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Articles of most ordinary companies—this is not an ordinary company—allow them to borrow money. My amendment is designed to tease out the Government’s views on the appropriateness of that. We have already debated what happens if the reclaim fund runs out of money. One solution might be that it could borrow money until it got some more in. I think the noble Lord, Lord Newby, thought that the fund could effectively borrow from the banks until it received some money. That would seem potentially quite convenient.

But my amendment raises a broader question about the prudential management of a reclaim fund. Under Clause 5(1), the reclaim fund will have to hold back funds in order to meet repayment claims. In practical terms, it will invest those moneys; it will not just leave them sitting there on deposit. The reclaim fund will need a proportion in a realisable form but I imagine that it will be investing in a range of things. Perhaps the Minister can explain that. Those investments will have decreasing levels of liquidity depending on what is chosen for the investments. This could range from quoted securities, which in most ordinary circumstances are readily realisable, through to, say, property, which is not readily realisable. If the fund does not have sufficient liquid funds it might be convenient for it to have a small overdraft to tide itself over until it can realise funds to meet repayment claims.

My problem is that borrowing powers are a bit of a slippery slope. Once you have created a borrowing power—and the Bill does not prevent borrowing powers—what would stop the reclaim fund from borrowing to invest in the mistaken belief that it could somehow increase the resources available for good causes? What would stop it borrowing against future dormant account money so that it could, perhaps under pressure from the Government, distribute money ahead of having it available on normal reserve principles? What would stop the reclaim fund taking risks, in one way or another, either with its investment policy or with the way that it fed money out to good causes?

The fund is intended to be a non-profit organisation. I am generally cautious about such organisations having borrowing powers because they tend to be non-commercial organisations and probably handle risks less well than commercial organisations. I am interested to hear whether the Government think that the reclaim fund is at the non-profit end of the spectrum, which typically has no borrowing powers, or at the company end which has extensive borrowing powers. In considering whether the reclaim fund should be allowed to borrow money, the issue of whether it has any equity capital as a kind of shareholders’ funds buffer against things going wrong is also important. This is a probing amendment to find out what the Government think. I beg to move.

6 pm

Lord Hamilton of Epsom: The amendment raises interesting issues. Whatever organisation is operating, it is unusual for it not to have some form of overdraft facility. It is often a question of smoothing flows of money. If the reclaim fund can be confident that money is coming in, there is nothing particularly pernicious about borrowing against a serious demand

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from one of its clients. If it did not have that power, it would find itself extremely restricted. Inflows of money are liable to take a very regular form. The fund may well have made commitments to people who are going to give it money, and it might find that it could not meet them in the timescale those clients were looking for. We should consider whether the reclaim fund should have a borrowing facility.

Viscount Eccles: I am equally interested in the start-up of this company. When it starts, it has to have expenses. If its share capital is not sufficient—if it is going to have any substantial share capital, that is, but perhaps it will only be a £100 company—it will need a bridging loan, otherwise it will never come into operation. It has to set up systems and employ people to operate them in advance of any money coming from the banks and building societies from dormant accounts. Will we have more details about the company before we get to the further stages of the Bill? Without such details, it is extremely difficult to judge whether the scheme is sound.

Lord Davies of Oldham: That may be, but it is somewhat surprising, in two almost subsequent amendments, to be subject to an onslaught from both ends of the spectrum. A moment ago the noble Baroness was upbraiding the Government because we are putting in place the concept of some restriction with regard to unnecessary costs. The Government think that a body carrying this degree of responsibility should have some constraints of that kind placed upon it in legislation. A moment later she is suggesting that the body should have no rights at all to borrow that and there can be no conceivable circumstances in which it should have the opportunity to do so. The noble Lord, Lord Hamilton, is surely right—

Baroness Noakes: I do not think the Minister was listening when I introduced my amendment. I said it was a probing amendment and that I was trying to find out what the Government thought. I outlined some cases where I could see it would be convenient to have a borrowing power, but I also outlined some dangers of such a power. I am trying to find out what the Government think about that, not to be on the receiving end of what they think about me asking them the question in the first place.

Lord Davies of Oldham: I am sorry, I was addressing myself to the amendment rather than to the concepts the noble Baroness was trying to tease out of me consequent upon that amendment. No wonder we are taking our time.

I shall address myself to the amendment, which says that the fund should have no power to borrow. The noble Lord, Lord Hamilton, asked how on earth you could run an organisation of any seriousness with any significant resources without from time to time having to cope with issue of the flow of money and said that it is justifiable and appropriate for such an organisation to borrow. He is right. What he said is a direct answer to the amendment before the Committee, and I agree with him.



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Lord Newby: If that is the Government’s view—that this body should have borrowing powers—is that not the logical answer to the noble Baroness’s earlier amendment about what happens if it temporarily runs out of money? Should they not have given that as an answer then?

Lord Davies of Oldham: Maybe that is too far back in time. The noble Lord’s capacity for recall far surpasses mine. If I have missed such an opportunity, I regret it. I have taken that opportunity now.

