Image caption Stars of British animation: Wallace & Gromit, Bob the Builder and Peppa Pig

The British animation industry, which has spawned favourites from Bagpuss to Bob the Builder, is at risk of terminal decline, leading animators have warned.

Animation UK, a lobby group backed by prominent studios, has met Chancellor George Osborne to urge him to introduce tax breaks in next month's budget.

They have told him the industry is at a "critical tipping point" and could disappear from the UK within years.

They say foreign tax breaks and other factors make it cheaper to work abroad.

Animation UK said their meeting with Mr Osborne was "positive and productive".

It follows a warning from Wallace and Gromit animators Aardman, which said it was considering moving production overseas because it was too expensive in the UK.

'Important role'

In France, government funds and tax breaks account for almost 20% of production budgets, while Irish tax relief is worth up to 28%. In Canada, tax credits and other public support accounted for 47% of budgets in 2009/10.

A Treasury spokesman said the government recognised "the important role that all businesses - including those in the animation sector - have in building a strong, sustainable and balanced economy".

The government has already taken steps to help businesses by lowering corporation tax and widening measures to stimulate investment, he said.

Here, leading figures of the British animation industry explain why they believe it will be a struggle to ensure future children's favourites are made in the UK.

Anne Wood, Ragdoll Productions

Anne Wood co-created Teletubbies and Rosie and Jim. Her latest animations, The Adventures of Abney & Teal and Dipdap, made their debuts on CBeebies last year.

Image caption Wood was made a CBE for services to children's broadcasting in 2000

Asked whether she would be able launch a production company if she was starting out today, she instantly replies: "Couldn't do it. Wouldn't be viable.

"When I started, I was one of the first independent companies and we made for Channel 4. You got your full production costs plus a production fee. Now you're lucky to get 15-20% of your production costs and you have to go out and find the other 80%."

The BBC is the only British broadcaster left that spends significant sums on new programmes, she says. "You've got all of these extra channels but the money for content has gone down."

It is cheaper for TV channels to buy programmes made in countries with tax breaks or in the US, she says.

"We are then abandoning ourselves to North American culture because in North America it's such a big market, so people can make their money back in their home market and let it come over here cheaper."

Ms Wood's company Ragdoll tried once to outsource animation to India, where labour costs are lower, but describes that as "a complete disaster" because she had less control over the outcome.

"You lose the confidence and you lose the flair. We have confidence and flair in the UK and that is what's going," she said, adding: "I'm deeply concerned that that heritage and wealth of talent is being eroded to the point of almost disappearing."

Andrew Haydon, Chapman Entertainment

Chapman Entertainment created Fifi and the Flowertots and Roary the Racing Car, and director and co-founder Andrew Haydon says three developments have conspired against UK animators.

Image caption Fifi and the Flowertots is shown on Five in the UK and Nick Jr in the US

Overseas tax breaks make it cheaper to make programmes abroad, TV stations are paying less for shows while demanding an increasing share of the profits, and the recession means revenues from toys, books and DVDs are down.

"If you put those three together then it just doesn't make it work," he says.

Of the company's creations, Fifi and the Flowertots, Roary the Racing Car and Raa Raa the Noisy Lion have been animated in Altrincham, Cheshire, with Little Charley Bear made at Pinewood Studios, Buckinghamshire.

The desire to retain the same styles of animation means there is an "overriding need" to keep those shows in the UK, he says.

But the company's founder Keith Chapman, who created Bob the Builder, has been taking new ideas to producers in Canada.

"With brand new ones you'd be slightly mad to be doing it in the UK without a tax break or some sort of benefit," Mr Haydon says.

"If we do something that's new, it will be a co-production and it will be an overseas production."

Francis Fitzpatrick, Cosgrove Hall Fitzpatrick

Cosgrove Hall was an animation institution, making classics including Danger Mouse, The Wind in the Willows and Chorlton and the Wheelies in its Manchester studios.

Image caption Cosgrove Hall Fitzpatrick is now run by (l to r) Brian Cosgrove, Francis Fitzpatrick and Simon Hall

It was shut by its owner ITV in 2009, but the studio was recently resurrected by its founders, the late Mark Hall and Brian Cosgrove along with entrepreneur Francis Fitzpatrick.

So at a time when the rest of the industry is talking doom and gloom, why are they going back into animation?

Mr Fitzpatrick replies: "Sometimes when things are difficult, the flip side of that is that no one else is starting so there's massive opportunity."

Their new flagship show Pip! will be made in Manchester, he promises. But the UK has "a big hill to climb" to compete with countries like Canada, Ireland and France, he says.

"If you spend £1 in Ireland, you will get an immediate tax return of 28p. A French production company can attract up to 70% of the funding [from the government].

"It's very challenging [in the UK]. Yes it is viable, but it would be so much better if it was on a level playing field.

"If there was more government support, I think you'd find more Thomas the Tanks, more Peppa Pigs, and the upside of that is massive boosts in revenues to the exchequer."

Phil Davies, Astley Baker Davies

Animation trio Astley Baker Davies are best known for creating Peppa Pig, which is broadcast in 180 countries.

Image caption Phil Davies, Mark Baker and Neville Astley (l to r) have won Bafta Awards for Peppa Pig

Phil Davies and Mark Baker started their careers making short films for Channel 4, which closed its dedicated animation arm in 2002.

"The directors of tomorrow had natural homes to go to in short film-making when they left college, and that seems to have completely disappeared now," Davies says.

The firm's shows, which also include Ben & Holly's Little Kingdom, are made at their base in Regent Street, London.

"We have a piece of bespoke animation software that we use to animate our series, and without that we just couldn't afford to do it over here," Davies explains.

"Before we would have needed 100 or 120 people. Now we've got 30 people. As film-makers we want to be in work and making something, so it's a matter of finding new and novel ways to carry on with production."

Davies says he knows "many, many people" who have been lured to countries like Ireland and Canada and his company has been offered "fantastic deals" to move production abroad.

He has resisted so far because "it's fantastically difficult to animate at arm's length". But he adds: "The next series or the next film that we do? I think the jury's out."

Curtis Jobling

Curtis Jobling, who designed Bob the Builder and created Frankenstein's Cat, describes himself as a "freelance creative", coming up with ideas for shows.

Image caption Bob the Builder has been broadcast in more than 250 territories in 45 languages

But in recent years he has turned to writing books because it was too difficult to get animation ideas off the ground.

"I was trying to get my shows picked up and developed by studios but I was getting a great deal of feedback from producers saying they'd love to work with me, but they can't because they've got a limited budget to work to," he says.

"Rather than looking overseas I've actually concentrated on the publishing side of things. I've been writing novels for the past couple of years and it hasn't been as attritional as developing animations can sometimes be.

"It is sad when you hear about people going overseas to find work. It's people throughout the industry - jobbing animators, right the way through the production process, to designers and the people who come up with the concepts.

"I know a couple of people who do a similar role to me, coming up with ideas for shows, who now just work out of LA. They've gone over there and they don't bother knocking on doors in the UK any more."