Select Committee on Treasury Eleventh Report


5  SCOPE OF THE SCHEME

National Savings & Investments

37. According to the Economic Secretary, National Savings & Investments (NS&I) holds "£436 million of unclaimed assets, using the same definition as the banks and the building societies; £974 million, if you also include Savings Certificates, and then £993 million including unclaimed Premium Bond prizes".[71] As the BSA noted, "this dwarfs the amount the BSA estimates to be unclaimed in building society lost accounts."[72] The Government proposes that these funds held by the N&SI will not be included in the Unclaimed Asset Scheme.[73]

38. The BSA made clear that they considered that NS&I funds ought to be part of the Unclaimed Asset Scheme, partly in order to have a level playing field amongst financial institutions, but also because NS&I would be under much greater incentive to reunite their customers with dormant accounts if they faced the same scheme that other institutions were facing: "It will be advantageous for National Savings customers for National Savings to be part of the scheme".[74] The BBA gave cautious support to the BSA's view, but thought that some "definitional issues" might arise if NS&I were included.[75] Mr Hayday from Charity Bank considered that, if the Unclaimed Asset Scheme were to be introduced to the financial services sector, then it ought to be applied in that sector as widely as possible, and include NS&I.[76]

39. The Economic Secretary explained the rationale for the Treasury's position:

    If we were to repay or to transfer all unclaimed National Savings products that would not be money which is sitting in an account, that would be a direct increase in the national debt. So the judgment for us is: do we think it would be right for the taxpayer, for public spending, to transfer that amount of public spending of taxpayers' money into the Reclaim Fund? The judgment we made is that, actually, it plays a more important role in reducing the national debt, which is not to say that there is not an important obligation on National Savings to reunite - and I can say something about that if you would like. However, this is not money which sits in an account in National Savings; National Savings exist in order to service national debt, and that is what they do.

NS&I unclaimed assets benefit the nation as a whole, but the stated focus of the unclaimed assets disbursement programme is "on youth services that are responsive to the needs of young people and on financial capability and inclusion".[77] This focus is very different from the general benefit derived from reducing the national debt, so a choice has to be made. The Treasury's view is that that NS&I unclaimed assets would be best deployed in reducing the national debt. The Economic Secretary explained that funding national debt "is an important purpose. I am sure you will accept that an increase in the national debt is not desirable, in its own terms. Lending to the Government and reducing national debt is a public good."[78] He went on to say that "if we were to pass unclaimed assets from National Savings into the Reclaim Fund that would be a direct increase in public spending and the national debt of half a billion pounds. If that is what you are proposing, I understand the proposal, but I would not agree with it."[79]

40. We are unconvinced by the suggestion, implicit in the Economic Secretary's evidence to us, that funds held by the NS&I merit separate treatment because they are "taxpayers' money". Those funds are not taxpayers' money any more, or less, than a dormant account held in a bank belongs to that bank's shareholders. Conceptually, there is little difference between how NS&I and other financial institutions use unclaimed assets on their books. Those held by NS&I fund the national debt for the benefit of the taxpayer; those held by commercial enterprises fund the corporate debt of the bank (or building society) for the benefit of the shareholder (or member). The Government is effectively requiring the banks and building societies to surrender assets which do not belong to it, but is refusing to surrender the same assets that it is holding on behalf of dormant customers We find the intellectual argument for the exclusion of NS&I from the scheme to be weak, if it exists at all. The Government has proposed worthy causes to which unclaimed asset funds should be disbursed. These causes have been chosen to address very specific problems, such as youth and financial capability. Having set the principles for disbursement, the Government has then decided that its dormant funds are better spent on other types of expenditure, by funding the national debt. If the Government considers that specific use for identified good causes is the best use for the dormant accounts held by others, the Government should apply the same principle to accounts held by NS&I. On the grounds of equity between financial institutions, we recommend that NS&I be brought into the scope of the Unclaimed Asset Scheme. If that scheme is to be voluntary, we recommend that the Government volunteer NS&I's participation.

Insurance

41. The Government's proposals for unclaimed assets currently include only bank accounts and building society accounts. In Ireland, the original scope of the scheme included bank and building society accounts, as well as post office savings. Subsequently, life assurance policies were incorporated too: open-ended policies were defined as dormant after 15 years, and fixed-term policies were defined as 5 years after the policy expiration date. The Association of British Insurers (ABI) pointed out that the scale of unclaimed insurance assets could not be quantified until the definition of such assets was clarified:

The ABI's statement that actual sums released were lower than forecast is certainly true of Ireland. On our visit there we were told that estimates of the funds to be released amounted to €60 million, but the actual amount transferred proved to be a third of that amount, largely because of the success of attempts to get customers to reactivate their policies. The ABI told us that they were working to provide a better estimate of the potential scale in the UK, but the task was complicated by the fact that fund values varied with investment returns. Furthermore, many insurance products had no fixed point at which a claim for payment had to be made.[81]

42. Several witnesses thought that other classes of unclaimed assets should be considered for inclusion in the UK scheme, with the most popular being insurance. The Unclaimed Assets Charity Coalition was disappointed that the only sort of unclaimed asset being considered was dormant bank accounts, encouraging the Government to sees its work on dormant bank accounts as the start, and only the start, of wider work to reunite owners with the full range of their unclaimed assets.[82] Balance stated that it had undertaken research relating to the cash balances held by insurance companies representing unclaimed proceeds from matured policies of insurance and had found that, without a legislative solution that forced insurance firms to participate, "it was unlikely that the industry would take voluntary action".[83] From its work with the sector, Balance believed that there were substantial assets in this area which could potentially be categorised as unclaimed.[84]

43. The ABI did not express a definite view on whether or not insurance ought to be included in the scheme, instead promising that the insurance industry "will take a pragmatic approach to any proposals, taking into account the interests of its customers".[85] The Association of Mutual Insurers, however, warned that any removal of unclaimed policies from its members would be harmful to the sector, would disadvantage customers and provide little, if any, windfall gain for disbursement to worthy causes.[86] The Investment and Life Assurance Group (ILAG) argued that, in general, the insurance sector was already very pro-active in its attempts to identify dormant policyholders, with many using the Unclaimed Assets Register.[87] A further reason why it was felt that insurance ought not to be included in the scheme was that, in most cases, contact between insurer and policyholder during the lifetime of the policy would have been minimal. In other words, it would be more likely that an apparently dormant insurance policy was actually in use than an apparently dormant bank account.[88] Life assurance is one particular product that has been included in unclaimed asset schemes in various other jurisdictions. Insufficient work has been conducted on the feasibility of including assets other than bank and building society accounts in the UK's proposed scheme to be able to recommend their inclusion. However, the eventual expansion of the scheme to incorporate other asset classes is fertile ground for discussion. To this end, we recommend that the Government consult with the insurance industry about the possibility of its involvement in the scheme at some stage in the future.


71   Q 276 Back

72   Ev 81 Back

73   Q 276 Back

74   Qq 191, 193 Back

75   Q 192 Back

76   Q 81 Back

77   Unclaimed assets distribution mechanism: a consultation, para 3.1 Back

78   Q 277 Back

79   Q 279 Back

80   Ev 92  Back

81   Ev 93 Back

82   Ev 56 Back

83   The Balance Foundation, Releasing Unclaimed Assets to Charitable Causes, March 2007 Back

84   Ev 75 Back

85   Ev 92 Back

86   Ev 62 Back

87   The ILAG is a professional body concerned with the future of investment, life assurance and the pensions industry. Back

88   Ev 77 Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 6 August 2007