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At the end of this month the community fund, which hands out lottery money to good causes, will announce whether it is to withdraw its grant to a project supporting asylum seekers' appeals. It will be a crucial decision, given that the review of the grant was triggered by a complaint about the organisation from home secretary David Blunkett.

For some, the controversy highlights suspicion that the government is seeking to tighten its control over lottery spending or, at the very least, discourage the fund from supporting charities that campaign against government policy.


Others, however, believe Blunkett's public intervention was simply a knee-jerk response to stories in the Daily Mail and Sunday Times criticising the activities of the National Coalition of Anti-Deportation Campaigns (NCADC).

Whatever the cause of the home secretary's intervention, it has raised serious questions about the independence of the community fund, which is supposed to operate at arm's length from ministers when making grants.

"The issue is whether or not the community fund is an independent organisation making its own decisions," says Simon Hebditch, policy director at the Charities Aid Foundation.

The issue also highlights the grey area of how "political" charities should be allowed to be - an issue that the government's performance and innovation unit review of charities, which is expected shortly, may address.

Although the Department for Culture, Media and Sport regulates the community fund and appoints its board members, the process of making grants and vetting applicants is entirely in the hands of fund officials. But a joint statement from Blunkett and Tessa Jowell, secretary of state of the culture department, said they were concerned the NCADC may not have operated within the law and questioned whether its activities were overtly political.

Although it was a joint statement, lottery officials say they have a generally good relationship with Jowell and they believe the main instigator of the complaint is the Home Office.

The claims are linked to statements made by NCADC newsletters and on its website, calling on people to fight deportation and accusing ministers of "hounding" asylum seekers.

The community fund is now looking at whether these claims justify withdrawing the £340,000 grant, although fund officials are thought to be doubtful about whether the government's "dossier" of evidence actually amounts to very much.

For the fund it's an extremely delicate affair because if it withdraws its funding without a cast-iron case it could find itself facing legal action from the NCADC.

"We're looking for some external involvement in the investigation, so that it is seen as fair and above board by both sides," says fund head of public affairs Boni Sones.

But fund officials and voluntary sector leaders are seething, not only at Blunkett's intervention but the manner of it.

They feel that for the home secretary to intervene in the affairs of the Department for Culture, Media and Sport is bad enough, but to do so publicly has created an unfortunate precedent. They are worried that from now on any minister who doesn't like a particular group receiving lottery funding will feel free to publicly criticise the decision. "Blunkett's action means it's now open season on the community fund," says Sones.

Another grant applicant that has come under the media spotlight is drugs charity Lifeline, accused the press of planning to break the law by handing out drug-taking "kits" to homeless addicts. While Blunkett is not thought to have called for a review of Lifeline's funding, the community fund has been in touch to discuss the allegations, says Mike Linnell, the charity's communications director.

"We told them we've done nothing wrong," said Linnell, adding that media allegations had distorted the charity's work and that the legislation governing provision of drugs paraphernalia was in any case due to be amended by the government. Linnell says: "The whole point of lottery grants is to support work that is not being done by the state, or is difficult to fund from other sources. These projects are innovative and sometimes controversial."

James Georgalakis, spokesperson at the National Council for Voluntary Organisations, says the community fund has a good track record on making difficult funding decisions, sometimes to unfashionable causes. "They have a vetting procedure," he says, "and if the Home Office has concerns it should go through the proper channels rather than taking it to the press."


It seems probable, on the present evidence, that the fund will rule in favour of the NCADC. But it would be na‹ve to believe that Blunkett's intervention will have no long-term effect. After all, the members of the lottery distributors are appointed by government and have to maintain a balance between protecting their independence while at the same time being responsive to external opinion.

An official at the community fund, who asked not to be named, says: "There's recognition that we have sometimes been a bit arrogant in the past when it comes to responding to public opinion."

Boni Sones adds: "We can't pretend this row never happened and there will inevitably be some internal changes here." These are likely to include a tightening of the fund's procedures regarding political campaigning by charities - and Sones says the organisation "will probably be drawing up new guidelines on what is political and what is not."

But this will be no easy task, given the complexities of charity law. Although the NCADC itself if not a registered charity, it is a philanthropic organisation that, for the community fund's purposes, falls in the ambit of charity law.

In a nutshell, charity law states that charities cannot have a political purpose but that they can campaign for changes in the law, providing such campaigns reflect their charitable objectives.

But campaigning should not be allowed to dominate a charity's work, says Michael Scott, a charity lawyer at Charles Russell solicitors: "That's why organisations like Greenpeace have traditionally carried out their campaigning via a separate, non-charitable arm."

But this issue of whether or not a charity is "political" is often in the eye of the beholder. Boni Sones points out that other charities that campaign for legislative changes, such as ChildLine, have received lottery grants for years without any media criticism.

While voluntary sector leaders welcome the community fund's defence of its position there are worries that Blunkett's intervention could signify a growing desire by ministers to get their hands on lottery cash. Such a move would contradict the basic principle of lottery funding, which is that it should not be used for projects that would normally be paid for by the taxpayer.

There are some grounds for the concerns. For example, the new opportunities fund, which was set up in 1997, gives grants to activities that some would regard as the job of government spending, such as after-school clubs.

And earlier this year John Prescott's white paper on regional government proposed that local councillors be appointed to regional lottery awards committees - a move that would significantly increase political influence over grants.

"There's always a danger that a government may try to use lottery money for purposes it is not meant for and we'll be following this matter carefully," says NCVO's Georgalakis.

But, with a recent green paper on the organisation of lottery spending from Tessa Jowell, it seems probable that changes of one sort or another are inevitable. The green paper, which is currently out to consultation, focuses on questions such as whether there should be one or several lottery distributors.

"Perhaps, given the recent controversy, the green paper should look not just at the organisational side of the lottery but also at what the purpose of lottery spending is," says Simon Hebditch of the Charities Aid Foundation.

The community fund, says Boni Sones, is ready for change: "With the green paper it seems clear that the lottery is in transition and we are not opposed to change. What we are opposed to is becoming a political football."