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7.58 pm
James Duddridge (Rochford and Southend, East) (Con): The hon. Member for Cheltenham (Martin Horwood) makes a powerful case on behalf of mutuals, but his case is sometimes somewhat weakened by ill-judged comments elsewhere in his speech. He would be better off sticking to substance, which he does very well, than making cheap party political points that are badly placed, badly timed and badly delivered. I welcome the Economic Secretary to the Treasury to his new role. The hon. Member for Clwyd, South (Mr. Jones), who has long campaigned on the issue, made an excellent speech.
For as long as I can remember, this has been a live issue. In fact, the money that might be raised has been spent several times over in party political pamphlets, debates and so forth. Our debating the issue today is horrendous timing, but at least the measures are finally forthcoming. I say “horrendous” because we are taking money out of the banking sector today only to put it back in next week. I am sure that the accountants will say that the money is both an asset and a liability, and therefore does not affect the capital adequacy ratios, but that misses the point somewhat. It is relevant to the point about liquidity: it is cash in the bank, and the capital adequacy ratios are designed only to measure liquidity—they are not the fundamental themselves.
It is right that the Government have gone down the voluntary route, rather than that taken in places such as US, Ireland, Australia, New Zealand, Spain and Canada of a more compulsory system. Listening to the debate, I detected a massive amount of confusion. If I received £1 every time a different figure was mentioned for the amount in dormant bank accounts, I would be a very rich man. My experience, both in this debate and outside the House in preparation for it, shows that where there is a compulsory system, the amount of money brought in is much larger than anticipated. The figure of £20 billion is the highest number that I have heard of, and it appeared in an article in The Times in late 2006.
For a long time, the banks were under pressure to give up all that money. They thought it might be mandatory to do so, and that it would be expensive to administer the process. I probed the Chief Secretary to the Treasury
at the beginning of our debate, because the numbers cited by the British Bankers Association and the Building Societies Association were low, and historically, were pushed down by the banks to depress both the amount of money they would have to give over and the administration involved in doing so.
Turning to the 15 years rule, the hon. Member for Taunton (Mr. Browne) made a good point about asking the Treasury for a cash flow of likely moneys. If we obtain that information before Committee, we will be able to tease out some of the numbers involved. What will be the one-off hit in year one, next year, and so on as the money comes out? The Economic Secretary is shrugging his shoulders, but it would be useful to have such an indication. Clearly, we will not have exact figures, as it would be quite complicated for the banks to provide them, but there are basic assumptions at which the Minister and his civil servants could look. I am sure that, deep in the Minister’s briefing pack, is information on phase 2 of “Know your customer” and information about money laundering for banks. The focus in that process on money laundering compelled the banks to contact many of those customers, even if the accounts were dormant. As a result of “Know your customer”, either the banks will fail in not observing the money laundering regulation or they will indeed have codes against each account and each connection of accounts, even if that is across a number of financial instruments or, indeed, geographic locations, that will say that they tried to contact those customers, particularly about the large amounts, but were unable to do so.
Clause 12 deals with the triennial report to Parliament. Subsection (2)(f) deals with a report on the operation of the dormant account arrangements, including
“the desirability and practicality of establishing similar schemes for other categories of assets”
which may have become dormant. I am deeply concerned about what that may include, and throughout the debate, I have grown increasingly concerned. My list of three or four issues has developed into a list of 10 across a range of financial instruments, including physical assets associated with proxy financial holdings such as gold and things such as safe deposit boxes. Why, if someone went to HSBC and deposited £100 in an account 16 years ago, should that sum be taken away and considered dormant because there has been no contact? However, if they put £100 in an HSBC deposit box 16 years ago, the Government are not suggesting that that should fall within the realms of the measure. In a number of banks, there are safe deposit boxes containing a large number of assets, some of which would be considered dormant under the definitions in the Bill. Alongside those boxes are share certificates and bearer bonds without any name. Taking that to an extreme, the wording in the Bill does not include unused assets, which some people would consider financial assets such as, for example, a buy-to-let house or a house that used to be rented that has fallen into disrepair. I would imagine that in most parliamentary constituencies there is a house that blights a corner of a particular street: no one is quite sure who owns it, and it has fallen into disrepair. Would that be included in the measure?
