Arts Council England (ACE), which allocates millions of pounds of taxpayers’ money to theatres, orchestras and dance groups, failed to explain to them why particular organisations were chosen to be sacrificed and why funding was being cut, according to a critical report.

The funding body faced an unprecedented vote of no confidence in January from hundreds of angry actors and directors opposing its decision to terminate the grants of nearly 200 of the nation’s companies. At the Young Vic Theatre, Peter Hewitt, ACE’s then chief executive, was subjected to cries of derision, with Kevin Spacey, the Oscar-winning star, giving warning of a revolution and Sir Ian McKellen, one of Britain’s finest actors, calling the cuts, to one in five companies, “destructive”.

Although the report, which followed the protest, claims to be independent, it was commissioned by ACE and is the work of a Labour peer who is closely associated with the arts world, having headed the Royal Opera House.

Nevertheless, there is generalised management-speak criticism from its author, Baroness Genista McIntosh, who recommends improvements in its organisation, processes and structure.

The evidence that she took from 100 “witnesses” - artists and arts organisations, umbrella bodies, ACE staff - suggests that she could have been much more damning.

Her report quotes unnamed witnesses complaining of “an obsession with secrecy”, a “damagingly defensive organisational culture”, “fear of leaks” and “no equal misery for all”.

Between 2008 and 2011, ACE staff of 635 people will distribute £1.3 billion of public money from government to 888 clients.

Baroness Macintosh called for ACE - under its new chief executive, Alan Davey - to take “urgent steps” to repair its relationships with arts organisations which have been damaged by its failure to communicate.

Her report, which cost the taxpayer £50,000, failed to impress yesterday. Jeremy Hunt, the Shadow Culture Secretary, said: “It misses the point. The real point is that ACE has become much too inward-focussed on its structure and bureaucracy. It’s not looking outward to arts organisations it should be supporting. There was a chronic failure of leadership. Arts organisations don’t know who they should look to for leadership in arts policy. The report is a missed opportunity. It’s really disappointing that it didn’t address questions of ‘who’s making arts policy’ and ‘how arts policy is communicated to arts organisations'. The tone of the report is a symptom of the problem.”

Martin Brown of Equity, the actors' union which staged the January protest, said: "This report must have made for uncomfortable reading for ACE, but it clearly outlines a way forward: arts practitioners involved in shaping ACE policy, a properly thought through national strategy driven from the centre, more clarity with regularly funded organisations and a rebuilding of links with interested parties."

The Watermans Arts Centre in west London was among companies whose grants were culled in what was described as the biggest “bloodbath” since the Council was set up in 1946. It is now pursuing legal action to reverse its 100 per cent grant cut.

Karam Bhullar, its chairman, described the report as “a description of an organisation that was out of the control of its senior management”.

Louise de Winter, director of the National Campaign for the Arts, said: “Everything Genista has identified has been identified in the past. The same criticisms keep coming back time and time again. It’s about time that ACE stopped talking about the problems and got on with the job.”

Responding to the criticisms, Mr Davey, ACE’s Chief Executive, said: “I don’t believe in sitting around navel-gazing forever."

“I see the publication of this report as heralding a new beginning as we build stronger relationships with the arts world, and use the lessons of the report to move on.”

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