Under-pressure newspapers 'deserve tax breaks'
Ministers must "think creatively" about offering tax breaks to newspapers to help them through a "difficult" time of falling sales and revenue, peers say.
The Lords communications committee found the printed press was in "crisis", with local papers under particularly "severe" pressure.
It said more money was needed to ensure investigative journalism could survive.
Industry figures suggest daily average national paper circulation fell by 1.26 million copies between 2001 and 2011.
The press has also come under extreme criticism in recent months, as a result of the phone-hacking scandal which led to the closure of the News of the World.
In its report, the committee said: "Even before the current scandal started to unfold, the economic climate was threatening original journalism: declining newspaper readership, fragmenting TV audiences and the migration of print advertising to online were exacerbated by the impact of the worst economic recession since the war.
"As a result, local newspapers have been forced to close and many journalists lost their jobs, long before the closure of the News of the World."
But it praised some of the work done by journalists despite less money being available to fund in-depth investigations.
- The News of the World's "sting", exposing corruption by Pakistani cricketers
- The Daily Telegraph's expose of MPs' expenses, which was based on information sold to the newspaper
- The Maidenhead Advertiser's report on "a secret turn-around plan containing proposals to cut jobs and beds at a local hospital"
But the committee argued that such work was endangered by "huge financial pressure" caused by declining sales and advertising revenues.
It said: "At a national level, there is now a crisis in the printed press which is facing unprecedented challenges...
"At a local level, the economic pressures are even more severe. This has created a serious threat to investigative journalism and hence to democratic accountability in local areas.
"The threat to local media is also having a profound effect on national newspapers and broadcasters as local news outlets no longer provide a large training ground for the nationals and the ability for nationals to source stories from local news outlets... has significantly diminished."
Newspapers are already "zero-rated" for VAT. But there have been calls for those which choose to leave the Press Complaints Commission (PCC) - the industry's largely self-regulatory body - to lose this privilege.
The Daily and Sunday Express, Daily Star and Daily Star Sunday have recently pulled out of the PCC.
The committee acknowledged that keeping zero-rated VAT status was "a significant financial incentive to be a member of and to adhere to the rules of the press's regulatory body.
"However, we suspect that any proposal to limit zero-rating in this way might be illegal under European Community law."
Instead, the committee recommended going further and offering more help to industry as a whole: "We urge the government to recognise the financial problems facing newspapers and encourage them to think creatively about any tax breaks or other financial incentives which might help the industry through this difficult transitional stage."
The committee has also backed plans for prosecutors to draw up clear guidelines for journalists who risk breaking the law in pursuit of a story.
Peers said a lack of clarity in the law meant news organisations did not always know whether they could use the "public interest" to defend their investigations.
The committee's chairman, Conservative Lord Inglewood, said: "Investigative journalism plays a vital role in the UK's system of democratic governance and accountability. However, its role and practices have received unprecedented scrutiny over recent months and it faces a number of profound economic, legal and regulatory challenges.
"News organisations, regulators and relevant legal bodies therefore need to make sure, as changes and new measures are introduced, that these are not rooted in the past but seek to enable responsible investigative journalism to flourish in the future."
But he said the committee had been "encouraged" by the number of "new funding and organisational initiatives that have started to materialise as a means of promoting investigative journalism".
Lord Inglewood said peers believed "it is vital that measures are taken to support and foster further initiatives which are independent of public subsidies or state support".
The committee has sent a copy of its report to the Leveson Inquiry into press ethics.