The money has been put up by the Heritage Lottery Fund, which is charged with distributing lottery money to preserve the national heritage, in its first round of grants totalling £24.6m.
The deal could make Mr Churchill and members of his direct family multi- millionaires at a stroke, even after tax. It has also quashed fears of the papers being dispersed or going abroad.
It is understood that the Churchill family had long wanted to realise what was the only valuable asset left when Sir Winston died in 1965. It made private approaches to both Sotheby's and Christie's with a view to selling the pre-1945 archive on the open market.
But saleroom sources said the MP had fought for as much as £20m for the papers - which include Churchill's tear-stained letters to his mother as a schoolboy as well as correspondence from every sovereign from Edward VII to the Queen.
"They got very stroppy about wanting to get some value for these papers and constantly mentioned much higher figures," a trade insider said. This behaviour contrasts with that of Sir Winston's widow, Lady Spencer-Churchill, who donated his post-1945 papers to Churchill College, Cambridge.
But although some observers privately criticised the family for selling an archive so peculiarly important to Britain, others said it was unreasonable to expect the Churchills not to realise the value of their inheritance.
Lord Rothschild, chairman of the trustees at the Heritage Lottery Fund, commended Mr Churchill's generosity and it is certain that the family would have got substantially more money if it had broken up the archive and sold it separately. He added that had the collection been dispersed, "everyone in the country would have minded dreadfully. It's surely in the same category of national importance for us as the Declaration of Independence for the people of the US." Andrew Roberts, author of Eminent Churchillians, applauded the purchase. "I don't think the state has any right to just assume these things should be just given for free," he said.
The decision to use lottery money was also defended by the National Heritage Secretary, Stephen Dorrell, who rejected suggestions of an "establishment stitch-up".
The purchase, however, was criticised by some MPs. Dennis Canavan, Labour MP for Falkirk West, said there were "other priorities" for spending £13m, while Bernie Grant, MP for Tottenham, said he would table Parliamentary questions on the issue, including why the Government did not claim entitlement to the papers.
The archive, which has been held at Churchill College, will continue to be displayed at the specially-built Churchill Archives Centre. But under the new arrangement the college has gifted its post-1945 papers to the newly formed Sir Winston Churchill Archive Trust, so that the complete archive, valued at £35m, will be preserved in perpetuity as a unified collection.
The grant of £12.5m will enable the trust to acquire its interest in the papers from the Churchill Archive Settlement, established by Sir Winston in 1946. The fund has also provided £1m to endow the archive and £750,000 for development costs, including exhibition and conservation.
The other major beneficiary of yesterday's awards was the National Trust for Scotland. It was given £10.3m to buy and endow Mar Lodge, a 120-square mile conservation area of international importance in the Cairngorms.
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