Britain's generosity on the ebb

SLUMPING share prices, City redundancies, declining bonuses and Chancellor Gordon Brown's threatened dividend tax changes have hit Britain's 161,000 charities as they face plunging contributions and falling income from investment.

There has been a sea change in the British attitude towards charities. Last year we gave £6.67bn, the lowest for three years. Some blame the National Lottery. Others say that, with the growth of the industry and its use of multimedia approaches, the British are bored with charity.

The underlying reason may be that traditional donors are suffering the pain of economic decline and City setbacks of the past three years. After contributing to political parties, the quickest entry into Britain's quaint honours system is to become a charity giver or fundraiser. Despite this, Britain's wealthy are far behind America's richest when it comes to being charitable. No one, however, compares with Bill Gates and his $24.2bn (£14.8bn) foundation.

The biggest of Britain's charities turn to the City to manage their funds. The safest way of dealing with this cash in times of City crises appears to be a permanent endowment fund. These have not suffered much of a setback in the past three years as they are mainly invested in gilts and corporate bonds, or rely on dividend yields.

The latest surveys show dividend growth in the past three years has been at Retail Price Index figures, meaning that funds are only just fighting off the ravages of inflation. But they are likely to be hit by Brown's forthcoming tax on any increases in dividend income.

The worst-hit charities are those who have capital invested in equities. According to research by investment information company WM, 78% of charity funds were invested in this way at the end of last year.