Select Committee on Treasury Eleventh Report


The Government's proposals

68. From the outset, the Government has made clear that it intended the funds made available from the dormant accounts scheme to be put to good use. Its May 2007 consultation paper on the distribution of unclaimed assets outlined two key priorities for disbursement in England and Wales, and a third area which would receive funding if sufficient resources were to become available:

In setting out the Government's Draft Legislative Programme in July 2007, the Prime Minister stressed youth services more than the other aims of financial education and financial inclusion, and also referred to the possibility of spending on "community facilities".[140] The Government proposes using the Big Lottery Fund infrastructure as the delivery mechanism to distribute unclaimed assets to deliver effective programmes and activities for young people in England.[141] The devolved administrations of Scotland, Wales and Northern Ireland would have the power to determine the priorities for distribution in their own countries, which might differ from those outlined for England.[142]

69. The Institute of Fundraising expressed its concern that the Government had issued a directive as to which good causes the money generated would be spent upon, and argued that the Government ought to ensure that a full and open consultation was held with the public and with the charity and voluntary sector about how unclaimed assets were to be reinvested in society.[143] The National Council for Voluntary Organisations (NCVO) thought that priorities for funding ought to be determined independently, in consultation with a range of stakeholders including the voluntary and community sector.[144] We received alternative suggestions for how the funds released from unclaimed assets should be distributed. Mr Frank Field MP and Derek Wyatt MP believed that the first claim on the unclaimed assets of banks and building societies should be given to the victims of the wind-up of occupational pension schemes.[145] The Prince's Initiative for Mature Enterprise called for a focus on micro-finance for the over 50s to enable more of that generation to start up businesses.[146]

70. We asked the Economic Secretary whether the aims set out for disbursement were areas for public consultation. He replied:

    The answer to that is no, we are not consulting on that; we are consulting on how to spend the money so that we can deliver money for youth services and financial inclusion. That was the position from the beginning. I think you will find there is widespread support for spending money on better youth services … we all know that youth services is an area which has been under-funded for decades, and we should do something more about that. We could have decided to say there is an amount of money, have a broad-based consultation on what to spend it on, but that is not the road we have gone down.[147]

He defended the decision not to ask for the public's view on which good causes should be supported by unclaimed assets:

    From the beginning we said the reason why we would set off down this road is in order to provide more money for youth services and financial inclusion. As I said, my judgment is that there will be widespread support … for doing that.[148]

71. There is an inconsistency between the Government's insistence that an Unclaimed Asset Scheme ought to be voluntary in nature, and its insistence that the overall aims of distribution ought to be determined by the Government without further consultation. We regret the Government's decision to make its choices on funding priorities without meaningful prior consultation with relevant stakeholders.

A Social Investment Bank

72. The Commission on Unclaimed Assets (CUA) was established in November 2005 (at the initiative of the Scarman Trust) to develop proposals that would generate the maximum public benefit from the proceeds of the dormant accounts held by banks and building societies based in the UK. It has previously recommended using unclaimed assets to fund a new Social Investment Bank (SIB) to develop the social investment market, arguing that the SIB would:

The CUA argued that the UK needed an SIB to strengthen the voluntary sector, and that this would be preferable to using the unclaimed assets funds for a more traditional grant-giving programme:

    This is about taking this money and instead of spraying it over the desert sand and seeing it seep in, creating an organisation that can act as a pump for a voluntary sector which is akin to an engine with all its pieces lying around which you have to bolt together. If you bolt it together and put this pump in it you will get real results.[150]

He saw the main benefit of the SIB as coming to the aid of an undercapitalised third sector:

    If you want to deal with the problems of poverty today, I think all of us would agree that just giving Government grants is not going to provide the solution. We have a society where wealth is increasing, growth in the economy is up, employment is up, the economy does better, but the gap between rich and poor is getting bigger and bigger. We have a third sector that is powerful in terms of the numbers of people working in it and is very poorly undercapitalised.[151]

73. Ed Mayo, a Trustee of the CUA, but also Chief Executive of the National Consumer Council, believed that this was a rare opportunity to respond in an effective and innovative way to the challenges facing the third sector:

    [The SIB] is about unleashing [the third sector's] potential to make a difference. I have seen third sector organisations that are killed by sudden death contracts, by the … chronic and endemic insecurity of grant funding … What we are exploring in a SIB … is changing the way that that effort and that initiative is capitalised and looking to more effective ways to do it. If you talk to managers and people that work in the front line, in communities and community development trusts or social enterprises providing these services, the idea that there could be a stronger capital base to give them security to employ local people to provide services to innovate I think is a key thing … It is terribly difficult to do something innovative here often in England and I think what we are doing with this proposal is changing that. I am very confident that the proposal is far more innovative and will be far more of an effective proposal than simply responding to the inexhaustible needs of a myriad of different good causes.[152]

