This time round, it's curtains: The Arts Council announced further cash cuts yesterday, but it was theatre that really got it in the neck. Enough, says David Lister, enough

Yesterday morning the Arts Council showed its commitment to the visual arts by increasing its grant to the Serpentine Gallery in Hyde Park by nearly nine per cent (or pounds 20,000). Yesterday afternoon the Serpentine Gallery announced that it might henceforth have to pay a pounds 90,000 rent increase to the Royal Parks. How nice that extra money must have felt for a couple of hours.

Both the arts and the Royal Parks come under the Department of National Heritage. The Department of National Heritage giveth; the Department of National Heritage taketh away.

As Christmas pantomimes go that's not a bad one. If audiences hiss next time Peter Brooke, the Heritage Secretary, enters an auditorium, it will be deservedly so. But there the pantomime analogy ends. Yesterday's allocations lead more to tears than laughter. Most of its clients, including all the national companies, have received standstill grants (cuts in real terms). Contemporary dance and the visual arts have received increases at the expense of drama - as, the Arts Council says, that's where burgeoning audiences lie. Dance is up three per cent (or pounds 767,000) on the previous year; drama is down nine per cent (or pounds 345,000).

A few small dance companies have achieved much with imaginative tours and talented choreographers. But does their input really compare with what drama achieves all over the country every night? A city centre theatre provides, in addition to its more obvious raison d'etre, a focal point for the community, a restaurant, a coffee bar, an education centre, its very existence a source of civic pride. With the best will in the world, how many modern dance companies can say the same?

Earlier this week I won the support of some theatre directors, and the brickbats of others, for urging that theatre embrace, rather than stand aloof from, popular culture and re-examine its pricing policy, comfort and accessibility in the battle to entice the young. But yesterday's grant announcements make that likelihood even more remote. Standstill grants for nearly all theatres, including the Royal Shakespeare Company and National Theatre are cuts when you take inflation into account. And within months we will see the results of those cuts: fewer productions, fewer tours, decaying buildings. The English Shakespeare Company has already decided it is so worn down by the parsimony of its grants that it will stop its main touring altogether and concentrate on education work.

And then there are the companies and ideas which don't even show up on the Arts Council's grants list but which are the real victims of the cuts. The 'projects and schemes' as they are called in Arts Councilspeak: in other words new work. Theatre de Complicite, Actors Touring Company and Sphinx women's theatre group, among much other new writing and devised work, began from this imaginative fund, but this year it's to be cut by 12 per cent or nearly pounds 2m. The cutting edge is truly suffering.

Where does the blame lie? It is easy at the best of times to blame the Arts Council, and this year they have made that annual pleasure easier still. The former arts ministers Tim Renton and David Mellor have both called for the Council's abolition. Yet when they were both in office and in a position to do something about it they vacillated. Barracking Mr Brooke from the sidelines now sounds a little hollow.

But there are, of course, challenges to be made in the way the Arts Council decided to distribute its pounds 186m yesterday. Lord Palumbo's original principle of funding fewer better was one that had considerable appeal - money spent strengthening centres of excellence throughout the country rather than spread thinly across dozens and dozens of companies struggling to survive on inadequate grants. But it begs a much bigger issue.

These choices would be academic if the arts were properly funded in the first place. For one thing, it is not so much a matter of subsidy, as one of investment - the VAT returns from theatre tickets in London alone are higher than the entire Arts Council drama budget.

I have argued before that the members of the arts world are, curiously, not always the most effective lobbyists. I accept fully that Richard Eyre of the National Theatre and others have held behind-the-scenes talks with ministers, and that, without their efforts, yesterday's settlement would probably have been much worse. But the recent mass rally of theatricals would have had no effect on a budget settlement long since signed and sealed. Hard nettles must be grasped in lobbying - the performing arts world must be prepared to dispute other areas of the Heritage Department's spending, challenge, for one thing, the money being spent on the Albert Memorial.

Nevertheless, the overwhelming fact remains that spending on the arts is about 0.14 per cent of gross domestic product, lower than most of our European neighbours. Is Mr Brooke happy with that? It would only need the merest blipette on the Treasury graph to end nearly all the performing arts' problems. Why is no Heritage minister able to get this argument across or indeed take it in?

When Mr Major on the first day of his premiership put the arts in the Cabinet we all gave three cheers. It would mean a higher profile, more money, more chance of convincing the people with the money of the arts' importance for the country. How mistaken we all were.

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