1 Progress in reducing balances
1. Since its launch in 1994, the National Lottery
has raised over £15 billion for six good causes: the arts;
sport; national heritage; charities and voluntary organisations;
projects to mark the year 2000 and the Millennium; and health,
education and the environment. Responsibility for distributing
lottery proceeds to the good causes rests with 15 distributors,
which operate within a framework set by the Secretary of State
for Culture, Media and Sport.[2]
2. Proceeds from the sale of lottery tickets are
paid into the National Lottery Distribution Fund where they remain
until they are required by the distributors to make payments to
grant recipients or to meet their own costs. The balances are
invested by the Commissioners for the Reduction of the National
Debt and earn interest. But while it remains in the Distribution
Fund, lottery money is not delivering the intended public benefit
in the community.[3]
3. In the early years of the National Lottery, the
balances in the National Lottery Distribution Fund built up steadily,
reflecting the time lag between money being paid into the Distribution
Fund, and being awarded to and drawn down by grant recipients.
Balances peaked in July 1999 at £3.7 billion.[4]
4. The Department for Culture, Media and Sport (the
Department) explained that since the late 1990s there had been
successive and increasing efforts to reduce the balances in the
National Lottery Distribution Fund. In March 2002 the Secretary
of State for Culture, Media and Sport announced a target for the
total balances (which then stood at £3.6 billion) to halve
by 2004. In the event, by March 2004 balances fell by 24% to £2.7 billion.
Since then balances have fallen further to stand at £2.4
billion in May 2005. Of this total, two distributors, the
Heritage Lottery Fund and the New Opportunities Fund, together
held 64%. The nine distributors with the smallest balances held
just under 10% of the total (Figure 1).[5]
Figure
1: Distributors' National Lottery Distribution Fund balances at
31 May 2005
| Distributor
| National Lottery Distribution Fund balances (£ million)
| Percentage of the total National Lottery Distribution Fund balances
|
| Heritage Lottery Fund
| 883.4 |
36.1 |
| New Opportunities Fund1
| 676.7 |
27.6 |
| Sport England
| 198.4 |
8.1 |
| Arts Council England
| 175.1 |
7.1 |
| Community Fund1
| 171.5 |
7.0 |
| Millennium Commission
| 102.2 |
4.2 |
| Sport Scotland
| 56.7 |
2.3 |
| UK Film Council
| 48.0 |
2.0 |
| Scottish Arts Council
| 35.5 |
1.5 |
| Arts Council of Northern Ireland
| 34.3 |
1.4 |
| Sports Council of Northern Ireland
| 25.0 |
1.0 |
| Arts Council of Wales
| 19.6 |
0.8 |
| Sports Council for Wales
| 11.8 |
0.5 |
| UK Sport
| 6.8 |
0.3 |
| Scottish Screen
| 4.8 |
0.2 |
| Total
| 2,449.8
| 100.0
|
1
The New Opportunities Fund and the Community Fund were administratively
merged in June 2004 and are now known as the Big Lottery
Fund.
Percentages do not cast correctly due to rounding.
Source: Department for Culture, Media and Sport
5. In setting the target for balances to halve, the
Secretary of State for Culture, Media and Sport drew on information
provided in September 2001 by 12 distributors,[6]
eight of whom forecast reductions of 60% or more in their balances
by March 2004. In the event the progress made by individual distributors
was varied.
- The balances of 10 distributors
fell, including three (the Community Fund, the Millennium Commission
and Sport England) by more than 50%. But with the exception of
the Scottish Arts Council, who had forecast a fall of just £0.1 million,
no distributor's balances fell to the level they had forecast.
- The balances of five distributors increased,
including the two with the largest balances. The balances of the
Heritage Lottery Fund rose by 1% against a forecast reduction
of 15%, and those of the New Opportunities Fund rose by 30% against
a forecast reduction of 36%.[7]
6. The Heritage Lottery Fund explained that the model
it had used for forecasting had turned out not to be a good predictor.
