Of all the things currently described as being “in crisis” – the NHS, the White House, Britain’s hedgehog population – literary fiction might not rank highly in terms of public alarm. But a dramatic report published by Arts Council England (ACE) in December has raised the spectre of the highbrow novelist as an endangered species – and started a combative debate about how, if at all, writers should be funded.

The study claims falling book prices, sales and advances mean that literary authors are struggling more than ever to make a living from their fiction. In today’s market, selling 3,000 copies of your novel is not unrespectable – but factor in the average hardback price of £10.12 and the retailer’s 50 per cent cut, and just £15,000 remains to share between publisher, agent and author. No wonder that the percentage of authors earning a full-time living solely from writing dropped from 40 per cent in 2005 to 11.5 per cent in 2013. To avoid novel-writing becoming a pursuit reserved for those with independent means, ACE suggests emergency intervention: direct grants for authors and better funding for independent publishers and other organisations.

Tim Lott scorned these proposals in the Guardian, arguing that “literary” authors must “write better books” – that is, books with strong stories. “My impression of literary fiction,” Lott wrote, citing Eimear McBride’s A Girl Is a Half-Formed Thing, “is that it has lost the plot. Literally.” In 2013 McBride won the first Goldsmiths Prize, co-founded with the NS to reward authors taking the sorts of risks with form and language that Lott so objects to. The prize’s most recent winner, Nicola Barker, tells me over email that “what Tim probably doesn’t fully appreciate is how the creative milieu, as an organism, works”.

“Experimental novelists and artists provide the ideas that form a cultural plankton for bigger organisms to feast upon,” she continues. “Our ideas gradually filter through to the mainstream.” Barker, however, does not believe that literary fiction is “in crisis”. If anything, she argues, struggle is good for writers: “Working against the grain sharpens things…I refuse to accept the idea of art in terms of the market. Art isn’t capitalism.”

Books do still have monetary value – just about. On the phone from Oxford, Philip Pullman cites the analogy of the music business: “We’ve allowed ourselves to be tricked that music is free – that’s an extraordinary argument for exploitation on a grand scale.” The discounting of books, he says, is a “great evil” unleashed 20 years ago with the abolition of the Net Book Agreement and its fixed minimum prices. Pullman, president of the Society of Authors, also points out that the loss of libraries (more than 100 branches closed in 2017) is harming writers who in better days “would have sold 1,500, maybe 2,000 copies to libraries as a matter of course”.

It is the “midlist” authors – once supported by publishers despite modest sales – who are most vulnerable, especially when it comes to advances. Nicola Solomon, chief executive of the Society of Authors, tells me of a writer who had an advance of £60,000 for her last book and is being offered £6,000 for her new one – a not unrepresentative slump. The ACE report points out, though, that profits at major publishers are up. “Publishers are taking too much of a share,” says Solomon. “There is not enough investment in authors, or in diversity.” As she and others suggest, if future writers don’t see themselves reflected – in terms of class, ethnicity and so on – in books then our literary gene pool will become worryingly narrow.

How many of these problems can be solved by subsidy? Though not against the principle, those I spoke to seemed sceptical about the focus on “literary” writers and the idea of direct funding. “The picture is very complicated,” says Pullman, “and we need to look at the whole of it rather than just asking what are we going to do about poor writers who can’t get nominated for the Booker Prize”. Barker is “phlegmatic” about the status quo: “Most of us just live hand-to-mouth. We are no different from good potters or violin players or embroiderers.”