Official Report (Hansard)

COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT
(Hansard)

Dormant Bank and Building Society Accounts Bill

24 October 2007

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson)
Mr Roy Beggs
Dr Stephen Farry 
Mr Simon Hamilton
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Peter Weir

Witnesses:

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

The Chairperson (Mr McLaughlin):

You are most welcome. Today’s witnesses are Richard Pengelly, the head of the central expenditure division, his colleague Agnes Lennon, and Neil Lambe from the Departmental Solicitor’s Office. As the Committee has a heavy agenda today, perhaps you would keep your evidence to half an hour, if possible.

Mr Richard Pengelly (Department of Finance and Personnel):

In view of the time pressures, we have circulated a background paper. Therefore, rather than go through that, perhaps we could move straight to members’ questions. The high-level issue concerns seeking a legislative consent motion to allow Westminster to legislate on dormant accounts. I hope that the fairly short background paper covers the relevant points. Unless members particularly want me to go through the paper, we are happy to take questions.

Mr Weir:

I have some reservations about the legislation. I want clarification on how Northern Ireland would be included and what procedures would be involved. The process is such that whatever money is raised would be divided throughout the UK on a pro rata basis. Presumably, if the Assembly does not consent to the legislation, Northern Ireland would be excluded from receiving money, which would, consequently, be divided among the other parts of the UK. What is the exact position?

Mr Pengelly:

We are not absolutely clear on that. We have had informal discussions with the Treasury, whose view ranges between either no money coming to Northern Ireland or, because it is a reserved matter, the Treasury would decide on distribution priorities and the programmes on which the money should be spent. The Treasury has not given serious thought to the matter. The crucial point is that, should they not consent to the legislation, the Executive would lose the ability to influence how the money is spent in Northern Ireland.

Mr Weir:

That is a crucial issue. Despite my concerns, we should not necessarily cut off our nose to spite our face. My fundamental problem is with legislation that enables the Treasury to snaffle money that belongs to citizens, simply because it has been sitting in a bank account that has not been used for a certain period. To be honest, that is not far from being theft. By the same token, if the Chancellor is keen to be a modern-day Robin Hood —

Mr Hamilton:

However, he may not give to the poor.

Mr Weir:

Yes, he may not give the money to the poor.

Mr Hamilton:

Nor would he be robbing from the rich.

Mr Weir:

I am not sure that Northern Ireland should be deprived of the spoils of such theft.

Mr Pengelly:

In advance of any distribution of the money, an extensive repatriation exercise will have taken place, whereby the banks and building societies will go through the accounts that have had no customer-initiated activity for 15 years. That will reduce the number of accounts to be included. Furthermore, any individual who comes forward will get their money back in full. There will be no question that the money will have been spent and that individuals will lose their money — that is guaranteed.

Mr Weir:

I presume that they will not lose any interest on their money.

Mr Pengelly:

My understanding is that money in dormant accounts does not attract interest. After 15 years, the banks move the money into dormant accounts that attract negligible, if any, interest.

Mr Weir:

Therefore, is the idea to steal people’s money and hope that they do not return to claim it at a later stage?

Mr Pengelly:

I describe it as borrowing their money.

The Chairperson:

I neglected to point out that Hansard is recording the session. Are there any other questions?

Mr Hamilton:

I share Peter’s views. I am deeply uneasy about the Bill’s underlying principle. I do not care whether the account has been idle for 15 years or 50 years. I am not happy that money that is registered and belongs to an individual will be taken and distributed, in whatever fashion. I want clarification on the role of the Big Lottery Fund. The Department’s paper refers to ethical concerns: for example, certain churches will not apply to that fund. Although I am uneasy, I take Peter’s point that if the legislation is going to be passed, Northern Ireland should at least get its fair share.

I would be happier if the money were to go to the Executive to distribute to programmes and socio-economic schemes throughout Government, or to various nominated charities. What is the role of the Big Lottery Fund in Northern Ireland?

Mr Pengelly:

During consultation with the Treasury on the significant unease that many in Northern Ireland feel about the Big Lottery Fund, the Minister of Finance and Personnel registered the points that you have raised. The Treasury’s view was that the fund has established an efficient distribution mechanism, but it acknowledged the point about the links to gambling.

