Examination of Witnesses (Questions 40
- 59)
WEDNESDAY 21 OCTOBER 2009
MS JANE
PLATT AND
MR STEVE
OWEN
Q40 Chairman:
It seems odd in the middle of the period to actually discourage
people from saving with you, given you are a savings body?
Ms Platt: We certainly were not
discouraging them in any way. We stayed open for them.
Q41 Chairman:
But you stopped the marketing?
Ms Platt: We stopped the marketing,
but—
Q42 Chairman:
How is that not discouraging?
Ms Platt: It is very different
to cease marketing than to be actively discouraging people moving
towards us. At that point, of course, it was not clear how long
the flight to safety would go on for, whether the measures that
were being taken by the Government would be successful. We had
no idea how long that flight to safety would last, so we just
wanted to make sure we stayed open for business, that people could
always get through, that our systems were robust and that through
all that NS&I and Siemens coped extremely well.
Q43 Chairman:
Could you explain your net finance target for the current year?
It is essentially to maintain the status quo. Why is that?
Ms Platt: After such an extraordinary
year last year when our net financing figure was 12.5 billion,
we worked with the Treasury to look at our target for this year,
which is indeed zero net financing within a tolerance of -2 billion
to +2 billion, and indeed we expected some money to flow out after
the flight to safety was over because as more normal circumstances
begin to reassert, you would expect some of the money that came
in to gently flow out. So we were expecting that to happen, which
is why our net finance target is as it is for this year.
Q44 Mr Todd:
Can I turn to an issue we have raised previously, which is unclaimed
funds? In your accounts for 31 March you have represented that
section and it is far from clear whether unclaimed funds have
actually gone up or down during the period in question because
it is not possible to make a comparison. Have they gone up or
down?
Mr Owen: The total level of unclaimed
funds using the Government definition and the industry definition
is about 452 million, which relates to our account products. If
you wish to compare with where we were when we last sat in front
of this Sub-Committee, they have gone down a little. The total
on a like for like basis would be just over a billion now. We
have had a great deal of success in terms of reuniting customers
with lost assets both through our free tracing service, which
we have run since 2001, but more significantly through our joint
approach with the BBA and the BSA in relation to the mylostaccount
website, which has reunited some £212 million worth of funds
with customers.
Q45 Mr Todd:
So if we turn to p.99 of your accounts, how do I reconcile the
figures you present there with what you have just said?
Mr Owen: The figures as I have
just given them are based on the definition of 15 years without
a proactive contact from the customer, which is the definition
used by the industry and by Government and which is a different
basis for some of these figures.
Q46 Mr Todd:
Okay, we will skate over why you use one indicator when you are
answering questions and when you are in your accounts you use
another, but on this basis it would appear that those figures
you have left in your accounts have actually gone up in the period
in question and you have taken a number of other elements and
placed them into some pool account of some kind somewhere else
so that we cannot compare them at all?
Mr Owen: The figures have gone
up in terms of p.99. We have grown, of course, quite significantly
so you might expect them to go up in accordance with our overall
scale and size.
Q47 Mr Todd:
But you have grown in terms of new customers. It would be a sad
thing if they could come up and claim in such a unique year in
which, as your Chief Executive has said, people have been flying
to safety. It hardly indicates that they are likely to lose their
accounts within 12 months?
Mr Owen: It is quite normal for
the customers to leave their funds with us on a long-term basis.
Our savings certificate, for example is a five year product and
after those five years if the customer takes no action it rolls
over into another five years product, so we need to be quite careful
in terms of the definition of unclaimed funds in relation to NS&I
products.
Q48 Mr Todd:
If the Government were to change its position—and, as you
know, we urged it so to do last time in terms of including these
in the unclaimed assets scheme. If they were to do that, would
that have any operational impact on how you managed your unclaimed
funds? You are already obviously attempting to link these funds
to their legal owners. If it were moved to the unclaimed assets
scheme, what difference would that make?
Mr Owen: We are a little different
to the rest of the banking industry in that the money that flows
into NS&I we do not hold it, we do not keep it, it flows into
the Government coffers and presumably the Government therefore
spends it, so it is already being used for the public good effectively
through expenditure.
Q49 Mr Todd:
I was more interested not in the philosophical argument, which
I understand although I do not accept, but in the operational
implications of that change.
Mr Owen: In what sense?
Q50 Mr Todd:
In other words, if you moved this to the unclaimed assets scheme,
would this change the way in which you manage the unclaimed funds
that you have been collecting and enumerating, although, as you
have just said, you pass them direct to the Treasury anyway?
Mr Owen: As you so rightly say,
we do not manage them as such. We already make every effort to
reunite the customers with their funds, both through mylostaccount,
through using third party databases such as Experian and through
some software we use to proactively find customers.
Q51 Mr Todd:
So it would not make any difference to what you do?
Mr Owen: Not operationally, no.
Q52 Mr Breed:
Could you tell us something about the new banking system that
has not quite yet come into being, in particular what sorts of
improvements it might bring to your services that you are providing?
