Prince Charles to rescue arts body from the axe

Merger of funding agency with business charity will make up for £3m government spending cut

The Prince of Wales has intervened in a growing row over arts funding by taking the doomed sponsorship charity Arts & Business under his wing. A&B was partly funded by the Arts Council but lost its grant earlier this year and was preparing to close.

Instead, on Prince Charles's initiative, the organisation, of which he has been president since 1987, will merge with the charity Business in the Community, of which he is also president. "The Prince of Wales personally urged this as an alternative solution and convinced me that it was the right one," said Colin Tweedy, A&B's chief executive, whose own resignation after 28 years in the post is part of the arrangement.

The merger is, in effect, a takeover by Business in the Community (BITC), created in 1982 in response to the Brixton and Toxteth riots to encourage urban regeneration through corporate social responsibility among businesses. The move will be formally announced at the BITC annual meeting on Thursday.

Moving A&B into BITC will mean the former's staff being reduced from 100 to 22. It will lose its responsibility for training arts organisations in fundraising.

The Prince's intervention will fuel a disagreement over arts funding between the Government, which has slashed its cultural spending by 33 per cent and believes a revival of arts funding lies in philanthropy, and those who are convinced –as are A&B and the Prince – that subsidised arts organisations can form effective partnerships with business.

A&B was founded in 1976 under the late Lord Goodman, a former Arts Council chairman, to foster the concept of business sponsorship of the arts. By 2007, private contributions had risen from £600,000 to £700m a year, although it has since fallen back to around £600m.

In 1984,it developed the idea of matched funding, whereby business contributions would be matched from a government fund run by A&B. That scheme raised £1bn from the private sector, but in 2008 it was scrapped and A&B's government grant was cut from £7m to £4m. The organisation had been highly respected in government circles: George Osborne was on its board for four years before the last general election. This year, however, it learned that all its subsidy was to go and its official responsibilities taken over by the Arts Council.

Mr Tweedy, 58, was called to a private meeting with Prince Charles who urged him not to close but to join BITC, now a global operation. He will become a fund-raising vice-president alongside such celebrity supporters as Stephen Fry, Lord Mandelson, Joanna Lumley, Dame Diana Rigg, former Arts Council chairman Sir Gerry Robinson and Lord Puttnam.

The Government believes philanthropy is most likely to help arts funding to recover and declared 2011 to be the Year of Corporate Philanthropy. But Mr Tweedy said: "It's a misnomer. There is no such thing as 'corporate philanthropy'; there is philanthropy and there is corporate sponsorship, you cannot conflate the two.