George Osborne's cuts will stop us tackling fraud claims, says charity chief

Allegations of fraud by charities will no longer be automatically investigated by the Charity Commission if the Government pushes ahead with funding cuts of up to 30 per cent, the head of the organisation warns today.

Andrew Hind, its chief executive, told The Independent that the commission would no longer be able to investigate all allegations of wrongdoing if funding fell by the anticipated 25 to 30 per cent in October's spending review.

Mr Hind, who steps down this week, said this would corrode the public's trust in charities and could stop them making donations.

He said: "Obviously none of us know the outcome of the spending review but we'd probably be right to have serious concerns about where we might be heading.

"There has been talk about spending cuts across the public sector of between 20 and 35 per cent. That would obviously be of serious concern. A lot of the things we have been trying to do would be at risk in a world where we had 25 to 30 per cent less funding."

In its submission to the Government ahead of the review, the commission has warned of the damage the sector would suffer if severe cuts were made.

Mr Hind said: "Concerns about fraudulent expenses claims or money not being used for its intended purpose – at the moment, these are zero-tolerance issues for us because they threaten the public confidence in charities in that local community so we would investigate.

"If we have 30 per cent less funding then... the probability would be that we could not possibly engage with every complaint. My fear would be if that led to a series of incidents where a series of local communities began to lose faith that the money they have given to charity would be used in the right way.

Mr Hind argues that the commission has already seen its funding cut by 16 per cent in real terms since 2005-06, has reduced staff numbers by 30 per cent and will shed another 60 posts by the end of the financial year.

He also warned that many charities could close following public-service cuts. Many charities now derive much of their income from contracts to deliver services for central and local government, which could be lost because of the cuts.

Some charities have told the commission they were in a "double bind" where public donations were down but demand for their services, such as housing, relationship counselling and debt-advice charities, were up.

Other charities that work overseas said they were in a "triple bind", with the pound's falling value also affecting what their donations could buy.

Mr Hind called for a public debate on the way the commission is funded, saying that it was time to consider whether charities should pay towards the cost of their regulator in the same way that banks and broadcasters do.

The commission argues that its running costs are very small in comparison to the size of the sector – there is £52bn of income in the sector and for every £1,000 of that income the commission costs only 58 pence. If this cost were to be passed on to charities, it would mean that charities with an income of £10,000 – half those on the register – would pay £5.80 a year.

Mr Hind acknowledged that the idea would outrage many who would see it as a "tax on charities". He leaves the Charity Commission this week after six years in the role and nearly 30 years in the sector.