Old pals act threatens to visit new crisis on a troubled institution

The disclosure that the Royal Opera House is using lottery money to pay its redundancy bills - a legal if provocative move - is likely to figure in an inquiry ordered by the Government into the troubled institution.

Lord Gowrie, chairman of the Arts Council, announced last Friday that he had appointed Edward Walker-Arnott, a senior partner at the solicitors Herbert Smith, to examine the opera house's management and accountability, and its relationship with the Arts Council.

The fact that this was announced before the latest disclosures over the use of lottery money shows what a parlous state the opera house is in, and how shaky its reputation is.

The damning instruction issued by Chris Smith, Secretary of State for National Heritage, to the Arts Council, to ensure that in future the opera house manages its lottery-funded redevelopment with more "probity", shows the depth of the Government's concern.

But a rigorous inquiry will have to go even further. It will have to examine the role of Mr Smith, and how and why the Government connived in an astonishing old pals act.

This was the way in which the Arts Council met in secret and in turmoil over the appointment of its secretary general, Mary Allen, to head the opera house - the most important post in the publicly subsidised arts - without so much as a classified advertisement in the jobs columns.

It will also have to examine the ethics of the former Arts Council lottery panel chairman, Lord Chadlington, and Ms Allen in authorising a pounds 78m handout to the opera and how she then took over the ROH to oversee the spending of that money.

Problems and bad publicity are not new for the opera house. Obscenely high ticket prices, redundancies, continuing threats of strike action by the backstage unions, and the failure to find a home for the itscompanies during its two-year closure have seen to that.

But in the past two months its problems have taken on a darker hue. And the opera house is beginning to look like an institution in moral crisis.

In May, Jenny McIntosh, a left-leaning administrator, resigned as general director after only four months on the grounds of ill health. Staff petitioned Mr Smith for her re-instatement, an odd thing to do if she was in poor health. But odder was to follow.

Lord Chadlington - formerly Peter Gummer, Tory public relations adviser and head of city PR firm Shandwick - appointed his former colleague Ms Allen to replace Ms McIntosh. The post was not advertised. It was said that Ms Allen had applied the last time the post was vacant.

This was not the case. In fact she had been on the appointments panel and helped in Ms McIntosh's selection.

But there was one important hurdle to cross before her position could be ratified.

Lord Chadlington went to see Mr Smith. He said that with the redevelopment at Covent Garden in full swing, the opera could not spend another 18 months on making an appointment. Mr Smith did not appear to question why it should take 18 months to fill the post.

Of greater interest is the person Lord Chadlington chose to accompany him to the meeting, understood to have taken place without the department's permanent secretary. Bob Gavron, a publisher, had donated pounds 500,000 to Labour before the general election.

It is too crude to suggest that the sight of Mr Gavron was a nudge to Mr Smith. But the Secretary of State's acquiescence in such an unorthodox appointment is one of the strangest aspects of the whole saga.

A leading figure in the arts, who did not wish to be named, said yesterday: "Chris Smith simply rolled over. It was remarkable. The Arts Council is meant to monitor the Royal Opera House. Mary Allen should have been in there doing everything she could to stop Jenny McIntosh resigning."

And though all who know Ms Allen pay tribute to her work at the Arts Council, it is impossible to meet any senior figures in the arts without the subject of the opera house coming up, and being given feeling that its procedures have exposed worrying practices in the way the lottery works and the way public appointments are filled.