Peter Ainsworth has called on the British film-making profession to establish itself within the next three years or accept a future as a cottage industry.

The shadow culture secretary delivered the ultimatum following the publication of accounts revealing that all but one of 11 films made with lottery money was a critical and financial flop.

Ainsworth told epxNews that he supports the Film Council, led by British director Alan Parker, which is now in charge of dividing up the lottery cash. "The Film Council knows what the problem is. The Arts Council was a complete mess with money being flung around in a wild and irresponsible way. There were too many films with insufficient quality. We need to make fewer films and be more selective in what is chosen."

He was critical of the efforts that shared £13.5 million of funding. "They were neither critical nor financial successes. If you're going to make an arthouse film then make sure they get screened. A lot of these films weren't even released."

He warned the industry should not expect indefinite government support. "We should give Alan Parker and John Woodward at the Film Council the benefit of the doubt. I think they are absolutely right in that they have established their own structure and policy. They are also are much more targeted and professional. But in the short to medium term, say two and a half years, there then needs to be a review. If there hasn't been a turn around in that time then the whole venture will fail."

"The fundamental dilemma is: why are we putting public money into films such as Billy Elliot, which Disney could make? No one has sorted this out," he said.

Ainsworth said the Film Council should have a long-term goal. "The main aim is to establish an industry that can survive the odd flop. This is difficult when most films are not successful. There were companies such as Goldcrest and Palace Pictures that made low budget films that were successful and then foundered when they tried to make big budget pictures."

He highlighted a major hurdle that has yet to be resolved. "The distribution side of the business is dominated by US companies. There were some British companies but they have now been taken over. This is a problem for the industry that no one has cracked."

He concluded. "Film-making is important to the UK as there are all sorts of spin-offs and benefits. There's an enormous amount of talent in the British film industry but most of it works for American companies. We cannot continue in this way indefinitely. We must create an industry with a stable of quality movies or accept that it is to remain a cottage industry supplying foreign companies."