LONDON - As Keira Knightley gazes out from hundreds of posters across the country advertising the local-grown hit "Pride and Prejudice," the casual observer could be forgiven for thinking the British film industry is booming.
But the star-studded remake of the Jane Austen classic is fast becoming an anomaly.
While Knightley and her co-stars spent months filming on location in England, other major film productions, including the Roman Polanski-directed "Oliver Twist" - and potentially, future installments of both the Harry Potter and James Bond series - have decamped overseas amid wrangling over the country's tax system and spiraling costs.
A report commissioned by the U.K. Film Council this month found that industry jobs dropped 20 percent last year and predicted that investment would fall to $570 million in 2005, down 70 percent from last year.
More movies shot elsewhere would have a devastating effect on a sector that contributes about $5.5 billion annually to British gross domestic product, the report added.
Tourism officials are also worried. They estimate that around one-fifth of the 28 million people who come to Britain each year do so after seeing the country depicted on screen. The report suggests that up to $2.8 billion of tourism spending is linked to films shot here.
"A good film in a great location not only brings in money during actual filming here, but people are inspired to visit when they see it in cinemas and for years afterward as it is distributed on DVD and video," said Elliott Frisby, spokesman for the VisitBritain group.
The film industry's troubles began in 2004 when the government cracked down on programs that allowed tax losses claimed by film backers to exceed the initial capital invested. Closing a loophole that allowed some producers to claim tax relief twice for the same film - for production costs and then for its sale and leaseback - caused chaos for several films already being shot.
The government is consulting with the industry about a new tax credit system due to start in April, but many are concerned about a likely decline in the tax relief available. Analysts predict that Hollywood films shot in Britain would qualify for a tax break of as little as 2 percent of their budgets, compared with around 9 percent now.
Pinewood Shepperton, owner of Britain's premier soundstages and home of superspy James Bond, says the ambiguous outlook has prompted major studios to defer bookings or shift production elsewhere.
Pinewood was counting on two new studios, including an underwater venue, to keep it an attractive option for large-scale productions.
But it is currently hosting just two major Hollywood films - "The Da Vinci Code" starring Tom Hanks and "Basic Instinct II" - and Sony Pictures has done little to dispel rumors it is considering using Prague not just for location work but as the main base for the next Bond film "Casino Royale."
The Czech capital has proved the most popular choice for producers looking to conserve budgets and recreate a piece of England abroad.
As well as "Oliver Twist," the city has provided the backdrop for other quintessentially British stories including the Jack the Ripper yarn "From Hell," the Dracula tale "Van Helsing" and the comic book adaptation "The League of Extraordinary Gentlemen."
"There's no other place in the world where ... we could build a 19th-century London and shoot in it for months," Polanski said of his shoot.
Prague's Barrandov Studios has also presented a bid to Warner Bros. to provide sets for "Harry Potter and the Order of the Phoenix." Warner Bros. has not announced its filming plans.
A major TV production about Queen Elizabeth I starring Helen Mirren went further afield, to even cheaper Romania, while a big-screen version of C.S. Lewis' "The Lion the Witch and the Wardrobe" split shooting between Prague and New Zealand.
Pinewood Chief Executive Ivan Dunleavy said the situation would "continue to impact on trading for the rest of 2005 and into 2006" as the studio issued a profits warning this month.
The actors union Equity is also lobbying the government to maximize the fiscal incentives to bring productions here.
"It's extremely important to retain a world-class production base in the U.K," said Equity spokesman Martin Brown. "We are looking for Hollywood-based films to be attracted here, that serves to open production business for domestic films."
Writer/director Charles Harris set and shot his first feature, "Paradise Grove," in London with government funding but is going overseas to film his second, which will be a joint Anglo, Belgian and Dutch production.
Harris expects the majority of funding for his thriller "King of the Docks" to come from Belgian and Dutch state grants, with little - if any - from Britain. He warns that a lack of tax relief will stifle industry growth.
"I would not have got to make my first film and I would not have been able to set up my second film," Harris said.
And the less Britain is seen on screen, the less likely it is to attract "set jetters."
Visitor numbers at Alnwick Castle, the location for Hogwarts School of Magic in the Harry Potter films, more than doubled between 2001 and 2002 after the release of the first film about the boy wizard.
VisitBritain, which produces maps showing movie locations around the country, is already gearing up for a joint campaign with the French tourism authority to promote locations in "The Da Vinci Code."
"It would be extremely disappointing to see more films made elsewhere," Frisby said. "We shouldn't lose the opportunity to showcase what's great about Britain."