Is the party finally over?

The new Hampstead Theatre opened a year ago with a pretentious piece of performance art. Since then, its debts have swollen, its artistic reputation has foundered - and now a troubleshooter has been called in. Simon Tait investigates

By day, the Hampstead Theatre looks like nothing so much as an ambitious primary school. Inside it's more like a German merchant bank - coffee over here, mags over here, something going on through there.

In the evening, though, when the subtle lighting comes into play, a sense of theatrical magic enfolds the place and whatever really is going on through there, beyond the zinc and wood décor, is enticing. At least, that's how this building designed by Bennetts Associates, the first new theatre to be built in London since the National and the winner of a Riba award last year, should work.

Costing £15.7m, of which £10m came from the Arts Council Lottery Fund, the Hampstead opened the day after St Valentine's Day last year. Around the auditorium, which has 325 seats - twice as many as its predecessor - are the now-obligatory education space, café-bar, rehearsal room and workshop. The reopening was the end of a 15-year-campaign for the then-artistic director, Jenny Topper. She promised that the theatre would redouble its influence, toppling the Royal Court as the UK's national theatre of new writing. Topper retired in the summer.

But the new Hampstead Theatre is likely to be dark for its first birthday, having failed to cast its spell over audiences. Within a year of the new theatre's opening, the Hampstead management was back, cap in hand, at the Arts Council, with a publicly unspecified deficit spiralling into hundreds of thousands - "substantial, life-threatening", according to the ACE spokesman. One press report alleged a split in the board of trustees, which includes the playwright Michael Frayn, the actor Lindsay Duncan, and Jenny Abramsky, the head of BBC Radio, all of whom are sworn to secrecy. The new artistic director, Anthony Clark, who came with good regional-theatre credentials, latterly from Birmingham Rep, is said by critics to be little interested in PR and the press.

Though reviews have been no worse than mixed, under Clark box-office takings have been half what was projected. Even the usually enthusiastic press officer, Charlotte Eilenberg, who is herself an Olivier award-winning playwright, decided it was time to concentrate on her own writing and went. And over Christmas the man who masterminded the move over five years - the executive director James Williams - quietly resigned, too. Ironically, given Topper's ambition, it is the Royal Court's former chief executive, Barbara Matthews, who has been called in to help create a business plan within the next month to get the Hampstead back on track.

Yet Hampstead Theatre has been one of the great crucibles of new English drama, often second-guessing the West End, which it regularly fed, and its achievements are notable. It has always been a bit of a misfit, located not actually in the leafy garden suburb from which it takes its name, but down the road in rougher, tougher Camden, near Swiss Cottage Tube station. It was founded in 1959 by James Roose-Evans in a scout hut which was, indeed, in Hampstead Village. In 1962 Roose-Evans spotted a site down the less salubrious end of the Finchley Road, rustled up £5,000 and established a new, if hardly grand, 174-seat temporary home for an infant fringe professional producing house, with a life of, at the outside, 10 years before a proper theatre would have to be built. In fact, the venue had to close by early 2003, because Camden Council's safety officers wouldn't give it a licence to operate for longer.

Moments of theatre history were enacted on that oddly sprawling stage. There, in 1977, Mike Leigh's first play was a smash that the West End missed out on; instead, it was snapped up by BBC television, cast and all. Abigail's Party eventually had a short run in the West End a year ago but missed out on the success that it might have enjoyed a decade and a half earlier.

It was at the Hampstead, not at the Royal Court, that Harold Pinter's famous second play Hothouse had its world premiere in 1980, having been turned down by 1950s West End producers for being too political (it finally made it there in the Nineties, opening at the Comedy Theatre with Pinter himself starring). It was also at the Hampstead that Denis Potter's only stage play, Sufficient Carbohydrate, was given a run, with Rupert Graves and Dinsdale Landen, in 1983. And this was the first London stage to present to the world Jude Law, Ewan McGregor, Rufus Sewell and Dougray Scott.

Topper's eminent predecessors were Michael Rudman, David Aukin and Michael Attenborough - the latter is now presiding over another newly reopened north-London fringe theatre the Almeida - and by the time the old place closed, it had waved off 36 West End transfers. Barbara Matthews's arrival with the new year is, in a way, apt. She took over as chief executive from Vicki Heywood after the Royal Court reopened, and for two years she had to iron out many of exactly the kind of unforeseen hitches that the Hampstead is suffering from now. She left the Court at the end of 2003. Her present task is ostensibly to write the job description for Williams's successor, but also to formulate a credible new business plan to be put into practice when, as is hoped, the theatre is accepted on to the ACE recovery programme.

Matthews is optimistic about the theatre's future. "At the Court we had to refocus on what the purpose of the theatre was, and that's partly what we're having to do at Hampstead. We're still having to work out exactly what the sums of money involved are, but I've every reason to think we'll find a way forward by about the end of March, and make an announcement about the next production soon. Where there's a will there's a way, and there's plenty of will," she said. What she will find as she pores over the books with the stand-in executive director, Nadia Stern, is that ambition had run away with Williams and his colleagues. Expectations of earnings from corporate entertaining, conferences and other private hirings were many times higher than was forthcoming, and though box office has increased by 25 per cent, creditable by most standards, it is only half what was projected.

