Watch out Sam, here's Stephen

You don't find many two-up, two-down terraced houses with an outside loo on London's leafy south-western fringe. There are probably even fewer that boast drab Seventies wallpaper, mustard-yellow doorframes and a kitchen fridge piled high with tins of mushy peas.

The house in question, its red bricks painted on a canvas skin, stands in the middle of a film set in Shepperton Studios. A tangle of cables snakes its way across the studio floor as the cameras roll on Billy Elliot, the first film from WT2, the new low-budget arm of the British movie-making outfit Working Title.

Between takes I collar the film's director, Stephen Daldry, whose much-anticipated big-screen debut this is. He is dressed in a dark blue fleece, sandy combat trousers and black boots. Like Sam Mendes, the British director of American Beauty, 39-year-old Daldry was an acclaimed name in the theatre - artistic director of the Royal Court Theatre 1992-98 - before making the transition to films: his hit 1992 production of An Inspector Calls is still on in the West End and he is set to direct Caryl Churchill's new play Far Away at the Royal Court in November.

"I think people will identify with Billy's story because they will be able to relate to their own childhood struggles," Daldry states. "Its theme is universal."

Like East is East and The Full Monty, Billy Elliot features a largely unknown cast, with the exception of Julie Walters, who gives a superlative performance as Mrs Wilkinson, the frustrated part-time dance teacher who pushes Billy to success. Furthermore, the script by playwright Lee Hall (who worked with Daldry at the Sheffield Crucible and the Gate Theatre in London, and whose play Cooking with Elvis is currently on at the Whitehall Theatre) is laced with a humour which offsets the poignancy and pathos of Billy's situation.

Not another film about how grim life is oop North, you sigh. Actually, Billy Elliot is a film which could have been set anywhere. It's as different from last year's hit Northern film East is East as that was from The Full Monty. But like those pictures it, too, has the potential to reach out to a mass audience here and abroad.

In essence, it's a coming-of-age story about Billy, an 11-year-old boy growing up in poverty in the North-East during the miners' strike of 1984-85. His mum has died and his dad, Jacky, is struggling to bring him up alone.

His dad wants him to be a boxer but Billy dreams of dancing. He secretly joins a ballet class, practising his moves at night in the bathroom. When his dad finds out, there is trouble. Even the boy's best friend unsympathetically explains: "It's for girls, not for lads, Billy. Boys do football and boxing not frigging ballet."

Only ballet teacher Mrs Wilkinson stands by him, convinced he has the talent to make it to London's prestigious Royal Ballet School and escape his grim, almost Dickensian, surroundings.

The film - think Kes meets Flashdance - has already won high praise within the movie industry and was a critical success at Cannes in May. The Hollywood Reporter described it as "a singular sensation" that is "poised to sweep the world off its feet", while Screen International said it "has a feel-good factor that registers off the scale".

In a year which has seen the release of some dismal home-grown flicks like Love, Honour and Obey, it just might do something to restore Britain's battered movie-making reputation abroad.

What makes Billy Elliot so special? It might have been made for a measly £3 million compared to the bloated budgets of Hollywood blockbusters. But this is a film that pushes all the right buttons, tugs at the emotions and proves Britain can still beat Tinseltown at its own game - without resorting to special effects or dumbing-down to put bums on seats.