Treasury may reform charities' investment

TREASURY officials are examining whether there should be a reform of the Trustee Investments Act, which restricts the way charities invest the billions of pounds they hold.

The Treasury is also expected to make a shorter-term move to lift two restrictions on charity investment, following technical consultations that ended last week.

Charities' powers would be widened to allow them to invest in European shares and government bonds.

They would be able to buy the equivalent on the Continent of anything the TIA permits them to buy in the UK. The change is expected to apply to investment in both European Union and European Free Trade Association members.

Charity specialists said this was a helpful move, although some believe powers should be widened still further to put US, Japanese and other investments on the same footing.

A second change is to ease charity investment in gilts unit trusts, which should be a boost to unit trust firms.

Under the act, charity investments are split into two categories. No more than 50 per cent of assets can be put in the riskier category that includes unit trusts.

But though gilts are the lowest risk category, unit trusts based on them have inadvertently been classed as high risk, and this is to be changed.

The wider review of the act is at a very preliminary stage, with Treasury officials asking charity specialists for comments by the end of this month on whether they would like to see a wider reform of the act.

The act, dating from 1961, is meant to prevent charities losing their money by backing high-risk investments.

But its main effect over the past three decades has been to force them to put half their investments into low-risk bonds, which have performed much worse over the years than shares. Some charities believe the act should be abolished altogether.