| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
11 Dec 2007 : Column GC53
11 Dec 2007 : Column GC53
11 Dec 2007 : Column GC53
Tuesday, 11 December 2007.
The Committee met at half-past three.
[The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) in the Chair.]
Dormant Bank and Building Society Accounts Bill [HL]
(Second Day)
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall): I remind noble Lords that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 5 [Functions etc of a reclaim fund]:
Baroness Noakes moved Amendment No. 21:
The noble Baroness said: Amendment No. 21 deletes subsection (4) of Clause 5 on a probing basis. Subsection (4) allows the Treasury to give a direction to a reclaim fund requiring it to give effect to any specified object that it has—the objects are set out in subsection (1)—and to direct that the reclaim fund will comply with the obligatory articles of association, as set out in Schedule 1.
Will the Minister explain why the Treasury needs these powers and how it intends to use them? Why, for example, does it have the power to tell a fund to give effect to one of its objects? Does that allow the Treasury to set the financial policy of the reclaim fund, whether it is the reserving policy or perhaps its investment policy? Can the Minister explain why the Treasury needs to be the enforcer of the fund’s articles? It is also the case that the reclaim fund will be under the care and supervision of the Financial Services Authority—we established that yesterday and Schedule 2 gives effect to it—but why does the reclaim fund have to be interfered with by both the Treasury and the Financial Services Authority? We saw in relation to Northern Rock what a mess can be made if more than one body has responsibility for a financial institution. Would it not be more efficient if only one regulator were involved and not two?
The Explanatory Notes indicate that the British Bankers’ Association will be setting up the reclaim fund, as I imagine that the Government will want the fund to be classified to the private sector. Yesterday, the Minister described the reclaim fund as a private sector body, but does he expect it to be classified as such in national accounts terms? Is, then, the Government’s position that the existence of the powers of direction does not cause the reclaim fund to be classified to the public sector, giving the Treasury power of control over the fund? Would the same conclusion be reached if the Treasury ever exercised its power of direction?
11 Dec 2007 : Column GC54
The Minister will be aware that it is rather unusual to have a private sector body with powers of direction over it, so I think it is right that we probe, first, why the Government need the powers and, secondly, the implications of those powers. I hope that the Minister will be able to respond to that. I beg to move.
Lord Newby: I am grateful to the noble Baroness for moving this amendment and wonder whether, in replying, the Minister could take this opportunity to explain in more general terms how the reclaim fund will be established and how it will work. The Bill has some provisions relating to the reclaim fund but it says very little about who will decide how it is constituted and how its directors are appointed—I have a probing amendment on that further on in the Marshalled List. Is it to be a creature of the BBA? What will its relationship be with other bodies that might conceivably take on this role, such as Charity Bank, and how will it work? More specifically, to pursue a point raised yesterday by my noble friend Lord Shutt, who talked about the importance of the judgment of the directors of the reclaim fund, under the clause that we are debating now will the Treasury be able to overrule the directors in respect of the proportion of the funds received by the reclaim fund which are dispersed?
Viscount Eccles: To add to what my noble friend Lady Noakes said, does not this direction power amount to a vote of no confidence in the FSA? The Treasury’s own explanation ends by stating that the direction does no more than require a company to give effect to, or to comply with, requirements to which it is already subject under the Bill and which will previously have been approved by Parliament. I thought that the Minister’s explanation yesterday was that the regulatory system was a matter for the FSA, not the Treasury itself.
Lord Higgins: I am also rather puzzled by this. In moving the amendment, my noble friend said that it was unusual for a private sector body to be given directions by the Treasury. I have some difficulty in thinking of any example at all. Perhaps the Minister can provide a list of those, so we know whether we are going into completely uncharted waters. I am also puzzled by subsection (4), which states that the Treasury may give a direction to comply with the obligations or prohibitions imposed by its articles of association. That seems a very unusual provision.
Lord Davies of Oldham: I am grateful to noble Lords for identifying some issues regarding the reclaim fund. We have argued throughout that we want light-touch regulation of the reclaim fund, which is a private body. The answer to the noble Baroness is straightforward in those terms. What does it mean in terms of regulation? We have said that there are certain aspects where the Financial Services Authority will operate regulations with regard to the reclaim fund. The FSA will receive those powers through secondary legislation, consequent on passage of this Bill.
11 Dec 2007 : Column GC55
The Treasury will have a most distant relationship with the reclaim fund. It is not the case, as some on the other side of the Committee may fear, that the Treasury will have a clear perspective on priorities and seek to impose those on the fund—very far from it. All that the Treasury will do is occupy a position of last resort under the law. If the reclaim fund was not fulfilling its articles and not acting responsibly, the Treasury could take court action against the fund. That is how distant the relationship is. It will not be the authority of government controlling this body but, as a very last resort, having failed to respond to issues which the FSA may have raised with it, the Treasury acting at that great distance.
Baroness Noakes: That is a very interesting point. Can the Minister explain what he means by “acting responsibly”? We need some colour around what it is that this power of direction is aimed at. He says that this power of direction is a last resort. Who will determine what “acting responsibly” means?
