Grant-giving charities suffered a double blow this week with the collapse of the fortunes of the Baring Foundation and news of an instant National Lottery that will directly compete with charity fundraising.

Higher and further education could be Pounds 1.3 million a year poorer because of the collapse of the merchant bank Baring Brothers, almost all of whose shares are owned by the Baring Foundation.

The education sector mourned not just the money but the outlook of the foundation, which has championed underfunded areas such as teaching posts and new subjects.

Tim Lang, whose chair in food policy at Thames Valley University is sponsored for three years by the foundation, said: "It is deeply sad. It was a very well respected, great and honourable foundation. Often big and respectable money chases big and respectable institutions. I can't think of any other educational foundation that would have backed such an esoteric chair as mine."

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Mike Parnwell, director of the Centre for South East Asian Studies at Hull University, said the foundation had funded a lectureship in Thai language and culture, which had been crucial for building up a centre of expertise outside London. "I can't imagine where we would have got the money otherwise."

David Carrington, foundation director, said that the charity's policies have included filling the gap in university funding for teaching posts outside science; and pump-priming posts for three years until they generate income from student numbers.

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At Sheffield University, for example, a fellowship in political economy has been set up with Pounds 95,000. Mr Carrington said that the foundation will honour its existing commitments because it has income from other assets.

Meanwhile, there are fears that some smaller charities could disappear altogether as a result of the new, instant national lottery announced by Camelot, the National Lottery organiser, this week. Charities raise Pounds 300-Pounds 440 million from lotteries.