Committee stage in the Lords
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- I remind noble Lords that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes. Clause 5 [Functions etc of a reclaim fund]:
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Baroness NoakesConservative- Quote
- moved Amendment No. 21:
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Lord NewbyLiberal Democrat- Quote
- I am grateful to the noble Baroness for moving this amendment and wonder whether, in replying, the Minister could take this opportunity to explain in more general terms how the reclaim fund will be established and how it will work. The Bill has some provisions relating to the reclaim fund but it says very little about who will decide how it is constituted and how its directors are appointed—I have a probing amendment on that further on in the Marshalled List. Is it to be a creature of the BBA? What will its relationship be with other bodies that might conceivably take on this role, such as Charity Bank, and how will it work? More specifically, to pursue a point raised yesterday by my noble friend Lord Shutt, who talked about the importance of the judgment of the directors of the reclaim fund, under the clause that we are debating now will the Treasury be able to overrule the directors in respect of the proportion of the funds received by the reclaim fund which are dispersed?
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Viscount EcclesConservative- Quote
- To add to what my noble friend Lady Noakes said, does not this direction power amount to a vote of no confidence in the FSA? The Treasury’s own explanation ends by stating that the direction does no more than require a company to give effect to, or to comply with, requirements to which it is already subject under the Bill and which will previously have been approved by Parliament. I thought that the Minister’s explanation yesterday was that the regulatory system was a matter for the FSA, not the Treasury itself.
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Lord HigginsConservative- Quote
- I am also rather puzzled by this. In moving the amendment, my noble friend said that it was unusual for a private sector body to be given directions by the Treasury. I have some difficulty in thinking of any example at all. Perhaps the Minister can provide a list of those, so we know whether we are going into completely uncharted waters. I am also puzzled by subsection (4), which states that the Treasury may give a direction to comply with the obligations or prohibitions imposed by its articles of association. That seems a very unusual provision.
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Lord Davies of OldhamLabour- Quote
- I am grateful to noble Lords for identifying some issues regarding the reclaim fund. We have argued throughout that we want light-touch regulation of the reclaim fund, which is a private body. The answer to the noble Baroness is straightforward in those terms. What does it mean in terms of regulation? We have said that there are certain aspects where the Financial Services Authority will operate regulations with regard to the reclaim fund. The FSA will receive those powers through secondary legislation, consequent on passage of this Bill. The Treasury will have a most distant relationship with the reclaim fund. It is not the case, as some on the other side of the Committee may fear, that the Treasury will have a clear perspective on priorities and seek to impose those on the fund—very far from it. All that the Treasury will do is occupy a position of last resort under the law. If the reclaim fund was not fulfilling its articles and not acting responsibly, the Treasury could take court action against the fund. That is how distant the relationship is. It will not be the authority of government controlling this body but, as a very last resort, having failed to respond to issues which the FSA may have raised with it, the Treasury acting at that great distance.
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- Baroness NoakesConservative
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- That is a very interesting point. Can the Minister explain what he means by “acting responsibly”? We need some colour around what it is that this power of direction is aimed at. He says that this power of direction is a last resort. Who will determine what “acting responsibly” means?
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- Lord Davies of OldhamLabour
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- Acting responsibly means operating within the framework under which the fund has been set up. What is the fund’s primary purpose? As we have made clear in the Bill, it is to set as its first objective the taking of steps to ensure that, as far as possible, accounts are reclaimed by their rightful owners. That is an important objective that will, as we have already indicated, be achieved by the extensive work of the banks and building societies in preparation for enactment of the legislation. It will be a function also of the reclaim fund. After that the question will be whether there had been an obvious misdirection of activity by the reclaim fund. If the fund, for example, put forward excessive costs to which the FSA drew attention, and if within those costs lay attempts to increase the remuneration of those working for the fund in a way not in keeping with the fund’s establishment, then the reclaim fund would have to recognise the authority of the FSA. But if effective action were not taken, then, as a last resort, the Treasury would act. I cannot think of that as more distant from how we expect the fund to operate within the framework of the objectives which will be set up for it. Subordinate legislation will be established to guarantee that it is governed by the Financial Services Authority. But if, in the most extreme case, the body acted completely contrary to the objectives that it is meant to fulfil in its articles of government, then the Treasury would act. It is a private body and therefore the Treasury would not act through direct enforcement; it would have to present the case against the fund. The reclaim fund is independent of government—it is a creation of the banks and the building societies—but there is a clear indication in the Bill of its objectives and how it should distribute resources. We will introduce secondary legislation to guarantee that the Financial Services Authority plays its proper part in the regulation of this body. Referral to the Treasury is a position of last resort in the relationship between the Treasury and that private body. I make that clear to the noble Baroness because she asked the question directly.
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- Lord HigginsConservative
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- The Minister has not answered my question on similar examples. If this kind of thing is going to go on, it is always helpful to be able to say, “It is in the same position as this or that body”. Is this a unique arrangement? Is there no other private body that would be subject to the kind of relationship with the Treasury implied in the clause? I was completely puzzled by what the Minister said about the Treasury taking court action if it did not think the body was acting correctly. It may have been a slip of the tongue; if so, we are obviously prepared to accept that. However, my understanding is that if the Treasury does not like what is happening, it will give a direction. There is no mention of court action whatever. Perhaps the Minister will clarify that.
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- Lord Davies of OldhamLabour
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- I apologise to the noble Lord. The Treasury will give a direction. But, of course, that might lead to a challenge from a private institution to what the Treasury was doing, and that could give rise to court action. I was trying to impress on the Committee that we are dealing with a private body. It is subject to the requirements of the Financial Services Authority for the prudent management of its moneys and resources. But if, in an extreme position, the body was acting quite contrary to the basis on which it was established, it would be necessary for the Treasury to act because the body will have been set up by an Act of Parliament to reach some clear public objectives. I cannot cite a parallel body at this point but shall ensure that everyone racks their brains to think of one. I feel some inadequacy in not being able to give the answer, save that the nature of this body is breaking new ground. It is the product of considerable activity by the banks and building societies in a voluntary operation to bring these funds to good public use.
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- Viscount EcclesConservative
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- Before the Minister sits down, I wonder if it would be helpful if another aspect of this were to be looked at. The company will be incorporated under the Companies Acts, including the Companies Act 2006. I suppose it is perfectly possible that someone might proceed against the company on the ground that it was not conforming to those Acts. At that point, if it did get into court, someone would get up and say, “Has the Treasury done its duty?”—that is, did it give this company a direction that might have put it right in a way that would have meant it did not get taken to court? The Treasury seems to be getting itself into a difficult position by looking to put itself in the shoes of normal legal processes.
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- Lord Davies of OldhamLabour
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- I hear what the noble Viscount says, but, on the whole, creative activity on the part of Government is always attended by an element of risk. If he is saying that the Treasury might have to face some difficult days, I disavow that notion. I do not think that a body operating under the degree of public accountability applying to this one is likely to end up running so unacceptably counter to the public will that, after the Financial Services Authority has made judgments on it and it has not responded, it then finds itself with a direction from the Treasury that could lead to it being tested in a court of law. It is likely that a body whose origin was the banks and building societies seeking to remedy a problem which they had long had with dormant accounts and to bring those accounts into the public arena for the advantage of communities, will come into such a conflicting relationship with government as foreshadowed by the anxieties expressed today. However, we would be remiss if we had no answer to the question of what could be done if this body did depart almost totally from its objectives if the Government’s response was only to shrug their shoulders. We cannot possibly be in that position, which is why this reserve power is here.
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- Baroness NoakesConservative
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- My noble friend Lord Eccles asked the Minister whether this is a vote of no confidence in the FSA. Can the Minister explain what is deficient in the scheme in terms of the Financial Services and Markets Act and the way in which it will be regulated under that Act which makes it necessary to have a Treasury direction?
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- Lord Davies of OldhamLabour
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- We expect that the body will be accountable exactly in terms of its responsibilities and the effective and proper use of its moneys. The noble Baroness is right that that is what will obtain. Within that framework, the body will have the necessary regulation, although it might be thought that it is somewhat pejorative to think that the body would run into very significant difficulties in this area in any case. However, the reserve power we are considering goes beyond that; if the body operated entirely outwith the purposes for which it is being established, it guarantees that the objectives of the body and the reason why it has been created is safeguarded in the public interest. That is the role that we envisage for the Treasury in that respect.
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Lord Shutt of GreetlandLiberal Democrat- Quote
- I have followed this debate as best I can. There are two areas. The first is competence, and the Minister has indicated that there is every expectation that these people will be competent and that everything will be done properly and competently. He has no fears on that front. The other issue is how judgment is dealt with. It seems to me that, particularly in year one, the directors of the board will have to exercise incredible judgment about how generous or parsimonious they are. In year one, they will see whether many people endeavour to reclaim. Then there will be year two, and we will see accounts of what is happening year after year. Is the Minister concerned that the board, as judged by the Treasury, will be seen as too generous or too parsimonious? If we take the view that they cannot be other than competent, that is the only issue.
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- Lord Davies of OldhamLabour
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- The noble Lord’s question deals with the level of competence and probity at which the Financial Services Authority is in a position to regulate. The Treasury is not brought in at that level. We must face the prospect—which is so distant that I seek to allay all concerns and not give rise to them in this contribution, because it would suggest elements of bad faith—that this body, which controls significant resources, fails in the most extreme circumstances to reach the objectives for which it was established. The most extreme example might be that the directors took almost every resource that they had in annual salary and fees, with nothing distributed, which is hugely unlikely. If such misbehaviour at that most extreme level occurred, it might be necessary for the Treasury to give direction about how the body should work within the original framework for which it was established. If we had no structure for enforcing compliance in that most extreme of all cases, we would be open to the charge that we were creating a body in which there was no public interest to be safeguarded.
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- Baroness NoakesConservative
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- The debate has revealed that the reclaim fund is an unsatisfactory body. The Minister claims that there would be no remedy other than a Treasury direction, but we are setting up a company under the Companies Act, under which directors have duties to act in the best interests of the company. DBERR has various powers in cases where directors act in the extreme way that the Minister described. The activity of the reclaim fund will be brought under the Financial Services Authority, which has a number of powers. My noble friend Lord Higgins asked for an example of a precedent for a private body having a Treasury direction.
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- Lord HigginsConservative
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- Or company.
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- Baroness NoakesConservative
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- Or private company. The Minister has not yet produced such an example. I think that he will struggle to find a precedent for a private company having over it a specific power of direction of this nature. The Minister has described it as light-touch regulation. I find it difficult to find anything that is much heavier handed than a Treasury direction. It is the complete reverse. A sledgehammer solution is being written into the Bill. We have pressed the Minister on what this is really about. The only example that has been given was first described as “excessive costs” and then described as “directors’ remuneration”. That is the Treasury micromanaging the reclaim fund; it is not a big, overall issue. Is the reclaim fund a genuine private sector body, with a power of direction from the Treasury? I asked the Minister that question and he said that it was. Has the Office for National Statistics agreed that this body, with this power of direction, will be classified to the private sector?
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- Lord Davies of OldhamLabour
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- That is a very detailed question. We are constructing legislation which seeks to guarantee that it is a private body. We have made great progress in developing this scheme with the private sector. I say again that this is all about a light touch. The noble Baroness has identified the ultimate sanction. The public authority must have the right to that sanction, but it is by no means a question of the Treasury giving direction to the body. We identify the body as being private and will defend the Bill on that basis. It is a judgment for the Office for National Statistics, and it is somewhat unlikely that it should be expected to make the judgment now before we have established the process. We will cross that bridge when we come to it.
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- Baroness NoakesConservative
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- That is just one of the other unsatisfactory elements of this. The Government are creating in the Bill a hybrid body but with a lack of clarity on where accountability really lies. The noble Lord, Lord Newby, raised a number of questions on governance and we will return to some of those in later amendments. This was a probing amendment on the need for a power of direction but it has indicated many areas where this scheme has built-in defects. We will not pursue that further today. We will return to the theme later today and possibly return to the issue at a later stage. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 5 agreed to.
