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Despite the fact that the Minister did not ask me to withdraw the amendment, I shall withdraw it.

Lord Naseby: The Minister’s answer on timing left me a little confused. I think he was saying that because the regulations will be made after the Bill receives Royal Assent, a year is far too soon. That is a practical point that we as practical legislators can understand. However, he went on to say that the FSA will be involved. The FSA does produce an annual report. The Minister was unclear on whether the FSA will be charged with producing an annual report on this aspect of the totality of things it looks after. The key dimension of this issue for organisations with charitable foundations whose dormant accounts will be taken away is where this money will go. Perhaps I am being a little flippant here but—as the Minister and I often debate the Olympics—let us say that the whole lot will go to the Big Lottery Fund to pay off the further debts of the Olympics. Those charitable foundations would not be too pleased. They have every right to know where this money is going.

Baroness Noakes: I thank my noble friend for that further contribution. I think the Minister will have received the message that there is considerable support for leaving a trail in the Bill that allows gathering in other assets.

Lord Davies of Oldham: If the noble Baroness would be so kind, I would like to reassure her—because she will have taken very seriously the representation of her noble friend Lord Naseby—that accountability is very important with regard to these funds and this scheme. We will have a series of opportunities to identify how the Government should be made accountable in the scheme.

I also want to make another point absolutely clear. Later, we shall come to the amendments which will give us a chance to clarify these matters further. However, as distributor, the Big Lottery Fund will ring-fence these funds and keep them separate from all its other operations. Therefore, there is no question of a flow-across to the Olympics or any other worthwhile project that may exist.

Baroness Noakes: We all look forward to getting to Part 2 at some stage during Grand Committee. However, I just leave the Minister with the thought that we will return to this issue on Report because we think it is

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important that we keep other categories of asset firmly in the public view and that the Government should have responsibility for continuing to research means of gathering value from those assets. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4 pm

Lord Newby moved Amendment No. 2:

(a) to all banks which are required to transfer to an authorised reclaim fund the balance of a dormant account that a person (“the customer”) holds with it, and”

The noble Lord said: The purpose of the amendment is to make the scheme compulsory rather than voluntary. The key words in the amendment are that the scheme applies to all banks. We should probably have put a comma after the word “banks”; there is a slight Eats, Shoots and Leaves issue there but I am sure that, if the Minister is minded to accept the amendment, we can deal with that on Report. However, as I said, the purpose of the amendment is to require the scheme to apply to all banks and building societies. It seems strange to us that a programme which is deemed to be so important and on which the Government put so much store should be completely voluntary. Why should some banks hang on to these assets and keep them on their balance sheets? Under the scheme as it stands, there is no sanction for doing so.

We were very interested to see how this issue is already being dealt with and debated in the context of the Treasury Select Committee in another place, which considered this matter. The Government helpfully anticipated the noble Lord’s speech this afternoon by making a number of objections to the proposal, which I should like to go through.

The Treasury Select Committee said:

That seems to us to be an overwhelming case. However, in their response, the Government came up with a number of reasons why that overwhelming case was not adequate. Essentially, they came up with four objections, all of which, in my view, are to a greater or lesser extent spurious.

The first was that a voluntary approach,

Why does a compulsory scheme not allow that possibility?

The second objection was that a voluntary approach means that,

Why is that affected by whether it is a compulsory or a voluntary approach?

The third objection was that a voluntary approach,

Why does that have anything to do with whether it is a voluntary or compulsory approach?



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The fourth was that:

I like this—

Why does a voluntary approach help to maximise the money available for reinvesting in the community when banks can simply opt out of it if they want, thereby reducing the amount of money available for investing in the community?

Those seem to be almost completely spurious arguments, and I suspect that the real reason for the Government going forward in the way that they have is as follows. A throw-away line in the next paragraph says:

and so on. I can see that the sector might like a voluntary scheme but banks and other institutions of all sorts like voluntary schemes across a whole raft of areas where we now make things compulsory. Therefore, that is a poor argument.

The Treasury Select Committee, in a spirit of extraordinary generosity, then said that if the Government cannot bring themselves to make the scheme compulsory from the start, they ought to have reserve powers—to which the Government gave the following terrific response:

There may be compelling arguments why it is a bad idea to make this scheme compulsory, but I think that there are very strong arguments for making it compulsory. The Government have so far failed to make their case. I beg to move.

Baroness Noakes: I should perhaps outline our position. Although we have considerable sympathy with what the noble Lord, Lord Newby, said, we recognise that it has been a long and rocky road—a point to which the noble Baroness, Lady Pitkeathley, alluded—to get to where we have got. This is an uneasy truce, or a fragile agreement, but it is where we are at. Our general principles would indicate that if a voluntary scheme can work then it should be allowed to work and we should not go to compulsion as our first port of call. So to that extent we are comfortable with a voluntary scheme as the first port of call. However, if that does not work—and we have tabled amendments on a review to probe whether it is working—then compulsion will be necessary. But a voluntary scheme would be better: it is a lighter touch and avoids a heavy regulatory hand and bureaucratic overlays. If it can work, that has to be the better way. That is why we are just about content to go along with the scheme in the Bill.

