Shaun (Thomas Turgoose) is a lonely elven-year-old boy, whose father has been killed in the Falklands War. Repeatedly picked on, he's adopted by the leader of a non-racist skinhead gang - when skinheads were focused on racial unity and working-class origins. His mother is initially nonplussed by his new haircut, but allows him to hang around the skinheads as a positive influence on his life.
Combo, a skinhead returning from prison, (Stephen Graham) splits the original group of skinheads, then acquaints his members with the racist ideology of the British National Front, going so far as to violently assault any member who questions their beliefs. He gives Shaun the flag of St. George as a gift relating to his racist ideology; Combo now acts as the father that Shaun has lost.
Devastated over his rejection by a girl he shared a night with, Combo asks Milky (Andrew Shim) - an Afro-Carribbean skinhead from the old gang - to get weed for him. Despite their supposed ideology, the members of Combo's gang accept Milky in their presence to get access to his weed. As his group gets increasingly stoned, Milky begins to discuss the details of his extended family. Combo asks about the family's fathers, and grows increasingly angry when he learns that Milky's family life is relatively idyllic compared to his own. Enraged, Combo savagely beats Milky as Shaun screams for him to stop. Combo's fellow gang members attempt to distance themselves, prompting Combo to beat them as well. Shaun, who remains after the other gang members have left, helps a sobbing, repentant Combo bring Milky to a hospital.
At the end of the movie, Shaun's mother assures him that Milky will be okay. Combo presumably returns to jail for assaulting Milky. Shaun brings the St. George's flag to the sea and throws it in, rejecting Combo and his beliefs.