The Northern Rock Foundation will close after it failed to reach a funding agreement with Virgin Money, the new owner of the Northern Rock bank.

In a statement the grantmaker said that closure “is now inevitable” because it was funded solely by a grant from the bank and trustees will now begin winding up the charity.

Alistair Balls, chairman of the Foundation, said: “It is very disappointing after such extensive discussions to have to accept that Virgin Money will not commit to fund the Foundation in the future. Trustees are keen to ensure that our remaining funds are used to achieve significant benefit in the North East and Cumbria and we will announce our plans later this year.”

Last month it was awarded £1m from Virgin Money and expects to spend £7m on projects throughout 2014.

The Foundation was established in 1997 when the Northern Rock Building Society demutualised and until the bank collapsed in 2007 it donated 5 per cent of its pre-tax profit to the Foundation. Between 2008 and 2010, while the bank was under public ownership, the Foundation received £15m per year.

As part of the sale of Northern Rock Plc to Virgin Money in 2011 the new owner agreed to donate 1 per cent of the bank’s pre-tax profits to the Foundation until the end of 2013.

Accounts filed with the Charity Commission show that for the financial years ending December 2011 and December 2012 the Foundation had an income of less than £500,000. The three previous years its income had been more than £15m.

Jo Barnett, head of social enterprise at Virgin Money said: “The Northern Rock Foundation has contributed to some fantastic work here in the North East and Cumbrian regions for many years and we have been proud to support them with £1.5m of donations over the last two years. We have tried hard to find a way to continue working together on programmes that would deliver significant benefit to the region, however we have not been able to agree a way forward.

“We are very proud of Virgin Money's broad community programme, both on a regional and national basis, including Virgin Money Giving, our not-for-profit fundraising website, which has now helped fundraisers raise over £250m for charity since its launch. We will continue to support the North East community strongly in a variety of ways and look forward to establishing new partnerships to deliver a range of exciting new projects.”

Huge loss for the sector

The Northern Rock Foundation is the largest independent grantmaker in the North East and following the announcement charities, grantmakers and politicians expressed their disappointment.

Jo Curry, chief executive of Voluntary Organisations Network North East said: “It’s a sad day for charities and community groups in the North East and Cumbria.  Seven years ago the Northern Rock Foundation had a grants pot of around £25m per year, so if you weren’t funded by NRF you knew someone who was.  

“While there is no cause for panic as we understand that all money planned to be given in grants up to March 2015 is still allocated, the loss of the Foundation will be heavily felt by the charity sector."

She also praised the Foundation for being a “really intelligent funder” and added: “It is important that we all pull together now. National funders must look at need and deprivation first, they must fund beyond their comfort zones, and they should learn from NRF and Lloyds Foundation by looking to fund core costs, salaries and multi-year grants. National government must stop talking about loans and reboot their approach to Big Society.”

As the news broke people took to Twitter to express their disappointment.

Martin Evans, chief executive of the Carnegie Trust tweeted that the closure is a “great loss of a progressive foundation” and Nick Forbes, the Labour leader of Newcastle City Council said: “Very disappointed to hear the Northern Rock Foundation is being wound up.”