The National Heritage Memorial Fund was once a tiny quango whose members enjoyed a quiet life saving the nation's past. Then along came the Churchill papers. Vicky Ward reports
In 1977, an 18-year-old schoolgirl picked up a newspaper and could not believe her eyes. It told her of the impending sale, in small pieces, of Mentmore Towers, one of Britain's finest examples of a 19th-century house and collection. The nation did not have the funds to buy it.

There was a united public outcry. The government immediately took steps to prevent such a disaster recurring. But few felt it more keenly than Georgina Nayler, a budding art historian. The teenager decided that she would see to it that such a catastrophe never happened again.

Eighteen years later, Ms Nayler appears to have achieved her objective. She is the director of the National Heritage Memorial Fund, which the current Government set up in 1980 in direct response to the Mentmore sale. It is also the body which recently met with a substantial degree of public disdain over its controversial decision to pay Winston Churchill £13m of lottery funds to acquire the Churchill papers for the nation.

"Actually," Ms Nayler says, "the one great thing about the controversy was all the publicity it generated about the NHMF. Now, hopefully, many more institutions will realise they are eligible for funds and apply - certainly I seem to have been inundated with letters for applications since then."

Despite the enormous publicity the sale of the Churchill papers generated, one fundamental aspect of the fund has remained shrouded from public view: the people who run it. Who are they and what, precisely, do they do?

Given that, according to the lottery organiser Camelot, they are shortly to have funds worth £320m at their disposal - more, probably, than any other heritage organisation in the world - their responsibility for defining British culture for posterity is tremendous. They are, as one broadsheet coined it, "the patrons of their age".

The jobs of the chairman and trustees of the NHMF have, since January of this year, changed out of all recognition. Before then, life as a trustee on the NHMF was not particularly arduous. The fund was a tiny quango (11 unpaid trustees and a handful of staff) that was responsible solely for the distribution of a government fund, which in the early Eighties was as small as £3m.

Then, the quango's job was, officially, "to provide financial assistance towards the acquisition, maintenance and preservation of buildings, land, works of art and other objects or structures of outstanding interest and of importance to the national heritage". But everyone knew that its real aim was to prevent a recurrence of the Mentmore fiasco, which is why, throughout the Eighties, the Government actually beefed up its grant by £29m, specifically for the purchase of three of the nation's great houses: Kedleston in Derbyshire, Weston Park in Shropshire and Nostell Priory in Yorkshire.

By the time those deals had gone through, Georgina Nayler, who arrived at the NHMF offices as a secretary in 1982, was running the show. She took the title of director in 1989. Ms Nayler did the ground work - "looking at projects which might need funding, talking to heritage experts" - before her final proposals were put before the trustees at monthly meetings.

For 12 years these were chaired by Lord Charteris; but in 1992 the philanthropic Lord Rothschild took over. Of the original 11 trustees, only two, Sir Martin Jacomb and Lord Macfarlane of Bearsden, remain.

Both are businessmen with a keen interest in the arts. Sir Martin is chairman of the British Council and in 1986 was the first chairman of the investment bank Barclays de Zoete Wedd. Norman Macfarlane, who, his friends recall, "started life without a bean", was created a life peer in 1991 for his skill in running numerous Scottish business interests. In 1988, the two men were joined by a third prestigious businessman, Sir Nicholas Goodison, former head of the Stock Exchange and one of the world's leading experts on barometers.

The main reason for the businessmen's existence on the board, says Lord Rothschild, is their proven good judgement in a range of matters.

Ms Nayler says: "The purpose of the trustees [officially appointed by the Prime Minister] is to represent the wide heritage interests of the British people. Therefore, between them, their varying expertise or interests need to cover every aspect of British heritage, which means that, geographically, they need to come from different places."

Geographically, they do. Class-wise, the trustees, who now number 13 and are about to become 14, divide into three groups, none of which is precisely proletarian, but neither is it all plummy voices and old school ties.

First, there is the inevitable clutch of former owners or residents of National Trust houses or gardens. These include Sir Richard Carew Pole, former High Sheriff of Cornwall, who lives in a listed building given to the National Trust in 1961; Commander Michael Saunders Watson, a retired naval officer who lives in the listed Rockingham Castle, Northamptonshire, and who is a former trustee of the Royal Botanic Gardens; and Diane Nutting (formerly Countess Beatty), who lives in a Grade I listed building open to the public in Buckinghamshire.

Then there are the head boy/ girl types, who include Lord Crathorne, chairman of the Georgian Group and Deputy Lieutenant of Cleveland; Mrs Caryl Hubbard (one of two trustees not listed in Who's Who), former chairman of the Contemporary Art Society and co-founder of the New Art Centre; and Catherine Porteous, wife of the bursar of Caius College, Cambridge, art lover and former research assistant to Kenneth Clarke, the Chancellor.

