UK film industry warns against tax relief removal

The film industry brought in billions of pounds to the UK economy last year but a cut to tax breaks could see growth collapse, according to a report from Oxford Economics.

The research group revealed yesterday that the film sector contributed £4.6bn to the UK's gross domestic product in 2009. The news came in a 108-page report into the economic impact of the UK film industry, which had been commissioned by groups including the UK Film Council and the studio Pinewood Shepperton.

The report explored the industry's impact on issues from employment to merchandising and box-office receipts, and even its effect on tourism. It concluded that the UK film industry had weathered the recession well, partly thanks to the emergence of 3D – such as the recent StreetDance 3D, which proved a smash at the box office – "and is strongly placed to continue its recent growth and expansion".

Tim Bevan, the chairman of the UK Film Council, said the industry was "firing on all cylinders and is well-placed to play an increasingly valuable role helping the UK economy grow in the years ahead". There are currently 36,000 fully employed in the country's core film industry, almost a third higher than the level a decade ago. This includes employees of production companies, and those that distribute and show UK-made films.

Oxford Economics stressed that the health of the film sector in the UK depended on keeping the tax breaks, first introduced in 1992, in place. The relief, as well as the depreciation of the pound, are crucial factors to UK films costing on average 40 per cent less than the US and 7 per cent less than the Czech Republic in 2010, the report said.

The UK's tax breaks cost about £110m a year, yet, should that be removed, the UK's GDP would fall by £1.4bn, the report said. One film industry insider said that there had been no indication that the tax relief would be pulled, but added that in the current environment of cost-cutting, the Government was sure to look at it.

Ed Vaizey, the minister for Culture, Communications and the Creative Industries, yesterday moved to assure the industry that the Government would continue to support film. "The creative industries are a British success story. They continue to grow, and the Government sees the real potential they have to help our economy in the coming years," he said. "This report is evidence of how important British film is – to our economy as well as promoting our cultural life, our identity and diversity on the international stage."

Ivan Dunleavy, the chief executive of Pinewood Shepperton, where the recent James Bond films were shot, said the new coalition government had been "extremely positive" on issues including the film tax credit "which, along with the UK's skills and expertise, has helped to keep the UK competitive in a global market". The report warned that many highly competitive countries, including the US and Canada, were upping their relief to compete.

Exports from the UK film sector totalled £1.3bn in 2008, while London currently has 20 per cent of the global market share of visual effects work. Recent Hollywood blockbusters including Avatar and Clash of the Titans had visual effect work carried out in the UK.

Films set in the UK are important to British audiences – the report estimated that local films' box-office receipts climbed up to 30 per cent – and, surprisingly, for tourism. Films depicting the UK such as Guy Ritchie's adaptation of Sherlock Holmes generate a tenth of revenues from overseas visitors, Oxford Economics found. That totalled about £1.9bn a year, it said, before admitting the data was less than robust.