A pioneering scheme to help mental patients may have to close because the Department of Health has pocketed money promised by the Treasury.

Dame Elisabeth Hoodless, the executive director of the charity Community Service Volunteers, said it was outrageous that £3.7 million had disappeared into the NHS and that all attempts to extract it had failed.

Appeals to ministers have been ignored, and only recourse to lawyers and a threat to tell the press what had happened produced any response.

Yesterday the Department of Health said that the money would be with CSV by the end of January — ten months late — although Dame Elisabeth is not counting on it.

The money is the final tranche of a £7.3 million grant made by the Treasury in 2004 under the “Invest to Save” programme, designed to show that by investing money to improve services, more can be saved.

CVS won the grant for Capital Volunteering, in which people in London who have suffered mental illnesses such as depression or bipolar disorder are encouraged to get involved in voluntary activities. This can include acting as helpers for other sufferers of mental illness, or activities such as gardening, sports and music. Its results are promising, with 25 per cent saying that they are gaining skills and 17 per cent reporting improved confidence.

At the end of March the Treasury passed £3.7 million to the Department of Health. It should have filtered through to the project via London Strategic Health Authority, Camden and Islington Primary Care Trust, Islington Mental Health Trust and the London Development Centre — a procedure that Dame Elisabeth describes as “pure Yes Minister”.

Somewhere along the line the cash-strapped NHS decided it would hang on to the money. “What authority had it got to do this?” Dame Elisabeth asked. “It is an abuse of power.”

CVS’s efforts to extract the cash have also been worthy of Yes Minister. It approached the Treasury, who condemned what the Department of Health had done as unacceptable. But nothing happened.

Dame Elisabeth then went to a higher level in the Treasury, who agreed that the situation could not continue. But it did. Next she went to Ed Miliband, Minister responsible for the Third Sector (voluntary organisations) who said that he was anxious to help.

Hilary Armstrong, the Cabinet Office Minister, then spoke to Ivan Lewis, Economic Secretary to the Treasury. Nothing happened. “On Monday we took the decision to ask lawyers to sort it out,” Dame Elisabeth said, “and we also said we would be talking to the press.

“Things began to happen. We were told it would be in the ‘next bundle’ at the end of January. That’s not acceptable. Even if we get the money, we have lost £90,000 in interest it would have earned us, and which we need.

“What is distressing for us is that the Government is all the time saying it wants partnerships with the voluntary sector, but our trustees are now asking if this is a risk we want to take.

“We’re not alone. There are a number of other organisations who have been let down by the department.”

Dame Elisabeth — the author of Getting Money from Central Government — is not in a mood to compromise. She wants the money, plus interest, immediately, before some of the staff face redundancy.

A Department of Health spokeswoman said: “They will get the money in January.” She made no mention of interest.