The government will not compensate charities which have lost deposits in Iceland as it would hinder the support for other charities struggling through the recession.
The move is a snub to the Treasury Select Committee who recommended full compensation for charities affected by the Icelandic banking crash, as well as better clarification on the protection available for charities under the Financial Services Compensation Scheme (FSCS) and a look at the classification of charities as retail or wholesale depositors under the FSCS.
In an official response to the Committee, the government said compensating the Icelandic bank charities would be at the expense of providing support to charities more broadly during the downturn.
Unrealistic precedent
It also said could not treat charities any differently from the other creditors of the failed Icelandic banks that are not eligible to claim compensation under the FSCS:
“There would be an unrealistic precedent set if we were seen to be making a special exemption for charities, as many other not-for-profit bodies such as police authorities, councils and universities have been affected in a similar way and could lead them to having a legitimate expectation that they too would be compensated.”
The report added that the Committee’s argument that charities often provided the most vulnerable with support could equally apply to local authorities or other providers of public services.
On the subject of the FSCS, the government said it was a matter for the Financial Services Authority (FSA), not the Treasury or the FSCS.
“The third sector is an independent sector. As such it is not the role of government to provide the sector with financial advice. We feel that the current statutory guidance already provided is appropriate.”
Many charities got caught out as they did not realise they were not eligible for compensation under the FSCS scheme.
"Inconsistencies in government approach"
Action group Save our Savings (SOS), which represents 30 charities that lost funds deposited in Iceland has threatened legal action against the decision and accused the government of inconsistency for refunding Christie Hospital via NHS North West.
Professor Khalid Aziz, co-Chairman of SOS and chairman of Naomi House, said: “I am thoroughly disgusted with the Government’s refusal to do the right thing. Once again it is charities, who rely on publicly donated money, who are left high and dry.
“Just last week we heard that the Christie Hospital in Manchester is to receive compensation via NHS North West, following contact with Downing Street and submission of a petition to Number 10. Whilst we are pleased for the Christie, I feel this raises serious questions as to whether the Government has acted in an even-handed way in its approach to compensation. We have been left with little option but to contemplate legal action on the many inconsistencies and inequities in the Government’s approach to compensation.”
