Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


19 OCTOBER 2005

  Q80  Mr Todd: But because they are intimately linked to you, if you have a downturn in activity—which is dictated, as we have just discussed in earlier questions, by government policy to a substantial degree—Siemens presumably have to grapple with that and find a way of dealing with a lower throughput of activity, or that may be compensated within the deal, which I assume we have never had a sight of, to see quite how it handles that.

  Mr Cook: We have a relationship with them that pays a fixed unitary payment for the work they took on in the first place. It is undoubtedly the case that if we grow, then I have to pay them for that additional growth.

  Q81  Mr Todd: And if you shrink, you have to pay them for work that actually is not being done?

  Mr Cook: No, because what we would do, if we grew in a given year, is we effectively pay them the lifetime value of the additional business that is taken on. If we sold a five-year savings certificate, they have the processing cost of issuing that five-year savings certificate. They might get a change of address, a couple of phone calls; then it will come up for maturity; they will have to mail them, and whatever. We have calculated, by product, lifetime transaction costs and we pay them for that. So if we did not grow the next year, we just would not pay them.

  Q82  Mr Todd: They have decided to outsource some work to India. Any problems with that from your point of view?

  Mr Cook: To date, there are about 120 people doing the work there. The accuracy levels and the timeliness are excellent. So we have had no difficulties whatsoever.

  Q83  Mr Todd: Your view presumably is that it is none of your business; that is their task as part of the PPP.

  Mr Cook: No, I would not go that far. I think that it is very much our business. I have issues on two counts. One, I need to make sure the work is done accurately and correctly. Two, I have brand concerns.

  Q84  Mr Todd: So is there a constraint on that particular direction by Siemens?

  Mr Cook: Yes. For example, I have said that I would not wish to locate call centre work out there. That has been done quite a bit in financial services, but there are quite a lot of people in this country walking round, moaning about it. I want us to be the most trusted financial services provider and, at the moment, back office processing seems okay.

  Q85  Mr Todd: Are you committed to a no-redundancy relationship with them? They have taken over your staff.

  Mr Cook: No. We did agree to this piece of off-shoring on the basis that there would be no redundancies as a result of the off-shoring.

  Q86  Mr Todd: That guarantee does not apply to anything else?

  Mr Cook: No. Indeed, as I have already said, the headcount has come down from 4,000 to 2,000 over the years. A lot of that has been through redeployment on to other contracts.

  Chairman: We have a few minor issues to clear up—or perhaps not minor issues.

  Q87  Peter Viggers: Your aim is to borrow money on behalf of the Government and, of course, the Government also borrows through gilts and other methods?

  Mr Cook: Yes.

  Q88  Peter Viggers: The extent to which you are borrowing at a cheaper rate than gilts is described as value added?

  Mr Cook: Correct.

  Q89  Peter Viggers: What was your target for value added last year, 2004-05? It is page 39 and it is described as "at least £200 million".

  Mr Cook: Yes, that was the remit.

  Q90  Peter Viggers: What is your target for value added in 2005-06?

  Mr Bayley: £225 million.

  Q91  Peter Viggers: Why does the word "confidential" appear in your annual report?

  Mr Bayley: Because the remit is confidential between ourselves and DRM, that is the Treasury.

  Q92  Peter Viggers: Why is it confidential?

  Mr Cook: That is what we are given to understand.

  Peter Viggers: It cannot be that confidential if you have just told us, I assume. I think that answers my question. I was just baffled that it was described as "confidential" in the annual report.

  Q93  Chairman: May I ask you a couple of minor issues? On dormant accounts, have you been involved in discussions with the Treasury about your own dormant accounts?

  Mr Cook: Yes.

  Q94  Chairman: What has happened?

  Mr Cook: I think the position, to which someone has already alluded, is the Treasury view is that our dormant accounts, or the money that sits there, is already in play, as it were, in terms of it has been spent by the Government. The notion that it might be given away to charity—we would be giving away money that has already been given away, effectively.

  Q95  Chairman: What about giving it back to its owners? Are you still searching them out?

  Mr Cook: I have already talked about our tracing service. It is quite significant. Since 2001, when we launched the tracing service, we have tracked down 18,000 people and repatriated £19 million. We have leaflets that we publish; we do press articles; we will run ads. In particular, we have a piece on our website which enables you to hunt and see—it is called the Prize Checker—if you have any outstanding prizes on Premium Bonds. So we put a lot of effort into being visible and making a lot of noise about the fact that we have money attached to customers that we cannot track down.

  Q96  Chairman: That would rely on someone going on to your website. You do not use professional tracing services that, for example, trace shares?

  Mr Cook: If you see any newspaper article that is talking about dormant funds, or whatever, you will see that they list two or three places you should go to track it down, and we will be there. It is a very visible service for something which, inevitably, is a very old organisation. So there is a lot of history there.

  Q97  Kerry McCarthy: You give figures on page 11 of the report. You say that £200 million still remains in these dormant accounts, which is a pretty significant amount of money. Then, in terms of unclaimed Premium Bond prizes, there is another £23 million. At what point do you draw the line? There must come some point where it is obvious if the holder of the account is of an age that you would expect them to be deceased.

  Mr Cook: In the cause of honesty and transparency, I have to say that those figures are under-exaggerated; they are not quite right. I was talking about only one account when I talked about £200million. It is actually much greater than that. There is £1.8 billion of dormant accounts and £25 million worth of unclaimed prizes on Premium Bonds.

  Q98  Chairman: £23 million? £25 million?

  Mr Cook: £25 million worth of unclaimed prizes, yes. All the numbers in this business are very large. It is something you have to get used to after a while.

  Q99  Kerry McCarthy: Do you have a rough idea of what the average figure is in these accounts and what is the maximum figure held in any dormant account?

  Mr Cook: No, I could not give you any headline-grabbing—what is the biggest one. I do not know. I would be making it up if I said what the largest prize is. They are not huge, but they are big by anybody's—

  Mr Bayley: It might be £25,000.

  Mr Cook: I would have thought £25,000 was the largest one.

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