Then, finally, there are the specialist academics, whose backgrounds are not necessarily public school. These include W Lindsay Evans (the other trustee not listed in Who's Who), a Welsh teacher and expert on Welsh heritage; John Keegan, the military historian; Professor Palmer Newbould, an ecologist from Northern Ireland and a former member of Westminster City Council; and shortly to join is Sir Martin Holdgate, president of the Zoological Society of London, who, a colleague says, "is a brilliant man who came from nothing".

Superficially, Lord Rothschild admits, it could be read as a clubby list of crusty establishment figures, which, if it were true, would provide the opponents of the Churchill sale with convenient ammunition. But on close inspection, he says, the range is remarkably wide. "Obviously I don't want people who are going to disagree so violently that we can never reach any decisions," says Ms Nayler, "but all the people concerned are very different in one way or another."

"Personally," says Lord Rothschild, "I feel extremely grateful that they have all agreed to serve as trustees. Trustees are not paid, and taking together site visits, committee meetings and a large amount of paperwork, the burden on their time has become immense."

It needs to be. Since the lottery came into existence the trustees are now responsible for running two funds - the original memorial fund and the lottery fund. "The latter," explains Ms Nayler, "enables us to look at regional and local concerns, which we just could not afford to otherwise."

The workload has inevitably shot up. Staff levels at the NHMF have risen from seven to 27, and the trustees no longer meet necessarily in the comfort of the St James's offices. Instead they have to travel to inspect sites. In July, for example, they will meet in Edinburgh and in November, in Bristol.

"A trustee came with me to visit Liverpool," says Ms Nayler, "and another came to Dorset last week. They are very excited, very committed. They even spent time in the offices writing out pretend application forms, so they would know how it felt to be a punter."

Still, despite such cross-representation and a careful deliberating process - Ms Nayler always consults hordes of relevant experts before putting proposals to the board - the NHMF trustees have been knocked sideways by the public reaction to the Churchill sale - so much so that when he heard I was writing this piece, Lord Rothschild asked me to come and meet him in his offices. "We are very sensitive after last week, you understand," he said.

Ms Nayler says: "Of course we didn't think, 'Ah-ha, let's give £13m of lottery money to the private pocket of Winston Churchill MP'. What we did think was, 'Ah-ha, the problem of the fate of the Churchill papers has been on our minds for three years. Finally we have the money to do something about it.' Yes, there's been an outcry, but you can bet it would have been far worse if the nation had actually lost the papers."

Yet both Ms Nayler and Lord Rothschild are clearly worried about the effect the last week has had on their image - in a bid for political correctness Ms Nayler even starts telling me how many NHMF employees come to work by tube. They point out that many of the accusations thrown at them are unjustified: they are not responsible, they say, for robbing the health service or Rwandan refugees of £12m; their job is merely to divide funds that the Government has allowed the lottery to donate it.

"Nobody," says Ms Nayler sadly, "has mentioned the smaller awards; nobody has commented on the fact that the townsfolk in Eyam, Derbyshire, were dancing in the streets after we awarded them £32,625 towards doubling their museum display."

Still, the duo may be down, but they are certainly not out. "The one thing you have to remember," says Ms Nayler, "is that public opinion on the Churchill papers was very far from united." And as I leave, Lord Rothschild hands me a tribute to the recent work of the NHMF from Sir Patrick Cormack MP, warmly congratulating "the Chairman and Trustees ... for acquiring those papers for the nation without having recourse to the public purse".

One benefit of the whole kerfuffle is that they have learnt something. "We are in a no-win position," sighs Lord Rothschild. "On nearly every aspect of heritage, there are at least two points of view. The only really fair thing we can do is perhaps to expand our allocated time for judging applications from about two months to, say, six months, so we can really get a good idea of all the contenders in the field."

A LOTTERY-LOSER'S GUIDE TO THE NHMF

What it is: the National Heritage Memorial Fund looks after one of the five "good causes" the lottery is intended to benefit (the other four are the arts, sport, charities and projects to mark the millennium).

How much we give it: the 14 trustees are responsible for distributing two funds - the Heritage Memorial Fund (the original fund, administered since 1980, worth about £8.6m this year) and the Heritage Lottery Fund, which has some £150m to dispense this year, expected to rise to about £320m in three years' time.

Who they give it to: the NHMF has five main areas of interest - ancient monuments, historic buildings and sites; land of scenic, scientific or historic importance; printed books, manuscripts, archives and other records; museum and gallery collections; industrial, transport and maritime heritage. Definitions are vague to encourage applicants to make a good case, and so that interesting ideas are not excluded, eg fairground equipment.

How to apply: private individuals and profit-distributing organisations are not eligible. Unprompted applications can be accepted from public, charitable or non-profit distributing bodies in the UK with preservation or conservation of the heritage as one of their purposes.

Most publicised grant so far: to the Sir Winston Churchill Archive Trust, £13.25m.

Least publicised grant so far: to the Verdant Works' Jute Museum, Dundee, £419,000. Or maybe to the Gillingham Local History Society, Dorset, £15,000.

In the pending tray: the National Museums of Scotland and the Imperial War Museum at Duxford (wants a new hangar) are among those to apply.

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