THE Northern Rock Foundation faces an uncertain future after bank bosses said they had no choice but to reduce the charity's cash supply.
Only 1% of pre-tax profits from the Rock will be handed to the foundation from now on, a cut on the 5% it received before the bank was nationalised.
Charity bosses will meet today to set out how they can continue to help hundreds of organisations, while admitting they may need to use up some of their £38m held in reserve.
The foundation, the largest provider of charity grants in the region, has spent around £200m helping local organisations since 1997.
The Government stepped in to rescue the Newcastle-based bank in 2008 and two years later it was split into two, a so-called ‘good bank’ – Northern Rock Plc, and a ‘bad bank’ – Northern Rock Asset Management.
The 1% return figure will come from pre-tax profits generated by the ‘good bank’, but it is thought that will not mean large amounts coming to the foundation as analysts expect that initial profits will be below pre-nationalisation levels.
Last year the good bank announced it was unlikely to make a profit for 2010.
The situation is complicated by the fact the 1% sum will cover two-year stretches – but the agreement must be renewed annually.
And potential buyers of the bank will not as yet be forced to continue the agreement.
Following the crisis at the Newcastle-based bank, the foundation was promised £15m a year for three years by then-Labour Chancellor Alastair Darling.
Northern Rock Asset Management was tasked with looking after this hand-out.
But despite repeated requests for either Chancellor George Osborne or the bank to say what happens when that money runs out, the bad bank only informed the charity last week that there was no replacement for its funding.
Alastair Balls, chairman of the foundation’s trustees, has urged the Government to intervene and set out who should be responsible for securing its long-term future.
“We face great uncertainty,” he said. “The present Chancellor says this is just a commercial issue and we are caught between two things here.
“One bank is trying to demonstrate corporate responsibility with the 1% funding, and the other bank is saying we do not think this is appropriate for us to be involved in.
“What we have done for many years is to mirror the Big Society. With our diminishing ability to give grants there is less money to help create David Cameron’s Big Society.”
Mr Balls added he felt let down by the so-called bad bank part of Northern Rock.
“At the time that the £15m a year agreement was put in place, the Government also requested Northern Rock to consider how to secure the foundation’s long-term viability.
“During 2010 the foundation has actively sought a resolution to the issue of future funding.
“We are disappointed that Northern Rock Asset Management is not willing to continue to support the Foundation.”
Newcastle North MP Catherine McKinnell, in whose constituency the bank is based, warned last night of job losses as a result of the Government’s lack of support.
“Whilst is it welcome news that the important work of the Northern Rock Foundation will continue to be supported by the bank, the reduction in the level of funding it receives is hugely disappointing as it will remove millions of pounds from the voluntary sector in the North East.”
“This announcement could potentially put hundreds of jobs and community services across the region at risk including welfare rights and support services, which are needed now more than ever.”
Northern Rock has said the 1% payout is in line with best practice in corporate giving. A spokesman told The Journal the bank’s obligations to repay the Government’s £23bn bailout had to come first.
A spokesman for Northern Rock Asset Management said: “Given the focus on repayment of our Government loan, we feel that it is inappropriate for the company to continue to make substantial donations to a single charity.
“However, we take our corporate social responsibilities seriously and have a modest budget that enables us to support our colleagues in carrying out charitable and volunteer work in the communities in which they live and work.”
UKFI, the body set up by the Government to handle the taxpayers’ stake in the banks, insisted it was simply a commercial matter.
History of how a charity developed
THE Northern Rock Foundation was established as an independent charity when Northern Rock demutualised in 1997.
Its remit is to help the disadvantaged and improve the quality of life in the North East and Cumbria.
The foundation gives grants to organisations which help people who are vulnerable, disadvantaged, homeless, living in poverty or who are victims of crime or discrimination.
Up to December 2007, Northern Rock gave, by covenant, 5% of its annual pre-tax profits to the foundation, totalling more than £190m.
Then, as part of the arrangement under which Northern Rock plc was taken into temporary public ownership and split in two, the foundation received £15m a year from Northern Rock in 2008 and 2009 as a condition of any sale. With the funding only for three years Northern Rock plc – the mortgage and savings bank – has agreed to donate 1% of pre-tax profits to the foundation.
Last summer, efforts began to find a long term funding solution.