Sir Christopher said the Arts Council had made 'hard choices'

The organisation warned of a difficult financial picture as it revealed its three-year budget strategy on Thursday.

It told the government that more money must be found in the next spending review to avoid further cuts.

The Department for Culture, Media and Sport told the Arts Council last year its settlement would be frozen at the 2005 level of �412m a year until 2008.

The sum is equal to a cut of �30m in real terms.

Comedy festival

Arts Council chairman, Sir Christopher Frayling, said the organisation had been forced to make some "hard choices" as a result.

The Council revealed on Thursday how the budget would be allocated to 1,100 arts organisations in the next three years.

It said it had chosen to focus on better funding for fewer organisations, and 121 arts organisations would lose their regular funding by March 2008.

They include the Sunderland Empire theatre, North Cornwall Arts, the Northern School of Contemporary Dance, London Metropolitan University and the Leicester Comedy Festival.

However, the rigorous financial strategy means that the council is able to increase its budget for regular funding to organisations from �300m in �325m in 2007/08.

The Baltic in Newcastle will receive more funds

Sir Christopher said: "As a result of the standstill settlement for the arts from the 2004 Spending Review, the Arts Council has made some hard choices in a tough financial climate.

"We have acted responsibly to ensure a degree of budgetary stability for arts organisations.

"However, that stability is fragile and cannot be sustained beyond 2008. It is built on one-off flexibility and a reduction in other areas of our budget.

"If there is not a better settlement in the 2006 Spending Review it will mean real cuts to more arts organisations.

Budget 'casualty'

While 645 regularly funded organisations (60%) get a "standard annual increase" of 2.75%, 232 (20%) will get more. A total of 54 organisations will receive below the standard increase or no increase at all.

Those that will do best out of the settlement in terms of percentage increases are Baltic Centre for Contemporary Art in Gateshead, the Lowry in Manchester, Opera North in Yorkshire, Sage music centre in Gateshead and London's Young Vic theatre.

The organisations with the largest settlements are the Royal Opera House, South Bank Centre, Royal National Theatre, English National Opera and Royal Shakespeare Company.

And 34 organisations will be given regular funding for the first time, despite the freeze.

One of the casualties of this year's budget is the Creative Partnerships Programme - the initiative which teams up arts with children and young people - which will be cut by �13m.