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In addition to those who speak for the Opposition on these matters, we also heard three very impressive contributions from my hon. Friends the Members for Clwyd, South (Mr. Jones), for South Derbyshire (Mr. Todd) and for High Peak (Tom Levitt). My hon. Friend the Member for Clwyd, South is a long-standing and passionate champion of using dormant accounts for good causes, and he made a number of important points. Likewise, my hon. Friend the Member for South Derbyshire, who has looked at these issues extensively, raised a number of points, and I shall try to address the key arguments that he put. Similarly, my hon. Friend the Member for High Peak raised a number of significant issues concerning the nature of the funding, which I hope to address in due course.
We also had a number of probing contributions from the hon. Members for Bromsgrove (Miss Kirkbride), for Northampton, South (Mr. Binley), for Broxbourne (Mr. Walker), for Rochford and Southend, East (James Duddridge), for Cheltenham (Martin Horwood) and for West Suffolk (Mr. Spring).
Mr. Walker: I have just one brief question. What is a social investment wholesaler, and is there such a thing as a social investment retailer or a social investment discounter? I hope that the Minister will be kind enough to help us clear that up.
Ian Pearson: I will indeed clear that matter up in due course.
I reiterate the welcome for the constructive spirit of openness that was expressed by my right hon. Friend the Chief Secretary to the Treasury in her opening remarks, and I am sure that the Members who have spoken today will be interested in discussing these issues in detail in Committee.
This scheme will be simple for consumers. The hon. Member for Taunton (Mr. Browne) called it “convoluted”, but, on the contrary, the consumer experience will remain the same. The intention is that consumers would still use their bank or building society, which would maintain their account records. The consumer would retain the right to payment, and if they wished to reclaim their dormant assets, the process should be as simple as marching into a bank or building society—or writing to it—and demonstrating proof of identity. The consumer would then get the money that was rightfully theirs. There is nothing in the legislation that should prevent that.
I also want to stress that we believe that a voluntary scheme will work. The industry is publicly committed to it, and in the past few days has reiterated its commitment through comments from the British Bankers Association and the Building Societies Association. It is important to recognise that only a small fraction—seven hundredths of 1 per cent.—of the total banking assets are going to be transferred. Nevertheless, that is a significant sum in total, and it is right that we should deploy it to good causes. I shall say more about the calculation of that figure in a few moments.
I also want to stress the importance of the reuniting process that has been going on and to welcome the launch of “mylostaccount” in January this year. More than 175,000 people have submitted search forms on the site, and banks and building societies have reunited people with about £50 million since its launch.
A number of amendments were made in the other place and I want to stress that the Government have listened to the points that were raised there. We recognise the need for greater transparency over the operation of the reclaim fund. We will table amendments to that end. We agree that reviewing the operation of the reclaim fund is important, but we do not accept the need for a triennial review in statute in perpetuity—an issue that we will want to discuss further in Committee.
Some hon. Members made detailed points about the absence of a central register. Let me point out in response that mylostaccount.org.uk allows searching by name as well as by institution and it is possible to search multiple institutions. I reiterate the success of that initiative over the current period. We welcome all constructive proposals on how further to improve the reuniting arrangements, but our current view is that a central register would be expensive and would place a significant administrative burden on the scheme. That is why legislating for a central register is neither necessary nor proportionate. Unlike with “mylostaccount”, a central register would involve the transfer of significant amounts of personal data from banks to the register operator. It is important that financial institutions treat customers’ confidential data appropriately and, in addition, within the confines of the Data Protection Act 1998.
The Bill allows banks to transfer customer information to a reclaim fund to deal with repayments. Of course, banks will generally act as agents of the reclaim fund and handle the reclaims, so it should be as simple as possible for customers to get the money that is rightfully theirs. There should be no need for routine transfers of information to the reclaim fund, but that would be very different if there were a central register. That is one of the reasons we do not favour that proposal.
The hon. Member for Fareham (Mr. Hoban) asked how the Treasury will engage with the reclaim fund. I believe that the framework is very clear: consumer protection will be enshrined in the legislation and consumers will reclaim money from their banks just as I have stressed now—with the banks acting as agents of the reclaim fund. The hon. Gentleman also asked whether the reclaim fund should be accountable to Parliament. The issue was also raised by other Members, but let me say in reply that the reclaim fund is not a public sector body. It will be set up by the industry independently of the Government. It will be a Financial Services Authority-regulated company incorporated in the UK and subject to company law.
Comments were made about the Treasury’s power of direction, but let me stress that we view that as an ultimate sanction and we do not anticipate needing to implement it. It is highly unlikely that we would use that power, but we will ensure transparency by publishing on our website any concerns about the matter.
Mr. Hoban: Will the Economic Secretary reassure the House that the Treasury will not have the power, under these directions, to force the reclaim fund to pass more money across to the Big Lottery Fund?
Ian Pearson:
We are very clear that we want the reclaim fund to be a success. It will be for the reclaim fund to produce its own business plan and to strike the balance that we have discussed between the need to protect the consumer and meet any future claims and
the need to distribute money to good causes. It will, as I say, be regulated by the FSA, which will obviously want to look closely to ensure that it is financially solvent.
