I am delighted to have an opportunity to raise this issue. Right hon. and hon. Members may know that there are two types of dormant bank account. The British Bankers Association defines a dormant account as an account where
"there have been no transactions (withdrawals or deposits) on it, other than transactions initiated by the bank (such as interest and charges), for a set period (usually at least a year...)" and where
"the bank hasn't heard from the customer during that time."
If both criteria apply, the bank may write to ask whether the customer wishes to keep the account open. If the bank does not receive a reply, the account may be considered dormant.
The second type of dormant account has its origins at the start of the second world war, when the Government introduced legislation that froze the bank accounts of residents from enemy countries to prevent the enemy from benefiting from any assets held in this country. After the war, when the accounts were unfrozen, some were, not surprisingly, never reclaimed by their owners, which remains the case even today.
I became interested in the subject because I decided to check my standing orders and direct debits, as a routine exercise. I discovered that one standing order was paying the Nationwide building society the princely sum of £1 a month and had been for years. I thought that that was for an insurance policy or something similar, but when I went to the building society, I discovered that the money was going to a fund-raising account for Wrexham Labour party, in a neighbouring constituency where I had lived 20 years previously. The party had benefited for all that time; except that it had not, because it did not know that the account existed. I had the delight of telling my hon. Friend Ian Lucas that he would inherit some of my money.
I wondered what would happen if I stopped paying that pound. The Nationwide building society would be sitting on a couple of hundred pounds that did not belong to it, and no one would know where the money was. I thought that there must be many such accounts and decided to look into the issue.
Obviously, no one knows the exact amount of money residing in dormant accounts, but there are various estimates, ranging from a conservative £5 billion to the huge sum of £20 billion. When the Irish Government introduced legislation to deal with the problem, they found that the estimates were half the amount that turned up, so we are actually talking about £10 billion to £80 billion. I will be delighted if my hon. Friend the Minister has any figures on that.
Whatever the exact figure, that vast amount of money has become the focus of consumer watchdog and media interest over the years. It has also provoked criticism about the commitment of, and efforts made by, high street banks to marry up dormant account holders with their money. In fairness to banks and building societies, I should point out that they have speeded up their efforts lately. The schemes run by the BBA and the Building Societies Association have made improvements, but things are still fairly laissez-faire.
I am concerned today about dormant accounts that are not married up with their owners and those instances in which the money remains the legal property of the account holder but the banks and building societies are entitled to use the funds for their own benefit. If the account appears to have been forgotten, does not receive interest and is unlikely to be withdrawn, it becomes in effect an asset of the bank and, therefore, part of its capital.
If the estimates that I have given are accurate, it is obvious that banks and building societies are sitting pretty with huge sums of money that do not belong to them at their disposal. I want the Government to pursue the progressive approach adopted by other countries in recent years and ensure that money from such accounts is used for the greater good, and not for the sole, and extremely profitable, benefit of the host bank or financial institution. The time has come for the Government to be empowered to take custody of dormant bank and building society accounts, and put the huge sums of money to good use throughout the UK.
A successful scheme is in operation not far away; in July, the Irish Parliament enacted the Dormant Accounts Act 2001, which provided for the transfer of money from dormant accounts and intestate estates to the newly established and independently managed dormant accounts fund. The Act stated that dormant deposits, share and current accounts, deposit receipts, petty balance accounts, savings certificates and savings bonds would be transferred to the new dormant accounts fund. I do not suggest to my hon. Friend that we set up a dormant accounts fund, as we already have one; the National Lottery Commission. The money could be put into the lottery system for the benefit of the good causes.
The Irish legislation stipulates that if owners of accounts that have been dormant for 15 years or more do not come forward to reclaim their moneys, the balance of those accounts will be transferred directly to the dormant accounts fund, which is managed by a Government-appointed board of trustees who distribute the money to local community and charitable groups and societal initiatives.
