Government will not refund charity money lost in Icelandic banking collapse

Treasury's response to select committee report claims compensation would set "unrealistic precedent"

The Government has refused calls from the Treasury Select Committee to refund money lost by charities in the Icelandic banking collapse.

In a report published in April, the committee recommended that the Government should provide full compensation to charities holding money in the failed Icelandic banks.

But the Treasury's response, published today, said charities must not be afforded different treatment to any other organisation owed money in the collapse. Providing compensation to charities would set an "unrealistic precedent", it said.

 "Government cannot treat charities any differently from the other creditors of the failed Icelandic banks that are not eligible to claim compensation under the Financial Services Compensation Scheme," it said. The FSCS can provide money to creditors when financial institutions collapse.

The Treasury said providing help to these charities would be at the expense of providing support to charities more broadly during the downturn.

The report also rejected a suggestion that the Government should give charities a separate creditor class under the FSCS.

The Treasury said the rules of the FSCS were a matter for the Financial Services Authority, which operates independently of government.

The FSA, which also published its response today, said that it was unable to change the rules concerning the FSCS because of EU restrictions.

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