Clause 18

Dormant Bank and Building Society Accounts Bill [Lords] – in a Public Bill Committee at 4:15 pm on 15 October 2008.

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Apportionment of dormant account money

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment No. 31, in clause 18, page 9, line 26, leave out from ‘apportioned’ to end of line 33 and insert

‘on a per capita basis between England, Wales, Scotland and Northern Ireland’.

I am bemused about why the Bill states that the money will be allocated between England, Wales, Scotland and Northern Ireland in accordance with prescribed percentages that must add up to 100 per cent. That sounds fine, and it is good that the percentages will add up to 100 per cent.—I am not sure what we would say if they did not—but why does the Bill not state what the prescribed percentages will be or how the money will be allocated to the four countries of the United Kingdom? I do not understand why that is not made clear. The explanatory notes refer to the Barnett formula, but that is the Government’s position today and they may change their mind. All I am looking for is some certainty and clarity.

The Minister might argue that the amendment is not particularly well drafted. I am sure that I could have probably added more bells and whistles to it, but simply allocating money pro rata in accordance to the populations of England, Scotland, Wales and Northern Ireland would be the most obvious method. I do not understand why the Bill permits some uncertainty about what the prescribed percentages might be. [Interruption.]

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

Could we ensure that mobile phones are switched off?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I promise that it was not my phone—it is like being a teacher in a classroom. I rise briefly to share the bewilderment expressed by the hon. Member for Fareham about the fact that, although the Government have concluded that the total amount allocated to the four constituent parts of the United Kingdom should come to 100 per cent., which seems an entirely sensible percentage to arrive at, no formula is indicated for how that should be divided between the four component parts.

One could come up with many different formulae and make a case for them all. A formula could be based on population, the number of bank accounts held in each country or the dormant revenues within the bank accounts in those countries. The latter would give Scotland  a higher proportion than if the allocation were made purely on the basis of population. One could argue for each of those different formulae, but it is strange that the Government appear not to specify any of them.

I have some reservations about the amendment. If I had to pick a formula, it would be based not on the population of each country, but on the formula used for the lottery funds, which attempts to make some assessment of social need that goes beyond a straightforward head count. I suspect that it would come quite close to being a per capita formula, but it would perhaps be more satisfactory for assessing which communities would most benefit from the allocation of funds.

Although I have reservations about the amendment and would not be inclined to support it in a Division, the motivation behind it seems entirely reasonable.

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

This is not complicated, although it could be if hon. Members want it to be. Any number of allocation formulae could be used in these circumstances. I appreciate the concern to ensure that the distribution of unclaimed assets is fair and transparent across the United Kingdom, and that is the Government’s intention and the basis on which we consulted. Having designed the scheme in such a way as to enable spending decisions to be devolved, it follows that we should use Barnett principles for dividing the available money, as that is the normal way of proportioning spending between UK Administrations. It simply is not established practice or policy to put the Barnett formula into legislation, and I am aware of no other circumstances in which we have done so.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The Treasury commissioned a factual review of the Barnett formula that was due to be published in the summer, but the summer has been and gone and we are still waiting for its publication. What would happen if the Government changed the Barnett formula, as that might end up creating a distribution that was different to the straightforward per capita basis?

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

I will not indulge in speculation, but we have had a consultation exercise on that and are devolving expenditure. It is right to use the Barnett principles, and it is a convention that we do not put them into Bills. That is the basis on which we will operate in the future.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Having received clarification that the formula is not in the Bill simply because that has not been done before and therefore will not been done now—precedence and tradition always appeal to Conservative Members—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment No. 30, in clause 18, page 10, line 5, at end insert—

‘(3A) For the purposes of this section, B should not be more than 5 per cent. of A’.

This straightforward amendment addresses a concern about the costs attached to the allocation of the funds.  The formula to which the amendment refers is set out in subsection (3) and stipulates that

“the apportionable income of the Big Lottery Fund for a given financial year is—

A - B - C— where A is the amount of dormant account money received by the Fund in the year; B is the amount of the expenses defrayed in the year under subsections (1) and (2) of section 27; C is the amount paid in the year under subsection (3)(b) of that section.”

Clause 27 does refer to the expenses that can be defrayed: subsections (1) and (2) deal with the costs incurred by the Big Lottery Fund and; subsection (3) deals with

“expenses...and...any other expenses incurred by the Secretary of State”.

As has been a feature of our consideration of the Bill, we want as much money as possible to be used in pursuit of the three quarters identified in the Bill for England and the approaches that will be taken in Scotland, Wales and Northern Ireland. We want to spend as little as possible on administration, so that we can maximise the amount of money spent on good causes, particularly after the year 1 bulge of money from dormant accounts comes through, as that will give a big amount to be spent. When we reach more normal circumstances, the amounts being spent on an annual basis through the BLF will be relatively small by comparison, so we want to ensure that as little as possible is spent on administrative costs.

