APPENDIX 1: DORMANT BANK AND BUILDING SOCIETY
ACCOUNTS BILL [HL]
Memorandum by HM Treasury
Introduction
1. This Memorandum identifies the provisions
in the Dormant Bank and Building Society Accounts Bill which confer
power to make delegated legislation. It explains the purpose of
the delegated power proposed; why the matter is to be dealt with
in delegated legislation; and the nature and justification for
any parliamentary procedures which apply.
Background
2. The 2005 Pre-Budget Report stated that where
dormant accounts could not be reunited with their owners the money
should be reinvested in the community, particularly in deprived
communities and with a focus on youth services and financial education
and exclusion. There would be an option for small locally-based
financial institutions to focus on these needs in their local
communities.
3. The Treasury has undertaken two consultations
with regard to an unclaimed asset scheme. The first, "A UK
Unclaimed Asset Scheme: a consultation", was published in
March 2007. The second consultation "Unclaimed assets distribution
mechanism: a consultation" was published in May 2007.
4. The Treasury Select Committee conducted an
inquiry[13]
into unclaimed assets. It published its report in August 2007.
The Government's response to the Committee was published in October
2007[14].
Overview of the Bill
5. The purpose of the Bill is to enable a scheme
to be set up whereby the balances in dormant bank and building
society accounts can be transferred to a reclaim fund. The fund
will hold a proportion of the balances to meet all claims for
payment of their balances by dormant account holders and will
make the remainder of the money available for distribution by
the Big Lottery Fund for certain purposes.
6. Where a bank or building society transfers
a dormant account balance to a reclaim fund, the rights which
the customer has to repayment of the balance from the bank or
building society become exercisable against the reclaim fund.
The liability of the bank or building society to repay the customer
is cancelled. This cancellation is required to ensure banks and
building societies can participate in the voluntary scheme without
suffering an adverse impact on their balance sheets (on which
the liability would otherwise need to be recorded in line with
applicable accounting rules). Building society membership rights
are not intended to be affected and the Bill contains a provision
which preserves those rights.
7. The Bill establishes the conditions for qualification
as a reclaim fund and requires that it be authorised and regulated
by the FSA. The British Bankers' Association and Building Societies
Association have agreed to take steps to select or establish a
body to act as a reclaim fund. It is envisaged that a reclaim
fund will want to enter into agency agreements with participating
institutions.
8. The Bill provides an alternative scheme for
smaller banks and building societies with assets of less than
£7,000 million. The scheme would permit the bank or building
society to transfer an agreed proportion of the dormant account
to the reclaim fund and to transfer the balance to one or more
charities for distribution for the benefit of the local community
or (in the case of building societies) in line with any special
purposes they may have.
9. The reclaim fund's objects will include the
transfer of sums, (apart from sums which it needs to retain to
meet repayment claims, prudential requirements and running costs),
to nominated distributors. The Big Lottery Fund will be named
in the Bill as the distributor of such sums, although the Secretary
of State will have power to replace it and to appoint additional
distributors.
10. Sums available for distribution by the Big
Lottery Fund will be apportioned by the Secretary of State between
England, Wales, Scotland and Northern Ireland.
11. The Big Lottery Fund will be required to
distribute money for social and environmental purposes, but more
detailed spending purposes will be identified by each country
for its apportioned share of the money available. For England,
the spending purposes are set out in clause 17 of the Bill. The
devolved administrations will each have the power to identify
their spending purposes by order, and to further specify spending
purposes by direction. This model follows in broad terms the approach
in that part of the National Lottery etc Act 1993 for "devolved
expenditure" save that under the 1993 Act the Secretary of
State makes one order, after consultation, which identifies the
spending areas for the whole of the United Kingdom, and the devolved
administrations make directions specifying particular areas. In
the Dormant Accounts Bill the devolved administrations will be
free to make orders which identify spending purposes which are
different to the English spending purposes set out in the Bill,
provided that they fall within the "social or environmental
purpose" definition.
12. The Bill sets out the powers which the Big
Lottery Fund will have to distribute dormant account money. These
powers are based on and similar to the powers it has to distribute
money under the National Lottery etc Act 1993.
13. It is envisaged that the functions of the
Secretary of State set out in this Bill will be exercised by the
Secretary of State for Children, Schools and Families.
Provisions for delegated legislation
Clause 3: Power to amend assets limit
14. The Bill sets out an asset limit of £7,000
million, below which a bank or building society will be eligible
to participate in the alternative scheme for small institutions.
Where the bank or building society is a member of a group the
asset limit is applied to the whole group. The alternative scheme
allows banks and building societies, instead of transferring dormant
account balances in full to the reclaim fund, to transfer an agreed
proportion to the reclaim fund, and to distribute the balance
to charities for the benefit of the local community or (in the
case of building societies) for purposes which are in line with
any distinctive purposes they may have.