74. The Government has not committed any funds from unclaimed assets to the concept of the SIB, although it has said that, resources permitting, it would also "like to see a proportion of the available assets used to invest in the long term sustainability of the third sector and boost the social investment market".[153] The Economic Secretary saw merit in the concept of a SIB and was persuaded that there was a market gap that ought to be filled by society. However, he warned that it should not be presumed that a particular institution "which, at this stage, does not even exist would be the right and the best way to funnel money to the third sector, given that there will be other alternatives which already exist".[154]

75. Charity Bank was of the opinion that there was room for a number of particular disbursement models to be employed:

    Somewhere between granting, lending and being more creative there are a number of potential [models] and they are not mutually exclusive in that sense.[155]

In particular, Charity Bank argued that there was a role for the SIB in making small capacity building grants, because many organisations, particularly in small, deprived communities, lacked the capacity to take advantage of the types of instruments currently being proposed for the SIB.[156] Such grant-giving would be restricted to raising financial capacity, in order to help organisations apply for the SIB's loans.[157] It would not be grant-giving to all good causes.

76. Triodos Bank questioned whether there was sufficient market demand for an organisation such as the SIB:

    [The SIB] should be careful not to disrupt a market that's well served by existing players, and it should embrace the lessons from the initiatives that came before it."[158]

We put this challenge to the CUA, which replied:

    We have had consultation with 1,000 people in the course of our work. There is a huge need for capital … Our expectation is that we can attract three or four times the amount of money from the private sector than if you are investing in this institution ... This money is a fraction of what is needed in total. I think if we do this then ten years from now when we look back upon it we will see that it is a crucial part of funding voluntary organisations in this country to do a job which neither Government nor the private sector can do effectively.[159]

The Chairman of the CUA, Sir Ronald Cohen, then likened the supply and demand for social venture capital to a "chicken and egg problem". Although there might not appear to be excess demand at the moment, if the SIB were to come into play, he argued, the demand would materialise:

    The chicken and the egg did not come one before the other, they came together. A chicken and egg problem means that you have to work on both dimensions at the same time, you have to work on the supply of capital and you have to work on the capacity of organisations to put it out … There is no shortage of entrepreneurs … The supply of money does create its own demand. People go out to get the money if they think it is easy to get it. If they think it is impossible to get it they do not try … If you can see your way to supporting the creation of a Social Investment Bank you will see that it will transform the flow of capital into these areas. I was giving the example of the Charity Bank. The Charity Bank today needs £10 million of equity to increase its ability to lend to not-for-profit organisations. Do you know how much it could give in loans if it got that £10 million? It could give £130 million. That £10 million will release £130 million of lending to not-for-profit organisations. That is what this is about.[160]

77. The Institute of Fundraising argued that the SIB "should build on and complement the existing intermediaries that already exist to support the [third] sector. Umbrella organisations—such as the Institute of Fundraising as well as the government's Finance Hub, and entities such as Futurebuilders—all provide aspects of financial and funding advice and support to the sector and it is important that their expertise is acknowledged and incorporated into any distribution mechanism".[161] The NCVO also wrote of the importance in ensuring both that these funds do not displace existing and emerging funders and investors, and that distribution is conducted via intermediaries where possible.[162] The NCVO welcomed confirmation from the CUA that the proposed SIB would act as a wholesaler, working through existing and emerging financial intermediaries, rather than being in competition with them.[163]

78. When asked about the likely funding needs of the SIB, Sir Ronald said that "£250 million of unclaimed assets is a Godsend".[164] The Government's position on the use of unclaimed assets towards social enterprise is that, if resources permit and subject to clarifying or addressing any state aid implications, "the Government would like to see a proportion of unclaimed assets in England used to support social investment in third sector organisations."[165] In oral evidence, the Economic Secretary confirmed this:

    While we started out with a position that money from unclaimed assets would be spent on youth services and financial inclusion, because of the work of the Unclaimed Assets Commission [that is, the CUA] and their proposal in the Social Investment Bank, we have said … that we would add a third objective into our consultation document which is to support social enterprise [though not specifically through the SIB]. We say, though, that that will depend upon the resources which are available, the consultation and the detail of the proposals which may come forward.[166]

The Economic Secretary denied that any promise of funding had been made to any organisation, including the SIB:

    There has never been, to my mind, any presumption that the money would be spent on the Social Investment Bank. In fact, the opposite: the starting presumption was that it would be spent on youth services and financial inclusion.[167]

