Mr.
Hoban: Coutts is part of RBS, which is one of the banks
participating in the scheme. A large number of banks will not be
participating because they do not do any retail business. Some of the
big US banks here do predominantly wholesale business and do not have
the retail deposits. We need to be careful when saying that only 11
groups have signed up, as it is 11 out of a much smaller population
that does just retail
transactions.
Ian
Pearson: The hon. Gentleman makes a good point. I also
want to respond to the points about whether the banks have a
disincentive to participate in the scheme. I do not believe that that
is the case. The high levels of participation already achieved should
reassure the Committee.
When the
banking industry estimates that only seven hundredths of 1 per cent. of
the total in retail banking and savings balances are dormant accounts,
I do not think that there is a strong disincentive to participate in
the scheme. The industry itself clearly rejects any arguments that
retaining money on its balance sheets is a disincentive to
participation, even in these turbulent times. We must ask whether seven
hundredths of 1 per cent. is a real incentive. I do not think it is. I
do not believe it is a significant motivation for the banks, but it is
a significant amount for us as we consider its potential to be used for
good
causes.
Matthew
Taylor: I certainly echo the Minister on that last point.
One has to be aware that the banks have effectively treated this money
as capital, not as a normal deposit fund with the associated costs.
Over time, those dormant accounts are transferred and in effect treated
as part of the capital base of the bank. That money is of more
significant value to them than this.
If only 10
per cent. of banks have not agreed—presumably, some of those
will participate later—and a few per cent. of what are
effectively freeloaders are not participating, is it realistic that the
Minister will return to the House asking for new primary legislation?
Presumably, he is saying that he is willing to accept up to 10 per
cent. of this cash not being paid over and the banks sitting on
it.
Ian
Pearson: I do not think that hon. Gentleman makes a very
good argument. So far, 90 per cent. of all retail and savings balances
will be taken into account, given the commitments already made by the
banks. I expect that figure to increase as more want to
participate.
My hon.
Friend the Member for Clwyd, South also asked about the bureaucracy of
a mandatory scheme. The voluntary approach in the Bill brings
flexibility and clear advantages. There are downsides to a compulsory
approach. Our legislation provides a clear, minimum definition of
dormancy, but allows institutions to refer to a range of indicators to
determine whether an account is genuinely dormant. We discussed that in
the early stages of consideration of the Bill. As a result, the scheme
will be less rigid than other international examples. Therefore, it can
be based on existing industry systems, helping to reduce unnecessary
administrative costs, and it can be kept up to date, in line with the
latest
technology. We
are not requiring an additional system to be imposed on all the banks,
which would create bureaucracy if we followed a mandatory approach. The
voluntary approach also enables us to use private sector expertise in
the reclaim fund so as to manage the liabilities to account holders. It
is right to ask the private sector, which has the expertise, to manage
the reclaim risk and to take on that
function.
Mr.
Jones: I remind my hon. Friend that I am not suggesting in
the new clause that there should be a mandatory scheme. I want merely
to give him the power to have that mandatory option should the
voluntary scheme fail or not work to its fullest extent. I find it
astonishing that a Government should reject having powers given to
them.
Ian
Pearson: I shall come on specifically to the reserve power
that my hon. Friend proposes, but I thought it right to dwell on why we
believe that a voluntary
scheme will work—because it is widely supported—and why it
has advantages over a mandatory scheme. Generally, my view is that if I
do not think something is the right thing to do, I do not want a power
to do
it. The
voluntary scheme has to be highly transparent to demonstrate that banks
and building societies are delivering on their commitments, maintain
public confidence in the scheme and strengthen further the incentives
for institutions to reunite customers with their money and genuinely to
transfer dormant accounts. We all want to see that. We have already
discussed the disclosure requirements, but we believe that the
voluntary scheme will work, be transparent and
succeed. Let
me turn to the question of having a power to convert the scheme to a
compulsory one. In light of the sector’s clear and demonstrable
support for a voluntary scheme, we see no reason to take a reserve
power to establish a compulsory one. Furthermore, we have fundamental
concerns about the appropriateness of such a
power. A
compulsory scheme would look completely different from a voluntary one.