The current situation is that all money from the dormant accounts will go into a separate fund and will not be pooled with any of the normal lottery funding. That fund’s branding will be separate and distinct from the Big Lottery Fund logo. In the new year, as part of the consultation process, the Department wants to carry out further work, specifically with the lottery, to ensure that its logo does not appear on any branding of that separate fund. Should branding be required, it will be based on unclaimed assets — not the lottery. 
Mr Hamilton:

That is vitally important. It is one thing to take money from the public even if they have forgotten about it, but then to have sections of society claiming that back for worthy schemes through a mechanism for distribution that is essentially the Big Lottery Fund —

Mr Pengelly:

It will not be branded, and the money will be separate. If someone receives a cheque, not one penny of that cheque will have come from lottery proceeds.

Mr Beggs:

I share the grave concern about the Government raiding personal dormant accounts. It is essential that individuals would have a right, should they become aware of it subsequently, to claim the money back. If they did become aware of the money, how would it be claimed back, and where would the money come from? Would it be from the Government?

Mr Pengelly:

When the money is passed across from the banks after the repatriation exercise and the account has been identified as dormant, the money will be passed across to a reclaim fund. The fund will work on a risk basis and decide, for example, that if an account has been inactive for 20 years there would be a 20% risk of somebody coming back and claiming that. It will withhold 20% of the funds from accounts of that age. While that individual would still be entitled to 100% of his or her account, in the round, between the 20% that is taken off all such accounts, the funding that is held will be sufficient to honour any claims. In addition, funds held as security will be invested, and all the proceeds of the investment will come back into the reclaim fund.

Mr Beggs:

There is a counter-argument. I take it that it is the banks that are benefiting from the money at present.

Mr Pengelly:

At the moment the money is sitting with the banks.

Mr Beggs:

The banks are benefiting, and that is not in the public interest. To pursue the Big Lottery Fund issue, in your briefing paper you say that the smaller banks and building societies could distribute to charities. However, you also say that the assets could be distributed by the Big Lottery Fund. Is there a conflict between those two statements?

Mr Pengelly:

The small banks and building societies, defined as those with assets less than £7 billion, can identify the dormant accounts, but rather than pass those proceeds across through the normal distribution mechanism, they can pass the proceeds directly to charity projects. There is an acceptance that banks and building societies defined as small are particular to a specific geographical area.

Mr McLaughlin:

They have assets of £7 billion and they are defined as small?

Mr Pengelly:

I would not get out of bed for that myself. [Laughter.]

The theory is that the smaller banks and building societies are geographically based. Therefore, rather than passing the money into a big pot, which is distributed on a population basis across the UK, they can focus the money specifically in their geographical location.

Mr Beggs:

I did not pick up all that was said earlier about the Big Lottery Fund.

Mr McLaughlin:

Am I right in saying that it is not account location that determines distribution; it would be on a population basis?

Mr Pengelly:

On a UK basis, it goes into the fund, and the amounts are apportioned.

Mrs Agnes Lennon (Department of Finance and Personnel):

The small building societies or banks would have the option of paying the money to charities, in places where they have local branches, or to ones with which they have a special connection.

Mr McLaughlin:

Is there an overriding distinction between where the original dormant accounts were located and where the assets are distributed in determining distribution, or is that disregarded and the assets distributed among the wider population?

Mr Pengelly:

Dormant accounts in, for example, the Northern Bank, which is certainly not a small bank, would go into the UK fund, and the totality of the UK fund would be distributed on a population basis.

Mr Neil Lambe (Department of Finance and Personnel):

The population-share aspect does not apply to the alternative scheme for the smaller banks and building societies. For example, the Leeds Building Society would identify dormant accounts in its branches across the UK, and then it would distribute a proportion of the dormant account money to the communities local to the branch network. There is no strict population share-out of the dormant account money identified in that scheme for the smaller banks and building societies.