Lord Davies of Oldham: Acting responsibly means operating within the framework under which the fund has been set up. What is the fund’s primary purpose? As we have made clear in the Bill, it is to set as its first objective the taking of steps to ensure that, as far as possible, accounts are reclaimed by their rightful owners. That is an important objective that will, as we have already indicated, be achieved by the extensive work of the banks and building societies in preparation for enactment of the legislation. It will be a function also of the reclaim fund. After that the question will be whether there had been an obvious misdirection of activity by the reclaim fund. If the fund, for example, put forward excessive costs to which the FSA drew attention, and if within those costs lay attempts to increase the remuneration of those working for the fund in a way not in keeping with the fund’s establishment, then the reclaim fund would have to recognise the authority of the FSA. But if effective action were not taken, then, as a last resort, the Treasury would act.
I cannot think of that as more distant from how we expect the fund to operate within the framework of the objectives which will be set up for it. Subordinate legislation will be established to guarantee that it is governed by the Financial Services Authority. But if, in the most extreme case, the body acted completely contrary to the objectives that it is meant to fulfil in its articles of government, then the Treasury would act. It is a private body and therefore the Treasury would not act through direct enforcement; it would have to present the case against the fund. The reclaim fund is independent of government—it is a creation of the banks and the building societies—but there is a clear indication in the Bill of its objectives and how it should distribute resources.
We will introduce secondary legislation to guarantee that the Financial Services Authority plays its proper part in the regulation of this body. Referral to the Treasury is a position of last resort in the relationship between the Treasury and that private body. I make that clear to the noble Baroness because she asked the question directly.
11 Dec 2007 : Column GC56
Lord Higgins: The Minister has not answered my question on similar examples. If this kind of thing is going to go on, it is always helpful to be able to say, “It is in the same position as this or that body”. Is this a unique arrangement? Is there no other private body that would be subject to the kind of relationship with the Treasury implied in the clause?
I was completely puzzled by what the Minister said about the Treasury taking court action if it did not think the body was acting correctly. It may have been a slip of the tongue; if so, we are obviously prepared to accept that. However, my understanding is that if the Treasury does not like what is happening, it will give a direction. There is no mention of court action whatever. Perhaps the Minister will clarify that.
Lord Davies of Oldham: I apologise to the noble Lord. The Treasury will give a direction. But, of course, that might lead to a challenge from a private institution to what the Treasury was doing, and that could give rise to court action.
I was trying to impress on the Committee that we are dealing with a private body. It is subject to the requirements of the Financial Services Authority for the prudent management of its moneys and resources. But if, in an extreme position, the body was acting quite contrary to the basis on which it was established, it would be necessary for the Treasury to act because the body will have been set up by an Act of Parliament to reach some clear public objectives.
I cannot cite a parallel body at this point but shall ensure that everyone racks their brains to think of one. I feel some inadequacy in not being able to give the answer, save that the nature of this body is breaking new ground. It is the product of considerable activity by the banks and building societies in a voluntary operation to bring these funds to good public use.
3.45 pm
We are discussing the last reserve position of the Treasury. It would give a direction, and if the reclaim fund stayed obdurate in its position, that might lead to court action. I merely emphasise that we would have the public authority in conflict with a private body. That is a most unlikely occurrence, but had we not put this in the Bill and established the position of the Treasury in relation to the reclaim fund, noble Lords opposite would have been the first to ask what would be done if things went wrong with the fund’s operation. The fund is a private body, but it fulfils some publicly defined purposes.
I will certainly seek to bring to the Committee further illustration, if I can produce a parallel. We are dealing with an interesting concept in the way in which we are bringing in the banks and building societies; after all, it is not public money, nor is it theirs. The banks and building societies retain the money on behalf of owners, and we have defined where this money may be released for other purposes when the owners definitively cannot be traced. We are dealing with fairly unique circumstances.
The noble Baroness said that this was a probing amendment. I hope it has probed far enough. Although in other areas where she has put forward probing
11 Dec 2007 : Column GC57
Viscount Eccles: Before the Minister sits down, I wonder if it would be helpful if another aspect of this were to be looked at. The company will be incorporated under the Companies Acts, including the Companies Act 2006. I suppose it is perfectly possible that someone might proceed against the company on the ground that it was not conforming to those Acts. At that point, if it did get into court, someone would get up and say, “Has the Treasury done its duty?”—that is, did it give this company a direction that might have put it right in a way that would have meant it did not get taken to court? The Treasury seems to be getting itself into a difficult position by looking to put itself in the shoes of normal legal processes.
