Merger: will it happen?

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Jane Taylor explains what has been going on over the past six weeks, and what it adds up to

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The story so far
In early December, less than six weeks after consultation on the government’s lottery funding review ended, the Culture Secretary Tessa Jowell told a summit meeting of lottery board distributors that she wanted some of them to commence merger talks. Most of those present will have breathed small sighs of relief: the Secretary of State had made little secret of her preference for a single lottery distributor to replace the current 15, so a potential two- or even three-board merger was a considerable climb-down.

Thus the Community Fund and New Opportunities Fund’s senior executives met to flesh out what a new successor body might be, drafting an outline proposal which they sent to the DCMS just before Christmas. Although both boards half-expected that the Heritage Lottery Fund might be asked to join their deliberations, the Culture department sees little added benefit and clearly wishes to keep the HLF firmly under its own wing. The joint NOF/CF paper proposed a very broad mission for a new distributor: ‘We will, through funding which benefits communities, promote social inclusion and support the achievement of sustainable improvements in the quality of life.’ The draft objectives, also very broad-ranging, included: capacity building; support for social enterprise; support for the delivery of local services; increased local involvement in lottery programmes; promoting awareness of lottery achievements – and much more.

The paper proposed to expand Awards for All, extending the upper limit and reducing the lower limit, to help develop the government’s new big idea for a ‘community funding network’ which would mean taking charge of non-lottery funding streams; to do strategic funding; to develop a simple pre-application approach and take charge of a lottery promotional unit. It also stated that it would ‘Guarantee the voluntary and community sector access to at least the current levels of funding operated by the Community Fund.’ Fast-forward to late January 2003.

NOF and CF main boards met, separately, on 22 January to consider the merger for the first time. NOF’s board gave a cautious welcome to the idea but the CF’s board was much less sanguine, deferring any decision until it had secured a tough set of guarantees from the Secretary of State (see box, page 1). Both boards’ positions were set out at a meeting between their chairs and Tessa Jowell the next day. Talks continue.

What it all means
A merger between NOF and the Community Fund will happen. Never mind Tessa Jowell’s insistence on a radical solution to the big issues raised in the funding review, the Community Fund in particular has nowhere else to go. Of all the boards, it has suffered the most dramatic decline in its income, down to £215m this year. If the figure dips below £200m, the CF, with its expensive devolved structure, becomes unsustainable: its operating costs could eat up as much as 15% of its income against an NDPB maximum of 10%. And no one wants to have to propose the cost-cutting option of chopping the devolved operations which have underwritten the fund’s good reputation with the voluntary sector. While the Community Fund wants to slow the process down and buy some thinking (and lobbying) time, there is an air of impatience at the DCMS. The intention is to produce a white paper by the summer and have a ‘shadow’ outline administrative structure set up by the end of 2003 to oversee the substantial transitional process well ahead of the passage of legislation in 2004-5. Much hangs on what kind of formula the two bodies can now come up with for ‘protecting’ funding for the voluntary sector. Bear in mind that the new body will handle more, possibly substantially more than the £500m-plus of lottery funds each year: one of the early tangible outcomes of the lottery review will be to enable the distribution boards to take charge of non-lottery funds such as the Treasury’s forthcoming £125m voluntary-sector Futurebuilders fund.

For NOF, merger will be a mixed blessing. NOF is a younger, more heavily centralised organisation delivering a vastly overcomplicated menu of pro-grammes. It has already gone through one round of rapid expansion when it took over the Millennium Commission’s funds mid-2001. A two-year administrative upheaval carries real dangers of knocking it off-track, when it is already under pressure to get its cash out of the door more quickly.

But NOF stands to be the biggest winner, too. It has already been lobbying government hard to relax its policy directions so that it appears less poodle-like and gains far greater flexibility and independence over its funding. A new distributor would be likely to have these qualities – as they are what will secure Community Fund cooperation. And a new distributor would not be called ‘the New Opportunities Fund’ – an immense advantage in helping the distributor sort out its image problem. But we have a long way to go between here and new legislation in 2005. At the anguished CF board meeting on 22 January, there was significant support for a different kind of proposal: more radical devolution of lottery funds. The Welsh Assembly government has made clear its desire for more control of its share of lottery money, and the Scottish voluntary sector is pushing hard for a single distributor there. NOF knows from experience just how hard it is to operate as a UK-wide distributor and also run appropriate pro-grammes for the nations. There may yet need to be a refinement at least of this dimension of the funding scene before the merger deal really is done.