Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40-60)


21 FEBRUARY 2007

  Q40  Mr Todd: This was really a sampling exercise which was not to test the full range of this kind of channel but actually to say: How does this relationship work and what do we get from it and then maybe we will go to other partners?

  Mr Owen: I think that is a fair representation.

  Q41  Chairman: In the last couple of years there has been a significant increase in the use of telephone and Internet channels for your products. How are your contracts with your partners structured to ensure that you get the benefit of those cost savings rather than they do?

  Mr Owen: We actually pay our partners a different rate, particularly Siemens because that is where the cost impact hits, for the different channels in accordance with their costs, and so the lower their costs of operating a channel, the less we pay them.

  Q42  Chairman: How do you ensure that you are not disenfranchising those who do not have access, given the closure of the sub-post offices that Mr Cousins referred to? There is still a significant number of people who do not have access to these new technologies. How do you ensure you are not disenfranchising those customers?

  Ms Platt: The key thing here is that we have a variety of different channels: Post Office Counters, post itself, telephone and Internet. Looking at the statistics, a large range of our customer base, particularly the over-60s, are using the telephone more frequently so that we are seeing a big move in the more senior sections of our customer base to use the telephone, and indeed 10% of our Internet sales and 31% of our Internet requests for information are now from people over 60. We are finding that there has been a major shift in groups of the population using in particular the telephone and a gathering momentum over the Internet.

  Q43  Chairman: One of the issues we discussed with your predecessor was the extent to which you are not regulated by the FSA like many of your competitors. He told us that there were a number of areas where you were going to work within the spirit of the FSA rules. You come yourself I think from a regulatory sector. What has progressed since then?

  Ms Platt: I think we have now bedded down the Banking Code, which we are voluntarily complying with and that is within the fabric of the business. We have also transitioned to the Financial Ombudsman Service system, which was also a big change. One interesting fact is that the year before we moved to the Financial Ombudsman Service the total number of complaints received was 29,000 and after we moved to the new service, that fell to 9,000. In actual fact the Financial Ombudsman Service definition of a complaint is less all-embracing than the one that we were originally using. Of those, only 29 cases have gone to the Ombudsman; 24 have been upheld in our favour; two were renegotiated; and there are three pending. We have not actually had a decision against NS&I in the two years that we have been running the new system. We are very pleased that we have now moved to the new system. That is obviously checked and audited properly and we have moved there. In terms of the FSA, the Landscape Review, which was conducted in 2005, reiterated the aspiration to move to FSA compliance best practice. A programme, as my predecessor said, had been put in place. We are part-way through that programme. A gap analysis has been conducted of the areas where we need to make more progress. I am certainly very keen on expediting that programme. There are areas where we need to do more work to become best practice FSA-compliant. You have to remember, of course that NS&I does not hold customer assets. We do not give advice and we do not have complex products. A lot of the areas where financial services companies often have issues just do not apply to NS&I. We have this rolling programme of what we are going to do. We are well on the way down it. It needs to be speeded up. We brought in a new Finance Director who has compliance and risk management expertise, and so do I. We are committed to becoming FSA-compliant but it will not happen overnight and it needs to be managed within the context of our five-year plan.

  Q44  Mr Newmark: I want to talk about unclaimed assets. Can you tell me what the value of unclaimed Premium Bond prizes held by National Savings and Investments is at the moment?

  Ms Platt: We have £30 million of unclaimed prizes in Premium Bonds.

  Q45  Mr Newmark: What are you doing to find those people who are owed those moneys? What mechanisms are you using to try to track them down, or are you relying on them simply to track you down?

