The lottery cash mountain

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A two-part definitive guide to what it is, why it is, and whether you should be worried about it. Part 1: the size of the problem and how the government wants to tackle it. By Jane Taylor 

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Last issue I promised I would take a detailed look at the lottery funding complaint that surfaces more frequently than any other in the media: why an enormous amount of money seems to be permanently sitting around waiting to be handed out to good causes. Here’s what I found. Next month I’ll look at what the boards are doing, and what the practical implications are for you.

Basics
When Camelot collects lottery sales income, it hands over the good causes share – about 28p per £1 – to the National Lottery Distribution Fund (NLDF). The DCMS advises the 15 distributors regularly about how much of the pot belongs to them. Distributors make continuous withdrawals to cover their operating costs and to make grant payments to groups they are funding. The rest of the money remains in the NLDF, where it accrues interest which then also becomes available for good causes. The interest is allocated to each distributor based on its NLDF balances, which means that those who stack up cash in the fund will get a bigger slice of the interest, too.

Income and interest
Table 1 shows how much money Camelot has handed over for use by the distribution boards each year of the lottery, and how much interest has been earned: £1.4bn in total. What it doesn’t reveal is the speed with which the distributors are turning their share of the cash around, to ensure it gets out to the organisations that need it as quickly as possible. 

The awards process
Everyone knows grant-making takes time. It starts with the creation of a funding strand when a new programme is devised and launched. This is publicised, people apply, applications are considered and decided upon. The first point at which an application ‘succeeds’, it normally turns into a financial commitment for the board that approved it – and the relevant amount becomes ear-marked in the NLDF. If it is a two-stage application, there will be a further delay before the final go-ahead is given, after which contracts must be drawn up and a payment schedule agreed. Only then will any money be handed over – and unless the grant is less than £10K the cash will normally come in instalments. Moreover, only the Community Fund is allowed to provide cash in advance. The key influence on the size of the NLDF cash mountain, then, is turn-around times: how long each distributor takes, firstly to get from the launch of a new programme to in-principle approval of projects and secondly, from in-principle approval to the payment of the first cheque to a successful group. Turnaround times vary considerably among the distributors, because the circumstances of their grant-making are all so different. I will examine these differences in more detail next month. 

Table 1 NLDF income and interest

There is another very important factor affecting the size of the mountain, which is how much money is going into the NLDF in the first place, and as Camelot’s sales decline, the expectation is that balances – and interest – will reduce. This knowledge carries its own dangers: it seems to have caused some distribution boards already to have become ultra-cautious, slowing down their grant-making so as to build up their cash reserves in anticipation of hard times ahead. 

Tackling the mountain
When the Culture Secretary Tessa Jowell met with the distributors in April 2002, she set a target for NLDF balances to be halved by April 2004. Six months later they remained stuck at £3.5bn. So now the DCMS is sending out tougher guidance to the boards, drawn up with the help of the National Audit Office. This proposes a common approach based on reporting transparency – in effect, a kind of naming and shaming. Each distributor is being asked to draw up a formal ‘balances policy’, explaining how much cash it plans to keep in reserve at any point, why it needs to keep it and how it intends to control the cash flow so that it hits its target. An account of the balances should appear in its annual report, including reasons why it over-or under-shot. The DCMS is also intending to provide recommended target figures. As well as this ‘publish and be damned’ approach, the DCMS is circulating a range of ‘best practice’ measures used by one or other distributor that can help speed up the transmission of cash. More on these next time.

For her part, Tessa Jowell has agreed to amend the very restrictive financial directions so that distributors get greater freedom to hand over cash to projects more quickly and/or in larger lump sums.