Committee of Public Accounts


Press Notice No. 1 of Session 2005-06, dated 18 October 2005


FIRST REPORT: MANAGING NATIONAL LOTTERY DISTRIBUTION FUND BALANCES (HC 408)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:

"Lottery money is for funding worthy community projects, not sitting in a bank account doing nothing. There is no shortage of high-quality projects to fund but the enormous sum of £2.4 billion was stuck in limbo in May of this year - in part because the distributors are too timid to apply their own policies for committing funds. According to those policies, an additional £450 million should have been committed by March 2004.

The balance in the National Lottery Distribution Fund has indeed fallen from a peak of £3.7 billion in 1999. But it is nowhere near the 50% target set in 2002 by the Secretary of State for Culture, Media and Sport. Indeed, five distributors have actually increased their balances over the last three years.

This shouldn't be a difficult problem to solve. Distributors need to be less risk averse and work with grant recipients to speed up the progress of projects and the drawing down of funds that have been committed.

In addition, the Department needs to get a grip on setting targets to reduce the balance. An overall target is unlikely to be met unless targets are also set for individual distributors, giving each one a degree of responsibility and accountability that is currently absent."

Mr Leigh was speaking as the Committee published its 1st Report of this Session, which examined the management of National Lottery Distribution Fund balances.

Since its launch in 1994, the National Lottery has raised over £15 billion for good causes. Proceeds from the sale of lottery tickets are held in the National Lottery Distribution Fund until they are required by the 15 distributors to make payments to grant recipients or to meet their own costs.

Although the balances in the Distribution Fund may already be committed to particular projects, there are often significant time lags between projects being awarded funding and their incurring expenditure and drawing down the money. Meanwhile distributors continue to receive new income from the sale of lottery tickets. The balances earn interest but the intended public benefit is delivered only when the money is spent in the community.

The balances in the National Lottery Distribution Fund built up in the early years of the National Lottery, peaking in 1999 at £3.7 billion. In 2002 the Secretary of State for Culture, Media and Sport announced a target for total balances to halve by 2004 but in the event they fell by only 24% and the balances held by five individual distributors increased.

At May 2005 balances stood at £2.4 billion, with two distributors (the Heritage Lottery Fund and the New Opportunities Fund) together holding 64% of the total. The Department's aim is to drive balances down as fast as it can and, although the target for total balances to halve was not disaggregated, it would like distributors to set their own targets and some have done so.

To reduce their National Lottery Distribution Fund balances distributors need to increase the amount of money that they pay out in grants. The most significant impact on balances would come from distributors making more commitments to pay grants. It would also help reduce balances if projects were delivered, and thereby grants paid, more quickly.

Distributors should not draw down more money from the National Lottery Distribution Fund than they will need to cover payments in the coming period. In 2003-04, however, eight distributors carried forward average cash balances of over £1 million at the end of each drawdown period. The financial benefits of distributors making more accurate drawdown requests could be sizeable as the money earns a higher rate of interest in the Distribution Fund than in distributors' own bank accounts.

At 31 March 2004 distributors' total grant commitments exceeded the balances in the National Lottery Distribution Fund by £873 million. But there was considerable variation in the proportion of their balances that individual distributors had committed and in the maximum level of commitments distributors were prepared to make. Within their own policies, at March 2004 distributors had scope to make additional commitments totalling nearly £450 million. The Heritage Lottery Fund and the New Opportunities Fund, the two distributors furthest away from their maximum acceptable level, both expect to increase their commitments in the coming year. While accepting that each distributor should judge its own risks, the Department wants distributors to make commitments up to the maximum their own policies allow.

The lottery income that distributors will receive in the future is uncertain and most rely heavily on the income projections that the Department provides. A key cause of uncertainty at present is the impact that the planned Olympic lottery games and other aspects of the Olympic funding package are expected to have on the existing good causes, now that London's bid to host the Olympic and Paralympic Games in 2012 has been successful.

Beyond 2009, there is also uncertainty about how lottery proceeds will be allocated between the good causes. Ministers have agreed to set a timetable for making decisions and the Department will seek to give distributors two years' notice of any changes.


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