Baroness Noakes: I thank the Minister for clarifying that the Government think there is no problem with the reclaim fund borrowing money. The point I was trying to make is that in some cases it is convenient to allow these sorts of organisations to borrow money, especially if it is to deal with cash flow problems, but having the power to borrow money raises its own issues and, unless you are very sure about the governance structures and who is in control, it is potentially a dangerous power. Since we have no clarity on the latter, it is difficult to reach a judgment. However, at least the Government have given a clear view—a first today, I think, and we must celebrate that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 27:

“( ) the name of each bank and building society in existence at the end of the financial year that did not transfer money to the fund;”

The noble Baroness said: Paragraph 3 of Schedule 1 requires the articles of a reclaim fund each year to publish information on the money transferred to it on a bank-by-bank basis, the repayments made on the same basis and the amount transferred to the Big Lottery Fund. While that is interesting information about what has actually happened, what is missing from that list is what has not happened: the banks and building societies that have not transferred any money to the fund. Amendment No. 26 requires that.

Lord Davies of Oldham: Twenty-seven.

Baroness Noakes: Sorry, Amendment No. 27. I am excited about getting an answer to the last amendment, and I am still living in the past.

This provision would not be onerous. The population of banks and building societies is finite, so the reclaim fund will know how many organisations could potentially transfer money to it.

We have discussed whether the scheme should be voluntary. The noble Lord, Lord Newby, moved an amendment yesterday about whether it should be made compulsory. As the Minister knows, our instincts are to back a voluntary scheme, but a corollary of backing such a scheme is that there must be proper transparency. The public are entitled to see how well the scheme is working, which includes whether all institutions take part in it. That would allow questions to be asked of the banks and building societies that had not transferred any money to the scheme. This would not penalise those who transferred money under the alternative

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scheme in Clause 2 because they would have to have paid some money into the reclaim fund, so they would automatically be covered.

The power of publicity could be harnessed to make the scheme work better by throwing the spotlight not only on to those who have passed money over but, with this amendment, on to those who have chosen not to take part in the scheme. I hope the Government will welcome that as support for the scheme. I beg to move.

Lord Shutt of Greetland: This is one of those simple matters where the Minister can say, “I accept this”. The benefit is obvious, provided that people know who is eligible—if there is a list of eligible members of the scheme, for example. We know that there are 59 building societies and 200-odd banks, and they are eligible. Those that are in the scheme will be obvious and all one needs to see are those that are not. It does not matter how that is done. If the annual report says which bodies are eligible for the scheme and then which ones have paid that year, people can draw their own conclusions. This is one of the simplest things we could deal with.

Lord Bach: I am afraid that for once the noble Lord, Lord Shutt, is wrong. The reclaim fund will be required to publish information, at individual institution level, about which institutions are participating in the scheme, the amount of money transferred into the scheme and the amount of money reunited with account holders. Further, it will also be required to publish the amounts it transfers to BIG. Under company law, too, the reclaim fund will also be required to prepare and file annual accounts with Companies House that may be accessed by all interested parties.

We believe that for the fund to be obliged to publish details of non-participating banks and building societies would require it to take on an onerous monitoring role, reducing the amounts available for distribution, albeit perhaps by a small degree. Such a provision would greatly add to administrative costs and reduce the amounts available for distribution. Publishing these details is not the role of the reclaim fund. Providing the lists of those who are participating will make it fairly obvious who is not.

The case has been put extremely well, and briefly, by the noble Baroness and I am particularly sorry not to be able to go along with the noble Lord, Lord Shutt, on this occasion.

Lord Newby: Does the FSA maintain a list of banks and building societies?

Baroness Noakes: I can help the Minister on this. The answer is yes.

Lord Bach: The noble Baroness says yes. The answer—which I think is obvious—is yes.

Lord Newby: In that case, could the Minister hazard a guess about how long it would take a competent member of staff of a bank, a building society, the FSA or the Treasury to go down the list and put a little

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asterisk against those banks and building societies that do not appear on another list of those banks and building societies that are part of the scheme?

Lord Bach: The proposed obligation would be not on the FSA but on the reclaim fund. That is different. We do not think this should be part of the law.

Baroness Noakes: I thank the noble Lord, Lord Shutt, for his support and the noble Lord, Lord Newby, for his penetrating question. The Minister’s response, that the fund should not take on a monitoring role that was onerous and would add to administrative costs by producing this information, was faintly ludicrous. We are talking about a relatively small number of institutions—60-odd building societies and 300 or 400 registered deposit-takers, I think. It would be a relatively straightforward exercise. The noble Lord, Lord Newby, has made it clear that it would take a junior clerk a short time to find out which institutions had not put any money in, so the talk of “monitoring”, “onerous” and “cost” is complete nonsense.

I cannot understand why the Government are taking this position. This is part of being a voluntary scheme. A voluntary scheme is fine—if it works. How do we know if it has worked? By being told, by the body that is in the best position to tell us, who has not taken part in it. That is the most obvious provision anyone could ever think of in order to underpin and buttress the voluntary nature of the scheme, which we have supported.