Mr Weir:

I can see that happening with the smaller banks. It seems that an initial assessment will be carried out. How would that affect, in particular, the smaller banks on an ongoing basis? Is the idea to carry out a yearly review of dormant accounts? Will the fund be set up and then be monitored throughout the year? The Act will apply to accounts that have been dormant for 15 years. When the initial trawl is completed, there will be some accounts that have been dormant for 13 or 14 years. What is the procedure for those accounts that will fall into the 15-year category in a year or two?

Mr Pengelly:

There will be a review annually. At the starting point, the Act will apply to accounts that have been dormant for 15 years or more. The following year, accounts that were 14 years dormant at the time of the initial trawl will come under the scheme. Treasury expectations are that, across the UK, there will be an initial fund of several hundred million pounds, with an ongoing top-up of a few tens of million of pounds.

Mr Weir:

I can understand the Government’s reason for channelling the money through the Big Lottery Fund. However, what will happen when permission has been given to one of the smaller banks to distribute the money, and the customer wants to claim that money back? Who is going to be responsible for paying back that money? I am worried that there could be a situation in which a customer tries to withdraw money, only to be told that it is now being used to sponsor a donkey in Donaghadee.

Mr Lambe:

As with the main scheme, a portion of the dormant account money identified by the smaller banks and building societies will be set aside and transferred to the national reclaim fund, which will be responsible for those claims.

Mr Weir:

OK. That would be a one-stop shop regarding claims for money.

The Chairperson:

Roy, I am sorry. I was not fair to you. I created a diversion, and Peter took full advantage of it.

Mr Beggs:

I want clarification regarding money going to the Big Lottery Fund. There are many churches and youth organisations — for example, the YMCA — that do not believe in accepting money from the Big Lottery Fund. Have you sought reassurance that the money will go to a scheme that many laudable charitable organisations will avail of?

Mr Pengelly:

As part of the consultation process, the Minister made the point to the Treasury that there were many organisations in Northern Ireland that would be uncomfortable with the use of the Big Lottery Fund. However, it is a reserved matter, and the Treasury has decided to pursue the use of the Big Lottery Fund, largely for efficiency reasons and because there is an established mechanism.

However, we have been assured that there will be complete separation of funds and distinct and unique branding. That is an issue that we want to pursue locally so that when voluntary and community groups in Northern Ireland seek funding from the scheme, they know that it will not have come from lottery proceeds and that they will not end up with a lottery plaque on the wall.

On a small point regarding potential local opt-out, there are two smaller building societies in Northern Ireland — the Progressive Building Society and the City of Derry Building Society.

The Chairperson:

What are the consequences if the Assembly decides that it does not like this particular approach? What would the process be if the Assembly decided that it wanted to introduce its own Bill?

Mr Pengelly:

It is financial services legislation; therefore, it is a reserved matter.

The Chairperson:

OK. What is the consequence if the Assembly decides against giving its consent?

Mr Pengelly:

We have not pursued the consequences in detail. As it is a reserved matter, Westminster would be able to legislate for Northern Ireland. The issue would be whether Westminster would implement legislation to put in place its own mechanism for distributing the money in Northern Ireland without any local flavouring of priorities. Alternatively, it may decide that nothing would be distributed in Northern Ireland. I doubt that it would be the latter option of no distribution in Northern Ireland. I suspect that there would be some mechanism to channel funds to Northern Ireland; however, the Executive would lose the ability to influence that.

The Chairperson:

The issue certainly merits some exploration so that members understand it before it gets to the Floor of the Assembly. Will you need a question for written answer from the Committee regarding that?

Mr Pengelly:

That would be helpful. We have raised that issue with the Treasury, and I think that it would regard that as a doomsday scenario.

Mr Weir:

I appreciate what has been said about the rebranding of the funds regarding the Big Lottery Fund. I am still not particularly comfortable with that. Whatever way it is branded, I suspect that a lot of church organisations will be loathe to have to say that the money came from the Big Lottery Fund, even though it was not raised through the lottery. I suspect that there will still be a fair level of opposition from church organisations. 
With regard to accepting money that the Government have taken from dormant accounts, I am not sure whether some organisations will see that as a more moral option. I appreciate that the decision on the funds is outside our hands, but I would prefer it if the money were separate from the Big Lottery Fund. I know that that is not the position that the Treasury has taken, but a rebranded version will not be satisfactory for a lot of organisations.

