The Big Lottery Fund is the voluntary sector's biggest grant-maker. It has given £2bn to voluntary organisations, mostly in grants ranging from £300 to £500,000, since it was created in 2004, and its importance to the sector has increased recently as other forms of funding have dried up.
But some fear that changes introduced since last year's general election will have a significant impact on the amount of money it gives and the type of organisations it decides to support.
The Conservatives created the National Lottery and its various good causes funds in 1994, but during their 13 years in opposition after 1997 they became increasingly critical of what they considered to be the high costs of delivering the Big Lottery Fund in particular, and accused the Labour government of manipulating it for political ends.
The government says its latest changes will reduce administrative costs and lead to more money going to the good causes supported by the BLF. The Department for Culture, Media and Sport says the changes will "restore the lottery to its original purpose".
One of the main changes is to the share of lottery funds awarded to each good cause. Sport, heritage and the arts originally each received 20 per cent of good causes money and charities 40 per cent. But when the BLF was formed in 2004 to succeed the Community Fund and the New Opportunities Fund, and given a 50 per cent slice, the share given to the other three good causes fell to 16.7 per cent each.
The decision to restore this proportion to 20 per cent has meant a reduction in the BLF's share to 40 per cent, which is being phased in over two years. From April this year its share fell to 46 per cent and from April 2012 it will fall to 40 per cent. The BLF has predicted that this will lead to a fall in income of £527.8m by 2014/15. Income for voluntary organisations has already fallen from £498m in 2008/09 to £400m in 2009/10.
But comparisons are difficult, partly because some of the money diverted to sport, art and heritage distributors will still go to charities. In a consultation carried out last year, the DCMS also mooted the idea of the BLF giving all its money to voluntary organisations, but this was rejected. The BLF currently gives 92 per cent of its funds to voluntary organisations and the remainder to statutory organisations, such as schools and parish councils.
To cut costs, the DCMS has told lottery distributors to cap administrative costs at 5 per cent by 2014. The BLF currently spends 7.4 per cent and says its costs are higher because it issues a large number of small grants that take more processing, and it deals with small charities that need more support.
Nevertheless, it is obliged to comply with the demand, and in little more than a year its workforce has fallen from 1,047 to 916, raising doubts about whether it will be able to offer the same level of support in future.
"We remain concerned about this," says Jay Kennedy, head of policy at the Directory of Social Change, the training provider that lobbies on behalf of small charities. "When the BLF was launched, there was a lot of marketing, so I can see where the perception of high costs comes from. But an arbitrary percentage is pointless. It needs to be whatever it needs to be to do the job at as low a cost as is reasonable. Heritage distributors have lower costs but they make fewer, large grants. We would not like to see the BLF do this."
Kennedy also raises concerns about the decision to transfer responsibility for the BLF from the DCMS to the Office for Civil Society in the Cabinet Office.
He says there is a logic in aligning the Cabinet Office, which is responsible for the big society agenda, with the BLF, whose beneficiaries are charities delivering the big society. "But the hand is closer to the cookie jar," says Kennedy. "Government could become more directive."
The DSC is running a Big Lottery Refund campaign demanding that the government honours a memorandum of understanding signed in 2007 by Tessa Jowell, the former Olympics minister, and Ken Livingstone, the former London mayor, to repay £425m diverted from the BLF to the London Olympics.
The coalition government is updating the memorandum but says this will not affect the repayment of funds to the BLF. The DSC is concerned about the vagueness of the commitment to honour pledges made by a previous government. "We are trying to make sure the issue is not forgotten," Kennedy says.
The BLF has acquired a good reputation as a funder. It honours full cost recovery, adheres to the Compact and provides good support to applicants. There are concerns that cost-cutting could erode this.
David Tyler, chief executive of Community Matters, which represents community groups, fears the cap on administrative costs will undermine the viability of small grants programmes such as Awards for All. "The administration of small grants tends to be more onerous, so that could be a real issue," says Tyler.
David Emerson, chief executive of the Association of Charitable Foundations, says the 5 per cent figure is pointless. He says: "The key thing is the effectiveness of the grant. To stick an arbitrary figure on something that's hard to define will undermine its effectiveness."
Nick Hurd, the Minister for Civil Society, acknowledges there are "some concerns within the BLF" about the 5 per cent figure, but adds: "The public, whose money it is, would be uncomfortable about high administration costs. People want to see that money being used for good causes."
Peter Wanless, chief executive of the BLF, says it is introducing a new funding management system that will enable it to process more applications online and reduce costs. He says: "We are committed to small, easy-to-access grants."
Kevin Curley, chief executive of the local infrastructure group Navca, says the BLF is "by far the biggest source of money for the local voluntary sector" and that the forthcoming Cabinet Office policy directions on the BLF will be crucial.
"There is always a risk that as an organisation gets older it wants to become more strategic and less open to demand-led programmes that allow local charities to say what they want rather than fit in with a predetermined programme," says Curley.
Wanless admits his organisation has been through a challenging year. "There has been so much uncertainty," he says. The policy directions will, he says, "illustrate the context in which the OCS is interested in us operating. Whether we like it or not, we are a non-departmental public body subject to policy directions, so it could instruct us to do what it wants."
He is, however, confident that any fluctuations in funding can be smoothed out over time and says he expects the BLF to award between £500m and £600m a year for the foreseeable future. "We are a strong and stable funder, unlike many publicly funded organisations," he says.
Big fund, big issues
Four key questions facing the Big Lottery Fund
1. Will the reduction in its share of lottery income mean less money for charities?
Ministers cut the BLF's share of the lottery pot from 50 per cent to 46 per cent in April and will reduce it to 40 per cent in April next year. The proportion awarded to arts, sport and heritage is being increased to 20 per cent each. The BLF has estimated this will reduce its income by £527.8m by 2014/15. Ministers say some of the extra money to other good causes will still go to charities.
2. Will the 5 per cent cap on grant-processing costs mean fewer awards for small charities?
This affects all lottery distributors, but the BLF, which has until 2014 to comply, might find it harder because it gives more small grants, such as Awards for All, which require greater administration. There are concerns that the cut could increase pressure to reduce the number of small grants.
3. What difference will the transfer to the Office for Civil Society make?
Responsibility for the BLF moved from the Department for Culture, Media and Sport to the Office for Civil Society in the spring. The OCS is expected to consult shortly on its plans for the BLF.
4. Will funds diverted to the London Olympics be repaid?
Labour 'diverted' £638m from the BLF to help pay for next year's London Olympics. A memorandum of understanding signed in 2007 by Tessa Jowell, the former Olympics minister, and Ken Livingstone, the former London mayor, agreed to repay £425m. The coalition government is updating the memorandum and says this will not affect the repayment of funds to the BLF; but the Directory of Social Change is still campaigning to ensure this happens.
Read John Plummer's interview with Peter Ainsworth, new chair of the BLF