Examination of Witnesses (Questions 300
- 319)
TUESDAY 19 JUNE 2007
ED BALLS
MP, MR CLIVE
MAXWELL, MR
PAUL JOHNSON
AND MS
SUE CATCHPOLE
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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