This is a probing amendment, and we will not push it to a vote, as I am trying to encourage the BLF to minimise its costs with regard to the distribution of the money. It is worth pointing out that the BLF has had significant operating expenses in the past. Its expenses rose from £72 million in 2005-06 to £77 million in 2006-07. Historically, its operating costs seem to be about 10 per cent. of the amount it distributes by way of funds and grants. We want some reassurance that the BLF will spend as little as possible on operating costs. The amendment is also an incentive to the Government.

One issue that I have been made aware of when talking about the cost of distribution is that the more specific the Secretary of State’s directions to the BLF are, the more expensive the fund will be to administer. Indeed, the Minister alluded to that in response to my earlier amendment on additionality. The more detailed the restrictions and the more cumbersome the conditions to be satisfied, the more expensive it will be to allocate that money. There is a pressure on the Government to keep administrative costs down by giving the BLF more freedom in how it uses the money. Given the priorities that have been set, that is a good way of keeping the cost of lottery distribution down. The message from this debate is that it is important to keep those costs down to a minimum, so that we can maximise the amount of money that goes to good causes.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury 4:30, 15 October 2008

I appreciate the probing nature of the amendment, which would impose a cap on the costs that the BLF can defray to limit its administration charges to 5 per cent. of the dormant account funding transferred to it. Although I appreciate and share the concern about the effective use of public funds that no doubt motivated the amendment, I hope that hon.  Members will recognise why it is important that the scheme’s ability to operate is not constrained by a rigid and arbitrary cap.

I do not think that the issue is as straightforward as the hon. Member for Fareham suggests. I want the BLF to be as effective and efficient as possible at delivering money to the good causes to which it has been allocated through the dormant account funding mechanism. I do not want money to be delivered at the lowest possible cost, because in areas such as working with young people, I want the BLF to talk to young people and discuss their needs, rather than simply concentrate on throwing money out the door in as simple a process as possible, with limited checks. I do not think that anyone really wants that.

We want to ensure that the BLF’s costs are properly controlled and that it is held accountable for them. Its costs have come down across its activities. As set out in its 2007-08 annual report, it currently spends about 9.1 per cent. of its income on operating costs. It operates a portfolio approach to funding, with commitments being made over three years and payments being made over five years or more. As a consequence, it requires some flexibility to administer its budget over a longer-term cycle. That is a practical reason why an annual cap on its costs would inhibit that activity. I reiterate that I appreciate the probing nature of the amendment.

We want the BLF to approach its distribution of dormant account funds with a similar thoroughness to the way in which it assesses individual grant applications and to its work in developing partner relationships with the projects that it funds and supports. That applies to small-scale projects as much as to larger ones, which often involve more administration costs to support them in getting up and running. We expect the BLF to consult young people, so that they are actively engaged in shaping bids for community resources. That is a worthwhile activity, but intensive effort and sensitive handling are required to manage it appropriately.

I agree that it is important that the BLF is able to operate with effective scrutiny and that its ability to assess and support bids is not constrained. I am aware that, in the other place, the lords drew comparisons between the BLF and other organisations. I am sure that the Committee would be interested in this year’s National Audit Office report, “Making grants efficiently in the culture, media and sport sector”, which shows that the BLF’s costs compared favourably with public sector funders and other funders in the voluntary sector. Nevertheless, there is no room for complacency, and we expect it to work effectively and efficiently and to ensure that as much of its available resources as possible are distributed to front-line organisations. The hon. Gentleman and I share that commitment.

Under the National Lottery etc. Act 1993, the BLF is legally required to comply with provisions for a statement of financial requirements issued by the Government. That makes clear its responsibility to ensure its finances are managed appropriately. However, it is properly the responsibility of the accounting officer for the relevant Department—in this case the Department for Children, Schools and Families—to be sure that the administrative costs incurred were appropriate, as part of the overall duty to make effective use of public funds. It is also the  responsibility of the accounting officers of the devolved Administrations to do the same in respect of their relevant functions.

I assure hon. Members that an accountability framework is in place and that we are satisfied that the requirements and responsibilities under that framework will be sufficient to ensure efficient and effective allocation of resources. If there is any doubt about the BLF’s future efficiency and effectiveness, I would draw hon. Members attention to the power in clause 25 that will enable the Government to add or remove distributors of dormant assets. On that basis, we think that the Bill already allows for sufficient checks to ensure the efficiency and effectiveness of distribution. I hope that the hon. Gentleman agrees and will withdraw his amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful for the Minister’s thoughts on the matter. I suspect that the Secretary of State’s powers under clause 23(5) to give directions on

“the management and control of money received by the Fund” might also be used where the Government do not want to take the nuclear option of changing the distributor and to give some guidance to the BLF on how it spends the money allocated to it and how it uses it to pay its administrative costs.

The BLF has always indicated to me that it came out very favourably from the NAO report on the efficient use of money and that it compares well with other grant-making bodies. It is important to ensure that the BLF and the Government recognise the importance of keeping costs to a minimum to ensure that as much money as possible gets through to the causes; otherwise we might not see quite as much money as expected coming through. However, on the basis of the Minister’s comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 ordered to stand part of the Bill.