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Official Report (Hansard)

Session: 2007/2008

Date: 07 November 2007

COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT
(Hansard)

Dormant Bank and Building Society Accounts Bill

7 November 2007

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson)
Mr Mervyn Storey (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry 
Mr Simon Hamilton
Mr Fra McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Peter Weir

Witnesses:

Mr Neil Lambe ) Department of Finance and Personnel
Mrs Agnes Lennon

The Chairperson (Mr McLaughlin):

The Committee is joined by Agnes Lennon from the central expenditure division of the Department of Finance and Personnel (DFP) and Neil Lambe, the principal legal officer of the Departmental Solicitor’s Office of DFP, who has been here before.

You are very welcome this morning. You have come to brief the Committee on the legislative consent motion for the Dormant Bank and Building Society Accounts Bill. Will you share your wisdom and thoughts with the Committee?

Mrs Agnes Lennon (Department of Finance and Personnel):

If the Committee considers it useful, we will recap on the scheme. It was as early as 2005 that it was first announced officially that the Government were considering working with the banking industry to develop a scheme to allow dormant accounts that are on the balance sheets of banks and building societies to be reinvested in local communities.

For a couple of years, the Government engaged with the banking industry, and two public consultation exercises were carried out earlier this year. As a result, the Dormant Bank and Building Society Accounts Bill is being introduced in Westminster, and our latest information is that that will happen today.

However, I must point out that given that banking and financial services is a reserved matter, the Northern Ireland Assembly cannot legislate on it. Nevertheless, in the spirit of devolution, the Government decided to make provision in the Bill for the devolved Administrations to set the spending priorities and to have some input into the distribution in their jurisdictions.

That brings us full circle to explaining the reason that the Committee is discussing the Bill today. The Bill confers new functions on the Department of Finance and Personnel and, therefore, the Assembly must pass a legislative consent motion. The current plan is that that will happen later this month, possibly on 20 November.

The first stage of the scheme will be a reuniting exercise, as was discussed at the previous Committee meeting. The exercise is already under way, and some members noticed advertisements for it in the press. The exercise aims to reunite customers with their dormant accounts if at all possible.

The scheme is voluntary and will remain in the banking and financial services sector. Government will not seize assets: the scheme does not come under the remit of Government budgets or the Northern Ireland Budget. The Government’s role has been to introduce the enabling legislation for the scheme.

The Bill defines a dormant account as one in which there has been no customer-initiated activity in the past 15 years. It has been mentioned publicly that the current value of existing dormant accounts could amount to as much as £500 million across the United Kingdom, but others feel that that is a conservative estimate. Furthermore, tens of millions of pounds recur thereafter. The Bill would ensure that Northern Ireland would receive its population share of the figure, which could initially amount to between £10 million and £20 million, with hundreds of thousands of pounds recurrently being dispersed each year thereafter.

If the Assembly agreed the legislative consent notion, the idea is that the Bill would allow the proceeds of dormant accounts to be transferred into a reclaim fund, which would be set up in the banking sector independently of the industry and of Government. The fund would be regulated by the Financial Services Authority (FSA). To digress, because there was some discussion of the issue in the previous Committee meeting, the Bill also provides an alternative option for smaller banks and building societies. They will be permitted to deposit an agreed portion of the dormant accounts into the reclaim fund — an amount that the fund determined would be sufficient to meet the reclaim risk — and, if they wish, they can pay the remainder to charities that are local to the bank branch or to those that have a special connection to the building society.

The reclaim fund will invest those proceeds. It will be the duty of the fund to make a prudent assessment of the reclaim risk and keep that amount invested. The remainder will be available for distribution. The distribution vehicle that is set out in the Bill is the Big Lottery Fund (BIG), which was chosen in the interests of efficiency because it already has a UK-wide structure as well as experience of distributing funds efficiently across the UK. I recognise that that gives rise to ethical concerns in Northern Ireland, and the Minister is aware of those concerns. We have worked with the Treasury to address some of those issues.

The Assembly will be able to set and agree Northern Ireland’s priorities. The Department of Finance and Personnel will consult with other Departments and key stakeholders and will take the matter out to public consultation. The Committee will also have a role to play, and an Order that is subject to affirmative resolution will be laid before the Assembly, setting those priorities for Northern Ireland. The role of the Assembly therefore brings us full circle to the reason that we are discussing the matter today.

