Examination of Witnesses (Questions 260
TUESDAY 19 JUNE 2007
MP, MR CLIVE
Q260 Chairman: Just in case, for
the public record, there is a misinterpretation here, we are not
suggesting legislation and State control. The Republic of Ireland
has legislation and it is not State controlled; they have a central
management of assets separated from politicians (which we want
above all) and government. So legislation can ensure the best
returns in terms of resources without the State being near it.
That is the last thing we want as a Committee.
Ed Balls: I think, though, the
issue comes down to whether this is something which is being managed
by the private sector; whether the private sector is managing
the process of reuniting, or whether this is a set of obligations
taken on by the public sector. I understand what you are saying
about politicians and it being at arms-length, but the reality
is that the Irish do have a publicly-run and guaranteed scheme,
which has a different impact in terms of financial reporting,
and the like. There are, though, a number of similarities, and
we both have similarities in the way in which we will conduct
the regime and the regulatory regime, but there is a fundamental
difference, which is we are seeking to do this with the private
sector managing its liabilities; in the Irish case, those liabilities
are passed on to the public sector balance sheet and are managed
by the public sector.
Q261 Mr Simon: The Government's definition
of "dormant" is no customer-initiated activity for 15
years. Why 15 years?
Ed Balls: Fifteen years is one
of the similarities with the Irish. The Irish have gone for 15
years as well, and we have a challenge here because we have to
show to the public that our first priority is to make sure that
wherever possible people are reunited with their own assets. If
we were giving the impression that it was a much shorter time
period, people might doubt that that is our intention. One of
the things which we do, importantly, in the Bill is write into
the face of the Bill, in primary legislation, a statutory right
for consumers to reclaim their money at any time. You have to
have a decent length of time for people to do that. Secondly,
in order to have some stability in the Reclaim Fund and in the
flow of resources from the Reclaim Fund into spending, if you
have a considerably shorter period of time than 15 years, then
I think it would be much harder to manage because at any point
in time there would be money moving into the Reclaim Fund and
then out again back to consumers at a much more rapid rate, and
I think that would make it much harder to manage the liabilities
for the Reclaim Fund, and much harder to plan the spending consequences.
We did look at the Irish experience, and we judged that 15 years
seemed a sensible time.
Q262 Mr Simon: If one of the main
reasons for the 15 years is the Irish experience, the Irish have
defined their customer activity as "account transactions"
whereas we are going to define it as any activity at all: a `phone
call, a vote at a shareholder meeting, or activity on a different
account by the same customer. If we are defining it much, much
more stringently, is not the logic, therefore, that we should
have a reduced, 10 or 12-year, time period?
Ed Balls: This is part of the
consultation. It is something which can be discussed as the legislation
is before Parliament. We have had to look at these issues carefully
to make sure that customers were being and were seen to be treated
fairly, and to understand exactly how, in a UK context, activity
should be defined. As I have said, we have tried to strike a balance
in a way which we think will give assurance to customers that
their moneys are not being unfairly, pre-emptively or overly-quickly
taken. Our starting point was that 15 years seemed to be a sensible
time period. I do not feel, from the responses we have had from
the private, or, actually, from the wider, consumer responses
that people think that 15 years is an overly-long period of time.
Q263 Mr Simon: Quickly, and finally,
if the banks are going to be using things like a `phone call and
whether or not it was responded to, and whether or not letters
were replied to, to make judgments, are we going to be requiring
them to prove these activitiesto prove the `phone call,
to give us written evidenceor are we just going to take
it on trust from the banks that they have done this?
Ed Balls: This will be a matter
for the relationship between the individual banks and the Reclaim
Fund, which will be overseen by the FSA. In order to show this
is being done properly we will need to have transparency in the
way in which these things are done. I had a meeting yesterday
with the British Bankers' Association and the Chief Executives
of all of the clearing banks, and one of the things which we said
to them was that we will need to have transparency in the relationship
between the Reclaim Fund and the individual institutions, to show
people that things are being done in the right way. Also, I think,
to publish the volumes for individual institutions that flow into
the Reclaim Fund.
Q264 Angela Eagle: Are you not being
a touch na-£ve about the readiness of some of these institutions
to co-operate in an enthusiastic and meaningful way with this
process, which after all transfers assets that they can put to
productive use for their own profits into a fund that is used
for other things, and therefore becomes out of their reach?
Ed Balls: The proof of the pudding
of that will have to be in the eating, but I do not think that,
so far, the evidence to us is that the banks and the building
societies are dragging their feet. In fact, I think that they
are working pretty closely with usand I hope you drew that
conclusion from the evidence they gave when you saw them last
week. I met, as I said, with all the chief executives of the clearing
banks yesterday. I do not have the impression that they are reluctant
to make this work.
Q265 Angela Eagle: If the pudding
turns out to be smaller, to use your analogy, or less healthy
than we thought it was going to be, what fall-back position do
you intend to take to ensure that co-operation is as enthusiastic
as they are telling you it is going to be at the moment?
Ed Balls: There are advantages
for the banks themselves in this arrangement, because once the
money goes into the Reclaim Fund their liability at that point
is extinguished. So that is strengthening, from their point of
view, in terms of their financial arrangements. So it is not simply
a one-way gain to us. As I said, one of the things which I think
we will need to do is show in a transparent way the flows of resource
from individual institutions into the Reclaim Fund. The impression
I had from the Chairman was that he thought that, maybe, the numbers
could turn out to be larger, and that is something which we will
need to monitor. That is an important part of the work of the
Reclaim Fund. FSA regulation and then wider oversight will be
to keep a close eye on these things. However, our judgment
Q266 Angela Eagle: What will you
do if you find a laggard? Let us just say, for theoretical reasons,
there are two fairly similar institutions with a similar range
of customers who you would expect to have a similar range of transfer
to the Reclaim Fund, and one has transferred a lot and one has
transferred almost nothing. What would you do in those circumstances,
under these arrangements?
