They are 20-year-old Shetland ponies with no history of violence or of attacking members of the public.

Yet a horse sanctuary has been told it cannot take its residents to greet children in the street because they are too dangerous.

Council officials have banned Sussex Horse Rescue from taking ponies and donkeys to fund-raising events because the charity is not insured against injury claims for more than £2.5 million.

Horsham District Council said the Uckfield-based trust needed public liability insurance up to £5 million in case a child is maimed by one of the placid creatures, leaving it with a lifelong disability and the council with a hefty legal bill. The charity says it cannot afford the higher premiums and will have to abandon one of its best funding streams.

Pauline Grant, of Sussex Horse Rescue, said: "We just can't believe it. It is going to make a lot of difference to us. We do it not only to make the money, we also attract people to our sanctuary."

The trust is currently looking after 74 horses, ponies and donkeys which need constant care and cost a great deal to feed.

Other councils and showgrounds have followed in Horsham's footsteps, which have caused a big dent in its finances.

Last year collectors made £700 on the streets of Horsham by displaying a pony and donkey for the day. This year in Crawley, where they would normally make £300, without the animals they managed just £48.

Its donkeys and ponies are now banned from the streets of Crawley, Haywards Heath, Lewes, Uckfield and the South of England Showground, Ardingly. The trust usually allows people to pet the animals but does not let them ride on them.

Mrs Grant said: "We have been doing this for 20 years and we've never had an accident. We have got two Shetland ponies we use, Sparky and Sinbad, they are both in their 20s, and two donkeys, Cocoa and Ann. They are very good-natured."

She added that had heard that riding schools were closing down because there had been so many injury claims against them. She said: "Everything has got out of hand."

Nigel Haverson, head of public health and licensing at Horsham District Council, said the industry standard was to ask for £10 million public liability for big events and £5 million for small ones.

He said: "We have looked at other licensing authorities and we take advice from insurance and risk people. Five million pounds is the lowest we can ask for. When you look at claims settled, they are regularly four or five million pounds by the time you take all the costs into account."

A council spokesman added: "The council is responsible for licensing activities in Horsham town centre, including charity collections and events. Licences are required to protect the public in terms of health and safety and from unfair trade. A great many such activities take place in Horsham throughout the year and normally everyone understands why they need to be fully licensed."

He said the charity had not completed an activity permit form as well as failing to obtain the necessary level of insurance.