Second coming attraction

Although the Budget offered no incentives, the City recognises the new potential in backing UK films. David Bowen reviews the industry in the wake of the latest studio sales

On Friday a new film opens in the West End. Solitaire for 2 is a British, low-budget romantic comedy produced by Gary Sinyor, who also made Leon the Pig Farmer. David Youngman, of the Manchester brokers John Siddall, hopes more than most that Solitaire will be another Four Weddings and a Funeral because his own company has underwritten a good chunk of the £625,000 cost. He had hoped private investors, given tax breaks under the Enterprise Investment Scheme, would come up with the money. In the event they contributed less than £250,000.

"We couldn't raise any more," he says. "The UK offers no tax incentives, no grants, nothing in terms of finance that would attract a film-maker to Britain."

Were it not for heavy marketing to Manchester's Jewish community, where Sinyor comes from, Solitaire would hardly have raised a bean from private investors, Mr Youngman says.

There are plenty of others equally upset about the Government's attitude to the film industry. No award ceremony is complete without a famous name making an eloquently anguished plea for the Government to give tax breaks or grants. A new group is being set up by City institutions and the Corporation of London to do the same thing. And there is clear evidence that film-makers have been tempted from Britain to Ireland by Dublin's film-friendly regime. Film, it appears, is an industry that is on its knees.

So why did the directors Tony and Ridley Scott announce on Wednesday that they had bought Shepperton film studios, having raised money from Candover Investments and Barclays Bank? Why do the Scotts intend to spend £10m on upgrading the famous studio?

The answer is complex - and reflects a great deal of confusion about the real state of the British film industry. For a start, what is a British film? Is it a film financed by the British? Or is it a film made in the UK?

If it is jobs and skills that matter, it is the number of films made in Britain that count. Film-making is a labour-intensive business - especially if the film is big enough. "Shepperton high street is one of the most prosperous in Britain," says Paul Oliver, studio manager at the Scott's new acquisition. That is because Judge Dredd, a $66m (£42m) film based on a comic strip, is being made there. The studio's permanent staff is being boosted by at least 200 people - plus the actors. The film draws on a pool of skills - special effects creators, set-makers, electricians and so on - reckoned to be unmatched anywhere in the world.

It is foreign blockbusters that need the big stages offered by the big studios. Star Wars was made at Elstree; the James Bond films have their own stage at Pinewood; The Guns of Navarone were fired from Shepperton. But in the early 1990s, there were those who said the blockbuster was gone for good. For one thing, the special effects films at which the British excelled had gone out of fashion. More important, with the pound around the $2 mark, the UK had become too expensive for American producers.

In 1991 the Government set up the British Film Commission, with a brief to bring films back. But the fundamentals - unrelieved by any financial cushion - meant it had an uphill task. Two years ago, 20 films were being made in Britain - all with modest budgets and 15 backed by Channel 4. Then sterling fell out of the European Exchange Rate Mechanism and the studios' prospects were transformed. Not only did Britain become 25 per cent cheaper for Americans but special effects made a comeback, with films such as Mary Shelley's Frankenstein and Judge Dredd.

Add the television work from independent producers (The Vicar of Dibley was made at Shepperton, as were a number of commercials), and by 1994 both Shepperton and Pinewood were bursting at the seams. In the first nine months of 1994, there were 43 UK production starts worth £250m - and three-quarters of that came from the US.

Though demand has returned, Pinewood and Shepperton have also been helped by the removal of a third of Britain's big-stage capacity, after the closure of Elstree.

In 1989 Elstree was bought by the conglomerate Brent Walker, which said it wanted to invest in production facilities. As film work dried up, it changed its mind and persuaded the local council, Hertsmere, to allow it to knock down the old Star Wars set and sell the land to Tesco. It promised, though, that it would re-invest this money in the rest of the site, which would be used only for film production for at least 25 years.

As Brent Walker continued to slide, this promise went by the board. The group wants at least £10m for Elstree, which the council claims is too much. Meanwhile Hertsmere is suing Brent Walker - and the three stages lie usable but empty.

The combination of high demand and short supply provides the background to the Scotts' purchase of Shepperton. For the moment, at least, it makes eminent sense.

But the fear is that US producers will flee Britain as quickly as they arrived. While the Government sees film as just another industry it does have one crucial difference: it is far more mobile, and a shift in currency rates, or state blandishments elsewhere can easily send producers scuttling away.

Last year Mel Gibson started production of Braveheart, an epic about the fight of the Scotsman William Wallace against the English. For six weeks Gibson filmed in Scotland, then he upped sticks and moved to Ireland. He had been wooed hard by Dublin, which not only offered tax breaks but also said that he could use 1,600 reservists as extras, absolutely free.

In 1992, according to the British Film Commission, one film with a budget of IR£1m was produced in Ireland; last year 18 films, costing more than £100m, were made there. This, the BFC said, was a direct result of a new policy to attract film-makers. Not only were there tax breaks, the minister for the arts and culture, Michael Higgins, lobbied actively to lure producers to his country.

David Aukin, head of drama for Channel 4, is convinced that the Irish have scored a coup at the expense of the British. "Currently, we have four projects in Ireland, and in the last 12 months we have been party to productions made there worth £15m. The benefit to the country far exceeds the subsidy that Dublin has provided."

The standard call in the UK is for a 100 per cent write-off of production costs in a single year. Mr Aukin believes a more important area is distribution. Without Hollywood-style studios, marketing is too often left in the hands of over-cautious distributors. "There should be a levy or grant to allow film-makers to market as aggressively as the Americans do," he says.

There is, of course, a ready riposte to demands that Whitehall should match the Irish subsidies - that it would lead to a beggar-thy-neighbour subsidy war. The Treasury must have found it easy to fight off demands from producers to give something away inthe last Budget.

Now, though, a more hardnosed grouping is joining the lobby. At a recent breakfast meeting, representatives of several large City institutions agreed with officials from the City of London Corporation that they would fight Stephen Dorrell, Secretary of State for National Heritage, who has opposed tax breaks for the industry. "We have to get the Government to see sense," says one source close to the alliance. "The UK is on the threshold of grabbing part of this business, but the opportunity won't be there in 18 months."

The City's interest arises not from altruism, but from a belief that once again there may be money in films. It is interested in the second type of British film: the one that is made with British money and generates profits for British people.

The banks have strange bedfellows here: the high-profile defenders of the industry who believe the great days of all-British cinema can be reborn. "Is there such a thing as the British film industry?" the Labour MP Gerald Kaufman asked last month, bemoaning the fact that the studios he visited were occupied by American productions.

Many people in the industry question his sort of nostalgia. "I do not believe we should compete with Hollywood," Mr Aukin says. He adds that the success of Four Weddings and a Funeral and The Crying Game proves that there is a distinctive type of film atwhich the British excel. "Pound for pound they are two of the most successful films ever made," he says. "Our job is to make films that Hollywood could never make, would never make - but when it sees, it adores."

If there are two words that spell saviour for this sector of the market, they are Channel 4. Solitaire for 2 is one of a handful of recent British films that have not been backed by Mr Aukin. The company made £4m from Four Weddings but, he says: "Even with that, Channel 4 has put in more overall than it has got back."

The best news for the film industry is that the City is looking at films once again. The Treasury has a good case for refusing to subsidise film-making - but there must also be a good case for a different sort of involvement.

Stephen Dorrell should throw off his Treasury old boy mantle and take a leaf out of Mr Higgins's book. A glass of Guinness and the promise of 1,500 territorials for a few days must have had a limited negative impact on the Irish public-sector debt requirement - and a potentially massive one on its invisible trade account.

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