Dormant Bank and Building Society Accounts Bill [Lords]

– in a Public Bill Committee at on 15 October 2008.

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[Dr. William McCrea in the Chair]

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury 2:30, 15 October 2008

I beg to move amendment No. 17, in clause 11, page 7, line 13, at end insert—

‘( ) The Treasury may by order amend the figure in subsection (1)(a).

( ) An order under this section is subject to annulment in pursuance of a resolution of either House of Parliament.’.

Photo of William McCrea William McCrea Shadow Spokesperson (Environment, Food and Rural Affairs)

With this it will be convenient to discuss amendment No. 28, in clause 11, page 7, line 13, at end insert—

‘(6) The Treasury may by order reduce the period of dormancy referred to in subsection (1)(a).

(7) An order made under subsection (6) may not be made unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

It is a real pleasure to serve under your chairmanship, Dr. McCrea.

The amendment will enable a time limit for defining dormancy to be changed by order if evidence shows it to be inappropriate. We recognise that there is considerable debate over the most suitable length of that period for the purposes of a dormant account scheme such as this. It is our view that 15 years of customer inactivity is the most appropriate period to determine whether an account is truly dormant, but we recognise that others hold different views and that has been the subject of debate.

The 15-year figure was arrived at after discussion with industry and through consultation. It is also the figure that other countries, including Ireland, have adopted in legislation. Industry estimates that 80 per cent. of accounts that have had no customer-initiated activity for 15 years are truly dormant. Adopting a lower dormancy period would run the danger of having a higher reclaim rate with a corresponding increase in costs. In any case, any accounts that become dormant earlier will still be dormant when they reach the 15-year mark and come into the scheme then.

Nevertheless, we have listened to the arguments for a shorter period and we accept that, in the future, the experience of the operation of the scheme and of industry might suggest that an alternative figure is more appropriate. Accordingly, the Government amendment will introduce a reserve power for the Treasury to amend the dormancy period.

Amendment No. 28, which stands in the name of the hon. Member for Fareham, has the same objective. The fundamental difference between us is the level of parliamentary scrutiny, which we consider appropriate for the use of this power. Let me be clear: this is not a  power that the Treasury will use lightly. Plainly, this is an issue on which it would be appropriate and necessary to consult before any order was drafted. That said, we do not believe that this is the type of power to justify the use of parliamentary time that an affirmative resolution instrument would require.

We believe that this is an instrument in relation to which the negative resolution procedure is appropriate. Its scope is broadly similar to that to amend the asset limit for participating in the small and local aspect of the scheme. The Delegated Powers and Regulatory Reform Committee gave the opinion that a negative resolution procedure is appropriate and sufficient in that instance.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

It is a pleasure to serve under your chairmanship, Dr. McCrea, for what is probably the first time.

The Minister highlights one difference between the two amendments and the approach that we have adopted—going down the positive route. We think that, because this is affecting customer assets, and we are all here to help to safeguard the interests of our constituents, there should be a debate over this matter. He says that it would be an inappropriate use of parliamentary time to go down the affirmative route, but we could pray against the measure and still take up the same amount of time.

One of the Minister’s predecessors, the hon. Member for Wentworth (John Healey), was very keen when he was a Treasury Minister on introducing the affirmative resolution procedure at every opportunity, because he felt it was so important that parliamentary scrutiny was seen to be working. That is an example that I encourage the Minister, 11 days into his new brief, to follow.

I would like to raise the issue of the period of dormancy, because both amendments offer the power to vary the period from the 15 years specified in the Bill. In a way, that is probably the more substantive issue. The Government amendment will enable the period of dormancy to be increased, while ours is a one-way bet downwards. It is quite important to get the period of dormancy right. The approach that the British Bankers Association has adopted is to achieve reasonable certainty that an account is dormant where there has been no customer-initiated activity for 15 years. It believes that after 15 years, 80 per cent. of accounts will genuinely be dormant, and about 20 per cent. might be subject to a repayment claim.

