The head of Arts Council England (ACE) said cuts to its running costs would “mean a fundamental rethink” about how it works.

Dame Liz Forgan said she was worried about the effect of the 50 per cent cut imposed by the government during the spending review.

In a speech at the annual State of the Arts conference in London she said: “A cut of that size has to mean drastic change. It will seriously affect the scope and nature of the job we can do.

It will mean a fundamental rethink – but our priority for the moment is, and must be, to settle the funding of arts organisation for the years ahead.” The group had its annual grant cut by £100 million in the spending review and it is expected to turn down hundreds of applications for support before a new funding system comes into operation in 2012.

The council will announce which groups will receive funding for 2012 to 2015 on March 30.

Dame Liz said: “I certainly don’t imagine that when the time comes to announce our funding decisions there will be universal peace and light but we have done our damnedest to make it as good and fair as it can be.”