Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40-59)


19 OCTOBER 2005

  Q40  Susan Kramer: You have just said that you do not know how many of them are alive today. What is your estimate of how many of the owners of this account have deceased and that it has failed to go into their estates, for one reason or another? And how are you dealing with that problem?

  Mr Cook: I think I have just said that we do not know. The average balance on these is very small indeed, but we have taken all the steps we can to try to identify these people. We run a tracing service, which we publicise widely both through advertisements and PR activity. This is a very old business with a long legacy of customers over many years. I have to say that, given the number of accounts, we have driven down the numbers of people who hold any material amount to a very low number indeed.

  Q41  Susan Kramer: Is there some point at which you cut this off and give the funds to charity? It does not necessarily seem appropriate that it should go to the Exchequer—if it is in the estate of the deceased.

  Mr Cook: The funds are effectively dormant. Because we do not hold the funds, this is part of the national debt. The money is already spent by the Government, effectively. It is not a question of giving it to charity, therefore.

  Q42  Chairman: Could I explore for a moment your attitude to inflation? You launched Inflation-Beating Savings at the end of August and you said, to promote your "unique range of Index-Linked Savings Certifications with the aim of raising awareness of the effects of inflation on savings as research shows"—these are your words—"British people remain largely oblivious to it". Yet at the same time you have Alan Sugar advertising the Premium Bonds, saying, "There's absolutely no risk at all. You get your money back", and not mentioning inflation. How do you reconcile these two things?

  Mr Cook: I think that the proposition on Premium Bonds is pretty clear. I think it is the case that, if one looks at Index-Linked Savings Certificates, there is hardly anything out in the marketplace which guarantees that you can gain a return on your savings in real terms—other than Index-Linked Savings Certificates. So what applies to Premium Bonds applies to anything one can purchase on the market—not just our products, but right across the range.

  Q43  Chairman: In terms of what applies to you, is inflation a risk or not?

  Mr Cook: All I am saying is that it is a level playing field we are talking about here: that inflation applies to everyone's savings, whatever type of product they buy, with the exception of Index-Linked Savings Certificates, or "Inflation-Beating Savings" as we have re-launched them.

  Q44  Chairman: But you have one product that is designed to raise people's awareness of the risk of inflation and another product that says there is no risk.

  Mr Cook: No, we do not say there is no risk. We are highlighting what is on offer.

  Q45  Chairman: On the screen Alan Sugar says, "They're tax-free, no risk. You always get your money back". That is the ad.

  Mr Cook: And you do get your money back if you want your money back.

  Q46  Ms Keeble: You said that you are traditionally for grannies and kids.

  Mr Cook: I said that other people said that.

  Q47  Ms Keeble: You also said that you had a client base of children. I have to say that, looking at the cover of your report, it is very family-friendly as well. So why do you not have a child trust fund product?

  Mr Cook: We already have a product called Children's Bonus Bonds, which has been very successful for many years. We have got £1.3 billion invested in it. It is a good proposition. It provides a tax-free return. "Hold on", you are going to say, "children don't pay tax"—but actually it is a good way for grandparents to invest money for children.

  Q48  Ms Keeble: Can people pay their baby bonds into it?

  Mr Cook: The voucher, you mean?

  Q49  Ms Keeble: Yes.

  Mr Cook: No, you cannot pay the voucher into that.

  Q50  Ms Keeble: Why do you not do a product that people can pay their vouchers into?

  Mr Cook: Because to launch an eligible child trust fund product you have to offer a lifestyle return—an equity-based return. We do not offer any exposed equity return products across our entire range. Our brand is all about, "You always get your money back". Our brand says that your money is safe with us. There is no risk that your stake money can go down. As soon as we launch any form of exposed equity product—and it is a bit grandiose to call a CTF an exposed equity product—in theory, the value of the voucher you put in could go down over time. We do not issue products of that nature. Because we had the Children's Bonus Bond already available, we felt we had a good proposition for children, and for grandparents and parents who wanted to invest for children.

  Q51  Ms Keeble: There are a fair number of the vouchers which have not been taken up at all.

  Mr Cook: Correct, so I understand.

  Q52  Ms Keeble: I am not sure what it runs at, but certainly it has been said that there are amounts that have not been claimed at all. Some of those will be the people who are least familiar with financial services; many of them financially excluded, as it were. It has also been one of your historic missions, has it not, to take savings out to a wider audience? Did you not think it was worth looking at cementing your position there and cementing your appeal to families, the issues around children, even to provide some product in partnership with somebody else—for example, Tesco's provide baby bonds in partnership with some other financial institution—to make sure that you could capture that bit of the market and provide a real service to people?

  Mr Cook: We are a distributor in the sense that we distribute our own products, but we are not a distributor in the sense that we take other people's products and distribute them. Again, part of the proposition of National Savings and Investments is "Your money is secure; it's backed by HM Treasury, and the money has gone in to help fund the national debt". If we are not doing that, we are not fulfilling our remit. I buy all that you say and they would all be good reasons why we should have a CTF, if it were not for the fact that we would have had to have made that an equity-backed product, which would be the only one we had.

  Q53  Ms Keeble: You could do it in partnership as other people have done. As you know, once people approach a financial institution for one product, they will then switch over to others. Clearly, if you are trying to encourage a savings culture—which is partly what the whole baby bond thing is about—once you start to get people in with what is virtually free money for them, you can migrate them over to other products. It could be a really important service that you could provide.

  Mr Cook: Our remit is about raising funds for the Government. The primary remit is that. As a by-product, we end up encouraging the nation to save. However, our remit is not to encourage the nation to save; our remit is to raise funds for the Government.

  Q54  Ms Keeble: Do you not think that recycling the money that the Treasury is paying out would be quite a useful thing to do, given that it is money going out from the Government to people—which quite a number of financial institutions have spotted is a useful in, and have produced products very quickly to capture this market?

  Mr Cook: It is not something we are required to do to meet our remit and, because we have a particularly valid and historically popular offer in Children's Bonus Bonds, then we would carry on. It would be a separate issue entirely were the Government to say that CTF vouchers could be deposited to a Children's Bonus Bond; but a Children's Bonus Bond does not have the same restrictions in terms of access to your money, for example. So I can understand why they would not want to do that.

  Q55  Chairman: Just to be clear for the record: there is no legal barrier or ministerial barrier to your freeing child trust funds. If you wanted to do it, you could.

  Mr Cook: Correct, but we would have to have—

  Q56  Chairman: I understand they are very different from your other products, but there is nothing stopping you doing it.

  Mr Cook: There is no technical reason—correct. A lot of money is going into cash-backed CTFs, but you cannot offer a cash one under the regulations unless you also offer an equity-backed one.

  Q57  Chairman: Have you suggested to the Treasury ways in which the child trust fund could be put into the Children's Bonus Bond?

  Mr Cook: We have explained to Ministers why we would not wish to participate in an equity-backed CTF.

  Q58  Chairman: So they have suggested that you could?

  Mr Cook: No.

  Q59  Chairman: So why have you explained that you cannot?

  Mr Cook: Because it seemed pretty courteous of me to explain, if you are ever going to launch a child trust fund, why we would not be launching one alongside it.

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