If the period of dormancy is reduced, the risk will be that the proportion of accounts subject to reclaim will increase, which could reduce the certainty in the reclaim fund’s business plan and affect the fund’s ability to ensure that it adopts a prudent view on transfers to the Big Lottery Fund.

The BBA has said:

“We would not consider the setting of a shorter maturity period to be compatible with the objective of releasing genuinely lost monies.”

The BBA, the Commission on Unclaimed Assets and Grant Thornton all agree, as does the Building Societies Association, with the principle of a 15-year maturity period. However, the Treasury Committee—we have not referred to it so far in the proceedings—suggested in its report, “Unclaimed assets within the financial system”, that the period of dormancy could be reduced from 15 to 10 years.

When one of the Minister’s predecessors—I think it was the right hon. Member for Normanton (Ed Balls), not the hon. Member for Burnley (Kitty Ussher)—gave evidence to the Treasury Committee, he drew a parallel with the Irish scheme, in which the period of dormancy is 15 years. The Committee took issue with that, as the definition used in the Irish scheme is much narrower than that used in the UK scheme, and in Ireland the scheme takes no account of customer activity, whereas in the UK it does.

It is clear from the Committee’s evidence that the UK is an outlier regarding the period of dormancy, compared to other jurisdictions. The table in the Committee’s report shows that Switzerland has a 10-year period, Australia seven years and New Zealand six. Nevada and California have periods of just three years. Interestingly, over the summer, I read reports that some US states are reducing the period to enable them to reap the proceeds and plug the hole in their coffers by declaring more accounts dormant. I do not know how desperate the Treasury feels about plugging holes—it may go down that route.

Photo of Martyn Jones Martyn Jones Labour, Clwyd South

Is the hon. Gentleman aware that before this legislation was proposed most banks also used a three-year dormancy period?

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

That is useful information. I had heard—in the context of building societies, I think—that a five-year period was being used. The hon. Gentleman is very knowledgeable about these subjects, but it is not clear to me what difference extending the period from five to 15 years would make to the banks. While one does not necessarily want to be driven by practices in other countries, it is instructive that a wide range of dormancy periods is used elsewhere. We need to retain an open mind about the period, and our amendment and the Government’s indicate a willingness to do that.

The period will also depend on experience, because we may find that as the reclaim fund does its work, the proportion of reclaims from accounts is perhaps only 10 per cent., rather than there being an 80:20 split. If we believe that the rule should be more or less 80:20, that might encourage a shorter period of dormancy to be set. I am not sure whether the Government have expressed a view on the appropriateness of that split, but we should keep it in mind.

While I would prefer a downward-only, rather than an upward-only, revision, I do not think that anyone has suggested that the period be longer. The Government’s amendment will achieve an objective that we share on both sides of the Committee, which is that we should be able to reduce the period in the light of experience.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I, too, welcome you to the Chair, Dr. McCrea. On the substantial point just discussed by the Conservative spokesman, 15 years is inevitably an arbitrary figure—one could pick, 14, 16 or 10 years. I have no strong views. There seems to be a reasonable consensus that 15 years is a good starting point—as good as any—and that it could be reviewed at some point. I agree that the consensus seems to be that the figure is likely be made lower rather than higher following such a review.

More importantly, I support amendment No. 28, which stands in the name of the hon. Member for Fareham and which I suspect I support with greater fervour than he does himself. I think that an important distinction is being made by the Conservative party, as distinct from the Government. This is fundamental.

I know that the Minister gets given all kinds of rubbish to read out and he has to do his job, but I cannot believe he is telling us that changing the year is incidental. It is not like putting up prescription charges by the rate of inflation. As I understand it, he is saying—he should correct me if I am wrong—that the figure could be changed from 15 years to, say, one year in a way that fundamentally alters the legislation and that that would not be deemed sufficiently important in the context of the Act, if that is what it becomes, for it automatically to be discussed in the House of Commons. That seems an extraordinary position for the Minister to take.

