Lloyds' charity covenant 'safe for nine years'

Published on 14/10/2009 22:19

IT COULD take nine years for Lloyds Banking Group to reduce its financial obligations to good causes in Scotland if no agreement is reached in the bitter row with its charitable foundation.

Hundreds of Scottish charities face an uncertain future after Lloyds said it was to cut its foundation's funding – which is worth at least 6 million a year – in the wake of the financial crisis.

It is feared some charities may have to fold.

They have found themselves at the centre of a public rift between the Lloyds TSB Foundation for Scotland and the bank, which wants to cut its contributions.

Mary Craig, chief executive of the foundation, said the bank would need to give almost a decade's notice if it wanted to change its funding arrangements.

The foundation is an independent body and one of the leading charitable funders in Scotland.

It operates to a covenant – put in place by an Act of Parliament – which dictates that it, and three other autonomous foundations covering the rest of the UK, receive a share of 1 per cent of the Lloyds Banking Group's pre-tax profits each year.

Ms Craig said: "The last thing we want is a public fight with the bank. We tried to avoid this.

"The bank can only get out of the covenant if they give nine years' notice."

The foundation claims that if the new terms proposed by the bank were accepted, Scots charities would lose out to the tune of 22 million over the next nine years.

The trustees unanimously decided to reject the bank's offer. One trustee, Lady Susan Rice, Lloyds Banking Group Scotland managing director, did not vote due to the conflict of interest.

Losses predicted by the bank mean there is virtually no cash due to the foundation in the coming year, which has forced the trustees to close the door to new applications.

Lloyds Banking Group said it had invited the Scottish foundation to join discussions but it had declined to participate.

A spokesman said: "We are attempting to negotiate a profit-based settlement which could offer substantially more to all the foundations, including Scotland, than they have had before.

"To put it simply, Lloyds Banking Group is significantly larger than Lloyds TSB was before the acquisition of HBOS – we are proposing a slightly smaller slice of a substantially bigger pie."

Negotiations between the two camps broke down recently, amid claims the bank wanted a say in where the money was spent – effectively challenging the foundation's independence.

The debacle has raised fears some Scottish charities will face closure or a drastic scaling-down of their services.

Peter Crory, chief executive of YMCA Scotland, said it relied heavily upon Lloyds and Children in Need. He said: "There is a really serious funding crisis looming for youth work. We're being squeezed from different angles. Traditionally, we have fallen back on the charitable trusts like Lloyds. But the rug has been pulled from beneath us."