As fears grow that the Heritage Lottery Fund is spreading itself too thinly, we talk to its director about her plans to help with John Prescott鈥檚 Communities Plan.

When former prime minister John Major set up the Heritage Lottery Fund, observers hailed it as a great leap forward for British culture. The HLF, with its seemingly endless supply of ringfenced cash, would help to pay for the kind of great public buildings that Continental countries seemed to do with their eyes shut. It also came with a governmental promise that lottery funding would be additional to other state funding.

The HLF is due to celebrate its 10th birthday in November, and it has much to celebrate. It has invested 拢3bn in heritage and cultural schemes, and has been widely praised for the rigour of its selection process 鈥 none of the 15,000 projects that it has funded have turned into white elephants. Now the HLF wants to help with the government鈥檚 massive housebuilding programme.

Nevertheless, there are dissenting voices. Major鈥檚 HLF was formed specifically as a helping hand for the UK鈥檚 heritage industry; it was never intended to shoulder the government鈥檚 own responsibilities, which were to remain with English Heritage. But over the past few years, EH has had its funding cut, and some feel that the HLF is now being asked to take on more than it can or should.

The key issue is not so much overambition within the HLF as a more insidious assumption within the Treasury that core government funding can be withheld from mainstream heritage projects because the there is an alternative pot of cash.

John Gummer, the former environment secretary who was a cabinet member in 1994, is unhappy with the switch in emphasis. 鈥淭he whole concept of the lottery was as an alternative to state funding,鈥 he says. 鈥淲e wanted to change Britain鈥檚 very poor tradition of public investment in the arts, and it was very clear that the money was to be ringfenced, not a replacement for state funds. I鈥檓 afraid this government is filching it.鈥

George Ferguson, president of RIBA, agrees. 鈥淎ll in all, the Heritage Lottery Fund deserves to be celebrated,鈥 he says. 鈥淏ut I have a concern about the funding of heritage. When John Major set the HLF up, he said it was supposed to be extra money. Now I suspect the government sees it as their pot of money for general public funding.鈥

Ferguson adds that the HLF is becoming less effective just as the demands on it are increasing. He says: 鈥淔irst, there鈥檚 less lottery money coming in. Second, it is stepping away from funding big capital projects. Third, its mere existence is having a diminishing effect on other heritage grants, such as EH鈥檚.鈥

The effect of the public鈥檚 disenchantment with the lottery has been seen in the past year, when the HLF was unable to award more than 拢15m each to two noted projects 鈥 Daniel Libeskind鈥檚 extension to the Victoria & Albert Museum extension in London and the Brighton West Pier renovation.

Carole Souter, director of the HLF, says both projects lost out because the fund, which has four bidders for every pound that it spends, decided that there were worthier causes. 鈥淚t was not to do with the nature of the design,鈥 she says of the V&A. 鈥淚t was because the building itself was such a big element of the project that it didn鈥檛 fit our criteria.鈥

The HLF decided that the V&A application rested on the quality of Libeskind鈥檚 design, rather than the project鈥檚 contribution to British heritage. But the very fact that it had to spike one of the country鈥檚 most high-profile projects suggested to some that the HLF had too much on its plate.

We've been going long enough to contribute more than money to a project - we can say what works and what doesn't work

Carole Souter, director, HLF

Souter says that the HLF鈥檚 strict criteria rule out funding new buildings. 鈥淵ou have a certain amount of money to commit and you have those projects that come forward in that batch,鈥 she says. 鈥淚f you haven鈥檛 got enough money to go around 鈥 and you never have 鈥 you鈥檙e weighing up which of the projects best meet the criteria on conserving, enhancing understanding, and improving access and education.鈥

The only snag is that most projects are now meeting the core requirements. This is where the HLF鈥檚 14 trustees step in. Personally appointed by Tony Blair, each January and July they debate all of the projects valued at more than 拢5m. This July, it came down to a straight choice between the V&A and an upgrade to Oxford鈥檚 Ashmolean Museum. Oxford got the nod.

Brighton鈥檚 West Pier has also been a loser. 鈥淲e had had a commitment on the table for the West Pier for a long time,鈥 says Souter. 鈥淏ut when they came back and asked for final approval, they were asking for a lot more money.鈥

The trustees took one look at the mouldering, wreck of the pier, one look at the ambitious plans of developer St Modwen, one look at their dwindling pile of money, and bolted back to London.

It would be unfair to blame the setbacks to these two projects on the HLF. However, Souter鈥檚 plan for the next 10 years may result in even slimmer resources being available in future.

The HLF wants to help to deliver John Prescott鈥檚 Communities Plan by becoming a key part of the planning process in areas such as the Thames Gateway. By consulting residents on the cultural issues that are important to them, it is seeking to produce the heritage component of new community design codes. To this end, Souter has been forging high-level contacts in the ODPM: there have been regular meetings with Andrew Wells, John Prescott鈥檚 head of sustainable communities, and ODPM ministers such as Yvette Cooper.

鈥淚 would like to build on our work of the past few years by sharing best practice between projects,鈥 Souter says. 鈥淲e鈥檝e been going long enough to contribute a lot more than money to a project 鈥 we can say what works and what doesn鈥檛 work. I want us to be partners, not people who just turn up and hand over a big cheque.鈥

There is clearly advantages to be gained in adding the HLF鈥檚 expertise to the Communities Plan. But architect Piers Gough, who sits on the board of English Heritage, thinks the government is pulling a fast one by using lottery funding while reducing state hand-outs. 鈥淭he HLF should be careful, or it will find its funds being spread more and more thinly,鈥 he says, warning that it could end up as just another regeneration agency. 鈥淭he question is: do they see themselves as judges of the future or of the past?鈥