Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  Q300  Mr Mudie: Mr Balls, one of the criticisms of the Big Lottery (and you know my constituency—one of the most deprived) is that the money seems to go to local authorities for their museums, etc, etc. The people who can draw up a scheme get it. So I have no confidence in the Government or big institutions or quangos deciding on where money is disbursed; I am a great believer in asking the public. Why are you refusing to ask the public?

  Ed Balls: I am not sure that I understand the point here, because your criticism—from reading the transcripts of previous sessions—is that when the money goes into the Lottery in general it tends not to be spent on things that particularly matter in your constituency.

  Q301  Mr Mudie: I have just repeated that.

  Ed Balls: What we are saying here is that by prioritising youth services that means that you have a straightforward opportunity, working with youth services, providing the young people in your constituency, to make sure that there is a Big Lottery bid from your constituency for unclaimed assets for youth services. I would—

  Q302  Mr Mudie: That is a great intellectual leap, Mr Balls, if I may say so: I do not like the way the Big Lottery disburses the money, so I must like the way you intend to just put it in the youth service, or in the SIB. I am saying neither; I am saying you should ask the public.

  Ed Balls: The reason why I am struggling with this exchange is because I would have thought that you should be a champion of improving youth services.

  Q303  Mr Mudie: I am a champion of asking the public. It is their money.

  Ed Balls: Which is why we are having these extensive consultations.

  Q304  Mr Mudie: In the consultation document that is the one area you do not ask the public's view on. Does that not strike you as strange?

  Ed Balls: No, because 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, including in your constituency, for doing that.

  Chairman: We were looking forward to sticky session this morning. Let me tell you, in terms of Sir Ronald Cohen, he was very clear about the £350 million of unclaimed assets, and really anything less would be a dead duck. So maybe it is best not even to start the process if it is going to be less than £350 million. I think that is the message we want to leave you with, Minister.

  Q305  Mr Love: I want to come back to this issue about the Social Investment Bank. You said earlier on, Minister, that your starting presumption in the way that the money would be distributed would be youth services and financial inclusion, and that because of the work of the Commission on Unclaimed Assets you added to that the Social Investment Bank. Can we take from that that you see the Social Investment Bank very much as playing second fiddle (?) in the way that the moneys will be distributed. What priority will the Social Investment Bank get in the overall priorities that you have set yourself?

  Ed Balls: We will have to wait for the outcome of the consultation, and we do not actually go as far in the document to say that we would pay money to the Social Investment Bank; we say: "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."[2] One way in which you could do that would be through the Social Investment Bank, but I think that is one of the things which we need to look at in more detail following the publication of that report, and as a result of the consultation. As it happens, personally, I can see a lot of merit in a Social Investment Bank. I am persuaded that there is a gap here and that we should seek to fill it as a society, but I do not think that we can presume 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. Secondly, I do not think that it would be right to put all of the resource of unclaimed assets into the Social Investment Bank at the expense of the funding of youth services and financial inclusion, which was our starting point, which I think is an important priority. 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.

  Chairman: I think you should look at the public record and maybe have a chat with Sir Ronald Cohen on it.

  Q306  Mr Love: I want to press you a little bit because in our discussions with the industry the figures that have been bandied around are £400 million is likely to be raised in the first year. Now, I think we have some scepticism about those figures, and certainly, looking at the experience of Ireland, they vastly underestimated the amounts that were available, but let us take that as an order of magnitude. The Social Investment Bank are telling us that in the first year they have to be capitalised to £250 million if they are going to make this a viable organisation. That is on the assumption that they are going to raise substantial funds from the private sector to match that £250 million. Can I just be clear, from your answers, that on the basis of raising £400 million it would be unlikely that you could capitalise them to the level that they are suggesting?

  Ed Balls: To the level of £250 million?

  Q307  Mr Love: £250 million in the first year.

