Our concerns around the Banking Reform White Paper

NCVO has written to George Osborne raising concerns about a measure in the Banking Reform White Paper which could negatively impact on charities.

The letter, which has been written jointly with the Charity Finance Group (CFG) and Association of Chief Executives of Voluntary Organisations (ACEVO), raises a concern about the Government’s proposed new ‘depositor preference’ arrangements.  Under the new rules, if a bank or building society fails, Financial Services Compensation Scheme (FSCS) liabilities will be prioritised over other creditors.  As some charities are ineligible for FSCS compensation, this could greatly increase their chances of losing a substantial proportion or all of their deposits in the event of their bank or building society failing.

Naturally, we hope that these arrangements – for managing failure of banks - will never need to be used. But in the event that they were, data from NCVO’s Almanac suggests a substantial number of charities could be affected.  These include the 2900+ charities ineligible for FSCS compensation, as well as many eligible charities holding more than £85,000 (the compensation limit) in cash deposits.  Charity Commission returns show that the sector holds £18 billion in cash deposits.

NCVO, CFG and ACEVO are calling for the Chancellor to grant UK registered charities preferred creditor status to put them on an equal footing with the FSCS in the exceptional event of a bank failing.

The letter states:

‘Granting charities preferred creditor status will help Government in achieving its wider policy objective of allowing banks to fail in a way which minimises both cost to and impact on the taxpayer. Charity deposits are funds that have been donated by the public or other funders, which are effectively in trust or transit for the ultimate benefit of beneficiaries. It is the beneficiaries – often the most vulnerable in society– that will be negatively affected, undermining the Government’s objective of minimising taxpayer impact.’

Read our letter to the Chancellor (PDF, 186 KB).

Read a short briefing paper on the Banking Reform White Paper on the CFG website (PDF, 124 KB).

Find the full Banking Reform White Paper on the Treasury website.