A game of give and take

The Lottery has helped charities to innovate, boosting their incomes rather than impoverishing them.

When the Lottery was established a decade ago, charity leaders feared a decrease in charities' income, as individuals opted to buy a ticket rather than make a donation. Luckily, these concerns have proved groundless. While the proportion of the population giving has remained steady at just under 65 per cent, the average monthly donation is increasing, fuelled by tax breaks such as Gift Aid.

Moreover, of the £1.2bn raised by the Lottery last year, charities received £285m. Understandably, the Lottery has gained enormous popularity throughout the charity sector, having made possible a huge range of worthwhile projects, from providing support to the elderly to revitalising urban parks.

At the Lottery's birth, politicians on all sides agreed that a significant proportion of the "good cause" money raised should go to the nation's charity and not-for-profit sector. At 28 per cent of ticket revenue, this was - and still is - a sizeable sum. Crucially, Lottery money would be additional to, not a replacement for, any funding the government wished to allocate through general taxation.

The broadness of legislation governing the National Lottery Charities Board reflected the intention that government should not be able to pick and choose causes following its own agenda. This approach encouraged charities to identify their own priorities and develop new projects to meet citizens' needs. A culture of "bottom up" innovation characterised the National Lottery Charities Board and its successor, the Community Fund. The latter's willingness to fund sometimes controversial services won it many friends in the charity sector.

But recent years have been marked by a steady erosion of the core principle of "additionality", which was designed to prevent Lottery funds substituting government spending. In July 1998, the New Opportunities Fund was established, which made grants to education, health and environmental projects. As the fund spent millions of pounds putting scanners into hospitals and fruit into schools, the line between government money and Lottery money began to blur.

A clear tension emerged between two views of the Lottery. The government wants it to take a strategic approach to funding, and to complement existing government spending on central priorities. Others favour a more demand-led approach, which supports the funding priorities of charities and voluntary groups.

The media furore over some of the Community Fund's more controversial grants illustrated the problem of close governmental involvement in funding decisions. Grant- making in support of politically sensitive groups, such as asylum-seekers or young offenders, becomes more difficult when such decisions are seen to be made, or specifically endorsed, by the government.

In February last year, the government announced the merger of the Community Fund with the New Opportunities Fund, a decision that was made in the face of vociferous opposition from charities. Furthermore, a consultation of government and MPs had revealed "no support for reducing or merging the number of distributors as they, too, thought that it would result in a loss of expertise as well as being costly to implement".

Even more surprising was the rapidity with which the merger progressed. Two separate bodies, their distinct remits laid down in legislation, seemed to vanish almost at the stroke of an administrator's pen. An "administrative merger" has taken place far in advance of formal legislation. Charities were further confused by the government's fragmented approach to consultation, which took place after the merger had been announced.

Putting aside their disappointment over the tokenistic consultation, charity leaders saw the creation of the Big Lottery Fund as a significant opportunity for the sector. They hoped it would secure considerable savings by removing administrative duplication, and show itself to be more strategic, innovative and accessible than either of its parents.

Unfortunately, early developments have sparked fears that the Big Lottery Fund would adopt the government-led strategy of the New Opportunities Fund, rather than the Community Fund's more open approach. Tessa Jowell, the Secretary of State for Culture, Media and Sport, announced that all Lottery funding would fit within three broad themes: promoting well-being, community safety and community learning. These bear a close resemblance to government priority areas: health, crime and education.

Charity chief executives reacted angrily to the announcement. The Big Lottery Fund strenuously denied that the themes would restrict its funding decisions in any way. But as Nicholas Young, chief executive of the British Red Cross, commented: "This flatly contradicts a lot of the praise that government has heaped on the sector, and goes against everything we believe. Much depends on how the categories are drawn, but there's no point having categories that don't restrict anything, so I fear the worst."

Despite these apparent setbacks, government ministers continue to believe that around two-thirds of the Big Lottery Fund's spend should go to charities and the Lottery minister, Estelle Morris, has suggested that this could be independently audited.

However, increased government control is a hallmark of current drafts of legislation to govern the Big Lottery Fund. The fund will have an obligation to comply with the Secretary of State's directions in exercising any of its powers. Directions may even relate to specific purposes or persons.

The Association of Chief Executives of Voluntary Organisations has argued that Lottery money should be distributed through an independent foundation, with channels of government control made formal and transparent. This would prove popular with the public: 73 per cent of respondents to an ICM opinion poll commissioned by the National Council for Voluntary Organisations said that an independent public body should decide how the money is spent. The government must explore this option if the Lottery is to remain the powerful force for good it has always been.

Stephen Bubb is head of Acevo, the Association of Chief Executives of Voluntary Organisations