Mrs Lennon:

It may reassure you to know that under the proposed legislation the Big Lottery Fund will have to prepare an annual report and an annual statement of accounts for that separate funding stream, and they will be laid in the Northern Ireland Assembly.

Mr Weir:

Many of the organisations that will have problems with claiming money from the Big Lottery Fund will see those measures as relatively fine distinctions. However, I might be wrong, and many of them will avail of the money. I do not think that the compulsion imposed on the Big Lottery Fund by the Bill will provide the necessary level of reassurance to organisations — a lot of organisations will be put off. I do not know why the money cannot be divided between the regions and Northern Ireland be granted £5 million for this year, for instance. I am disappointed that the money cannot be given to the Executive. I appreciate that it is not our decision, but I do not see why it has to come through a separate organisation.

Mr Pengelly:

The key rationale is the Treasury’s view that the dormant accounts funding must be unique and additional to mainstream Government funding. That is why it wants a completely separate and distinct distribution mechanism. Rather than allocating the money to the Executive and that money being used to fund normal public expenditure programmes, the Treasury wants to see something unique and additional. We have discussed the issue with the Minister, and, as part of the consultation within the confines of the scheme as dictated by Treasury, we want to seek views on what steps can be taken to make people as comfortable as possible.

Mr Weir:

Correct me if I am wrong, but have there not been times when granted money has been given to Northern Ireland and ring-fenced or hypothecated for a purpose?

Mr Pengelly:

Possibly, yes.

Mr Weir:

Therefore it seems strange that the money from dormant accounts cannot be treated differently.

Mrs Lennon:

It is not public expenditure: it is a completely separate stream of money.

Mr Weir:

There is a fine distinction. The Government have found a way to get money out of people, and they are finding a way to pass it on so that it gets spent for the public good. The Government are notorious for raiding pension funds and imposing various clever forms of taxation. I do not see a distinction between that and taking money from dormant accounts. It is dancing on the head of a pin, to be perfectly honest.

The Chairperson:

The Dublin Government are more explicit and blunt in their approach. They merely passed the legislation and took the power.

Ms J McCann:

Will banks be encouraged to be proactive in trying to find the holders of accounts that have not been used for 13 or 14 years? If the account holder is dead, will living relatives be entitled to claim the funds? If the Bill is not passed, what happens to the money in the dormant accounts?

Mr Pengelly:

Banks will undertake a significant proactive exercise — the repatriation exercise — in advance of the start of the scheme in which they will correspond with the last known address of the account holder. If the account holder is dead, the account will form part of his or her estate and will pass directly to any living descendent. If the account holder never appears, the money will stay in the fund and continue to fund projects. It will remain there until someone claims it. If that does not happen, it will just reside there.

Mrs Lennon:

An advertising campaign has also begun on the reuniting exercise. There were advertisements in the ‘Belfast Telegraph’ last week.

Mr McQuillan:

I saw advertisements over the weekend.

Dr Farry:

Will the threshold for someone seeking to reclaim money from the subsequent funds be different from that for a person who goes to the bank today to withdraw money from the account in year 16?

Mr Lambe:

When you say “threshold”, do you mean the amount of money?

Dr Farry:

I mean what the person must do to get his or her money. Does anyone have to jump through more hoops in year 16 than they would in year 14?

Mr Lambe:

In both year 14 and year 16, after the specific dormant account money has been transferred, the person would have to establish proof of identity to the financial institution to prove that he or she is the person whose dormant account funds have been transferred.

Dr Farry:

If I were to go into a bank today and prove my identity, I could withdraw money from my account today. Would there be a delay for a person seeking to claim his or her money back? Would he or she have to fill out more forms in triplicate or send an application off in the post and wait for six months or so?

Mr Lambe:

I am not aware that the Treasury discussions have reached that level of detail yet. Although the dormant account money will have been transferred to a central reclaim fund, which will meet the claim, the customer will first approach his or her bank or building society, which will initiate the recovery process from the reclaim fund. I would imagine that the process is unlikely to be as straightforward as proving identity and receiving the money on the same day. There are likely to be additional administrative steps.

