The Lichfield Diocesan Board of Finance - the financial arm of the Church of England in Staffordshire, the northern half of Shropshire and much of the Black Country - is in a good position to weather the financial storm, according to finance director Jonathan Hill.

Mr Hill made the assertion at the Annual General Meeting of the Lichfield Diocesan Board of Finance and Synod on Tuesday.

The annual report and accounts for the year to 31 December 2008 show a mixed picture with a movement of funds surplus of £2.34 million - mainly due to sale of property (£1.66 million) and the introduction of new funds (£0.944 million) as part of an exercise to reorganise the Diocesan Trust. The parishes’ share or contribution towards the budget came in on target and expenditure was under budget.

But in the same year the value of the diocese’s investments fell by 19 per cent (£2.66 million), which, although significant, is favourable compared to the FTSE which at one stage fell up to 40 per cent, but over the year fell around 22 per cent.

As a result, the board’s net deficit in the year was £0.326 million. Mr Hill shrugged off the effect of the fall, saying: “We are not in the process of investing short term. This is a paper deduction and an opportunity, when we believe the time is right, to purchase under valued stock, with yields of around 5.5 per cent against the fall in interest rates to around 1.2 per cent.”

In cash terms, the board made a surplus of £1.208 million in unrestricted funds, which is being used to correct the stipends reserve which has been hit by falling investments value, and to build up specific reserves to cover future increases in clergy pension costs.

Clergy benefit from a final salary pension scheme managed by the Church of England Pensions Board. In April, the Pensions Board said contributions paid by dioceses would rise from 39.7 per cent to 45 per cent from the 1 January 2010 and warned that they could rise as high as 57 per cent in the near future.

This year, the Diocese of Lichfield expects to spend £2.374 million on pension contributions for its clergy - rising to £2.726 million next year.

The diocese has had to cut its expenditure since 2002. Mr Hill said parishes had responded very positively in restoring the diocese to a strong financial footing.

"So while we are inevitably facing the same financial difficulties as every other organisation, the diocese is in a much stronger position than some other dioceses and certainly stronger than we were in 2002.

“We face every increasing liabilities in the year ahead - not least the clergy pension contributions," he said. "But we are on a firm financial footing to face these challenges and liabilities that are beyond our control, because we have made the right decisions so far.

"The fact we can make choices is proof that we are heading in the right direction but we must not underestimate the challenges we face.

He said the diocese could not "keep passing increased costs to parishes and expect them to pay". Since 2003, the diocese has capped the increase in the parish share - that part of our budget paid for by our parishes - at four per cent per year. The budget for 2010 is still being finalised and will be approved by the Bishop’s Council later in the year.

“We live in very difficult financial times and the church isn’t immune from the difficulties facing the nation and the communities we serve," said Mr Hill.

"But I’m confident that the decisions we’ve taken in recent years and the commitment from the parishes and our congregations will help us through this turmoil.

"But we rely on the continued goodwill and generosity of our members to ensure we don’t slip back into the dark days we faced at the turn of this century.

"And our local churches rely on the generous giving of their members to ensure they are able to continue to make Jesus known to the communities they serve.

The Clergy Pension Scheme is a non-contributory defined benefit scheme providing a pension on retirement of up to two-thirds of the pensionable stipend at the point of retirement, plus a lump sum of three times the pension, depending on the length of service.

The current full service pension for parochial clergy is £13,093 per year plus a lump sum of £39,279. Parish clergy in the Diocese of Lichfield will receive a stipend of £22,315 this year - up four per cent on last year and slightly higher than the regional benchmark.