Lord Shutt of Greetland: We may be surprised by what the Minister says but my guess is that he will defend the voluntary scheme. I have just one question on this voluntary scheme: what is it that we are asking the banks to volunteer for? Is it whether they join the scheme, or the extent to which they join the scheme?

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They could say, “We’ll put so much in”. In other words, it is the hokey-cokey—some in, some out. The answer will be very important in determining whether it is a proper scheme or a hokey-cokey scheme. The spirit must be that they are in the scheme. If it is hokey-cokey, we will not have a level playing field even though that should be the position. I hope the Minister will address that.

Baroness Pitkeathley: I do not think there is any doubt that robust self-regulation and total commitment to the scheme is what we would hope for from the banks, with as little bureaucracy as possible and the minimum of anything getting in the way of the actual administration of the funds for the benefit of the charitable sector. We therefore need to look at enshrining the spirit of co-operation. Although I agree with many of those who say that we should aim for compulsion, such a course would veer us away from the one we want by making the banks start from a position of defensiveness rather than co-operation. If the scheme is to work to the benefit of the charitable sector we will need to see co-operation all round.

Lord Hamilton of Epsom: Commercial considerations would suggest that it makes a lot of sense for a bank to agree to do this, but to do it as slowly as it possibly can. Can the Minister answer that point?

Lord Davies of Oldham: I am grateful to all Members of the Committee who have spoken, particularly to the noble Baroness, Lady Noakes, who I thought put the rejoinder to the noble Lord, Lord Newby, far more eloquently than I could. I therefore do not propose to embellish the main argument; the position she outlined is exactly the one that the Government adopt, and we do so for the excellent reasons that she put forward.

However, there are issues of detail to which my noble friend Lady Pitkeathley drew attention and which I wish to emphasise. A voluntary approach enables the use of private sector expertise to manage and invest the money paid into the reclaim fund by banks and building societies. It means that the private sector will take responsibility for managing liabilities to account holders, which will remain on the private sector’s balance sheet. If it is asked why they should do that and what is in it for them, as did the noble Lord, Lord Hamilton, we should explain that it will be a publicly explicit scheme. The public will know which banks sign up to the scheme and the extent to which they take part, so we do not have to worry about whether any of the major institutions will refrain from participating—very far from it.

The basis of the agreement—or “uneasy truce”, as the noble Baroness abstracted from the sense of the noble Lord, Lord Newby, but it is a little more than that—is a willing partnership to give effect to what the banks and building societies recognise is the unacceptability of money lying in accounts which according to their records they do not own. A careful, articulated approach will be taken to safeguarding the owners of those assets until we are clear that there are no claimants. We will also guarantee that claimants

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will get their money at any stage that they establish that they have a rightful claim, at whatever point of transfer the money has reached. That is all part of bank and building society goodwill and commitment. Therefore, the advantages of the voluntary approach are considerable.

This approach also adds flexibility. Instead of going in with a heavy hand of state regulation, we can expect significant aspects of the scheme to operate on the basis of good practice. It also takes account of better regulation principles, building on existing regulatory arrangements, which will help us to maximise the money flows rather than detract from them. The great trouble with regulation, which requires the enforcement of law, is that one is compelling the unwilling, when what we expect within this framework is a light touch that will indicate how the willing meet their obligations.

I emphasise again that the scheme will be wholly transparent, so there will be no question of significant institutions reneging on their public responsibilities or commitment to this scheme to which they have signed up in this agreement, on which all the proposals are based.

Lord Hamilton of Epsom: When the voluntary negotiations with the banks and building societies were going on, they must have quantified the money that was at stake. They must have a good idea of what it all amounts to. Have they agreed to any time scale by which the great majority of the money should be paid over?

Lord Davies of Oldham: We have a broad range of figures for the money that may be available through the scheme. I cannot be pinned down to a particular figure. At Second Reading, the noble Baroness trumped me by indicating that she thought that rather more money would be available than in the Government’s more modest estimation. Well, time will tell. However, I make it clear that the reclaim fund will publish a list of participating institutions, so the public will know those which are pulling their weight in the scheme and participating voluntarily. The noble Lord, Lord Newby, is never persuaded by my arguments and will probably not accept my response. He will emphasise that law is the compulsive element in our society, as it is, but if within these voluntary terms we can get willing participation with a light touch, we may meet the point of the noble Lord, Lord Hamilton, about the time scale within which the scheme begins to realise the majority of its assets. I cannot put a figure on it, not least because many difficulties about defining the accounts will have to be worked through. But the intent is there, and the public responsiveness of the institutions will be clearly identified.

4.15 pm

Baroness Noakes: The noble Lord, Lord Shutt, asked whether the banks were completely involved in the scheme. Can banks, for instance, say that they are in the scheme but then choose their own definitions for dormant accounts which are stricter than those in the Bill and thereby not transfer much money? It is an

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interesting point whether someone who signs up to the scheme is likely to deliver a great deal of money or a small amount. I do not think that the Minister covered that in his remarks. I would be interested to hear his response.

