Funding of the arts and heritage

Written evidence submitted by the National Trust (arts 48)

Summary of main points

· The arts and heritage sectors operate through a mixed economy

· Private sector support is vital, but market failure means that Government also has an important role in maximising the benefits that derive from a healthy cultural sector

· The historic environment has suffered real-terms reductions in Government subsidy over the last decade. All public sector bodies have a role to play in tackling the deficit, but to disproportionately penalise the historic environment further is likely to lead to increased costs in the future

· We fully support the Government’s proposal to restore the original shares apportioned to the Lottery good causes, including the arts and heritage, and the Government’s recognition of the importance of the additionality principle

· Attention needs to be paid to the transfer of some crucial functions within the Museums Libraries and Archives Council, once that body ceases to operate after April 2012

· Care should also be taken over the possibility of merging the Heritage Lottery Fund into English Heritage. There are some good reasons why the two bodies currently operate independently of one another.

· More might be done by Government to improve the conditions in which fundraising for arts and heritage takes place. This might be done by making the administration of Gift Aid simpler and more efficient, improving the conditions for lifetime giving, and removing the restrictions imposed on public sector bodies through the end-year flexibility rules

Introduction

1. The National Trust is one of Europe’s largest conservation charities, with 3.8 million members and an annual turnover of around £400 million. Our pay-for-entry sites attract over 17 million visits each year and comprise over 300 historic properties and a collection of 2.5 million separate items, much of it of highly significant historic and artistic value. Our experience and the scale of our operations may therefore bring a unique perspective to bear on the issues that the Committee have declared an interest in exploring.

Funding

Questions:

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

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

2. The arts and heritage sectors operate through a mixed economy. Much activity is driven by the contributions of private individuals – paying for tickets or admission, becoming members, donating fundraising contributions, buying goods and services, or, in the case of heritage and the historic environment, owning and caring for the assets themselves. This private sector approach to funding arts and heritage is to some degree exemplified by the National Trust’s own business model. Nearly a third (31%) of our income derives from the subscriptions of our members, with the rest of our income coming from legacies (16%), enterprises (14%), investments (9%), rents (9%), catering operations (8%), admission fees (4%) and fundraising appeals (3%).1 Just 6% of our total income is attributed to grants provided by the public sector and others, although of course we also benefit greatly from the tax advantages that come with our charitable status.

3. Taking a broader perspective, however, it is widely accepted that the health of the arts and heritage sectors depends on public subsidy of one sort or another. This is because of the market failures that are present within these sectors, given the ‘public good’ characteristics of the services that they provide. At the same time, heritage and the arts provide significant economic and social benefits: heritage tourism is said to be worth over £20 billion a year to the UK economy.2 Such ‘externalities’ are also evidence of market failure, since Government intervention is required to ensure that their full value is realised.

4. Where market failure can be demonstrated, a measure of ongoing public sector support can be justified in the interests of maximising the overall level of benefits to society. Conversely if this support is withdrawn, and service provision is left solely to the commercial sector, there will inevitably be a diminution in the overall level and quality of provision.

5. The welcome improvements to funding for the cultural sectors over the last 15 years have seen increases in grant in aid to Arts Council England, the reintroduction of free admission for the national museums and galleries, and new schemes such as Renaissance for the Regions. These have led to all sorts of benefits, not least the increased levels of participation shown in visitor figures to the major museums, and the competitive economic advantages that derive from a vibrant and creative cultural sector.

6. Not all DCMS sectors have benefited equally over this period, however. In particular, the historic environment has suffered from cuts in the grant in aid allocation that has gone to English Heritage. In real terms, English Heritage’s grant in aid fell by more than 11% in the ten years from 2000/01, while Arts Council England’s grant in aid increased by 41% over the same period.3

7. This has of course happened at the same time as the Heritage Lottery Fund has made a transformative difference to the support available to heritage of all kinds. But the additionality principle means that Lottery funds should never be regarded as substitutes for funding provided through taxpayers’ money. The real-terms reduction in support for English Heritage has, instead, meant straightforward cuts in the level of support that was previously available, for instance in the form of grants to the private owners of historic properties, for essential conservation and maintenance.

8. We know that the Government is committed to tackling the public sector deficit and that DCMS and its Arm’s Length Bodies are facing potential cuts of 25-40%. This, ultimately, is a political judgement, which should also be viewed in the context of the Government’s aspirations for building a Big Society. However, there are likely to be costs incurred as a consequence of cuts of this scale, which we fear could create longer-term problems. In particular, further cuts in English Heritage’s grant-in-aid, as well as in local authority resources, are likely to mean:

· more buildings put at risk;

· less support for education and outreach within the historic environment sector;

· fewer conservation officers at local authority level, leading to poor decision making;

· the new Planning Policy Statement on the historic environment (PPS5) not being implemented as fully and effectively as it should be.

