Northern Rock privatisation risks bank's charity arm

As the Northern Rock reveals losses of £68.5m, voluntary groups in the north-east of England say they will struggle financially if the bank's charity arm closes.

The Northern Rock Foundation has given millions of pounds to charities but, with the bank due to be privatised, there are currently no guarantees a new owner would continue its funding.

Headway Arts in Blyth, which runs groups for people with learning disabilities, warned they would be "devastated" if they lost foundation money.

The South Tyneside homeless charity, The Key Project, said losing funding would be a "massive blow".

In January, the foundation said it expected to receive less funding from Northern Rock but still had £38m in reserves.

Under the new arrangement it will receive 1% of the bank's pre-tax profits, down from the 5% agreed in 1997 when it was set up.

Half-year results show the bank's loss is much less than the £140m reported at the same time last year. The bank said it might make a profit next year.

Headway Arts' Seven Stars theatre group is one of many hoping those profits will not be lost to local voluntary groups.

Their creative director, Alison Walton-Robson, said: "The Northern Rock Foundation money has been crucial to Seven Stars.

"They'd be absolutely devastated if they lost the funding. It's a really big part of their lives."

The chief officer of the Key Project in South Shields, Jean Burnside, said: "I would urge the government that, whatever the future of the Northern Rock bank, that there are safeguards or some contributions made to the Northern Rock Foundation to safeguard all the work that's going on around the region."

Demand for safeguards

In 13 years, the foundation has given 3,700 grants totalling £187m to nearly 2,000 groups.

When the bank was nationalised the government agreed to continue the charitable giving.

But some North East MPs have asked whether, once privatised, the Rock's new owners would keep the foundation going.

In June the Gateshead MP, Ian Mearns, tabled a motion in the Commons demanding that, when the bank is sold, the government should force the new owners to commit to charitable giving.

Mr Mearns said: "Northern Rock has been an integral part of the regional economy for so very long but the foundation, in terms of its important role with the voluntary sector across the region, has been fundamentally important.

"The government talk about rebalancing the economy, let's actually get some safeguards built into this."

In January, the foundation announced Northern Rock would provide funding at a level of 1% of its pre-tax profits on a two-year rolling agreement, which would be reviewed annually.

The foundation said it would continue to press the government to find a long-term funding solution.

It said it hoped any bidder would take the foundation into consideration.