Lottery funds are being counted as public spending, the Treasury admitted yesterday, in apparent contradiction of last week's pledge by William Waldegrave, the Chief Secretary.
The admission came after a confidential letter revealed that the Welsh Office was treating lottery money as public sector funding and will fuel growing suspicions that lottery cash will be increasingly used to help contain spending at a time when the Government wants to cut taxes.
A Treasury spokesman said yesterday: "Lottery funding counts as public spending and always has done. Lottery funds are not designed to replace existing funds. But when it comes to the stage of dispersal of lottery funds, they count as public spending."
Mr Waldegrave's undertaking last week came after the leak of a letter from Virginia Bottomley, Secretary of State for National Heritage, urging him not to cut her budget in the light of lottery awards.
Mr Waldegrave made no pledge to protect Mrs Bottomley's departmental budget - but he promised that the so-called "additionality" principle would remain. The Government has repeatedly promised that lottery cash will not be used to fund its existing programmes.
But a letter from Jeff Pride, development director of the Welsh Tourist Board, to the Brecon Jazz Festival, withdraws a previous verbal offer of funding for an information centre, saying: "We are forced to take this course of action because we have been recently advised by the Welsh Office that lottery funding should be considered as public sector funding.
"Under our ministerial arrangements we are required to restrict total public sector funding to 50 per cent of project cost. This means that because lottery funding is deemed to be public sector funding we have to enforce this 50 per cent rule in relation to your application."
Alex Carlile, the Liberal Democrat MP for Montgomery, mid-Wales, said the Welsh Office meant that lottery money could not be used as "match" funding for projects. "The result of this is that lottery money is being treated no differently from income tax or VAT by the Treasury."
He added: "Following last week's tiff between Virginia Bottomley and William Waldegrave, it's clear that the Government has been misleading members of the public who buy lottery tickets into thinking that they were making voluntary and additional contributions to charities, sport and the arts.
The Welsh Office effectively conceded there was a contradiction of Mr Waldegrave saying: "We are looking at the rules to see if there are ways of relaxing them as they apply to the Wales Tourist Board and lottery funding."
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