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Sector turns Iceland spotlight on local authorities

Finance | Tania Mason | 22 Oct 2008

Local authorities that have lost up to £1bn in failed Icelandic banks should not be allowed to claw back their losses by cutting payments to charities, sector umbrella bodies warned this week.

Acevo has written to the Local Government Association saying: “It would be a disaster if at precisely the moment where the sector’s services are needed most, local authorities sought to reduce their spending by cutting back on grants and contracts with local groups.”

Instead of cutting grants to small organisations, acevo said, local authorities and voluntary groups should be working together to chart a “partnership approach” going forward. “We are launching discussions with the LGA on how to promote that approach,” it added.

Risk-averse culture

Bassac, the Development Trusts Association and Community Matters all urged the government to protect charities from “the spiralling effects” of the lost Icelandic bank deposits.

They warned that local authorities - already struggling with 5 per cent inflation when their budgets were based on 2 per cent - could decide against large investment portfolios as a way of generating cash and instead cut back services to meet the shortfall. They added that a “culture of risk-averse investment is likely to increase” – a further blow for voluntary sector service providers.

NCVO takes a different tack

The NCVO plied a different line in the latest chapter of the debate, lobbying the government to back amendments to two bills currently going through parliament, in order to “give the sector a boost”.

It said charities should be made exempt from the Community Infrastructure Levy in the Planning Bill so they would not have to pay tax on the proposed development of land, and reiterated its previous call that the Dormant Accounts Bill be changed to give the government a reserve power to force banks to hand forgotten monies over to the sector if they prove unwilling to do so voluntarily.

NCVO chief executive Stuart Etherington, described in the NCVO’s statement as the “leading voluntary and community sector leader”, said these two moves would “give the sector an assurance that the government understands the pressures we face”.

Charity Bank promotes its loans

Meanwhile, Charity Bank has written to the leaders of NCVO, acevo, Charity Finance Directors’ Group and the Charity Commission reminding them that charities struggling as a result of the Iceland situation might be able to benefit from a short-term working capital loan.

However, it added it would still have to carry out the normal due diligence.

By the end of September this year, Charity Bank had received almost 600 loan enquiries – 17 per cent more than a year ago – with a value of £128m, 34 per cent up on last year.

Charities reluctant to admit to Iceland deposits

Although Iceland bank Kaupthing Singer and Friedlander (KSF) has said that 99 UK charities have £230m invested in it, few charities have publicly admitted they are affected. The NCVO refused to say how many charities have come forward in response to its appeal, while the Charity Commission said it was "still collating figures" for its appeal.

Naomi House children’s hospice is one charity that has come clean about its Iceland deposits – it has £5.7m tied up in KSF. It still went ahead and opened its new £12m hospice for over-18s last week, and said services were not jeopardised, but admitted its finances would be “stretched” if the deposits were lost and not protected under the government’s compensation scheme.

Head of communications Tina Lillington said that because KSF was in administration, it would be another eight weeks or so before the charity knows whether its money will be returned.

“We are doing everything we can to pressure government so that they do make us a special case, but we have no further word about that yet,” she said.

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