The Chairperson:

OK. Mr Lambe, do you wish to add anything?

Mr Neil Lambe (Department of Finance and Personnel):

No, Chairperson. However, I am willing to answer questions.

The Chairperson:

Members will note the response that we received to last week’s discussion, a copy of which is in the members’ pack.

Mr Storey:

Once the Bill is enacted, will protocols or a consultation process be established for the distribution of the reclaim fund, or will the mechanism be set out in the legislation itself? For example, if a building society deposits x thousands of pounds into the reclaim fund, someone will have to arbitrate or decide on which needy cause the money will be allocated to. How will that work in practice?

Mrs Lennon:

The reclaim fund will invest the money that it receives. For example, the Assembly will set the priorities for how that money is spent in Northern Ireland and give direction to BIG as to how it should be spent. As and when the money is required, BIG will withdraw it from the reclaim fund. Does that answer your question, or am I missing the point?

Mr Storey:

I am still unsure as to what rules will govern the reclaim fund on practical issues. What guidance will there be?

Mr Lambe:

Not all the details will be spelt out in the legislation. The Treasury’s approach is what it calls a “light regulatory touch”. The success of the scheme relies to a large extent on agency arrangements between participating banks and building societies in their dealings with the reclaim fund and how identified dormant accounts will be transferred to the central reclaim fund. The fund will have a separate agency agreement with the Big Lottery Fund, and they will agree how the amount that needs to be retained by the central reclaim fund and the amount that is then passed on to the Big Lottery Fund for distribution across the United Kingdom.

The Chairperson:

Is your question related to that, Simon?

Mr Hamilton:

It is. I thank Agnes for her summary. It is no reflection on her, but I remain to be convinced about the Bill in general, not least because her summary mentioned the huge bureaucracy that will be involved in the scheme. For example, there will be a reclaim fund with various rules attached, and there will be protocols with the Big Lottery Fund and so on. Dormant things should perhaps be left dormant.

However, I am convinced that if we do not get on board with the scheme, we may lose out significantly. My question concerns the directions that the Northern Ireland Executive can give to the Big Lottery Fund as to where the money should be distributed. How specific can those directions be? Can matters such as roads be considered as a general theme, or would particular types of roads have to be specified? Can the scheme relate broadly to education, or would it have to concern certain elements in schools or colleges? Would the direction concern general or specific matters?

Mrs Lennon:

Guidance can be specific. As we consult and develop the priorities, I would expect them to be fairly specific.

The Chairperson:

My question is related to that topic, but approaches it from a different angle. It is stated in your submission that clarifies matters that were raised previously in the Committee that:

“The Executive and the Assembly will have the final agreement on the priorities.”

How does that process work? How do we get to the point of making that decision?

Mr Lambe:

The Bill confers executive functions on the Department of Finance and Personnel. That process identifies which Department in the Northern Ireland Executive is taking the lead. The legislation specifies that the priorities for Northern Ireland, which DFP as the lead Department will determine initially, will be contained in a draft affirmative Order that will then be laid before the Assembly.

Once the officials have done their work and there is broad agreement at Executive level as to what the spending priorities will be for Northern Ireland, the Minister will lay a draft Order for debate in and affirmation by the Assembly. If the Assembly does not affirm the motion on the draft Order, no spending priorities for Northern Ireland will be set through that mechanism. That is the reason that we say that the Assembly and the Executive have ultimate control. If the Assembly decides not to affirm the motion, we are back to reworking and re-identifying suitable priorities for Northern Ireland.

The Chairperson:

Do members have any questions that are related to that?

Mr F McCann:

The Chairperson has touched on part of my question already. As someone has said, the scheme seems to be an administrative nightmare that is waiting to hit us. Obviously, the banks are in control of all the accounts at present. Are banks or building societies compensated in any way for the administration that they have to provide?

Mr Lambe:

There is no provision in the Bill for the recoupment of the expenses or costs that are incurred by the financial institutions. The scheme has the support of the banking and building societies. They will simply incur their own costs.

Mr F McCann:

I have not yet come across a bank or building society that is willing to do something for nothing.

Mr Lambe:

The financial sector is taking the view that it is not their money — it is the customers’ money that is simply sitting on their balance sheet. When the money is transferred to the reclaim fund, those amounts fall off the individual financial institution’s balance sheets in accordance with international accounting rules. Primary legislation is therefore required to deal with the extinguishment of the individual building society’s liability — to the customer — and the transfer of that liability to the central reclaim fund, which then owes the customer the money, should they seek repayment.