  Ed Balls: It is not right for me to give you a detailed answer on that question because I do not want to trip the consultation which is going on. We are talking about, were we to have an unclaimed assets scheme for which we now have a list of backing, would I like to give a particular number to an institution which currently does not exist? So this is a rather hypothetical question. However, having said that, I do not think the presumption in these documents is that the majority of the funds will go to the Social Investment Bank. Therefore, if that was necessary in order to capitalise, it would have to look for other sources of finance.

  Q308  Peter Viggers: I want to ask a couple of questions about local funds. First, I want to ask a question following the points by my colleague, Michael Fallon. The logical underpinning of the whole of this scheme is that orphan money left with the Halifax Building Society or the National Westminster Bank should not really be left with the people in whose accounts they currently are, but the orphan funds can be used for the greater good by being disbursed in a manner which is being discussed. If the money just happens to be in National Savings then the greater interest of the State prevails and you do no need to deal with these orphan funds; they are fulfilling a role already, they are helping the State. I suppose a cynic would say that is a very state-ist approach, but I think of you as an intellectually rigorous person, Minister, and I would say that the thinking behind what you have just said is rather sloppy. How plead you?

  Ed Balls: The starting questions from the Chairman were to express concern that we were being insufficiently state-ist in the way in which we were going about this, by having—

  Q309  Chairman: Never state-ist, Minister.

  Ed Balls: Public sector. By having a voluntary—

  Q310  Chairman: I have a natural suspicion of government, like everybody else. So do not worry about that.

  Ed Balls: So we are seeking to have a voluntary scheme. As I said, on the face of the Bill the first priority will be a duty to reunite resources with customers, and following a meeting that I had yesterday and conversations with the British Bankers' Association I wrote yesterday to the British Bankers' Association, to the Building Societies Association and to National Savings urging them to come together and have a common way of reuniting customers with their unclaimed assets, which is common across banks, building societies and National Savings. My sense is that National Savings has been working pretty hard to try to reunite, but they could do more and we will definitely encourage them to do more, proactively trying to reunite. The conceptual point, where I was making points to Mr Fallon, who did not really want to accept them, is that the resources which flow into National Savings are moneys which individuals save by, effectively, purchasing national debt. That is what a Premium Bond is. It is no different, in its conceptual form, from buying a gilt in the financial markets. So if there is a pot of gilts or national debt sitting in the accounts of National Savings unclaimed, and we transfer that amount of money into the Reclaim Fund, that is a direct increase in public borrowing and public spending, because we are adding to the national debt by taking this money away. So the public spending consequences would be a half-a-billion-pound hit to the public balance sheet; half-a-billion pounds higher public spending and half-a-billion pounds public borrowing. Our judgment was that that was the wrong thing to do; to say to the taxpayer they would have to bear half-a-billion pounds worth of extra public spending to transfer money from national debt from the politics of the balance sheet into the Reclaim Fund was not something that we should ask them to do. I am not saying that it is doing better by reducing the overall national debt than being spent on youth services or the Social Investment Bank, I am just simply making the practical point that unless you are proposing a half-a-billion-pounds increase in public spending it is very hard to transfer National Savings' unclaimed assets into the Reclaim Fund. Our judgment was that was the wrong thing to do.

  Q311  Peter Viggers: Turning to questions on local institutions, the Government is proposing an option for locally-based institutions to transfer funds to local arms-length charities rather than the Social Investment Bank. Can you define "arms-length" and, in your judgment, will existing building society foundations fit this definition of an arms-length institution?

  Ed Balls: It is clearly more complex for building societies to manage the unclaimed assets process because of the particular nature of building society membership. Therefore, we are discussing those issues with the building societies, and in addition to that one of the things which characterises the strength of building societies is that many of them are very small, local and very embedded in their communities. So as part of the discussions before we launched the consultations, we were very keen to be sensitive to this issue. That is why we are consulting on a definition of up to £7 billion worth of total assets, which we think would mean that 52 building societies would be able to go down the small and local route, and only eight building societies would pay into the main reclaim scheme. So the large majority of building societies would be outside the main distribution route. The issues which then arise are as to how this distribution should occur and, also, how reclaim risks should be managed. Although we consulted on two options, my instinct is that the Reclaim Fund will need to pool risk for these small societies, even if they are then being diverted back into the local community. It would be very hard for the individual societies to bear the reclaim risk themselves. 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.

