Dormant Bank and Building Society Accounts Bill [Lords]

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Mr. Hoban: Again, the Minister points out two communities that could lose out as a consequence of this measure. The communities of customers being served by the Derbyshire and Cheshire building societies would benefit if dormant accounts were sitting there and those societies were not taken over by or merged with—I am not sure what the technical language is—the Nationwide. Now, those accounts will be lost in the big pot that will be transferred to the Big Lottery Fund. The communities that those two building societies serve could have used dormant accounts to help particular projects in their area. Let us not forget, these building societies have been built over time through the agglomeration of smaller building societies.
We are in danger of losing the potential for local links for larger building societies and creating two different sets of building society. It boils down to the Minister’s argument that the Government want more money for the good causes. We support the three spending priorities that are set out in the Bill and we want to see those work well, but the scheme is voluntary, there is competition and there is tension between the scheme and recognising the principle of mutuality and how members of building societies and the local communities that they support should be able to benefit.
A second issue arises from the £7 billion limit, which is what happens when the value of the assets fluctuates. When is a scheme in or out? If a building society shrinks its lending book and has lower assets, one year it will be over the £7 billion limit, the next it will be under. That does not create a stable base on which to operate.
There is regular discussion on the financial pages about de-leveraging. That could lead to shrinkage in the size of some of those building societies, which would suddenly go below the threshold. I think I am right in saying that the Skipton building society has recently gone over the £7 billion limit, although it might find itself going below that threshold, so even the threshold does not quite work. The Government are making an artificial distinction. It does not sit well with the treatment given to the vast majority of building societies, and it is a retrograde step to restore the Bill to how it was before it was, I believe, improved in the Lords.
Ian Pearson: Clearly, there is a difference of opinion between us on the matter, but let me have one more go at reassuring the hon. Gentleman. We want co-ordination and a fund of sufficient size to give money to good causes. I repeat that youth provision, financial inclusion and capability are important areas, and they have been recognised widely as such here and in the other place.
The hon. Gentleman seemed to suggest that having a small and local scheme will create an artificial distinction. I do not agree. Building societies are all not the same. They vary enormously in size, and many small and local building societies are primarily locally and regionally focused. Clearly, some societies with many millions of customers are not, and it is not the case that building societies will be disadvantaged in any way by participating in the reclaim fund and the scheme if they are of sufficient size.
The Big Lottery Fund has already proved that it can invest effectively in projects at local level and will continue to do so. If Nationwide participates in the reclaim fund and the scheme, I am sure that many of its members will benefit from the reclaim fund through the Big Lottery Fund at local level. I must say to the hon. Gentleman that large building societies such as the Nationwide are national. The clue is in the title. They are not small and local, and I do not think it unreasonable to have a small and local scheme.
Mr. Hoban: The Minister’s argument is rather spurious, given the existence of building societies such as the Chelsea, which has its headquarters in Cheltenham, as well as the Yorkshire and the Skipton. To say that the clue is in the name is not the best argument that he can make in Committee.
Ian Pearson: I understand the hon. Gentleman’s point, but it plays to what I am saying as well. A number of building societies have names that might imply that they are regional, such as the Yorkshire, although in actual fact they operate very much on a national basis.
Mrs. Janet Dean (Burton) (Lab): Has my hon. Friend estimated how much less there would be for good causes, such as youth facilities, if large building societies were allowed to opt out of the scheme?
Ian Pearson: The best figures that we have available show that, of the £130 million that we estimate would be classified as dormant and be transferred to the reclaim fund in the first instance, £100 million would come from building societies with assets in excess of £7 billion. By the way, that includes the Derbyshire, which, although it is being acquired by the Nationwide, is already above the £7 billion threshold. We are saying that if the Bill remains as amended in the other place, £100 million will not go into the reclaim fund and then, I hope, out to the Big Lottery Fund for distribution.
Without wanting to be in any way critical of large building societies, which I am emphatically not, having a scheme of sufficient size to be able to operate strategically, which is our intention, is the right thing to do. It is also important that we make provision for small and local building societies. That is the balance we struck as a result of the consultation exercise. The BSA is happy with our amendments and the approach that we want to follow.
I hope that I have has reassured the hon. Member for Fareham, although I suspect that I have not done so entirely.
11.15 am
Question put, That the amendment be made:—
The Committee divided: Ayes 8, Noes 5.
Division No. 1]
Barlow, Ms Celia
Blizzard, Mr. Bob
Dean, Mrs. Janet
Ennis, Jeff
Jones, Mr. Martyn
McCarthy, Kerry
Mallaber, Judy
Pearson, Ian
Browne, Mr. Jeremy
Hoban, Mr. Mark
Howell, John
Newmark, Mr. Brooks
Walker, Mr. Charles
Question accordingly agreed to.
Amendments made: No. 10, in clause 2, page 2, line 19, at end insert—
‘( ) The reference in subsection (1) to an account that a person holds is to be read as including an account held by a deceased individual immediately before his or her death.
In such a case, a reference in subsection (2) to the customer is to be read as a reference to the person to whom the right to payment of the balance has passed.’.
No. 11, in clause 2, page 2, line 27, after ‘bank’, insert ‘or building society’.—[Ian Pearson.]
Clause 2, as amended, ordered to stand part of the Bill.