The Bill will have a major impact on a number of industries. Hon. Members have spoken about people not collecting gambling revenues. If someone won several hundred pounds on the horses, they would know about it: they would follow the race, and they would be likely to collect their winnings. However, if they bought a raffle ticket in the lottery, they would be less likely to know about a win. Who owns that unclaimed asset? If someone has made a purchase for a small amount—£1—perhaps they do not value the ticket as they would if they made a large deposit. However, sitting behind that ticket may be a large revenue or income stream. There is a broader issue, too, about insurance policies.
I am reminded of a business that I read about that sold travellers cheques. The main revenue from that business did not have anything to do with the selling of travellers cheques; it was the revenue that was left in a bank account for everyone who lost their travellers cheques but did not exchange them for cash. Who owns that money? A number of businesses will be concerned that their fundamental business model will be wiped away in that three-year report and by the picking-up of disused funds.
A number of Members have spoken fluently about wanting a clearer definition of dormancy, and I was superficially persuaded early in the debate that that was a good idea, but I very much fear that, given that this is a voluntary system, there will be banks and building societies that want to hand the money over, but are concerned about how they do so under the definition of dormancy. They may get it wrong or go into a scheme and not pick up some accounts as a result of the Government’s definition of dormancy. If there is a voluntary system, it is probably better not to have that definition.
Turning to the Big Lottery Fund, I ought to exercise caution, given that it is coming to Southend next week to show us some of the good works that it has undertaken. My experience to date, however, is that big donors seem to get bigger, and the money is tied up in bureaucracy and administration. People try to get the money out of the lottery. I have visited many community groups that want help to fill in forms to get money, but it eventually transpires that they are not eligible for such money or do not fit into a category. That is the complete opposite of one or two other funds that I know such as the Essex Community Foundation and the Southend Fund, which touch a number of charities, and donate small amounts—£1,000 or £2,000. I cannot help but think that the Government have missed a trick by going to the Big Lottery Fund. [ Interruption.] My hon. Friend the Member for Broxbourne (Mr. Walker) says that it is not big by national standards, but at a local level it is still millions of pounds, and perhaps organisations that deliver small packages of thousands of pounds would be a more effective distribution channel. Perhaps we should focus on microfinance, particularly social enterprise.
Mr. Walker: The problem with the Big Lottery Fund is that its name is a bit of a misnomer. Over the past five to 10 years, the amount of money distributed by the lottery to good causes and charities has become smaller and smaller.
James Duddridge: I now understand what my hon. Friend is saying. He is not trying to say that it is not the Big Lottery Fund or a little lottery fund—it is simply a diminishing lottery fund. I have now got the point.
As for the issue of taking the money out of the banks, the Government have missed a trick. The old-fashioned bank manager who knew the local community could be an asset for the Government because, rather than investing in normal loans for commercial profit, such banks could be allowed to retain some of that money and to lend either to social enterprise as part of their community support function, and follow that enterprise through or, indeed, go down the line of microcredit to pump-prime capital for microfinance and microcredit in the UK—a system that has been successful in developing countries elsewhere.
Finally, I should like to probe the Minister further about the differential treatment of dormant bank accounts. There is clearly a major difference between accounts that have £5, £50 or £50,000 in them, yet by my reading of it, the Bill deals with such accounts in very similar ways. I am not entirely sure that that is appropriate.
8.9 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to wind up this Second Reading debate, but before I deal with the points raised during it, I should first declare an interest as a non-executive director of an institution that takes deposits, albeit one that has only recently been licensed to do so and is therefore unlikely to have any dormant bank accounts for some years.
Secondly, and perhaps more importantly, I should welcome the hon. Member for Dudley, South (Ian Pearson) to his new post as Economic Secretary to the Treasury. I recognise that he will be dividing his time between being a Treasury Minister and being a Minister in the Department for Business, Enterprise and Regulatory Reform. I am not sure whether his brief is, on behalf of the Treasury, to keep an eye on the new Secretary of State for Business, or to keep an eye on the Treasury on behalf of the Secretary of State for Business, but either way, I wish him well in his new post. He may well be forgiven for questioning the timing of the debate. After all, the Bill left the other place in February this year, and he may consider it somewhat unfortunate that we are debating it in this place within about 24 hours of his appointment. However, I am sure he will have mastered the details of the Bill for his winding-up speech.