Mr. Hoban: I ask the Minister again: will the Treasury have the power to tell the reclaim fund to pass more money to the Big Lottery Fund: yes or no?
Ian Pearson: We have powers that can be used in exceptional circumstances.
Ian Pearson: I am happy to return to this matter in Committee, but it is important to recognise that the scheme is voluntary and that it will be up to banks and building societies to decide whether they wish to participate. All the indications in the public statements that they have made are that they want to do so. The scheme will be privately run and will produce its own accounts, which will be published openly and transparently. It is important that that happens.
A number of hon. Members asked about the principles for distribution. The Government consulted on that in May 2007, when they set out their intended spending areas for England, which have been discussed during this debate. I stress that feedback broadly supported the Government’s proposals for distribution with a majority of respondents supportive of the principles, the use of the Big Lottery as a UK-wide distributor and the Government’s intended spending areas. We specified those areas for England, but, as was made clear by the Chief Secretary, it is a matter for Wales, Northern Ireland and Scotland to set out their own priorities. We heard one contribution on the consultation process in Scotland.
The Government, supported by the consultation, hold that the spending areas identified in England represent a worthwhile investment of community resources, now and in the future. We will determine the relative allocation for each year in relation to the spending areas for England through a cross-Government working group, which will draw up the spending directions to the Big Lottery. I am sure that we will come back to that in Committee, but it is important to recognise that we have been through a consultation process on the general areas. In determining the relative priorities, we will consider whether further consultation is needed.
The Big Lottery Fund is a Government-controlled body, but it is a non-departmental public body, independent of Government. A number of hon. Members made some injudicious comments in suggesting that it is an arm of Government and that we are trying to use it to fund normal Government expenditure. That is clearly not the case. It is very much the Government’s intention that those lottery funds should be additional public expenditure.
Martin Horwood: According to the National Lottery Act 2006, the Minister should be quite right in condemning some hon. Members for implying that the Big Lottery Fund is run by the Government, but his remark that it is a Government-controlled body rather plays into those hands. Would he like to rephrase and perhaps clarify that expression?
Ian Pearson: I was clear, I hope, that the Big Lottery is a non-departmental public body, independent of Government. The accusation that it is a Government-controlled body that takes the people’s money and spends it as it chooses is something that I wholly regret. I thank the hon. Gentleman for allowing me to clarify those comments.
I re-emphasise that in clause 23 it is proposed that directions to the Big Lottery Fund will be given by the Secretary of State for Children, Schools and Families. The clause has been deliberately written so that it is broadly similar to wording in the 2006 Act, which relates to the strategic guidance given by the Secretary of State for Culture, Media and Sport. It is right that the Government should give broad, strategic directions for the Big Lottery Fund.
We have been clear that spending must be additional to Government provision. Unclaimed assets are in effect community resources. They are not a substitute for Government funding. It is right that they should be seen to be used to develop and strengthen communities.
On the proportion of funds that are likely to go to the Big Lottery Fund, I stress that the reclaimed fund must hold back sufficient funds to repay potential customers. That is crucial. It will manage money on the basis of the FSA’s prudential regulation regime. The FSA will consult on that regime and publish a cost-benefit analysis in the usual way. It is not possible at this stage to say what proportion of funds will be passed on to the Big Lottery Fund. That is a decision for the reclaim fund. It will be under a statutory obligation to transfer to the Big Lottery Fund sums that are not needed for reclaim or expenses.
My hon. Friend the Member for Clwyd, South raised a number of issues in his powerful contribution. Again, I stress that we believe that a voluntary scheme will work. It has the support of banks and building societies. It will be highly transparent, so the basis on which they are participating will be clear.
My hon. Friend asked about the definition of dormancy and how confident we are about the industry’s figures. The industry has provided us with an estimate that after 15 years, 80 per cent. of dormant accounts are genuinely lost by the customer. That level of accuracy in identifying dormant accounts is important to minimise the ultimate level of the reclaim fund and hence overheads. The Government have listened to concerns about the time limit that were identified and discussed in the other place. We plan to introduce a power to amend the limit in the light of suitable evidence that a reduction or increase is advisable. We are reliant on the industry for the estimates, and they are the best estimates available. Of course, we would welcome it if more money were ultimately transferred into the scheme.
My hon. Friend also asked whether banks will publish their dormant account policies. Again, that is an important issue. My understanding is that the answer is definitely yes. Banks are committed to doing that under the banking code. There will be transparency about how banks are participating, along with the other specific disclosure requirements in the Bill. The flexibility of the proposed scheme is one of its main strengths. It will allow banks to take a wide range of factors into account in identifying dormant assets, which will minimise the possibility of misidentification and, in doing so, help to reduce the costs of administering the scheme.
A number of hon. Members asked how we will know whether banks are engaging the scheme and in particular whether there will be independent audits. The reclaim fund will publish amounts transferred into the scheme by individual institutions. Banks are committed to publishing their policies on how they are participating in the scheme. They are expected to subject transfers to independent audit as well.
