Labour has accused the government of using Libor fine money earmarked for the charity sector to pay for welfare programmes that should be funded by the Ministry of Defence.
The party claims that £557,000 in Libor grant commitments – which were collected from banks fined for manipulation of the Libor interest banking rate – were awarded last year to several Army regiments’ welfare facilities.
Libor funding commitments that Labour has questioned include £28,000 given to the Queen’s Dragoons Guards to support community welfare facilities and £250,000 awarded to RAF Brize Norton to renovate welfare facilities.
The government has awarded more than £700m in Libor fines to armed forces and emergency services charities since 2012.
A letter from a defence minister, Tobias Ellwood, to the shadow minister, Gerald Jones, dated 19 March, says Libor funding "is not to be used to fund departmental core responsibilities" or for "projects, activities or services that the state has a legal obligation to provide".
But support for armed forces personnel and their families is deemed to be a "core" responsibility of the department, according to the MoD’s own welfare policy.
The government has been criticised before for how Libor funding has been spent, with a report from the National Audit Office last year claiming that that £57m in grants handed out under the scheme did not have terms and conditions attached.
Nia Griffith MP, the shadow defence secretary, said that charities were losing out on vital funding that was instead being wrongly spent by the MoD on core costs.
"Providing support to our men and women is not some optional extra – it is the core business of the MoD," Griffith said. "As such it should be paid for from central funds, as it always has been.
"It is disgraceful that hard-pressed forces charities are being denied the money that they need to support personnel, families and veterans simply because the defence budget is in chaos and ministers apparently have no qualms about rinsing the Libor funds to plug the gaps."
The MoD did not respond to requests for comment in time for Third Sector’s deadline.