Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

MONDAY 17 APRIL 2000

SIR HAYDEN PHILLIPS KCB AND MR NICK SMEDLEY

  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 all that.
  (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 unlikely—unless Mr Steinberg's claim is clearly there, which I shall check immediately I get back—because the sums of money involved there are really very tiny. That would be far too expensive.

  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 interest.

  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 already transferred.
  (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 rate.
  (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.

Mr Rendel

  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 advice[5]. 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 make.

  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 now.

  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 £1,000?
  (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.

Chairman

  74. That is what I understood your letter to tell us.
  (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.

Mr Rendel

  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 it—

  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


 
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