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- Baroness NoakesConservative
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- moved Amendment No. 22:
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- Lord HigginsConservative
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- My noble friend has obviously spent a great deal of time drafting this complex amendment. I have to say that I have considerable misgivings about it. Yesterday I moved amendments suggesting that the best way of finding the owners of dormant accounts would be to publish their names. That is likely to be far more fruitful than other means. It is true, of course, that the banks have apparently been actively promoting their free central tracing scheme—at least, three of them—and, indeed, have generally been hotting up the desire to try to find the owners of dormant accounts. In some of the representations I have received, it is said that the banks have received unprecedented volumes of claims and inquiries, which suggests that they were not actually pursuing the matter very enthusiastically before. I do not think that merely going along the road they are taking now is likely to find as many owners of dormant accounts as could be found by the process that I described yesterday. The difficulty is that it involves publishing names. As I said yesterday, I have not in my experience in a different context found any problem with that. There is also the question—I am now relating directly to the amendment—of what happens when the money not having been found by the banks ends up in the reclaim fund. I understand that it is still possible, and it is the intention that it should be possible, for people to claim against the reclaim fund. I presume that that means the individual will have to apply, but unless they know there is an account in a particular name, they will not be able to do so, other than the shotgun effect of everyone writing in saying, “It is my money”. I hope that this will be done at the first stage, but even so it is likely that it will have to be done at the second stage once the unclaimed money arrives in the reclaim account. I am worried about my noble friend’s amendment, which refers in specific terms to, “‘personal information’ …which relates to, and identifies, a particular person”. I presume by “identify”, one means the name; otherwise I am not clear what the term means. Clearly it would be highly undesirable to disclose the amount or the interest being paid. We now understand that such information will be passed from the banks to the reclaim account but it is undesirable that it should be revealed. It is essential that the names be revealed, both at the first stage—when, it is to be hoped, it will clear many of the accounts—and at the second stage. The problem is that the banks are thinking all the time in terms of customers, but some of these accounts have been dormant for a very long time and the customers have probably long since died. The accounts, therefore, are likely to remain for a long while. But there is, none the less, a legitimate claim against the account by the heirs of the person who has died. They will not know that they are able to claim, or that there is an account against which they can claim, unless they know that Great Aunt Sally, unbeknown to them, had an account with this or that bank, or subsequently with the reclaim fund. Therefore, while we want to preserve confidentiality on all the details, identification is necessary. If we are to get the money back to the rightful people before we distribute it to charities or wherever, this needs to be done. So I have doubts about the precise wording of my noble friend’s amendment.
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- Lord NewbyLiberal Democrat
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- I have two issues with the amendment. The first relates to our previous discussion. Is this a public sector or a private sector body? I think the noble Baroness used the phrase “public functions in the public sector”, which is why she wanted this public sector wording. But if this is a private sector company, it seems strange to put in wording that relates to public bodies. I would have thought that if, as the Government claim, this is a private sector body, the logical place to start would be the Banking Code, which carefully states: “We will treat all your personal information as private and confidential”. There are a number of exceptions, one of which is: “If we have to give the information by law”. This brings me on to my second point, which takes up the point made by the noble Lord, Lord Higgins. I hope that it will be possible through the reclaim fund to identify people who have dormant accounts—we would need a provision in the Bill to that effect—but that would be covered under this provision of the Banking Code if the reclaim fund adopted the code. This is just another example of a lack of clarity in our minds. It is difficult to know whether this is a public body or a private body. If it is a public body in every respect, let us treat it like one; if it is not, let us not do so. The slight problem with the amendment is that it treats the reclaim fund as a public body although we have been told by the Government that it is not.
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Lord Hamilton of EpsomConservative- Quote
- I am slightly confused by all this. I understood that the banks had the ultimate responsibility for finding the rightful owners of these accounts. We now seem to be suggesting that the reclaim fund will have the responsibility. I am sure that the reclaim fund would merely act at a later stage in the proceedings; people would come to it when they thought they had missed out. But it is not the job of the reclaim fund to go out and try to find the rightful owners. Surely that exercise will already have been done by the banks. On the question of security and people’s identities being protected, I would have thought that the same thing that covered the banks should cover the reclaim fund, rather than it having a special category. I am inclined to agree with the noble Lord, Lord Newby, that this smacks more of the public sector than the private sector. It would seem to be more of a quasi-private organisation.
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- Lord Shutt of GreetlandLiberal Democrat
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- I am not clear about the reclaim fund and how it will operate—perhaps nobody is. One way in which the reclaim fund could work is for the bank to scour its position and decide, “Well, there is £25 million. We will send a cheque to the reclaim fund”. All the reclaim fund will know is that it has got £25 million—and that is it. If people pop up later and say to the bank, “Just a minute, we’ve got £10,000; we’ve found the passbook in the attic”, does the bank say, “That’s part of the £25 million”? Is that how it is going to work? It will not be the reclaim fund that deals with that person but the bank. However, no doubt the reclaim fund will need to be satisfied that the bank has got it right. My noble friend has tabled an amendment which, although it does not mention the reclaim fund, does seek the introduction of a register. There is an issue of who should hold the register, but that is a different point. The question is whether the reclaim fund needs any of these names at all.
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- Lord Davies of OldhamLabour
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- I am a great believer that if a debate ranges around the Committee the right conclusion is reached without any intervention by the Minister. I am therefore very pleased with the last two contributions, particularly that of the noble Lord, Lord Hamilton, because the Committee has alighted on the obvious facts of this situation. I accept what the noble Baroness says about the importance of the protection of personal information. That is why the Government are in the process of amending the Data Protection Act, through the Criminal Justice and Immigration Bill, to increase the penalties for wilful misuse of personal data. I can assure the Committee that these provisions will govern the data flows in this legislation. That is why it is not necessary to have, as the noble Baroness has created, a specific bespoke solution to the issue of data protection within the framework of this institution. As the noble Lord, Lord Hamilton, indicated, it is expected that the banks and building societies will act as agents of the reclaim fund. They will maintain customer records and handle customer reclaims. They have the information. This will be set out in agency agreements between the fund and the individual institutions. Therefore the fund will not require or hold customer records in the normal course of business. Where it might need access to information is in exceptional circumstances where a dispute arises over a repayment claim and the reclaim fund needs to be directly involved. It will then be able to request that the relevant information is transferred to it. That applies when contention has occurred over the justification of the claim. In normal circumstances, the banks and building societies will do a great deal of the activity, as the noble Lords, Lord Hamilton and Lord Shutt, said. They are already doing it, although the noble Lord, Lord Higgins, said that that may be a contrast with the recent past. I pass no comment on that. I think we should welcome the banks’ and building societies’ commitment to that additional activity and to making sure that rightful account holders can repossess their money. The banks and building societies will be the agents for this work. As the noble Lord, Lord Shutt, indicated, the reclaim fund will be concerned with the distribution of the resources that flow into it as a result of the judgments of the banks about funds in dormant accounts. The reclaim fund will not be involved in those judgments. The banks and building societies will do that in the recognition that there is a public obligation, and their public accounts will reflect how much they are transferring to this fund. There will potentially be a situation where a claim is contested and the reclaim fund will have to inform itself of the justice of the case. It would need that information then. The noble Baroness does not need the great artifice of the bespoke public protection she seeks to insert into the Bill, as the Data Protection Act will already guarantee that. In any case, we are talking about a body that will have very little information about these accounts at its disposal. The banks and building societies, as agents to the reclaim fund, will be responsible for delivering accuracy.
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- Lord Hamilton of EpsomConservative
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- Does the Minister agree that it is unlikely that a building society or bank would transfer to the reclaim fund 100 per cent of what they thought was viable? There would still be a remnant that it was processing, and it may well be that if it had a late claim it might be able to match off the remnants with the late claim so that there would not be recourse to the reclaim fund.
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- Lord Davies of OldhamLabour
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- That might be so. The way in which the banks organise the necessary transfer of resources is a matter for them. It will be appreciated that there will be public scrutiny of what banks are doing and of the funds that go to the reclaim fund. We expect the banks and the reclaim fund to act prudently, so they must have the resources to match potential claims. They will have some perspective on the percentage. Awareness will grow over time, and the amount that it will be necessary to hold in reserve against a successful claim way beyond the 15 years will reduce over time. However, in the early stages they will act prudently and make sure that they have covered themselves. The Government hesitate to be too precise about what the figures might realise because the banks and building societies have given very loose estimates of what would be released from their resources.
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- Lord HigginsConservative
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- I had not intended to intervene again, but I suddenly realised that I may not have understood what is going on. My understanding of the situation—I hope the Minister will say whether I am correct—is that the banks would seek to find the owners of dormant accounts and, having failed to do so, would transfer the money to the reclaim fund. None the less, there is provision in the Bill as I understand it for someone who thinks they have a claim against a bank but failed to make it for one reason or another to make it against the reclaim fund. However, the Minister has just said, “Ah, but that will be dealt with by the banks acting as agents for the reclaim fund”. That is what I understood him to say. One is always worried that the parliamentary draftsman might have a nervous breakdown, or perhaps has had one, but, in this case, I am concerned about the use of the words “reclaim fund”. Whatever happens, the money is not being reclaimed from the reclaim fund; it is being reclaimed ex post from the bank. Have I understood what the Government intend—that it goes from the bank to the reclaim fund and that no information at all, apart from the total amount or perhaps the individual amounts, will go from the bank to the reclaim fund? In that case my noble friend’s amendment would be redundant at this stage because the fund does not have any information on which to break confidentiality. But that is not what I thought was happening. I thought that the reclaim fund was going to deal with the individuals who had not previously claimed from the banks.
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- Lord Davies of OldhamLabour
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- Where the noble Baroness’s amendment would not be otiose is in that information that the reclaim fund requires to settle a claim when the bank has not done so. In a contested claim where the individual has applied to the bank but has not, so far as they are concerned, got a proper decision and the bank says, “That is because we have decided that the account is dormant and resources have been transferred to the reclaim fund”, the reclaim fund would potentially, if the individual were persistent, then entertain a representation from the individual on the justice of their claim. The fund would then have to get the necessary information from the bank. How confidential that information would be is the noble Baroness’s proper concern. I was seeking to suggest to the Committee that the reason the amendment was otiose is that we have proper data protection regulation in place to guarantee the security of that information. I repeat that the position the noble Lord, Lord Hamilton, identified—that it is the banks and building societies that are the main actors in respect of the identification of claims and the response to them—persists. That is the concept under which we are operating, and therefore the amount of information in the hands of the reclaim fund is necessarily very limited.
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- Baroness NoakesConservative
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- I would like to explore with the Minister what information the reclaim fund has to have. It is common ground that if there is a dispute about the nature of the amount being repaid, or possibly to whom it must be repaid, the reclaim fund would have to have that information. However, the scheme says the banks will pass dormant account money over to the fund and will then tell it when the bank thinks a repayment is due, which may or may not be the same amount as originally handed over. That scheme cannot effectively operate within the reclaim fund as a proper basis for it to spend money on repayment. The fund should have records of which dormant account money it has taken over, so that when an amount is repaid it can knock that off the list. The fund cannot simply hand over all record keeping to banks and trust anything that a bank gives to it at a later stage about what that bank thinks should be repaid. If the reclaim fund is to be a responsible body in relation to the money it has to keep back for repayments, it is inevitable that it has to have information—otherwise it can never validate what it is being asked to repay. While the scheme sounds quite nice, with the banks handling the information, how does the reclaim fund check that information before paying? It seems to me that the fund has duties. If I were still an auditor and advising a company such as a reclaim fund on the proper sorts of controls that needed to exist, I would say that it could not have a proper system of internal control that did not identify the potential obligations that it took on—which would have to be on a named basis—and it would then have the ability to match those off when repayments were made. I simply cannot conceive of a body keeping proper accounting records without knowing what they are all about. Perhaps the Minister can explain.
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- Lord Shutt of GreetlandLiberal Democrat
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- We are going a long way from the amendment but the question is how the reclaim fund is going to operate. Let us get back to basics. The customer, member or whatever has a relationship with his bank or building society and he has nothing to do with any reclaim fund—that comes later. Therefore, if a person unearths a pass book in an attic, he should go to his bank and say, “I want my £10,000. Here’s the book. It got lost 40 years ago but here it is”. I do not see that he should be troubled with going anywhere near the reclaim fund. Surely that is why the fund exists. In one sense, the fund is an insurance policy and, in effect, the bank or building society is saying, “We’re claiming on our insurance policy by going to the reclaim fund”.
