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

Written evidence submitted by the National Heritage Memorial Fund (NHMF) and the Heritage Lottery Fund (HLF) (arts 192)


  1.1 The National Heritage Memorial Fund (NHMF) was established in 1980 to save the most outstanding parts of our national heritage at risk, as a memorial to people who have given their lives for the UK. NHMF is the only dedicated source of Government funding for emergency acquisitions. It helps to acquire land, buildings, objects and collections of outstanding scenic, historic and cultural interest. An outstanding national collection has resulted from £298 million awarded. Without NHMF funding, key parts of our national heritage such as the Flying Scotsman, Orford Ness nature reserve and the Staffordshire Hoard would have been under threat.

  1.2 When the National Lottery was created, NHMF's independent board of trustees was given responsibility for distributing the heritage share as the only body with a remit for and experience of grant making for cultural, built and natural environment heritage across the entire UK. The Heritage Lottery Fund (HLF) is the largest non-government funder of the UK's heritage, currently distributing around £205 million a year. The proposed change in the share going to the heritage Lottery good cause would mean an increase to £255 million a year in 2012-13.

  1.3 HLF's approach is driven by the nature of its funding from Lottery players. It supports the heritage that the public values, and helps people to get involved with and learn about it, thereby sustaining heritage for future generations. Lottery funding totalling £4.5 billion has been awarded to a broad range of heritage—from national icons and collections to small, neighbourhood projects; from landscapes, National Parks and Areas of Outstanding Natural Beauty to castles and piers; and from steam trains, museums and parks to oral history and local traditions. More than 34,000 projects of all sizes have been funded, with grants from £500 to over £20 million, in every part of the UK. Almost half of this funding has been awarded to voluntary and community organisations with nearly all projects involving volunteers. The need and demand for Lottery funding remains strong. In 2009-10, HLF received applications for £524 million—more than two and a half times its annual grant budget.


    —  The national priority of reducing the government budget deficit will inevitably mean less public money is available. Analysis suggests central and local government funding cuts of between 25% and 40% would mean a reduction in public spending on heritage of £600 million to £950 million pa across the UK.

    —  A fundamental re-design of what heritage services are provided through the public sector is likely to result. Heritage organisations will need to adapt to these new financial realities.

    —  This will not be easy. A transformation of the sector on this scale will need careful management and the adjustment will take time. There is a real risk of deterioration in the quality of physical assets along with the social and economic capital that is based upon them. It is of vital importance to protect the legacy of investment and innovation that lottery funding for heritage has made possible.

    —  This new environment will also bring opportunities. It could lead to a sector that is even closer to local communities and is sustained by a combination of volunteering, local ownership, income generation and individual donations, working alongside continued public investment.

    —  Additional Lottery income of £50 million a year from 2012-13 will mean that HLF will be one of few bodies able to respond to these pressures. HLF's experience as a trusted funder of heritage, drawing in private and public investment, places it in an important position to help organisations to adapt, by investing in skills and capacity as well as assets.


3.1  The scale of cuts

  3.1.1 There will be reductions in public funding across the whole heritage sector. Central government departments including the Department for Environment, Food and Rural Affairs (Defra), the Department for Communities and Local Government and the Department for Culture Media and Sport (DCMS) are all likely to reduce funding. Changes to the funding of economic development, with the creation of Local Economic Partnership and the abolition of Regional Development Agencies, will also have an impact. The situation will be comparable in Scotland, Wales and Northern Ireland.

  3.1.2 HLF/NHMF analysis of the potential scale of these cuts has assumed reductions of 25% to 40% in the budgets of both central government departments and local authorities, between 2010-14.

  3.1.3 Central government departments currently provide £1.4 billion in funding for the heritage sector, so cuts here could amount to between £370 million and £580 million a year. This covers anticipated cuts of £173 million to £276 million in the DCMS budgets currently allocated to English Heritage, the Churches Conservation Trust, the Museums, Libraries and Archives Council, the nationally funded museums, the British Library and the Royal Parks. Annual cuts in Defra's budget for natural heritage are estimated at between £193 million and £309 million. In addition, there are likely to be cuts to the sector from other parts of central government—such as funding for the National Archives, a proportion of which supports heritage.