79. The Economic Secretary explained that he had spoken on many occasions to Sir Ronald Cohen on the matter of funding for the SIB, and he was confident that there was no difference of understanding.[168] Nevertheless, the CUA suggested that the Government ought to make a commitment at an early stage to the SIB receiving funding from unclaimed assets.[169] The CUA said: "We believe that we have made a very strong case that it would be better to concentrate a good chunk of this [unclaimed assets] money and to invest it in developing a financial infrastructure for voluntary organisations to get funding."[170] Sir Ronald also said:

    We do not see the fact that the money would travel via the Big Lottery Fund as an impediment to our receiving it. We would see the SIB as one of those organisations that could go to the Big Lottery Fund…We see the Big Lottery Fund simply as a conduit and from a legislative and other point of view it happens to be a convenient one.[171]

The CUA clarified the sums that it was requesting from the Unclaimed Asset Scheme for the SIB:

    I think it has got to be of the order of £330 million over five years. I would rather it was £250 million up front than £150 million up front, but if we found that the total was insufficient and we had to start with £150, we would start with £150. Below £150 would not be credible.[172]

The Economic Secretary confirmed that he understood that any amount less than the CUA were asking for would be inadequate and jeopardise the establishment of the SIB.[173] He later said that:

    I do not think the presumption in [the consultation] documents is that the majority of the funds will go to the Social Investment Bank. Therefore, if [£250m in the first year] was necessary in order to capitalise, it would have to look for other sources of finance.[174]

The Economic Secretary said "So if the question is: 'It's £350 million or nothing', then either that is going to be solved by unclaimed assets turning out to be rather larger than we expect, or there is going to have to be other sources of funding into the Social Investment Bank than unclaimed assets."[175] Sir Ronald feared that it would be "very difficult to get an allocation from Government for a purpose such as this if the unclaimed assets were not available", with the implication that without unclaimed assets funds, the whole SIB project would be imperilled.[176]

80. If the SIB is to be established, and funded from unclaimed assets, it needs to be set up with an appropriate governance and accountability framework. The CUA reported that:

    The Social Investment Bank should be an independent institution answerable to the third sector, with a governance framework that is effective, representative and compliant with best practice.

When we asked the CUA what being "answerable to the third sector" meant, they said that the SIB would need to be "highly responsive" to the needs of the third sector, but it would not be formally accountable to it. The SIB would perhaps be accountable to Parliament, reporting on an annual basis. The National Council for Voluntary Organisations argued that is was "crucial" that any new institution with a remit to reinvest unclaimed assets was genuinely independent:

    While the report from the Commission on Unclaimed Assets recognises the importance of this principle, it also suggests that the SIB would be 'answerable to the third sector'. However, these funds do not derive from the third sector, the government or the financial institutions holding the assets. Given the public nature of these funds, it may be appropriate for any distributors to be accountable to Parliament but they should not be accountable to any one sector.[177]

Charity Bank agreed that Parliament ought to be "the ultimate scrutineer" of the SIB.[178]

81. We commend the work that the Commission on Unclaimed Assets has undertaken relating to the most effective use of unclaimed assets. Their proposals for a Social Investment Bank are innovative, and we accept that there is a market need for a body resembling the SIB to give a financial boost to the third sector, which remains a Government priority. We find the concept of using gearing to multiply the potential impact of unclaimed assets attractive when compared to more traditional grant-giving distribution methods. We have been told that the Social Investment Bank needs minimum funding of £330 million over five years for it to be viable, but we do not, at present, see any sign of the Government committing resources to social investment of this scale. We believe that the Government cannot will the ends if it does not will the means. We want the Government to allocate sufficient resources to a Social Investment Bank funded in part through unclaimed assets.

The local disbursement option

82. The 2005 Pre-Budget Report announced that there would be an option for small, locally-based financial institutions to focus the use of unclaimed assets on youth services and financial capability and inclusion in their local communities.[179] The intention is to allow small institutions, principally small building societies, to use unclaimed assets to benefit the communities to which their members belong. The BSA welcomed this option, claiming that "the particular thing that … upsets some of the smaller building societies is that most of the lost account money in their organisation will have been drawn from a particular locality and they do not want to be forced to donate to a national charitable scheme".[180] In May 2007, the Government suggested that the proposed definition of a small-locally based financial institution is one with total assets of up to £7 billion, which would include 59 building societies.[181] In evidence to us, the Economic Secretary revised downwards his estimate of the number of eligible societies to 52.[182] According to the BSA website there are 60 societies in the UK.[183]

83. The Skipton Building Society conducted a survey of its members which found that 88% of members did not want their unclaimed assets to go to a national scheme, instead preferring disbursement to local charities. The local option was viewed as vital insofar as it would gain the support of building society members for the scheme.[184] Charity Bank put the other side of the argument:

