ACE raises lottery reserves to avoid future payment ‘difficulties’

Arts Council England (ACE) has raised its National Lottery cash reserves balance from £25m to £50-£80m after concerns were raised that there could be “difficulties” meeting lottery payments from 2025-26 unless the balance is increased.

Before the pandemic, ACE’s policy was to hold a minimum cash balance of between £50m and £150m, but in 2020 this was changed to a £25m minimum balance.

ACE said the change was to give it more flexibility in the use of its reserves – if needed – for the Covid-19 Emergency Response Fund, which was announced in July 2020 to support individuals and organisations during the pandemic.

In a National Council meeting in May 2024, members discussed that fulfilling lottery payments from 2025-26 could be difficult unless the balance were increased. They voted to revise the minimum balance policy closer to ‘normal’ pre-pandemic levels.

Council members were also asked to approve an approach to estimating lottery income in future financial planning.

“As a custodian of public money, we have robust measures in place to manage budgets,” an ACE spokesperson said.

“At the beginning of the pandemic, we lowered the minimum level of our National Lottery cash reserves balance to enable more budget flexibility if needed, as we provided individuals and organisations with financial support through our Covid-19 Emergency Response Fund.

“Now that our response to the pandemic has ended, we have changed the minimum cash reserves budget back to normal operating levels.”

ACE added that the National Council would continue to discuss budgets, including reviewing its National Lottery income and future forecasts. A further discussion about its approach is expected to take place this month.

Fluctuating income

Like all causes financed by the National Lottery Distribution Fund (NLDF), ACE’s income is tied to how much revenue the National Lottery generates, which fluctuates from year to year. Meanwhile, ACE’s expenditure can also fluctuate month to month, depending on the amount and type of applications received and when funding decisions are made.

According to ACE’s audited 2023/24 accounts, the balance held on behalf of ACE by NLDF was £174.4m on 31 March 2024. This figure has seen a long-term downward trend from £298m for the financial year 2017/2018.

Arts Professional recently reported that National Lottery funding for the arts had fallen 3.1% year-on-year while declining for the third consecutive year.

In its latest report, DCMS says National Lottery sales were lower in 2023/24 than in 2022/23, primarily due to the performance of instant products such as scratchcards. It attributes this to ongoing economic and cost-of-living pressures, with average player spending also lower than in previous years.

The arts receive 20% of the NLDF, as does heritage – via the National Lottery Heritage Fund (NLHF) – and sport, while the remaining 40% is distributed to community causes. The arts fund is then split between the UK’s four arts councils and the British Film Institute (BFI).

NLDF holds this money until distributors award grants and payments for these projects are due, meaning that the amount drawn down by each body varies year on year depending on what projects they have committed to.

Of the four national arts councils in receipt of NLDF in 2023/24, ACE was the only one whose grant liabilities due in the next five years outstripped its available balance, with a difference of £165m, down from £208m the previous year. However, since the financial year ending 2017, this figure has fluctuated considerably.

Overall, the amounts held for arts lottery distributing bodies at market value at the end of the financial year have also steadily declined from £418,930 in the financial year ending 2017 to £279,901 in the most recent NLDF report published by DCMS. This contrasts with heritage and sport, both of which have seen their amounts held increase since 2021.

Regarding the difference in amounts held for arts and heritage, DCMS said that the higher final balance to date is the result of heritage bodies requiring their full share of the income over a different time frame.