Examination of Witnesses (Questions 60
MONDAY 17 APRIL 2000
PHILLIPS KCB AND
60. You thought at the time, or whoever was
in charge at the time thought you did not need a full reconciled
list because you had a full audit trail. Would you accept that
there was not a full audit trail from these cards?
(Sir Hayden Phillips) I am advised that there was.
What I think I totally accept, and is quite clear, is that in
good accounting terms we should have a reconciliation of individual
balances and the total sum of money involved, that was not there
and it is now.
61. I thought you still had some £2.1 million,
or so, outstanding that you cannot, in fact, trace.
(Sir Hayden Phillips) Not "cannot". I have
to make a judgment about how much further work is done. This may
be something that you want to question. We have reached a stage
now where there is about £2 million which is not listed in
the way that all of the rest has been listed.
62. Your card system would allow you to list
(Sir Hayden Phillips) If we took all of the balances
since 1976 under £400 we could go through a list of those.
I asked for information about what it would cost to do this and
I was told about £30,000. We are satisfied that the audit
trail is there to find fees and cases. The likelihood of claims
is very small and the average is about £100. In those circumstances
I found it quite a fine judgment, as accounting officer, whether
to invest that money or not. My present conclusion is that we
probably should not. I would be interested to know what the NAO
and Committee's view is about that. There are lots of other balances
going back to 1726, which are very small, where a claim is probably
unlikelyunless Mr Steinberg's claim is clearly there, which
I shall check immediately I get backbecause the sums of
money involved there are really very tiny. That would be far too
63. Am I right in saying that under the current
legislation there is nothing you can do with this money except
leave it in the accounts?
(Sir Hayden Phillips) That is right.
64. One thing that has also confused me is,
I was a bit confused about the report, this money is sitting in
the account. It is, presumably, capable of earning some interest.
I understand that it is not earning interest or interest is not
paid into the account until it is paid out. Is that right?
(Mr Smedley) Simple interest is paid at the high street
rate on the day of paying out if there is a successful claim.
Otherwise the money is part of the global money that the National
Investments and Loans Office invests, and that would be earning
65. If the amounts are not claimed the interest
which would otherwise be paid out with the sums is going into
other funds already?
(Mr Smedley) Yes.
(Sir Hayden Phillips) The funds are at work, as it
were, in the National Investments and Loans Office.
66. It seems a most peculiar situation that
the funds themselves cannot be transferred but the interest is
(Mr Smedley) The money is active, we could not really
leave it on simple account, but it is not our money. We do not
have the legal authority to pay it.
67. The interest is paid at a simple not compound
(Mr Smedley) If a claimant gets the money out then
they are paid interest for the whole period during which it has
been in the unclaimed balances account at an interest rate which
is determined by the then prevailing interest rate. What we do
with the interest that is earned on the money on a daily basis
is we pay it to our mental health clients at a special interest
rate, which is above the market rate, and we finance that through
the investment of this money.
68. I am not at all certain I understand that.
Chairman: I had trouble too.
69. You were saying that you do not expect many
of the balances to be claimed ever. One of the reasons for that
is that certain individuals have disappeared, apparently off the
face of the earth or at least this country, and are untraceable.
You also said that a large part of the reason why funds get in
here is because solicitors pay them in and then do not reclaim
them. I can understand individuals not being traceable and not
knowing money is in the account on their behalf, however I would
have thought solicitors should be traceable.
(Mr Smedley) I think it would be possible for us to
go through the unpaid balances index and trace the money, I do
not think that would be impossible. My judgment is that it is
not an appropriate thing for us to do. There may be debate about
this. This is money that private solicitors remunerated for professional
It is a responsibility between them and their client what is done
with that money. We make it as easy as we can for would-be claimants
to find their money. The judgment is whether it is our task to
trawl through that money and seek to find to whom it rightly belongs.
70. What proportion of the 33 million would
be traceable to solicitors?
(Mr Smedley) That is a very difficult judgment to
71. I would have thought the lists that you
have made up shows where the money comes from and would indicate
how much is paid into the court by the solicitor?
(Mr Smedley) It just gives a case name, for example
Smith v Jones, so you would not know whether Smith was represented
or not. You would not categorise it as a solicitor case or a non-solicitor
case. May I say, for the sake of clarity, I think the trick is
not to worry about the unclaimed balances it is to stop it being
paid in in the first place. That is what we are doing more actively
72. I have a lot of sympathy with that view
but that is closing the door after the horse has bolted because
there is money in there now and the money that is in there now,
from what you have said to us so far, should be traceable via
solicitors. I am surprised the Government agency does not see
it as its duty, maybe that is the legal position.
(Mr Smedley) I am certainly not hiding behind the
legal position. It would be an intensive clerical exercise to
go through the index, get out the case, find the original county
court record card, trace the solicitor, contact them and say,
"Do you know you have £700." We could do that but
that is a very expensive use of public money.
73. How many of the cases are worth more than
(Mr Smedley) Of the £32 million we have in there?
I do not know the figure offhand. A large amount of the sums are
very small. Since 1976 about 12,000 of them are £100 on average
and before 1976 they are smaller.
(Sir Hayden Phillips) We are looking at the over £400
ceiling as one where we would actively try to trace people before
the money goes into the unclaimed balances, not afterwards.
74. That is what I understood your letter to
(Sir Hayden Phillips) That is where we decided to
put our efforts. Quite significant costs would be involved in
going back through all of these records.
75. What I am looking at is not just whether
you can identify them but whether you should be putting efforts
into making sure that money is repaid, which is the second stage,
which is simply not done at all at present.
(Mr Smedley) The key is to stop it at a point where
76. There may be less getting in as a result
of your efforts now, however I still feel there is a strong case
to be making sure that the fund is reduced in size by paying back
the larger sums. I understand the difficulty of tracing some of
the individuals involved but many of the solicitors firms would
still be in existence.
(Mr Smedley) It would just be a question of whether
that is a proper use of public money.
77. Or a proper use of the money itself. The
money is sitting there accumulating interest. It may be a proper
use of some of the smaller sums to make sure some of the larger
sums are paid back.
(Mr Smedley) We did investigate the idea of hiring
a tracing agent who we would remunerate on a commission basis.
Unfortunately that was found to be illegal, so we need to change
the law to do that. We temporarily had to drop that.
78. What happens when somebody in charge of
somebody else's money is in charge and dies? Is it up to you to
look for somebody else to look after that money?
(Mr Smedley) If the receiver dies? If
a receiver dies, yes, the case would go back to the Court of Protection
who then makes arrangements for a different receiver.
79. It is not your duty to make sure somebody
else takes over?
(Mr Smedley) We would work very closely with the Court
of Protection by referring the case to the court.
5 Note by Witness: It was intended that the
reply should run as follows: "This is money that private
solicitors are responsible for handling, and they are remunerated
for their professional advice". Back