This is a job for the Arts Council

It has staged some of the most critically acclaimed productions in the country; most of them have sold out. It is run by the wunderkind of British theatre. It is the only studio theatre in the West End; it is in crisis. Never look for logic in arts funding. Certainly, you will find none in the threatened demise of the Donmar Warehouse.

Theatre closure threats are not uncommon. From the RSC downwards most of them, at one time or another, have warned of that most final of final curtains. But every once in a while comes a case so outrageous that it has the power to shock. The Donmar Warehouse is such a case.

Its owners, Maybox, and its principal sponsors, Carlton Television, are unwilling to continue funding productions after March. The theatre needs support of pounds 400,000 a year or it will shut down. The artistic director Sam Mendes and administrator Caro Newling do not believe they have a cat in hell's chance of getting pounds 400,000 a year from commercial sponsorship and are now trying to win public funding to stay afloat.

Are there any economics as mad as the economics of theatre? Nine of the Donmar's productions in its three-year life have sold out; but even playing to 85 per cent of capacity with pounds 140,000 sponsorship, break-even was the best that could be achieved. This year there will be a deficit of pounds 130,000.

The right to fail has become a catchphrase in the arts. But just as important is the right to succeed. For the Donmar, the bold experiment of a commercial 250-seat theatre with no public funding has, financially at least, failed.

Sam Mendes is a brilliant young director, and for my money the man most likely to succeed Richard Eyre at the National Theatre. His youth is significant. When the country has such a talented 32-year-old, there is surely some sort of obligation to nurture him with cash. Yet our arts funding system has never funded individuals in the theatre, only companies or buildings.

It is clearly time for the Arts Council to step in. Mendes has approached the London Arts Board, but it has already said that it is unlikely to be able to help. There is, I believe, a better way. The Arts Council must see it as a duty to support the man and the theatre that have brought such critical successes as Cabaret and The Glass Menagerie. It should take a pride in helping to develop Mendes's talent. But it should do so through a special fund, one that does not yet exist.

I would like to see a fund for centres of excellence. Places that have proved their worth and are producing excellent work - places such as the Donmar Warehouse under Mendes or the West Yorkshire Playhouse under Jude Kelly - should be promised funding for at least three years and be able to plan accordingly. When the talents at the top leave, the rating would have to be reassessed. In this way our brightest talents would be assured of support.

Lastly I would remind Mendes that the committee he will surely have to apply to for funding, the Arts Council drama panel, numbers among its members one Sam Mendes. To avoid a conflict of interests, he should resign. Then it can get on with the urgent business of giving him some money.