A PLAN to transform York’s Guildhall into a digital media arts centre will be re-examined, as it emerged the scheme was turned down for £4 million of lottery cash.

The project got the go-ahead for the next step at a council cabinet meeting on Tuesday night, but Liberal Democrat members have now sparked a fresh look at the scheme.

Under proposals rubber-stamped by the cabinet, the council will spend £500,000 to develop the project, but there is still £1.7 million of the total money needed to be found plus £4.6 million in borrowing.

Councillor Andrew Waller, the Liberal Democrats’ spokesperson for finance and performance, said: “It is astonishing that the Labour cabinet has brought forward these proposals without a proper business case which shows how the council hopes to get a return on its investment to justify the spending.

“If this plan proceeds, York taxpayers will be asked to underwrite £9 million of risk on the project. As well as a huge upfront capital cost the plans would greatly increase the council’s long-term borrowing commitments, a burden which has already increased under Labour. The report passed presents no evidence that other options for the Guildhall have been properly considered, that this is the right location for the use being proposed or that the private sector will take on any of the risk of this project.”

It has now emerged that a £4.1 million grant bid to the Heritage Lottery Fund was turned down this summer.

An early report on the Guildhall project, dated July 2013, shows that the council was then hoping for major funding from the fund, but papers considered on Tuesday instead outline a budget including £4.6 million in borrowing, and shortfall of £1.7 million, as well as further cash from the Economic Infrastructure Fund, and £350,000 from council capital funds.

A council spokesman said that the lottery knock-back caused them to reconsider the scheme and come up with the £9.2 million project instead of an earlier £12.5 million scheme, and staff could still reapply for the HLF funds. But the Lib Dem opposition councillors say there was simply not enough evidence on income to justify the vast council spending and they have called in the decision for review by a cross-party scrutiny meeting in January.

The council leader, Cllr Dafyd Williams, said: “Unfortunately the Liberal Democrats seem to have misunderstood this matter and I am keen to work with them so that we can help to secure the future of this exciting project to create new highly paid jobs and secure the future of York’s historic Guildhall. We will be spending the next 12 months working on the detailed proposals and detailed business case and we have not committed to spending the £9.2 million on the project nor will we do so until the detailed case has been compiled.”