Clause
33Short
title Amendment
proposed: No. 20, in
clause 33, page 16, line 1, leave
out subsection (2).—[Ian
Pearson.] Question
put and agreed
to. Clause
33, as amended, ordered to stand part of the
Bill.
New
Clause
2Creation
of a mandatory scheme ‘The
Treasury may by order require all banks and building societies, as
defined by this Act, to transfer the balances of all dormant accounts
to the reclaim fund.’.—[Mr.
Jones.] Brought
up, and read the First
time. Mr.
Martyn Jones (Clwyd, South) (Lab): I beg to move, That the
clause be read a Second
time. It
is pleasure to serve under your chairmanship, Dr. McCrea. It
is interesting to be sitting on this side of the Committee after so
many years sitting in the
Chair. In
moving the new clause, I am addressing what can best be described as
the elephant in the room. Throughout the life of the Bill and long
before its existence, the use of a voluntary rather than mandatory
scheme has been a controversial issue in the debate on dormant
accounts. The new clause tackles that issue head-on. To some extent, I
feel that it reaches a compromise and that there is something in it for
people in both camps.
I start by
underlining what the new clause is not. It does not suggest the
introduction of a mandatory scheme. It seeks to enhance the nature of
the voluntary scheme, and although it could be used to create a
mandatory scheme, that is not its core purpose. It is, however, a
crucial bargaining tool that would ensure compliance from the banking
industry in handing over money voluntarily to the reclaim
fund.
Banks and
building societies will be more likely to co-operate if the alternative
to non-co-operation is enforced co-operation. In that sense, the new
clause would function much like a veto at the Council of the European
Union. Its most useful legislative quality would not be its use, but
rather the threat or shadow of it looming in the background, which
would ensure compliance and debate.
The new
clause has been mentioned in Committee, and I should like to address
some of the issues raised thus far. The hon. Member for Fareham does
not share my cynicism about the banks’ co-operation with the
reclaim fund, but I suspect that he will not deny that the definition
of dormancy in the Bill leaves leeway for interpretation. Such leeway
can be interpreted either advantageously or disadvantageously from the
banks’ point of view. That is entailed in the voluntary scheme.
The hon. Gentleman will also acknowledge the risk of partial
co-operation and agree that there should be no occasion when the
banking industry realises that it can simply fob off the reclaim fund
with a pittance.
9.15
am
Mr.
Hoban: The hon. Gentleman raises various points. The
triennial review, which was removed from the Bill during
yesterday’s sitting, would have created the power to ensure that
banks comply with best practice and do not accept the minimum
definition. Some light has been
shone on the matter, and that is why a statutory requirement for a
triennial review is a good idea, to ensure that the banks keep up to
the mark.
Mr.
Jones: I certainly agree with the hon. Gentleman’s
idea about regular reviews. I hoped that the Minister’s promise
was sufficient in that regard. If one of my amendments, which was not
selected, had been accepted, it would have given teeth to the triennial
review, including the idea of a mandatory fall-back position if the
voluntary nature of the scheme did not to deliver the goods.
I should like
to echo the supportive words of my hon. Friend the Member for High Peak
when he spoke about creating a purpose to the review that we were all
so strenuously in favour of yesterday, when dealing with the triennial
report in what was formerly clause 12. We all believe that the project
should be scrutinised, especially as the Bill is a novel concept to the
British banking system, and even more so as it is the first voluntary
regulatory system in the world. My hon. Friend rightly stated that the
scrutiny required teeth. Such teeth would be undoubtedly present if the
Government had a fall-back option in a mandatory scheme.
If such a report was to
condemn the voluntary nature of the scheme in three years’ time,
the Government would have an easy recourse. In that sense, the new
clause is less of a major shift than a work of minor dentistry in
restoring the Government’s teeth. Installing a mandatory scheme
is the ultimate deterrent to the banks’ non-compliance with the
voluntary scheme.