  3.1.4 Local authorities are also significant funders of heritage, with budgets for historic building conservation, museums, galleries and archives, and historic parks and gardens. HLF analysis suggests that total local authority expenditure in England and Wales for heritage was £570 million in 2009-10. A 25% cut would therefore mean a £142 million annual budget reduction, rising to £228 million pa with a 40% cut.

  3.1.5 Overall, cuts to the entire heritage sector in England alone could be between £500 million and £800 million pa. With comparable budget cuts in Scotland, Wales and Northern Ireland, UK-wide cuts would be between £600 million and £950 million pa. For comparison, HLF's funding for distribution within the sector UK-wide is currently £205 million pa.

  3.1.6 These cuts will have an inevitable impact on HLF funded projects and future applications. All Lottery awards over £50,000 require partnership funding of at least 10% with awards of over £1 million requiring applicants to raise 25%. In the HLF programmes targeted at urban regeneration and public parks, the proportion of match funding from the public sector has traditionally been even higher, with nearly all match funding coming from local authorities and development agencies. HLF funded projects are finding it increasingly difficult to obtain partnership funding from within the public sector. Amongst the larger projects supported in the past two years, for example, 70% of match funding was expected to come from the public sector. But only one half of that has been secured. Some projects will therefore need to revise their funding and project plans. The situation is already worse in places, outside of the more prosperous metropolitan centres, where public sector support has tended to play a bigger role.

3.2  The impact of cuts

  3.2.1 With less public funding available, the heritage sector's financial model will have to be re-configured. Heritage organisations will need to evolve, to be flexible and to adapt to overcome the loss in public funding by revising business plans and combining greater earned income and local philanthropy with volunteer involvement.

  3.2.2 In time more heritage organisations are likely to operate outside the public sector. They will become more locally responsive—operating with a social purpose and with commercial acumen. This could bring the freedom to experiment and to innovate—for example by looking after a mix of heritage assets from across different parts of the sector, or by operating across a variety of geographical areas, rather than within strict administrative boundaries.

  3.2.3 Organisations in the sector certainly have the potential to play this type of role and—judging by a recent increase in applications to HLF for projects involving asset transfer—there is an appetite for doing so. The National Trust is often held up as a model but, at the other end of the spectrum, thousands of small local voluntary groups already undertake conservation work in parks, nature reserves and historic buildings, and run sites and museums.

  3.2.4 The current level of philanthropic interest in heritage can help to underpin this transformation. The most recent Arts and Business survey, for 2007-08, showed private investment in culture close to £700 million, with heritage organisations receiving £232 million. This sum mostly comprises individual donations, legacies, trust and foundation giving rather than investment from business. Heritage attractions are also benefitting from the healthy domestic visitor economy, with the boost of the Olympics to come. The growth of the knowledge economy offers further opportunities to increase income, for example through intellectual property and licensing.

  3.2.5  However, there are real risks. A transformation on this scale will take time and will need to be managed. Even for an organisation that only receives a third of its revenue from public funding, replacing a 25% cut would require a 13% increase from other sources—3% a year for the four years over which cuts will be introduced. A 40% cut would mean a more demanding 20% increase. And there are many organisations in the sector that operate on a greater proportion of public funding than one third, and where the percentage increase in private finance would need to be even higher. Indeed some parts of the sector, especially those that are not visitor attractions, will always struggle to achieve high levels of earned income from commercial operations.

  3.2.6 Public funding for heritage is fully justified on the well established principle of market failure—government resources are needed because no market exists for individual consumers to pay for the maintenance of heritage assets, despite the high value that people place upon them. Even where a market could, in theory, be created—charging visitors entry to a local park for example—this will frequently be highly inefficient as well as inequitable. Philanthropy, though a part of the answer, can't be the whole answer to this market failure issue, either. Valued heritage in both inner cities and remote rural areas may equally suffer, due to a lack of donors able to provide financial support on the scale required.

  3.2.8 Therefore, if the financial re-adjustment required is not managed successfully, or is simply not feasible, services will have to be cut and the real risk of loss will arise. In some areas, such as collections and archives, "mothballing" may be a feasible option for a short period, but this will mean that there is much reduced access, with educational and other services based on the collection being reduced or closed, leading, for example, to a loss of contact with heritage for millions of schoolchildren and—more widely—a reduction in the public support that sustains heritage. For historic buildings and parks, cutting back on maintenance carries the real risk of longer-term loss and damage that will be expensive to rectify—as has happened in the past. In the natural environment, a double adaptation will have to be managed—to financial and climate change. Across the heritage sector, revenue investment in public engagement will fall, and conservation expertise will be lost at both a local level and from within the relevant public bodies.