Hon. Members also mentioned National Savings & Investments and its potential participation in the reclaim fund. NS&I has played an active role in reuniting funds with their owners. It has operated a free tracing service since 2001, and is a committed member of “mylostaccount” in the context of operation and advertising. Since 2001, it has reunited £109 million with 93,000 customers.
Having examined the issue carefully, the Government concluded that it would not be appropriate to transfer NS&I dormant accounts to the scheme, but NS&I is fully committed to reuniting owners with dormant accounts. I should make the crucial point that NS&I differs from banks and building societies in that its only function is to borrow money for the Government, which is then used to fund public spending. That means that money deposited with it is already doing public good, and including it in the scheme would mean diverting money that would have been spent on public services to the charity sector. We do not believe that that would constitute a prudent use of public funds.
My hon. Friend the Member for South Derbyshire asked whether members of building societies would lose their membership rights if their dormant assets were transferred. I think he was the only Member to raise that concern, but I can tell him that the proposed scheme will not affect building society membership rights. In a statement made in October this year, the Building Societies Association supported the Bill’s provisions concerning the safeguarding of the rights of building society members. The Bill provides that when a building society transfers a dormant account to the scheme, any membership rights attached to that account will continue to have effect as though the account had not been transferred.
Given that the Government designed the scheme to enable spending decisions to be devolved, I think it follows logically that a population-based formula should be used for allocation. That is why we suggested that the Barnett principles offered an established method of apportionment. The Big Lottery Fund will be required, within the spending directions, to achieve a fair and equitable distribution of funds in England. It has been chosen as the principal distributor because it has a track record of achieving a fair regional and local spread of funding, and because of its work distributing funds to revive communities.
I am sure that we shall be able to return to some of the points made today in Committee.
The last point with which I shall deal this evening concerns the provisions on small locally based financial institutions. The purpose of the alternative scheme for such institutions is to provide a balance between recognition of the special role that some small institutions play in their local communities, and ensuring that enough resources are available for the national scheme to facilitate an overall efficient and strategic approach to distribution.
The Government acknowledge the arguments advanced in the other place, and the important role that mutual
organisations play. However, while we welcome in particular the commitment of Nationwide and the other major building societies to participating in the scheme as ultimately constituted, we believe that the amendment widening the option to encompass all mutuals is not desirable. I can give three reasons for that.
First, the Government consulted on an asset threshold of £7 billion applying to both banks and building societies, and as the proposal received broad support during the consultation, we believe that that is what most respondents want us to do. Secondly, the amendment would significantly reduce the amount of assets available to the national scheme through the Big Lottery Fund, and thereby the strategic opportunity to make a significant difference in the areas identified as priorities for spending. Thirdly, there would be a lack of coherence in national distribution.
Nationwide and its partners have stated clearly that they will support the English priorities, which is welcome. However, a whole series of different foundations distributing in parallel to the same causes is inefficient and fails to maximise the opportunity of the dormant accounts scheme. It is for these reasons that we do not believe it would be right to maintain the current amendment passed in the other place, but we will come back to this in Committee.
Mr. Hoban: On the second reason the Economic Secretary cited, will he say by how much the resources available would fall if the seven largest building societies took part in the alternative scheme?
Ian Pearson: I do not have the figures immediately to hand, but they certainly are significant. The hon. Member for Cheltenham made the point that although a significant number of building societies will be excluded under the £7 billion figure, some of the big building societies will participate in the reclaim fund, and we think it is right and proper that they should do so.
Tom Levitt: My hon. Friend said he had dealt with the last point he raised, but I think the elephant in the room is the voluntary nature of the proposals. There has been scepticism across the House about whether a voluntary scheme can work given that no other voluntary scheme is operating in the world. Will he at this late stage undertake to come to Committee with an amendment that would allow reserve powers to be in the Bill such that at the first triennial review the scheme can be made mandatory if the voluntary system is not working?
Ian Pearson: I am certainly happy to debate the issue in Committee. Although what the UK is proposing in terms of the voluntary scheme has not been adopted in other countries, we have had extensive discussions with the banks and building societies and they have all indicated a strong willingness to participate, so we have no reason to doubt the commitment of these organisations to participate.
Martin Horwood: I am sure the Economic Secretary is right that the building societies support the principle of the Bill, but they have fairly consistently objected to the £7 billion threshold applying to them whereas banks have not. Therefore, can he remind us of this: why £7 billion?
Ian Pearson: Well, some building societies have, but others have not, and my understanding is that the figure of £7 billion was arrived at in discussion with banks and building societies and put in the original consultation documents. We consulted on that £7 billion figure applying to both banks and building societies, and it is a proposal that received broad support during the consultation.
A number of further points have been raised, but I think we can return to them in Committee. I am pleased to be able to say that the Bill has cross-party support. We want to get it right. We recognise that there is the opportunity to scrutinise the detail in Committee, and I look forward to engaging further with Members in all parts of the House as we look to take the Bill forward.
Bill accordingly read a Second time.
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