This is not incremental fiddling. I can understand that if the Minister changed the figure from 15 to 14 years it might feel incremental, but we are giving the Government the power, without reference to Parliament, fundamentally to alter the legislation in a way that would affect millions of people. On that basis, if he chose to reflect on these matters, he would feel it entirely reasonable to agree to amendment No. 28, even without a vote of the Committee.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I have indeed reflected and consulted my officials, and I remain of the opinion that the negative procedure is appropriate. However, I stress that there is not much difference between us. We are all clear that we broadly accept that 15 years is the figure to go for at the moment. We want to build an evidence base and see how the scheme works. If the evidence points to the need for the scheme to have a lesser period, we will commit ourselves to consult widely on either a reduced or a higher figure. I think it highly likely that the figure would be lower.

We would have a public consultation exercise. If there were serious concerns in Parliament about the outcome of the public consultation and any real dispute, I have no doubt that after we had laid a proposal before Parliament it would be prayed against and we would have a debate. However, I think it likely that we will build a body of evidence, review it and reach a consensus that there may be a reduction. That is why I still think that the negative procedure is the appropriate course to adopt. We should not say that parliamentary time must be allocated when it is highly likely that it would be unnecessary.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

It is not my normal practice to speak in stand part debates, because a lot of legislation speaks for itself and is straightforward. However, following the debate on earlier amendments to the clause and comments made by the hon. Members for Fareham and for Cities of London and Westminster, I asked my officials to check the scope of the clause with legal advisers to ensure that it meets what we share as its objectives.

I would like to make the following points of clarification, which have been agreed by Treasury legal advisers and parliamentary counsel. Following the request that we check whether clause 11 will achieve our shared objectives, we want to confirm that it will. Clause 11(2) makes it clear that, for the purpose of calculating the 15-year period of no customer-initiated activity, the period must be continuous and any time when an account falls within either of the exclusions in subsections (2)(a) and (b) cannot be included, thus setting the clock back to zero.

Subsection (2)(a) excludes no-contact accounts, which are more commonly known as no-mail accounts, so if an instruction of no communication is given during a period of inactivity, that sets the clock back to zero. A new period of 15 years only starts to run when that instruction no longer applies. Subsection (2)(b) excludes accounts that restrict or penalise withdrawals in all circumstances. That would cover an account that has a penalty for making any withdrawal, such as a fixed-term account, but not an account—notice accounts are an example—in which withdrawal is penalised only in certain circumstances, such as without giving a period of notice. Again, any period during which an account has a fixed-term restriction or penalty is not included for the purpose of calculating dormancy and sets the clock back to zero. The debated— and now withdrawn—amendment proposed deleting the words, “during that period”, but that language is necessary to give effect to the intention outlined above, as it makes it clear that the restriction is not an absolute one.

To summarise, an account that was at one time a no-contact or fixed-term account is not permanently excluded from the scheme, but the 15 years of inactivity that qualify the account for dormancy can begin only once the fixed term or the no-contact restrictions have ended. In the case of notice accounts, since the restrictions do not apply in all circumstances, there is nothing to prevent them from qualifying for dormancy after 15 years of inactivity. I hope that that clarifies the point made by the hon. Member for Fareham and others.

Photo of Martyn Jones Martyn Jones Labour, Clwyd South 2:45, 15 October 2008

The Minister will be aware that I have problems with the definition of dormancy. One possible problem concerns how the start date of dormancy is interpreted by the banks. He said that the notion of a dormant bank account was established in 1992, under the banking code changes. However, I am suspicious that some banks may be using 1992 as the start date for the dormant bank accounts period, and that all their consideration of whether an account is dormant or not starts from 1992. Has the Minister made any inquiries about that? Would he accept a limited interpretation of that nature? I informed his predecessor of a bank that claimed that it had £400 million in dormant bank accounts, but which is now claiming only £50 million. I told his predecessor the name of that bank, in confidence—have any inquiries been made in that respect? A further problem with the interpretation of dormancy is that some banks may consider certain accounts to be dormant only if they contain a minimum amount. That excludes a great deal of small moneys in accounts, which could add up to significant sums.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Taking the hon. Gentleman back to his comment about the banking code, is he saying that accounts opened before to 1992 would not count as dormant? Clearly, accounts opened in 1992 and after—1992 particularly—would now be deemed dormant under the Bill. Is it the pre-1992 accounts that he believes are being excluded from the definition?