  Q312  Peter Viggers: If the arms-length bodies are to be restricted in their allocation of funds to the aims of the national disbursement programme, how will this process be monitored if the Big Lottery Fund is bypassed?

  Ed Balls: In the case of the small societies?

  Q313  Peter Viggers: Yes.

  Ed Balls: I think, in the case of the smaller societies, we are deliberating taking them out of the Big Lottery Fund and the objective set for the Big Lottery Fund and its disbursement to give more flexibility to local societies, to carry on with their existing charitable and local works. 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.

  Q314  Mr Breed: Just returning a little bit to the beginning of this, on the laggards—although it is a voluntary service. Do you think it would be an appropriate thing for the published accounts of the banks and other institutions to indicate in these accounts exactly how much they are currently holding in dormant accounts—whatever that definition is—so that we can actually see the precise amount that these institutions are retaining rather than putting into a distribution—

  Ed Balls: I certainly think that we should publish the flow of resources from the individual institutions into the Reclaim Fund, to see whether the volume of flow is—

  Q315  Mr Breed: But the auditors could actually audit that figure; it could be put into the published accounts and we could see that in whichever bank it was they are still retaining a sum of money as (whatever the definition ultimately is) dormant money.

  Ed Balls: Given the 15-year rule, every institution will be in that position. I discussed with the banks publishing the flow of resource. I have not discussed with them publishing the stock. I am sure that their response will be to say that it is hard enough coming up with a general indication of £250 million to £350 million, and that for particular institutions I think they will say they do not know the answer. I am happy to have those discussions with them. I can certainly see that from your point of view and my point of view it is much easier to make sense of the publication of the flow if you can relate that to some estimate of the stock. So it would clearly, from my point of view, be desirable, but I would have to go back to the banks and the building societies to ask them whether they think it could be done. Have you had those conversations?

  Ms Catchpole: We need to discuss that with them.

  Ed Balls: We will have that discussion with them, because I can completely see why it would be a very sensible thing to do, if we could do it.

  Q316  Jim Cousins: Just one small point to follow-up something that you said earlier. You are not suggesting to the Committee that if National Savings did make a contribution to the unclaimed assets fund that would count as public expenditure?

  Ed Balls: It would.

  Q317  Jim Cousins: You would count it as public expenditure?

  Ed Balls: It would not be for my decision; that would be the decision of the Office of National Statistics, who make these classification decisions, and the European accounts issue. In the case of the Irish parallel, the Irish transfer of resources from the Irish debt agency into the Reclaim Fund, as I understand it, does count as a public sector transaction and, therefore, does count as public spending, or as an addition to public sector debt. So it would.

  Q318  Jim Cousins: So payments from National Savings Investment into the unclaimed assets fund potentially could put the achievement of the Golden Rule at risk?

  Ed Balls: Yes, exactly. The complication here is that while on an annual basis the flow of resources in a steady state is not so high, in the first year of establishing the scheme it is very lumpy. So if you are talking about—whether it is £500 million, £1 billion or £1.5 billion—that has a direct impact on to the fiscal rules, because it is a direct transfer from the public to the private sector and, therefore, an increase in public expenditure, which is why I asked Mr Fallon whether that was the proposal he was supporting. You can see why, from the point of view of prudent fiscal management, that would be a difficult thing to do.

  Q319  Chairman: I am going to finish with a couple of questions. In the 2005 Budget the Chancellor explained how he had asked "the industry to explore what more cold be done to reunite owners and assets, including the possibility of a National Register". What progress has been made towards establishing a National Register? Is it going to happen?

  Ed Balls: I think the judgment we have made, in consultation with the banks and the building societies, is that a National Register would be hugely bureaucratic and cumbersome, and would not deliver a great deal, and that by getting the banks and building societies and National Savings to work together with a statutory duty to reunite we can achieve the same objective, but we are not proposing a central register.

2   Note from witness: Quoting from Second consultation document, para 4.20 Back

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