a film if the tax break won't be there when they finish.'

Pinewood never comments on specific films. But, earlier this year, it told the stock market Paramount had pulled out of making its £67m sci-fi epic Watchmen in this country in favour of Hollywood.

The sequel to Basic Instinct, Risk Addiction, is being shot at Pinewood but the 21st James Bond film, Casino Royale, could be the first in the series not to be shot there. Similarly the producers of the fourth Harry Potter film, The Order of the Phoenix, are reportedly looking at production in the Czech Republic.

Film and TV production generates around £14bn a year in Britain, according to a report this year by film-maker Lord Puttnam. Since 2003, tax breaks for the industry have cost the Treasury £5.2bn.

But last year, just 132 feature films were made in the UK, down from 173, and the amount spent on them dropped 30% to £880m.