CELEBRATORY Olympic rhetoric obscures the fact that statutory funding for grassroots sport is falling, claims the Directory of Social Change.

This organisation is coincidentally reiterating our long-expressed view that the Treasury is rapacious, misusing the National Lottery and treating it as a cash cow. As we have written, their intervention has caused sport to receive far less than originally intended, and diverts lottery funds to support projects which are the responsibility of central government.

DSC is on the offensive, demanding the Treasury repay £425m raided from the Big Lottery. It's 100 days since they say this fell due.

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Far from delivering the Olympic surplus (the unspent part of the £9.3bn Games budget), the Treasury has pocketed it, as confirmed last month in the Department of Culture Media and Sport's final quarterly Olympic report.

In 2007, the government took £675m of lottery revenue to help bridge the Olympic shortfall. Of this, £425m should have been distributed by the Big Lottery. That's the heart of the DSC campaign. A further £213m already taken from the Big Lottery to support the original Games budget meant they were the biggest single contributor from general lottery revenues, despite actually having nothing to do with elite sport.

The decision to divert that £675m was criticised both by charities and in Parliament, including members of the present government. Olympics minister Tessa Jowell told the Commons the government had agreed a memorandum of understanding to the effect that lottery distributors, "will be re-paid, providing them and the whole country with a further 2012 dividend."

DSC is an independent charity established in 1974. It aims to challenge and create debate around government policy, trust funding, and issues which threaten the independence of smaller charities. They say 10,000 UK charities, many sport-related, have lost out by virtue of the Treasury grab. They suspect additional raids, and despite several FOI requests, the picture remains confused.

DSC's latest, slightly scatter-gun release, risks missing their primary target – the missing £425m. It drew attention to 102 organisations in their guide to sports funding. Of these, 89 are charitable trusts and foundations, seven are statutory, and six are corporate. They claim central government expenditure on sport has fallen while even taking a pop at Lord Coe, because a charity in his name had made no grant awards in three years.

The Sebastian Coe Charitable Foundation aims to provide funds for the relief of poverty, distress, sickness, protection of health, advancement of education, and promote community participation in healthy recreation through sport.

"Seb has had rather a lot to focus on in the past few years," said fellow-trustee Rakesh Patel yesterday. The charity was established in 2006, before London won the Olympic bid and before Coe became chair of the organising committee. "He has been unable to focus on the foundation because of the Olympics," said Patel, pointing out: "Its sole income is Lord's Coe's own personal money, from public-speaking engagements – not donations."

He said the future direction of the charity is on their agenda.

We – and DSC – would do better to focus on the government's millions. The fact is they make a fortune from sport and recreation. Annual UK sport spending is £17bn – almost double the cost of the 2012 Olympics. The annual VAT revenue on that alone would pay for 30 arenas like Glasgow's new indoor facility. Indeed, sport VAT revenue will pay the whole 2012 cost in less than three years.

In government terms, £425m is chickenfeed. It ill behooves expense-fiddling public servants to divert money we have contributed (on which tax has already been paid) from the lottery. Especially after the promises of recompense.

DSC claims that central government sport expenditure has fallen are flatly denied by both UKS and DCMS – not altogether convincingly, given the weight of evidence.

A DCMS spokesman insisted last night that the government's lottery reforms: "more than offset the reduction in Exchequer funding for sport that was needed to help reduce the deficit . . . an extra £500m of lottery cash will go into the sector – both grassroots and the elite – over the next five years."

DCMS confirm an unspent contingency of £377m will stay with the Exchequer, but acknowledge lottery distributors are entitled to: "£675m in receipts from the sale of the land on the Olympic Park, over £69m from the Olympic village sale, while any funds remaining in the Olympic Lottery Distribution Fund after the Games will also go to them."

However, the government timescale for this is by 2031. Sport, and charities, need this money now. They're sceptical of promises kept by any government two decades from now, never mind how much £675m might be then worth.

And another thing . . .

The identity crisis which has dogged Scotland's former world squash champion Peter Nicol continues, apparently.

Inverurie-born Nicol, who surrendered Scottish allegiance after discovering he would be better resourced if he were representing England, has just been elected honorary president of England Squash & Racketball at 39.

Nicol wore the kilt and was piped on court when he won Commonwealth gold for Scotland in Kuala Lumpur in 1998. He won the world title the following year, but in 2001 switched to England, claiming there was insufficient support from the Scottish governing body.

"I'm confident that we can continue to grow the game and excel on the world stage," said Nicol on his new appointment. We trust he will be closely observed to ensure he doesn't attempt to "grow" it by offering English shillings to his former compatriots.