UK Minister of State for Culture, Creative Industries and Tourism Margaret Hodge defended the industry's position during her keynote speech atthe Screen International annual UK Film Finance Summit.

But she has asked the UK Film Council to undertake an evaluation of the success of the UK tax credit as figures show a drop in co-production activity.

Hodge - appearing in the place of Culture Secretary James Purnell (a late withdrawal from the conference) - told a packed conference that the 'creative and cultural industries' (including film) make up over 7% of the British economy, 'equivalent to what the financial services contributes to the economy.'

She revealed that the Government has now commissioned the UK Film Council to undertake a study looking at the state of the industry following the recent introduction of the new tax credits. 'If we do see a fall in co-productions, I and the Secretary of State want to know about it,' she said.

Hodge insisted that British films remain 'at the heart of British culture' and that the Government is 'at the heart of funding them.'

However, the Minister again reiterated the Government's opposition to film financing schemes relying on tax avoidance. 'The Government does not make an apology for restricting sideways loss relief and curtailing GAAP equity schemes,' she declared. 'Government supports a sustainable industry, not one built on the shifting sands of tax avoidance. My warning for filmmakers who wish to raise finance on the backs of such tax avoidance schemes is that they do so at their risk.'

As Hodge's speech made clear, these are paradoxical times for the British film industry. On one hand - as Hodge pointed out - box-office returns and capital investment are up, the studio and post-production houses remain busy, and there has been an increase in film-related employment. 'Last year, the film industry contributed £4.3 billion to UK GDP, up from £3.1 billion in 2004,' she noted.

On the other hand, independent British producers are finding it increasingly difficult to finance their movies or attract support from international co-production partners.

Figures expected to be released today will show a big drop in co-productions.

Asked whether the UK might now consider again entering Eurimages (the Council of Europe's film investment fund that now has 33 member states), Hodge gave a noncommittal reply.

Despite Hodge's assertion that 'well-made British films are not a rare and endangered species,' some delegates in the hall clearly disagreed with the Minister's upbeat assessment of the health of the industry.

Stephen Margolis, chief executive of Future Films, called Hodge's speech 'extremely disappointing and extremely misinformed.' He acknowledged that the new tax credits have introduced stability to the industry, but asked what was the point of a stable policy if 'there was zero activity.'

Duncan Reid, Commercial Director of Ingenious Media, commented that it was still too early to assess 'what a tax-credit-only scenario looks like,' but added: 'If anybody out there feels there is actually a good deal of independent British film activity going on right now, I'd like to hear about it. We (at Ingenious) are usually pretty good at finding out what is going on and we can't find a lot that is going on.'

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