The legislation also places a statutory onus on banks, building societies, credit unions and the post office to try to contact dormant account owners. Following a 16-month investigation by the financial institution concerned, if the account and account holder are not matched-up, the money is transferred to the dormant accounts fund. Under the legislation, the financial institutions are required to maintain registers of dormant accounts, including owner name, address, the date on which the account was considered dormant, the date of transfer to the dormant accounts fund and the date of repayment if the owner is traced.
Irish legislation does not at any stage preclude dormant accounts being married up to their rightful owners. If the transfer of a dormant account to the fund has already taken place, the money can be returned to the rightful account holder if ownership is proven. The fund keeps some money back for that eventuality, which is eminently sensible. There has been a great deal of publicity about the legislation in Ireland, and many people have received surprise windfalls from accounts that they had forgotten about. I forgot about mine, but, unfortunately, I did not receive a windfall; Wrexham Labour party did.
The legislation prompted the banks to re-double their efforts to trace account holders in fear of losing the money to the dormant account fund. It gave the banks, building societies and financial institutions an incentive to trace owners of whom they had lost track. Those people may want to keep their money where it is, but the owners can have confidence that their money will not be lost.
Prior to the legislation, the Irish Government undertook a consultative process with the financial institutions to establish agreement about precisely which accounts would be seized. During that process, the Irish Bankers Federation participated actively and welcomed the Government's plan, I think belatedly. However, that was understandable in the circumstances.
The time has come for the Government to consider seriously how other countries have tackled the issue and to consider putting the huge sums of money currently sitting idly in dormant bank accounts to good use, rather than leaving it for the benefit of the banks' profits.
A recent development has been the creation of a new type of dormant account; those previously held by terrorist groups in the UK and elsewhere. Tens of millions of pounds are now effectively dormant because of my right hon. Friend the Chancellor's swift and decisive action following the attacks in the United States. Legislation on the issue would also have a deterrent effect in preventing those funds from being set up in the first place, because terrorist funds placed in sleeper accounts would be brought to light.
The Government should initiate and publish a consultation paper on the issue of dormant accounts with a view to introducing a progressive and innovative scheme for the UK to redistribute this huge amount of money for the benefit of the wider community and not to boost the profits of the high street bank. An initiative by the Government to add into the equation the newly acquired money seized from terrorist networks operating in the UK would be extremely popular among the public.
I sincerely hope that the Minister and Government will look favourably on my suggestion. I believe that it would work successfully, as it has in other countries; not just Ireland, but the United States as well. Such legislation would benefit many people, both directly—through help for those who have forgotten about their bank accounts—and indirectly, through good causes.
It is a pleasure to serve under your chairmanship, Mr. Winterton. I wish to congratulate my hon. Friend Mr. Jones on securing the debate. He highlights an issue that is often overlooked by those who are dealing with the many other changes that are taking place in the financial sector. Clearly, the subject is interesting.
The United Kingdom has one of the most successful financial services industries in the world. The industry plays a significant role in our economy; London is by far Europe's largest international financial centre, and Scotland is one of the world's major fund management centres, with over £250 billion under management. It is vital that both domestic and international consumers and businesses have confidence in UK financial institutions.
The issue of dormant bank accounts is a relevant factor in building such confidence. Consumers need assurances that they can have access to their assets, even if they have not been in contact with the deposit-taking institution for some time. That is why the Government believe that there should be appropriate resources available to help reunite customers with their assets. My hon. Friend spoke from personal experience; I found his anecdote very interesting indeed. Not long ago, my husband learned that he had a similar standing order, dating back many years, which was going to a constituency Labour party of which he is no longer a member. Thus, I share my hon. Friend's experience.
However, not only my hon. Friend and I have had such experiences. Customers or benefactors of deceased customers can find it difficult to track down funds in accounts that have been left inactive for some time. Institutions may change their corporate name after a merger or after a conversion; for example, from a building society to a bank. In the meantime, the customer may move or lose their account details and, in the process, lose contact with the institution at which they have money deposited. If a bank is unable to contact a customer, it will eventually cease sending correspondence. The account is classed as dormant, although the money in the account will always remain the property of the account holder or, if the account holder has died, his or her legal heirs.
