James Bond, Jude Law perioddrama Tulip Fever, and a big-screen adaptation of BridesheadRevisited all failed to get off the ground last year as UK productionlevels crashed.

As the industry was hit bytougher tax laws and a scaling back at traditional sources of funding such asFilmFour, the number of indigenous UK films that started shooting fell by 40%.Only 27 British films went ahead, compared to 2003's tally of 45, according toScreen International's research.

Hit by a weak dollar, inwardinvestment from big budget US films shooting in the UK is also expected to bedown. UK co-productions also fell from over 100 to around 80.

A drop in the level oftax-based financing on offer is seen as the biggest single reason for the fallin UK films. Many film funds were frozen after the government made a series ofchanges to tax legislation. Tulip Fever, which was to star Law and KeiraKnightley, collapsed as a result, while fellow period piece The Libertine,starring Johnny Depp, was forced to flee to the Isle of Man.

"There isn't anything comingin to replace [the funds]," said producer Marc Samuelson. "We are in a hiatus"

Now the fear is that moreproductions will collapse or move abroad as the UK hammers out replacementlegislation for tax support for film under Section 48. Details of the so-called"son of Section 48" are still vague despite the current system's expiry inJuly.

"The government is seriouslyengaging in sorting this out," said Samuelson.

Last year was never likelyto hit the high of 2003, when tax-driven investment drove total productionvolume to a record $2bn (£1.1bn). Then, some industry observers feared the UKwas overheating. Financed largely by private investors through tax-based filmfunds, many pictures failed to find a theatrical release.

But the lack of tax-basedfinancing was only part of last year's problem. Across the industry,traditional sources of investment for UK films have scaled back. Miramax Films,in its own state of uncertainty, has been noticeably quiet, while the three NationalLottery franchises have expired. Although the film companies that thefranchises spawned are still active, production levels have inevitably beendented without their $168m (£90m) lottery windfall.

Working Title Films wasstill busy last year, producing Nanny McPhee and Pride And Prejudice,but it was probably never going repeat 2003's activity, when it pushed through BridgetJones: The Edge Of Reason, Wimbledon and its biggest budget film to date, Thunderbirds.

At the broadcasters, BBCFilms has been busy with Stephen Frears' Mrs Henderson Presents,starring Judi Dench and Bob Hoskins. But neither the BBC nor its Channel 4rival, FilmFour, hit the kind of turnover of the old FilmFour regime. Until itwas closed down as a stand-alone division in 2003, FilmFour operated on threetimes the budgets of either its current incarnation or BBC Films.

Andrew Eaton, directorMichael Winterbottom's regular producer, blamed UK distributors for investingtoo little in British films. "If you're making something for TV you can get themoney," he said. "If you are doing it for the cinema its harder."