Greg Dyke: 'The arts had a good run with Labour. But I'm still optimistic'

The central London office of the British Film Institute (BFI) is bathed in glorious April sunshine, and inside, the organisation's chair Greg Dyke peels off his jacket and flings open a window. "We can either sit here and cry about it or we can get on with it," he says, immediately striking a tone of bullish optimism.

Last July, the Government abolished the UK Film Council four months before it told the BFI – then charged with protecting British film heritage – to cut its budget by 15 per cent. The BFI, already lean, made around 35 employees redundant and took on a host of the Film Council's former funding duties and staff. Tonight, it will finally draw a line under the turmoil with its official relaunch event as Britain's leading film body.

Few people are better qualified to weather such storms than Dyke, 63. A career television executive and popular leader, when director-general of the BBC he successfully slashed administration costs before his controversial departure after the Hutton Inquiry in 2004. He now splits his time between the BFI and the University of York, where he is chancellor, as well as his chairmanships at Brentford Football Club, the Ambassador Theatre Group and the film and television distributor Hit Entertainment.

Despite his packed diary, today he is relaxed and happy to talk. He speaks carefully, getting passionate only over his bugbears. He extends his pragmatism towards those affected by recent Arts Council cuts.

"People get upset when the thing they believe in gets cut," he says. "The arts had a good run, really, under the Labour government. What's weird is, I don't remember anyone in the arts saying that."

His matter-of-fact tone is perhaps understandable, given the film industry's vicissitudes. Storm clouds first gathered in August 2009 when the then film minister Siô* Simon proposed a merger between the BFI and the Film Council. Last July, producers greeted the Coalition's decision to abolish the latter with fury. In October, Tim Bevan, the Film Council's last chairman, told a cross-party committee of MPs: "I'm out of here. If this is the public sector and the way you get treated, I'm done."

Dyke says: "The story got around, spread partly by people at the Film Council, that this was the end of government support for film." In fact, he insists, over the next financial year the BFI would invest £18m directly into film production, an increase of £3m from last year. This will rise to £21m after the 2012 Olympics.

"I can understand why Tim had his nose put out of joint," he continues. "He had just taken over, though of course he was appointed by a different government. People are always going to say: 'Couldn't this have been done in a more sophisticated way?' But sometimes things only happen if you announce them and get it done."

Dyke complains that, under Labour, the BFI's funding failed to increase each year, unlike the Film Council's, which caused friction between the two organisations. "I thought the BFI spent too much of its time being annoyed with the Film Council," he says. The new streamlined BFI, he adds, will invest around half of its lottery allocation into production, and will launch a "full consultation" over the coming months.

Around 40 staff have transferred between the bodies, with the BFI appointing five new governors including Warner Bros's British chief Josh Berger (but losing Bevan's Working Title colleague, Eric Fellner, who has retired). Dyke says the institution will distribute money "more sensitively", and will engage filmmakers earlier in the development process. He is set to appoint the organisation's first director of education and encourage spending outside London. But he admits that it will be impossible to avoid attracting some of the same criticism as the Film Council. It is inevitable that you get a beating if you are a funding organisation," he says. "There are still going to be times when we will fund different sorts of films and some that are turkeys because you always fund turkeys."

The day after our interview, News International issued its official apology to phone hacking victims, and Dyke has strong views on the subject. "I don't think the News of the World is a great contribution to British journalism," he says. "They had obviously being playing fast and loose for a long time and are now getting their just deserts."

Dyke, who famously branded the BBC "hideously white" in 2001, also has views on the Midsomer Murders' creator Brian True-May, who recently said he did not use black or Asian people in the series because they didn't reflect an English village. This, Dyke says, was "a dumb thing to say".

"There are bits of Britain which are still very white but most of it isn't," he says. "What always concerned me at the BBC is I didn't want people to be employed because they were Asian or West Indian. I just wanted people from different backgrounds and different cultures because they had different ideas. I still believe that." While the UK Film Council's head of diversity Mary Fitzpatrick will not transfer to the BFI, the organisation claims diversity is "embedded" into all its operations.

Dyke's positivity is a rarity in these hard economic times. He has much else to preoccupy him, not least an ongoing bid to run a new national television channel focused on local broadcasting, and his involvement in campaigning for the Alternative Vote. Before he leaves, he says he still thinks the BBC's licence fee will be threatened by the rise of free web television – though these days his eyes are as much locked on the future as they are mulling over the Corporation's continuing troubles. "We have to think through the strategy which is good, because all public organisations should do that every so often," he says of the BFI, with a spring in his step. "It's a time for optimism and hope."

A life in brief

* Born 20 May, 1947 in Hackney, east London.

* Attends Hayes Grammar School before going on to study at the University of York as a mature student, graduating with a BA in politics in 1974.

* An active Labour supporter, he attempts to win a seat on the Greater London Council for Labour at Putney in 1977. He leaves the party prior to the 2005 General Election, pledging his support to the Liberal Democrats instead.

* Becomes BBC Director General in 2000, taking over from John Birt. He stayed in the role until 2004 when he resigned after the BBC received criticism for its news reporting in the Hutton Inquiry.

Tough acts to follow: UK Film council hits

* Vera Drake (2004) Nominated for three Academy Awards and winner of three BAFTAs, the film, directed by Mike Leigh, tells the story of a woman in the 1950s who performs illegal abortions.

* In the Loop (2009) Armando Iannucci's satirical take on Anglo-American politics earned it a nomination at the 2010 Academy Awards for Best Writing.

* Fish Tank (2009) Essex drama directed by Andrea Arnold and starring Katie Jarvis. The film won the Jury Prize at the 62nd Cannes Film Festival as well as the 2010 BAFTA for Best British Film.

* The King's Speech (2010) Directed by Tom Hooper, the film stars Colin Firth as King George VI, who engages in a mighty struggle to overcome his childhood stammer with the support of his wife, played by Helena Bonham Carter. It was the highest grossing film for three consecutive weekends at the British box office and was nominated for 12 Academy Awards.