Until this year, customers who did not know the name of the institution that held their account had to complete a separate claim form and send it to each bank or building society at which the account might possibly be held. That was often time consuming, and it was more difficult if the customer had relatively little information about his or her account. However, several important initiatives to improve the process of reuniting customers with their deposits were launched this year.
In May, the British Bankers Association and the Building Societies Association each launched a new scheme to help customers trace old accounts, which involved establishing a dedicated dormant accounts unit to handle enquiries, and producing and making widely available one standard claim form. Under the British Bankers Association system, customers can get advice from the central unit and, if they wish, make a claim electronically. Their point of contact will remain with the unit. Information is then provided to the banks, and the unit will advise the customer on the outcome of the claim. Information on mergers is also available on the British Bankers Association website to help customers identify the bank that holds their account.
Since the launch of the centralised service in May, the British Bankers Association has received over 1,000 claims. So far, 200 claims have been fully processed, with nearly a quarter of those resulting in customers being reunited with their deposits.
The Building Societies Association also launched its own central tracing service, in which all building societies participate. The claim form used is similar to that of the British Bankers Association, so that information can be transferred more easily between the two schemes. Since the start of the building societies scheme, there have been about 10 inquiries each week for claim forms.
It is not just in the private sector that the Government believe that facilities should be available to help customers locate their deposits. The registrar's department at the Bank of England operates a system for searching the records of Government stock. I am pleased that, this week, the National Savings bank was able to announce the launch of its new tracing service. National Savings undertakes about 75,000 traces a year. Under the previous system, customers were asked to write to the particular National Savings office that administered the product type for which the search was required. National Savings has launched a more comprehensive and transparent system that will be easier to use. Customers will be able to track down more than one product at a time because they can use one standard form for all bonds, certificates and accounts, and deal with a single contact office.
I welcome those initiatives, which remain free and offer a better service to customers. I hope that over time, through publicity and word of mouth, customers will become increasingly willing and able to use those schemes and reconnect to the products that are rightly theirs.
My hon. Friend raised points concerning the size of assets placed in dormant accounts. As he mentioned, many figures have been quoted in the media; sometimes amounts as much as £20 billion or even £40 billion. Those figures exaggerate the real size of the issue. Although the Government do not have complete figures, an Inland Revenue study in 1997 suggested that the total amount could be between £2 billion and £4 billion. That is still a sizeable amount, but not as large as the figures that have been suggested. It is not possible to calculate an exact figure, because different institutions use their own definitions of dormant funds.
The example of the Irish system is interesting, as it includes a statutory duty for financial institutions to contact dormant account owners. However, it would be unfair to say that UK banks and building societies do not try and investigate dormant bank accounts. Once an account has been identified as inactive, banks will write to the customer to locate them. If the bank or building society believes it has lost contact, it will no longer send correspondence to the customer. That is sensible; it is important that searches for customers do not break customer confidentiality and do not allow account details to become public. That could lead to financial crime and attempts to defraud the banks.
Providing that confidentiality is not breached, I am willing to consider different ways to facilitate customers becoming reunited with their accounts. When considering the Irish system, we must be wary of the potential regulatory burdens that a statutory approach could place on institutions. We would need to define in law what constituted an effective search for dormant bank account owners and to design a system that was sensitive to the relative sums involved and the pertinent circumstances for each account. There are merits in considering solutions that need no recourse to legal action, such as centralised tracing services, for which we have yet to evaluate the impact.
My hon. Friend's proposals would entail the removal of dormant funds from banks and their use for charitable purposes or the national lottery. Those proposals raise practical issues; the biggest difficulty would be the liquidity issue for the banking sector, which would have to be handled extremely carefully. Across the financial sector, there is no uniform definition about what constitutes dormant funds. Safeguards are needed when people come forward to claim assets that were removed from the institution in which they were deposited.