Ms Platt: Absolutely. When I was
here a little over two years ago I was talking about the modernisation
of National Savings & Investments and we are running through
a programme of modernising the infrastructure, data centres, our
banking engine, and we are transferring our products one by one
from the old banking system to the new banking system, and we
are doing it on a product by product basis. What customers will
see is the ability to manage their products online. Because at
the moment already we have an ISA product which customers can
not only buy and sell online but they can change their customer
details and all those sorts of things. So it is a proper internet
service in its fullest sense and what you will see as we move
across onto the new banking service is still very high levels
of accuracy and all those good things, but also the ability for
customers to manage their holdings online to transfer to new products.
So we offer a much slicker and better service for customers. For
the Government what you will see is a reduction in our overall
cost base, which means that over time we will be able to offer
cost-effective services to areas and groups of customers that
at the moment are not cost-effective for us to offer products
for. So it will have the benefit of reducing our cost base but
also mean that it is cost-effective, because our costs are lower,
to provide our products for areas of the market that we are currently
not servicing.
Q53 Mr Breed:
So it will not be a banking system that can be provided to those
who want just a basic bank account and find it difficult to obtain
one from normal High Street banks as such, is it?
Ms Platt: No, it is a banking
engine in terms of allowing us to manage and administer those
funds. It is not a retail banking system because we do not offer
current accounts and that is not something we have built into
our specification.
Q54 Mr Breed:
So if there is a sort of launch what you are basically doing is
gradually building up a new method of dealing with products for
customers as such? Perhaps we were wrong to expect a big launch
of something brand new if it was not going to happen. There is
not going to be a launch, is there? Essentially you will just
over 2009-10 gradually take products onto this system, so there
will not be a magnificent launch as such, will there?
Ms Platt: There will be no Big
Bang and anyone who works in banking would absolutely avoid such
a thing, moving everything all at once, because the risk to 27
million customers of moving from one thing onto a new thing all
at once would be a huge, huge risk. So we have taken the prudent
approach of moving the products across product by product and
for each product there will be a re-launch, there will be an improved
service that customers will see and a benefit to Government. So
although there is no Big Bang there are tangible benefits.
Q55 Mr Breed:
Do you see that when you have actually completed the task of moving
everything over you will have to have some sort of marketing campaign
to actually stimulate more and more customers and more product
sales and that sort of thing, or is it something which is going
to be relatively low-key?
Ms Platt: I think that will depend
on the discussions we have with the Treasury on our net financing
remit because if they set up a net financing remit that is positive
and generating a number of billions for the Government, then we
would be able to combine our new product launch with marketing
to attract funds in. So our marketing is aligned to the requirement
for net financing rather than to the requirement of the system.
Q56 Sir Peter Viggers:
You signed a public/private partnership contract with Siemens
in 1999 for ten years which was subsequently extended to 15 years
and they found themselves under heavy demand during the flight
to safety. The amount you have paid to Siemens has increased by
about £20,000 over the last couple of years. To what extent
do your increased payments to Siemens reflect additional costs
to Siemens and to what extent do you think there is additional
profit there?
Mr Owen: The flight to safety
in terms of the payment to Siemens was round about £12 million
in total. Now, that figure covers not just taking in the sales
but managing those sales through the life of the contract, through
to 2014. Our profit margin within those negotiations with Siemens,
which was done some years ago, was 12.5%.
Q57 Sir Peter Viggers:
Are you satisfied that changed circumstances mean that the amounts
you are paying to them adequately reflects that they are not making
excessive profits?
Mr Owen: Yes, I am satisfied.
It is very difficult to calculate the precise costs because some
of this sits in the future and customer behaviour will drive the
actual cost of managing those customers over their total life.
If they are very active customers who contact us a great deal,
of course it costs more than a customer who puts their money with
us and then leaves it there until repayments. But I am satisfied
we did a great deal of work to ensure the amount we paid to Siemens
was the correct sum.
Q58 Sir Peter Viggers:
As circumstances have changed, do you continue to monitor and
do you continue to be satisfied that the amount you pay them is
satisfactory?
Mr Owen: We do continue to monitor
on an ongoing basis. The other element that gives me confidence
that the amount we paid is not excessive is that we can compare
it with the average costs at the original tendering back in 1999
to see if we were paying more or less per transaction or per customer
than we were when we went to the market for a competitive tender.
And we are actually paying significantly less than we were back
in 1999 per customer or per transaction.
Q59 Sir Peter Viggers:
They are responsible for direct channel sales, of course. You
had a short advertising campaign in 2009 to encourage greater
use of direct channels. How much do you hope to save through promoting
greater use of direct channels.
Mr Owen: Our direct channels do
save us a great deal of money, primarily because when we bring
a customer in direct we only pay one third party and that is Siemens.
If we bring money in through the Post Office we pay two third
parties, so it is significantly cheaper to bring money in directly
as opposed to a High Street partner.
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