  3.2.9 The deterioration of assets and curtailment of services will have a knock-on impact on the social and economic benefits derived from heritage—from the enjoyment, inspiration and opportunities for reflection that people value, to the quality of the local environment. There will be economic consequences for some areas, where heritage attractions act as important tourism anchors for local visitor economies. Cuts will hamper local regeneration and economic development. Finally, if the organisational infrastructure for managing and running activities stagnates, then opportunities for the thousands of people who are enthusiastically involved in heritage projects will be lost. Heritage volunteering, properly managed and resourced, is hugely popular, with very strong, proven benefits for the volunteer's own well-being, as well as for the wider communities in which projects are based.

  3.2.10 HLF has particular concerns that the legacy of Lottery investment of the last 16 years, which has achieved so much for heritage and people, should not be jeopardised by cuts to those parts of the sector unable to adapt quickly for good reasons, or through cuts that are made in too much haste.


  4.1 Public subsidy is a necessary part of the mixed economy that supports a thriving heritage sector and is justified by the importance that heritage has for our society and the key role it plays in quality of life, contribution to the economy and our international reputation.

  4.2 Government should continue to take responsibility for protecting heritage of national importance. NHMF is the only dedicated source of funding for emergency acquisitions, providing an essential backstop for the UK's Treasure Act and the Export Control system. NHMF's grant-in-aid was increased from £5 million per annum to £10 million per annum in 2007-08, following a recommendation from the 2004 Goodison Report to raise its annual grant-in-aid to £20 million. It currently has insufficient funds to respond to all the calls on it and in recent years has had to use its endowment to save Dumfries House and Titian's Diana and Actaeon.

  4.3 NHMF and HLF play a vital role in heritage's mixed economy. Both are UK-wide funds that cover the full range of the UK's heritage. Funding should be equally available to all four countries of the UK, which should continue to have access to HLF's UK-wide budget for major transformational projects. More than 50 of HLF's awards of over £2 million have been in Scotland, Wales and Northern Ireland.

  4.4 Communities also want funding bodies to have an understanding of local heritage and to take decisions as close as possible to the grassroots. Almost 60% of HLF funding is decided by locally recruited committees across England and in Scotland, Northern Ireland and Wales. 40% of HLF funding has gone to projects in the 25% most deprived local authority areas.

  4.5 Funding should also be available for the whole breadth of the UK's heritage including museums, galleries, libraries and archives; historic buildings and monuments; designed and natural landscapes; industrial, maritime and transport heritage; and the heritage of language, dialect and local traditions. HLF cuts across traditional, but artificial, heritage boundaries enabling communities to take action that brings wider benefits to local areas; for example through our successful Landscape Partnerships programme, which covers the heritage of an area that people value, whether natural, built or cultural.

  4.6 Funding is needed for both large national and small local heritage projects. HLF values excellence delivered through heritage projects of all sizes, with grants from £3,000 to over £5 million.

  4.7 Lottery funding for heritage must retain a people-focussed approach. HLF funding has conserved and opened up the UK's heritage to a much wider group of people than ever before. It has given the public a greater say in its care and management with 90% of awards in the past year helping heritage projects to recruit and train volunteers. Getting people involved in heritage is one of the key ways to ensure that it will be sustained for future generations.

  4.8 In order to maintain the arms-length principle, decisions about applications to both HLF and the NHMF must remain entirely independent of the Government. Furthermore Lottery distributors should fund projects that would not otherwise be funded by the government or public bodies in the pursuit of their statutory duties. But Lottery funding is not sufficient to replace all of the likely reduction in central and local government funding for heritage, of as much as £950 million pa, even with the expected increases in heritage's share in 2011 and 2012.

  4.9 Funders should continue to work together to maximise their impact and value for money across the heritage, culture and voluntary sectors. HLF currently delivers a number of funding streams with others, such as the Parks for People programme with the Big Lottery Fund, which has invested over £150 million in public parks since 2006, and the Repair Grants for Places of Worship with English Heritage, which has awarded funding to Grade I and Grade II* Places of Worship since 1996.

