Fears have been raised that Scotland’s cultural boom may be undermined by the axing of a  £7 million arts funding scheme.

In the week in which  Glasgow-based sculptor Martin Boyce won the Turner Prize, the scrapping of Flexible Funding by Creative Scotland, the national arts funding body, is generating substantial concern in the Scottish arts community.

Sixty of the nation’s key arts organisations are supported through the fixed-term funding scheme, which is to be closed in March 2013.

Well-known names in the cultural world, including the Transmission gallery, Celtic Connections, the GI festival of contemporary art and the CCA in Glasgow, Inverleith House and Edinburgh Printmakers in Edinburgh, as well as Cove Park, the Festival Fringe, NVA, the Glasgow Sculpture Workshop, and the St Magnus Festival in Orkney are backed by the scheme.

Several arts sources have told The Herald that the short timeframes involved, plus what they regard as a lack of information over the new funding schemes, make any forward planning difficult and, if funding is eventually lost, could even threaten companies’ existence.

One senior figure said that artists – who have made Scotland one of the centres for contemporary art in the last 20 years, with Turner Prize wins for Boyce, Richard Wright, Susan Philipsz, Martin Creed, Simon Starling and Douglas Gordon since 1996 – could leave and live elsewhere if the uncertainty continues.

“What I am really worried about is talent drain. There is a real risk our artists will see this and say, ‘Why don’t I just go and live in Berlin?’ Artists are totally mobile and can live anywhere,” the source said.

“This uncertainty is very destabilising. Artists are real people with mortgages and bills to pay like everyone else. The situation is very unnerving.”

Creative Scotland is facing a tight budget over the next three years, with a 2% cut, or £2.1m, to its core grant. Much of its funds are either ring-fenced or already invested in the main Foundation funded organisations.

Creative Scotland will replace the £7m Flexible Funding pot with Strategic Commissioning – a new system which companies and arts figures say has been inadequately explained.

If companies are not  advised to apply for Strategic Commissioning, they could be asked to apply for one year  deals or be funded on a project-by-project basis.

Andrew Dixon, the chief executive of Creative Scotland, told The Herald that the companies will know by April next year whether they should apply for project funding, yearly funding or be raised to the more stable Foundation Funding, so they “will know 12 months in advance where they stand”.

Flexible funded organisations will be asked to put forward their plans, their work to date, their future ambitions, details of their geographic delivery and a budget to Creative Scotland by the end of January in advance of a series of “conversations about their work,” he said.

Mr Dixon said: “We are moving to a new approach where we value these organisations within an investment portfolio. There will be Foundation organisations, and those we invest in annually – who are key to their sector – but the majority will be project companies and they will be able to do things on their own terms. They will be able to bid into our lottery and investment programmes, and we also hope they will be able to deliver some of our Strategic Commissions,” he said.

“There are some sectors that are feeling challenged by this. There will always be organisations who are concerned about change, or perhaps are not being realistic about the fact that there is change in public sector finance, and Creative Scotland come in as an organisation and is determined to be strategic and get value out of its investment.”

One concerned source said: “The biggest problem has been the lack of clarity. We do not know whether we will have to shift to project funding or any other kind of fund.”