Lottery

Questions:

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

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

9. The Lottery is a powerful force for change within the arts and heritage sectors. The Heritage Lottery Fund, for example, has truly transformed perceptions of the value of heritage and its relevance to the lives of individuals and communities. By refusing to define in any restrictive way the types of ‘heritage’ that it funds, the HLF has helped to broaden understanding of the manifold ways in which the past is a living part of today’s society.

10. We therefore fully support the Government’s proposal to restore the original shares apportioned to the good causes, including the arts and heritage. This could have powerful benefits in promoting the Big Society, since arts and heritage have a major role to play in galvanising community action and support.

11. We also welcome the Government’s recognition of the importance of the additionality principle in relation to the Lottery. Lottery funding should not be a substitute for Government subsidy, and nor should any increase in the shares apportioned to the good causes of arts, heritage and sport be used as a justification for reducing Government support in these areas. Decisions on Lottery grants should continue to be made by Trustees operating independently from Government.

Structures

Questions:

- What will be 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?

12. The Government’s decision to abolish the Museums, Libraries and Archives Council by April 2012 leaves a number of as-yet unanswered questions about how some key (and in some case statutory) functions will be delivered going forwards. These include the expert advice that is needed in handling Acceptance in Lieu transfers and the Government Indemnity Scheme, the professional understanding that underpins the process of museum accreditation, and the support for regional museums provided through the Renaissance in the Regions programme. We expect that arrangements for the transfer of these functions to another body should be undertaken in a way that seeks to preserve as far as possible the expertise that resides at a professional level within MLA. If this expertise is lost, it would represent a huge net cost to the taxpayer, as well as potentially jeopardising the survival of valuable parts of our heritage.

13. The DCMS is also considering the possibility of merging the Heritage Lottery Fund with other of DCMS’s heritage bodies, in particular English Heritage, as part of the forthcoming Public Bodies Bill. The pros and cons of such a move would need to be considered in great detail before any changes are made. For example, while the proposal may offer some marginal savings (in terms of overhead costs), it raises some difficult questions about keeping the Lottery-giving powers of any new body distinct from its regulatory powers (for example within the planning system) as well as its more commercial role in operating the existing English Heritage visitor attractions. Moreover, as has been noted, the Heritage Lottery Fund has a far broader definition of ‘heritage’ than English Heritage, and operates UK-wide (rather than solely in England).

Philanthropy

Questions:

- 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?

14. Businesses and philanthropy can play a very important part in supporting heritage and the arts at all levels. Our recent acquisition of Seaton Delaval in Northumberland is a good example. The fundraising campaign led by the National Trust saw over £1m raised through the donations of people in the local community, a clear demonstration of their commitment and support for the property and its acquisition. Local businesses were also generous in their support, as was the Regional Development Agency. This experience demonstrates what can be done when individuals, businesses and charities work together, underpinned by support from the Government through the Acceptance in Lieu scheme (administered by the Museums, Libraries and Archives Council on behalf of HM Revenue and Customs).

15. We agree that more might be done by Government to improve the conditions in which fundraising for arts and heritage takes place. Making the administration of Gift Aid simpler and more efficient, for example, would help to ensure that more people take advantage of it, and understand the difference that it makes. There could also be benefits in adjusting fiscal incentives in ways that would promote lifetime giving to the arts and heritage sectors.

16. For organisations within the public sector, a potential barrier to increasing income from philanthropic sources is the complexity of the rules around end-year flexibility that the Treasury imposes across all Arm’s Length Bodies. These rules are designed to ensure Government can keep control of the overall level of public expenditure, but they serve also to restrict those bodies’ use of funds held in reserves, which might have been raised from entirely private sources. The problem particularly affects DCMS’s Arm’s Length Bodies, since so many are established as charities, and are therefore required by law to hold adequate reserves or to raise funds from private sources for furthering their charitable purposes. Restrictions on the use of these funds potentially means the Government is operating against the terms of charity law, and also provides a disincentive for donors to give without fear that their funds will be effectively ‘frozen’. DCMS and Treasury should discuss whether there might be a case for giving Arm’s Length Bodies in the arts and heritage sectors more freedom to raise and spend money drawn from private sources without risk of contravening rules that were designed primarily to control against excessive burdens on taxpayer’s funds.

September 2010


[1] National Trust Annual Report.

[2] Investing in Success (HLF/Visit Britain , 2010).

[3] Figures from DCMS.