Funding of the arts and heritage - Culture, Media and Sport Committee Contents

Written evidence submitted by Arts Council England (arts 77)

  1.  Arts Council England works to get great art to everyone by creating the conditions for the making of excellent art and ensuring that as many people as possible can experience the art that is produced. We support a range of artistic activities from theatre to music, literature to dance, photography to digital art, arts festivals to crafts. We believe that support of the arts is crucial to our prosperity as a nation and the wellbeing of its citizens.

  2.  Arts Council England has two funding streams—Grant-in-Aid, and proceeds from the National Lottery. The bulk of our Grant-in-Aid is currently invested in a portfolio of around 880 Regularly Funded Organisations (RFOs), which will receive £1.03 billion between 2008-11. RFOs include large national organisations such as the Royal Shakespeare Company and English National Opera, high profile regional organisations such as Nottingham Contemporary or Sage Gateshead, and smaller organisations such as the British Federation of Brass Bands.

  3.  We also invest Grant-in-Aid funding in new opportunities for the development of the arts, through programmes such as Take it Away, which provides interest free loans for the purchase of musical instruments, and the Cultural Leadership Programme, which supports the development of leadership skills for arts organisations.

  4.  Lottery money is invested in grass roots arts projects through our Grants for the Arts programme. The minimum you can apply for is £1,000. Grants for the Arts supports projects that engage people in England in arts activities, and help artists and arts organisations in England to make art. It is the main way we support experimentation and invest in new artists and organisations. In the period 2008-11, £154 million of Lottery investment will also see the completion of several big capital projects and some major new arts spaces. Recently completed projects include Corby Cube and Dance East in Ipswich; to come are the Royal Shakespeare Theatre in Stratford and the Visual Arts Facility in Colchester.

  5.  We are currently modelling for cuts of 25-30%. Any cuts need to be spread intelligently over four years so that they can be managed in the best way as sudden, large cuts will cause damage that will take many years to recover from.

What impact recent, and future, spending cuts from central and local Government will have on the arts and heritage at a national and local level

What impact recent changes to the distribution of National Lottery funds will have on arts and heritage organisations

  6.  On 24 May 2010, the Department for Culture, Media & Sport cut the Arts Council's 2010-11 budget by £19 million. This cut was in addition to an earlier reduction of £4 million, meaning that our 2010-11 budget was reduced by a total of £23 million.

  7.  We worked hard to ensure that cuts to our RFOs was limited to 0.5% but this relatively minimal reduction was only made possible by the exceptional use of £9 million of our historic reserves which we had previously been unable to access. Had we not been able to use these reserves, we would have been forced to pass on a 3% cut to our RFOs. As part of the deal to allow us to use our reserves in this way, £7 million was given to the Department. £5 million will be returned to our baseline next year.

  8.  In order to meet this budget reduction we also had to make additional cuts to our two highest funded organisations not directly producing art (Arts & Business; Culture Creativity & Education); make an additional £0.4 million cut to our operating costs (bringing savings on operating costs to a total of £6.9 million this year); postpone a major public engagement project, cut our audience development plans, and cut funds for partnership working with local authorities and the public sector.

  9.  Future cuts will have a far greater impact. Arts Council England has been asked to model 25-30% cuts over four years and we have asked RFOs to model how they would cope with a 10% cut next year. This assumes an overall cut to us in Year 1 of 15%, extrapolated from overall Treasury figures. We hope it will not be as much as this. A 30% cut would, if passed on equally, amount to a reduction in the Arts Council's budget for regularly funded organisations of £134 million a year.

  10.  Combined with a reduction in funding from local authorities (a significant funder of the arts), rising VAT and a pressure on earned income and private giving, many arts organisations large and small will be lost. Even those that manage to survive what could be a "perfect storm" may find it difficult to produce the work to the quality or on the same scale that they have done previously. Evidence from previous rounds of cuts suggests that less ambitious work loses audience interest and leads to a spiral of decline in artistic standards.

  11.  This scaling back of arts provision and closure of arts organisations will compromise the ability for people to experience the arts. The closure of arts organisations will hit local areas hard where the arts provide a focus for tourism, education, community engagement and creative industry.

  12.  Cutting back on arts provision at a local level will undermine the bedrock of support for the creative economy (the fastest growing economy in the UK). The Work Foundation has demonstrated how the publicly funded cultural sector in this country supports the commercial creative sector. This is perhaps best illustrated in the relationship between West End or other commercial successes and the skills of actors, directors and those involved in production developed in the public sector.

  13.  In response to an anticipated reduction in Grant-in-Aid and in keeping with our new 10 year strategic framework, we have been looking at introducing new funding programmes that will be phased in to replace existing arrangements. These programmes will better reflect the different kinds of relationship we have with funded organisations, allow clearer focus on priorities and will free up opportunities for new entrants and new ways of working. This will almost certainly result in fewer organisations supported overall.

