Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

TUESDAY 15 MAY 2007

MR DAVID CLARK, MR MALCOLM HAYDAY, MR JOHN GOODFELLOW AND MS GILL DAVIDSON

  Q80  Jim Cousins: The National Savings and Investment are suggesting that they are excluded from the scheme. I wonder what view you have about that?

  Mr Goodfellow: I wish I was as creative as the National Savings and Investment for avoiding the scheme.

  Q81  Jim Cousins: What is your view about that, Mr Hayday?

  Mr Hayday: I think we take the view that if this scheme is to be applied to the financial services sector it should be applied across as wide a range of the financial services sector as possible; so that would include national savings, it would include credit balances on credit cards, a whole range of things.

  Q82  Jim Cousins: But not necessarily insurance?

  Mr Hayday: It should include insurance as well

  Q83  Jim Cousins: So your view would be that the attempted exclusion of National Savings and Investment—

  Mr Goodfellow: It is unfortunate. I think if we are operating on the principle of unclaimed assets should be transferred for the public good then it should apply across the whole of the financial services on as wide a basis as we can do it.

  Q84  Jim Cousins: My next question is more for Mr Clark and Mr Hayday. The previous witnesses have just said that they regard the idea of leverage through a social investment bank rather than actually giving grants directly where you only get one on one benefit rather than maybe two on one, three on one or possibly a great deal more, as being an attractive feature. How do you view that?

  Mr Hayday: We listened intently to the evidence before and indeed we have had discussions with the putative social investment banks' thinkers on this and I am inclined to agree with the comment made by one of the witnesses that there is room, given the amount involved, for a number of particular models in this. A social investment bank would have to be quite well defined. What an investment bank does is not necessarily what a social investment bank would necessarily do. May I also point out that the definition of a bank does not hinge around what it does with its money, it is where the money comes from. A bank is something which takes deposits and it would be the difference, for example, in what experience we could bring as a bank, where we do take deposits and we do lend them to charities, which is more of a retail type of operation, than, for example, a social investment bank that might use the funds in, for example, venture capital, in lending, in grant making and in other forms of risk, but they would not be taking deposits from the public. So there are a number of models here, and we heard our colleagues from Balance talking about grant making. So somewhere between granting, lending and being more creative there are a number of potential levels and in that they are not mutually exclusive in that sense.

  Q85  Jim Cousins: Two points there. One is that you have there suggested that this new vehicle, what it might be, had a lending role, so that itself became involved in retail banking activities in some form. Do you not think that that raises some quite serious issues of probity?

  Mr Clark: Just to clarify that, our focus of attention clearly is on the reclaim fund. What we are suggesting is that the reclaim fund might wish it to lend to charities. It would not have to be a bank to do so, it might want to come to the Charity Bank, the Social Investment Bank and other people who have experience of that type of lending and that type of investing, which is highly specialised and relatively new. But it itself would not necessarily need to be a bank.

  Q86  Jim Cousins: Whether it was a bank or not if it itself, whatever it was, was involved in lending activities that would require the acquisition of a whole new battery of skills and a whole new battery of market considerations as against other potential lenders.

  Mr Clark: Indeed. May I ask to give our thinking on this because we have had quite a close rapport?

  Mr Hayday: The way we see the Social Investment Bank is that it would act very much in a wholesale capacity, bringing liquidity to other intermediaries in the market place, so we would not necessarily see it as lending directly to end beneficiary organisations. But I think there is also a role for it in making small capacity building grants, as witnesses from the Balance Foundation said earlier, because many organisations, particularly in small, deprived communities, actually lack the capacity to take advantage of these types of instruments at the present time.

  Q87  Jim Cousins: Let us be clear about this. You are there suggesting that this new vehicle, whatever it might be, should be involved in grant giving where it adds to financial capacity or expertise. Are you suggesting that this new vehicle, like the Balance Foundation arm, should just give grants to anyone that was considered worthy?

