Pact, the independent producers' trade body, today gave a cautious welcome to the government's new tax break scheme for British films announced in the budget.

The group welcomed the Treasury's confirmation that films that cost £20m or less can claim a guaranteed tax benefit of 20% of production costs, with films costing more getting a 16% reduction.

This new arrangement, proposed in the pre-budget report in December, was today confirmed by the chancellor of the exchequer, Gordon Brown, in his budget speech.

The scheme will make it easier for BBC Films and Channel 4's FilmFour to finance productions made for theatrical release.

Pact has said the tax break "should mark the beginning of a new era for British films and British independent production companies". It came after the chancellor closed down tax relief for small films after it was claimed that the benefits were abused.

However, Pact is to attempt to change the rules regarding eligibility for the relief, which have to be cleared by the European commission, because of its laws banning state aid for film productions.

Under the application for an exemption to allow the new breaks, the British government has asked for it to be made available for production work filmed in the UK. This means that British productions that film abroad will not be exempt.

Pact will lobby in London and in Brussels for a change to this definition, which it claims will provide a greater benefit to US studios making films in the UK at the expense of European cinema. A decision from the EC is expected next month.

Andrea Calderwood, the managing director of Slate Films and vice-chair of film at Pact, said: "The new tax credit should provide a real benefit to producers, which clearly reflects the government's commitment to the sustainable production of British films.

"However, we are concerned that the effect of EU regulations in this case may seriously endanger the prospects for British and European productions, while giving maximum tax advantages to US studio productions. We are sure this is not the effect that either the UK government or the EU intend and we hope to work constructively and urgently with them to address this anomaly."

Tim Willis, the Pact director of film, said: "We believe that the government's intention to encourage the sustainable production of British films provides the possibility for transformation of the independent production sector; we will lobby hard to ensure that the technical obstacle which has been raised can be overcome."

Gavin Hamilton-Deeley, media partner at accountancy firm Deloitte & Touche, said: "Today's announcement will be welcomed by the industry for two reasons. Firstly, it will allow overseas producers to access tax reliefs in the UK, and therefore should continue to make the UK an attractive location for filming, as well as help the UK compete internationally. Secondly, the extension of the proposed reliefs goes further than anticipated and [they] are more generous than expected."

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