The council accepted the recommendations of a working group led by Clive Priestley, chairman of the London Arts Board, which investigated the plight of students who are not entitled to mandatory grants. Funding for discretionary awards has declined from Pounds 24 million in the late 1980s to Pounds 5.9m last year.
Actors and dancers petitioned the Government to reform the discretionary system last spring, warning of a possible lowering of standards and a talent shortage.
The lottery was an obvious source of cash, but the rules said it could not be used instead of central and local government money. Under the Priestley scheme, lottery cash will be supplemented by Pounds 9 million over the next three years from the Department for Education and Employment plus contributions from education authorities.
The Arts Council stressed that it was an interim measure. But a National Heritage official said that, once a student had been offered a place, LEAs would be expected to give around Pounds 1,000 towards the fees, which average Pounds 7,000 a year, roughly 10 times those of other FE students. The school, not the student, would then get the rest from the joint lottery-DFEE money.
Lord Gowrie, chairman of the Arts Council, said grants for dance and drama students were properly the responsibility of the education system. The council expected the Government to introduce a permanent solution by the year 2000. "The Arts Council will withdraw its support after three years as the permanent earmarking of future funds is expressly forbidden," he said.
Mrs Bottomley said the scheme would give schools and students a breathing space.
Victoria Todd, director of the Council for Dance Education and Training, said: "I am delighted at the news of the reprieve".
Ivor Widdison, administrator for the Council of Local Education Authorities, said that some LEAs would take the scheme seriously: "We need to iron out apparent problems such as what will happen to students who start a course in the last year of the scheme and what will happen to the schools when the money is withdrawn."
* A new forum bringing together people from the arts, education, business and voluntary sectors was announced this week by Virginia Bottomley, in the first of the series of "Arts Matter" lectures organised by the Royal Society of Arts .