I'm not sure you mean Welles as the Fool and Gielgud as Lear or Welles as Caliban and Gielgud as Prospero; neither sounds so swell but that why they might have worked in the magic of theater.
Oops, my bad, I meant Welles as Caliban and Gielgud as Prospero.
According to Welles biographer Frank Brady, Gielgud made his offer to Welles in 1985, while Welles was trying to set up financing for his KING LEAR film. This was right around the time of the collapse of the CRADLE WILL ROCK project. Welles had just been diagnosed with diabetes, and was weakened by a recurring heart ailment. Writes Brady: "John Gielgud burst through Orson's depression. Gielgud thought he could raise enough British money for a film of THE TEMPEST, with himself playing Prospero to his menial servant Caliban, to be played by Orson...Orson was touched by Gielgud's offer, but felt he was too old for Caliban, and physically unable to play such a strenuous role. He sent the aging British actor, who was then seventy-nine, an appreciative, warmhearted note declining the offer."
A trivia entry for PROSPERO'S BOOKS at IMDB puts Gielgud's project (with Orson directing as well) around the time of CHIMES AT MIDNIGHT, and claims that financing for THE TEMPEST dried up when CHIMES failed at the box office. Brady's version coincides with something I read in one of Gielgud's memoirs years ago, so I suspect it is closer to the truth.