  Ms Platt: No. We have a very active tracing service and so far we have reunited 38,000 people with £36 million, so that we are doing well in terms of identifying customers and tracing them. The second thing is that we now have our Premium Bond prize checker on the Internet so that people can put in their Premium Bond numbers and check whether they have won a prize in the past. That is also proving very useful in reuniting people with prizes. Thirdly, but this is a longer term thing, we have a large project to match operational data across the various products in NS&I. As we do that, we may be able to find more clients that we have lost track of in one product because they may not have changed their address with one product but they have done with another. That is a major project but it should help us track down far more people. This business has been going for such a long time. In the last 12 months we have had one successful claim from 1897. We do keep records going back a long time and we do have active claims going back for a very long time.

  Q46  Mr Newmark: The Chairman asks whether the terms are inflation adjusted. What is the current value of the other categories of unclaimed assets? Do you have other products out there?

  Ms Platt: Looking at them in blocks, we have £34 million of unclaimed assets in closed products; in bond products, including Premium Bonds, the figure is £129 million; in savings certificates, £729 million; and in the account-based products, £447 million. Those statistics are compiled on the basis of a 15-year assumption, which may or may not be the assumption that is used for these calculations, but that is just so that you know what we have based them on.

  Q47  Mr Newmark: The figure seems to be somewhat different from what was in an article I saw in the Daily Mail half-way through the year which said it was £1.8 billion. There is a difference because it is almost one-third more than your numbers seem to add up to?

  Mr Owen: It is driven entirely by how you define an unclaimed asset. As Jane said, these are defined on a 15-year basis. If we have lost contact and had no interaction for 15 years—

  Q48  Mr Newmark: If you go back to 1899, there might be some other moneys still outstanding?

  Mr Owen: No, it is the other way round. If you made it a very short period, the figure would be bigger because inevitably if somebody changes address, they may not tell us today but they might tell us next year or in three or five years' time.

  Q49  Mr Newmark: Do you think a more accurate figure is £1.8 billion rather than £1.2 billion?

  Mr Owen: No, not at all; customers often contact us many years after enacting their products with us. It is a fairly arbitrary figure.

  Mr Todd: It sounds like a fairly typical Daily Mail exaggeration.

  Q50  Mr Newmark: I do not know. In the case of unclaimed assets, does the National Savings & Investments make use of other government databases in tracing dormant accounts or is this a new system that you are referring to?

  Mr Owen: No, we have no links to other government databases.

  Q51  Mr Newmark: Do you think that it is right that the Government should be using the unclaimed assets to pay down national debt? I am only asking that because, as we all know, the Chancellor's national debt seems to have bloated out of control at the moment. If people from 1897 or even the 1900s are ultimately coming back to claim that money, is it right to be using other people's money to pay down the national debt?

  Ms Platt: There is no difference in treatment of the assets of someone who buys a Premium Bond today from someone who bought a savings certificate during the Second World War or a savings stamp earlier.. They all go to the National Loans Fund or to the Government and are used as part of our net financing figures. There is absolutely no difference. The key thing is that even if somebody, or their relatives, comes back from 1897 to claim their assets, those assets are restored to them. There is no question of the "assets" not being available to be restored to individuals.

  Q52  Mr Newmark: I hear what you say and thank you for that. I am trying to square what you are saying, which seems to be the right approach, with what I read that a Treasury spokesman said, that unclaimed assets in National Savings & Investments and government gilts are already doing public good; they are helping finance public expenditure. The Treasury spokesman goes on to say that the money that is dormant is benefiting society and every £1 saved with us helps fund the national debt. That does not seem to tie in with what you are saying, that this money effectively should be ring-fenced for those people to claim at some point in time in the future. It seems to be that the Chancellor and other Treasury ministers are holding on to that money that may now be dormant to pay down the national debt.[3]

  Ms Platt: I may have been misleading in the way I put this across.

  Q53  Mr Newmark: I am sure you were not. I am sure I misunderstood.

  Ms Platt: All the investments that are made by individuals in Nationals Savings products go to the Government for Government use. Effectively they are used by the Government. At the current time, there is absolutely no difference; there is no ring-fencing and the assets are available in just the same way as for someone who bought a product yesterday or last year. What I think the Treasury official may have been trying to get at is that in any other system it would mean that there were two tiers, whereas at the moment there is no difference in the way dormant assets and the current assets are treated.

