Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Examination of Witnesses (Questions 40 - 59)



  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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