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Treasury minister Dawn Primarolo has announced the extension of tax breaks for the film industry.
Ministers announced that the tax incentives are to be made permanent - but will be paid directly to film producers to stop wealthy backers using them as a tax avoidance mechanism.
The government says it is committed to supporting the creative industries in the UK - with the chancellor hosting a reception for leading figures at Number 11.
Primarolo said 2003 was "a record year for film production in the UK".
"Employment in the film and video industries has increased by over 75 per cent in the last decade," she said.
"We now want to build upon the success of the old Section 48 relief in supporting the production of British films and creating investment and employment opportunities in the industry.
"This new, more generous relief will ensure that the UK continues to be recognised as one of the best places in the world to make a film."
The tax incentives have been used to develop films such as Bend it Like Beckham and 28 Days Later.
But ministers fear the current regime, which is set to expire next year, is too complex and open to abuse.
Once qualified as a "British" production, film companies can write-off certain production and acquisitions costs within the year of production, provided the total production budget is less than £15 million.
If the budget is more than £15 million, producers may write-off those costs over a period of three years.
Under the current approach wealthy individuals can avoid tax by investing in a production.
Over recent months the film industry has mounted a strong lobbying campaign for the retention of tax breaks.
The tax relief was due to expire in July 2005 - although arts minister Estelle Morris has repeatedly signalled her support for the system to be extended.
Commenting on the announcement, Morris said:
"This new tax relief underlines the government's commitment to a stable, sustainable and successful film industry that will go on producing award-winners like Mike Leigh's Vera Drake," she said.
"In particular, the relief delivers on our determination to remain a major centre for international film-making.
"Our ongoing review of the UK's co-production treaties will produce a set of refocused and fit-for-purpose agreements which the industry wants and needs."
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