  Q54  Mr Newmark: If I am running my own system, should there not be something, otherwise it is like The Producers; you could have unlimited risk. You have to be able to say that this is the return. I am taking a certain amount of money. It is understandable that the Treasury wants to use that money mainly to pay down debt or to invest elsewhere. It also says to the public who are investing that money or giving the money to the Government, "There will be a return on that at some point in time in the future". Whether I claim it today or my grandchildren claim it in 50 years' time, that ultimately is a view, a contingent liability on the Government side, that they will owe that money to somebody else. I do not want to get into a technical accounting question. It seems curious that the Government wants to take this dormant money that is sitting there which belongs to somebody else and to use it to pay down government debt because that then gives a false picture of the true nature of the Government's debt situation.

  Ms Platt: In terms of paying down the government debt, maybe that wording is misleading because all the moneys that have been invested through National Savings and Investments products are paid to the Government, which then uses those funds in whatever way it sees fit and it is part of the national debt. If you were to buy a Premium Bond today, the money that you would pay would go through to the Government to be spent on the National Health Service or whatever the Government chooses to spend it on. We keep accounts meticulously of what you have paid in. If you are investing in a bond which has a rate of interest, exactly how much interest is required and those accounts and records are kept very carefully. If you come back next year or your children come back in 70 years and want that money back, the records are there and the government of the day will fund that through their cash-flow, so there is no difference between the way money which comes in now and these dormant assets are treated.

  Q55  Chairman: I have two or three questions on targets. Your value-added target for next year is actually lower than you achieved last year. Why is that?

  Ms Platt: In terms of why that target was set, it will have been a function of interest rate assumptions and the level of net financing that we were anticipating in our plan. In fact, the level of net financing and the value-add will both be ahead of what we achieved last year.

  Q56  Chairman: If we turn to net financing, that was actually very much larger than you originally estimated. Why was that?

  Ms Platt: Are you talking about last year?

  Q57  Chairman: Yes. It was more than £1 billion more, was it not?

  Ms Platt: It was more than £1 billion more than the original target.

  Q58  Chairman: How did you get that estimate wrong?

  Ms Platt: It is very difficult to predict exactly what the effect of marketing strategies and policies will be, particularly when you introduce new features. For example, in the year under review, we had the two £1 million prizes brought into Premium Bonds and a number of market campaigns, including a television advertising campaign. A number of those were put in place to learn what the effects of those types of strategies would be. In fact, they brought in far more sales than had been predicted at the time. It is a fact that the marketing strategies were more successful than had been predicted.

  Q59  Chairman: The financing target has now been reduced to £3 billion. Does that mean that, after those various marketing initiatives, you are now expecting lower sales, or have you just tweaked this target to meet the five-year £15 billion total? Which is it?

  Ms Platt: As I said at the beginning of the session, the direction 2007 target, which was to achieve net financing of £15 billion over a period of five years, has actually achieved that in four. That strategy will now be closed. The key thing is that, going forward, we are moving away from a growth strategy to a strategy which is focusing on value-add. We will be looking, as per the Landscape Review, to maintain a much more steady net financing of around £3 billion a year over the next five years. Just because the net financing is £3 billion does not mean that sales will not be ambitious because next year there will be a large number of maturities of our certificates, which means there will be a large number of redemptions. Even though next year we will be working to a target of around £3 billion, we would expect to have to achieve sales of about £11.1 billion to be able to deliver that net financing. We will have redemptions at a very high level because of the end of the term of the certificates.

  Q60  Chairman: Thank you very much indeed. You are accountable to this sub-committee. You do owe us a slightly better explanation, perhaps in writing, on Ms Keeble's point. Could you go back to what was said on the Child Trust Funds and write to me fully and formally about that decision? That will clear it up.

  Ms Platt: We will do that.

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