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Scottish charities to lose out as major funder halts grantmaking

Governance | Gareth Jones | 14 Oct 2009

The Lloyds TSB Foundation for Scotland has closed its doors to new grant applications “for the foreseeable future” after it failed to reach agreement with its main benefactor, the Lloyds Banking Group, on future funding.

As part of the covenant between the two organisations, the Foundation receives 1 per cent of the Lloyds Banking Group’s pre-tax profits per annum, but as the Group is predicting losses this year the Foundation would not receive anything under this arrangement.

In negotiations taking place over the past nine months, the Foundation says it was offered funding for the next four years as assistance until the Group returns to profit, but only in return for a future reduction of the covenant to a 0.5 per cent share of profits and a revocation of the Foundation’s independent status.

“Unfortunately,” said Mary Craig, chief executive of the Foundation, “as we remain uncertain as to when we will next receive sufficient money under the terms of our covenant to enable us to continue our grantmaking activities, we felt we couldn’t leave it any longer to alert charities to what is happening, as this is as much about their future as it is ours.

“Our board is required to work in the best interests of the Foundation, not just now but also for the longer-term. As the Lloyds Banking Group’s offer stands, our legal and financial advisers have informed us that what has been offered is not in the best interests of the Foundation and that trustees should therefore not agree to this.

“As the Group has signalled that it has money it can make available to the Foundation, our preferred option is to take that, effectively as an advance, and arrange to pay it back over time.

“That would be possible, if the Group forecasts for future profit increases are achieved, without affecting the funds available for charities. It would also leave the current covenant untouched and our independence intact.”

Group denies independence threat

In a statement, the Lloyds Banking Group said it was “disappointed” that the Scottish Foundation had declined “a number of invitations” to attend collective talks with Lloyds TSB's three other regional foundations, and denied that it wished to have control of grantmaking decisions.

“Our intention is to agree with all four Foundations a mutually satisfactory accommodation which is realistic, fair and durable.

“Dialogue with the England & Wales, Northern Ireland and the Channel Islands Foundations is ongoing.

“Those negotiations are about agreeing a proposal which guarantees the Foundations significant funding in the short term and a durable and lasting financial settlement, with their independent status remaining very much in place.”

Scottish charities to miss out

Hundreds of Scottish charities are set to miss out on at least £6m a year as a result of the decision, though the Foundation plans to fully honour its existing commitments to charities and will make final awards in December as planned.

The Foundation has made over 12,000 awards totalling nearly £85m since its establishment in 1985.

The Scottish Council for Voluntary Organisations (SCVO) said it was “seriously concerned” by the announcement.

“This is terrible news”, said Lucy McTernan, deputy chief executive of SCVO, “which comes at a time when the voluntary sector and charities in Scotland are already experiencing huge funding squeezes such as the loss of cash to the London Olympics and reduced access to European Structural Fund money.  Many organisations are struggling to meet the demand for their services which is growing due to the impact of the recession.

“Independent sources of funding, and the progressive approach of the Lloyds TSB Foundation are extremely valuable for voluntary organisations as they are often much more flexible than funding from other sources.

“The Lloyds Banking Group move to curtail this important independent foundation is wholly unacceptable, not least as it is now a bank which is almost half-owned by the taxpayer.”

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