Third sector minister Ed Miliband pointed to the most recent survey from the State of the Sector Panel, a body of 5,600 voluntary organisations, which showed the proportion of contracts containing a commitment to full cost recovery increased from 49 per cent in 2002/03 to 57 per cent in 2004/05.
He said: "Progress has been made on full cost recovery and multi-year funding. There is more to do, which is why we're introducing new training for commissioners, backing the new Commissioner for the Compact and using this year's spending review to make three-year funding the norm, not the exception."
Shadow charities minister Greg Clark said the Government was getting away with "highway robbery" and called for a full enquiry.
He said: "In 2002, the Government promised charities that for contracts with the public sector they would receive 'the full cost of the service, including the legitimate portion of overheads, by April 2006'. The commission report shows this promise has been broken."
Stuart Etherington, chief executive of the NCVO, said the key finding was that only 26 per cent of service-providing charities felt free to make decisions without pressure to conform to funders' wishes.
"I would rather see charities close than sacrifice their independence," Etherington said. "All charities must address commission chair Suzi Leather's call to view our independence as absolute, non-negotiable and sacrosanct."
Stephen Bubb, head of chief executives body Acevo, warned against alarmism.
"It is unrealistic to expect charities to exist in a vacuum, and hardly surprising funders and donors try to influence what they deliver," he said.
He was backed by Acevo member Jeremy Swain, chief executive of homelessness charity Thames Reach, who said the commission seemed to misunderstand the way charities worked.
"The idea of pure independence is a bizarre holy grail," he said. "As part of our relationship with funders and commissioners, we seek their views and improve our services in the light of their comments."
The Directory of Social Change said the commission's findings confirmed that public service delivery was inappropriate for most voluntary organisations.
- See News Analysis, page 12.