New inquiry into £2.8bn of unspent Lotto money

The National Audit Office has been called in to investigate why almost £3bn of lottery money is lying idle in government coffers despite being earmarked for good causes.

Tessa Jowell, the Culture Secretary, told MPs that the NAO had been asked to find out why £2.8bn is still in lottery bank accounts, despite its allocation to various projects by the 15 distribution bodies.

The balance of the National Lottery Distribution Fund threatened "public confidence in proper management of the lottery", Ms Jowell admitted to the Culture, Media and Sport Select Committee. "I have been very concerned by what we have seen as the unacceptably high level of lottery balances," she said.

Although the figure is the lowest it has been for six years, Ms Jowell gave a commitment two years ago to halve the balance of £3.1bn - a promise she has failed to keep. The balance reached a peak of £3.73bn in 1999. The lottery has distributed more than £15bn to good causes since it began nearly 10 years ago.

Ms Jowell is understood to be concerned that the current backlog is due, at least in part, to unnecessary bureaucracy within the distributing bodies, which are all quangoes and fund their administration with lottery money. "The inquiry has been set up to see how we can improve the system,'' said a spokesman.

Figures released by the Department of Culture, Media and Sport showed that the bodies with the biggest backlogs were those with the largest budgets. The Heritage Lottery Fund, which allocates money to large-scale projects, has £960m of allocated grants not yet taken up. The New Opportunities Fund, which hands out money to health, education and environmental projects is the next biggest, with £776m still in the bank. The smallest backlog is that of Scottish Screen, which funds film ventures and has £1.4m waiting to be allocated.

The Millennium Commission, which funded some of the lottery's biggest ventures, such as the Eden Project in Cornwall, is being wound down but still has £170m committed to spend. It is not accepting any new applications.

A spokeswoman for the Heritage Lottery Fund said it was acknowledged that the backlog was at an "unacceptable level" but stressed that interest earned was ploughed back into its account to support projects. The fund was also overcommitted by £188m because of shortfall in money allocated by the department.

The fund has backed a number of projects including the renovation of the Royal Albert Hall and Somerset House in London and the creation of the National Maritime Museum in Cornwall.

She said money allocated to large scale ventures often took several years to be taken up because of the kind of projects they were. For example, she said, a £25m grant made in 1996 for the renovation of the Kennet and Avon Canal was still being paid out because the work had not been completed until a year ago. The final portion had still to be handed over.

The spokeswoman said it was important for projects to know lottery funding was in place to allow them to apply for "matched funding" elsewhere, even though that led to delays.

She added: "We welcome the inquiry. We process all payment requests within 14 days and we have monitors attached to each project to examine how the money is being spent and we encourage them to speed up their work and their drawing on our funds.''