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- Baroness NoakesConservative
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- The noble Lord, Lord Shutt, is absolutely right but the reclaim fund has to have information on which dormant accounts it is taking over so that it can check them off when it is asked to repay them. It cannot be in an information void. The noble Lord, Lord Shutt, may well be right that the customer’s relationship is with the bank but there must be a relationship between the bank and the reclaim fund, as I cannot see how the fund can operate without having personal information.
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- Lord Davies of OldhamLabour
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- I have let the noble Baroness down because I did not introduce the crucial word “audit” at any stage in this discussion and, rightly, she is holding me to account on that. Perhaps I may make the most obvious point first. The fund does not need the personal details of bank accounts and therefore it does not need the safeguard contained in the amendment. The identity resource contained within the individual bank account is the responsibility of the bank or building society, and, as the noble Lord, Lord Shutt, so graphically illustrated, it is to the bank or building society that the customer will inevitably go. Those running the fund will certainly need to know how much money is in the account and the potential interest rate because they will be holding that money and a claim may come in that they have to meet. Therefore, as the noble Baroness rightly indicated, the size of the claim will dictate the level of resources that the reclaim fund has at its disposal, but it will not hold personal information. In that sense, the banks have an agency role and there will be an agreement between them and the fund on how things operate. However, the banks and building societies will retain the crucial information, the confidentiality of which is addressed by the amendment. On the question of audit, the flows of money from the banks to the fund will be independently and externally audited; thus, a crucial check on probity will take place in that respect. However, here I am referring to the flows of money and not to the data relating to individual accounts, which are the subject of the amendment.
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- Lord Hamilton of EpsomConservative
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- Perhaps we can explore that a little further. If the noble Lord, Lord Shutt, finds a pass book in his attic which is worth £10,000 and the building society transfers £25 million, if he then comes along and says, “Hello, I have just found this and I want my £10,000”, would the reclaim fund repay that money when it did not know that it had £10,000 belonging to the noble Lord, Lord Shutt?
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- Lord Davies of OldhamLabour
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- The noble Lord has largely answered his own question. He asked whether the banks and building societies would act with a degree of prudence in relation to a percentage of claims which might come in, despite the fact that they had identified these dormant accounts. We expect dormant accounts to be exactly what they are categorised as being; that is, dormant accounts on which future claims will not obtain in the vast majority of cases. That is why their resources can properly be directed towards the objectives that the Bill identifies. It would be a foolish bank or building society that did not have any resource to cover itself against a potentially successful claim. It is for the bank or building society to make a judgment on that.
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- Lord Davies of OldhamLabour
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- The right reverend Prelate is correct, except where there is a dispute, where the claimant goes into the bank and the bank says, “We don’t recognise the validity of the evidence that you have brought before us”. The claimant could then go to the reclaim fund. If the bank says, “We regard this account as dormant. You’re not the rightful owner of these resources. That money anyway has already gone to the reclaim fund; that, as far as we are concerned, is the end of the matter”, it might not be the end of the matter for the individual in certain cases. The reclaim fund might then have to reach a judgment on the position, and would need the information which the bank supplied to it. The noble Baroness was concerned about the confidentiality of that information. I am trying to assure the Committee that it is covered. Reaching that judgment is the only circumstance in which the reclaim fund would become involved with information of this degree of detail.
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- Baroness NoakesConservative
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- We have heard very interesting exchanges on what the reclaim fund is about. The Minister believes that it will have information only in relation to disputes. I simply do not believe that. In practice, it cannot operate without information because it cannot be satisfied that it is meeting the right obligations. Having the money audited when it flows in has nothing to do with knowing when money eventually has to flow out again. I can perhaps think further about that. My noble friend Lord Higgins and the right reverend Prelate were concerned about reuniting and whether advertising would be prevented. My amendment would have permitted that, because it exempts disclosure that, “is necessary for the purpose of enabling or assisting the reclaim fund to exercise any of its functions”. If one of its functions were reuniting, which I do not think it is, that would not be a problem. The big issue is whether it is a public body. The noble Lord, Lord Newby, picked me up for saying that it is a public body. I do not think that it is intended to be a public body; it may be intended to be, or actually be, a private body. Many private sector bodies carry out public functions—we have seen that in a number of instances. It has often been my view that the standards that we expect of public authorities where private bodies carry out their functions should be the same as those of public authorities. I can think of amendments that we have successfully made to legislation to enshrine that principle; that is, that when public functions are being carried out, they should be to the same rules. I shall not pursue that argument in this instance, but I would not like to let it pass without making the important point that if functions of a public nature are carried out by a private body, they should be done to the standards of the public authorities and not to any other standards, which is why protection would in principle be valuable. However, I can see that others are not convinced that the body in question will have a lot of information. I can be proved right only after the event. For today, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness NoakesConservative
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- moved Amendment No. 23:
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- Lord NewbyLiberal Democrat
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- The noble Baroness has asked a sensible question but I do not agree with the answer that she has come up with. This gets back to the question of whether this is a private or a public scheme. If it is a public sector scheme, perhaps the Treasury should be doing as the noble Baroness suggests. However, under the Government’s current model, this is a private company and a voluntary scheme. If it runs into difficulties, the people who should be sorting it out are those who are responsible for it—namely, the banks and building societies. Under the current model, as I understand it, they will appoint the directors of this body and they must take some responsibility. If the reclaim fund ran into difficulty, I do not see why the banks and building societies could not make an additional payment into the reclaim fund as an advance on payments that they would be due to make in forthcoming years. The poor old Big Lottery Fund would then be starved of funds while this got sorted out, but that would be a logical way of dealing with the matter. The only exception would be where the Treasury had instructed the reclaim fund to spend more money than it wanted. In those circumstances, it might pick up the Bill. All this demonstrates that what looks like a simple scheme is much more complicated than it first appears. Although it will depend to some extent on what the Minister says in this case, the examples that we had in previous amendments do not satisfy me that the Government, in consultation with banks and building societies, which seem to be driving a lot of this, have thought out many of the details of how some of these problems will be dealt with.
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- Viscount EcclesConservative
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- From the previous debate and this one, it seems to me that the difficulty we are in arises from Clause 1(2)(b), which states that, “the customer has against the reclaim fund whatever right to payment of the balance the customer would have against the bank or building society if the transfer had not happened”. There is a similar provision in Clause 2(2)(b): “the customer has against the reclaim fund whatever right to payment of the balance the customer would have against the bank or building society if the transfers had not happened”. If I am reading the Bill correctly, it transfers the contractual obligation from the bank or building society to the reclaim fund. My noble friend argued that that lessens the security of anyone who originally had a claim against a bank or building society but now has a claim against the reclaim fund. We need an explanation of why the Treasury has chosen to transfer the contractual obligation from the banks and building societies to the reclaim fund. The obligation could have been left in the original contract with the bank or building society and, as has been suggested before, the reclaim fund could have been made an agent that holds the money and sends it back to the bank or building society only if the bank or building society says that it has found that the contract still applies and that it has to make a repayment. The bank or building society would trust that the reclaim fund had kept enough money to meet the repayments, which we all know are bound to happen. That is not the way the Bill has gone; it has transferred the contractual obligation from the original holder of the debt to the reclaim fund.
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- Lord Hamilton of EpsomConservative
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- I support my noble friend. The obligation has moved from the banks and building societies to the reclaim fund and, as the noble Lord, Lord Newby, suggested, it is quite unfair to put the obligation on it. I am extremely unhappy about the Big Lottery Fund spending all this money. I will be coming to this when we deal with the question of the social investment bank. This will be a one-time splurge of money that may possibly substitute even taxpayers’ funds and, if it does not do that, it will be other lottery funds—if it is neither of those it will be very surprising. At the end of this spending, when the money starts to run out, people will ask whether any is left in the reclaim fund. There will be enormous public pressure to spend down any reserves that that fund has. The people who run the fund may responsibly say that they are going to keep quite a large sum of money in case there are later claims. But the pressure will be there, and we know that political life is such that, when the heat comes on, the question will be, “Well, you have all this money; it is not yours. Why don’t you pay it out? People desperately need it”, and so on. It will be difficult to resist that pressure. Therefore, ultimately the Treasury, rather like in the Northern Rock example, will find itself paying up anyway, so it might as well give that guarantee. I share my noble friend’s reservations about Treasury guarantees on anything, but we are not talking about inordinate sums of money in Treasury terms. If the fund is sensibly run, this should never arise anyway. I do not believe that the Treasury would be putting its head in a very big noose by undertaking to do this; it would be a more sensible way of seeing the matter through.
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Lord BachLabour- Quote
- The Treasury has no intention of putting its head in that particular noose, as the noble Lord so graphically put it. To be just to the noble Baroness, she is not suggesting that this is the solution to the problem that she so interestingly expounds. It is a probing amendment, so when the noble Lord, Lord Newby, accuses the noble Baroness of wanting this to happen, I say to him, “Just hang on a moment”, as I do not think that that is what she is suggesting. She is pointing out, justifiably, a potential problem that might arise. I say “might arise” because we think it highly unlikely that the reclaim fund will become insolvent. In answer to the question posed by the noble Baroness, the best that I can do this afternoon is to point out something that she said to my noble friend on the first amendment that we discussed today—that seems a long time ago now. She said that the reclaim fund’s activities will be brought under the scope of FSA regulation. The Bill requires a reclaim fund to be authorised by the FSA, and it amends the relevant primary legislation to enable the activities of a reclaim fund to be specified as regulated activities. The Government will also amend the relevant society secondary legislation—the regulated activities order—following the enactment of the Bill, which will bring the reclaim fund within the scope of FSA regulation. We believe that that provides satisfactory checks and balances to ensure that consumers are protected in relation to this matter. What are those checks and balances? First, the FSA will be able to apply regulation to the reclaim fund so that it manages the assets prudently and is able to repay dormant account holders who come forward to reclaim their money. We think that that goes a long way to safeguarding the interests of consumers. Further, FSA regulation will enable claims against the reclaim fund to be brought under the coverage of the Financial Services Compensation Scheme, mentioned earlier this afternoon, subject to them meeting the usual qualification criteria and once necessary amendments have been made to the scheme rules. Therefore, we do not believe that it would be appropriate or necessary for the Government to take on the liability for repaying consumers, given the framework that we are trying to establish in the Bill. I said that it was highly unlikely that the reclaim fund would become insolvent. If that were to happen, as I said, customers would be able to claim compensation from the FSCS so long as the reclaim fund remained authorised by the FSA, subject to meeting the usual qualifying conditions. The FSA would consult on the detailed rules in relation to the FSCS and its cover in the usual way. In practice, we would expect a successor fund to be set up by the private sector to take on existing customer liabilities. Here, I hark back to what the noble Lord, Lord Newby, said in his contribution—this is a private sector organisation. Our view is that it would be best as a private sector organisation: it would have the expertise to manage these matters effectively. We would expect a successor fund to be set up by the private sector to take on the existing customers’ liabilities.
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- Baroness NoakesConservative
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- Perhaps I may pick up on one aspect of the Minister’s response in relation to FSA regulation. Organisations that are subject to FSA regulation generally have rules about how much capital they have to keep. Is it intended that the reclaim fund will be capitalised with a level of prudential capital so that there is a shareholder-funds hit first, or will reclaimed money be reserved? That makes a difference to the view one takes on how secure the scheme is.
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- Lord BachLabour
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- I appreciate the question, and I do not think that the noble Baroness will be absolutely satisfied by what I am about to say but I shall try. The precise detail of the regulatory regime will be a matter for the FSA; it will not be a matter for us. The FSA will consult on the detail of its regime following Royal Assent. I think that I was right in guessing the noble Baroness’s response.
