WARNER BROS, the Hollywood studio owned by Time Warner, has safeguarded thousands of jobs in Britain’s struggling film industry by confirming plans to shoot the fifth Harry Potter film in the UK.

The studio told The Times that it had decided against making the film in a cheaper location in Eastern Europe, such as Hungary or the Czech Republic. A spokesman for Warner Bros said: “The next Harry Potter film will be shot in the UK.”

The proposed fifth film in the franchise, Harry Potter and the Order of the Phoenix, is expected by industry analysts to have a production budget of close to $150 million (£85 million). The decision to produce the film in the UK will create hundreds of jobs directly and many times more jobs indirectly, through related activities such as visual effects and catering.

It is believed that Warner Bros ultimately made its decision to keep the film in Britain because of the cost of relocating the extensive sets and talent overseas.

The news that the Harry Potter film will stay in the UK is a major boost to the British film industry. The news comes amid a huge slump in trading prompted by a government crackdown on funding schemes through which tax losses claimed by film backers can exceed the initial capital invested.

As a result of the changes, some major films that were due to have been made in the UK have either moved or been cancelled. This year, Paramount Pictures shut down its $120 million production of The Watchmen, an adaptation of the comic by Alan Moore, at Pinewood Shepperton studios, while the next James Bond film, Casino Royale, will be shot mainly overseas.

Although the previous four Harry Potter films have been shot at Leavesden Studios near London and on location in Scotland, sources said that moving the next instalment of the series to a lower-cost location such as Prague had been “a very real prospect” as a result of changes to the tax benefits regime.

From April, a new regime will replace two existing benefits, known as sections 42 and 48, that allow producers to deduct production costs from earnings as soon as a film is completed.

The industry yesterday had its last chance to persuade the Government to replace the existing regime with one that will provide at least the same financial benefits, with the closure of a formal consultation period.

But early indications have not filled film-makers with much hope for success. A consultation document released by the Government in July included new tax incentives that would offer Hollywood films shot in the UK benefits of as little as 2 per cent of their budgets, compared with an average of about 9 per cent under the existing system. “If they stick with the proposals that they put forward earlier in the year the impact on the industry is going to be devastating,” one executive said.

The number of people employed in the British film and video production industry plunged from 31,264 in 2003 to 24,816 last year, according to the UK Film Council. The numbers are expected to fall further this year.

The Treasury said yesterday that the decision by Warner Bros to shoot Harry Potter and the Order of the Phoenix in the UK was “a welcome sign of confidence in the Government’s continuing commitment to UK film production, and testament to the skills, talent and film-making excellence in the UK”.

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