Charities are being urged to step up their fundraising campaigns after a new report found that the long term growth rate of voluntary income is falling. This is despite figures from the UK's top 500 charities totalling £4.9bn during 2003/04 - a real-term annual increase of 2.9%.

The report, Charity Trends, is the annual overview by the Charities Aid Foundation (CAF) into the state of the sector's income. It found that income from legacies and the Lottery also dropped while income from service delivery grew indicating that the UK's largest charities are increasingly reliant on public sector funding.

Cathy Pharoah, director of research at CAF and author of Charity Trends, said: "Voluntary income is vital if charities are to retain their capacity to be innovative and address new or marginalised areas of need. Robust fundraising strategies will be crucial in ensuring the future growth of giving."

Cancer Research UK topped the chart as the largest charity for the third year in a row, while the top six remained unchanged on the previous year. Fastest growth in voluntary income was experienced by faith-based and arts charity sectors, which was mainly due to increases in grants from public sector bodies and lottery funding. A growth of 19% in income among cancer charities and a drop of 7% in income of aid agencies means the gap closed between the nation's two favourite causes.

A significant growth, however, was found within tax efficient donations. Although they represent just one third of public donations they grew in real-terms among all charities by 12%.