Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 256 - 259)



  Q256  Chairman: Good morning, Minister. Welcome to the two sessions we have this morning, one on unclaimed assets within the financial system, which we will take first, and secondly, financial inclusion follow-up: saving for all and shorter term savings products. Can you introduce your team for the shorthand writer, please?

  Ed Balls: Sure, and it is a pleasure to appear in front of you once again. I have issued a ministerial statement this morning on one aspect of financial inclusion, which I will make a brief reference to when we come to the second part of the agenda. Clive Maxwell is the Director in the Treasury in charge of financial services; Paul Johnson is a Director in charge of public spending and micro-economics, and Sue Catchpole is the Team Leader within Clive's Directorate, who particularly works on financial inclusion and unclaimed assets together.

  Q257  Chairman: Good. On unclaimed assets, we have had quite interesting evidence to date and we undertook a visit to the Republic of Ireland to look at how their statutory scheme is operating, and I would suggest the Committee was impressed with that. That leads us to question the Government's proposals for a voluntary scheme for unclaimed assets, because the evidence we have received from advisers, and indeed from our field visit, was on the area of incentives. What exactly will the incentives be for banks and building societies to participate? Surely, it would bring a level playing field to it if it was on a statutory basis.

  Ed Balls: There are a number of similarities, as you will note, between the Irish and the UK schemes on a number of aspects, but on that one major point we have taken a different course. We have just completed our consultation, as you know, on the legislation to introduce an unclaimed assets scheme here in the UK, but our decision from the outset was to go for a voluntary scheme; a voluntary scheme, though, with proper protections and proper regulation to make sure that it works. We judged that a voluntary scheme was more likely to give the financial institutions the flexibility that they need to be able to meet our objectives. It was also, we judged, a better way to persuade them to support what we were doing enthusiastically. The fact that our consultation document had a joint foreword from myself and the heads of both the British Bankers' Association and the Building Societies' Association, I think, shows that they are fully committed to making this work, but it is for the financial institutions themselves, primarily, to make it work; to make sure that they are reuniting, where they can, accounts with customers, making sure that they are working closely with the Reclaim Fund, and providing the resources to the Reclaim Fund which can then be put to good use and to good causes.

  Q258  Chairman: If we look at the Republic of Ireland, in 1997 the estimates for the amount in unclaimed assets was €3 million. At the end of the day, up to last year, they had almost €200 million put into the central register. We have had the banks and building societies, and the British Bankers' Association before us in the last couple of weeks. For the building societies, Adrian Cole, said that their estimates for roughly £50 million to £70 million unclaimed assets has tripled, almost, to £150 million. When I asked Angela Knight of the British Bankers' Association, she said no, their estimate has still stayed the same. Something is not quite right there. If we follow the approach of the Republic of Ireland on that statutory basis then people will think they have got the same incentive to ensure that everything is done properly. I would not like to think that we would have some banks and building societies coming back to us and saying: "Look, we have complied with what the Government has said, but others have not done it", and, because of the voluntary nature of the scheme, we are not going to get very far.

  Ed Balls: We would, obviously, hope that the numbers turn out to be higher, and we can only work on the best estimates which come to us from the private sector. I think the truth is that they do not know the answer to this question. The British Bankers' Association have consistently been in the range of £250 million to £350 million worth of assets. As I understand it, the Building Societies' Association have substantially raised their estimate from new evidence provided to them by one of their larger members who has gone back and looked at these things in great detail and come up with a higher number. So, in a way, you could say that the goodwill and partnership which this voluntary approach is fostering is actually encouraging the banks and the building societies to engage and find out if the numbers could be higher. You already have, from HBOS, a campaign which has already begun to reunite their customers with assets. My sense is that the banks and building societies are engaging in this pretty seriously.

  Q259  Chairman: We are looking at it from the point of view of rigorous procedures here, and I think that is the important thing. That is the lesson from the Republic of Ireland. Let me put it to you: if you are minded to pursue a voluntary scheme would it not be a good idea for the legislation to enable the Treasury to have the delegated power to install a more robust, compulsory regime, if self-regulation were to fail?

  Ed Balls: I do not think it is right to call this "self-regulation". What we are doing is considerably stronger than that, but it is true that from the outset we have said that these are private sector accounts, private sector liabilities, liabilities on private institutions from their own customers, and this is something that they themselves should manage, rather than, if you like, to nationalise it, for the State to take it over—to put it on to our balance sheet to provide a guarantee. However, having said all of that, we are regulating that, first of all, the Reclaim Fund will be regulated by the Financial Services Authority; secondly, that through that regulation the FSA will be, essentially, overseeing the relations between the Reclaim Fund and its individual agents, the banks themselves, and within FSMA the statutory framework within which the FSA operates. If they judge that the regulatory regime is not strong enough and, therefore, consumers are not being treated fairly, the FSA have the powers within existing legislation to strengthen the regulatory regime. So this is not self-regulation; it is a regulated regime, but, at the same time, our judgment from the beginning has been that this should be a private sector, voluntary scheme rather than a government scheme.

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