Ministers are warned they must return good cause cash and protect future schemes

Scots charities fear hundreds of millions of pounds earmarked for good causes will be grabbed by the UK government for its own personal “slush fund.”

Fears were expressed after it was discovered £326 million in bank fines from the Libor scandal promised for military charities have instead been snatched by ministers to top up their own military spending shortfall.

And charities now believe a similar cash grab is on the cards with the new dormant asset funds, which could be worth several hundred million to cash-strapped groups in Scotland.

Politicians have joined the third sector to call for both the Libor and dormant asset funds to be protected, and the millions grabbed by ministers returned.

John Downie, director of public affairs at the Scottish Council for Voluntary Organisations said Libor has been managed shambolically.

He called for an independent funder – such as the Big Lottery – to administer the upcoming dormant asset funds to ensure all the cash goes to charities.

He added: “Not only was money – ostensibly for charitable purposes – used as a slush fund to top up departmental spending, but we learn from investigations that decisions were made behind closed doors and no checks have been carried out to assess whether the money was used for the purposes intended.

Libor fund was supposedly earmarked to support armed forces charities, but it’s now clear that the UK government has raided the fund to plug the huge shortfalls in the MoD budget - Martin Docherty-Hughes MP

“We hope the obvious flaws with the management of the Libor fund can be learned from and a more strategic and effective approach taken to the management of future funds, such as the dormant asset funds.

"We demand assurances that dormant assets cash will reach charities and not go the way of Libor money in topping up government spending."

Nearly £1 billion Libor cash was promised to support veterans’ charities and air ambulance groups.

However figures from the National Audit Office reveal an estimated £326m of this has been spent on routine state spending.

Grants approved by the Treasury include improving army barracks, installing sports facilities on military bases, funding rehab centres, buying air ambulances and even maintaining cadet troops.

No figures are available on how much in total has been awarded to actual charities, and Treasury officials couldn’t confirm if all grants issued were spent as intended.

Martin Docherty-Hughes MP, member of the Commons defence committee, told TFN: “Libor fund was supposedly earmarked to support armed forces charities, but it’s now clear that the UK government has raided the fund to plug the huge shortfalls in the MoD budget.

“This cash-grab by the Treasury is disgraceful and cannot be allowed to happen again. The lack of transparency over how these funds are allocated is unacceptable, and third sector organisations are right to raise concerns about the UK government’s plans for the dormant asset resources.”

A Treasury spokesperson said: “Since 2012, we have committed more than £12.9 million directly from banking fines to armed forces and Emergency Service charities and organisations based in Scotland, as well as other related good causes.

“All Libor applications are assessed on their individual merits, regardless of geographical location.”