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- Baroness NoakesConservative
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- That is not a satisfactory response because that small detail should at least have been thought out. If the banks are to set up and promote this company, there must be some idea of whether it will have capital. I have not seen anything written about capital, so I suspect that it will not have it, and that makes a big difference to whether it will ever run out of money. If it does not have a shareholders’ equity buffer to take the first bit of pain, it is rather more important that we look at the potential consequences of the money running out. The Minister has relied on a couple of factors, the first of which is that it is highly unlikely that the fund will become insolvent. That is not the basis on which we legislate, because it is clearly possible that the reclaim fund will become insolvent for reasons of changed circumstances over time. When it receives the original £400 million to £500 million of dormant account money, a set of assumptions will be made about what the incidence of reclaim will be. With the best will in the world and with no malice or negligence, those assumptions could prove to be wrong over time, particularly because of the success of reuniting activities. It is therefore entirely plausible to ask about reserves. The noble Lord, Lord Newby, said that the banks should sort it out. That is a fine idea but it is not clear that they are obliged to do so. Once they have been excused their liability—which, as my noble friend Lord Eccles pointed out, is written into Clause 1—they will see that as the end of their liability. They will not feel obliged to underpin the scheme as it goes forward. The Minister spoke about FSA regulation. I have raised one question about the nature of prudential capital, on which I have not received an answer. We are assuming that the FSA knows how to regulate a reclaim fund. However, a reclaim fund does not exist anywhere in the UK and therefore it is no better equipped to make judgments about reserve levels than is a set of directors who will be appointed, so we are going into a curious situation. The Minister correctly spotted that I did not advocate a Treasury guarantee. My noble friend Lord Higgins, who was a Treasury Minister, said that the Treasury would never allow it. I was Treasury-trained as well and I know the answer to that question.
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- Lord HigginsConservative
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- No guarantee.
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- Baroness NoakesConservative
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- No guarantee. However, the purpose of my amendment is to probe what happens. Although we hope it will not happen, it could, and I have not had a complete set of satisfactory answers to my questions. We cannot necessarily rely on a successor fund being put together because that assumes the banks would, in effect, underwrite a successor scheme. Taking on the liabilities of the first scheme would mean that someone would have to put the money in to pay for it. My probing question was: what happens if it runs out of money? I think the Minister agrees with the noble Lord, Lord Newby, that the private sector would step in. But the Bill does not say so; it provides no remedy or set of solutions should that situation arise. Between now and Report I shall consider this point further because it is one of a series of points which raise the question, “Does this thing fly?”. However, for now, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord NewbyLiberal Democrat
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- moved Amendment No. 24:
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- Lord HigginsConservative
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- As the noble Lord, Lord Newby, pointed out, there are some similarities between what he is proposing and the suggestions I made earlier. It is really a question of whether there is a case for amalgamating the data. I suggested that each individual bank should publish the list of the dormant account holders or perhaps subsequently the reclaim fund would do so; he is suggesting that the whole lot should be amalgamated. I suspect that would make the process quite difficult, even electronically. There is some attraction in not only having the list set up electronically—which is always a danger nowadays—but having it published in the press and so on. It would obviously be too big if all the banks’ and building societies’ dormant account lists were put into one lump. Other than that, I understand very well the arguments put forward by the noble Lord. He and I and other members of the Committee are desperately anxious that priority should be given to reuniting the accounts with their rightful holders. Perhaps I may make one other point, which the right reverend Prelate put in my mind. I had assumed up to now that the advantage for the charities would be that as much money as possible would be put into the reclaim fund and then distributed. But that raises a distribution issue and I understand now the point being made. If an individual died and left a dormant account with £10 million in it to a particular charity, that charity might prefer to have the money than seeing the whole lot going into the general fund and having to rely on the lottery to allocate it. That is a matter the other side of the Committee will no doubt cover. I understand the noble Lord’s point and I await with interest what the Minister has to say in reply.
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- Lord HigginsConservative
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- Does the right reverend Prelate agree that, however vigorous the banks are in pursuing the accounts through their present mechanisms as against the proposal for releasing names, they have very little idea—if any—as to what the wills of the owners of the dormant accounts provide?
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Baroness PitkeathleyLabour- Quote
- I declare an interest as a member of the Commission on Unclaimed Assets. The Committee should bear in mind that while everybody is agreed about the necessity of reuniting account holders with their money, it is estimated that there is vastly more money than will ever be reunited with account holders. We ought also to bear in mind that the other purpose of the Bill is to release this money into the charitable sector where it can work for disadvantaged people, and we will debate later how we are going to do that.
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- Lord Hamilton of EpsomConservative
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- I think I am on my own on this issue. I think this may be a fraudster’s charter. It is rather like someone who finds or steals a mobile phone and finds that there is a code that blocks him making any calls on it. He sits there for a long time playing with the numbers until eventually he cracks the code. Are not a lot of fraudsters going to move in on this register who will keep on applying under different names to try to get hold of the money? I also have concerns about whether charities will spend a disproportionate amount of their time trying to get into these accounts because they think there may be some money for them when they might be better not doing anything and accepting that the charitable sector in general will benefit from what happens.
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Baroness Finlay of LlandaffCrossbench- Quote
- I support this amendment, but I challenge the notion put forward by the noble Lord. Big charities have mechanisms for monitoring and when there is a carving up of money through the lottery fund they are likely to become beneficiaries, but there are small charities that have a local basis and it is a relatively frequent occurrence that someone who is thought to have no money dies and leaves everything to a small local charity, which was possibly the only group that ever befriended him, and it is discovered, sometimes a bit after the event, that the estate contains £1 million or so. That makes all the difference to that small charity in its running costs for the coming year or for a project that it wants to undertake. The advantage of a central register, however it is held, is that small charities would also be able to cross-check when there is just a will and no relatives and no one has any idea of where the accounts are, rather than having to trawl all the places where they might be. From the perspective of a small charity, this amendment is particularly appealing and the major charities also support it, as the right reverend Prelate said.
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- Lord Hamilton of EpsomConservative
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- Can the noble Baroness clear up a point for me? I thought we were talking about accounts that had been dormant for 15 years. Are charities going to be keeping records of people who died 15 years ago so they can then check on a register to see whether they are on it? I am confused by this.
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- Baroness Finlay of LlandaffCrossbench
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- It may be that I am confused. I understood that there will be an initial release of money, but there are people who die who have squirreled money away and have not touched it for 30, 40 or 50 years. That money would be in those inactive accounts. The major beneficiary of Marie Curie Cancer Care was suddenly found to be very wealthy. The money had been sitting there untouched by and unknown to anyone for many years. It had all been squirreled away and was quietly gathering interest. I do not think that charities—certainly not the small ones—will be going back year on year to see whether 15 years has expired. This central register will become even more important in the initial release of these funds than it may be later, with time. Once the first backlog is cleared, the numbers will be relatively few.
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- Baroness NoakesConservative
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- The noble Baroness, Lady Pitkeathley, said that we must not forget that the Bill is about releasing money for good causes. We should not forget, but we think that an important part of the Bill is the reuniting activity, and I am not sure that banks and building societies have had the same enthusiasm for it that they now appear to be showing. Reuniting is a very good activity, and it would be a good outcome if no money were to flow to good causes, in the sense that money had gone to where it was rightfully owed. We believe in property rights that are capable of being asserted and fully support that. The issue is whether the voluntary scheme, with the banks, building societies and National Savings & Investments bringing their information together, will work. I do not know. Clearly, a voluntary scheme is the best way. As I have said before, we go with the grain of voluntarism to that extent. I hope that the Minister can say whether all banks and building societies in the arrangements that are being set up. I am not clear whether only those that subscribe to the Banking Code are within the current scheme. Not all banks sign up to the Banking Code. Eight banks, several of which are quite small, do not sign up. One is the Post Office in respect of its accounts, and those who enjoy racing have accounts with Weatherbys. I admit to the Committee that I have one. It was news to me that the bank did not sign up to the Banking Code, but now I know, having done my research for this Bill. My questions are: does the scheme cover them all; and will it work in practice? Clearly, the amendment tabled by the noble Lord, Lord Newby, is permissive. It does not require the Secretary of State to do anything, so it can contemplate a voluntary scheme working well and be brought in only if necessary. What happens if it has to come in? Who would run it? Who would pay for it? How would we deal with that? The noble Lord’s amendment glosses over that, it is fair to say. At present, banks and building societies are in effect paying for the reuniting activity. If a statutory scheme were introduced there would be a question mark over whether the banks would sign up to pay for it. I am not sure that a statutory instrument could impose significant costs easily on the private sector. We have some sympathy with the need to have a reserve power in case a voluntary scheme does not work or does not cover enough institutions, but we have some concerns about how it has been put forward.
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- Baroness Finlay of LlandaffCrossbench
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- Before the noble Baroness sits down, what is her view of the possibility that the reclaim fund itself could be the point at which a register of the different voluntary lists could be held? This money would be passing into the reclaim fund, which may be the point at which a centralised register could be compiled. Might that be an answer to her question?
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- Baroness NoakesConservative
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- Not necessarily, partly because banks voluntarily put money into the reclaim fund, which does not deal with National Savings & Investments. Its activities are to do with making repayments not reuniting. That is not structured in the Bill. While it is entirely possible for the noble Baroness’s suggestion to be done, that would require different amendments.
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- Lord Davies of OldhamLabour
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- I am grateful to the noble Lord, Lord Newby. The Government welcome all proposals that are directed toward the aim we share, which is how to reunite the rightful owners with bank accounts that otherwise would become dormant.
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- Lord HigginsConservative
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- Will the Minister comment on the suggestion of the noble Baroness that, once problems with the register when the banks’ list of names is published have been cleared and reasonable time has elapsed, the case for a register at the second stage, when the money has arrived at the repayment fund, would be stronger? It would be smaller and would have considerable advantages, because one could at that stage unite the remaining accounts.
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- Lord Davies of OldhamLabour
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- I see the refinement that the noble Baroness recommended and that the noble Lord, Lord Higgins, has identified. It is not that the disadvantages I have identified might not be overcome and the private sector persuaded about constructive ideas, but this is legislation: if we put this into the Bill it becomes obligatory on institutions to fulfil these obligations and we are not persuaded of the case.
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- Lord NewbyLiberal Democrat
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- I am grateful to all noble Lords who have spoken. On the Minister’s last comment, banks and building societies jolly well should make sure that this information is available. They have been very happily sitting on a lot of it, with the dormant account money sitting on their balance sheets, and it remains not in their interests to co-operate with this legislation in every respect. I therefore retain a considerable amount of suspicion—as I have on other aspects of the legislation—about the voluntary approach. The Minister said that details of the one-stop shop will be announced and that it will be launched in January. We would find it extremely helpful if he were to ask the banks and building societies which are putting this together to supply noble Lords who have participated in this debate with an early briefing paper. This will enable us to form our own views before we get to Report stage about whether or not the scheme meets our requirements.
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- Lord Davies of OldhamLabour
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- I can probably send the noble Lord almost any document under the sun before we get to Report stage at the present rate of progress. Nevertheless, I give him that undertaking in respect of the document he has asked for.
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- Lord NewbyLiberal Democrat
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- I am most grateful to the Minister. I do not want to prolong proceedings too much at this point. The Minister and the noble Lord, Lord Hamilton, raised a question about fraudulent claims and identity theft. I repeat what I said before: these schemes have been running for a number of years in other places and this is not a major problem. Empirical evidence in this area is much more persuasive—certainly to me—than what I accept is a strong theoretical possibility. The question is: where people have done it, has it worked? Have these problems undermined the scheme? The answer is no, they have not. Any scheme will have to be very careful in dealing with people claiming dormant assets, just as banks have to be very careful. If I were to pinch the 1963 building society account book of the wife of my noble friend Lord Shutt, I could take it with me to prove that I was entitled to it, but we believe that it is possible to put in place a scheme with sufficient safeguards. We look forward to reading the document before Report stage, however soon or far distant that point is. We reserve our right to bring forward amendments at the next stage. Pending that, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Schedule 1 [Provision to be made in articles of association of reclaim fund]:
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- Baroness NoakesConservative
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- moved Amendment No. 25:
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- Lord Hamilton of EpsomConservative
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- The amendment raises wider issues about what the management structure of the organisation will be. Are we envisaging a non-executive board and a non-executive chairman? Are we talking about a paid chief executive? How much will he be paid? Will all the non-executives be paid? How many people do we envisage will be needed to keep the organisation running? We need to have a picture of that before talking with any authority on the question of expenses, and so forth. I do not know who will control all of that. If the board decides how much it will be paid, we have seen what has happened elsewhere on that. Somehow there is an escalation; a consultant comes in and compares you with all sorts of other people around the world and says that you should be paid enormous sums. How will there be a limit on that? How can it be kept within reasonable limits?