  Mr Hayday: No. I would suggest that they are actually two very different skills and that you do need two different sets of competences.

  Q88  Jim Cousins: So any grant-giving role of this new vehicle should be limited to this area of raising financial capacity?

  Mr Hayday: Yes.

  Mr Clark: Chairman, may I just add to that? In the way we have read the paper there are two elements to the reclaim fund. One is the element that says there must be enough money in there, accessible, prudently managed, to be able to give back to the people who then legitimately arrive and say, "Actually it is our money." The second element is the re-distributive element of the reclaim fund, which is the second phase of how to get money into the community, and what we are hearing and what we are saying is that it might be through grant, it might be through the sort of lending that we do—which is of a more micro level than would happen in a social investment bank—and indeed there is the Social Investment Bank. But there is a range of options within that which actually would work together once the market has gone into the reclaim fund, which has those two very clear elements to it.

  Q89  Peter Viggers: Charity Bank has experience of the Unclaimed Assets Register and indeed was the first bank to join that scheme. Would you explain how that works and what caused you to join it?

  Mr Hayday: Charity Bank was founded on an absolute principle of transparency, and we thought, therefore, right at the very beginning, that we needed to have systems in place that fully protected customers and potential beneficiaries of customers in time to come. So we decided to sign up with the Unclaimed Assets Register to make it clear to any relative, if you like, of an account holder, that in the event that somehow, for one reason or another, they became divorced from the relationship there was a form of access for them through the register that would enable them to track whether or not their relative, estate had an account with us. Although we are only five years old we are just beginning to come to the point where a number of our deposit holders are dying, so we are now getting a number of estates contacting us and saying, "We understand that you have an account", and it is working very efficiency.

  Q90  Peter Viggers: What data transfer is necessary under the scheme you are proposing to operate?

  Mr Hayday: At this stage it is really too early to be very specific about that, so I would not try and come up with details that we have not yet worked through.

  Q91  Peter Viggers: The Commission on Unclaimed Assets has released proposals for a central register, which would effectively combine the schemes run by the BBA, the BSA and the NS&I, as well as having the flexibility to respond to new kinds of assets being added. Do you support those proposals? Have you discussed that proposal with the Unclaimed Assets Register?

  Mr Hayday: I think we take the view that there has to be improvement on what has gone on in the past because in a way if there had been a perfect system how come we have an unclaimed assets situation? We believe that the banks and the building societies have taken steps to improve that but we have not actually seen the fine detail.

  Q92  Peter Viggers: Have you addressed the issue of data privacy in relation to transfer of information?

  Mr Hayday: Yes, we are signed up to the Data Protection Act.

  Q93  Peter Viggers: It has been suggested that it might be better to transfer the bare minimum of information, such as the number and value of dormant accounts being transferred, as in the Irish scheme, thus minimising the running costs of the central reclaim fund and worries about data privacy. Do you have a view on that level of privacy?

  Mr Clark: No, only in that sense that we would agree that it must be done with minimum cost otherwise it does not make sense. But then each individual institution's experience will build up and they can get their own satisfaction, but how the centre operates has to be something for general agreement.

  Q94  Peter Viggers: Has your consideration of these schemes in general led you to speculate about the amount of unclaimed assets that might eventually be around?

  Mr Clark: Led us to speculate certainly, but to a conclusion definitely not. The amounts that were mentioned in the earlier part of this hearing, whether it is in the region of £400 or £500 or multiples of that are less relevant to us than where we as Charity Bank might be able to help working with other institutions. I think what I would say to that, if I may, Chairman, is that the amount of money, whatever it is, is a big amount of money—it is a big amount of money. The experience that we have had, particularly of lending into charities and getting money into charities and communities, that need it, is actually quite difficult. People are often reluctant to take on debt finance and if an option for the reclaim fund and what happens after the reclaim fund releases money for distribution—if that is an option—work would need to be done with communities, with charities, the particularly disadvantaged, to say, "This money is here, this is how you might be able to use it." To give you an example on that, the average size of our loan is only around £100,000. We have much bigger ones and we have much smaller ones, but in the context of hundreds of millions, potentially, quite a lot of work needs to be done on the communities themselves in terms of how they might want to access that money, and I think that is most relevant in the size case.

