The Charity Commission is to have its funding frozen at the current level of £20.3m until 2020, the Chancellor of the Exchequer, George Osborne, announced in the spending review this afternoon.
In a statement, the commission said the freeze could translate into a real-terms cut if inflation rises – a cut which the National Council of Voluntary Organisations said could be as high as 8.5 per cent.
However, the regulator’s capital budget has been increased by 10 per cent to £1m a year for the next two years and will rise again to £1.2m over the following two years.
William Shawcross, chair of the Charity Commission, said: "This settlement – a freeze, not a cut – is recognition of the importance of the commission’s work.
"The recent high-profile charity crises and the damage these have done to trust in charities shows the importance of an effective charity regulator.
"The freeze will put more pressure on our staff. But we will continue to concentrate on increasing public trust and confidence in charities through being a strong and effective regulator.
"We have already focused our expenditure on the highest-risk work: fraud, safeguarding and counter-terrorism."
He added that, despite new systems leading to productivity gains, there was little more the commission could do to reduce its costs without its regulatory work being affected.
"I am therefore committed to seeking a more sustainable funding base for the commission to ensure we can still protect individual charities from abuse and uphold public trust and confidence in the charitable sector," he said. "I will continue my discussions with charities to explore how this might be achieved."
One funding mechanism which Shawcross has previously supported is the option for charities to be charged for regulation.
The local infrastructure body Navca said: "We are pleased that there is no further reduction, as effective regulation is vital for maintaining public trust.
"We are disappointed, though, that William Shawcross has responded by implying he will continue to push for charging.This should be seen for what it is – a charity tax. We will vigorously oppose it."
Jay Kennedy, director of policy and research at the training and publishing charity the Department for Social Change, agreed that "the threat of charging charities for their own regulation" was not off the table.
"The Chancellor could have very easily found £8 million or so to bring the commission’s budget back to its 2010 level, but he didn’t," he said.
"Maintaining the current direction of travel means the charging discussion isn’t going away – and charities will have to continue to fight the idea."
He said: "The freeze will still mean a squeeze – because inflation will lead to a real terms cut in their spending budget, but apparently more money is available for capital spend, which is helpful.
"The truth is that any significant further degradation of the commission’s budget would call into question its viability as a regulator."
Karl Wilding, director of public policy of the NCVO, said the freeze could amount to an 8.5 per cent cut in real terms over the next five years, based on growth predications made by the Office for Budget Responsibility.
He also expressed concern at the idea that charities would be expected to fund the regulator.