Mr Beggs:

Smaller banks are defined as those that have an assets base that has less than £7 billion. Most people do not have a clue what £7 billion looks like; certainly I do not.

The Chairperson:

Are you declaring an interest?

Mr Beggs:

Are the banks in Northern Ireland above or below that threshold?

Mrs Lennon:

Across the UK, a small number of banks fall within that threshold. However, out of 60 building societies in the UK, approximately 52 fall within that threshold. In Northern Ireland specifically, the Progressive Building Society and the City of Derry Building Society fall within that category.

Mr Lambe:

To clarify, the individual banks that operate in Northern Ireland are unlikely to fall under the £7 billion-asset level because banks are assessed on a group asset level, not as individual, identifiable brands.

Mr Beggs:

Simon Hamilton the direction that would be given on matters such as roads and education. I thought that the scheme was designed to be open to applications from the voluntary sector. Is it the case that it is not being directed towards Departments? Can the Government set the wider framework to enable people to apply for schemes that affect the environment, children and young people? Is that the role that the Department of Finance and Personnel may have?

Mrs Lennon:

Yes. The Department of Finance and Personnel will set the criteria for the applications for the spending in Northern Ireland. The Government will not take any of the money; it is not part of our Budget, or our in-year monitoring rounds. The money that is involved is separate and sits in the banking sector.

Mr Beggs:

Many organisations have sensitivities about the lottery, and owing to reasons of conscience, they have not applied to it for funding. You said that the Treasury would adopt a light regulatory touch that would allow for some flexibility. I am aware that the Big Lottery Fund will be handling the money, but can a certain amount be directed towards an organisation that is not necessarily connected to the lottery, for example NICVA? Is there a process through which further distance can be put between the Big Lottery Fund and the money? The scheme will undoubtedly be tainted if the Big Lottery Fund is handling the money.

Mr Lambe:

The Bill contains a provision that allows the Treasury to appoint alternative distributors. However, the Bill itself identifies BIG as the distributor.

Dr Farry:

I apologise for being late. A question was asked about the type of formula that is being used to distribute the funds across the UK, but the answer was not clear. Will the money be distributed on a population basis, or will it be based on relative need as is the case with the Barnett formula? Population- and relative need-based schemes are fundamentally different and produce radically different funding results.

Mrs Lennon:

Although people refer to the distribution of the scheme as per the Barnett formula, strictly speaking, it is based on population share. Therefore, Northern Ireland would get its population share of the total sum. At the moment, that is around 2·8%, and it will be revised each year according to the population share.

Dr Farry:

Is the Northern Ireland block grant not based on population share?

Mrs Lennon:

No; that is totally different.

Dr Farry:

I appreciate that they are different concepts, but I am trying to clarify that money coming to Northern Ireland is based on population share rather than on the needs assessment that is behind the Barnett formula. Therefore, compared to what we receive from formal tax revenue, we will not get less.

Mrs Lennon:

That depends.

Dr Farry:

Why?

Mr Lambe:

The population-share formula was simply regarded as the most equitable. It is not Government spend; it is money that belongs to bank and building society customers across the UK. To keep the formula simple, a straightforward population-share allocation is used. That allocation applies to the main scheme. Given that the conditions of the smaller scheme mean that those banks and building societies that have an assets base of less than £7 billion decide where the money will go, it is likely that all the dormant account money in the Progressive Building Society, for example, will be allocated to charitable purposes in Northern Ireland. I do not know whether that institution has a branch network outside of Northern Ireland, but I doubt it.

Dr Farry:

Money for good causes is not distributed across the UK based on how the population lives; it is skewed in proportion to relative need. The money may be raised on an equitable or a population basis across the UK, but if you try to direct spending to good causes, you will find that some regions of the UK will be in greater need than others such as those that are in the south-east of England.

Mr Lambe:

That is a fair criticism of the formula that has been adopted. It is not a needs-based approach to distribution between the four jurisdictions, but that is the formula that the Treasury has adopted.

The Chairperson:

Does the formula take account of the dispersal, location, or reasons for locations of building society branches or banks, which, to put it crudely, tend to follow the money thus allowing areas of exceptional need to fall through the net?

