The media has spent a lot of time last week reporting the financial aspects of charities – first the UK government turned down the recommendation of its own select committee to compensate charities that lost money in last year’s Icelandic banking crash, then it was claimed that high street banks were ripping charities off by about £20million a year before the charity industry received a bit of good news when the Big Lottery Fund pledged to provide more money.

Last October’s bank crash in Iceland led to around £230million being lost by voluntary organisations. However, despite recommendations to the contrary, the treasury has decided not to help out any charities that have been caught out by the financial chaos.

The reasoning was that it would set an unrealistic precedent for other not-for-profit organisations such as councils and universities.

A treasury statement said: “Government cannot treat charities any differently to other creditors of the failed Icelandic banks that are not eligible to claim compensation under the FSCS [Financial Services Compensation Scheme].”

Bank troubles have extended to the UK now, where CAF Bank, part of Charities Aid Foundation, has claimed that high street banks are earning £20million in unfair fees imposed on charities.

Nirjay Mahindru, chief executive of InterAct Reading Services, said: “Our banking needs are really modest. Our turnover is about £300,000 a year, and all we need is the ability to take money from donors and pay actors and others involved. We used to be with Barclays which started fine but increasingly they were charging us right, left and centre – including every statement and most transactions.”

InterAct Reading Services moved to CAF Bank recently and Mr Mahindru said: “It provides the same services but better. Barclays never managed to explain what they provided for the charges. We saved £150 a year in bank charges and we’re some £300 a year better off in interest earned. Add those two sums together means we can offer an additional 15 reading sessions a year without extra donations. And on top of that, there is an important ethical dimension.”

Making Music, a charity with a turnover of around £1million, previously banked with the Royal Bank of Scotland because it offered free banking but has since moved to CAF Bank.

Chief executive Robin Osterley said: “It was quite a good bank but it could not sustain its promise of free banking.

“I’m also the chair of the National Music Council which is far smaller with around £60,000 a year. Here I went to RBS from another bank due to the promise of free banking but then it imposed charges.”
“We don’t have the negotiating muscle of a big national charity so we are at the mercy of banks, but we’re now saving £3,000 a year in charges which enables us to improve services to members.”

High street banks continue to offer free accounts for charities and community organisations but with upper limits of around £50,000 to £100,000 of turnover per year, many charities – especially those paid staff – go well above this.

While charities are finding themselves overcharged and reeling from the Icelandic bank turmoil, with no help coming from the UK government, the Big Lottery Fund has promised a £43million kitty as well as boosting its current donation of 60% of its funds to 80% for voluntary and community groups.

Stuart Etherington, National Council for Voluntary Organisations’ chief executive, said: “The Big Lottery Fund has responded with positive action to the pressure the recession is placing on voluntary organisations. This funding will become even more critical in the coming years and we are delighted they have taken these steps.”

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