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's healthy bank balance is the reason given by the for its decision to cut the funding agency's budget by an additional £5m over and above the 3% reduction being applied across the rest of the sector.

This creates a precedent that could see arts institutions across the land being asked to realise assets such as bank savings and buildings to fund their activity in lieu of a reduced government grant.

Like many of the nation's major arts institutions, the Arts Council has reserves. It is being singled out because the DCMS says that the £18.4m it has in savings is made up from years of under-spent government subsidy. The Arts Council strenuously denies this, saying that the money is made up from numerous sources including donations, and that the only reason it has not been spent is because the previous administration prevented it from doing so.

Notwithstanding the prudence of having some reserves in place - the Charity Commission stresses the need for a responsible "reserves policy" - and the negative message it could send to future donors to the arts - a group the coalition government has been at pains to say it wants to encourage - the move by the DCMS will be seen by many as ominous. That's because you could describe the £5m not as a cut but as a realisation of an arts institution's asset by the new government - money that was once in the arts cashed in to help fund the national debt.

Put another way, it would be like an employer reducing the salaries of all its employees by 3%, then cutting the salary of Shelly Jones from IT by a further 1% because she has saved a bit each month and put it aside. Shelly would feel that the company was banking her cash.

The arts sector would like the DCMS to be clear about the precedent it has set by directly attributing the Arts Council's £5m additional cut to its assets. Will the same approach be taken with other arts institutions? It's certainly not being ruled out. The DCMS says:

"It's not possible to anticipate what decisions will be made in the autumn spending review, although given the unprecedented £156bn fiscal deficit, it is clear that DCMS and its bodies will need to play a full part in the ongoing deficit reduction."

The department went on to say that part of the plan is "giving museums access to their historic reserves". I asked whether that was meant as a way of reducing the amount of government subsidy they received, as is the case with the Arts Council.

"It would not be appropriate to pre-empt the forthcoming spending review by making decisions now about spending that may or may be in or out of scope."

One senior figure in the arts I spoke to about being asked to cash in their assets simply said: "If the DCMS want to interfere to that extent, to penalise us for being prudent and having reserves, that's fine. I'll simply hand them the keys and tell them to run the institution."