Examination of Witnesses (Questions 40-59)
MR ALAN
COOK AND
MR TREVOR
BAYLEY
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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