This is part of a wider government strategy to increase the number of films made in Britain and shown in multiplexes, and to double the percentage of the audience watching British made films. It should also put a brake on film-makers shooting in Ireland where tax incentives have long been on offer.
Yesterday's announcement means that raising funds for British films will be much easier and production costs will come down. Companies making films will have more funds for marketing and distribution and should therefore be able to retain ownership of those films rather than selling them abroad, as is often the case.
The Department of National Heritage believes that a tax incentive like this would have prevented Braveheart being shot in Ireland or Four Weddings and a Funeral having to be part financed from abroad.
Thirty films are currently in production in Britain, with investment of pounds 200m. All could benefit from the new scheme.
The British Film Institute director, Wilf Stevenson, said: "This is a real shot in the arm for the UK film industry. Until now the UK was alone in Europe in not having some form of tax incentive aimed at levelling the field for film-makers." He said that a greater variety of British films should now be on offer to cinemas.
Gary Smith, chief executive of Winchester Films, a leading new British film company, said his share price had gone up from 83p to 91p on the back of this announcement. It would help cash flow in the industry, he said, though he would also have liked to see incentives for private investors in film.
Chris Smith, the Secretary of State for National Heritage, said last night: "In the US, film is one of the top three industries. With all our natural advantages in terms of talent, I believe our film industry has the potential to assume that sort of importance within our economy."
The Chancellor's measure will last for three years and cost the Exchequer pounds 30m.Reuse content