Birmingham Opera Company is doing exactly what a new Government-backed report into the future of the arts in Britain recommends, supporters said last night.

The Arts Council has threatened to withdraw £324,000 funding from the Birmingham Opera Company, saying it has misgivings about the "project based" nature of its work.

The highly-praised body is regarded as an innovator in community involvement, getting people who have little experience of the medium both to participate in and attend productions.

The Arts Council's decision came in for fresh criticism yesterday following the publication of the McMaster report into how public funds should be used to support the arts. It calls for the ten most "innovative cultural companies" to receive long-term ten-year funding packages to encourage them to take risks. The report by Sir Brian McMaster says: "The desire and ability to innovate and the willingness to take risks is fundamental for any organisation striving to be excellent.

"Boards of cultural organisations must therefore be the custodians of innovation and risk-taking."

Endorsing the report, Culture Secretary James Purnell described it as a "positive and exciting contribution to the future of arts and culture in the UK".

Opera lover and former West Midlands Arts board member John Mostyn claimed the report showed the Arts Council was out of touch.

"The Birmingham Opera Company does truly innovative stuff. It has incredible community involvement.

"The Arts Council is using views that are outdated, particularly now the McMaster report has come out which has been endorsed by the Government.

"On one level we have a Government department saying this is what we are looking for and the Arts Council saying this is what it's not funding. Lets have a bit of joined-up thinking here." The Arts Council plans to axe funding from the Birmingham Opera Company due to concerns over its financial state and the vulnerability of its "non-fixed site project" based work.

The company's general manager Jean Nicholson criticised the decision earlier this week, claiming it flew in the face of a report by the Arts Council praising it as a "prime example" of how arts organisations should be structured.

The Arts Council was not available for comment last night.

It was dealt a further blow on Wednesday after hundreds of actors and directors issued a vote of no confidence in it.

Those speaking out against the funding body's cutbacks included Oscar-winning star Kevin Spacey and British actor Sir Ian McKellen.

The McMaster report, Supporting Excellence in the Arts - From Measurement to Judgment, calls for a national week of free access to publicly-funded art to widen participation. It claims such a move would have a similar impact as has making museums and galleries such as the Tate Modern free to the public.

Mr McMaster, a former director of the Edinburgh International Festival, also recommends every publicly-funded organisation in the arts should include at least two artists and practitioners.

He claimed Britain could be on the verge of a "new Renaissance" comparable with that in 15th century Italy. "British society today is, I believe, the most exciting there has ever been," he said. It has the potential to create the greatest art ever produced. We could even be on the verge of another Renaissance. So we should do all we can to make this happen. That means recognising the profound value of art and culture in itself.

"I have found a hunger in the cultural sector for public funding to be more ambitious, and to lift the pressures that favour financial and artistic safety."