Clause 3

The assets-limit condition
Amendments made: No. 12, in clause 3, page 2, line 43, after ‘bank’, insert ‘or building society’.
No. 13, in clause 3, page 2, line 46, after ‘bank’, insert ‘or building society’.—[Ian Pearson.]
Mr. Browne: I beg to move amendment No. 2, in clause 3, page 3, line 11, leave out from ‘section’ to end of line 11 and insert
‘may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.’.
I will be brief. I declined to contribute to discussions on previous clauses because I thought that I would keep my powder dry for the point I make now. The £7 billion threshold is clearly controversial; a substantial body of opinion believes that there should be no threshold at all. So the amendment would require the Government to use a positive resolution if they wished to alter the threshold, rather than a negative resolution, which is the current arrangement.
Opposition parties routinely use this device in Committee to try to make the Government more accountable to Parliament, and perhaps there is something slightly ritualistic in the way that amendments are tabled to that effect. In this instance, however, a serious point is being made: it would not be appropriate—indeed, it would be a slight breach of faith—for the Government to alter the threshold in a way that substantially changed the legislation and the impact on small communities that would otherwise benefit, without proper reference to Parliament. That is the motivation behind amendment No. 2.
Unlike other amendments moved by Opposition parties, which the Government—by virtue of having the majority of members of the Committee—may wish to disregard, they might want to look more sympathetically on this proposal. Unless they have malign or hidden motives—I have no reason to believe that they have—I cannot understand why they would wish to reject the amendment.
Ian Pearson: We identified, in consultation with the industry, the £7 billion limit as a credible threshold to define small locally based institutions, and it is enshrined in clause 3. The amendment asks us to use the affirmative procedure rather than the negative power in the Bill. I say to the hon. Member for Taunton that we recognise the concerns that were expressed in the other place about the suitability of the £7 billion limit, and we have recently discussed those concerns.
There is provision in the Bill for the asset limit to be adjusted by Government order, so that it can continue appropriately to identify small and local institutions in the future, which is its purpose. The most likely reason for changing the limit would be a technical matter, such as inflationary adjustment. We therefore consider that a negative power is appropriate, given the scope of the power and the interest that it is likely to raise.
The Delegated Powers and Regulatory Reform Committee confirmed that a sufficient case had been made for the power, and it did not consider the power nor the scrutiny that we are proposing—the negative procedure—to be inappropriate. For those reasons, we believe that the hon. Gentleman’s amendment is unnecessary, and we will oppose it.
Mr. Browne: I am disappointed. I understand the point that the Minister is making: if the limit will be adjusted due to inflation or other incremental changes that take place from year to year, we do not need a full-scale discussion, but I witnessed in the Chamber last week large parts of the provisions for banking being made under terrorism legislation, so I am cautious about the Government using powers created for one reason to achieve different purposes at a later date. It is perfectly possible that the Government could reduce the threshold substantially without proper reference to Parliament. That concerns me, but I sense that I have not persuaded the majority of members of the Committee, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3, as amended, ordered to stand part of the Bill.
Clause 4 ordered to stand part of the Bill.

Clause 5

Functions etc of a reclaim fund
Mr. Hoban: I beg to move amendment No. 26, in clause 5, page 4, line 32, at end insert—
‘(4A) Any direction given under this section may not be made unless a draft statutory instrument containing such a direction has been laid before, and approved by a resolution of, each House of Parliament.’.
The amendment continues in the spirit of the previous amendment tabled by the hon. Member for Taunton, and I am not sure whether it holds any greater chance of success. I want to introduce into clause 5 a power to ensure that, where the Government issue a direction to the reclaim fund, that direction is subject to parliamentary scrutiny. As the Government frequently point out—doubtless they will do so again today, perhaps when we have a stand part debate on the clause—the reclaim fund is a private company and the Government will not have a great deal to do with it. As with any other private company, it will be regulated by the Financial Services Authority. Yet, when we look at the detail of the clause, subsection (4) will give the Treasury the right to “give a direction” to the reclaim fund, requiring it
“to give effect to any specified object that it has, comply with any specified obligation or prohibition imposed on it by a provision that its articles of association are required to make under Schedule 1.”
We touched on the issue briefly on Second Reading last week. I asked the Minister if it would be possible for the Treasury to give a direction to the reclaim fund to transfer more money to the Big Lottery Fund. After a while, we got the answer—I paraphrase significantly—yes. It will be possible, in exceptional circumstances, to use the power of direction to encourage or require the fund to transfer more money.
If the Government intend to have such power of direction, it should be subject to proper parliamentary scrutiny. In such circumstances, the Government would be saying, “We do not agree with the prudent decision that the board of the reclaim fund has made to hold back this amount of money. We believe that, in the interests of maximising the amount of money in the Big Lottery Fund, the right decision is to transfer across another £20 million, £30 million or £40 million.” The Government’s exercising such powers without parliamentary scrutiny is not appropriate. What if the reclaim fund is left short? We had the assurance in the other place that the financial services compensation scheme would meet the needs of customers, but it would not be satisfactory for the private sector to pick up a shortfall through the FSCS.
There is a need for proper parliamentary scrutiny of the directions that the Government can give to the reclaim fund. Without that, the directors of the reclaim fund will be in a difficult position. We are giving the Treasury powers without proper parliamentary scrutiny. The Minister ought to accept the amendment, in the spirit of trying to improve the scrutiny of the operation of the reclaim fund. We are told that the fund is a private body; but at the end of the day, it will be subject to those Treasury directions.
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Prepared 15 October 2008