Arts organisations and museums in England are being warned they will lose public funding unless they meet “stretching” targets to create and attract more diverse workforces and audiences.

An annual report from Arts Council England (ACE) paints what its chair, Sir Nicholas Serota, called “a disappointing picture” when it comes to diversity, a year after he said many organisations were “treading water”.

Just 11% of workers in England’s national portfolio organisations, which include galleries, theatres, orchestras, dance companies and museums, are from black and other minority ethnic backgrounds. That compares with 16% of the working-age population.

In London the figure is 15%, near the national average but well short of the capital’s overall workforce figure of more than 40%.

When it comes to disability, only 6% of people in the arts workforce identify as disabled, compared with 21% of the wider working population. Abid Hussain, ACE’s director of diversity, said there had to be “significant improvement” in these two areas.

ACE has been publishing diversity data for five years but has often been accused of merely talking instead of taking strong action. The language this year is significantly more robust. Hussain said organisations would have to start setting “stretching” diversity targets, to be agreed with the council, and if these were not met they could lose public money.

“The pace of change has been too slow,” he said. “Certain communities are significantly under-represented and we need to change that. We need to be very clear: if organisations are not delivering, they could lose their funding. There has been a lot of development support for organisations to get to grips with the challenges. We are moving to a point where targets are going to be set and if organisations are not delivering or meeting targets there will be implications and repercussions.”

Details of the targets are expected to be revealed in April and they are as likely to be as challenging for big arts organisations as for small ones. Hussain said: “My frustration is that we have seen a very slow pace of change in the larger organisations that receive funding. We have to see a higher level of expectation to make sure they are reflecting the diversity of their local communities.”

The diversity report contains statistics on all aspects of diversity in the sector. On gender, the report shows 47% of the workforce is female and that 52% of national portfolio organisations are run by female chief executives. Forty-five per cent of artistic directors and 40% of chairs are women.

There is also a breakdown of data geographically and by art form. The report shows that dance has the highest proportion of BME employees, at 18%, and the lowest proportion of disabled workers (3%). Museums have the lowest BME workforce at 6%.

The report says women make up at least 32% of the workforce in music and men 41%, with 6% identifying as non-binary and the rest of the respondents preferring not to say. The Midlands has the lowest proportion of staff who define as LGBT (4%) and London has the highest (8%).

All arts organisations are required to integrate diversity into programming in order to get funding. In 2018 ACE introduced a four-point scale measuring their success, ranging from “not met” to “outstanding”.

For the first time ACE is publishing individual ratings in the report. “Not met” accounts for 1% of the portfolio and includes the British Youth Opera, London International Mime Festival, the National Horseracing Museum and the National Youth Jazz Orchestra.

The Royal Opera House, which receives one of the largest sums of annual public funding – £24m – got a “met” rating. Among its workforce, 11% are BME and 3% disabled.

Five per cent of organisations had an outstanding rating, including Graeae Theatre Company, Midlands Arts Centre, Paraorchestra and Friends, and Rich Mix Cultural Centre.

ACE’s measuring of diversity data will become more detailed when this year it begins monitoring the socio-economic background of employees.

Serota said there had been progress over the years “but we must now all act with greater determination to remove the persistent inequalities in our boards, our workforce and our audiences that are holding back opportunity and achievement in our sector.”

Chi-chi Nwanoku, the founder and artistic director of Europe’s first BME-majority orchestra, said national portfolio organisations had a responsibility to get diversity right. “It comes down to the fundamentals like recruitment and commissioning new work, as well as participation. Who are these arts leaders talking to? Are they going to these so-called hard to reach communities?

“The scrutiny on diversity is greater than it ever was. There is increasing transparency and perhaps now that the stakes are higher, with the possibility of funding cuts, the pressure will be on to deliver on their promises of inclusion.”