Charities that have lost funds in the Icelandic banking crash will not receive any direct financial assistance from the government, third sector minister Kevin Brennan has said.

Brennan delivered the bad news to children’s hospice Naomi House, who has formed an action group with Cats Protection to fight on behalf of 25 charities for the return of around £50m collectively.

The action group, named Save our Savings (SOS), met Brennan earlier this month to push their case for compensation.

Ray Kipling, chief executive of Naomi House Children’s Hospice, said the meeting went well with Brennan promising to talk to Treasury ministers on behalf of the charities.

Government 'cannot support individual charities'

However, any hope of government compensation has been quashed following a letter from Brennan to Naomi House this week.

In it, Brennan said: “The impact of the recession on the third sector is a concern across government. We cannot target individual organisations for support. I am sorry I have not been able to offer you any form of direct financial assistance.”

Professor Khalid Aziz (pictured), chairman of Naomi House, said he was “shocked” by the outcome. “The government could prevent this, after all our £5.7m is a tiny sum in comparison to the billions the government has found to bail out other sectors.

“We will continue to work to recover our funds as quickly as possible, but this is a major setback in our fight.”

The hospice still hopes to recover its cash through administration, but has warned that it could take “years rather than months”.