Photo of Martyn Jones Martyn Jones Labour, Clwyd South

That is indeed my suspicion. The hon. Gentleman has hit the nail on the head. I have a great deal of suspicion that the number of accounts—particularly those mentioned by me and by other Members on Second Reading—volunteered by the banks has decreased significantly from the figures that I obtained in 2004. I suspect that 1992 may be a factor. It may not be, but I would be interested to know whether the Minister has looked into that. To get back to the minimum amount definition, does the Minister agree that there should be no minimum amount standard when banks set their definition of dormancy?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

On my hon. Friend’s first point, about banks using 1992 as their start point, I am happy to say that that is not the case and that dormancy may begin under the legislation at any point. It is helpful to make that clear. With regard to banks participating in the scheme, we have widespread support from the banking industry—they want to participate and there is no evidence that they will hold back accounts. As my hon. Friend will be aware, banks will publish their policies on dormancy as part of the normal banking code. At the moment, different banks have different interpretations of dormancy. One of the strengths of the voluntary approach, and of the flexibility that we are allowing for banks to determine what is dormant, is that it will lead to an efficient way of operating the reclaim fund.

As we made plain in earlier debates, we want a clear legal definition of dormancy for banks to have certainty and to enable them to use their judgment on whether accounts are genuinely dormant, rather than putting words in the Bill that will detract from the overall clarity that we are seeking. We have been very clear about the principles on which we want the scheme to operate. I appreciate my hon. Friend’s concerns about banks possibly not wanting to transfer all the funds over. The system will be transparent, so we will know from each institution how much they are transferring into the reclaimed fund on a regular basis, because it will be recorded.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I want to pick up on a point that the hon. Member for Clwyd, South made, which arose on several occasions on Second Reading, about the amounts involved. There were estimates when the process started, of significant sums of money, and over time those estimates have reduced. There are two interpretations of that. One is that the banks are holding back and the other, which I hold, is that there has been a lot of “finger in the air” estimation. As banks have focused much more on dormancy and have gone through their accounts more rigorously, they have been able to produce a more accurate estimate than hitherto. Does the Minister share his hon. Friend’s view or my view as to why the estimates have changed?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I do not want to pick sides. Both my hon. Friend and the hon. Member for Fareham have made valid points. We have no evidence that banks  want to stash away accounts that they think are dormant, and do not want to put them into the reclaim fund. Recently there has been substantial activity by banks and building societies wanting to reunite customers with their accounts through and other institutions. There has been a stronger focus on, and assessment of, the issue of whether accounts are dormant or not. The definition of 15 years for dormancy has affected that. Banks and building societies have undertaken a pretty rigorous exercise, looking at the savings on their books and concluding whether those accounts are genuinely dormant or not. The figure has become more accurate and is the best estimate available at the moment.

Photo of Martyn Jones Martyn Jones Labour, Clwyd South

I am grateful to the Minister for giving way again; he is very patient. The truth is probably somewhere between the hon. Member for Fareham’s position and mine, but I have still had hard evidence from one particular high street bank, which told me that it had £400 million in 2004. We are now talking about a figure of £450 million for all high street banks. The bank that I was talking about told me that it now has £50 million, so, somewhere, somehow, there has been a change in definition. Does my hon. Friend think that the proposed change to 15 years—the bank in question was probably using three years—would make much of a difference? If so, that may be the reason.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I strongly suspect that that is the case. Before these discussions on the Bill, banks would have had a particular view of dormancy, and it is unlikely to have been 15 years. I strongly suspect that the figures vary widely and that that is the explanation in this case, but I am more than happy to discuss this matter offline with my hon. Friend.

Question put and agreed to.

Clause 11, as amended, ordered to stand part of the Bill.