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- Lord Davies of OldhamLabour
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- I am grateful to both noble Lords who have spoken. As we are talking about a body that is being set up to achieve goals to which we all subscribe—to deal with money that it does not own, for which its owners cannot be located, and one that will have to work in the full glare of public accountability—I should have thought it entirely reasonable for the Government to make it clear that they expect very high standards from the company, which should have due regard to the issue of reasonable costs. I shall not define them here; that would be asking too much of a body that is to be developed by the private sector. It seems to me entirely reasonable that we should seek to establish that this body will work within reasonably tight and responsible parameters. It has not been established whether the company will be limited by shares or by guarantee. The Bill is not prescriptive on that point, and I am not sure that the noble Baroness would expect it to be prescriptive about the creation of the private company in those terms. However, it is clear that we want to be sure that the company will act for the purposes identified in the Bill, using money from the dormant accounts for the public benefits identified.
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- Lord Hamilton of EpsomConservative
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- I did not realise that it was as unsatisfactory as that. Here the Bill is straining at the gnat of what expenses are to be paid to employees of the company but no reference is made to their salaries. In most companies the salaries are inordinately larger than any expenses that might be claimed. We are worrying about whether reasonable expenses are paid, but why are we not more concerned about reasonable salaries being paid?
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- Lord Davies of OldhamLabour
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- When I talk about costs, of course I include salaries. I am talking about the costs of the scheme’s administration. The noble Lord, with his usual acumen, may be right that the public will pay close regard to the salaries paid to the directors, but I emphasise that the concept of “reasonable” that we have here is consistent with the overall public interest in what the company does.
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- Viscount EcclesConservative
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- Perhaps I may ask the Minister one other question. Am I right in thinking that under the provisions of the Bill, if my noble friend Lord Hamilton and I both went to Companies House, we could both now register a company as a reclaim fund? If there is no particular arrangement in the Bill about who is to form the company under the Companies Act, I assume—because the Bill refers to “reclaim funds” and not to one “reclaim fund”—that we could register a company, set out articles of association and a memorandum and seek to become the company in control of the reclaim funds. If that is not the case, the question must be: who has agreed with the Treasury that when the Bill is enacted they will be willing to promote a reclaim fund?
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- Lord Davies of OldhamLabour
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- The noble Viscount will recognise the work that has been done with the banks and building societies on this issue. We cannot give effect to this legislation until we have secondary legislation that brings the company within the framework of the Financial Services Authority. If he trotted down to Companies House on these terms he might find it rather difficult to satisfy its requirements, whereas the proper company that is to be established will be able to do so.
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- Viscount EcclesConservative
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- I shall pursue this matter one stage further. Would it not be better if Parliament could see an outline prospectus for a reclaim fund company before it agrees to this legislation?
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- Lord Davies of OldhamLabour
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- This legislation involves a fairly light regime. The private sector is eager to make progress on a problem that it has not solved in the past and on which it wants to make better progress in future. Public interest in the scheme is so great because the resources are not being directed towards private gain but to public gain. Within this framework we are not creating a statutory body controlled by the Government—I have been at pains to emphasise that it is not a public body—and therefore we would not expect the same degree of prescription in legislation as we would if we were creating something which was directly under government auspices.
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- Baroness NoakesConservative
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- I asked who would own the shares or subscribe to the guarantee. The Minister cannot even tell me whether it will be a company limited by shares or a company limited by guarantee, or whether it is even going to be an unlimited company. He has not said who owns it or answered the question of my noble friend Lord Hamilton about the structure of the board and other governance questions. Is the Minister telling me that the Government have no idea on any of these points?
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- Lord Davies of OldhamLabour
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- I am saying that we do not regard the issues as being necessarily prescriptive in legislation, which is what we are discussing.
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- Baroness NoakesConservative
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- This is increasingly unsatisfactory. We are being asked to pass a Bill without knowing much about what kind of body is being created. We are debating this in the context of a company being created, but we are not being told what kind of company. We are told that it is to have a power of direction from the Treasury, which is extremely unusual. We are then told that its articles have to have a provision about reasonableness of expenditure, which, as far as I am aware, has never been included in the articles of a limited company. Certainly I have never come across one. We are trying to find out how this will work in practice. The Minister said that that is a matter for the directors and members. We asked about the directors and members and got no answers. We do not know who the directors or the members are because the Minister is not sharing any of that with us. Again, we hit the issue of whether this body is public or private. The Minister said that it is a private body but that it would be in the full glare of public accountability. We know that this body is not really private; it is carrying out a public function—as I have already argued—and the Minister expects high standards. He will not tell us how this will work out in practice. What is the balance of rights and responsibilities as between the owners of the shares, the Treasury and the management? These are important issues for the practical working of this body. I am coming to the conclusion that a Companies Act company is the wrong model for this body. It is sitting very uneasily on it and the Minister is not able to answer any of our detailed questions about how it will work in practice. If the Minister had tried to set up a reclaim fund in a normal Bill, he would have had to specify who appointed the directors, who the directors are and what are the powers and responsibilities of the people who interact with the body. But the Government seem to think that they can set up a definition of a reclaim fund with no detail around it; the banks can then go away and produce something with no involvement from Parliament as to its practical outworking—and the Minister thinks that this is satisfactory. I have to record now that we do not regard this as satisfactory in any sense. The more we get into the detail the more we find that this scheme is so lacking in detail and substance that we might want to think much further about it on Report rather than in these detailed amendments. For now I will withdraw the amendment but the Minister should be aware that he raised more questions than he answered. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness NoakesConservative
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- moved Amendment No. 26:
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- Lord Hamilton of EpsomConservative
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- The amendment raises interesting issues. Whatever organisation is operating, it is unusual for it not to have some form of overdraft facility. It is often a question of smoothing flows of money. If the reclaim fund can be confident that money is coming in, there is nothing particularly pernicious about borrowing against a serious demand from one of its clients. If it did not have that power, it would find itself extremely restricted. Inflows of money are liable to take a very regular form. The fund may well have made commitments to people who are going to give it money, and it might find that it could not meet them in the timescale those clients were looking for. We should consider whether the reclaim fund should have a borrowing facility.
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- Viscount EcclesConservative
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- I am equally interested in the start-up of this company. When it starts, it has to have expenses. If its share capital is not sufficient—if it is going to have any substantial share capital, that is, but perhaps it will only be a £100 company—it will need a bridging loan, otherwise it will never come into operation. It has to set up systems and employ people to operate them in advance of any money coming from the banks and building societies from dormant accounts. Will we have more details about the company before we get to the further stages of the Bill? Without such details, it is extremely difficult to judge whether the scheme is sound.
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- Lord Davies of OldhamLabour
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- That may be, but it is somewhat surprising, in two almost subsequent amendments, to be subject to an onslaught from both ends of the spectrum. A moment ago the noble Baroness was upbraiding the Government because we are putting in place the concept of some restriction with regard to unnecessary costs. The Government think that a body carrying this degree of responsibility should have some constraints of that kind placed upon it in legislation. A moment later she is suggesting that the body should have no rights at all to borrow that and there can be no conceivable circumstances in which it should have the opportunity to do so. The noble Lord, Lord Hamilton, is surely right—
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- Baroness NoakesConservative
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- I do not think the Minister was listening when I introduced my amendment. I said it was a probing amendment and that I was trying to find out what the Government thought. I outlined some cases where I could see it would be convenient to have a borrowing power, but I also outlined some dangers of such a power. I am trying to find out what the Government think about that, not to be on the receiving end of what they think about me asking them the question in the first place.
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- Lord Davies of OldhamLabour
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- I am sorry, I was addressing myself to the amendment rather than to the concepts the noble Baroness was trying to tease out of me consequent upon that amendment. No wonder we are taking our time. I shall address myself to the amendment, which says that the fund should have no power to borrow. The noble Lord, Lord Hamilton, asked how on earth you could run an organisation of any seriousness with any significant resources without from time to time having to cope with issue of the flow of money and said that it is justifiable and appropriate for such an organisation to borrow. He is right. What he said is a direct answer to the amendment before the Committee, and I agree with him.
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- Lord NewbyLiberal Democrat
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- If that is the Government’s view—that this body should have borrowing powers—is that not the logical answer to the noble Baroness’s earlier amendment about what happens if it temporarily runs out of money? Should they not have given that as an answer then?
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- Lord Davies of OldhamLabour
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- Maybe that is too far back in time. The noble Lord’s capacity for recall far surpasses mine. If I have missed such an opportunity, I regret it. I have taken that opportunity now.
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- Baroness NoakesConservative
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- I thank the Minister for clarifying that the Government think there is no problem with the reclaim fund borrowing money. The point I was trying to make is that in some cases it is convenient to allow these sorts of organisations to borrow money, especially if it is to deal with cash flow problems, but having the power to borrow money raises its own issues and, unless you are very sure about the governance structures and who is in control, it is potentially a dangerous power. Since we have no clarity on the latter, it is difficult to reach a judgment. However, at least the Government have given a clear view—a first today, I think, and we must celebrate that. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness NoakesConservative
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- moved Amendment No. 27:
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- Lord Davies of OldhamLabour
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- Twenty-seven.
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- Baroness NoakesConservative
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- Sorry, Amendment No. 27. I am excited about getting an answer to the last amendment, and I am still living in the past. This provision would not be onerous. The population of banks and building societies is finite, so the reclaim fund will know how many organisations could potentially transfer money to it. We have discussed whether the scheme should be voluntary. The noble Lord, Lord Newby, moved an amendment yesterday about whether it should be made compulsory. As the Minister knows, our instincts are to back a voluntary scheme, but a corollary of backing such a scheme is that there must be proper transparency. The public are entitled to see how well the scheme is working, which includes whether all institutions take part in it. That would allow questions to be asked of the banks and building societies that had not transferred any money to the scheme. This would not penalise those who transferred money under the alternative scheme in Clause 2 because they would have to have paid some money into the reclaim fund, so they would automatically be covered. The power of publicity could be harnessed to make the scheme work better by throwing the spotlight not only on to those who have passed money over but, with this amendment, on to those who have chosen not to take part in the scheme. I hope the Government will welcome that as support for the scheme. I beg to move.
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- Lord Shutt of GreetlandLiberal Democrat
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- This is one of those simple matters where the Minister can say, “I accept this”. The benefit is obvious, provided that people know who is eligible—if there is a list of eligible members of the scheme, for example. We know that there are 59 building societies and 200-odd banks, and they are eligible. Those that are in the scheme will be obvious and all one needs to see are those that are not. It does not matter how that is done. If the annual report says which bodies are eligible for the scheme and then which ones have paid that year, people can draw their own conclusions. This is one of the simplest things we could deal with.
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- Lord BachLabour
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- I am afraid that for once the noble Lord, Lord Shutt, is wrong. The reclaim fund will be required to publish information, at individual institution level, about which institutions are participating in the scheme, the amount of money transferred into the scheme and the amount of money reunited with account holders. Further, it will also be required to publish the amounts it transfers to BIG. Under company law, too, the reclaim fund will also be required to prepare and file annual accounts with Companies House that may be accessed by all interested parties. We believe that for the fund to be obliged to publish details of non-participating banks and building societies would require it to take on an onerous monitoring role, reducing the amounts available for distribution, albeit perhaps by a small degree. Such a provision would greatly add to administrative costs and reduce the amounts available for distribution. Publishing these details is not the role of the reclaim fund. Providing the lists of those who are participating will make it fairly obvious who is not. The case has been put extremely well, and briefly, by the noble Baroness and I am particularly sorry not to be able to go along with the noble Lord, Lord Shutt, on this occasion.
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- Lord NewbyLiberal Democrat
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- Does the FSA maintain a list of banks and building societies?
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- Baroness NoakesConservative
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- I can help the Minister on this. The answer is yes.
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- Lord BachLabour
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- The noble Baroness says yes. The answer—which I think is obvious—is yes.
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- Lord NewbyLiberal Democrat
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- In that case, could the Minister hazard a guess about how long it would take a competent member of staff of a bank, a building society, the FSA or the Treasury to go down the list and put a little asterisk against those banks and building societies that do not appear on another list of those banks and building societies that are part of the scheme?
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- Lord BachLabour
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- The proposed obligation would be not on the FSA but on the reclaim fund. That is different. We do not think this should be part of the law.
