Mind the gap!

John Whittingdale MP (Chairman of the House of Commons Culture, Media and Sport Select Committee) has recently suggested that although the arts should not be singled out as exempt from the cuts facing other parts of the public sector, the Government might like to consider permitting them to use Lottery proceeds to plug the funding gap “for a limited period”. While this may sound tempting as a short-term fix, both to politicians and to the sector, the evidence from around the world suggests that such ‘limited periods’ have a nasty habit of having negative permanent effects. Nevertheless, it behoves us to remember that the Lottery is not a ‘right’, but is largely the creature of our democratically elected lower chamber of Parliament, which has already chosen to vary the rules from time to time.

The danger of substitution

One of the key issues identified prior to the introduction of the UK National Lottery in 1995 was the risk of future ‘substitution’ gradually eroding the revenue tax-base of public funding for the arts and heritage. Certain safeguards were helpfully put in place to try to allay those fears – and John Major had specifically declared that the Lottery was not intended as a remedy for under-funding in government programmes. However, it is extremely difficult actually to prove when substitution may be taking place. Unless governments’ future budgetary forecasts are set in stone and published, you never really know what the Treasury‘s allocations (in this case to the DCMS) would have been in the absence of Lottery funds being available. It is invariably therefore something of a slippery slope. In times of particular financial stringency, as now, the risk of sliding into substitution is always that much greater. The research conducted for a 2004 published study¹ revealed certain consistent trends.

Separation and transparency

A (largely positive) Royal Commission on the possible introduction of a UK State Lottery reported in 1978 that “the proceeds of a national lottery should not only be allocated outside the normal Government machinery, they should be immune (subject to annual scrutiny by Parliament) from Government influence.” This is one of the reasons why the Regional Arts Boards and others in the professional arts world around the time of the 1993 Lottery Act would have preferred an independent arts lottery distributor to the Arts Council(s), free of existing policy baggage. It is at least arguable that the independently constituted Heritage Lottery Fund has made a ‘fairer’ fist of its distribution since 1995, reflecting the fact that National Lottery revenue is drawn widely from across England and the rest of the UK.

The UK Arts Councils in the first Lottery franchise phase were under instruction to concentrate on capital funding and treat all applications on their merits on a first come, first served basis. The requirements concerning matching funds unsurprisingly favoured large institutions with political and financial clout but there was nevertheless a significant spread of this ‘new money’ around the country. The subsequent shift into revenue funding (even with the two funding streams separately identified) started to revive questions about strategy and priorities. Use of lottery funds as a ‘temporary’ top-up measure would very probably bring about a further loss of transparency in both use of the money and policy objectives. The 2004 New Labour Lottery review stated “lottery grants are intended as one-off interventions over a defined period of time which produce a specific result with lasting benefits.” That’s a very different objective from gap-plugging.

Whatever assurances can be extracted from politicians and safeguards enshrined in legislation, circumstances, governments and individual ministers change. Finance ministers in particular dislike clear ‘hypothecation’ of tax or ‘public’ money to identified causes, as that limits their capacity for control and switching public money around. The UK can at least be grateful that its National Lottery is ‘hypothecated’ to stated ‘good causes’, not just a general revenue raising mechanism.

Finland created a national lottery in 1926 to raise capital for building a national opera house. This Lottery still continues with revised – but clear – objectives. The clarity over intended purposes (capital, revenue etc.) and transparency in Finland’s case shows that – even at times of economic difficulty (e.g. 25% unemployment after the collapse of the USSR) when lottery funding dominated tax-borne allocations for culture, it is possible for the two streams to coexist without taxation derived funding being driven out. This is similarly true in examples where a strict percentage cap on the total proportion allowable from Lottery funds is in place as a control measure (although this can be restrictive of higher lottery revenues being used, so that the ‘safeguard’ can have a cash limiting effect). Italy in the 1990s applied a proportion of dedicated Lottery funds to heritage restoration – and simply as a result of this definition and a set timescale, there was a major improvement in strategy and planning – unfortunately temporary.

Separate streaming is an important safety measure. There are three ways of treating Lottery derived funds: used in parallel; merged without distinction; and totally separate. When funds become merged without distinction, danger lurks.

Examples of suspected or proven substitution

Case studies from Ireland, the USA, Australia and New Zealand show the importance of being able clearly to identify separate streams of Lottery and tax-borne revenues. The Irish Arts Council’s grant revealed a trend of three-year decline in government revenues (with consolidation showing an increasing Lottery proportion of the total). New Zealand reduced tax-borne revenues to its Arts Council as a proportion consistently over a ten-year period, meaning that Lottery funds drove out tax-sourced revenues. The State of Massachusetts suffered dramatic, politically-driven lurches – with two separate agencies forcibly merged, followed by the total disappearance of State funds for the arts and a change in Lottery directions that led to further serious decline. This latter example shows exactly what happens when financial problems and political expediency coincide. Arts Councils within the UK since 2010 have been subjected to forced mergers, the economy is struggling and political expediency is on the rise as a 2015 general election looms. The conditions for a perfect storm exist.

Christopher Gordon is an independent consultant, researcher and visiting university lecturer in international cultural policy.

For further reading see:
¹CIRCLE/Boekmanstudies, Gambling on Culture, (Amsterdam, 2004)
²European Journal of Cultural Policy Vol 1/1 (1994) and Vol 1/2 (1995): Dedicated State Lotteries Parts 1 & 2, by J. Mark Davidson Schuster.