Concert arenas should impose a £1 levy on gig tickets to create a fund that helps prop up grassroots live music, with industry figures telling MPs that rising costs are creating a “crisis” for smaller venues.

The culture, media and sport committee heard from promoters, artists and representatives from industry bodies, nearly all of whom backed the call for a levy to be placed on tickets, which would then be distributed to smaller venues, 125 of which were forced to shut during 2023.

Mark Davyd, the chief executive of Music Venue Trust, advocated for a French-style system where there is a centralised pot of about €200m (£172m) that venues, artists and promoters can apply for, which is funded by a levy on the gross value of tickets sold at big venues.

MVT has been lobbying for a compulsory levy, something which was highlighted in December 2023 when the historic small venue Moles in Bath was forced to close, joining about 16% of grassroots spaces that permanently shut during 2023.

MVT suggested a charitable organisation be set up to direct the fund, which would have a board made up of industry figures, rather than be run by government.

On Tuesday the MVT posted an image of this year’s Leeds and Reading festival lineup without the artists who started at grassroots venues. Only five acts remained.

The Music Venue Trust’s annual report in January showed that 38% of UK grassroots venues posted a financial loss, while the whole sector recorded a slim 0.5% profit margin, despite increased demand for tickets.

There were various opinions on who should pay the £1 levy – ticket buyers, who are already charged booking fees, or the arena venues themselves.

John Drury, the chair of the National Arenas Association, said if the arenas were forced to pay the £1 levy, “the impact would be something like 20% of our profit”.

Drury told the committee that the “Enter Shikari model” – the band that donated £1 from every ticket sold to their OVO Arena Wembley show in February 2024 – would be the NAA members’ favoured approach to relieving pressure on grassroots venues.

Kwame Kwaten, vice-chair of the Music Managers Forum, said the levy on arena ticket sales needed to be compulsory rather than voluntary. He said: “If you give people the chance to back away, they’ll take it. Not everyone is as generous as Enter Shikari.”

Other witnesses called for an English football-style fan-led review of grassroots music, while some suggested a reduction in VAT on tickets, which stands at 20% – far higher than in France, Italy or Germany.

The MPs also heard that smaller venues are under increasing pressure from planning applications and noise complaints, such as the case of Night & Day cafe in Manchester’s Northern Quarter, which had its future threatened after complaints from one resident whose flat abuts the venue.

Davyd said: “The Northern Quarter, one of the most well-known cultural districts in the country, has been described as a ‘mixed-use’ area, effectively placing 14 other music venues in Manchester at risk of a resident complaint.”

Jon Collins, chief executive at Live, the industry body that represents live music and entertainment business, said he had similar concerns about the Baltic Triangle in Liverpool, where developers have started to build residential projects near or next to venues.

He said that the “agent of change” principle – whereby new developments are required to adapt to existing businesses in the area, such as paying for soundproofing – at present was too weak and didn’t protect live music venues.

“We’ve already got venues that are under pressure [in the Baltic Triangle], fundamentally we all welcome ‘agent of change’ but it needs more teeth,” he said.

Davyd said that about 50% of the cases MVT are helping with are related to financial troubles, with another 20% about planning and development issues.

The warnings about small venues come on the same day research commissioned by the British Academy suggests that live performing arts could face “existential threat from a range of potential global shocks” unless they become more resilient.

The research, which looked into the impact of the Covid-19 pandemic on the sector, said that there needs to be a “clear resilience strategy” for performing arts backed by national and local government.

• This article was amended on 13 May 2024. An earlier version said that the Music Venue Trust had been lobbying for a levy since December 2023. To clarify: MVT has been campaigning for the music industry to financially support the grassroots sector since 2018, including discussions relating to a levy on tickets. Following the closure of Bath’s Moles venue in December 2023, MVT’s lobbying for a compulsory levy reached a wider audience.