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- Baroness NoakesConservative
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- I thank the noble Lord, Lord Shutt, for his support and the noble Lord, Lord Newby, for his penetrating question. The Minister’s response, that the fund should not take on a monitoring role that was onerous and would add to administrative costs by producing this information, was faintly ludicrous. We are talking about a relatively small number of institutions—60-odd building societies and 300 or 400 registered deposit-takers, I think. It would be a relatively straightforward exercise. The noble Lord, Lord Newby, has made it clear that it would take a junior clerk a short time to find out which institutions had not put any money in, so the talk of “monitoring”, “onerous” and “cost” is complete nonsense. I cannot understand why the Government are taking this position. This is part of being a voluntary scheme. A voluntary scheme is fine—if it works. How do we know if it has worked? By being told, by the body that is in the best position to tell us, who has not taken part in it. That is the most obvious provision anyone could ever think of in order to underpin and buttress the voluntary nature of the scheme, which we have supported. If the Minister cannot support these kinds of amendment, we will have to think whether we support the elements of compulsion that the Liberal Democrats would like to put into the scheme. He cannot have a voluntary scheme with no checks and balances in it. I am astonished by what he has said. He will not be surprised to find that in one way or another we will be returning to this issue on Report. In the mean time, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness NoakesConservative
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- moved Amendment No. 28:
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- Lord BachLabour
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- I repeat that the scheme is highly transparent. The noble Baroness had the answer to her amendment in what she said: under company law, the reclaim fund will be required to prepare and file annual accounts with Companies House that may be accessed by all interested parties. That will cover the areas raised under the amendment. Under current company law and accountancy rules, which I know the noble Baroness is an expert on, the reclaim fund will publish an explanation of its reserves, including those to meet anticipated reclaim requests and its expenses, so that there is a true and fair view. Detailed information about its financial position will therefore be available from the annual accounts. We are trying to make this legislation as light-touch as we possibly can. We see no reason to put in unnecessary requirements on the company, particularly when they already exist in law.
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- Viscount EcclesConservative
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- Before the Minister sits down, does he accept that this is difficult for the Committee? Under the Companies Act 2006, you can form various different kinds of company, not just a single kind. Until we know what sort of company the fund is going to be and something about its ownership, it is difficult to assess how open and transparent the information it provides will actually be.
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- Lord BachLabour
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- I take that point. I shall respond by reminding the noble Viscount of the document produced by the BBA on 8 November, the day the Bill was published. Under the heading “The reclaim fund”, it says: “The BBA and BSA have agreed to lead on the selection or establishment of a body to act as a reclaim fund. Once in place, however, the fund will operate independently from the BBA, BSA”— I ask the Committee to listen carefully to the following words— “and the Government”. The document sets out the timetable. On page 7, it says: “BBA and BSA to work with potential candidates to enhance their understanding of the role in advance of the selection process … BBA and BSA to invite formal applications … BBA and BSA to commence formal applications”. Then, from the middle to the end of 2008, it is hoped—although, as my noble friend said, at the present rate of progress this may be somewhat optimistic—that the BBA and BSA will, “work with the body selected”. I refer the noble Viscount to those passages only because they show that the setting up of the company will be very much in the hands of the banks and building societies. That may not be satisfactory to him in terms of what kind of company it will be, but I wanted to emphasise that it will be their child, not the Government’s.
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- Baroness NoakesConservative
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- We have had another unsatisfactory discussion. The Minister has just read out a bit of the BBA’s document that I am sure we all saw. It is clear that when its authors put it out they had not even read the Bill; they said the new body would be independent of government, but the Bill has a Treasury direction for it. So we know that the BBA were behind the pace. We do not understand how the body’s independence of the BBA and the BSA will work, because the Government will not tell us who the owners are. We have had no answers to any of those questions. However, that is not the point of the amendment, which is to ensure that the new body, whose ownership structure, management structure and governance structure are entirely shady at the moment, meets certain transparency requirements. Putting early information out about the reclaim fund is part of public accountability about what the fund is doing with the money. It is not a huge or onerous requirement, but it ensures that some information gets into the public domain before it is sneaked into Companies House with no fanfare after nine months. This asks for more early information. The more I hear the Government describe how this is meant to work, the more I realise they have no idea, which makes the process of the Bill extremely unsatisfactory. This is an area that I suspect we need to return to in due course. For now I shall withdraw the amendment, but we do not regard the issues raised as by any means dealt with.
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- Lord Shutt of GreetlandLiberal Democrat
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- Before the noble Baroness sits down, will the Minister answer this point? Before we get much further—and we may have another day or two left on this yet—we were told that the BBA and the BSA had been researching this issue for years before we reached this point. Surely they have something in mind. I would have thought that the simplest thing would be for a company to be founded that was owned, either through shares or by guarantee, by those two bodies or by the various banks and building societies that joined the scheme. Or are they looking for Ladbrokes or Richard Branson to form a company and offer it up? Surely there must be some idea of what is in mind for this company?
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- Lord BachLabour
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- I repeat what has been said throughout from this side during the two days of Committee so far: this is a private sector company that will be set up by the BBA and the BSA. We have faith that they will set up a suitable and proper company on the basis of what they have said in the document I have just referred to. We are putting through the Bill that sets up that scheme. If the noble Lord requires more information about what they have in mind, I suggest—again, with the greatest respect—that the people to be asked are not sitting on this side of the Committee today. That is the best answer I can give him at present. We will not be responsible for setting up this company.
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- Baroness NoakesConservative
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- The Government cannot abdicate their responsibility in this regard. They have brought forward this Bill to cover the precise circumstances of taking dormant account money into a company and then on to the Big Lottery Fund. They cannot just say, “We haven’t the faintest idea what these organisations that are nothing to do with the Government are going to do about setting up the body in the middle. We’re going to put some rather odd bits in legislation, we’re going to resist any suggestion that there should be further transparency in relation to this body, and we expect Parliament to accept that proposition”. I cannot think of any example when any Government have asked Parliament to pass a Bill on such a flaky basis.
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The Deputy Chairman of Committees (Baroness Fookes)Conservative- Quote
- We appear to have an interregnum. Is the noble Baroness seeking to withdraw now?
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- Baroness NoakesConservative
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- I thought I had withdrawn, but then I had something else to say on it. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord NewbyLiberal Democrat
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- moved Amendment No. 29:
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- Baroness NoakesConservative
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- It will not surprise the Committee to learn that we fully support the amendment in the name of the noble Lord, Lord Newby. We believe that transparency is one of the necessary counterweights to put into the mix of this curious body that is being created—a hybrid body with clear public interest in what it is doing. While supporting the amendment that would compel the fund to present its annual report to Parliament, I ask the Minister to say how the Government expect the reclaim fund to comply with its obligation in respect of publication in paragraph 3 of Schedule 1. There is no specification of how publication is to be made. Is it to be sent to people or advertised? Is it just to be sneaked on to a website without any publicity? There is a lacuna at the moment regarding what should be done about publication. When one deals with company law generally, it is normally quite specific about what sort of publication is required or permitted. The Government have not necessarily dealt with that in sufficient detail in the Bill.
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- Lord BachLabour
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- My Lords, I repeat what I said in answer to Amendment No. 27. I know that I am at risk of repeating myself but these series of single amendments deal with the same kind of points and I find it slightly surprising that they should have been de-grouped in the way that they have been. Be that as it may, I repeat that the scheme will be highly transparent, which is important. The reclaim fund will be required to publish information about which institutions are participating in the scheme, the amount of money transferred into the scheme and the amount of money reunited with account holders at individual institution level. It will also be required to publish the amounts it transfers to BIG. Under company law, the reclaim fund will be required to prepare and file annual accounts with Companies House, which may be accessed by all interested parties. We expect that under company law and accountancy rules the reclaim fund will publish an explanation of its reserves, including those to meet anticipated reclaim requests and expenses, so that there is a true and fair view. Detailed information about its financial position will be available from its annual accounts. Amendment No. 29 seeks that this should be presented to Parliament. The information that the reclaim fund will be required to publish will be publicly available. We can see no compelling reason why this information should be presented to Parliament. I do not think the noble Lord has identified the way in which he suggests it should be. As I argued earlier, it would not be appropriate for the reclaim fund to have to publish information about non-participating banks and building societies, with which it will have no contact. Amendment No. 29 would oblige the reclaim fund to take on a new role, rather in the way that Amendment No. 27 would. I take the noble Lord’s point that it may not be a dramatic new role, but it would be a monitoring role and that is not the point of the setting up of the reclaim fund. It would add some costs and would reduce the amount of money available for distribution. The press notice of 8 November from which I quoted, particularly in reply to the noble Viscount, Lord Eccles, sets out the process for setting up the fund and how that fund will operate. The legislation that we are debating sets out the conditions to which the fund will be subject. It will be authorised by the FSA and there will be checks and balances in the articles of association, including the information that the reclaim fund will be required to publish and how the disclosure requirement will be enforced. The level of information that is required is set out in the Bill and I have already referred to it. How the information is published will, in the end, be up to the reclaim fund company. We would expect directors to take a sensible approach to it. This will be a private company—a point that the noble Lord, Lord Newby, has made constantly during the Committee’s proceedings—and how the information is published will be up to it. If it does not publish the information that it is required to by the Bill, which we hope will become an Act of Parliament, then other considerations come in. But we do not see a compelling necessity for there to be a report to Parliament on this matter.
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- Baroness NoakesConservative
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- Parliament has its time taken up to create this body and there is therefore sufficient public interest for the Government to take legislative time. However, after that, Parliament will be told that it is nothing to do with it. It is all very well saying that the fund is a private company. We have established that it has public purposes, as Ministers have said. Parliament has a clear interest in the effective working-out of the scheme that Parliament is being asked to support. I do not understand, and perhaps the Minister will explain, why the Government believe that it is inappropriate for Parliament to be given information on this scheme. It seems to me to be wholly necessary.
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- Lord BachLabour
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- The noble Baroness is entirely wrong when she says that it has nothing to do with Parliament. Any parliamentarian in either House can raise any matter regarding this scheme when and where they want to. However, there is no need for information to be presented to Parliament when it will be in the public field.
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- Lord NewbyLiberal Democrat
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- I have the greatest respect for the Minister, but how he can believe that its incurring of some costs—the cost of putting in an envelope a few copies of a report—is an argument that is worthy of consideration, I do not know. How he can say that it involves a new role, I do not know. We are talking about material which may be on a website to which most parliamentarians will never have access—and if they have access to it, they may miss the date on which the information is made available. It does not do the Government credit to suggest that the report simply be sent to Parliament or that sending it to Parliament would somehow involve a new monitoring role. Those arguments do not stand up. This is a minor amendment which recognises the fact that this body is set up by Parliament and the irrefutable logic that Parliament will want to take more interest in what it does than in the average company established for other purposes. Therefore, I am disappointed, though perhaps not surprised, that the Government feel unable to support the amendment. In the mean time, and until we have thought further about what we want to do with it, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord NewbyLiberal Democrat
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- moved Amendment No. 30:
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- Lord HigginsConservative
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- I have not participated in this series of debates on the exact nature of the fund and so on, but I am becoming increasingly puzzled. It is perhaps my own fault for not having got involved in this matter earlier. As I said yesterday, I was appointed to the system which operated in Switzerland. I was just rereading the advertisement which asked people who had possible dormant accounts to come forward. It said: “Today … the Swiss Bankers Association is publishing the list of all known … dormant accounts”, and so on. It continued: “This initiative will be administered by an international board of trustees and supervised by the Swiss Federal Banking Commission and the Independent Committee of Eminent Persons … chaired by Paul Volcker”. So far as I can recall, there was no government involvement whatever, and I am beginning to wonder why we have this legislation. I am 100 per cent in favour of the objectives of uniting the accounts with their owners on the one hand and the money being made available for charitable purposes on the other. However, I am beginning to wonder whether the Government feel somehow that arranging it in this way will mean that some credit will fall on them because of the charitable purposes aspect. One of the concluding paragraphs in the advertisement that I have just quoted reads: “The Swiss banks are committed to using unclaimed … funds for humanitarian or charitable purposes”, which indeed was the case. So I begin to wonder whether it is necessary to set out in detail in the legislation how the fund is to be set up, what the basis of it should be and so on. On the other hand, Schedule 1 spells out a number of bits of information without in any sense being comprehensive, and the debates that we have just had deal with the issues piecemeal. As I said, I begin to doubt whether the objectives cannot be fulfilled otherwise. If we are to go down the legislative route, I hope that between now and Report we can come up with a schedule that spells out all the points that have been picked up in the debates over the past hour or so. I do not think that you can have a schedule setting out odd bits here and there but omitting other important points.
