Britain’s Culture Ministry just handed leadership of the industry back to the British Film Institute. The organisation will take control of and devise strategy for £15 million (£23 million) of lottery funding each year, and administer the £100 million tax incentive. Ex-BBC boss and now BFI boss Greg Dyke  was understandably ecstatic. He immediately announced that the BFI hopes to increase lottery funding for film to £18 million in 2011/2012 – an increase of 20%. Dyke told me the BFI will take over movie funding in April next year. “This decision is a great vote of confidence in the BFI. It is a bold move to create a single champion for film in the UK and we welcome it. We want to achieve greater coherence across the whole film sector and to strike a balance between cultural and commercial. We see an opportunity to reduce overhead costs which in turn will allow us to put more of the lottery funds into frontline activities.”

The culture minister underlined that the film tax credit – so crucial for attracting U.S. investment — is here to stay. Overseas filmmakers injected £780 million into the British economy last year. Vaizey said: “Some people think there are two British film industries — one indigenous and the other supporting big American movies. I don’t agree. Hollywood investment promotes both British characters and British storytelling.”

Film London will take over promoting the UK as a moviemaking destination from the British Film Commission. Vaizey called this a “public/private partnership” – in short, the government is asking the private sector to cough up if it wants an office whose job it is to attract Hollywood to Britain. Studios such as Pinewood Shepperton and VFX houses such as Framestore would, after all, have the most to gain.

And Film London and BFI will also work with BAFTA and BBC Worldwide on how to increase the number of UK films being released abroad – the role which Unifrance performs for the French film industry. The organisations will also showcase the work of British filmmakers in Hollywood. The BBC already runs showcases in China and in Latin America.

Vaizey also announced he was setting up a ministerial roundtable that will meet every 6 months to address film industry problems.

Vaizey said he would consider proposals from industry organisations such as the British Screen Advisory Council and the Producers Alliance for Cinema and Television to help create “a sustainable film industry”. Vaizey expects to implement these proposals by spring 2012. What was interesting was that he used the word “sustainable”. This phrase has become a shibboleth for British film policy makers. Creating a sustainable British film industry was the original mission statement of the UK Film Council – until it quietly dropped it as unworkable. “The ‘sustainable’ word is back,” Dyke observes. “The Film Council wanted to do it but they just couldn’t live with it.”

Today’s announcement from a Tory government was surprisingly well-received by the traditionally left-of-centre British film industry. It was amusing to see the jockeying for position already within this new world order. It was almost as if the UK Film Council had never existed. How quickly the waters close over one’s head. “There’s an irony in that a year ago the government was forcing the BFI to merge with the Film Council,” Dyke tells me. “Fine, we said, but it’s got to be on the right terms. Today we got those terms.”

“They’ve announced something that’s workable,” Josh Berger, president of Warner Bros Entertainment UK, tells me. “It remains to be seen how they execute it. The devil is, after all, always in the detail. But there’s plenty of industry goodwill to make this work.”

Matthew Justice, managing director of indie producer Big Talk (Scott Pilgrim vs. The World), said: “While National Lottery support for film has been crucial in helping British films to get made, it has to date not helped British companies to develop sustainable businesses. The government has set out an ambitious plan to make sure lottery funding delivers more, ensuring that UK filmmakers can benefit from their successes and so grow their businesses to the ultimate benefit of the entire sector.”

The irony is that the British film industry seems to have gone full circle. Back in the 1950s, the BFI used to be the only place you could turn to for movie funding. Looks like we’re back there again.

Speaking at BAFTA, British Culture Minister Ed Vaizey called for Rupert Murdoch’s BSkyB to invest in British film production. “It would bring a new force to the table that would lift British film,” he said. Vaizey admitted he couldn’t offer any additional incentives to Sky “but every time I make a speech about film, I will encourage Sky to invest. I don’t understand why Sky isn’t involved – they would be a fantastic addition to the British film industry”.

Vaizey also dropped a heavy hint that he wants the BBC to increase its current £12 million investment in film. Channel 4 has increased its investment to £15 million a year. “I look forward to the publication of the BBC’s film strategy report,” he smiled thinly.

Losing out in today’s announcement are the 8 regional screen agencies, which are being reduced to 3 regional hubs – Creative North (Manchester), Creative Central (Birmingham) and Creative South (Bristol). They will be overseen by Creative England, a new body chaired by John Newbigin, former adviser to Lord Puttnam and to Channel 4. “Creative England is a rationalisation of the regional agencies, giving a clearer structure than at present,” said Vaizey.