I am not alone in the
view that we require some sort of mandatory threat to underline the
voluntary scheme. In that view, I am joined by the National Council for
Voluntary Organisations and the cross-party Treasury Committee, which
stated “we
are unconvinced that the Government is correct to pursue a voluntary
approach. A compulsory scheme has the overwhelming advantage of
guaranteeing fairness and consistency between institutions. We urge the
Government to reconsider the voluntary basis of its proposals. If the
Government is still minded to continue with a voluntary scheme, we
recommend that the forthcoming legislation be prepared so as to include
reserve powers for Ministers to establish a compulsory scheme at a
later date without recourse to further primary legislation, should a
voluntary scheme prove unsuccessful”.
All that new clause 2
seeks to do is to give powers to the Government in the
future.
I want to
address the issue of fairness. Why should some banks contribute and
others not? In about 2001, I wrote to all banking institutions and sent
over 100 letters. Not that many banks have closed in that
time. However, the British Bankers Association says that only 11 banks
have pledged to take part, and some of those have disappeared in the
past few weeks. There is a disparity, and that sentiment is echoed in
my early-day motion, which had the support of nearly 100 hon. Members,
including the current Treasury spokesman for the Liberal
Democrats.
Yesterday,
the Minister seemed to suggest that too much bureaucracy was entailed
in inserting such a proposal into the Bill and that such a clause was
too wide ranging. In an attempt to pre-empt the Minister from taking
such a line of logic, I ask him to name any of the
bureaucratic challenges that such a clause would pose.
The Bill has
already more than ably created a reclaim fund, a distribution network
and a report system. A body already exists in the Financial Services
Authority capable of market regulation. In the unlikely event that the
clause should ever need to be activated, little else seems to be
required. The banks would be legally compelled to do that which is
already perfectly consistent for them to do voluntarily.
I say to the
Minister that concerns about the potential technicalities of the new
clause when activated are not worthy of consideration, for the nature
and existence of the new clause in the Bill as a threat should mean
that it would never need to be activated. The shadow of a mandatory
scheme, rather than a mandatory scheme itself, would ensure total
compliance with the voluntary
scheme. Throughout
these debates, the Minister has assured us of the banks’
co-operation with the Bill and the future voluntary scheme. Such a view
should not create any opposition to the new clause’s insertion.
If the banks co-operate fully, the voluntary scheme will work—a
report will say so—and there will be no need to activate the new
clause. Following the Minister’s line of logic, the worst that
the new clause can ever be is slightly
redundant. Many
of us have been sceptical from the outset about the voluntary scheme
and the banks’ co-operation with it. However, the Minister has
largely brought us round to the idea of banking co-operation. I confess
that I still am sceptical about the numbers adding up and about how
£400 million can change into £50 million overnight in
response to the loss of just 10 years’ worth of dormant funds.
However, I am willing to accept the flexibility and the less regulatory
benefits of a voluntary scheme. I have come half way; I ask the
Minister to come the other half of the distance, by agreeing to the new
clause, so that we can meet in the middle.
The apposite
words of my hon. Friend the Member for High Peak seem to echo
throughout these debates. One should not try to smash a nut with a
sledgehammer—I have no desire to do so—but inserting some
shadow of enforcement to the regulatory scheme will ensure that we are
not smashing a nut with a feather either. The new clause is fit for
purpose if it ever needs to be enacted. However, most importantly, its
dormant presence in the Bill would provide a perfect deterrent to
ensure compliance with the voluntary scheme. The worst that it could
ever be is an unused power. I do not see that as something to fear, and
I hope that the Minister will support this change to the
legislation. Tom
Levitt (High Peak) (Lab): I congratulate my hon. Friend on
his robustly moderate proposal, which is highly appropriate, and I echo
every word of his speech, not least because he quoted me at length. I
simply want to add that we have, at the moment, taken the stand that we
are the only country in the world that will proceed with a voluntary
scheme. All the other schemes are mandatory. I am saying not that that
is wrong, but simply that if the voluntary scheme does not work, we do
not have a fall-back position in the
Bill. All
that my hon. Friend’s new clause would do is provide that
fall-back position so that we could put things right if they did not
work as they should, without resorting once again to primary
legislation. I hope that the new clause receives a
welcome.
Matthew
Taylor (Truro and St. Austell) (LD): These dormant
accounts have been enormously valuable to the banks and the truth is
that they were an unwritten, unannounced, highly profitable source of
effectively free money for them over a huge period. The growing
awareness of that has led other countries and this Government to take
action. Bluntly, it is hard to understand why such a practice should
have continued. It seems better to put the money into good causes.