  Q95  Chairman: You mention a big amount of money; at what level does it start becoming a big amount of money?

  Mr Clark: To a charity a big amount of money is when they have it to use what they want it for.

  Q96  Mr Love: I wanted to ask you a completely different question. I want to go back to Mr Goodfellow and this issue of membership. In your submission you say that we have to clarify, and you have indicated some of the areas we need to clarify. I wanted to get a little more clarity from you as a representative of a building society movement, and I am thinking in particular about some of the changes that you have talked about—the demutualisation phase, some of the changes that occurred subsequent to demutualisation, in particular charitable assignment. How would you see membership working where the sums were transferred and presumably the membership was transferred but then the member came out of the woodwork? Would they become a new member or would they revert back to their older membership, which may carry more benefits than new members?

  Mr Goodfellow: If they came out of the woodwork, using your phrase, they would revert to their old membership. Most of the chargeable assignments, but not all, are five years in terms. So to all intents and purposes the chargeable assignment aspects would be lost in the 15 years to get to dormancy-type situations, one period being longer than the other. I think what is much more questioning in my mind, at the moment there is a merger which is going through its various stages between Nationwide and Portman and that involves payments to the Portman members. If one of those accounts was dormant what would happen to that payment? Would it actually be paid, would it be paid to the Unclaimed Asset Fund? I do not know the answer to this, and these, I think, are important questions that in a voluntary scheme it just compounds the problem of getting the same consistent answer to them.

  Q97  Mr Love: I pick up on that word you used about consistent. On a voluntary scheme one would assume that each building society would pass through rule change that would be appropriate in the circumstances, and no doubt there would be guidance. But if it is voluntary that guidance would not be chosen. How important is consistency between building societies and indeed demutualised and other banks?

  Mr Goodfellow: I think it is vital because where you do not get consistency and then someone feels ill treated by the treatment of one particular society it is a problem. We saw it in some of the demutualisations, those problems created by inconsistency.

  Q98  Chairman: On our visit to Dublin we noticed that the building society issue had been dealt with by their scheme, but we take the point that it is a complex issue, particularly in a voluntary arrangement. In your submissions, Mr Goodfellow, you mentioned the option of small financial institutions being able to distribute monies in their own area. Do you want to elaborate on that before we go? It ties up with George's point earlier on.

  Mr Goodfellow: I think one of the reasons for us putting it in is we have done some testing with our members to try and find out what our members think of all this, because it seems to us that it is a voluntary scheme and we have to try to find out what they think. There were two interesting statistics that came out of it. Statistics are always just statistics and I give you them as nothing more than statistics, but in some way they are a surprise. Half our members were happy about the unclaimed asset proposals—we thought it would be a small proportion, but it was roughly fifty-fifty. There was a majority against but it was only a small majority against. But in terms of what should happen to the money 88% did not expect it to go to the government, and that to me says it is a big issue that we need to get very clear about what is happening to this money, and there have to be some proposals that members can sign up to. Anything, I think, that leaves it in local control and the control of the institution, et cetera, will help to solve that problem.

  Q99  Chairman: That is very helpful to us. George's point about the national lottery going to certain areas and maybe missing out in the low income areas, do you think that your proposals of allowing small financial institutions to distribute it could overcome the problems that George highlighted?

  Mr Goodfellow: I think provided that there was some mechanism—and I think it was highlighting the problem of people who are perhaps incapable even of asking for help—some process to get that help to them then, yes, I think they can get the help, but this ability to ask for help may not be there.


 
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