THE producers of The Watchmen, a $120 million blockbuster Hollywood film, are poised to pull the plug on producing the sci-fi epic at Pinewood Studios because of the rising cost of making films in Britain and uncertainty over government tax breaks.

Paramount Pictures, a division of Viacom, the films-to-theme parks conglomerate, is looking for alternative locations for the film after deciding that it will be too expensive to make in Britain. One option under consideration is to move the film back to Hollywood, where it would be cheaper to make.

The decision to try to cut the budget for The Watchmen is understood to have been made by Brad Grey, who took over as head of Paramount on March 1. Mr Grey and Gail Berman, a former Fox Broadcasting executive who signed on as the studio’s president late last month, are seeking to lift Paramount’s performance by focusing on lower-budget films.

“The new management is concerned about how much it’s costing to do the film in the UK,” said Lloyd Levin, the film’s producer. “There is a feeling that there might be a less expensive way to do the film outside the UK, given the environment right now,” he added. Paramount did not return calls yesterday. Pinewood, whose shares fell 3½p to 180p, declined to comment.

Although a final decision is yet to be taken, there is very little chance now that the film will stay in Britain. Dozens of staff working on pre-production have been given one week’s notice, including many who are understood to have been on 18-month contracts.

The film, which is being directed by Britain’s Paul Greengrass, who directed Bloody Sunday and The Bourne Supremacy, is a big-budget adaptation of a comic strip created by Alan Moore, creator of From Hell, The League of Extraordinary Gentlemen and Hellboy.

The likely relocation will come as a blow to Pinewood Shepperton, the quoted company that owns Pinewood Studios, which had been banking on The Watchmen to help it to return to growth in the second half of the year.

The studio group said recently that several productions had been delayed by doubts over tax breaks for British films, sending its shares down 13 per cent in a day.

The Treasury wrought havoc across the industry by announcing a year ago that it would end Section 48 tax breaks, which are available for films with budgets of less than £15 million. Section 48 will be replaced by production tax credits, but the industry remains confused about how they will work.

More recently the Treasury launched a review of Section 42 incentives, which are used by major studios to offset the cost of much larger productions by as much as 20 per cent. “That is a huge factor. It is the difference between the cost of making the film somewhere else or making it in Britain,” said Mr Levin.

Senior Hollywood executives have urged the Treasury to maintain its support for UK film production through Section 42 tax breaks. The Treasury is consulting the Government and film industry over the tax breaks and it is expected to announce draft legislation later this year.

Mr Levin said that even if The Watchmen shifts to another location it was possible that many millions of pounds of post-production, including visual effects, could still be handled in Britain. “We are in talks with several effects houses in London,” he said.

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