We began our debate from the Back Benches with a useful contribution from the hon. Member for Clwyd, South (Mr. Jones) who clearly has a long-standing interest in the matter, which appeared to be provoked by his discovery that he was paying a direct debit to the funds of the Labour party, of which he knew nothing. There is nothing unusual about that. It probably applies to thousands of trade unionists most of the time, the difference being that it turned out that the bank account to which the funds were going was dormant. It might have been best to let sleeping dogs lie, but that was not how the hon. Gentleman approached it. He has played a significant role in the development of the debate.
As I run through the issues that we debated, I shall address some of the concerns raised by other hon. Members. The Opposition are broadly sympathetic with the details of the Bill and we will support it this evening. The first part of the Bill relates to the raising of funds from the dormant accounts. The second part deals with how those funds are distributed. We are sympathetic to the structure of the first part. It is right that financial
institutions are encouraged to reunite deposit holders with their assets—a point made by my hon. Friend the Member for West Suffolk (Mr. Spring)—and we acknowledge the steps taken by a number of financial institutions to do that.
We support the principle of a voluntary scheme. The hon. Members for High Peak (Tom Levitt) and for Clwyd, South, the hon. Member for South Derbyshire (Mr. Todd), speaking in his role as the emissary of the Treasury Committee, and my hon. Friend the Member for Bromsgrove (Miss Kirkbride) questioned whether a compulsory scheme would be better, or whether we should keep the option open and include provisions for a compulsory scheme at a later date, should a voluntary scheme be found not to work.
We share the Government’s approach. We think it would be useful to use the expertise of the private sector in a voluntary scheme. It would be cheaper and more efficient, and therefore a better way of raising funds for good causes. It would be a fundamental change in the nature of the Bill were it to contain reserve powers for a compulsory scheme at a later date. If there is a switch to such a scheme, Parliament should consider it closely and properly and have the opportunity once again to debate the matter in the form of primary legislation.
We also share the Government’s caution—I think that that would be a fair word—about the definition of dormant. We do not want to adopt an aggressive approach and we think 15 years is an appropriate length of time before an account is considered dormant. We also support the idea, which was advocated by the noble Baroness Noakes, that banks or building societies must use their knowledge of the account, the account holder or any other relevant matters in determining whether an account is dormant. We do not want funds to be paid out, only to be followed by significant numbers of claims on dormant accounts that are no longer dormant. We understand the Government’s caution in respect of the 15-year limit.
It is essential that deposit holders are able to reclaim their funds, notwithstanding the fact that the account has been dormant for some time. It is vital that such confidence exists, so that there is no basis for the criticism that is sometimes made that the Bill is a grab for other people’s assets. Again, we share the Government’s approach on the fundamentals, but there are differences, particularly on the scope of the assets covered. As the hon. Member for South Derbyshire observed, the Treasury Committee considered the issue and questioned why, for example, pension and life assurance funds could not be included in the scheme. It would helpful if the Minister could address that.
In particular, it is worth considering National Savings & Investments. The hon. Member for South Derbyshire described as somewhat thin the Government’s arguments for not including that. It is notable that in the debate in the other place the Government argued that that would result in an extra tax burden or increase Government borrowing or Government debt. That does not make sense. A dormant account with NS&I, were it to be closed, would be a reduction in debt in one respect and, transferred elsewhere, would be a creation of debt somewhere else. For balance sheet purposes, it would have no implications, so I do not see what the Government’s defence is. If they are saying that it is for taxpayers’ benefit not to include NS&I, we need to understand why.
It is worth making a parallel with one financial institution that will presumably be affected by the legislation—Northern Rock. Will the Minister confirm whether Northern Rock will participate in the scheme? It is, of course, a voluntary scheme, but the arguments made for NS&I could apply to Northern Rock. I would be grateful for the Minister’s thoughts on that.
We support the principles underpinning the Bill, but we want to see how it will work. That is the purpose of the triennial review provided for in clause 12. That will enable Parliament to see how the scheme is working and to examine the arguments about whether it should be extended. It would be helpful for the process to take place not just once, but on an ongoing basis, although clearly it is important, three years after the Bill has come into force, to see how the process is working, given the accumulation of dormant accounts. We therefore hope that the Government will not seek to amend or repeal clause 12 or the provisions relating to ongoing triennial reviews.