15. Clause 3 (4) will permit the Treasury to
amend the assets limit. It is envisaged that this power would
be exercised if the existing assets limit ceased to be at a level
which would allow smaller locally-based financial institutions
to be eligible for this alternative scheme. The alternative scheme
is an option for qualifying banks and building societies, but
any qualifying bank or building society can choose to transfer
the whole of a dormant account balance to the reclaim fund, for
distribution by the Big Lottery Fund. Given that the power is
only to amend an alternative option to the main scheme the Treasury
considers that it is appropriate that the power to amend the asset
limits for inclusion in the alternative scheme is subject to the
negative resolution procedure.
Clause 5: Power to give direction to a reclaim
fund
16. Clause 5 defines a "reclaim fund"
as a company which must have particular restricted objects (set
out in subsection (1)) and whose articles of association must
comply with other requirements set out in Schedule 1. Subsection
(4) contains a power for the Treasury to direct a reclaim fund
to give effect to any of its objects or comply with any particular
obligation or prohibition which its articles of association are
required to include under Schedule 1. The directors of a reclaim
fund will be under a duty under the Companies Act 2006 to act
in accordance with the company's constitution and promote the
success of the company. Whilst it is primarily a matter for the
company directors and members, this power will enable the Treasury
to take action if serious concerns arise about the fund's compliance
with its objects and specified articles.
17. The Treasury believes that a direction making
power is the appropriate approach to enabling it to take action.
The direction does no more than require a company to give effect
to or comply with requirements to which it is already subject
under the Bill, and which will previously have been approved by
Parliament during the passage of the Bill.
Clause 16: Apportionment of dormant account money
18. Under the Bill each devolved administration
will be responsible for setting the spending areas within which
it wishes the Big Lottery Fund to distribute the dormant accounts
money apportioned to that country. Clause 16 sets out that the
money available for apportionment in each financial year is to
be apportioned with prescribed percentages for expenditure in
each of England, Wales, Northern Ireland and Scotland. The prescribed
percentages for each country will be set out in an order made
by the Secretary of State after consultation with Welsh Ministers,
Scottish Ministers, the Northern Ireland Department of Finance
and Personnel, the Big Lottery Fund and such other persons (if
any) as the Secretary of State thinks appropriate.
19. The Secretary of State plans to take into
account the relative populations of each country as a proportion
of the United Kingdom when exercising this power. The power will
provide the flexibility to amend the apportionment where it is
appropriate to do so to reflect population shifts.
20. Because the power will be used to apportion
large sums of money between the four countries, we believe it
is right for it to be subject to the affirmative resolution procedure.
Clauses 18-20: Distribution of money for meeting
Welsh, Scottish and Northern Ireland expenditure
21. Clause 15 of the Bill requires the Big Lottery
Fund to distribute dormant account money for social or environmental
purposes. Within these overall purposes, the particular purposes
for which dormant account money apportioned for England must be
spent are set out in clause 17 of the Bill. The particular purposes
for which dormant account money apportioned to Wales, Scotland
and Northern Ireland must be spent will not be set out in the
Bill. Instead clauses 18 to 20 give Welsh Ministers, Scottish
Ministers and the Northern Ireland Department of Finance and Personnel
respectively the power to set and amend the purposes on which
dormant account money must be spent.
22. Given the importance of the powers for the
countries concerned we believe that their use should be subject
to approval by the National Assembly of Wales, Scottish Parliament
and Northern Ireland Assembly respectively.
Clause 21: Directions to Big Lottery Fund
23. Clause 21 requires the Big Lottery fund to
comply with directions given to it by the Secretary of State.
In broad terms, such directions would be either spending directions
or financial directions. The financial directions will enable
the Secretary of State to impose financial controls on the Big
Lottery fund, as a non-departmental public body. The Big Lottery
Fund is accountable to Parliament through the Secretary of State,
who lays the Big Lottery Fund's annual report before Parliament.
The Big Lottery Fund must be consulted before any direction is
made under clause 21.
24. The first set of directions, mentioned in
subsection (3), are directions to the Big Lottery Fund in relation
to the distribution of dormant account money. For England, the
general purposes for which dormant account money may be distributed
are set out in general terms in clause 17. The devolved administrations
will set their general spending purposes by order made under the
powers set out in clauses 18 to 20. The spending direction power
will enable further detailed directions to be made to the Big
Lottery Fund as to how the dormant account money should be spent.
25. Subsection (5) of clause 21 makes it clear
that the power to make these spending directions will be devolved
to the appropriate national body in relation to devolved expenditure.
26. Subsection (6) states that any directions
in relation to distribution must not be inconsistent with the
provision in clause 15 (1) that distribution must be to meet expenditure
which has a social or environmental purpose. In addition such
directions must not be inconsistent with the general purposes
set out in clause 17 (in the case of a direction made by the Secretary
of State) or in the case of the devolved administrations with
an order made in relation to that country under one of clauses
18 to 20.