If the Minister cannot support these kinds of amendment, we will have to think whether we support the elements of compulsion that the Liberal Democrats would like to put into the scheme. He cannot have a voluntary scheme with no checks and balances in it. I am astonished by what he has said. He will not be surprised to find that in one way or another we will be returning to this issue on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 28:

“( ) the amount of money reserved for the company to fulfil the requirements specified in section 5(1)(c)”

The noble Baroness said: This amendment will be easy for the Minister to agree to as well, as it also concerns transparency. I am hoping that the Government will start to come on board with us on the importance of transparency in the scheme. The amendment would require the disclosure of the amount of money being held back by the reclaim fund in respect of matters listed in Clause 5(1)(c).

This is predicated on there being a legitimate interest in the financial stewardship operated by the reclaim fund, which aligns with what the Minister was saying earlier about the glare of public accountability. The fund will not be operating wholly in the private domain; it is a hybrid body that has to accept that it has public accountability responsibilities.

6.15 pm

My amendment focuses on the amount that is held back and kept within the reclaim fund, thereby not letting funds flow through to good causes through the

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Big Lottery Fund. The public interest lies in how much is being held back to allow a proper debate about what that amount should be. We have made no progress during the course of the Bill in finding out what sort of sums might be involved. I am sure that, as the reclaim fund is established, there will be a legitimate question about the degree to which money is held back. It is important that there is proper transparency and a flow of information about that.

I am sure the Minister will say in his reply that the amount will be in the annual accounts that are audited. The issue, however, is that annual accounts are not timely documents. The virtue of the provision that the Government have put into Schedule 1 is that the statement must be made as soon as possible after year end. That is excellent; the one thing financial accounts are not is put out as soon as possible. They are put out many months after year end—under the Companies Act, I think it will be moving to nine months. That is a very long time and not at all transparent.

With perhaps more optimism than is warranted, I hope the Minister can agree that this is another area where transparency would help the operation of this organisation and help to establish its credibility in the public’s eyes as being a proper custodian of money destined for good causes. I beg to move.

Lord Bach: I repeat that the scheme is highly transparent. The noble Baroness had the answer to her amendment in what she said: under company law, the reclaim fund will be required to prepare and file annual accounts with Companies House that may be accessed by all interested parties. That will cover the areas raised under the amendment. Under current company law and accountancy rules, which I know the noble Baroness is an expert on, the reclaim fund will publish an explanation of its reserves, including those to meet anticipated reclaim requests and its expenses, so that there is a true and fair view. Detailed information about its financial position will therefore be available from the annual accounts.

We are trying to make this legislation as light-touch as we possibly can. We see no reason to put in unnecessary requirements on the company, particularly when they already exist in law.

Viscount Eccles: Before the Minister sits down, does he accept that this is difficult for the Committee? Under the Companies Act 2006, you can form various different kinds of company, not just a single kind. Until we know what sort of company the fund is going to be and something about its ownership, it is difficult to assess how open and transparent the information it provides will actually be.

Lord Bach: I take that point. I shall respond by reminding the noble Viscount of the document produced by the BBA on 8 November, the day the Bill was published. Under the heading “The reclaim fund”, it says:

I ask the Committee to listen carefully to the following words—



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The document sets out the timetable. On page 7, it says:

Then, from the middle to the end of 2008, it is hoped—although, as my noble friend said, at the present rate of progress this may be somewhat optimistic—that the BBA and BSA will,

I refer the noble Viscount to those passages only because they show that the setting up of the company will be very much in the hands of the banks and building societies. That may not be satisfactory to him in terms of what kind of company it will be, but I wanted to emphasise that it will be their child, not the Government’s.

Baroness Noakes: We have had another unsatisfactory discussion. The Minister has just read out a bit of the BBA’s document that I am sure we all saw. It is clear that when its authors put it out they had not even read the Bill; they said the new body would be independent of government, but the Bill has a Treasury direction for it. So we know that the BBA were behind the pace. We do not understand how the body’s independence of the BBA and the BSA will work, because the Government will not tell us who the owners are. We have had no answers to any of those questions.

However, that is not the point of the amendment, which is to ensure that the new body, whose ownership structure, management structure and governance structure are entirely shady at the moment, meets certain transparency requirements. Putting early information out about the reclaim fund is part of public accountability about what the fund is doing with the money. It is not a huge or onerous requirement, but it ensures that some information gets into the public domain before it is sneaked into Companies House with no fanfare after nine months. This asks for more early information.

The more I hear the Government describe how this is meant to work, the more I realise they have no idea, which makes the process of the Bill extremely unsatisfactory. This is an area that I suspect we need to return to in due course. For now I shall withdraw the amendment, but we do not regard the issues raised as by any means dealt with.

Lord Shutt of Greetland: Before the noble Baroness sits down, will the Minister answer this point? Before we get much further—and we may have another day or two left on this yet—we were told that the BBA and the BSA had been researching this issue for years before we reached this point. Surely they have something in mind. I would have thought that the simplest thing would be for a company to be founded that was owned, either through shares or by guarantee, by those two bodies or by the various banks and building societies that joined the scheme. Or are they looking for Ladbrokes or Richard Branson to form a company and offer it up? Surely there must be some idea of what is in mind for this company?


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