Ian
Pearson: I understand the intention of the amendment,
which is to probe the Treasury’s use of its power to direct the
reclaim fund to comply with the legislation and to ensure greater
parliamentary scrutiny. We touched on the issue on Second Reading. I
hope that the comments that I can put on the record today will help to
give the hon. Member for Fareham and others watching the proceedings
some
reassurance. Clause
5 contains a direction-making power, as the hon. Gentleman said. We see
it as an ultimate safeguard, which allows the Treasury to take action
to ensure that a reclaim fund complies with the requirements to which
it will be subject as a result of the Bill. I want to emphasise that the
direction will do no more than require the reclaim fund to give effect
to, or comply with, the requirements to which it is already subject
under the Bill, which will have been approved by
Parliament. Let
me be as clear as I can about how I see the power being used. The
Financial Services Authority will authorise the reclaim fund and put in
place ongoing prudential regulation, to ensure that the reclaim fund
has sufficient money to repay customers. That is in keeping with the
FSA’s roles of financial regulation and consumer protection. It
is not expected to go beyond its statutory objectives and make rules
that govern other areas of the reclaim fund’s operations. The
Government do not envisage using the direction-making power in the Bill
to interfere in any way in the day-to-day running of the reclaim fund
and the management of its money. It will be the FSA’s sole
responsibility to regulate the reclaim fund for prudential
purposes. The
power is an ultimate sanction, which the public would reasonably expect
us to have to ensure that the reclaim fund functions in accordance with
its articles of association, particularly in those areas that the FSA
will not regulate for prudential purposes. That is an important point.
Such areas include, in principle, the requirements in schedule
1—for example, the publication of information by the reclaim
fund, the use of money to cover reasonable money costs or the
requirements elsewhere to transfer surplus money to the Big Lottery
Fund.
Again, I
emphasise that we do not expect to use this power. These issues are
primarily a matter for the company’s directors and members, but
the power gives us the ability to act in exceptional circumstances.
That is all. It is not a question of using a direction if we just had
an honest disagreement about the distribution policy of the reclaim
fund. It would be used if there were in our view a fundamental breach
of the company’s responsibilities that have been set out in
legislation. Only in those circumstances would we want to act without
delay in the interests of account
holders. 11.30
am
Mr.
Hoban: I find it difficult to comprehend what exceptional
circumstances the Minister refers to, since he does not appear to mean
an honest disagreement between the reclaim fund and the Government
about the amount being transferred. Will he give a better example of
the areas where the Government feel that they might have to give
directions to the reclaim
fund?
Ian
Pearson: We do not have particular areas specifically in
mind because we do not anticipate any problems. This is a voluntary
scheme. A private company is going to be set up in accordance with the
legislation, and we have confidence that it will appoint people who
will run the reclaim fund in an effective way. This is very much a
back-up power in the case of unexpected
circumstances. Mr.
Charles Walker (Broxbourne) (Con): I imagine that the
reclaim fund will be carrying a balance. What will be the rules for
investing that balance? Will it have to keep it in cash or will it be
allowed to make investments? If it is allowed to make investments, will
it invest, for example, in Government bonds and public bonds, or in
Icelandic banks?
Ian
Pearson: I seriously doubt that it will invest in
Icelandic banks. This is not a matter for primary legislation. It will
be up to the private company to decide how it manages its money for the
length of time for which it has it, the extent and size of a
contingency fund for moneys that will be reunited with customers, and
the extent of the funding requirements that it will pass on to the
BLF.
In response
to the hon. Member for Fareham, I stress that we see this very much as
a back-up power to be applied if there were a clear breach of a
company’s articles of association. This would include failure to
publish information, as we want the reclaim fund to operate
transparently. Serious concerns about the behaviour of the company
might warrant the Government wanting to take action, and we think there
should be a power there. I hope that I have reassured the hon.
Gentleman that we do not intend to use this power routinely—it
should be considered wholly
exceptional. Mr.
Mark Field (Cities of London and Westminster) (Con): Does
the Minister accept and recognise the heart of the concern that has
been raised by my hon. Friend the Member for Fareham in tabling the
amendment? Whereas in national lottery legislation there is a clear
delineation between the raising of the money and its distribution, with
the latter being in the hands of the BLF, in this instance, even with
the exceptional use of these powers, there will be a muddying of the
water in that the power of distribution will no longer be exclusively
in the hands of the Big Lottery Fund, as we shall see when we discuss
later clauses dealing with precisely how the powers will operate. That
is the nub of my concern. There should at least be some opportunity for
Parliament to have its say through the statutory instrument
provision.
Ian
Pearson: I understand the hon. Gentleman’s point.
However, the reclaim fund will be set up as a private company and
incorporated under UK company law. It will have articles of association
and be regulated by the FSA. We will have a power under the Bill that
can be used in exceptional circumstances if we believe that the company
is in breach of its articles of association. That situation would not
be normal. The normal situation will be that the company collects money
that is given to it by banks and building societies from dormant
accounts. It will have a business plan whereby it makes decisions about
how much of that money can be distributed to the BLF, which will then
issue it to good causes, and how much needs to be kept back as a proper
contingency against future claims on the reclaim fund from existing
customers with dormant accounts. Only in exceptional circumstances
might the Government need to exercise a power to require the reclaim
fund to do certain things. I do not think that it would happen, but if
the reclaim fund suddenly decided that it did not want to publish
information and there were serious concerns about the propriety of how
the company was being run, the taxpayer would want the Government to
intervene. That is the reason for the back-up. We do not intend to use
it other than in wholly exceptional circumstances. It is normal to have
reserve powers of that sort under
legislation.
