Reliance on ‘volatile’ income streams could put national museums at risk

England’s national museums and galleries (M&Gs) have significantly increased their earned income but are pursuing “riskier” income streams that could affect their future financial stability, a report by the National Audit Office (NAO) has found.

The report examined the financial resilience of the 15 cultural institutions directly sponsored by the Department for Culture, Media and Sport (DCMS) since the end of emergency Covid funding after 2021-22.

The NAO found that those institutions are under increasing financial pressure, with a third concerned about being able to deliver their core objectives, such as free access to collections, over the next three years, and a fifth saying they may need to cut services to control costs.

There has been an 18% real-terms increase in total expenditure by the M&Gs since 2021-22, the report found. Meanwhile total grant-in-aid from DCMS has fallen 16% in real terms from 2021-22 to 2024-25, to £484m, although this was still 12% higher than the annual pre-pandemic average.

The composition of grant-in-aid has also changed, the report found; while capital funding has increased by almost a quarter since 2021-22, revenue funding has dropped by 7% in that period and was 11% lower in real terms in 2024-25 than the pre-pandemic average.

There remains a significant backlog of capital works at national institutions, the NAO said; between 2023-24 and 2024-25, DCMS provided an extra £292m in capital funding for outstanding maintenance and other capital works.

The report found that visitor numbers at national museums and galleries remain lower than before the pandemic. In 2024-25 they were 13% lower than the pre-pandemic average, at 42 million compared to 48 million. Overseas visitors have been slow to return, with 19.4 million visiting in 2024-25 compared with an average of 22.6 million before the pandemic.

However, six institutions, all based solely or mainly in London, saw more visitors in 2024-25 than before the pandemic.

Income streams

The NAO found that nationals are drawing on reserves and self-generated income to cover rising costs. According to the findings, unrestricted and undesignated reserves have dropped by 18% in real terms since 2022-23, while the nationals have more than doubled their total self-generated income, which is up 53% in real terms since 2021-22.

This income derives from a diverse range of sources, the NAO said, including venue hire, visitor donations and membership schemes, touring collections overseas, licensing arrangements with commercial bodies, paid-for visitor experiences, and hospitality and retail.

However the report warned that the nationals’ “future reliance for financial resilience on self-generated income and cost containment is subject to risks that they must manage”.

“Self-generated income sources are riskier and more susceptible to external factors, such as tourism costs like travel and accommodation, and exchange rates,” it said.

“‘Blockbuster’ exhibition income is volatile and high risk, with membership revenue also becoming unstable due to high membership churn.”

Staff cuts

The report found that staff at national institutions, who numbered 6,800 in total in 2024-25, are often in the firing line when it comes to cutting back. According to the NAO, one third of institutions have opted to reduce staff costs in response to the financial challenges they have faced, “for example by making staff redundant, not filling vacancies and having fewer staff on duty”.

The NAO also found that “some M&Gs have adopted innovative approaches, such as using technology or retraining staff in both security and museum guide duties”.

The NAO said such cost containment measures could impact on the nationals’ “ability to preserve their collections and maintain free access”.

One-third of DCMS sponsored institutions told the NAO they were “concerned about their ability to deliver these core objectives over the next three years, with 20% looking at their service offer to control costs”, said the report.

“There are indications that some M&Gs may not have the financial management capacity to manage future risks,” warned the NAO.

As a result of these challenges, DCMS changed its approach to calculating allocations to the nationals in 2025-26, the report said.

Rather than applying an equal percentage uplift based on inflation, and then using end-of-year top-ups to help those in financial trouble, the department now reviews each institution’s circumstances and provides higher increases to those most in need.

Improved oversight

The NAO recommended introducing an “early warning” system that would enable DCMS to intervene early where museums and galleries are at financial risk.

According to the report, DCMS is reviewing how it tracks the performance of national institutions “because there are some objectives for which it does not have performance indicators”.

The report said: “DCMS has had a set of long-standing key performance indicators (KPIs) in place to monitor the performance of M&Gs. However, they do not cover qualitative aspects of M&Gs’ service delivery, such as opening times, gallery closures or condition of collections, which could provide an early indicator of deterioration in their resilience, and some KPIs are out of date.”

The department is working to improve its oversight arrangements so that it has a clearer measure of each institution’s financial resilience, said the NAO.

National institutions “want more support from DCMS where they face resilience issues they find difficult to tackle on their own”, it added.

The NAO said: “Museums and galleries are now more reliant on self-generated sources of income that are vulnerable to wider economic factors, and they are using cost-containment measures that can only go so far before they risk the achievement of objectives. Museums and galleries will need to navigate these challenges through good financial management and planning, with DCMS having overarching responsibility for ensuring whether they can care for and provide free access to their collections.

“Therefore, DCMS must ensure that it has structures in place to identify early warning signs, should museums and galleries start struggling to manage their financial risks, so it can intervene early – potentially before additional funding is required.

“Its work to address gaps in its oversight and monitoring of museums and galleries’ financial resilience is therefore important to ensuring it can fulfil its oversight role most effectively. It also has an opportunity to do more in its convening role to support museums and galleries in dealing with common challenges, such as the threat from cyber-attacks.”

An analysis on the challenges facing national museums will be in the next edition of Museums Journal

Recommendations from the report

DCMS should:

• as part of its review of KPIs, ensure that it is able to measure M&Gs’ progress against each of its priority outcomes and that the measures provide a balance of cost, quality and delivery − it should also use these KPIs to enable a clearer view of whether M&Gs are performing in line with its expectations;

• identify a set of indicators of M&Gs’ financial resilience, which it will monitor on a regular basis to identify potential early warning signs of financial difficulty, with accompanying plans for how it will use this information to prioritise its oversight and engagement with M&Gs that are most at risk − its indicators should include a mix of financial measures, such as cash and reserve levels, and non-financial indicators, such as the timeliness of production of annual accounts for audit and leadership turnover in M&Gs’ finance teams;

• communicate to the M&Gs the factors it considers when deciding their annual funding allocations – it should also encourage M&Gs to share information about their operating costs to enable comparison and benchmarking of key cost data between the M&Gs;

• communicate a plan to the M&Gs setting out how it will support sharing of good practice and development of capacity to address cross-cutting challenges that are affecting M&Gs’ financial resilience; this could include identifying, and potentially funding, one museum or gallery to pilot shareable solutions that can be disseminated across the sector − current cross-cutting challenges include cyber threats, storage, digitisation of collections, insurance and shared services.

Museums and galleries should:  

• take the opportunity provided by the current multi-year Spending Review period to establish financial plans that reflect the greater certainty over government funding provided and factor in uncertainty about other income streams due to wider economic factors − these should include plans for managing a range of scenarios for income generation;  

• agree collectively how they can capture data on key costs, such as staff, insurance, energy and security, on a consistent basis in order to facilitate more insightful comparisons between M&Gs;  

• review whether their financial management capability is sufficient to manage future risks and seek to address any gaps they identify.