We must also consider issues of principle. The funds are the property of the original depositor, not of the banks; nor are they the property of the Government or of charitable causes. We should first put the emphasis on reuniting customers with the assets that are rightfully theirs, and focus on promoting the schemes that were put into operation earlier this year, which I have outlined. The more successful those schemes are, the more customers will be reunited with their deposits. I will consider with interest the take-up of the schemes and the success of tracing them in the future.
My hon. Friend makes an important point; the property still rightfully belongs to the deceased person's heirs, and it would be desirable in the first instance to reunite them with the funds if at all possible.
At this stage, however, it is probably too early to consider legislative changes when new procedures have just been put in place to help owners of dormant accounts to find their assets. We do not have any plans to introduce legislation to take dormant assets from banks, but we will keep the situation under review. I thank my hon. Friend for bringing to my attention the model that Ireland provides.
I am pleased that my hon. Friend recognises the urgent action that the Government are taking to ensure that terrorist assets have no safe haven in the United Kingdom. To date, we have frozen some £70 million in 38 bank accounts. However, these are not dormant accounts in any usual sense, nor would it be appropriate for the Government to redistribute such funds. Our powers of restraint come from the UN Security Council resolutions under the United Nations Act 1946, which imposes sanctions on individuals and organisations suspected of involvement with the Taliban and Osama bin Laden. We implement the UN sanctions regime with authority to freeze the funds of listed terrorist suspects. We have no powers of confiscation. If the United Nations eventually decided to remove a name from its list, we would release any funds held under that name.
In the wake of the tragic events of
We propose further powers to enhance anti-terrorism measures: legislation that will allow swifter, more targeted freezing of terrorist assets; a new regulatory regime for bureaux de change, which came into force on
The Government want to get a fair deal for all consumers. That means that we must ensure that there is effective competition in the financial services industry. Don Cruickshank's report on banking suggested that there was a lack of competition and that consumers—businesses and individuals—were getting a raw deal. We are acting on his recommendations to reform the regulation of payment systems. Such a reform could lead to savings of £l billion a year for businesses and consumers. Many will be aware that we have already consulted on our proposals for reform and that we are committed to legislate as soon as parliamentary time allows.
We are also acting on Don Cruickshank's recommendation to investigate possible competition problems in the banking markets for small and medium-sized enterprises. The Competition Commission is due to report shortly. We have reviewed the voluntary codes of banking and mortgage services. We reported in July 2001 and made a number of important recommendations, aimed at improving competition significantly and increasing the levels of customer service in banking. The Government have asked the financial services industry to respond positively to those challenges.
Work in other areas of the financial services industry is part of the same piece. Following the review carried out by Paul Myners, the Chancellor has asked Ron Sandler to investigate the efficiency and flexibility of the savings and investment industry. Ron Sandler is working closely with the FSA to investigate whether the £1.5 trillion of assets that the industry controls are being allocated efficiently and whether consumers are being well served.
We are working to obtain the right framework in the United Kingdom; that means the right framework for consumers and competition. We believe that competition decisions should be taken by strong, pro-active and independent competition authorities, free from political influence. To that end, the Government have announced that they will legislate to modernise the mergers regime and remove Ministers from the decision-making process in all cases, except when there are clearly defined exceptional public interest issues, such as national security. More effective competition can only be good for all parties. Consumers will see costs fall and returns rise, and the industry will become leaner, meaner and better able to operate in the global marketplace.
I again thank my hon. Friend for instigating this debate and for raising an important issue that touches on the banking system and its liquidity, and the need to recognise the interests of consumers, charities and good causes in general. I note my hon. Friend's valuable points about intervention to help customers to locate dormant bank accounts and to transfer remaining dormant assets away from the banks. Important initiatives have been instigated this year to promote awareness of dormant bank accounts and to help customers to be reunited with their assets. I welcome those initiatives and encourage the finance industry to continue to find innovative and efficient ways to facilitate account-holders to find their dormant assets.
We should wait to see how efficient and effective the measures are before considering whether further changes are necessary, but we shall keep the situation under review. I thank my hon. Friend for bring to my attention the examples from other countries, such as the interesting example of Ireland where action has been taken already on these matters.