Newcastle City Council is starting up a £600,000 arts fund for its theatres and arts organisations to apply to.
It comes after the council proposed to cut more than one million pounds of its arts funding in its last budget.
The Deputy Prime Minister Nick Clegg accused the council of playing politics with its decisions, but today the council said the decision made financial sense.
Councillor Nick Forbes said the money was coming from alternative revenue streams which were safe from cuts.
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