    There is no way of knowing that, say, an owner of an unclaimed asset in Northern Ireland would not have opted, given the chance, to support a cause in Africa or even England. Indeed, where people can make the choice today by depositing with Charity Bank they know that the money will be used throughout the UK.[185]

84. In its consultation paper the Government proposed that "these institutions transfer money to an arms-length charitable body".[186] The BSA considered that existing charitable foundations funded by building societies would qualify as "arms-length", because they were not under the direct control of the societies:

    The trustees of those foundations are appointed only in a minority by the building society. So the building society foundations, in my view, would come into the definition of "arms-length". They are not controlled by the building society but they are funded by the building society and, typically, the building society controls less than half of the nominations to be a trustee of those charities. So, I do not think there is a conflict there.[187]

The Economic Secretary appeared to confirm that building society foundations would be an appropriate conduit for local disbursement:

    We will be very keen to ensure that local designated charities, including the local designated charities with which the building societies currently have relationships—that they can carry on diverting money through those routes. Without wanting to pre-empt the outcome of the consultation and the legislation, my instinct would be that if a building society has a close relationship with a local charity, its own foundation, then the last thing we will be seeking to do is to destabilise that relationship. In fact, we are precisely trying to allow those local, small building societies to carry on routing money into the community through those mechanisms.[188]

85. Many building society foundations have built up strong relationships with local charities over decades, and some have concentrated upon specific sectors. For example, the Nationwide Foundation currently focuses on domestic violence, prisoners' families and young offenders.[189] If building societies are to choose the local disbursement option, their foundations will need to know whether they can apply funds to their existing priorities or they must follow the national priorities set by the Government (and the devolved institutions in Scotland, Wales and Northern Ireland). The Government's consultation paper stated:

    It is proposed that these institutions transfer money not needed to cover expected requests for reclaim to an arm's length charitable body which could then distribute assets on to smaller charities at the local level. This distribution would be in accordance with the spending priorities of the scheme in that particular country of the UK.[190]

The BSA were confident that its members would be required to ensure that the priorities identified by the Government as the most worthy—financial inclusion, financial capability and youth work—were the recipients of the funds, at a local level, but the Economic Secretary said:[191]

    As I understand it, there will be no requirement that they have, through their local foundations, to spend on the particular objectives which we are setting for the broader scheme.[192]

86. We recommend that, in its response to this Report, the Government clarify whether building societies adopting the local disbursement option will be required to have regard to the wider objectives of the Government for funds made available from unclaimed assets.

139   Unclaimed assets distribution mechanism: a consultation, paras 1.7 to 1.9 Back

140   HC Deb, 11 July 2007, col 1451 Back

141   Unclaimed assets distribution mechanism: a consultation, para 5.1 Back

142   Unclaimed assets distribution mechanism: a consultation, para 1.10 Back

143   Ev 62-63 Back

144   Ev 70 Back

145   Ev 101 Back

146   Ev 107 Back

147   Q 299 Back

148   Q 304 Back

149   The Commission on Unclaimed Assets, The Social Investment Bank; Its organisation and role in driving development of the third sector, March 2007, p 2 Back

150   Q 253 Back

151   Q 242 Back

152   Q 254 Back

153   Unclaimed assets distribution mechanism: a consultation, para 1.9 Back

154   Q 305 Back

155   Q 84 Back

156   Q 86 Back

157   Q 88 Back

158   Triodos website, Back

159   Q 252 Back

160   Q 253 Back

161   Ev 64 Back

162   Ev 71 Back

163   Ev 72 Back

164   Q 253 Back

165   Unclaimed assets distribution mechanism: a consultation, para 4.20 Back

166   Q 287 Back

167   Q 283 Back

168   Q 284 Back

169   Q 234 Back

170   Q 232 Back

171   Q 233 Back

172   Q 237 Back

173   Q 288 Back

174   Q 307 Back

175   Q 305 Back

176   Q 253 Back

177   Ev 72 Back

178   Ev 96 Back

179   HM Treasury, Pre- Budget Report 2005, December 2005, para 5.82 Back

180   Q 185 Back

181   A UK Unclaimed Asset Scheme: a consultation, para 4.22 and table 4.1 Back

182   Q 311 Back

183   BSA website, Back

184   Q 98 Back

185   Ev 95 Back

186   Unclaimed assets distribution mechanism: a consultation, para 5.21 Back

187   Q 183 Back

188   Q 311 Back

189   Nationwide website, Back

190   Unclaimed assets distribution mechanism: a consultation, para 5.21 Back

191   Q 188 Back

192   Q 313 Back

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