Take the money and run

Last week, the Chancellor gave us back a penny in the pound and forced a pounds 5m cut on the Heritage Department's grant to the arts. As Lord Gowrie prepares to meet Mrs Bottomley, Anthony Everitt, a former Secretary General of the Arts Council, offers a solution to the current cash-flow crisis

Long used to defending the indefensible, Mrs Virginia Bottomley, the new broom at the Heritage Department, has become a little careless and given the game away about the National Lottery.

She was having a shot at justifying next year's cuts to the arts and museums vote - a tall order considering the Conservatives' last general election pledge to "maintain support for the arts". Her point, politely put, was that the arts world should put up and shut up. Yes, the Arts Council of England's grant was set to go down by pounds 5 million (a cut in real terms of 5.5 per cent). Yes, the national museums and gallery budget was being sliced by pounds 13m. But they were swimming in an avalanche of cash from the National Lottery.

Hang on a minute. Surely lottery money was meant to be additional to ordinary government spending and was not intended to duplicate the purposes of public subsidy? "There is no question of breaking that pledge," she said, but then added - or, more accurately, subtracted: "It does not, of course, mean that the areas covered by the lottery are exempt from the restraint which applies across the whole of the public sector programmes." Culture is now fair game.

The Secretary of State is obviously trying to have it both ways. On the one hand lottery money is not a top-up, but on the other it is, in order to justify the cuts.

If we look at what the lottery distributors - the Arts Council, the Sports Council and the National Heritage Memorial Fund - are actually doing, her confusion is hardly surprising. The lottery legislation and the way it is being implemented represent a classic slab of British fudge. Whatever the theory, in practice there is substantial overlap between the two income flows, from the Treasury and from Camelot, the lottery operator.

The fact is that the NHMF is able to use, admittedly with different rules and procedures, both its government grant and its lottery income to buy works of art or collections of papers.

The fact is that the Sports Council, now planning lottery-financed sports facilities, was helping to fund construction projects years before the lottery was a glint in John Major's eyes.

The fact is that for many years the Arts Council, now engaged on its biggest building jamboree ever, used to have its own Housing the Arts Fund to finance new theatres and art galleries. That was how, between the 1960s and 1980s, the country's network of regional theatres came to see the light of day.

There is a strict rule that lottery proceeds can only be spent on capital, not on revenue or running costs. But what is capital? Well, that all depends. It usually means the purchase, restoration or construction of buildings or the acquisition of works of art (eg Old Masters) - and not salaries, production expenses, artistic activity. But the Arts Council is investing in feature film production, because a film is a "tangible asset". Watch out for Crimetime, a "capital" project, in which the Arts Council has invested pounds 4m, about a serial killer influenced by violence on television. So you can pay an actor if you film him, but not if you put him on a stage.

What is the reason for this maze of complexities and contradictions? In theory, it is to stop the Treasury from removing its subsidy to sports, heritage and the arts on the grounds that the lottery is now covering their costs. This would leave them back at square one, but in an even weaker financial position, for international evidence suggests that lotteries may have a lifespan and that their profits can fluctuate. More sentimentally, people argue that it is the mark of a civilised state to support culture and that there is something undignified, a bit seedy, if great orchestras and theatre companies have to depend for their existence on the public's willingness to have a flutter. Fair enough, but high principles don't pay the wages.

On the face of it, this danger of what is called "additionality" is a convincing argument for separating lottery income and government grant. But it does not stand up to scrutiny. When the Irish launched their lottery in 1987, the Irish Arts Council, one of the beneficiaries, shared the same fears. In the event, though, they have done very well, their income from both the state and the lottery having risen sharply in the years that followed.

In Britain, however, despite all the precautions, the signs are pointing the other way. There was an early indication of things to come when the NHMF's grant, which stood at pounds 12m in 1993/94, went down the following year to pounds 8m. The truth is that governments do as they want and, if they want to fund the arts, they will and, if not, not.

There may be another explanation for the surplus of fudge, more sinister but more plausible. Any politician or civil servant worth their salt will want to keep their options open. Some of them, not many perhaps, do think in the longer term. In a few years' time the government of the day may wish to change the good causes to be funded by the lottery. There are already hints that Labour might not only nationalise Camelot, but also look again at the distribution arrangements.

It will be only too easy to do so if the rules restrict grants to one- off capital spending. At some point in the future, the Arts Council will have built or refurbished all the concert halls and galleries we could possibly need. What then? Time for a change.

However, if the lottery is allowed to finance the running costs of institutions - that is to say, flesh-and-blood jobs (held by voters), actual dance productions and art exhibitions (seen by voters) - there will be all hell to pay if the money is taken away. No, no, Sir Humphrey will caution, we don't want that, Minister, do we?

Long-term advantage and the need for a short-term rescue operation in the light of next year's cuts suggest that it is time to campaign for a radical change in the lottery rules. No doubt Sir Ian McKellen and Prunella Scales will soon be leading a march up Whitehall demanding a restoration of the cuts. Lord Gowrie, chairman of the Arts Council, knows better than that. The word on the street is that he will accept his pounds 5m shortfall and, instead, press Mrs Bottomley to let him bend a few rules and so divert some lottery money to bridge the gap.

This would not be too difficult. If a film can be seen as capital, why not books, recordings or even theatrical productions? All of these fall comfortably inside the Arts Council's mainstream brief, leave aside its budget for the production of arts films. Also, it is worth scrutinising the fine prnt of the government lottery guidelines, which allow for spending on "endowments or... revenue grants where... the project would not otherwise be completed because no other finance for such costs is available".

If Gowrie succeeds, it will certainly stave off the immediate crisis. But it is a trick that, like a windfall tax, can only be played once. If further cutbacks are in store as the general election approaches, what then?

The safest way forward is to play the game long, not short. The absurd and ambiguously observed distinctions between revenue and capital, between lottery and tax expenditure, should be phased out between now and the year 2000. A rising proportion of lottery income should be given to the Arts Council to spend as it will. This would enable the Royal Opera House to become the smartest government hospitality suite in the world and see the Tate safely installed on Bankside, while saving some of our finest arts organisations from collapse. And, looking ahead to the next century, it would ensure that the arts of this country had a chance of ending up somewhat less poverty-stricken than they are today.

The chance may only be a slim one, but there is no other to be had.