27. The Government has made clear the areas on
which dormant account money is proposed to be spent in England.
A cross-departmental working group will be set up to refine these
spending areas, once there are more concrete forecasts of the
amounts of money which may be available. This working group may
make detailed recommendations to the Secretary of State on for
example suggested spending programmes. This approach is likely
to lead to the Secretary of State making more detailed, specific
directions than are made to the Big Lottery Fund under the National
Lottery etc Act 1993. However the devolved administrations will
be free not to adopt this approach, and may prefer to make more
general directions akin to those made under the National Lottery
etc Act 1993. The Treasury believes that a direction making power
is the appropriate way to provide further detail to the spending
areas identified in the Bill for England and which will be set
out by Order for each of the devolved administrations. The Treasury
also believes that a more specific direction making power is appropriate
to assist the Big Lottery Fund in distributing dormant account
money in accordance with Government policy.
28. Examples of the matters on which a financial
direction may be made are set out in subsection (4) of clause
21. With the exception of subsection (4)(a) these provisions are
similar to those provided for in the National Lottery etc Act
1993. Subsection 4(a) adds a further oversight power to impose
restrictions on the arrangements into which the Big Lottery Fund
may enter for the purpose of holding and investing money prior
to distribution or for the purpose of making payments which the
Big Lottery Fund is required to make in relation to expenses incurred
by the Secretary of State of the devolved administrations. The
power to enter into arrangements for the purpose of holding or
investing money is a new power for the Big Lottery Fund for which
there is no precedent in the National Lottery etc Act 1993. The
Treasury believe that these financial controls are necessary to
enable the Secretary of State properly to oversee the Big Lottery
Fund. As with the National Lottery etc Act 1993, the Big Lottery
Fund will publish in its annual report all directions given to
it.
Clause 22: Power to prohibit distribution in certain
cases
29. Clause 22 gives the Secretary of State the
power by order to stop the Big Lottery Fund distributing dormant
account money to a specified person if the Secretary of State
considers that the Big Lottery Fund can control or materially
influence the policy of that person. This is similar to a power
which the Secretary of State has in relation to National Lottery
distributors. The Treasury consider that such a power is necessary
to ensure good governance of the distribution of dormant account
money.
30. Where the making of an order under this clause
would affect persons in one or more of the devolved administrations,
the Secretary of State will be obliged to consult the administration
or administrations concerned. The negative resolution procedure
is considered appropriate for this power and also applies to the
similar power in the National Lottery etc Act 1993.
Clause 23: Power to add or remove distributors
31. Under clause 15(1) the Big Lottery Fund is
appointed as the sole distribution body. Clause 23 provides a
power for the Secretary of State to appoint further bodies to
distribute dormant account money in addition to or instead of
one or more existing distribution bodies. The Big Lottery Fund
has significant expertise in distributing money in the areas identified
for English expenditure, and it is anticipated that it would have,
or be able to acquire, expertise in areas for spending likely
to be identified by the devolved administrations. However it is
possible that there will be a spending area in which it has no
expertise or in which there is an obvious alternative body with
expertise. While it may be that the Big Lottery Fund could use
its powers to delegate to acquire and utilise outside expertise,
there may be occasion when it is most appropriate to appoint another
body as a distribution body.
32. Clause 23 (2) specifically provides for the
Secretary of State to be able to remove a distribution body for
failure to follow a direction or a prohibition.
33. Clause 23 gives the Secretary of State the
power to make consequential amendments and to make transitional
or supplemental provisions following the addition or removal of
a distributor. In the Bill the Big Lottery Fund is appointed as
distributor, and referred to throughout the Bill. If another distributor
was appointed or the Big Lottery Fund removed, the power in this
clause would enable the Secretary of State to make the necessary
consequential amendments. In addition this power could be exercised,
for example, if the Secretary of State wished to set out the spending
areas for which the new body could make distributions, to otherwise
set conditions on the appointment of the distributor, or if a
distributor was removed to make provision to enable another distributor
to take over the removed distributor's distribution activities.
34. The Secretary of State is required to consult
each of the devolved administrations before exercising this power.
Because the removal or appointment of a distributor may have a
significant effect on the way the whole scheme works, it is considered
that the exercise of these powers should be subject to the affirmative
resolution procedure.
Clause 31: Commencement
35. Clause 31 provides for the Treasury to bring
the preceding provisions of the Bill into force by order. Consistent
with the usual practice, commencement orders under this clause
are not subject to any Parliamentary procedure.
HM Treasury
November 2007
13 "Unclaimed assets within the financial system"
(Eleventh Report of Session 2006-2007) published 6 August 2007.
Back
14
"Unclaimed assets within the financial system: Government
Response to the Committee's Eleventh Report of Session 2006-7"
published 15 October 2007 Back
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