By Ian Youngs BBC News Online entertainment staff

Liv Tyler has been cast in The Houdini Girl

Ms McCreery has cast The Lord of the Rings star Liv Tyler as the leading lady for The Houdini Girl, based on the novel by Martyn Bedford.

But she saw a large chunk of her budget disappear after the government closed a tax loophole that many film investors took advantage of.

"Something's definitely got to be done about it," she told BBC News Online.

"I've just instantly lost 40% of my budget, along with everyone else in the industry."

If the situation did not change, there would be just a few companies in the UK that would still provide funding for film-makers, she said.

"It makes the industry incredibly small again - it goes back to 10 years ago," she said.

"You can't make films if there are only two places to go to - and then they're only going to make so many films a year."

Casualty

Most UK film-makers took advantage of tax relief in some form, she said - and the recent changes would hit big productions as well as small ones.

Tulip Fever, starring Jude Law and Keira Knightley and directed by Shakespeare In Love's John Madden, has become the first major casualty.

"You can't get a better cast and a bigger director - it had the full package. And they've gone immediately," Ms McCreery said.

But she did not know whether investors abused the tax system, as the government has claimed.

You just have to carry on and find other routes, and see how it all pans out Kate McCreery

"That genuinely hasn't happened in my case so I don't know. I genuinely don't know if people are abusing it - I'm sure they must be somewhere but I don't know the answer to that."

In the Houdini Girl, Liv Tyler will play Rosa, an Irish girl who is seduced by a magician - but suddenly killed, leaving a mysterious trail for the magician to follow.

The film is in "pre-pre-production", with Ms McCreery finalising the casting and budgets.

That is the stage before pre-production, where the wheels get set in motion for filming.

"I've got Liv Tyler on board and I'm pulling all the finance together - it's about �4m. I'm at the stage where I'm doing budgets and organising that," she said.

'Confident'

"I so feel for everybody in pre-production because it's so hard to be able to get your film financed again at that stage. It becomes really expensive."

The movie would move ahead in the hope that the UK Film Council could resolve the issue, or she could get funding from countries like France or Spain, Ms McCreery said.

"I'm going to just have to carry on casting the male lead - you just have to carry on and find other routes, and see how it all pans out.

"You have to be confident - you have to think that there's a body like the Film Council that has to be able to sort something else out. Otherwise, what's the point of having it?"