  4.10 Heritage funders must have robust, transparent and accessible processes that are trusted by applicants, while delivering value for money. Specialising entirely in grant-making allows HLF and NHMF to work impartially alongside the wide range of bodies they fund, providing support in all areas and maintaining a strong focus on customer service.

  4.11 Funding has been and must continue to be distributed in a way that leaves a legacy of heritage in better condition for future generations and meets existing heritage need. The decision to give heritage a share of the National Lottery's proceeds in 1994 followed decades of under-investment that had left the UK's heritage in a parlous state. We must not risk returning to that state.

  4.12 Finally, funding should continue to ensure that heritage plays a role in the UK's economic recovery. At a time when the Government is seeking to rebalance the economy, heritage is playing a vital role in supporting growing industries such as tourism. Heritage-based tourism contributes £20.6 billion to UK GDP and supports an estimated 195,000 full-time jobs, not just in London and the South East, but across the whole UK.


  5.1 It is important that the tax system plays its full part in supporting philanthropic giving and private donations to heritage. The Art Fund's "Living and Giving" proposal would be one way of providing such an incentive, for example through income tax or capital gains tax.

  5.2 Both NHMF and HLF awards act as an important lever for other funders, major donors and public fundraising campaigns. HLF is often the first funder to commit to heritage projects. This endorsement gives confidence to other funders and has resulted in a further £3.3 billion in partnership funding being secured for heritage projects since 1994. For emergency acquisitions, NHMF is often the principal funder supported by a small number of other funders, notably the Art Fund. Whilst trusts and foundations do contribute to NHMF-funded acquisitions, such as grants from the Esmee Fairbairn Charitable Trust and the Monument Trust for the purchase of the Siegfried Sassoon Archive, they cannot be relied upon as a sole source of funding. Most private funders expect to see some public funding contribution to acquire items for the national collection.

  5.3 Donations from high worth individuals are often focused toward large capital projects, such as the National Portrait Gallery's Ondaatje Wing, which was also supported by an £11.9 million award from HLF. Private collectors also play a significant role: for example, with the help of NHMF Anthony D'Offay's collection of modern art was secured for the National Galleries of Scotland and Tate for £26.5 million despite being valued in excess of £131 million.

  5.4 Public fundraising campaigns can also raise money for acquisitions. However, they are quite rare and require both time and resources to succeed. Two of the most successful recent fundraising campaigns were those to secure Turner's Blue Rigi and the Staffordshire Hoard. Both campaigns raised almost 25% of the total required from public donations, but still required a contribution of around 40% from NHMF.


  6.1 In 2008 HLF announced an annual grant budget of £180 million pa from 2009 until the end of the current National Lottery licence period in 2019. Strong Lottery ticket sales have enabled HLF to increase that budget for 2010-11 to £205 million. The proposed change in Lottery good cause share for heritage from 16.6% to 18% in 2011-12 and to 20% from 2012-13 onwards means HLF could increase its budget by a further £19 million in 2011-12 and £50 million from 2012-13 if ticket sales remain at £5.4 billion pa.

  6.2 As a result, HLF expects to support more projects and initiatives than originally expected. Additional income will allow HLF to be even more responsive and flexible in dealing with the issues arising from reduced public spending by supporting organisations through this period of change. It will also enable HLF to respond to other emerging challenges and opportunities for heritage, such as the public-policy focus on community ownership, asset transfer and decision-making at local level; the continuing development of digital technologies; the challenges of a low-carbon economy; and a growing, ageing and more diverse population.


  7.1 As new architecture is established to support a number of sectors within DCMS's responsibility, it is important that places of worship; film, theatre and maritime heritage; and the museum, libraries and archives sectors continue to benefit from strategic leadership and investment. HLF and NHMF will work alongside any future arrangements and will continue to award funding to these important parts of the UK's heritage.

  7.2 DCMS has also stated that consideration is being given to "the role and remit of English Heritage, the Heritage Lottery Fund and the National Heritage Memorial Fund". NHMF is working with DCMS, and other bodies involved, to ensure the best possible future for the heritage, reinforcing the importance of the principles set out in section 4 of this submission.

September 2010

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Prepared 30 April 2011