  14.  We are presently still in the process of developing guidance and criteria for the new programmes and want to create funding mechanisms that will work flexibly, allowing us to make best use of all our sources of income (Lottery funded programmes must be application- based so we expect to run some kind of application process for the new programmes). The new plans will be in place from April 2012.

  15.  Beyond cuts to arts organisations, Arts Council England would also need to cut back on the strategic projects it manages. This would limit our crucial developmental role, and inhibit our capacity to lead, support and develop the sector. Projects like the Cultural Leadership Programme, Artsmark and the Cultural Olympiad are examples of projects currently funded by us on a strategic basis. Cuts to these programmes will have a longer term impact on the sustainability and development of the sector.

  16.  The way in which the cuts are phased will be important. If changes to the Lottery distribution go ahead, the arts should see an increase in Lottery funding. However, Lottery cannot substitute for grant-in-aid funding under the "additionality" rule laid down by the Major Government. Furthermore, any increase in Lottery funding will only be phased in over time. Any increase in Lottery funding will therefore not mitigate the impact of grant-in-aid cuts in the early years, and Lottery cannot substitute for Grant-in-Aid funding because of the important principle of "additionality". Over the whole four year period the effect of a 25% cut would be £112 million; extra money resulting from changing Lottery shares will deliver an extra £40 million to Arts Council England.

  17.  Any cuts need to be spread intelligently over four years so that they can be managed in the best way. A dramatic cut in funding in 2011-12 would hit organisations hardest in the Olympic year. Sudden, large cuts which are not managed properly will cause damage that will take many years to recover from, as our experience of the Stabilisation Programme shows us.

What arts organisations can do to work more closely together in order to reduce duplication of effort and to make economies of scale

  18.  Working together can create benefits and opportunities for organisations that collaborate, and there are a number of arts organisations who already do so, for example the proposed merger between Cornerhouse and Green Room in Manchester, Newcastle and Gateshead Cultural Venues Forum (NGCVF), Turning Point Networks, VALE and LARC in Liverpool.

  19.  We are actively encouraging our RFOs to develop sharing and partnership scheme but our experience is that these projects work best when Arts Council England or another interested party makes funds available and delegates the decision on exactly what is done to the organisations concerned. This brings them to the table in a way that is often not possible otherwise. Invariably, conversations become easier over time and the entities explore their similarities and find new ways of working together. This provides a clear way in which we could encourage further ways of working together—allocate funds for collaborative projects with a general aim of finding new ways to make partnership working effective.

  20.  We do however need to be open about the challenges that organisations can face.

    —  Trustees of funded organisations have a legal obligation to their organisations not to the sector or to government efficiency agendas. Trustees need to be confident that the independence of their organisation is not under threat and that savings can help them to achieve their objectives more efficiently.

    —  Collaborative projects take time to come to fruition, since there is often distrust between entities who traditionally see themselves as rivals.

    —  Areas where collaboration could be most productive and create the greatest efficiencies are often the source of greatest rivalry. This is particularly common for things like marketing or fundraising, where databases are seen as assets, but also for things like estate services, since the building is often synonymous with the organisation, and so contracting out its management is anathema.

    —  Finance is often cited as a potential saving. Our experience is that organisations are generally very lean in this area, frequently having only a book keeper and a more senior member of staff who is partly responsible for finance in addition to other things.

    —  There is always an up-front cost involved with shared services, since reorganisation and merger are complex legal operations. This means consultants and lawyers are required. Often the savings are marginal, and so the shared work only makes a saving over time.

  21.  There are however many examples of how our RFOs are thinking creatively to produce cost and efficiency savings. As part of the successful rescue programme, English National Opera outsourced workshops in line with many arts organisations. Where they co-produce, eg with US partners, their new contracted out arrangements are more cost-effective and sets are made in the UK. We are establishing a new Organisation Development function to make sure RFOs have access to the best expertise and advice in this area.

What level of public subsidy for the arts and heritage is necessary and sustainable

  22.  The arts sector recognises the need to contribute to the economic recovery—and has already sustained significant cuts (£112.5 million of Arts Council Lottery funding has been diverted to the Olympics, in addition to the £23 million in-year Grant-in-aid cuts). Our research suggests a tipping point of 10-15% for most arts organisations where current operating models will not be sustainable, leading to less original work, or in some cases closure.

  23.  For every £1 that the Arts Council invests, an additional £2 is generated from private and commercial sources, totalling £3 income. At a local level our investment can lever five times its worth. Arts Council investment therefore acts as the stamp of approval that draws in funding from the private sector and philanthropic sources. This mixed economy model in which public subsidy contributes roughly one-third. A sudden, or drastic, change to that level of support would threaten not only the quality of artistic life in England but also the contribution made by the arts to the future prosperity and the positive image of the country abroad.