Dr Farry:

Basically, the bank is not required to honour the request immediately by giving the customer his or her money, if the account has been dormant for 16 years. The bank will tell the customer that the money has been referred to a central fund, and although the customer is entitled to it, he or she will have to go through a certain process to get it.

Mr Lambe:

Yes. The customer’s legal entitlement to have the money repaid is a right as against the reclaim fund and not the original bank or building society, because of the transfer.

Dr Farry:

I recognise the argument for trying to use what is, for all intents and purposes, dead money. However, the unease comes because, essentially — with the person having taken no action — the Government interfere with the person’s access to his or her property by making it more difficult to retrieve. The circumstances under which a person can access his or her funds will have changed. That is a potential problem.

A second issue concerns the distribution of the funds. The Big Lottery Fund is separate from normal Government expenditure, but, in practice, core areas of life are covered by Big Lottery funding, allowing the Government to opt to offload responsibilities for arts funding, for example. Recently, money has been withdrawn from Northern Ireland by the Big Lottery Fund in anticipation of the 2012 Olympic Games.

My concern is that money might be allocated on the basis of population, as opposed to need. Need is not evenly distributed across the UK, and regions such as Northern Ireland, Scotland, Wales and the north of England require a higher per capita expenditure than that required in London and the south east. If resources are allocated on the basis of population, rather than need, the money is re-weighted in favour of London and the south east at the expense of the regions.

Mr Pengelly:

That debate goes far beyond the issues in the Bill; it goes to the core issue of funding the devolved Administrations in particular. Treasury’s approach to funding devolved Administrations is the Barnett formula, and it has no plans to review that. However, you make a valid point.

Mr Hamilton:

I want to go over the point again about how the money is to be distributed. One criticism of the Big Lottery Fund, in addition to the difficulties of accessing funding for moral reasons, is that the quality of some of the projects has been somewhat dubious or they have been lacking in merit. Your paper refers to:

“a general definition of ‘social or environmental purposes’”, 
That is a fairly wide definition. The Executive cannot say that they want the money for priorities in the Programme for Government, such as roads or infrastructure. The money will be more likely to go to the donkeys in Donaghadee, as Peter said. It is more small-scale projects that would be involved, rather than large infrastructural projects.

Mr Pengelly:

It is likely that, given the sums involved, the projects would be small. However, the legislation provides for “social or environmental purposes”, which is a pretty broad canvas, and the Executive can apply a level of detail as regards priorities. The legislation will also provide for the Department of Finance and Personnel to provide direction to the Big Lottery Fund. Thus, the Executive can drill down in as much detail as they choose. Again, that detail would be considered as part of the consultation process.

The original legislation was supposed to deal with just social issues, but I think that it was the Scots who pressed for the inclusion of environmental issues. Those two types of issues pretty much cover most of the activities in which Government would be involved. The Executive will want to drill down into this issue and provide the lottery fund with a pretty firm steer on distribution.

Mr Hamilton:

Should the Bill become law, it would be important to use the money that comes back to Northern Ireland — however much it will be — for worthwhile projects, rather than for abstract projects of limited value.

Mrs Lennon:

That matter will be consulted on after the legislation has been passed, and I presume that we will appear before the Committee again to discuss that. An Order setting out the Northern Ireland priorities will come before the Assembly, so the Assembly will have an input.

The Chairperson:

The Committee will consider its position as regards endorsement of the legislation. The issues raised will be recorded in the Hansard report, of which you will receive a copy. It would be helpful if you could respond to the Committee in writing. If it is felt necessary, we could ask you to come before us and help us. As I understand it, 19 November 2007 is the next date on the timetable.

Mr Pengelly:

That is the indicative timing.

The Chairperson:

We have two meetings scheduled before that date, so there will be an opportunity to meet you again, if necessary. I would ask that you forward a written response as soon as possible.

Mr Pengelly:

I will try to send that response early next week.

The Chairperson:

Mr Pengelly, I thank you and your colleagues for your help.