Monday 21st June 2021
(3 years, 6 months ago)
Grand CommitteeDormant Assets Act 2022 View all Dormant Assets Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 3-II(Rev) Revised second marshalled list for Grand Committee - (21 Jun 2021)
Baroness Barran
“(3A) In subsection (3)(a) “amount owing” includes an amount available to be paid as benefits under a personal pension scheme (see section 6(1)(c) and (3)).”Member’s explanatory statement
This would ensure that the overview of the dormant assets scheme in Clause 1 reflects Clause 6, which covers amounts available to be paid as pension benefits even though the owner has not made an election as to how the benefits are to be received.
The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Baroness Barran) (Con)
My Lords, on 14 June I tabled minor and technical amendments to the Bill, which are needed to ensure that it works properly. These included changes for clarity and consistency, and updates to references and consequential amendments. I set these amendments out in my letter to your Lordships on the same day.
The changes, for clarity, can be grouped into three categories. The first group includes Amendments 1, 2, 3, 5, 21, 22, 23, 24, 28, 29, 30, 31, 42 and 46. These amendments clarify that amounts owing or payable to a person include those which are not immediately owing or payable until some action is taken. The second group includes Amendments 16 to 20, as well as Amendments 75 and 77. These amendments clarify that orphan moneys would arise in the context of a sub-fund of an umbrella structure. This is because an umbrella structure is effectively a shell structure, and it is the sub-fund of it that would be authorised under the Financial Services and Markets Act. The third group includes Amendments 7, 8, 9, 13, 14, 15, 25, 26, 27, 33, 35, 36 and 44. These amendments clarify that lifetime ISA provisions apply in the context of access restrictions and to client moneys; in other words, restrictions on assets held within lifetime ISAs apply when their transfer to the Reclaim Fund Ltd would trigger a withdrawal charge payable to HMRC. With that, I beg to move.
Lord Davies of Brixton (Lab)
My Lords, I was going to crave the indulgence of the Grand Committee in trying to hang on to my fast-disappearing status as a new, inexperienced Member: I wanted to provide an opportunity for a debate on Clause 1, on the overview of the scheme, and I was going to do that by stand part or by putting down an amendment—but I got the timetable wrong and I failed to do so. However, other people have come to my aid, in that there will be sufficient opportunities later in the Bill’s progress to raise the issues that I would have raised here had I got my act together.
I will mention the main issues that I have in mind. Of course, I mentioned them at Second Reading, but the ability to repeat points seems to be one of the great assets of this process that we go through. The first issue that I will come back to at an appropriate time is the whole structure that leads to this situation. We can have a lot of discussion about the process of the dormant assets scheme, but we need to address the question of why dormant assets appear in the first place. It would be wrong to have a full debate on the scheme without at least reflecting, to some extent, on that issue.
In the government consultation and in preceding debates that led to the Bill there has been a lot of discussion by various people about what the financial institutions are doing to make sure that this issue does not arise. In general terms, there has been a lot of discussion of that issue—well, perhaps not a lot—but I am not sure that it really gets anywhere. Everyone expresses intentions, but how detailed the planning is to avoid it happening is a separate issue.
However, I think there is a stage before that. Why do we have a structure that leads to this sort of end result? The fact that this can happen is something that bears investigation—not just because it has happened but what we can do about it—as does the extent to which the financial institutions seem, in one way or another, to try to shift the blame to individuals. There are questions about what we can we do so that it does not happen in the first place, and I will come back to that at a later stage, possibly this afternoon—and I will try not to repeat myself too much.
The other issue is additionality. There has not been nearly enough discussion of what exactly is meant by additionality; there is no clear structure as to how it is defined. I will take the opportunity at a later stage to raise and discuss that issue as well. So I am really just putting these issues on the table and saying that, at the appropriate time, I will raise them at a later stage of the process.