The programming has undoubtedly been partly to blame. The new theatre opened with Topper's choice, the Station House Opera production How to Behave, which combined live performance with film throughout the auditorium and which, instead of being a celebration of new writing, was described by The Independent's critic as a "lamentable evening" and "an unfortunate aberration". Next came Adam Pettle's dark Canadian play Sunday Father about two Jewish brothers discovering the effects of their father's desertion of them on their subsequent lives. It was disconcerting to see a play that might have worked in the Hampstead's old, more intimate auditorium playing to a distant audience of perhaps 70.

The first production under Topper's successor - Clare McIntyre's The Maths Tutor, an examination of homosexual promiscuity and, possibly, paedophilia - also failed to ignite audience enthusiasm, and Clark's second production, Stephen Lowe's comedy Revelations, about a wife-swapping weekend, has fared no better.

More promising material is on the horizon: Hanif Kureishi's When the Night Begins is due to be the next production, followed by a new play by Alistair Beaton, whose Feelgood was the Hampstead's last successful West End transfer, almost three years ago. But a date for the next opening has still not been set by Matthews.

The history of arts lottery projects is littered with overestimates of audiences and income and underestimates of the running-costs of new buildings.

Audiences need to be cultivated,but no two theatres are alike, and while lessons can be learnt, there are no blueprints, says Richard Pulford, the chief executive of the Society of London Theatre and of its regional twin, the Theatre Management Association, of which Matthews was once the chairman. "It is always an issue for a new theatre as to how you pursue an audience to fill it, and in this part of the country it's not necessarily the case that the local audience will want to respond to the continuation of a reputation."

Although James Williams appears to have taken the rap for what has gone wrong, his colleagues are full of praise for the way he saw the project through. The Arts Council, whose director of drama, Nicola Thorold, is standing by Clark for the time being and expects the theatre to come through this crisis, denies that they demanded Williams's resignation. "It has simply been a very long, hard five years and I wanted to say hello to my life again," Williams has said.

The Arts Council, which approved the original budget in 2002, and which, through ACE London, gives the theatre over £500,000 a year for running costs, must be partly culpable for the crisis. The way out of the mire in which the Hampstead Theatre finds itself is likely to involve more co-productions with regional theatres - a tactic it has used successfully in the past - and becoming a receiving-house for outside productions.

It will ultimately mean re-establishing the theatre's original audience and establishing a new one, presentingproductions that suit both, and finding corporate clients to supply a much-needed non-theatrical income.

WAS THE ARCHITECTURE TO BLAME?

It is a truth universally acknowledged that a single lottery grant in possession of a good fortune must be in want of a project. And that the project will duly benefit from a most fortunate combination of the sensibilities of architect and client.

Lottery by name, lottery by nature. We need hardly be surprised by the Hampstead Theatre's apparent difficulties. But is architecture to blame? The theatre's designer is Rab Bennetts, of Bennetts Associates, a respected purveyor of modernist buildings with a tidy twist or two. In this case, the twists are the canted, zinc-lined cauldron of an auditorium that slews dramatically downward through the building, and the jazzy glass gantries that take people into it. Architecture as theatre, if you like.

There are other notable aspects to the architecture. Bennetts called in Martin Richman to design external light sculptures, though they are perhaps rather too shy and retiring. Inside, the basement rehearsal spaces are superb, as are the changing-rooms. The mix of materials - glass, steel, secondary species of tropical hardwood - has been well thought out and delivers some delightful contrasts of detailing. The overall effect inside is of edginess - just the ticket, you'd have thought.

It's hard to imagine that theatre-goers don't enjoy it - even those who may notice that the building's external envelope is strangely unimposing; or who may fret that more than £20m was spent on the rebirth of a fabled institution that, for many years, wowed 'em in a glorified hut with zero architectural merit, copious leaks and shockingly bad changing-rooms.

But then, a great deal of worthy, lottery-funded architecture has failed to deliver the goods: lively design can't overcome misconstrued ambitions, particularly if large running-costs are involved. Indeed, the dynamic of lottery funding is inherently fickle. It creates Big Bang architecture, buildings beamed down from nowhere. Job-done architecture for jobs that haven't even begun to take shape.

The new Hampstead Theatre cost far more than, for example, the complex refurbishment of the Hackney Empire, much bigger and a structural pig of a building. Which was better value? The Empire's bill of fare will probably secure its future - but does that mean that Tim Ronalds Architects did a better job than Bennetts?

Bad architecture can destroy aspirations - corporate, retail or artistic. And perhaps it should. At least, then, cause and effect can be clearly established. In the case of the Hampstead Theatre, decent architecture seems to have counted for nothing. After years of lottery funding, the other universally acknowledged truth is that the dynamics of its dozens of projects - successful or not - remain essentially mysterious.

In Hampstead, architectural and theatrical ambition have been left to walk an unforgiving tightrope. And Bennetts, like other lottery-funded architects before him, finds himself in the ironic position of showing potential clients compelling images of buildings that too often turn out to be dazzling failures.

Jay Merrick