Lord Davies of Oldham: I hear what the noble Viscount says, but, on the whole, creative activity on the part of Government is always attended by an element of risk. If he is saying that the Treasury might have to face some difficult days, I disavow that notion. I do not think that a body operating under the degree of public accountability applying to this one is likely to end up running so unacceptably counter to the public will that, after the Financial Services Authority has made judgments on it and it has not responded, it then finds itself with a direction from the Treasury that could lead to it being tested in a court of law. It is likely that a body whose origin was the banks and building societies seeking to remedy a problem which they had long had with dormant accounts and to bring those accounts into the public arena for the advantage of communities, will come into such a conflicting relationship with government as foreshadowed by the anxieties expressed today. However, we would be remiss if we had no answer to the question of what could be done if this body did depart almost totally from its objectives if the Government’s response was only to shrug their shoulders. We cannot possibly be in that position, which is why this reserve power is here.
Baroness Noakes: My noble friend Lord Eccles asked the Minister whether this is a vote of no confidence in the FSA. Can the Minister explain what is deficient in the scheme in terms of the Financial Services and Markets Act and the way in which it will be regulated under that Act which makes it necessary to have a Treasury direction?
Lord Davies of Oldham: We expect that the body will be accountable exactly in terms of its responsibilities and the effective and proper use of its moneys. The noble Baroness is right that that is what will obtain. Within that framework, the body will have the necessary regulation, although it might be thought that it is somewhat pejorative to think that the body would run into very significant difficulties in this area in any case.
11 Dec 2007 : Column GC58
Lord Shutt of Greetland: I have followed this debate as best I can. There are two areas. The first is competence, and the Minister has indicated that there is every expectation that these people will be competent and that everything will be done properly and competently. He has no fears on that front. The other issue is how judgment is dealt with. It seems to me that, particularly in year one, the directors of the board will have to exercise incredible judgment about how generous or parsimonious they are. In year one, they will see whether many people endeavour to reclaim. Then there will be year two, and we will see accounts of what is happening year after year. Is the Minister concerned that the board, as judged by the Treasury, will be seen as too generous or too parsimonious? If we take the view that they cannot be other than competent, that is the only issue.
Lord Davies of Oldham: The noble Lord’s question deals with the level of competence and probity at which the Financial Services Authority is in a position to regulate. The Treasury is not brought in at that level. We must face the prospect—which is so distant that I seek to allay all concerns and not give rise to them in this contribution, because it would suggest elements of bad faith—that this body, which controls significant resources, fails in the most extreme circumstances to reach the objectives for which it was established. The most extreme example might be that the directors took almost every resource that they had in annual salary and fees, with nothing distributed, which is hugely unlikely. If such misbehaviour at that most extreme level occurred, it might be necessary for the Treasury to give direction about how the body should work within the original framework for which it was established. If we had no structure for enforcing compliance in that most extreme of all cases, we would be open to the charge that we were creating a body in which there was no public interest to be safeguarded.
Baroness Noakes: The debate has revealed that the reclaim fund is an unsatisfactory body. The Minister claims that there would be no remedy other than a Treasury direction, but we are setting up a company under the Companies Act, under which directors have duties to act in the best interests of the company. DBERR has various powers in cases where directors act in the extreme way that the Minister described. The activity of the reclaim fund will be brought under the Financial Services Authority, which has a number of powers. My noble friend Lord Higgins asked for an example of a precedent for a private body having a Treasury direction.
11 Dec 2007 : Column GC59
Baroness Noakes: Or private company. The Minister has not yet produced such an example. I think that he will struggle to find a precedent for a private company having over it a specific power of direction of this nature. The Minister has described it as light-touch regulation. I find it difficult to find anything that is much heavier handed than a Treasury direction. It is the complete reverse. A sledgehammer solution is being written into the Bill. We have pressed the Minister on what this is really about. The only example that has been given was first described as “excessive costs” and then described as “directors’ remuneration”. That is the Treasury micromanaging the reclaim fund; it is not a big, overall issue.
Is the reclaim fund a genuine private sector body, with a power of direction from the Treasury? I asked the Minister that question and he said that it was. Has the Office for National Statistics agreed that this body, with this power of direction, will be classified to the private sector?
Lord Davies of Oldham: That is a very detailed question. We are constructing legislation which seeks to guarantee that it is a private body. We have made great progress in developing this scheme with the private sector. I say again that this is all about a light touch. The noble Baroness has identified the ultimate sanction. The public authority must have the right to that sanction, but it is by no means a question of the Treasury giving direction to the body. We identify the body as being private and will defend the Bill on that basis. It is a judgment for the Office for National Statistics, and it is somewhat unlikely that it should be expected to make the judgment now before we have established the process. We will cross that bridge when we come to it.
4 pm
Baroness Noakes: That is just one of the other unsatisfactory elements of this. The Government are creating in the Bill a hybrid body but with a lack of clarity on where accountability really lies. The noble Lord, Lord Newby, raised a number of questions on governance and we will return to some of those in later amendments. This was a probing amendment on the need for a power of direction but it has indicated many areas where this scheme has built-in defects. We will not pursue that further today. We will return to the theme later today and possibly return to the issue at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 22:
(1) Subject to this section, personal information held by a reclaim fund in relation to the exercise of any of its functions must not be disclosed by—
| Next Section | Back to Table of Contents | Lords Hansard Home Page |