DJ James Lavelle has sold 1.5 million records so why is he broke?

"Contrary to what people might think," says Oxford-born DJ and recording artist James Lavelle, "I haven't made a penny out of selling 1.5 million records. I never earned anything out of founding [esteemed dance music label] Mo' Wax, and I haven't earned anything from UNKLE. Last year I had a £400,000 tax bill and it cleaned me right out. To be perfectly honest, I'm sick of it."

Lavelle is breakfasting late outside The Premises, the East London-based recording studio complex where he is currently rehearsing for UNKLE's first ever concerts. I have just watched him being photographed as an advocate for What Not to Share, a hepatitis C charity keen to point out that the disease can be contracted when people snort drugs through the same rolled-up banknote as an existing carrier.

When I quiz him about a Buddhist text tattooed on his left forearm, Lavelle translates it as "A man who chases after fame, wealth and love affairs is like a child who licks honey from the blade of a knife."

Previous members of UNKLE include Tim Goldsworthy, who co-founded the then trip-hop outfit with school pal Lavelle in 1994, before leaving to work with Belfast's dance music bigwig, David Holmes. DJ Shadow, aka Josh Davis, and members of the Japanese hip-hop crew Major Force have also passed through UNKLE's ranks. These days the group comprises Lavelle and fellow DJ/producer Richard File.

Collaborations have long been UNKLE's lifeblood, and in that respect the outfit's third album War Stories holds with tradition. The twist, though, is that Lavelle has made his first "proper" rock album. Guest vocalists include Josh Homme of Queens of the Stone Age and Ian Astbury of The Cult, and the work was co-produced by Lavelle and Queens of the Stone Age knob-twiddler Chris Goss.

For seven weeks, Lavelle, File and their collaborators decamped to the desert town of Joshua Tree, California, to make music at Rancho de la Luna studios. "Joshua Tree is a strange, yin-yang kind of place between desperation and redemption," says Lavelle. "We had these long, calm, focused days with beautiful sunsets, just getting stoned and making music. I felt this great feeling of escape, and it really allowed my mind to open up. Because of the time difference there were no mobile telephones going, either. It was a great place to work uninterrupted."

Highlights on War Stories include "Mayday", an earthy stomp that features Liela Moss of The Duke Spirit. The haunted-sounding "Burn My Shadow", replete with a Latin Mass-like section wherein Lavelle encouraged Ian Astbury "to do something fragile", is also impressive.

The album's title is a reference to "the more personal war stories of relationships and stuff. Lots of people of my circle and my generation have had a nocturnal, hyper-clubby lifestyle for years now," says Lavelle, now 32. "After all that, we've got plenty of war stories to tell down the pub on a Sunday afternoon."

Like many of the music industry's erstwhile pack-leaders, Lavelle seems to be going through a phase where he must adapt or face obsolescence. Time was when his remixes, conducted for the likes of Beck and Massive Attack, could earn him up to £20,000 a throw. Not anymore.

"Most ones I do these days are for free. It's a bartering thing where the artist will perform on my record and I'll do a mix for them. That's how we fund most of the collaborations. Ten, 15 years ago a remix could sell a record," he says. "Remixes don't sell records in 2007. I don't know what sells records now."

Talk further with Lavelle, and you learn more of how the vagaries of the record industry have influenced his current approach to making and marketing music. The aforementioned tax bill of £400,000 suggests he's not exactly on the minimum wage, but his lifestyle seems to have undergone some partly enforced changes recently.

UNKLE's 2003 opus Never Never Land saw him dropped by Universal Island despite Top 40 success in the album and singles charts; worse, Lavelle claims he hasn't seen any of the £500,000 music licensing money that he estimates the album has generated. "I was with the wrong management and I signed a bad deal," he says by way of explanation. "Now I just want to bring everything back in house, fund things myself and own my catalogue."

To that end, he has created a new independent record label called Surrender All, part of a triumvirate of companies that incorporates Surrender clothing and a commercial recording studio named Surrender Sound.

One thing Lavelle's new management was keen to impress upon him was the importance of "doing it live". The revenue from gigs is now recognised as a way to offset money lost through the worldwide decline in record sales.

Unless you can afford the kind of spectacular lightshow that The Chemical Brothers recently unleashed at Glastonbury, rock albums tend to translate to the live stage better than electronic dance ones do. And as the gutsy War Stories sees Lavelle and UNKLE take the spare, rock-tinged hip-hop of 1998's Psyence Fiction to its logical conclusion, it makes perfect sense that the outfit has finally decided to take to the stage.

Some of the nervous energy coming from Lavelle probably derives from his awareness that, with a series of festival dates including slots at Leeds and Reading already booked, there is no turning back. "The band is sounding really tight, but at [Spanish music festival] Benicassim we're going to play main-stage after Muse," he says with a laugh. "Now that's scary."

'War Stories' is out on Surrender All

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