Drama at the British film industry: Money trouble and a threat from China

Our position as the world's third largest film market after the US and Japan is set to be overtaken

A rare success: Dame Judi Dench and Steve Coogan in Philomena

Is the British film industry in danger of becoming little more than a special-effects workshop for Hollywood? As stars gather for the British Independent Film Awards (Bifa) tonight, there are growing concerns that despite new tax breaks for the industry, the UK's status as a top screen performer could be slipping. New statistics from the British Film Institute (BFI) suggest that only 7 per cent of UK films make a profit and Britain's position as the world's third largest film market after the US and Japan is set to be overtaken by China.

The industry was boosted when George Osborne's Autumn Statement revealed plans to make it easier for Hollywood studios to qualify for UK tax breaks. The change, which reduces the proportion of a film's budget that must be spent in the UK for a production to qualify for tax relief, is expected to benefit Britain's globally renowned special-effects industry.

"The UK is a centre of excellence for special effects and this will make it easier for international productions to come here," said Will Cohen, chief executive of Milk, which created sequences for the $170m (104m) movie Snow White and the Huntsman.

But the climate for British producers wishing to tell smaller-scale, home-grown stories remains tough. New BFI statistics show that only 3.1 per cent of films with budgets under £500,000 turned a profit. That figure rises to 17.4 per cent for films with a budget of £10m and above. David Steele of the BFI said the profitability figures were estimated from a survey of 613 British films produced or co-produced in the UK between 2003 and 2010.

Steele also highlighted that, while the UK remains the third largest film market in the world, China will overtake in the coming years. "China is at number six but is moving up fast and is expected to overtake the UK in 2018," he said. More needed to be done to export UK films to the growing Asian market, he said. "We are strong in the EU and US but underpowered in Asia and the rest of the world.

"Something has to be done, like trade delegations to China, to crack those markets."

BFI chief executive Amanda Nevill travelled with Prime Minister David Cameron to China last week to help boost trade.

Trudie Styler, producer of Filth, the Irvine Welsh adaptation up for five Bifas, said she may move from movies to television, where long-form "box set" series are now luring Hollywood talent. "Television is certainly more lucrative than the genre we're in and we're looking at that. But I love films and my passion will always be in the independent world," she said.

Where British films are being made, standards appear to be rising, reflected by increased critical acclaim. Starred Up, starring Rupert Friend and directed by David Mackenzie, was described by one critic as the "finest British-made prison drama for a long time". The story of a young man who is prematurely transferred from a young offenders' institution to adult jail for being too violent, the film is released in UK cinemas in March.

The Selfish Giant, about a troubled teenager, and Philomena, starring Steve Coogan and Judi Dench, about a woman's search for her son, who was given up for adoption, have also been critical and commercial successes.

Johanna von Fischer, director of the Bifas, said: "What's exciting about this year's nominees is the different kinds of film represented – from Under the Skin [sci-fi thriller] to Le Week-End [relationship story] and Metro Manila [crime drama] to Filth. British independent films aren't just about social realism or costume drama."

Ms Fischer added: "Ten years ago we struggled to fill the nominations. Now there are some real gems that struggle with distribution. The challenge is to shout louder about British films so when they play at cinemas people don't overlook them."