The Cinema Tax was introduced by the Government into the UK in 1916. When it was first introduced the tax represented a high proportion of the ticket price, especially for the cheaper seats, so after protests by the industry a reduction of the flat rate was introduced in 1920 – on a 4½d ticket, the tax was 2d. This was a very profitable for the Treasury who in 1945 received £41m of the £115m gross box office revenues, this represented 93% of total tax receitpts from entertainment at the end of the war.
Not surprisingly the cinema industry weren’t happy and in 1949, J Arthur Rank, one of the most powerful figures in the UK film industry announced that production would be cut and cease altogether after June 1950 unless the tax was reduced. The tax was finally abolished in 1960 having been replaced by the Eady Levy in 1957 as part of the Cinematograph Film Act of 1957.
The Eady Levy was introduced by Sir Wilfred Eady in 1957 as a way of supporting the British film industry in the UK and ran through until 1985. It had the effect of both assisting the film industry, and reducing the effect of Entertainment Tax on film exhibition, to which all the cinema industry was opposed. In 1984 the Govenment realised that the levy was no longer supporting the film producers as much of the money was going directly to distributors.
Sources:
http://hansard.millbanksystems.com/search/cinema%20tax