Whether the current system, and structure, of funding distribution is the right one

  24.  There has been a broad consensus, since Arts Council England's inception, that the arts should be supported through an arm's length model. The principal virtues of this include protecting the artist's freedom of expression from political interference, enabling peer experts to make decisions about funding and policy and allowing the criteria for funding to be focused on considerations of quality rather than other extraneous factors. We think the present structure with funds distributed by a non-governmental body is the right one but we would like a new expression of the Arms Length Principle that is re-imagined for modern times—one that verifies and realises the success of the arrangement and also recognises the existence of a Department of State.

  25.  Arts Council England is committed to ensuring that public funds are used in the most cost effective way to deliver the greatest public value. In addition, we use our expertise to support artists and to make strategic interventions that build the capacity of the sector and ensure that everyone has access to the very best of the arts.

  26.  The Arts Council recently consulted on the 10-year strategic framework that will underpin our future investment decisions and strategic interventions. Consultation responses revealed that there is general agreement and support for our vision and proposed goals and that our framework will provide a powerful focus for the Arts Council and its partners over the coming decade.

  27.  To achieve this we have evolved into an efficient and outward looking organisation. We have introduced new systems of evaluation and artistic assessment and will introduce international Peer Review to National Bodies. We will look at how we ensure what we do is as transparent a way as possible. We will continue to drive down costs while maintaining the quality and effectiveness of our advice, support and expertise. Since 1 April the Arts Council's overall operating costs are down to 6.6% (reduced from 11% in 2001-02), and of that only 3% is spent on administrative costs.

Whether the policy guidelines for National Lottery funding need to be reviewed

  28.  The present policy guidelines have allowed Arts Council England to support the arts sector in a flexible manner and to help achieve great art for everyone. The tone and scope of the current directions are broadly right—we would not see a great deal of benefit to changing them. We dully the ambition to keep a clear separation between the project work of grant-in-aid and Lottery money.

The impact of recent changes to DCMS arm's-length bodies—in particular the abolition of the UK Film Council and the Museums, Libraries and Archives Council

  29.  It is hard to comment on detail at this stage. We are currently in discussion with DCMS about how the current work of the UK Film Council and the MLA can be supported in the future. We believe it is important not to lose the expert focus of an arms-length body for the sake of minimal cost savings.

Whether businesses and philanthropists can play a long-term role in funding arts at a national and local level

Whether there need to be more Government incentives to encourage private donations

  30.  Businesses and philanthropists already do play a role in funding the arts at both a national and local level, and have always done so. Arts Council believes it may be possible for private sources of funding to increase in the future. We are currently conducting a short review of this area to see what role Arts Council and its funded bodies can be doing to support this goal, especially at a time when public funding will be reducing. As part of this review we have been conducting an informal consultation over the summer in which we have interviewed arts organisations about their needs and challenges. These have included a range of big and small organisations, based in and outside of London.

  31.  It is clear that creating a step-change will, as the Government itself has acknowledged, take many years and our strategy in this area will reflect this, looking at both short and long term measures to increase private giving. It will very much depend on a long term change in the culture of giving.

  32.  Whilst private funding is an extremely valuable source of income for the arts, we would stress the value of the mixed economy model in the UK, and the benefits this approach brings. This includes the relative stability of plural funding streams for the arts that does not exist when there is a concentrated reliance on either public or private funding sources, as is true in the European and US models respectively. Public funding also attracts private donations to the arts, and any successful strategy to increase private giving needs to acknowledge this pattern. Private giving will not replace Arts Council England public funding.

  33.  One thing is clear: a move to a US system should not be the aim, rather we should strengthen the private element of the mixed economy. Our consultation has confirmed that organisations outside London or other established metropolitan centres face very different challenges. This reflects a number of different circumstances including:

    —  the reputational pull of nationally or regionally significant companies compared with more locally routed organisations; and

    —  the different micro-economies found in the English regions compared to those found in our larger economic centres, which define the potential pool of funding available to organisations.

  34.  Smaller non-metropolitan organisations therefore face challenges in fundraising. Most require very different types of support. It is also clear that these organisations should expect to achieve a different level of private funding. We are looking at what type of support is most appropriate for these organisations, including the role that larger regionally significant organisations can play in supporting smaller parts of the infrastructure, and whether there are new avenues of giving which could help smaller organisations.

  35.  There are two areas in which Government incentives would improve levels of private giving to the arts. For the small to medium sized entities we believe the simplification of gift aid would be the most effective. Helpful changes would include establishing it as an "opt-out" rather than "opt-in" scheme; changes to donor benefits; as well as simplification of the claiming process for larger gifts. For larger organisations in the business of attracting larger scale one-off gifts it would be beneficial so that it is possible for gifts of either funds or assets to be offset against tax in the donor's lifetime.

  36.  We also believe that increased recognition of donations at the appropriate level of Government would provide an increased incentive for donors, and the Arts Council would be happy to help play its part in helping to identify individuals or organisations in a more comprehensive way. Those we have consulted in the sector have said that recognition could be improved through more systematic and regular use of the existing honours system, as well as through increased recognition by Government, either through the use of receptions at Number 10 or 11, or through thank you letters or meetings.

September 2010

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