Mr.
Walker: Will the Minister clarify whether a private
company will pay corporation tax on any surpluses that it builds up in
its accounts?
Ian
Pearson: I do not have information on tax status to hand,
but I will make sure that the hon. Gentleman receives it during our
sitting. I
hope that I have explained the exceptional nature of the power that is
being taken and why we do not support the amendment. As we have seen
from the events of the past few days, it is sometimes necessary to
intervene in a time of unexpected crisis. Having the power to do so is
a good thing, and I would like to think that in this week, of all
weeks, Opposition Members appreciate that
too.
Mr.
Hoban: Perhaps the directors of the reclaim fund would be
grateful that the Government lost their 42-day provision in the House
of Lords last night, as otherwise they could be detained without trial
in exceptional
circumstances. In
reassuring the Committee about the exceptional nature of the powers to
intervene and when they might be exercised, the Minister almost makes
the argument for why parliamentary scrutiny of such matters would not
be a bad thing. It will not be a daily occurrence. We will not have to
sit here week in, week out, approving directions. The powers will be
exceptional, and as such need parliamentary
scrutiny.
Mr.
Browne: I would find it immensely reassuring if the hon.
Gentleman could assure me that, in the unlikely event of a Conservative
victory at the next general election, such a provision would be a
priority on which to legislate at the beginning of the new
Parliament.
Mr.
Hoban: One thing that I learned when I was a member of the
Finance Bill Committee is that I could give way to too often to the
hon. Gentleman. I shall not go down that route, because he will change
his policy before we know
it. The
Minister said that the scheme is voluntary, that the company is private
and that it will be regulated by the FSA. Would we expect the Treasury
to have these powers in the first place? I think that most people would
say not. If the Treasury does have powers to give direction it is
important that, given their exceptional nature, they are not to be used
willy-nilly but only in a moment of
crisis.
Ian
Pearson: In times of crisis we sometimes have to act
extremely quickly. I stress that we expect to use the powers only in
exceptional circumstances, but I will give the hon. Gentleman a
hypothetical situation. If the company directors of the reclaim fund
suddenly wanted to make an investment decision to put £200
million into an Icelandic bank and the Government got wind of that, it
would be a good idea to stop them. We could not lay an order in the
House and then debate it before taking action, which is what we would
have to do under the affirmative procedure. In such exceptional
circumstances we might need to act very quickly, which is why the
negative procedure is the appropriate to way to operate.
Mr.
Hoban: I am not sure whether the Minister’s example
is a good one. When the Government took Northern Rock into what was
then called temporary public ownership, we had not debated the
affirmative resolution before the decision was made and nationalisation
had gone ahead. If the Treasury is going to use the powers in
exceptional circumstances and they will be reserved for such cases,
there should be proper parliamentary scrutiny of the exercise of those
powers. This will give the Government power to intervene in a voluntary
scheme run by a private company, and that cuts across the nature of the
scheme by undermining its voluntary nature. The Minister has not given
a satisfactory explanation of why we should not go down the affirmative
resolution route.
Question
put, That the amendment be
made:— The
Committee divided: Ayes 6, Noes
8.
Division
No.
2] Question
accordingly
negatived.
Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: I want to spend a couple of minutes trying to
understand more about the reclaim fund, because it is one of the key
elements of the Bill. It will be required to hold sufficient reserves
to meet the repayment of account balances that banks have deemed to be
dormant. This is an opportunity for the Minister to say a little more
about how the reclaim fund will work in practice. The point was made in
the previous debate that this will be a private company, but will the
Minister indicate who will actually establish it? Will it be
established at the direction of the Treasury, or will it be established
by the banks and building societies as part of their involvement in the
scheme? The
reclaim fund has an important role in regulating the flow of money to
the Big Lottery Fund from dormant accounts and in ensuring that
sufficient reserves are in place. Will there be a consumer
representative on the board of the reclaim fund to ensure that consumer
interests are safeguarded and that any distribution policy will strike
the right balance between feeding the distribution fund and meeting the
repayment claims from customers? How would it set about establishing
the right reserves for repayments?
[Interruption.]
11.45
am
The
Chairman: Order. I am sorry but the background noise is
getting a little high. I do not know whether the acoustics of the room
do not help, but it is getting difficult to hear. I ask people to keep
the noise down.
Mr.
Hoban: Thank you, Mr. Benton.
Will the
reserving be dictated by the prudential regulation of the reclaim fund
by the FSA, or will the directors be required to come up with their own
reserving strategy, which might lead to balances being held in the
company
in excess of those required by the FSA? I was going to ask what sort of
information the reclaim fund would have, but we have discussed that
under amendment No. 1. One theme
that ran through the debate on Second Reading was that of ensuring that
the costs associated with the scheme were kept to a minimum. What
discussions has the Minister or his officials had with banks and
building societies about the projected costs of administering the
reclaim fund? The higher the cost, the less money will be available to
distribute to the Big Lottery Fund and the three spending priorities.
Will those costs be borne by the banks and building societies, or will
they be paid for out of the dormant accounts balances transferred to
the fund?
One of the
reasons why the Bill took longer than expected in the Lords was that
the opacity around the operation of the reclaim fund detained their
lordships for some time. I hope that there are clearer answers now than
there were earlier this year.
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