By James Arnold BBC News Online business staff

If poverty is, as many Christians believe, a noble virtue, the Church of England Commissioners could already be half way to heaven.

We can't just keep on relying on generosity without at least raising questions over seemingly unused assets

Aaron Kataria, church spokesman

For the second time in recent memory, England's established church is reported to be teetering on the brink of financial ruin.

Already struggling to cope with a steeply mounting bill for pensions and other overheads, the church - one of Britain's biggest investors - is losing money hand over fist on the stock market.

With a new Archbishop of Canterbury about to be announced, the last thing the church needs is a nasty squabble over money.

Luckily, things may not be as dire as they seem.

Taking stock

At the heart of church finances sit the Commissioners, the body that administers its investment portfolio, generating about one-fifth of its cash-flow in the process.

The only reliable source of money these days

The Commissioners' investment record is hardly spotless: they last hit the headlines in the early 1990s, when they wrote off some �800m as a result of property deals gone sour.

Now, it seems, they are at it again.

The Commissioners keep about half their �4bn cash pile in British shares, which performed dismally last year.

During 2001, the Commissioners saw some �435m wiped off the value of their investments, mainly thanks to falling stock markets.

Blue-chips go bad

This year, things have got worse.

The Commissioners won't say how their individual investments are doing until they do their year-end sums.

But a back-of-the-envelope calculation shows that the church's �158m holding in Vodafone should be worth just �84m now, assuming it has not been sold.

Other big stock market punts, like its �164m stake in GlaxoSmithKline, and its �61m holding in AstraZeneca, have also headed south this year.

Help the aged

These losses have come at an awkward time.

The Commissioners' income is tailing off just as the demands on its funding are picking up speed.

Politely insisting on a pay rise

The most pressing of these is the clergy pension bill, which last year came close to �100m - a doubling over the past decade, while overall income remained more or less steady.

In 1998, the church revamped its pension scheme, shifting from one underpinned by Commissioners' contributions, and towards one funded by donations from congregations, the church's main source of ready cash.

But the new scheme is already reportedly in shortfall, and there are persistent murmurs that - like many other large employers - the church might have to shift over to a meaner arrangement.

In May, Reverend Richard Turnbull, a member of the Financial Issues Working Group of the Archbishop's Council, argued that clergy should start saving for their retirements themselves, and may need tuition in personal finance.

The root of all evil

The other big demand is the likely need to increase clergy pay, possibly by as much as 20%.

The hike, seen as long overdue by most within the church, was proposed last year in a paper ominously titled "Generosity and Sacrifice".

With money from the Commissioners in short supply, the increase will have to be funded from the collection plate, so far the main source of reliable income growth for the church.

Churchgoers gave some �330m in 1999 - the latest year for which figures are available - an annual rise of 13%.

That figure will have to rise by another 12% to meet the higher wage bill, according to the Archbishops' Council.

Sell, sell, sell

Caught between the two fires of falling income and rising expenditure, the church is falling back on the old expedient - selling the family silver.

A non-performing asset

Last year, it decided to sell works in the series Jacob and his Twelve Sons, by the 17th Century Spanish painter Francisco de Zurbaran.

The sale, which has sparked controversy in some quarters, is expected to raise �20m, mainly for church projects in and around County Durham, where the pictures currently hang.

According to media reports, the church is also looking at ways of scaling back on episcopal palaces, and is even planning to abolish the dioceses of Leicester, Bradford and Portsmouth - a rumour it stoutly denies.

Silver linings

Things may not be as disastrous as they seem, however.

First, the Commissioners' dismal performance on the stock market has more to do with bad luck than bad judgement.

Their portfolio covers an unimpeachable range of blue-chips, and has in fact marginally outperformed the investment fund average.

Christopher Daws, secretary to the Commissioners, remains convinced that British shares represent good value.

"If we had always played it safe and kept out of the stock market, we'd be hugely out of pocket now," he says.

In any case, as an organisation tightly bound within the fabric of the country, the church is more or less obliged to invest in British shares, he argues.

Bricks and mortar

Second, the Commissioners' once-derided property assets have acted as a useful hedge.

The church has tidied up its property holdings over the past decade.

It sold down its stake in Gateshead's Metro shopping centre from 100% to just 15%, for example, and its commercial property holdings were halved during the 1990s.

But more active management has boosted the rate of return to a respectable 7% on commercial property, and to as much as 16.5% for perkier residential property.

Vow of poverty

Third, and hardest to call accurately, is the moral effect on the flock of a more ruthless approach to church treasures.

Conservatives have thrown up their hands at the sale of the Zurbarans and other disposals, arguing instead that the Commissioners should close down thinly-attended churches.

Others have called for the government to step in and bail out ecclesiastical finances, or for churchgoers to contribute even more to the collection plate.

"But we can't just keep on relying on generosity without at least raising questions over seemingly unused assets," says Aaron Kataria, a Church of England spokesman.

If the church is keen on shedding its somewhat elderly image, a gesture of self-denial might be just the thing.

"If thou wilt be perfect, go sell what thou hast, and give to the poor," as Jesus - that most enduring among management consultants - once said.