The New Opportunities Fund said that with hindsight it had been
over-optimistic in making its forecast, partly because as a fairly
new organisation it had lacked historical data and had relatively
little experience of delivering its grant programmes. Having peaked
in 2003 at £953 million, however, its balances were now falling
steadily.[8]
7. Although the target of halving the total balances
was not met, the Department considered that setting a target had
been a clear signal that it was determined to get to grips with
the issue, and that the progress might not have been achieved
without the explicit target. The Department's aim is to drive
down balances as fast as it can, and it has not given up the target
for balances to be halved. Although the overall target announced
in 2002 was not disaggregated into targets for individual distributors,
the Department would like distributors to set targets and some
have done so. The New Opportunities Fund said that its merger
with the Community Fund to create a new distributor, the Big Lottery
Fund, offered the opportunity to set new and challenging targets
for reducing balances.[9]
8. The greatest impact on the level of balances in
the National Lottery Distribution Fund would come from distributors
making more grant commitments, but speeding up the delivery of
projects and thereby the payment of grants would also help. The
time taken to complete projects can vary considerably depending
on the type of grant and the particular circumstances of the project
in question. The Heritage Lottery Fund confirmed that projects
in receipt of large grants to fund capital work could take four
or five years on average. Sometimes the scale of the work required,
for example in relation to church renovation, was not clear at
the outset.[10]
9. Responsibility for managing lottery funded projects
rests with the grant recipients but there are ways in which distributors
can influence the time taken to complete projects. In 2003
the Department circulated good practice examples of steps some
larger distributors were taking to pay grants more quickly. For
example, for low risk grants under £50,000 the Heritage Lottery
Fund pays half the money in advance, which is particularly helpful
in cash flow terms for small community groups.[11]
10. Projects are required to provide distributors
with forecasts of when they expect to incur expenditure and claim
their grant. The Heritage Lottery Fund said that if distributors
did not draw down in line with the forecasts, its grant officers
would get in touch to find out why. Where projects were delayed,
distributors had to make a difficult judgement between continuing
to support a project or withdrawing funding partway through.[12]
11. To obtain cash from their National Lottery Distribution
Fund balances to pay grants or meet their own expenses, distributors
submit 'drawdown requests' to the Department on a weekly or monthly
basis. The National Audit Office found that most distributors
over-estimated the amount of money they would need and some estimated
the same standard amount each time. In 2003-04 eight distributors
carried forward average cash balances of over £1 million
at the end of each drawdown period, including four which had average
balances of over £5 million. The Department confirmed that
distributors should not draw down more money from the Distribution
Fund than they will need during the coming period.[13]
12. The financial benefits of distributors making
more accurate drawdown requests could be sizeable since the money
earns a higher rate of interest in the National Lottery Distribution
Fund than in distributors' own bank accounts. The New Opportunities
Fund's switch in 2002-03 to more frequent and accurate drawdown
was expected to lead to a benefit of between £1 million
and £3 million a year.[14]
2 C&AG's Report, paras 1.1-1.2, 1.6 Back
3
ibid, paras 1.3, 1.5, 2.5 Back
4
ibid, paras 2.2-2.3 Back
5
ibid, paras 2.8-2.9; Qq 2, 46 Back
6
Three distributors (Sport Scotland, the Sports Council for Wales
and UK Sport) did not provide information. Back
7
C&AG's Report, paras 2.7, 2.10 Back
8
Qq 3-4 Back
9
C&AG's Report, paras 2.12-2.13; Qq 1, 6, 83, 114-115 Back
10
C&AG's Report, paras 3.1, 3.13; Q 19 Back
11
C&AG's Report, para 3.14; Q 20 Back
12
C&AG's Report, para 4.22; Q 20 Back
13
C&AG's Report, paras 4.25-4.27; Q 82 Back
14
C&AG's Report, para 4.28 Back
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