A hundred yards from the elegant facades of London's Sloane Square is an ugly dirty-red brick building that looks like a converted multistorey car park.

This uninspiring piece of 1980s architecture, once the headquarters of WH Smith, is now the Heritage Lottery Fund's (HLF) head office, and it has been at the centre of one of the most profound changes to heritage in Britain for a generation.

This month the HLF, along with the lottery as a whole, celebrates its tenth anniversary. During this time the fund has poured more than £3bn into Britain's parks, open spaces, historic buildings, libraries, community projects and of course museums and galleries.

Museums have received £900m of the HLF's money, and without it there would be no British Galleries at the Victoria & Albert Museum (V&A), no Science Museum Wellcome Wing, no British Museum Great Court and not many of the other 1,400 projects it has funded.

If that were not enough to win over the doubters, then the way the HLF has gone about awarding its grants has. The fund hasn't been a faceless bureaucracy; instead, most in museums feel the HLF understands what museums are trying to do. As Sam Hunt, the chief executive of the South West Museums, Libraries and Archives Council, says: 'You don't have to argue the case for collections management, for example, because they understand its importance.'

The director of the HLF is 47-year-old Carole Souter. Previously a career civil servant who mainly worked in the Department of Health and Social Security, she came to the HLF in April 2003 after three years at English Heritage. As quite a recent arrival what does she think of the fund's performance so far?

'I reckon we're up there in the eights or nines out of ten,' she says. 'The areas we'd like to build on are making sure we draw attention to the benefits of lottery funding, because there are too many people who love the outcomes but don't associate them with the fund at all, and to keep looking at simplification. But we don't pretend we'll ever crack that one.'

Interestingly, when asked to name the HLF's main achievements she doesn't go for the high profile, big money projects. Instead she talks about helping museums start to tackle their backlogs in terms of structural upgrading, conservation and access and giving a push 'to those people who've been wanting to put education at the heart of museums for a long time'.

As part of the celebrations, the HLF will be working with the lottery's central promotions unit, but Souter says her staff have also been delighted by the response of the lottery-funded museums they've contacted about putting on special events for the anniversary day on 6 November.

She believes this is a crucial opportunity to communicate the benefits of lottery funding. The importance of communication is something Souter returns to many times during the interview, and it is something she says is a major element of her job.

We are sitting at a round table in her office, along with a press officer who is taking notes. Souter says one reason she originally joined the civil service was because she knew how good its training was, and the training certainly paid off in terms of her own ability to communicate.

Relaxed, open and articulate, yet passionate at the right moments, she is the kind of person who can say how hugely exciting it is to get out and see projects the HLF has funded, and sound as if she means it. With heritage constantly having to argue its case for funding, it is an asset for the HLF and the sector to have a figurehead with her skills. She also seems to have a genuine passion for heritage in its broadest sense, one that has its roots in her childhood.

She was born in the small Cornish village of Grampound, which she remembers as having a strong sense of place and where the history of the village was important to its inhabitants. She says her childhood was very rural, and though she now lives in Bromley on the outskirts of London, ideally she'd like to live in the country. Her father was a post-office telephone linesman, her mother looked after her and her younger brother full time, and they were regular visitors to the local museum, the Royal Cornwall Museum in Truro.

Having studied politics and philosophy at Jesus College, Oxford, she joined the civil service as a graduate trainee in 1978 because, she admits with a little reluctance, she is one of those people who believes in public service for its own sake. While there she also did a part-time MA in Victorian studies at Birkbeck College in London. Her next post was an area director of the Benefits Agency, in charge of 4,500 staff.

In 2000 she says she got the chance to 'combine my passion with my professional skills' when she became the director of regional operations at English Heritage, where she was also the acting chief executive for a year. She wasn't looking to leave English Heritage, but when the HLF job became available she says it was the kind of opportunity she couldn't pass up.

She is very much at home at the fund as it works in a similar way to a government department. The trustees determine the fund's policies and take the major funding decisions, while she heads up the executive side, managing its 250 staff, who are based round the country and assess applications and make recommendations to the trustees. She also talks to applicants, the government and the press.

Souter isn't directly responsible for the fund's decisions, but still has sleepless nights thinking about the difficult ones, such as the V&A's Spiral project. When the HLF rejected this scheme in its latest spending round at the end of July it seemed to be signalling a move away from big capital projects towards more collections-based ones.

But she says there has been no change of policy. New-build on its own has always been a low priority for the HLF, and that was a very large part of the Spiral project. It was a tough day, but not one she feels bad about.

'We get £3- or £4-worth of applications for every £1 we give away,' she says. 'In those circumstances people who have got a project they are passionate about will be disappointed. If I'm not prepared to cope with that, then I shouldn't be doing the job.'

She says the biggest mistake museums generally make is not talking a project through with the HLF staff before making an application. But this is not what happened with the Spiral project as the V&A is in regular contact with the fund about other schemes. Souter insists that the museum understood how the project would be viewed before it put the application in. 'They had the project they wanted to do, I don't think they were ever unclear about what our priorities were,' she says.

Inevitably there are rumours about the direction the fund wants to go, such as reducing the share of money going to 'elitist' museums in favour of more 'populist' parks and canals. Souter says she is conscious of the concern, but is happy to deny it emphatically. 'There is absolutely no intention of reducing the share going to museums and galleries,' she says.

Part of the reason for the sector being jittery is because the current lottery licence runs out in 2009, which means the government will probably review the lottery distributors in 2006/07.

The HLF gets good press in local papers and the broadsheets, but has always struggled with the tabloids, apart from rare occasions when there is a good headline to be had, such as the Sun's 'Nice Titians' last year. She says this is one reason she has to keep pressing museums to make sure the government and lottery players know what the HLF has made possible.

'Once they've got a large sum of money from a lottery funder they sort of breathe a sigh of relief, tick that box and move on,' she says. 'But it is a responsibility for all of us, not just to make sure government is told, but that when people are enjoying the facilities they think: "Yes, I'm glad my money went there". We've got a long way to go on that front.'

Souter says she has not yet had an indication from government whether the HLF will keep its share of lottery money -- currently 16.7 per cent - or indeed if it will survive at all. But while she is confident that the fund will be able to make its case for survival, she has a stark message for the sector if anyone thinks it is a done deal.

'We should be prepared to stand up and make our case, because I know that other people will be doing that for their areas. We should expect a fight.'