Mr Lambe:

The formula is straightforward: x% goes to England and y% goes to Scotland and so on. Those percentages on a year-on-year basis will be set out in an Order that is made by Treasury.

Mr Weir:

Stephen is being hard on distressed stockbrokers who have fallen on hard times, many of whom live in the south-east of England. Charities of that nature are worthy of support.

The Chairperson:

I am sure that a few stockbrokers live in his constituency.

Mr Weir:

The flip side of the small scheme is that local branches of banks and building societies may distribute their own assets. Probably not a great deal can be done about this, but there is a danger that some of the smaller banks and building societies will try to do some reconciliation across the UK, and the money may end up in one or two central funds. Therefore, the amount of assets realised by a building society across the UK may amount to £100,000, but the building society may make a decision about £200 that has been found in an account in a branch in Ballymena — although I suspect that if £200 were found in an account in Ballymena, long-dead people would race in to claim the money.

Rather than the money going to local charities, those banks and building societies may want to make a grand gesture even if there are local implications. A bank that finds that it has £100,000 across its branches may make a big issue of giving that £100,000 to the Save the Children fund. Are the regulations for the distribution of grants under which the Big Lottery Fund operates restricted to those charities, or good causes, that will spend the money in the UK? Does the Big Lottery Fund have the option to make a donation to a charity that is involved in, for example, aid to Africa?

Mrs Lennon:

The Big Lottery Fund does not decide on the priorities; the Department will set the criteria.

Mr Weir:

What would happen if the Executive did not want to be too prescriptive in their criteria and said that out of £10 million that has been allocated to Northern Ireland and that will be handled by the Big Lottery Fund, £2 million should be spent on children’s issues? Can the Big Lottery Fund give any money, restricted or not, to charities or worthy causes that operate outside the UK, such as a disaster fund?

Mrs Lennon:

That would still be subject to the criteria that we set.

Mr Weir:

I appreciate that there would be an opportunity for further restriction. I appreciate that we can put whatever restrictions we like on the Big Lottery Fund. However, is it normally restrained by its own general criteria that allow it to give money only to charities that operate, and spend their donations, in the UK?

Mr Lambe:

I am not sure whether such restrictions apply in its distribution of lottery money. There is nothing in the Bill that will restrict the Big Lottery Fund’s giving grants to individual organisations. If the Department does not want the money to be used outside this jurisdiction, it would have to specify that in the priorities or in the further directions that it issues to BIG. I imagine that BIG’s approach, even where distribution of lottery funding is concerned, would be that there would have to be good reasons for giving a grant or a loan to an organisation that operates outside the jurisdiction.

Mr Weir:

At the other extreme, it is clear that the intention is to provide criteria and a framework to which BIG can work. Taking into account what is permissible under the legislation, does the Executive have any discretion to say that a percentage of the money that is allocated to Northern Ireland that was due to go to a certain fund can be held back? Can the Executive direct that if, for example, £10 million is allocated, 10% should be taken for a certain purpose? That direction may be that a separate fund should be set up that cannot be distributed by any group that is connected to the lottery. What level of discretion is there to set definitive criteria that effectively remove some of BIG’s spending power?

Mrs Lennon:

The Bill leaves it open for Northern Ireland to set its own criteria and give directions to BIG. Those directions can be as tight, or as loose, as the Executive and the Assembly wish.

Mr Weir:

Is the Executive in a position to take money directly off BIG and state that it should be spent differently?

Many of us may not be too keen on this option, but if, for the sake of argument, the Executive were to decide that some of that money should go to a particular road programme, for instance, and they gave a criterial direction that £2 million of the BIG money should be allocated to that road programme, would BIG just become a channel through which that directly operates?

Mr Lambe:

In relation to what is, I think, the more important question, BIG is the distributor of those funds, and it would distribute the funds under the direction of the Department and in accordance with the framework established. The Executive would not have power to divert a percentage of the Northern Ireland portion away from BIG to be used for other purposes. All of the money must go to BIG under the framework, and it will make the individual funding decisions, but within the framework of priorities.

Mr Beggs:

Did you not say that there was an option for appointing someone other than BIG?

Mr Lambe:

That option is a power that is vested in the Treasury. There is no devolved power for the different jurisdictions.

Mr F McCann:

How can you guarantee that the money is additional and not just from the Big Lottery Fund’s general fund?