It could not rely on the industry’s willingness to establish the
reclaim fund. The Bill would have to establish a reclaim fund as, in
effect, a public body. It would have to set out the criminal sanctions
that would apply to institutions that failed to comply with the scheme,
and that would have to be monitored and regulated. Such an enforcement
framework would not be compatible with a private sector-run reclaim
fund. I could go on, but the implications are
clear.
Tom
Levitt: I understand a lot of what my hon. Friend is
saying, although I think he is overstating his case a little. He would
win me round if he answered my question in the affirmative. Yesterday,
we were grateful for his undertaking to come back with an amendment on
the review in three years’ time. Will he assure us that that
review will be capable of making significant, radical and robust
changes to the scheme to make it work better, if, in the opinion of the
review, improvements need to be
made?
Ian
Pearson: I want the review three years after the fund has
been established to be a proper one. It will be a review of the
operational effectiveness of the fund. If there are clear deficiencies,
I would expect action to be taken. The review will certainly look at
the effectiveness of a voluntary approach. I have difficulties with
taking a reserve power whereby the Government could, by order, take
significant action that is really appropriate to primary
legislation. A
compulsory scheme would require extensive
legislation—significantly more than is proposed. I suspect that
it would involve double the number of clauses. It would not be
appropriate to deal with the issue through secondary legislation. If
the review in three years’ time said that there was a major
failing in the voluntary approach and that a mandatory one was
required, we would have to look to primary legislation, because we
would be talking about compulsory participation and criminal sanctions
for not participating, and quite extensive monitoring and regulation
regimes would have to be put in place. It would not be appropriate to
deal with such extensive legislation through the secondary legislation
route. I
hope that, on reflection, hon. Members will agree with what I have
said. It is not our intention to take substantial reserve powers that
we do not believe are currently necessary. We might want to come back
to the issue, but at the moment we believe strongly that the voluntary
approach will work. It is widely supported by the banking and building
society sector. Therefore, new clause 2 is unnecessary and I invite
hon. Members to oppose it if it is pressed to a
vote.
Mr.
Jones: Having listened to the Minister and looked at my
troops, I shall not press the new clause, but in the hope that the
Government will come back on Report with solid proposals for a review
with real teeth. I beg to ask leave to withdraw the
motion. Motion
and clause, by leave,
withdrawn. Question
proposed, That the Chairman do report the Bill, as amended, to the
House.
Ian
Pearson: I thank you, Dr. McCrea, and Mr.
Benton for your efficient chairing of these proceedings. I thank my
hon. Friends for participating and helping us to improve the Bill, and
for giving up their time to do that. There is real interest in how
dormant bank and building society accounts can be used for the benefit
of the wider community. Following our debate on clause 12, I undertook
to return to the issue of a review. We will discuss those matters on
Report.
Mr.
Hoban: I, too, thank you, Dr. McCrea, and your
co-Chairman, Mr. Benton, for how you have chaired our
good-natured discussions during three sittings of the Committee, and I
thank my hon. Friends for taking part. I advise my hon. Friend the
Member for Henley, whose first Public Bill Committee this is, that not
all Bill Committees proceed as smoothly and quickly as this one. I am
sure that the Whips will find him something more challenging to get his
teeth into
shortly. I
am also grateful to the Minister for how he has approached the debates.
We have disagreed on a number of areas, and the Bill that is leaving
Committee is very different from the one that arrived, but we have had
helpful discussions. I am grateful to him for being open in responding
to those debates and open to the ideas that we have put
across.
The
Chairman: On behalf of Mr. Benton and me, I
thank hon. Members for the co-operation and courtesy that they have
shown throughout the
debates. Question
put and agreed
to. Bill,
as amended, to be
reported. Committee
rose at sixteen minutes to Ten
o’clock.
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