Dormant Bank and Building Society Accounts Bill [Lords]

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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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Prepared 17 October 2008