A discreet change in Arts Council guidance on the use of lottery money, agreed without publicity last November, says that "Closure costs which can be funded by lottery money include ... redundancy costs created by the closure."
The disclosure that the Royal Opera House is paying off staff with money that ticket buyers were told was going towards helping good causes will cause further embarrassment for Chris Smith, Secretary of State for National Heritage, following his battles with Camelot.
In the case of the Royal Opera House, the embarrassment is compounded by the personalities involved. The chairman of the Royal Opera House is Lord Chadlington who formerly chaired the Arts Council's National Lottery Advisory Panel, though he left in the spring of last year before the rule changes were finalised.
Lord Chadlington appointed Mary Allen, the former Arts Council secretary general, as general director of the Royal Opera House. She headed the Arts Council throughout the changes to its lottery regulations.
Lottery payments were previously restricted to building, renovation and refurbishment work - which covered the highly-controversial initial pounds 55m payment towards the redevelopment of the Covent Garden site, due to start next month.
According to guidance agreed by the Arts Council in November: "The lottery funding rules state that grants can be made for capital projects and costs `directly attributable' to the capital project".
But November's new interpretation added: "This means that the Arts Council can, in some circumstances, use lottery money to help meet some of the costs associated with closure."
Gerald Kaufman, the former Labour minister who is expected to chair the new Commons Select Committee on National Heritage, said yesterday that he expected the committee to investigate what was happening at the Royal Opera House.
It was reported in February last year that Virginia Bottomley, then Secretary of State for National Heritage, had been asked to approve the diversion of lottery funds into redundancy payments - but no statement was made that she had authorised the move.
Under current plans, the Royal Opera House is getting rid of 320 of its 820 staff. A January 1995 application for lottery aid said more cash was needed to cover "transitional costs".
The application said: "These costs, in excess of those covered by the regular Arts Council grant to the Royal Opera House, include renting a suitable theatre, redundancy payment to laid-off staff, and support for the much lower box office income forecast for this period."
A preliminary budget, obtained by The Independent, shows a sum of pounds 23.5m being requested to cover the 28-month closure period: pounds 15.5m to cover lost revenues; pounds 2.5m for redundancies; pounds 1.5m for the "decanting" operation out of Covent Garden; pounds 500,000 for "decanting" back again; and a further pounds 3.5m for "other funding".
Troubled institution, page 6
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