Vanishing Zurbarans and a holy black hole

Peter McGill reports on the financial crisis in the Church of England

Passions boil over at the Castlegate café in Bishop Auckland, Co Durham, when anyone mentions the 12 paintings by the 17th-century Spanish artist Francisco de Zurbaran housed in the episcopal residence across the street. The Church of England has decided to sell the masterpieces, which depict the founders of the tribes of Israel, to bolster its finances and save on the £60,000 a year it costs to insure them. They could be worth as much as £10m.

"It's absolutely disgusting they're being removed," says Glynis Harrison, who owns the café. "Why should we lose part of our heritage?''

Established by Henry VIII in 1534 after his break with Rome, the CofE is now facing a 21st-century financial crisis. The losses it made speculating on the property market in the 1980s have been compounded by stock market falls in the past few years. The 43 dioceses run by England's bishops are battling pension costs and shrinking congregations. The London diocese has said it is at risk of bank-ruptcy within a decade; it is to hold a crisis synod this month.

Membership of the CofE has fallen by two-thirds since 1930 to 1.35 million. Meanwhile, the row over the ordination in the United States of an openly gay man, Canon Gene Robinson, as Bishop of New Hampshire threatens to split the Anglican Church, which has 77 million members worldwide.

A survey published recently by the Church Times suggests that half of the CofE's dioceses are running deficits. The church was paying 9,352 full-time and 214 part-time members of the clergy as of 2001, when there were 12,232 retired clergy and widows. In the same year, its operating costs were running at more than £825m, about a seventh of which was funded by the church's asset managers, known as commissioners, from returns on its property and stock portfolio. That compares with operating costs in 1992 of £600m, a quarter of it funded by the church commissioners, according to a report in the Financial Times.

In the early 1990s it was revealed that the church commissioners had lost £640m in the property market. This included a failed investment in agricultural land near Ashford station in Kent, a major interchange for the Channel Tunnel Rail Link, where the expected commercial development never materialised. Last year, the value of the church's main investment portfolio dropped to £3.5bn after more than £1bn was lost in equities in two years.

Its shrinking capital prompted the church to cap the pension obligations of the com- missioners. Each diocese took responsibility for the pensions of its serving clergymen and women; financial support for salaries, or stipends, was limited to the neediest of areas.

In a letter to his 412 pa- rishes, the Bishop of London, Richard Chartres, recently warned that the budget deficit of the diocese, which covers the northern part of the capital and is home to St Paul's Cathedral and Westminster Abbey, may double to £1m this year. The diocese receives no help from the church commissioners in paying pensions or stipends to its 465 clergy. Representatives of the area meet next month to decide how to respond to the ballooning costs.

"The crisis, in my view, has now reached an acute form,'' says David Jenkins, who was Bishop of Durham from 1984 to 1994. "If it were any form of ordinary institution, it would be on the verge of bankruptcy.''

But the CofE is no ordinary institution. It owns 16,000 churches and 42 cathedrals, while its inherited estates, many of them dating back to Henry VIII's Dissolution of the Monasteries, make it one of the country's largest landowners. The archbishops and 24 senior bishops sit in the House of Lords. Despite this wealth and influence, a shortage of cash has forced the church commissioners to be as dispassionate as possible about what assets can be sold - hence the sale of the Zurbaran paintings in Bishop Auckland.

"My duty is to prudently manage the assets of the church,'' says Andreas Whittam Smith, founder of The Independent and The Independent on Sunday, who was appointed First Church Estates Commissioner last year by the Queen. "To me, the paintings are an asset, that's all, which we must maximise.''

Prices for individual Zurbarans range from about $250,000 (£147,000) to the $2.09m paid for St Dorothea at Christie's in New York in 1998. Jose Antonio de Urbina of the Caylus Anticuario gallery in Madrid, which specialises in Spanish Old Masters, says the paintings in Bishop Auckland are especially valuable because they are the most complete set of Zurbarans around. The church has yet to decide on the timing or conditions for the sale.

Mr Whittam Smith, whose father was a parish priest, says the commissioners have put the "foolish decisions" of the past behind them, and that returns on equities have exceeded the market average by 1 per cent to 2 per cent. He is now pushing the church to set clearer priorities for the £62m the commissioners make available each year after funding clergy pensions.

But critics say such measures are too little too late. Spending on bishops has increased as their numbers have grown. In 2001 the church employed 65 suffragans, or subordinate bishops, whereas a century earlier there were only nine. The commissioners' spending on bishops has risen 50 per cent over the last decade to £17.2m last year, according to a report commissioned by the archbishops. That doesn't include housing for the suffragans, which is paid for by each diocese.

Seven bishops employed full-time drivers last year and 27 had part-time drivers, at a cost of £324,145, according to figures supplied to the Liberal Democrat MP Norman Baker in September in a written response to Parliament. That's more than 10 times the average annual cost to the London diocese of maintaining a vicar.

"The church is shrinking, congregations are shrinking, yet the edifice stays supremely unaffected by the crumbling foundations below,'' says Mr Baker. "They need to adjust to the real world.

"It's becoming increasingly difficult to justify an institution appropriate for 1800 or 1900 in 2003.''

Arun Kataria, a spokesman for the church, says that in terms of "very broad income and expenditure", there was a surplus of income in 2001 and 2002. "A tremendous amount of money is raised from active, vibrant church people,'' he says. More than half the church's historic houses and bishops' palaces have been sold off since the end of the Second World War, he points out, and now only small parts of bishops' residences tend to be reserved for their personal use.

Today's clergy try to squeeze the most they can out of the property and treasures they have left. So important are wedding and conference bookings to the episcopal residence in Bishop Auckland that Auckland Castle Enterprises employs seven people full-time.

Brian O'Donoghue is church manager of St Helen's in Bishopsgate in the heart of the City of London, which draws as many as 575 worshippers on Sundays. He agrees that the church has to start thinking like a business: "If a church can't find funding, you have to ask the commercial question whether it should be closed down or the person in charge replaced with someone who is going to go out and spread the gospel."

Peter McGill is a reporter in the London newsroom of Bloomberg.

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