Ed Balls: It is a voluntary scheme,
so if a laggard chooses
Q267 Angela Eagle: Does that mean
Ed Balls: No, if a laggard chooses
not to make any payments at all, despite the transparency of the
regime, then that is a matter for them. What the Government is
not doing is making this a compulsory scheme. That is a fundamental
decision, as the Chairman said at the beginning. Do you go down
a compulsory, statutory route, or do you go down a voluntary route?
As I said, I think transparency will be an important part of this
process, and my impression is that if there are laggards; that
the BBA and the BSA want to be part of this and want to make this
work, and in fact are already getting on with trying to start
the process of reuniting. If your question is, do we have a reserve
power to compel those who choose not to participate in a voluntary
scheme, the answer is no.
Q268 Angela Eagle: In terms of the
unclaimed assets and the Central Reclaim Fund, the Treasury said
that it wanted a freestanding body, independent of government,
the banking industry and the distribution mechanism. You have
given the banks and building societies responsibility for taking
the lead in setting up the Central Reclaim Fund. How is that consistent
with it being seen as independent?
Ed Balls: It has to be set up
by somebody, and we wanted this to be a private sector-led, voluntary
scheme, not a government, mandated scheme. Therefore, while, understandably,
the banks and the building societies are very keen to keep it
at arm's length from themselves for their own balance sheet reasons,
we thought that, given it was their responsibility to make this
work, it should be their responsibility to get the Reclaim Fund
established. That is what we asked them to do and that is what
they agreed to do, and that is what is in the consultation document.
Q269 Angela Eagle: What progress
are they making?
Ed Balls: I know that they are
thinking at the moment about how to do it. Clearly, we are
Q270 Chairman: Thinking?
Ed Balls: We are currently conducting
a consultation in order to produce draft primary legislation,
to then enact in Parliament over the next year. So we are some
way off getting the Royal Assent which will allow this organisation
to come into operation. My sense is that the first priority for
the banks and the building societies themselves is to move ahead
quickly with the process of reuniting, because I actually think
that we need to show to the public that our first priority is
to reunite people with their own money, with their own deposits
in bank accounts, and then if the process of reuniting does not
work effectively, to see the money flow into the Reclaim Fund.
So in the messages I have sent to the banks and the building societies
over the last couple of months we were certainly keen for them
to move first on reuniting while working out the plans for the
Reclaim Fund which will then kick in over the course of the next
Q271 Angela Eagle: Do you envisage
an insurance policy to bear the reclaim risk once the fund is
set up? Or is that something they will decide?
Ed Balls: No, not a public insurance
policy, because we are not here talking about a government statutory
scheme; we are talking about a private sector, voluntary scheme
Q272 Angela Eagle: So it is a matter
for them what they decide to do with the risk for reclaimbear
Ed Balls: No, because the FSA
will regulate the Reclaim Fund. It will be for the Reclaim Fund
itself to manage its own liabilities; to make sure it does so
in a proper way, and we have requirements on it to report its
activity in order to make sure it is doing so properly, and there
is FSA regulation. If you had a government guarantee then that
Q273 Angela Eagle: I was not asking
that, I was saying do you envisage that an insurance policy would
be the right way to bear the reclaim risk. I suspect you are going
to tell me that is a matter for them.
Ed Balls: I am partly going to
say it is a matter for them, or for the Reclaim Fund, but, also,
I think, given the scale of the resources you are talking about
here, and the management of those liabilities, it ought to be
possible for them to manage these liabilities in a way which deals
sensibly with the risk without needing to, in the first instance,
have an insurance policy. As I said, that will be for their judgment
rather than for mine.
Q274 Mr Fallon: Minister, National
Savings and Investments have completed their review of their unclaimed
assets under the 15-year definition, and they have told this Committee
that the total they have unclaimed is £993 million. Why are
you excluding from the scheme money in your own accounts?
Ed Balls: In?
Q275 Mr Fallon: In government accounts.
Ed Balls: It is not money in a
government account. That is what is unusual about National Savings.
As I understand it, the money is
Q276 Mr Fallon: Whose account is
Ed Balls: £436 million of
unclaimed assets, using the same definition as the banks and the
building societies; £974 million, if you also include all
NS&I products (e.g. Savings Certificates), and then £993
million additional including unclaimed Premium Bond prizes. What
happens with National Savings is that when an individual saves
by saving with the Government they, effectively, save by taking
out national debt. So these are not unclaimed accounts which are
sitting there in some other part of the forest, it is a direct
reduction in government debt. That is what people do; they lend
to the Government and by lending to the Government they reduce
national debt. So 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 reuniteand
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
Q277 Mr Fallon: It must be sitting
in an account otherwise they could not count it. Funding the national
debt serves the population in general. You want your scheme to
focus on youth services, financial capability and inclusion. Funding
national debt is quite a different purpose.
Ed Balls: But it 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.
Q278 Mr Fallon: You are in charge
of this confusion, not me. It is for you to explain why you are
Ed Balls: I am not confused, though.
Q279 Mr Fallon: You are not confused
about it? You have decided to exclude it. You are not concerned
with the issue of equity; that the banks and building societies
say their unclaimed assets are being taken but not National Savings?
Ed Balls: No, for the reasons
I explained, that this is not money which simply sits in an account;
this is money which directly reduces the national debt. 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