We also think that parliamentary accountability is important. We have already discussed the reclaim fund in today’s debate. The Chief Secretary referred to the fact that the reclaim fund is very much a private scheme, but we must remember what it is there to do. It serves a public end, having the purpose of providing funds for good causes, but it must make a judgment about what can be distributed safely and what will need to be held back in the event of any subsequent reclaims.
Parliament will want to be able to take a view on how the reclaim fund is performing. We must also remember that the reclaim fund is subject to direction from the Treasury, under clause 5(4). The fund is very much a public body. Notwithstanding the fact that it is a private scheme created by the BBA and the BSA, it performs a public role and Parliament is therefore entitled to take a view.
The second issue is how money will be distributed. That provoked a great deal of comment from Conservative Members. Concerns about the efficiency of the Big Lottery Fund were raised by my hon. Friends the Members for Broxbourne (Mr. Walker), for West Suffolk and for Rochford and Southend, East (James Duddridge). Concerns were also raised about the lack of clarity about the objectives. In a sense, there are three objectives: youth services, financial inclusion and the social investment bank.
However, as my hon. Friend the Member for Fareham (Mr. Hoban) made clear in his opening speech, it is not clear what proportion will go to which objective, what the priority will be or who will allocate. As far as we can see, the Secretary of State for Children, Schools and Families will have that role, although he is responsible only for youth services, not the other two objectives. Does that mean that youth services will be seen as the most important? It might be right for them to be seen as the most important, but we have not had that clarity from the Government. Again, I would be grateful for some clarification from the Minister.
A number of hon. Members mentioned additionality. My hon. Friends the Members for West Suffolk, for Northampton, South (Mr. Binley) and for Broxbourne all raised concerns about whether the expenditure resulting from the Bill would go on things that the Government
already intended spending money on anyway, or on things that would be funded by the lottery but which the lottery cannot fund because the funding is going to the Olympics. That raises a concern about the involvement of the Big Lottery Fund, in that there could be a lack of clarity about where such sums are coming from.
That brings me to one of the most important issues, on which the hon. Member for Cheltenham (Martin Horwood) spoke very authoritatively—namely whether banks and building societies should be able to use their own charitable trusts for funds created as a consequence of dormant accounts or whether everything should go through the reclaim fund and the Big Lottery Fund. The particular area of dispute concerns the larger building societies. There is an agreement on the part of the Government that smaller building societies should be able to use their own charitable trusts because they have strong links with local communities. There is no argument that large banks or banks as a whole should be able to use their own charitable trusts, although it is worth noting that the Government recognise that large charitable trusts can play a valuable role in particular communities.
Again, it is worth considering the example of the Northern Rock Foundation, which, although Northern Rock has been nationalised, the Government still fund with something like £15 million a year, to be spent in a particular part of the country. If that is an appropriate approach, one wonders why the Government cannot look into the issue more broadly in the context of this Bill.
The Government recognise that small building societies may distribute funds through their own charitable trusts, but remain resistant to allowing bigger building societies to do so. However, the larger building societies dominate the market. There might be only seven or eight building societies that exceed the £7 billion asset barrier, but their assets constitute some 83 per cent. of all assets. They are still mutual societies, working in particular areas and rooted in communities. I urge the Government, in the current spirit of bipartisan co-operation, to look into the issue again.
We will support the Bill this evening. It serves a valuable purpose, and it has been improved by amendments during the course of proceedings in the other place. We urge the Government not to reverse those amendments. In its present form, the Bill addresses the main concerns while allowing some flexibility for the larger building societies. It provides sufficient—or, at least, adequate—parliamentary accountability, and we urge the Government not to seek to take it back to its position when it first went to the other place.
8.24 pm
The Economic Secretary to the Treasury (Ian Pearson): This has been an interesting and wide-ranging debate covering many significant matters in the Bill, and, indeed, some that are outside of it. I am grateful to all hon. Members for their contributions, and for the generally constructive way in which they made their points. As has been said, the purpose of the Bill is to enable money in dormant bank and building society accounts to be reinvested for the benefit of the wider community, while at the same time ensuring that consumers are protected, and I am delighted to welcome the unanimous support of all those who spoke in the debate today.
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