Examination of Witnesses (Questions 256
TUESDAY 19 JUNE 2007
MP, MR CLIVE
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 overto 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.