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- Baroness NoakesConservative
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- We do not support the amendment in terms because we do not think that it is appropriate for the Government to appoint directors—certainly not all of them. I can see that there might be a case for some government nominees, given the public nature of this issue. However, I think that the main purpose of the amendment is to probe what is happening so that we can be satisfied that it is acceptable, and therefore I support it to that extent.
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- Lord BachLabour
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- I, too, agree with the noble Lord, Lord Newby, he will be pleased to hear, in that I do not think that it will be particularly helpful to the Committee to repeat arguments that have been employed on other amendments of this kind. However, it was the noble Lord who emphasised in debate on earlier amendments yesterday that this was to be a private sector company. The Government could have attempted to set up a public sector company or some sort of hybrid company, but this will be a private sector company set up by the organisations to which I have referred. The Bill seeks to set some sort of constraint around that company so that the public can be satisfied that it will be prudently run and that it will come under FSA rules and regulations. However, I do not consider fair the criticism that suggests that somehow the Government should know exactly what kind of company this will be—that is, whether it will be a company limited by guarantee or by shares. The point is that it will be a private sector company, and we hope that the terms of the Bill mean that it will act effectively to do the sort of things for which noble Lords, such as the noble Lord, Lord Shutt, have been arguing for many years. So, in my view, attacking the Government for not knowing every detail about how the company is to be set up is a good subject for debate but it does not really go to the heart of the matter. The heart of the matter is that we need to see the scheme set up. I take the point made by the noble Lord, Lord Higgins. The answer to it is that we, as the Government, want as light a touch as possible in this field. The building societies and banks have agreed that they will take part in a scheme such as this and we are delighted that they take that view. We want to work with them in order to ensure that the scheme works but we do not want the heavy hand of government to be present throughout the Bill. For parts of the scheme, it will be important to set out some guidelines, and those are ahead of us, but I do not think that it is a fair criticism to say, “Well, at this stage the Government do not know how every part of this will work”. The heart of the question put to me by the noble Lord, Lord Higgins, with his vast experience, was: why do we need government legislation at all? Frankly, we need the legislation in order for banks to be able to cancel their liabilities to customers in the first place when they transfer their money. If we did not pass this legislation, there would be no way in which banks could cancel their liabilities to customers, and they would then keep those liabilities on their balance sheets while losing the assets. At heart, that is why we need the legislation.
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- Baroness NoakesConservative
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- Perhaps I may intervene before the noble Lord, Lord Newby, decides what to do with his amendment. The Minister said that we were criticising the Government for not giving every detail about the scheme, but our complaint is that we are not getting any detail about how the scheme will work in practice. It is not that we do not have a fully worked-out solution but that we have a barely sketched-out solution. That is the burden of our problem with the way in which the Government are handling the Bill.
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- Lord HigginsConservative
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- I would be taking up the time of the Committee wrongly if I went into detail. I say only that this was not a problem in Switzerland. It is not as though the Swiss banks are unsophisticated, and perhaps we should be looking in rather more detail at how this problem worked out in practice.
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- Lord NewbyLiberal Democrat
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- At this stage of the day, for the noble Lord, Lord Higgins, to ask very astutely why we are here is a shaft of light but, at the same time, it is deeply depressing. It seems to me that there is an asymmetry in the Bill. The Government talk about a light touch but it must be the lightest touch possible. In fact, if there has been a touch at all in terms of how the company will operate, we have yet to see it. However, the Bill is pretty prescriptive with regard to how the money is spent. We do not mind if there is a light touch on how the scheme operates—it is up to the banks and building societies to get the cash in—but, my word, once the cash comes in, we are very keen to be prescriptive about how it is spent. At this stage, I assume that the banks and building societies are wedded to this model and therefore we had better proceed on that assumption, but I am afraid that, so far as I am concerned, today has been extremely depressing in terms of gaining an understanding of how the Government want the scheme to work. However, as I said when introducing it, this is a probing amendment and I beg leave to withdraw it. Amendment, by leave, withdrawn. Schedule 1 agreed to. Clause 6 agreed to. Clause 7 [“Bank”]:
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- Lord HigginsConservative
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- moved Amendment No. 31:
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- Lord Shutt of GreetlandLiberal Democrat
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- I congratulate the noble Lord, Lord Higgins, on persuading the Public Bill Office that this was a proper amendment. In hearing what he has read from the passbook, I can see how that was easier than some matters dealing with insurance, and so forth. I have been here in this very Room previously, when considering the Northern Ireland budget. We have finance debates about every six months, and I spotted that there was an organisation called Ulster Savings, which was clearly specific to Northern Ireland. It had been decided to close that scheme down. Every six months, I raised with various Ministers the question of the residual orphan funds left in Ulster Savings. I was told several times that I was just a bit too soon. They were still looking at it and, although there were no staff left in Ulster Savings, they thought there might still be people knocking at the door and were not quite ready. On the final occasion, they were moving off the accounts and all we got were the previous year’s figures, and there was nothing for that year. I raised the subject again, and ultimately I got a letter saying that the funds had already been spent on the people and were not available. I understand that argument, but the noble Lord, Lord Higgins, was referring to the fact that the Government are halfway in—it is hokey-cokey. They are going to put the National Savings and Investments funds in the reuniting campaign and they may be reunited, but they are not going to be available for the main scheme. I think there is a big problem here because we keep being told about the voluntary scheme, and the Government are expecting banks and building societies to be willing volunteers, but they are not. I support this amendment to widen the scheme and bring in National Savings and Investments.
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- Baroness NoakesConservative
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- I have considerable sympathy for my noble friend’s amendment. I note that his account book is labelled “The Post Office Account”. I wonder whether that was the same as a National Savings and Investments account. I leave as a question whether we are talking about exactly the same thing. It is certainly the case that there are accounts in National Savings and Investments. We believe that the amount of dormant money potentially available is approaching £1 billion—National Savings and Investments has volunteered that figure. It is a very large amount of money, and it seems odd that there is one rule for banks and building societies and another for the Government. If the Government manage to get a deposit in National Savings and Investments, they can keep it if the customer loses track of the details. That is not the case with the banks, which will not be allowed to do so in future. I have a couple of questions for the Minister about the consequences if the Government handed over the National Savings and Investments money. If we assume that the whole £1 billion is handed over, it is clear that the Government would have to borrow £1 billion in order to fill the cash hole in the Treasury’s accounts. That swaps one kind of debt for another. Would that increase the government borrowing figures? I am not sure that there would be an increase in the borrowing, but perhaps the Minister would clarify that. Would there be any implications for public expenditure? If there were, where would it flow through? Which department? Which totals would it be in? Would it be in the departmental expenditure limits or the annual managed expenditure limits? How would we see that flowing through the government accounts? I am sure my noble friend will understand that whether I can support his amendment depends on the impact on public expenditure and borrowing.
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- Lord HigginsConservative
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- It depends on what happens to money supply and whether we think we are dealing with an inflationary situation at the moment or one where there is likely to be a recession. I think I am right in saying that if there is likely to be a recession, it would be a good thing if they paid up.
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- Lord Davies of OldhamLabour
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- I was going to give a simpler answer, but I understand what the noble Lord, Lord Higgins, said. I shall address the noble Baroness’s question in a moment. Let us be clear: National Savings and Investments is fundamentally different from private sector banks and building societies. The function of National Savings and Investments is only to borrow money for the Government. All of the money it borrows from the general public is used to fund public spending. This means that money deposited with National Savings and Investments is already being used for the public good, as defined by the priorities established by the democratically elected Government. The liability to pay the National Savings and Investments customer lies with the Exchequer on the National Loans Fund, not with National Savings and Investments out of its own balance sheet. The answer to the noble Baroness, Lady Noakes, is quite straightforward: funds deposited with National Savings and Investments are classed as national debt and reduce the amount that the Government need to raise through taxation. Including NS&I in the scheme would mean that we were diverting money that would have been spent on public services to the objectives identified in the scheme. Therefore, the Government would have either to cut planned public spending or to find an alternative way to fund it, having seen these funds being diverted elsewhere. In other words, it would increase the burden on the taxpayer, who would bear the cost either directly through higher taxes or through high interest costs on the national debt.
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- Baroness NoakesConservative
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- Will the Minister explain that? If the Government wanted to repay National Savings & Investments—and transferring money out of National Savings & Investments is like repaying it—one kind of debt would be swapped for another. The amount of debt on the balance sheet would stay exactly the same. What is all this about having to cut public expenditure? I do not understand. One just borrows some money to replace one set of debt with another set of debt.
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- Lord Davies of OldhamLabour
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- The resources available from National Savings & Investments would have been diverted to the objectives defined in this legislation, so the funds would not be available to the Government for other priorities.
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- Lord HigginsConservative
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- If the Government have borrowed the money from these people, they owe it to them. The fact that the Government pay those people back merely means that if the Government want to borrow elsewhere, they have to do so. Whatever happens, they still owe the money to the depositors.
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- Lord Davies of OldhamLabour
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- Of course they do when money is successfully identified as being owed to the borrowers, but the intention behind the scheme is that the totality of the resources in the reclaim fund from accounts that are regarded as dormant is transferred to other objectives. At present, those resources are used for public expenditure.
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- Baroness NoakesConservative
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- If money is reunited with the account holder but the Government have to borrow money to reunite it, what is the difference between paying it to the Big Lottery Fund via the reclaim fund and paying it out to the original account holder? There is no substantive difference in those terms, is there?
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- Lord Davies of OldhamLabour
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- There is because, when this legislation becomes effective, these resources will flow to the reclaim fund where they have not been redirected to the investor. I accept that as far as the investor is concerned, but the other resources are directed to the reclaim fund and its carefully delineated priorities. Those resources are not available to be accessed by the Government from National Savings & Investments, and they currently either form part of the national debt or are used by the Government for other purposes. I understand what the noble Lord said—that there is a claim on this money that the Government must honour—but we are talking about a discrete set of resources, a great deal of which is not claimed at present because that is the nature of dormant accounts. That money would be directed to a new fund for purposes different from those for which it is presently used. I do not see what the problem is with that. The Government’s point of view is obvious: the money is a resource that is being reallocated to different priorities. The Government fully subscribe to two sets of priorities. The first is reuniting the money with the original owners. I accept entirely what the noble Baroness and the noble Lord said; namely, that the Government would then have to plug that gap either through borrowing from elsewhere or through taxation. However, the other part, which is not reclaimed, moves out of National Savings & Investments into a fund which, I admit, has different priorities. They are priorities in which the Government have had a clear say, but they are different from those which might have applied to the fund at the present time. The equity argument is clear; namely, that National Savings & Investments is a bank and it should certainly subscribe, and be committed, to reuniting dormant accounts with their owners. The point that I did not make earlier, and to which the noble Lord, Lord Higgins, referred, is that National Savings & Investments is part of the one-stop shop which is to be set up by the banks and building societies in the new year to facilitate the reuniting of dormant bank account holders with their money. National Savings & Investments recognises its obligations in those terms, but resources which are not reunited with the original account holders are a different matter so far as the Government are concerned, whereas the resources from dormant accounts which lie in banks are for the private purposes of the bank. There is a significant difference. The amendment puts together two organisations: one is private banks which presently use money that is held in dormant accounts for private purposes or which will in due course use them for the public good under narrowly defined objectives in the legislation; the other is National Savings & Investments, whose dormant resources are devoted to wider dimensions of the public good, as represented by the public debt or the Government’s expenditure.
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- Baroness NoakesConservative
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- Is there any impact on public borrowing—I think the answer is no—and is there any impact on public expenditure if money is either reunited or transferred to the reclaim fund?
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- Lord Davies of OldhamLabour
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- What is being honoured is the debt which the state owed. The transfer of significant resources to the reclaim fund would see a substantial amount of resource which presently funds a small part of the national debt or is used for public expenditure directed into other objectives. Of course, that is a loss.
