Review of Lottery Funding: a response to the DCMS Decision Document

Helen Wilkinson, 01.10.2003
DCMS is proposing changes to the way lottery funding is distributed. One change - which at first seems like a mere technicality - could result in the Heritage Lottery Fund having over £30m less to spend each year. The MA has written to DCMS encouraging the department to change its plans.
1.0 Background

1.1 The Museums Association (MA) is an independent membership organisation representing museums and galleries in the UK and people who work for them. The Association has over 4,500 individual members and 600 institutional members.

These institutional members encompass around 1500 museums in the UK ranging from the largest government-funded national museums to small volunteer-run charitable trust museums.

Formed in 1889, it is a not-for-profit charity, receiving no government funding, which seeks to inform, represent and develop museums and people who work for them in order that they may provide a better service to society and the public.

1.2 The MA submitted a detailed response to the consultation on the Review of Lottery Funding. We were pleased to see many of the points which we made in that response, and which we know were echoed by other organisations, taken on board in the decision document. In particular, we are pleased that the sector's resounding vote of confidence in the Heritage Lottery Fund has been heard.

1.3 However, we are very concerned that moves to reduce the level of reserves held in the National Lottery Distribution Fund and to reallocate the interest on balances will have an unfair adverse impact on HLF. We urge DCMS to rethink this proposal.

2.0 Response to the decision document

2.1 HLF has a higher level of balances in NLDF than other distributors. We do not believe that this is an indication of inefficiency or excessive caution on HLF's part. HLF funds more capital projects than the other distributors. Those projects are typically more complicated and subject to more constraints than those in other sectors.

The redevelopment at Stonehenge is just one of example of the kind of complex and ambitious projects undertaken by HLF: years in the planning, highly contentious and demanding careful measures to protect the integrity of this highly significant site.

2.2 The decision document implies that for the distributors to hold funds in the NLDF is a waste of public money, a dereliction of the distributors' duty to get the money out into the community. But balances held in the NLDF are not "dead". Clearly, they earn interest, which is ploughed back into good causes.

But more significantly, money in the NLDF is money which is already hard at work. In many cases, match-funding can only be unlocked when there is a firm commitment to funding by a lottery distributor. All the money held in the NLDF by HLF is committed to projects; and HLF is in fact over-committed by almost 10%.

2.3 The decision document argues that paying interest to individual distributors on their balances in the NLDF provides a perverse incentive to maintain high balances. We believe that there are practical reasons why HLF's balance in the NLDF is so high. If HLF loses the interest on its balance, it is being punished for a perceived inefficiency; but we believe that DCMS has not proven the case against HLF and has not convincingly demonstrated that maintaining high balances is a sign of inefficiency.

We do not see how HLF can operate and continue to fund large capital projects without maintaining large balances. We understand that HLF has suggested that the National Audit Office should scrutinise the way it distributes funding.

We believe that this kind of independent review would provide a sound basis for any changes to the way the NLDF operates. The NAO could help HLF to explore different ways of paying out funding in order to reduce the amount of money held in reserve.

If the NAO cannot suggest a different way to work, within government accounting regulations, then there would be no justification for taking away the interest on balances legitimately held by HLF.

2.4 Although we understand that DCMS has no immediate plans to claw back balances in the NLDF, we are very concerned that this remains a possibility. If DCMS took away any part of HLF's balance, HLF would then have to dishonour commitments that have already been made.

This would lead to a waste of public funds: most HLF-funded projects receive some other form of public funding in match funding, and most have had public investment in the form of staff time to get to the stage of making a successful bid.

More worrying still would be the loss of confidence, which could make it very hard to persuade other funders to invest in projects seeking HLF backing.

3.0 Conclusion

3.1 We share DCMS's concern that the lottery funding should be made to provide as much public benefit as it can. Of course, we want to see DCMS taking steps to counter any inefficiency or waste. However, we believe that by seizing on the issue of reserves, DCMS is unfairly penalising HLF: a distributor which has gone to great lengths to make its policies more responsive to the public and to make funding available in user-friendly ways.

We urge DCMS to rethink its decision to reallocate the interest on balances and to give a clear commitment that it will never claw back balances, except in cases where the NAO can demonstrate inefficiency on the part of a distributor.

For further information, please contact:

Helen Wilkinson
Policy Officer
Museums Association
24 Calvin Street
E1 6NW

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