On the living room mantelpiece of Yinka Shonibare's house in east London sits another house. It is a scale, doll-sized model, although the décor - diminutive dining table and chairs, four-poster bed, and a framed print of an old master painting – differs from the real version, which Shonibare has filled with works by fellow artists. A painted sign by Bob and Roberta Smith hangs on one wall, alongside a work by Hew Locke – a sinister, floor-length photograph of what looks like a south-east Asian tribesman wielding an array of knives.  Shonibare has more in common with Locke than simply owning his work. Both artists are previous recipients of the Paul Hamlyn Foundation award for visual arts. The awards carry big money – currently £45,000, spread over three years – significant enough to change the lives of its recipients. Yet, compared with higher-profile, headline-grabbing prizes such as the Turner (this year's winners of which will be announced a week today), the Paul Hamlyn - named after the late publisher and philanthropist - is barely ever talked about outside the art world.  The awards were originally set up in 1994 to provide composers with enough cash to allow them to concentrate on developing their ideas over a three-year period. They were expanded in 1998 – the year Shonibare was a winner – to include those working in the visual arts. Since then, they have been awarded to some of the best-known artists around today, from Shonibare and Locke to Jeremy Deller, Gustav Metzger, Mike Nelson and Tomma Abts. The Turner, for which Shonibare was himself nominated in 2004, may exceed the Paul Hamlyn in terms of sheer, brassy glamour, but those who have benefited from the Paul Hamlyn are almost evangelical about its value to their career and confidence.  In 1998, Shonibare was working three days a week as a development officer for the disability arts organisation, Shape; the rest of his time was devoted to delivering a rapidly increasing number of commissions, and demands for shows. He felt, he says, "that it was a sort of catch-22 thing. If you still have a part-time job you can't really throw yourself in fully. While I liked the job, my art career was also building. So it was really hard - like pulling myself between the two things."  When he won the award, however, Shonibare was able to resign and concentrate on his art full-time. It was in the very fact of being able to stop worrying about money that, somewhat ironically, he began to make some. "Not only did the award give me confidence," he says, "it just took away the worry of money, because that can be very distracting. And actually, being able to switch to the [art] work then subsequently produced more money."  Performance artist Rose English, who won a Paul Hamlyn award the year after Shonibare, agrees. Her multidisciplinary work is difficult to quantify, which meant she had, she says, been finding it very difficult to secure funding – especially to work on ideas. Public funding tends to require the applicant to create a particular, tangible project (such as a stage show or exhibition), while an award such as the Turner retrospectively recognises a successful show or body of work; the aim of the Paul Hamlyn is to give the artist the breathing space to develop fresh ideas. "The fact that there were no strings attached was very valuable," English says. "There was no specific play or performance to get together."  English did, nonetheless, use the three years financed by the award both to stage a musical performance, Standing Room Only, in London (she had been planning it for years, but had not yet secured funding); and to research a longer-term project. Called Lost in Music, it's a performance piece using acrobatics, singing, fire, and, intriguingly, glass, and it will be produced and performed next year in China. "I was able to just batten down the hatches," English says of those three years, "and get on with it."  English also found her confidence boosted by the knowledge that other artists had been involved in making the decision, rather than the distant, grey-suited bureaucrats more readily associated with public funding. This year among the art world luminaries who helped to choose the shortlist were artist Rachel Whiteread, Serpentine director Hans Ulrich Oberst, and Whitechapel Gallery curator Anthony Spira. The winners are then chosen by a smaller team of judges (this year, the Guardian's Adrian Searle; Paul Hamlyn's daughter, gallery owner and chair of the foundation Jane Hamlyn; and Baltic director Godfrey Worsdale).  To win, therefore, is to gain a vote of confidence from the people whose opinion matters most – curators, gallerists and, most importantly, other artists. "To know that these people whose opinion I valued had actually chosen me," English says, "made me feel such a connection with them." Shonibare goes even further: "Paul Hamlyn has something that the Turner doesn't have … It has peer respect."  Where Hamlyn also differs from the Turner is in age criteria: the Turner is only open to artists under the age of 50, but artists of any age are eligible for the Paul Hamlyn. Gustav Metzger was 80 when he won the award in 2006; the film-maker and photographer Horace Ové was 69. The Trinidadian-born Ové is using his award to transfer his career-long archive of works between the Caribbean and the UK, and to focus on his photography (planned projects include a trip to Congo). "Winning the Paul Hamlyn has been very, very helpful to me," he says.  For Shonibare, there is nonetheless a tangible correlation, at least among the younger artists, between Paul Hamlyn winners and Turner prize nominees. "If you look up all the artists who've been nominated for the Turner in the last 10 years," he says, "you will find that prior to the Turner nomination, a lot of them actually received the Paul Hamlyn." So did Shonibare actually find winning the Paul Hamlyn as significant as being nominated for the Turner? "They're two very different things," he says tactfully. "Paul Hamlyn is very low-key; it's very discreet, publicity-wise. You have to have really thick skin when you do the Turner, because people will just hurl abuse at you from every corner. Even cab drivers have an opinion. You wouldn't get into a cab and find the driver discussing the Paul Hamlyn."  Although Shonibare won the popular vote at the time of his nomination (64% of visitors to the BBC website said they wanted him to win), he says he still suffered his fair share of abuse. "The Turner is great," he says, "but it has all other kinds of agendas attached to it. It's more about popular culture, more about the media opportunity to dislike contemporary art. The press love to rubbish art - with the Turner they do it every year. The Paul Hamlyn doesn't get into any of that. It's a serious award. It's not being dragged into the gutter."  • This article was amended on Tuesday November 25 2008. We confused Paul Hamlyn's daughter Jane with the potter Jane Hamlyn. This has been corrected.
The glamorous Turner prize may catapult artists into the spotlight, but the Paul Hamlyn award is equally life-changing. Laura Barnett talks to former winners