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For all its faults, the Arts Council does not deserve such bad reviews

These are turbulent times in the world of subsidised arts. An assortment of theatrical grandees this week passed a vote of no confidence in the central funding body for the arts in Britain. And next week is the deadline for appeals to be lodged from almost 200 arts organisations, many of them well-respected, that had their funding cut at the end of last year. So what exactly is going on?

At the centre of the furore, inevitably, is the Arts Council. Should its job be to distribute taxpayers' funds to arts organisations on a first-come, first-served basis? That would be transparently unfair, favouring existing bodies and shutting out the new. Should it channel money to those who reach or perform to the most people? That would discriminate against smaller organisations, or those operating in unpromising circumstances. Should it favour those who promise the most beneficial social effects? That is what has happened in recent years and it has led to a demoralising culture of box-ticking and bureaucratic meddling.

No, the Arts Council is right to adopt an elitist approach and emphasise "excellence" as its guiding principle when making funding decisions. Sir Brian McMaster's report, commissioned by the Department for Culture and published this week, puts the case for using this criterion well. The report also contains some interesting suggestions on how cultural organisations might improve their performance, such as by putting more artists on governing boards. The call for publicly-funded arts organisations to put on regular free performances should also be heeded.

Not everyone agrees, of course. Some fear discrimination against provincial cultural organisations in favour of the avant-garde and metropolitan. That concern deserves to be taken seriously. But there is no reason why a regional theatre, for instance, should not be as dynamic as one in London, even if its chosen repertoire is less ambitious. The goal of excellence is not to reject the traditional or the unfashionable, but to combat complacency. Put simply, it is not the job of the Arts Council to subsidise lazy or substandard output.

However, there are some justified concerns over the Arts Council. It is over-bureaucratic in its approach, and acts in the high-handed and arrogant manner of too many public bodies. It was insensitive, for example to make the funding announcement shortly before Christmas and give organisations such a very short time in which to appeal. More transparency over decision-making is also required. It is difficult to discern the rationale behind cutting funding for the impressive National Student Drama Festival, for instance. Similarly, it seems strange to remove a grant from the Northcott Theatre in Exeter just after it has completed a multimillion-pound upgrade, partly funded by the Arts Council itself.

Yet it is important to recognise that, for all its faults, if the Arts Council did not exist it would be necessary to invent it. There is no other viable way to distribute taxpayers' money to the arts and it has to make tough and subjective calls. Does anyone seriously want ministers to decide which theatres, dance troupes and publishers are worthy of funding or not?

There will inevitably be complaints and accusations of flawed judgement when it comes to the allocation of resources. This is as true in the arts as in any other publicly-funded sector. The Arts Council must be prepared to exercise its judgement confidently and to do its utmost to encourage artistic vibrancy and eliminate stagnation. But if it is to adopt an elitist approach, it must act in a wiser, more transparent and humane manner.