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So, after yesterday’s Spending Review, the general feeling seems to be wary sighs of relief – a universal “Well, it could have been worse”. However, as the wonderful Johann Hari points out, it really is quite bad. And this is certainly true for the arts.

To quote from Jeremy Hunt’s letter to ACE:
“I am writing to inform you about the outcome of the 2010 Spending Review for my Department. DCMS’ overall budget will reduce by 25% by 2014-15… This letter sets out the funding settlement for Arts Council England covering the financial years 2011-12 to 2014-15.

The resource grant in aid budget for your organisation will be cut by 29.6% in real terms by 2014-15. The new grant in aid budget for your organisation will be £1448m over four years. Within this settlement-
• I would ask that the Arts Council tries to ensure that the budget for the regular funding of arts organisations is not cut by more than 15% in real terms over the next four years. There will of course be variances to individual RFOs and I recognise this may mean total withdrawal of funding in some cases. I understand you will soon be going through a process to decide levels of regular funding for the next four years. I would expect all organisations in receipt of regular funding to receive information about indicative levels of funding for the Spending Review period by the end of March 2011.
• I expect spending on administration to be cut by 50% in real terms. We expect that bodies will meet the costs of restructuring.”

Now, this looks to me a lot like meddling – which contradicts the enshrined arm’s length principle that ACE currently enjoys. Mealy-mouthed phrases such as “I would ask” and “I would expect” basically mean “I order you to” when they are spoken by someone with the power to remove your funding. I cannot see how these edicts do not contravene the arm’s length principle. ACE is a quasi-autonomous non-governmental organisation (quango), and the quasi-autonomous bit is important – it’s why ACE exists rather than everything being funded directly from DCMS. To erode this function is to erode ACE’s power. However much it has been criticised recently, the arts would miss it if it went altogether.

Furthermore, although ACE’s restructure did not save as much or streamline as much as it claimed, it has recently been cut. To request further admin cuts of 50% raises serious questions about how the organisation can actually continue to function. I am all for reducing unnecessary bureaucracy, but there have to be enough staff to manage and process applications etc, or everything will grind to a halt. The mood at AP Towers is that to cut the admin costs, the regional offices are the most likely target, hitting rural and regional arts hard. Hunt seems to subscribe to the view that admin = bad, and it ain’t necessarily so.

Hunt also says “The Foreign Secretary and I are keen to ensure that the UK reinforces its international reputation for artistic excellence, and hope the Arts Council will support international cultural exchange through its funded organisations and other activities.” Now, Hunt apparently “hope[s] there will be opportunities to unlock additional funding from the private sector to support those activities”, but as well all know, private investment is not a substitute for public investment, and this is basically extending ACE’s remit further, while cutting it back. That doesn’t make a whole of sense, economic or otherwise.

What do you make of the cuts?

There was a lot of talk at Shift Happens earlier this month about innovation and making mistakes, with soundbites such as “we learn more from our mistakes than our successes” flying around. Attractive though the rhetoric sounds, I wonder if it stands up to scrutiny. For a start, it ignores the question of funding: how can you justify asking for (more) money if your previous project flopped?

Failure is an expensive luxury. If you lose the confidence of funders, audience or staff – or, worse yet, all three – the way forward is less clear. NT Live! can run in the hope of widening audiences and eventually breaking even, because the National Theatre receives millions of pounds from Arts Council England annually, has an ongoing sponsorship deal with Travelex, received additional support from Nesta, and can absorb the loss, even though each broadcast costs around £150,000. For most artists and arts organisations, though, no matter how fantastic an idea is, a financial failure makes it harder to convince anyone to fund your next project – whether that’s Ace, sponsors or philanthropists. However eager the audience may be to experience a risky, exciting, innovative project, it has to get off the ground first.

Even those with the most genuine and generous philanthropic leanings might find their patience and pockets tested by failure. And, in the current economic climate, it feels somewhat irresponsible to be encouraging people to make mistakes, however useful the lessons might be. The risks that pay off may be worthwhile, but the risks that don’t could end careers. I’m not saying that this is a good thing, but it is a fact. The problem, in part, is the tick-box mentality associated with public funding, which requires you to know the outcomes of your project before you start.

Depressingly, this is borne out by a survey conducted by ArtsProfessional magazine and released last week, assessing the financial outlook for the sector. More than 500 people working across the arts and cultural sector responded, with around one in five self-identifying as the leader of an arts organisation. The survey revealed that 41% of respondents will be programming more “popular” work, and 37% will be reducing the amount of “challenging” work that they commission.

Risk in the arts is usually a good thing. Risky means creative, edgy or innovative. Can an artist who does not take risks be interesting? Maybe not, but this is at odds with the demands of public funders. Creative risk is good, but financial risk is bad. Let’s hope that risk-aversion is not contagious, and that those who are not planning to reduce the amount of challenging work they programme hold their nerve. Otherwise, audiences could have a dull few years ahead.

This article first appeared on the Guardian theatre blog.