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- Lord HigginsConservative
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- Am I to understand that the Government accept that a campaign must be launched to try to find the rightful owners of the dormant accounts in the National Savings & Investments area?
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- Lord Davies of OldhamLabour
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- That is of course accepted as being of prime importance. National Savings & Investments is taking the most progressive approach to doing just that.
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- Lord HigginsConservative
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- So far as concerns the first objective of the scheme—namely, reuniting the owners of the debt with their money—I understand that the Government are proposing to do that. The second objective relates to the part of the dormant accounts which is not claimed. The proposal, if it were included in the second half of the Bill, would be that it would go to charity. That money is in no sense public money; it is owed to the people who deposited it but who happen not to have claimed it. That is equally true of private sector banks; the same principle applies in each case. I think that my noble friend dealt with the argument that, if that happened, the Government would have to borrow more. In any case, it has to be considered not simply in the context of the borrowing requirement but in the context of macroeconomic management. Given the recent cut in interest rates by the Bank of England, which implies that we need to increase economic activity, the effect of going down that road would be either nothing at all or alternatively an increase in the money supply. Again, the background of the cut in interest rates might seem an appropriate way to go ahead. Therefore, I see no reason why the public sector should not be treated in the same way as the private sector. In the absence of any response, I am sure that we shall return to the matter on Report. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. On Question, whether Clause 7 shall stand part of the Bill?
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- Lord Shutt of GreetlandLiberal Democrat
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- I thought when I came here this afternoon that I was just a simple searcher after truth, but there is a bit more to it now. This clause defines a bank and then says what a bank is not. I want to be clear about ownership, and about what is and is not in the Bill. Let us look at overseas ownership. The Yorkshire Bank and the Clydesdale Bank are now Australian-owned. The Abbey National, which was demutualised, is now Spanish-owned. Are we clear that those assets are in the Bill? The British Bankers’ Association website shows the names of banks. I have led such a sheltered life that I have not come across the bank of the noble Baroness, Lady Noakes. I want to know who is in and who is out. For example, there is a Bank of China. I imagine that if it is in business here with a subsidiary company registered here, it is in. But if it is only a branch and there is nothing registered here, is it in or not? I do not know. On the other side of the fence, the Bank of Ireland and the Allied Irish Bank are clearly Irish, and there is an Irish scheme. What about the resources that are banked here that become dormant in a London branch of one of those banks? Similarly, HBOS is now in business in Ireland. It has only just started there, but do dormant accounts there come under the Irish scheme or this scheme? The clause refers to the United Kingdom; what is the position with Guernsey, Jersey and the Isle of Man? The banks seem to be fond of having branches in these islands, so where do they stand? It is important to know who is in the scheme, which leads us back to that debate that we had on Amendment No. 27 on transparency. I have been thinking further about that. Transparency is a wonderful thing. If we think of looking through a shop window to see the goods, if half of them are covered up, it is not transparent. Unless we know the banks that are in this scheme, how do we know whether they are participating or not? This is a voluntary scheme, but there is a very tight and specific pool of potential volunteers and I would like to be clear about who is in it. The foreign ownership question relates to that, but where is that pool of volunteers? Surely we should be clear. There should be a transparent and clear definition of the pool of potential volunteers. I beg to move.
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Lord MonsonCrossbench- Quote
- Surely the answer to the noble Lord, Lord Shutt, is contained in Clause 7(1) which makes clear that the Bank of China or any other foreign-owned bank needs to have only one branch in the United Kingdom for it to be included in the scheme. I raised the point about the Channel Islands and the Isle of Man at Second Reading, but I would guess that they are totally outside the United Kingdom and are therefore not included.
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- Lord Davies of OldhamLabour
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- The noble Lord, Lord Monson, is right on both counts and has answered the noble Lord, Lord Shutt. The issue is quite straightforward: banks and building societies in the Channel Islands and the Isle of Man are outside the scheme. If they have branches in the UK, they could participate in the scheme like all other foreign banks that have branches in the UK. As the noble Lord, Lord Monson, indicated, one branch would be enough.
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- Baroness NoakesConservative
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- The British Bankers’ Association is the main sponsor of the scheme that results from this legislation. Are the foreign banks that the noble Lord, Lord Shutt, referred to, in particular those such as the Bank of China, which has a subsidiary or a branch in the UK—I know not which—part of the BBA scheme? Does the BBA speak for all of the institutions potentially covered by Clause 7—it might make an easier question to take the BBA and the BSA together—or are there a large number of organisations that have not bought in because they are not part of the BBA? There are other banking trade associations—if I can use that term—in London, in particular, those that concentrate on international banks. I am very unclear about whether those banks are within the scheme. The stand part debate initiated by the noble Lord, Lord Shutt, is a proper one to have because we need to know who is in and who is not.
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- Lord HigginsConservative
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- If it covers a foreign bank that happens to have a branch in the UK, does it apply to the dormant accounts in that branch only or does it apply to that bank’s dormant accounts worldwide?
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- Lord Davies of OldhamLabour
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- The Committee should not forget that participation is voluntary. We are not talking about the Government taking on powers to regulate these branches in any way. The question is whether they intend to participate in this scheme knowing the public benefits from being involved in it, and for which there is a great deal of pubic approval. The British Bankers’ Association and the Building Societies Association quite rightly are reaping the rewards because they have taken the initiative. The category of bank is quite clear. The noble Lord, Lord Monson, has carried out my task for me. The noble Baroness asked who is part of the consultation and whether the British Bankers’ Association covers all these banks. I cannot answer that question—I do not have a full list of the members of the British Bankers’ Association to hand—but let me assure the Committee that the British Bankers’ Association may be acting as the representative body to carry out these discussions and negotiations about the framework that underpins the Bill, as is the case with the Building Societies Association, but this is not an exclusive exercise. We are concerned with developing a scheme which it is expected and hoped that other banks that have branches in the United Kingdom but which are foreign owned may wish to participate in. How much they will wish to participate may be a matter of how many branches they have in the United Kingdom and how enthusiastic they are about winning the good will which the scheme clearly generates. The noble Baroness is right that we have negotiated with just one association of banks—the British Bankers’ Association—and the Building Societies Association. Those two associations are setting up the scheme. However, it is not an exclusive operation, and I assure the noble Lord, Lord Shutt, that no penalties are attached. The legislation enables those institutions which wish to participate to do so. Those which qualify have branches in the United Kingdom.
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- Lord Shutt of GreetlandLiberal Democrat
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- I note what the Minister said, but it is important that we know who could be so enabled. The debate has to some extent clarified who might be included, but they are a small number—we are talking about no more than 500 all told. If we are talking about being transparent, surely we can be transparent about who the volunteers are.
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- Baroness NoakesConservative
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- Would not a constructive way forward be for the Government to undertake to provide to those noble Lords who have taken part in this debate a list of those banks which are within the BBA scheme and those which are not, so that we know what we are talking about and can compare the definition in Clause 7 with the banks that are members of the BBA or are in other ways aligned with what the BBA does? Whether the BBA speaks for other organisations, I know not. It has never claimed to do so, but who knows? Perhaps the Minister could undertake to provide that answer.
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- Lord Davies of OldhamLabour
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- As ever, the noble Baroness makes an entirely reasonable request. I am delighted to respond to it positively. Clause 7 agreed to. Clause 8 [“Balance”]: [Amendment No. 32 not moved.] On Question, Whether Clause 8 shall stand part of the Bill?
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- Lord MonsonCrossbench
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- We touched on this matter yesterday. I did not pursue my Amendment No. 32, because, on reflection, it could be better drafted. As to the rest of the clause, the noble Lord, Lord Bach, kindly indicated in response to a comment of mine that the Government might seriously consider redrafting subsection (2) to make it more comprehensible to the ordinary citizen and professionals. The noble Lord was more equivocal about my amendment to Clause 1, which suggested a small alteration. Just in case the Government might consider looking at that again, the adverb “contractually” should be inserted after “interest”, rather than the adjective “contractual” before it.
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- Lord Davies of OldhamLabour
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- My noble friend commented on the drafting of the clause. We will take on board the noble Lord’s suggestion of a minor improvement to the syntax in the Bill; I am always in favour of civil servants having the chance to improve the quality of their drafting. We will certainly look at that. I think that we discussed the more general point satisfactorily yesterday. Clause 8 agreed to. Clause 9 [“Account”]:
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- Baroness NoakesConservative
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- moved Amendment No. 33:
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- The Deputy Chairman of CommitteesConservative
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- I point out that if this amendment were agreed, I cannot call Amendment No. 34 by reason of pre-emption.
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- Lord Davies of OldhamLabour
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- The noble Baroness leads me potentially into deep waters, and I shall cling pretty much to the ankle-depth ones where I find myself at home, as indeed, does the Bill. There may be merit here, and I know that other amendments have been tabled about other financial deposits that may be dormant and could usefully be put to better purposes than lying idle in banks. I have seen the amendments that have been tabled and recognise the fertility of the minds of noble Lords. We are going to resist those amendments on the simple basis of clarity and simplicity with the launch of a scheme that involves the Government in significant co-operation with the private sector. The company running the scheme will be a private company, which will make it clear that it accepts our initial approach carried, as the Committee will know, in a Labour manifesto way back in 2005. We were talking about current or savings accounts in a straightforward way. I hear what the noble Baroness says. Of course there is a range of other assets that perhaps could eventually fit within this framework if they became dormant. However, we are concerned that any assets except ordinary current and deposit accounts raise different issues, including legal issues. Before we extended beyond the simple deposit and current accounts, which is the basis of the agreement with the banks and building societies, we would have to discuss it with the various stakeholders involved. We have not yet carried out that discussion or entertained any prospect of doing so. As noble Lords will recognise, this is an ambitious project that takes a great deal of careful thinking and activity to bring it about. We are therefore keeping the concept, as regards accounts, as straightforward and simple as we can. We are talking about current and deposit accounts only.
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- Lord Shutt of GreetlandLiberal Democrat
- Quote
- I wonder whether it would be appropriate—I just happen to have a copy of the Labour manifesto with me—to read this wonderful sentence: “We will work with the financial services industry to establish a common definition and a comprehensive record of unclaimed assets”. It says “assets” there, by the way, not just “bank accounts”. That phrase “common definition” is very important because of the need for a level playing field. That is my concern, and I will come back to it on another occasion; I have a related amendment, though whether we will get to it tonight is another matter. But it is interesting to see what the Government’s own manifesto had to say.
- Time
- 19:30
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- View in Hansard ↗
- Speaker
- Lord Davies of OldhamLabour
- Quote
- The noble Lord will give due regard to the foresightedness of drafters of manifestos, who are unparalleled in their ability to open up opportunities for the future. The manifesto of course expresses a framework that gives opportunities for the most extensive of schemes. Governments, however, have to deal with the practicalities of that which can be achieved. I know that the noble Lord has not the slightest hesitation about wandering off into the wilds of flights of fancy in this respect, but we can get through—both in terms of Parliament and this Bill and the practicalities of the relationship with the industry—only that which we are able to negotiate. That is why we are concentrating on the savings accounts and deposit accounts in banks and building societies.
- Time
- 19:30
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- View in Hansard ↗
- Speaker
- Baroness NoakesConservative
- Quote
- The noble Lord, Lord Shutt, has raised some important points, but I was simply probing what these terms actually mean. I do not understand what, “an account that has at all times consisted only of money” means, and the Minister has not explained it. He said that it is current and savings accounts. That is not what Clause 9 says; it uses these terms which the Minister has not explained. We are going on too late this evening. I shall withdraw my amendment, but as we are at a point in the Bill where I can table further amendments for our next sitting, I shall try to table amendments that deal with the same probing issues—that will test my ingenuity—but shall not delay the Committee further this evening. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
- Time
- 19:30
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- View in Hansard ↗
- Speaker
- Lord BachLabour
- Quote
- I beg to move that the Committee be adjourned sine die.
- Time
- 19:30
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- View in Hansard ↗
- Speaker
- The Deputy Chairman of CommitteesConservative
- Quote
- The Committee is adjourned sine die. Committee adjourned at 7.34 pm.
- Time
- 19:30
- Source
- View in Hansard ↗