Lord Davies of Oldham: I do not think that we can impose on the banks a quota on the amounts they can realise because they will likely contend that there are differential positions with regard to customers. However, the Bill clearly identifies the broad contours of the funds and accounts available. As I have said all along and will continue to reiterate throughout proceedings on this Bill, any claimant who appears, however late, is entitled to his resources because he is the owner of them. But in a publicly accountable scheme such as this one, there will be substantial leverage on the participating institutions which have voluntarily and with good will engaged in it to meet their obligations under it. The light-touch regulatory regime and public opinion are important dimensions in that respect. The informed opinion of Parliament and the operations of Select Committees and so on also will hold institutions to account on meeting their obligations.

Baroness Noakes: Can the Minister explain what leverage there is? Unless one knows how much dormant account money there is, what leverage can the Bill provide to get out the maximum amount? I am not quite sure how that will work.

Lord Davies of Oldham: I have trouble with estimation but not with process. The banks will publish their policies on how they define “dormancy”. The noble Lord, Lord Hamilton, indicated his suspicion of a bank that was extraordinarily restrictive in its definition of dormancy. If a regular comparison showed that other banks of about the same size and role had a wider definition which released more funds to the scheme, then the restrictive bank would come under pressure. The reclaim fund will publish the flows into the scheme. So if the smallest building society in the country was producing more resources than the biggest bank, informed public opinion would want to ask a few questions of the large bank.

Lord Hamilton of Epsom: Did the noble Lord answer the question about reserve powers in the Bill, and whether compulsion should be a reserve power that could be brought in if banks did not co-operate?

Lord Davies of Oldham: Within the Bill’s framework is the underpinning that it will be an Act of Parliament. Regulation will be imposed by the Financial Services Authority and the scheme will be subject to consideration by Parliament. Although I am not accepting the first-year report which the noble Baroness proposed in her initial amendment, as she will recognise, we would not anticipate having a scheme of this kind without a mechanism for reporting to Parliament. However, we have not yet reached conclusions on that.

The scheme is the result of a substantial consultation. Parliament and public opinion will have information available to make judgments on whether institutions are playing their proper part in the scheme. I cannot

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project the figures, but I can anticipate compliance; otherwise why would these worthy and significant institutions have signed up to the scheme?

Lord Shutt of Greetland: I do not want to be tedious about this, but the starting point is important. There are many references to the Banking Code, which started 15 years ago. It is amazing that assets also have to be 15 years old. It is possible for a bank to say that there might have been unclaimed assets but they were written off before the Banking Code came into effect and now there are none. The starting point is very important. The bank could say that unclaimed assets were written off to a suspense account, then to the profit-and-loss account, and then were paid out as dividends. The starting point is important, particularly when the Banking Code was, in effect, invented 15 years ago.

Lord Davies of Oldham: That is an important point and we shall have a chance to discuss it later. The Committee would not want me to trail an extensive answer before further significant points are made. We are all too well aware of the importance of the starting point. That is why the definitions of dormancy established by the institutions will be subject to scrutiny. Norms will be established, and if it were thought that a bank was operating well out of line with what other banks were doing by using an argument about accounts that preceded the Banking Code which enabled it to siphon off substantial resources, that would be identified and aired and the bank would scarcely be participating in the scheme to the extent that we all would wish. The banks retain their liability to customers at any stage, and so does the reclaim scheme. The institutions have committed to update the Banking Code to take account of this legislation when it is enacted.

Baroness Noakes: The Minister mentioned FSA regulation as a part of the scheme that will ensure that the money is paid out under the dormant accounts schemes. The FSA regulates banks and building societies, and it is intended to make repayment claims subject to the FSA. I am not sure that I understand how the FSA will provide any value-added in releasing dormant account moneys. The Minister suggested that it will. I would be grateful for clarification.

Lord Davies of Oldham: I was not suggesting that the FSA had that position but identifying that it has an important role in regulating banks. This scheme is based largely on a light regulatory touch. The revision of the Banking Code and the openness with which banks have to meet their obligations within the scheme are the key definers of how the scheme will work successfully.

Lord Newby: I am grateful to all noble Lords who have taken part in this debate. I agree with the Minister that the ideal situation would be for all banks to participate willingly in this programme, to think that it is the best thing that anybody has ever put to them, and to participate to the maximum in the speed with which they operate the scheme and in the extent to which they transfer the assets that become eligible for transfer. My problem is that I am something of a

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hardened old cynic when it comes to an entire sector. When I see the way that many of our best known and best loved banks, including Northern Rock, have been playing fast and loose by using charities to give cover for trust funds while claiming to be highly ethical institutions, I am suspicious that the entire sector will not come joyously down the aisle to consummate this proposal.

I would have preferred to deal with this by making it compulsory from the start. I heard what the noble Baroness, Lady Noakes, suggested. Perhaps on Report we should come forward with a reserve power in case the scheme does not work as well as the Minister might hope. We will consider that between now and then. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 3:


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