A downturn in National Lottery sales meant a £41m fall in income for Arts Council England, the year before it pledged £284m to National Portfolio Organisations through Lottery.

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Arts Council England (ACE) dipped into its Lottery reserves for the first time in over five years in 2016/17.

The funder’s Lottery balance has been increasing since 2009/10, from £97m to a record £334m in 2015/16, but it fell by around £20m last year following a downturn in National Lottery sales.

Income for National Lottery Good Causes had grown consistently for years up until last year, when Lottery sales income fell by 8.8% and returns to good causes by 14.4%. This resulted in £227.4m for ACE, which was £40.9m less than 2015/16 and £21.6m lower than originally forecast.

Lottery operator Camelot has warned it expects the decline in sales to continue. Chairman Jo Taylor said: “Given the current climate of economic uncertainty and increasing competition from the gambling sector, we expect 2017/18 to be equally, if not more, challenging for the National Lottery.”

A significant hit

The Arts Council’s Lottery stockpile is due to take a much more significant hit this year. Lottery funds are committed in the year that a funding decision is made, which means the £284m announced in June for the 2018-22 National Portfolio Organisations (NPOs) will be accounted for from this year’s balance, together with Lottery grant commitments made through other funding streams.

This has coincided with ACE updating its Lottery balance policy. Its 2016/17 annual report states it now aims to keep a minimum of £50m and no more than £150m in reserve. This is a reduction from its previous reserves policy, under which it aimed to not exceed one year’s worth of Lottery income.

However, if ACE continues to offer four-year national portfolio funding via the National Lottery – a practice it introduced in 2015, when portfolio funding was a three-year commitment – it is likely to have to resume building its reserves next year in order to afford the next round of NPO commitments in 2021/22.

AP asked ACE whether its Lottery balance will enter a cycle of save and release but a spokesperson said: “Budgets have not yet been set so it’s too soon to answer this question specifically.”

Excessive reserves

Building excessive reserves is a practice that is frowned upon by the Public Accounts Committee, which in the past has criticised Lottery distributors for failing to spend cash that should be “funding worthy community projects, not sitting in a bank account doing nothing”.

The National Council has agreed to bring ACE’s reserves down to a level “more in line with the minimum balance” over its next budget setting period, although states it may exceed this for a particular reason, such as to enable the launch of a new funding programme.

A spokesperson for ACE told AP: “We haven’t set an exact timescale yet as we are still in the process of setting budgets for 2018-22, however it will be below that level [£150m] by 2022 at the latest.”

A photo of Frances Richens