MPs demand bail-out for charities

The Treasury Select Committee said it was "imperative" that charities, which lost an estimated £120 million, should be supported "at a time when more people than ever may be faced with difficult circumstances".

Many charities are too big to be classed as retail depositors under the Government's deposit insurance scheme and are faced with trying to get back funds from the banks' administrators.

The committee also called on the Government to provide charities with further statutory guidance on managing their finances.

But MPs said it would be "perverse" to compensate local authorities, which lost almost £1 billion, when some had proved better than others at managing their investments.

Chancellor Alistair Darling stepped in to guarantee savers in the UK arms of Icelandic banks Landsbanki and Kaupthing last October, but no help has been given to those with off-shore accounts.

The Icelandic government had to nationalise three banks after the trio racked up debts equivalent to six times the country's national output and credit markets froze in the wake of Lehman Brothers' collapse.

MPs recognised the "severe distress" of those savers hit by the crisis, but stopped short of recommending a bail-out for savers with deposits in Landsbanki's Guernsey arm and Kaupthing's Isle of Man operation.

This is a blow for just over 2,000 Landsbanki depositors in Guernsey, which have received 30p in the pound on an estimated £117 million. Around 10,000 savers with £840 million tied up in Kaupthing's Isle of Man business have received back £105 million so far, but they do not know how much they will receive in total.

A Treasury spokesman said: "The Government is continuing to work with the Icelandic authorities and through the IMF to ensure the fair and equal treatment for all UK creditors. We have been clear that we will fully support charities in pursuit of any claims through administration."