Charities see £120m frozen in Iceland bank collapse

Voluntary groups fear drop in public donations and government support

Leading charities have tens of millions of pounds frozen in collapsed Icelandic banks, it emerged yesterday. The Government was locked in talks with charity group leaders amid an estimate that British organisations may have £120m tied up with Iceland's trio of troubled lenders.

Some individual charities have admitted to having potential losses that may force them to seek additional donations from the public.

The Association of Chief Executives of Voluntary Organisations (Acevo) said charities were facing a "perfect storm" of rising costs, falling incomes and reserves being wiped out, while at the same time trying to address rising levels of social need.

Many of Britain's biggest charities such as Age Concern, Cancer Research and RNLI, have escaped being drawn into the Icelandic collapse. However several charities with money tied up in the banks or their UK subsidiaries were desperately trying to seek assurances that their money was safe.

Britain's biggest cat charity, Cats Protection, has the largest-known sum of any charity with an Icelandic bank, with £11m – 16 per cent of its reserves – in Kaupthing Singer & Friedlander (KSF). The charity said the potential shortfall would not affect its work.

Naomi House children's hospice near Winchester in Hampshire, meanwhile, has £5.7m of deposits invested with KSF, some 30 per cent of its reserves. It vowed to press ahead with plans for a £12m new hospice for teenagers, despite issuing a warning to the Government that a failure to refund the money could have "devastating" consequences.

The Samaritans has links to KSF, the parent company of Investment Managers, which looks after the charity's investment portfolio but there was no word on whether its money was at risk.

Six charities have so far admitted they have deposits with the Icelandic banks to the National Council for Voluntary Organisations (NCVO) – but their identity has not been disclosed.

The NCVO estimates the total loss for the charitable and voluntary sector could reach £120m.

More than 100 local authorities and other public bodies have a total of about £1bn frozen in accounts with the three troubled Icelandic banks - Kaupthing, Glitnir and Landsbanki and their UK subsidiaries. It has also emerged that two NHS health authorities also have liabilities. Monitor, the regulator overseeing the 107 NHS foundation trusts in England, insisted that neither would cut services.

Council tax payers, however, do face a rise in bills or reduced services as authorities seek to claw back potential losses, which have been as high as £50m in the case of Kent Council Council.

The Government has guaranteed deposits held by individuals but has so far refused to yield to pressure to extend the protection to public bodies.

After meeting the City minister Paul Myners at the Treasury yesterday, charity leaders discovered that the help on offer would be limited. "There was no suggestion that there would ever be any guarantee, just that they would make best endeavours to support charities, but that was it," said John Low, chief executive of the Charities Aid Foundation (CAF). He complained that the Government had ignored the letter it sent in August calling for full protection for all charity deposits. "Now it seems charities might lose millions in collapsed Icelandic banks," he said. "The impact of this on the people and causes dependent upon them could be catastrophic."

Charities fear they will now suffer from reduced funding from local authorities facing losses from the Icelandic banking collapse, as well as reduced donations from members of the public. Some have seen a silver lining from the credit crunch in the form of increased sales of second-hand clothing and books at its shops. Oxfam and Sue Ryder Care both said sales were up.

Livability, which supports disabled people, reported donations down 30 per cent. John Chamberlain, its director of fundraising, said: "Much of our event programme, which relies heavily on involvement from the business community, has been hard hit with companies unwilling to justify corporate hospitality or giving staff time off for charity fundraising in the current economic climate."

The NSPCC's director of fundraising, Giles Pegram said: "What we are seeing at the moment is unprecedented. We know that legacy income is down because of its dependence on house prices. We are watching very carefully the signs of how the current economic turmoil is affecting people's willingness to give. As always we are dependent on the public's generosity."

Some 71 per cent of members of Acevo have reported rising demand for their services as the social consequences of the recession intensify.

Keith Hickey, chief executive of the Charities Finance Directors' Group (CFDG) said: "When a recession happens it is always the most vulnerable people who get hurt. We will now go as a matter of urgency and identify members suffering losses."

The Charity Commission said it could not say how many charities have money in Icelandic banks. Those who stated they did not have money with the collapsed banks included Macmillan Cancer Support, Age Concern, Scope, St John Ambulance, and the NSPCC.

Net losses How British charities have been affected by the crisis in Iceland

*Cats Protection

£11.2m deposits

Britain's biggest cat charity, Cats Protection, has £11.2m with Kaupthing Singer and Friedlander, the British arm of Kaupthing bank. The Icelandic Government nationalised Kaupthing this week while the Government used anti-terrorism legislation to freeze the assets of its UK subsidiary, meaning that Cats Protection cannot access 16 per cent of its £70m reserves.

Formerly called the Cats Protection League, the charity rescues 142,000 stray and unwanted cats a year. It insisted the loss of the reserves would have "no impact" on its day-to-day operations because the money was earmarked for long-term projects, but it is nervous that it will permanently lose its money.

A spokeswoman said: "The deposits held by KSF were to provide a safety net in case of real emergencies. We believe there is a case to be made to the Treasury that these deposits are public money that has been donated for us to help cats and provide benefits to the public." The charity, based in Haywards Heath, West Sussex, has an annual turnover of £35m.

*Naomi House

£5.7m deposits

The collapse of Iceland's banks could not have come at a worse time for Naomi House in Hampshire, which on Monday is laying the foundation stone of a new £12m hospice for teenagers next door to its existing site near Winchester. The charity has insisted that the building will go ahead and that it will continue to pay the £2.5m running costs of its other hospice. Naomi House provides respite care, end-of-life support and bereavement counselling for 220 families of sick children from Berkshire, Dorset, Hampshire, Wiltshire, West Sussex and Surrey. Founded in 1991, it has raised £8m at the halfway stage of a three-year, £12m appeal to build Jack's Place, a hospice for teenagers. With reserves of £19m, Naomi House would have another £13.3m to call on. A spokesman said that if the £5.7m in the bank was not returned by the Government, the consequences could be "devastating."

Its director of funding, Jane Tabour, said: "When we invested, we believed that a double-A credit rated, well-respected UK-based bank with Icelandic owners would look after our funds."