Mrs Lennon:

There will be quite separate accounting and management for that strand of money. That is all provided for in the Bill. After the Department of Finance and Personnel has given directions, it can ask the Big Lottery Fund to set out a strategic plan for how it will deliver those directions. That plan can be laid in the Assembly. BIG also has to produce an annual report that will be laid in the Assembly. It will also have to produce an annual statement of accounts that will be audited by the Comptroller and Auditor General, and that will also be laid in the Assembly.

Mr Storey:

Will the money be clearly identified as coming from that fund?

Mrs Lennon:

That fund will be totally separate. It must be borne in mind that the origins of the money for the fund will not be from gambling.

The Chairperson:

Will the dispersal and accessing of the funds be reviewed and assessed annually?

Mr Lambe:

The legislation does not require any periodic review of the particular spending priorities that will apply to any one jurisdiction. The Department could make a fresh order, setting fresh priorities every year if it wished. However, I imagine that it would want to leave at least a couple of years after it has first set the priorities, just to ensure that there is a process of funding, rather than giving away all of the money today and having to think up a new set of priorities for next year.

The Chairperson:

That would be for the Department, with the agreement of the Executive, to decide. I am just considering some of the concerns around the table about how the money will be categorised and about the Big Lottery Fund’s involvement. Would there be a process where people could amend or deal with those concerns, based on experience? What is the vision? Presumably people will come up with responses to some of the problems that may emerge.

Mr Lambe:

I imagine that there will have to be a period of review to examine how BIG is distributing the money in Northern Ireland and how successful the channelling of fresh funds to the voluntary and community sector has been. There will inevitably have to be a period of time before which a proper assessment can be made of how worthwhile the new funding stream has been.

Mrs Lennon:

As Neil pointed out earlier, the Bill is quite light touch, so all of those matters are in the gift of the Assembly and the Department to set.

Mr Storey:

My question goes back to the beginning of the process. The scheme is voluntary, and it will obviously depend on the goodwill of the banks and building societies. What protection will they have, because there is the issue of confidentiality in customer relationships? Is there a specified time that the money must have lain dormant?

Mrs Lennon:

The accounts must be dormant for 15 years, without any customer-initiated activity.

Mr Storey:

Is there any possibility that at some stage someone would challenge the decision of the bank and actually divert x number of pounds into the fund. How transparent is that process? Does the bank have to make a declaration? Suppose an uncle who had £20,000 in the bank 30 years ago passed away and left no will, and all of a sudden the money is transferred from his account to that fund. How is the bank protected against someone making even a spurious claim?

Mr Lambe:

The banks and building societies have undertaken to retain customer records in perpetuity. When money is transferred to the reclaim fund, the names of the participating financial institutions will be published, along with the amount of money that has been transferred. However, as individual financial institutions retain the records, they will know that on a certain date Mr X’s bank account was identified as being dormant and the money transferred.

Mrs Lennon:

The onus is on the reclaim fund to keep a prudent amount back against the risk of reclaim in the future. That is part of its duties.

Mr McQuillan:

So the reclaim fund is liable if the money has to be paid back?

Mrs Lennon:

Ultimately, it is the reclaim fund. The customer will go to the bank. The bank will pay the money and then reclaim it.

The Chairperson:

I presume that there is a formula that defines a “prudent amount” — that could vary from bank to bank. There must be a formula that will establish a threshold percentage to be retained for reinvestment to cover reclaims.

Mrs Lennon:

That is right, and it is part of the Financial Services Authority’s remit to oversee that.

Mr Lambe:

There will be no formula in the Bill that establishes, for example, what percentage —

The Chairperson:

The regulatory authority would negotiate and stand over that percentage.

Mr Lambe:

The Bill’s regulatory approach imposes an obligation of prudence on the reclaim fund.

The Chairperson:

But it would not be prescriptive, which would allow for fluctuations in investment rates, and so on.

Mr Lambe:

It is also likely perhaps that in the initial years of the scheme the reclaim fund will hold back a larger amount than it actually needs to meet reclaim risk.

The Chairperson:

Agnes and Neil, thank you very much. That was very helpful.

Members, if there are no other comments, I shall put the question to the Committee that it agrees the following motion:

“That the Committee for Finance and Personnel supports the Department of Finance and Personnel in seeking the Assembly’s endorsement of the principle of the extension of the provisions of the Dormant Bank and Building Society Accounts Bill to Northern Ireland.”

Members indicated assent.

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