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Trying to rehabilitate the public image of skinheads is no easy task. Judging by Hollywood's take on the genre — see 1998's American History X or Russell Crowe in 1992's Romper Stomper — skinheads are popularly portrayed as neo-Nazi racists with a penchant for violent thuggery. Not so, contends Shane Meadows, the young British director whose new film, provocatively entitled This is England, is raising eyebrows in its exposé of this most controversial of subcultures.

Meadows, who admits to once being a "skin" himself, argues that skinheads were amongst Britain's first anti-racists, mixing with newly arrived waves of West Indian immigrants with whom they indulged a mutual love of reggae and ska. Hailing from a staunchly working-class background, Meadows, 35, dropped out of school as a teenager and later made his first films while subsisting on welfare benefits in his native Nottingham. He hit critical acclaim with his 1999 second feature, A Room for Romeo Brass, set in a Yorkshire mining town on the skids.

Meadows contends that it was only during the 1980s that the skinhead movement became infected by the Far Right, a collection of neo-fascist political parties, led by the infamous National Front, which called for the forced repatriation of immigrants. With the decline of British manufacturing and the onset of high unemployment, many working-class skins, whose communities bore the brunt of the new arrivals from abroad, became seduced by the promises of anti-immigrant politicians.

So begins Meadows' film, set in Uttoxeter, the heart of Britain's former industrial midlands. It's 1983 and this declining seaside town is fired up on royal weddings and Thatcherism. A brown-skinned local businessman occasionally has to deal with racist slogans spray-painted outside his shop, but it's a world away from the violent anti-immigrant demonstrations taking place elsewhere in the country.

Shaun (played the excellent actor Thomas Turgoose) is a solitary 12 year-old who, when not being teased about his oversized bell-bottoms, has taken to wandering by himself on a deserted beach ever since the death of his father in the Falklands War. He meets Woody — the friendly head of a local skinhead gang who take Shaun under their wing — and suddenly life starts looking up. Shaun collects friends and protectors, has fun smashing up derelict houses and even scores an older girlfriend.

Meadows' lingering camera shots over the local school playground filled with different gangs — Mods, Rockers, New Romantics — gives an anthropological feel to his study, almost like watching a National Geographic documentary on British youth tribalism. But it's clear where Meadows' own working-class allegiance lies: following Woody's skins strutting through alleyways, apropos of Reservoir Dogs, in drainpipe jeans, checkered shirts and Doc Marten boots.

But the good times can't last. When macho skinhead Combo (played by a snarling Stephen Graham) turns up at a party, fresh out of jail, things are about to go awry. Quickly the alpha Combo sets about ousting Woody with a classic divide-and-rule speech about the need for "proud warriors" to defend England's green and pleasant land. Having then established himself as a surrogate father to Shaun, Woody drags the remaining members of the gang, after several desertions, to a fascist National Front rally.

Typically, Meadows probes deeper than simple black-white characterizations, even eliciting a quiet sympathy for the fearsome Combo when, during an intimate conversation with Shaun, he hints at being abandoned by his own father. Nevertheless our gaze is averted when the once sweet-and-fragile Shaun starts to change, first daubing racist abuse around the town's walkways and then terrorizing a "Paki" newsagent in emulation of his new mentor. Our fears are confirmed: Shaun has been transformed into a neo-Nazi footsoldier in-the-making.

Throughout the film Meadows deals deftly with the cultural confusions of the skinhead movement, whose members' bedrooms — replete with vintage posters of blaxploitation flicks and ska-music icons — attest to the influence of foreigners, and of Jamaicans in particular.

Combo admits as much himself when he attempts to befriend the only black member of Woody's gang — the cheekily named Milky — reminiscing about how, when he joined the "original" skinheads back in the late 1960s, they all stood proud under the banner of racial unity. When Milky begins to talk about his extended family, Combo's eyes well-up. Half-ashamed, half-envious of what he misses most, Combo is poised on a knife-edge before the film turns toward its hideous, and inevitable, climax.

Drawing from a rich tradition of British cinematic realism, which includes directors like Ken Loach and Mike Leigh, the film has sparked controversy in its native land. England has long prided itself as an island of tolerance and freedom for newcomers, and detractors claim that Meadows' focus on an unpopular war — the film is inter-spliced with Falklands' footage — together with anti-immigrant racism lends undue emphasis to the seamier side of the country's recent past. A Sunday Times review by critic Cosmo Landesman dismissed the film's portrayal of 1980s (predominantly) white-working class as "unconvincing," railing against a "fatuous" attempt to link the war in the Falklands with the one that Combo wants to fight back in England.

Meadows' attempts to humanize skinheads is a world away from the knee-jerk negative characterizations that informed cinema's previous depictions of the subculture as uniformly racist and violent. While it may be true that far-right parties no longer play any part in Britain's mainstream political discourse, other extremist movements are rising in Europe. And with the invasion of Iraq and rise in Islamophobia, Meadows suggests that This is England could be as much a warning for England's present as it is a depiction of its past.

• Christopher Thompson
• The film This is England, by former "skin" Shane Meadows, tries to show the movement was much more than violent, racist thuggery