Film industry chiefs warned today that Britain will struggle to produce hits such as Billy Elliot if the Government does not increase the BBC's licence fee.

It came as ministers debate whether to allow an above-inflation increase in the TV licence to £185 by 2013.

The BBC promised this year to plough £300million into making more potentially successful films if it receives the extra revenue.

But indications from Whitehall are that Chancellor Gordon Brown is insisting on a below-inflation rise when Culture Secretary Tessa Jowell announces the Government's decision, probably in a few weeks.

UK Film Council chief executive John Woodward said today that refusing a significant rise in the feewould jeopardise the corporation's pledge to invest in movies and threaten the entire future of British film-making.

"That money is very important and if the BBC was not able to deliver on its promise I think that would be a very serious blow to the British film industry," he said.

"It would mean fewer quality films." He gave Billy Elliot and A Cock And Bull Story as the types of successful films that would be compromised.

The BBC promised to boost its annual investment in films from £10million to £15 million next year and £20million in 2008, with a total of £300million being ploughed in over the next 10 years. Its acquisition budget for British films would rise by at least £5million.

The corporation is keeping its counsel on the licence fee issue, having been accused of trying to hold the Government to ransom by threatening to axe plans for a new Manchester broadcast centre without the increase.

A spokeswoman said: "The BBC is absolutely committed to British film-making. As with everything else, we're waiting for the outcome of the licence fee settlement. That's all we can say." A spokeswoman for Ms Jowell's department said: "We can't speculate, but we have made it clear we expect film to continue to be an important part of the BBC's role."