There are arguments about how that should take place and about the good
causes process. Those arguments have been had during consideration of
the Bill, and the Government have a settled position on them.
All I would
say in support of the new clause is that we have experienced a period
of weeks in which we have seen just how wrong the banks can get things.
Not just in this country but internationally, a tighter hand is needed
on the tiller to ensure that banks act properly and that they take into
account their countries’ and the economy’s long-term
interests, rather than just the short-term payouts to those on bonuses.
There has never been a better moment to introduce measures that say to
the banks, “We are serious about you doing this. We believe
it’s right for the country and the right use of those funds, and
if you don’t take that course of action as seriously as you
should, we will take action.” That is what the new clause would
do. The
large banks are likely to act on these measures. If they do not, there
will be queries at the margin. Some people may think that the matter is
just not important enough for primary legislation—there may be
complaints or criticisms—but it is unlikely that the Government
would wish to initiate primary legislation to crack a nut with a
sledgehammer, to use the words of the hon. Member for Clwyd, South and
others. The
new clause would let the nuts know that the Government do not need to
take a sledgehammer to them, but that they have that power if they need
it. That is why I support new clause
2.
Ian
Pearson: I will try to reply to the arguments put by my
hon. Friend the Member for Clwyd, South, who is a long-standing
champion of using dormant accounts for good purposes. I appreciate the
genuine difference between our views on the matter. I shall set out why
we propose a voluntary approach before turning to the specific question
of using empowering legislation to change our approach in future, as
new clause 2 would
allow. Participation
in a scheme will be voluntary for individual banks and building
societies. I am pleased that support for that approach was voiced on
Second Reading and that it is being voiced in the Committee. It is
clearly right to introduce a voluntary scheme where we believe that one
will
work. I
accept that our proposals are innovative. The unclaimed assets scheme
will not be like mandatory schemes elsewhere, such as in Ireland or the
United States, but it would be wrong to assume that because we are
doing it differently we are mistaken. From the start, our approach has
been based on the sector’s clear and full commitments to
participating in a voluntary scheme and making it a success. We welcome
those commitments, which distinguish our scheme from the Irish and US
examples. That is one reason why we can take forward a voluntary scheme
with confidence.
I draw
attention to the public commitments set out in the joint foreword to
last year’s Treasury consultation document, which was signed by
the BBA and the Building Societies Association. Again, in press notices
released by the industry in November last year, and as recently as 2
October this year, the industry confirmed its commitment to the scheme.
That commitment is further illustrated by the commitments made by the
major UK banking groups that have participated in discussions with the
Government. Those banking groups represent an estimated 90 per cent. of
all retail and savings balances held by such institutions in the
UK.
My hon.
Friend suggested that a significant number of banks and building
societies might not participate. The fact that institutions
representing about 90 per cent. of all retail and savings balances have
committed to participation is to be welcomed, and I hope that that
reassures
him.
Mr.
Jones: Therefore, 10 per cent. of balances are not
represented. Only 11 organisations have said in the BBA document that
they will take part. There are a great many other banks. They might be
small, but they have been going for a long time. Coutts, for example,
is not on the bankers’ list. What worries me is that significant
funds will not be included. The element of fairness is also an issue.
How will the banks that take part in the scheme feel about banks that
do not—in other words, that are using this money as a float, as
the hon. Member for Truro and St. Austell said earlier? The banks like
having this money. Some of them are happy to give it up; others are
not. To ensure fairness and that everybody complies, we should include
the new clause in the
Bill. 9.30
am
Ian
Pearson: I said that an estimated 90 per cent. of retail
and savings balances are held by institutions that have agreed to
participate in the scheme, but I want to emphasise that that is, so
far. As we move forward with consideration of the Bill and as the
reclaim fund becomes established, I expect that banks and building
societies that are not participating at the moment—the smaller
ones that my hon. Friend refers to—will come on board. It is a
healthy sign that, even before day one, we have 90 per cent. of savings
and retail balances committed to the scheme. Let us also ensure that we
up that
figure.
| 