Since I am here and speaking, I will ask something. The Bill was published effectively only a few days ago, yet we end up with this extensive raft of minor technical amendments, which makes the job of understanding what the Bill is doing extremely difficult—twice or three times as difficult. The grid that we have been supplied with for today’s session is extremely useful, but getting it only an hour before the meeting reduces its value. If I had been quick, I would have ticked off which amendments fall into which of the groups that the Minister has identified. It would have been helpful if we had had it earlier and the different groups had been identified on that list. Perhaps we could have that in arrears, as it were.
Baroness Kramer (LD)
My Lords, I will be exceedingly brief. As the Minister has said, these are highly technical amendments. Like the noble Lord, Lord Davies, I am frustrated by so many amendments of a highly technical nature and confess that I have been unable to spend the time to get on top of the impact of those changes. I am therefore wholly reliant on the Government’s definition of them. Even my noble friend Lady Bowles was floored by this number coming at this point. I hope for assurance from the Minister that we are done with these technical changes. This truly is an unusual number for a Bill that everyone has been aware is coming for some time. On additionality, which the noble Lord, Lord Davies, referred to, and which I agree is exceedingly important, I have an amendment tabled for Wednesday which tackles that issue. I hope that he will have some input.
I wish to talk about the various amendments to Clause 3 relating to lifetime ISAs, which, in effect, can go into the scheme only if their transfer to a reclaim fund does not trigger a charge payable to HMRC. I am slightly taken aback. HMRC would not be getting its tax payments until the point of reclaim under normal circumstances, so by allowing the assets to go into the dormant assets scheme it loses nothing, not even the timing of the payment of tax charges, because without the reclaim there would be no tax due, as far as I can tell. That strikes me as extraordinary. Why on earth can these assets not be put into the dormant assets scheme? The tax relationship would probably need amending but that is surely not beyond HMRC’s scope. Surely we could ensure that the taxable event happened only at the point of reclaim, as it does right now, meaning there was a bigger pool available for very good causes. Can the Minister give us an idea of what kind of money we are talking about? How much is being denied to the fund because of this constraint that an event which is taxable under today’s legislation is not being amended to make it clear that it is taxable on reclaim, not on transfer to the fund?
I am getting a bit fed up with HMRC. Time and again we get its very narrow focus on tax revenue generation and very little interest in some of the consequences and external impacts of its actions. We have seen it on things such as the loan change, although this is an entirely different issue. Surely it has some responsibility to ensure that the dormant asset programme is as effective and generous as it can possibly be, and therefore making the effort to sit down and draft the various clauses that would in no way deteriorate its current or its proposed tax position, but would allow those assets to be transferred, is a reasonable expectation. I simply do not understand it.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
Lord Bassam of Brighton? I think he may have muted his equipment. Can he unmute?
Lord Bassam of Brighton (Lab) [V]
My Lords, I apologise. I apologise doubly for being late and for failing to unmute.
I missed the Minister’s explanation as she introduced this group, but a few points occur to me. There are some 20-plus issues tied up in these technical amendments and clarifications. That is a lot and, while I am very grateful for the text explaining them, there are some fairly substantial issues here. My attention was drawn to government Amendment 17, which applies a new clause in the case of a wound-up unit trust scheme or a terminated sub-fund of an umbrella unit trust scheme. It sounds awfully complex, actually; it may well be technical, but I do not fully understand exactly what lies behind the wording.
Baroness Barran (Con)
My Lords, I start by thanking noble Lords for their interventions. Like the noble Lord, Lord Davies of Brixton, I still feel like a newbie here, so I hope on that basis that we will both be given a little leeway.
I think that the central point of all of your Lordships’ comments was about the number of technical amendments, and a request for greater clarification—particularly, in the case of the noble Baroness, Lady Kramer, in relation to lifetime ISAs. I will say three things in that regard. The first, as I said in my letter of 14 June, is that in no way do these amendments change the policy intent of the Bill. In some ways this Bill is not complicated, but in other ways it cuts across a number of policy areas, and that is apparent in the number of government amendments.
The second point on which the noble Lord, Lord Bassam, asked for reassurance was that we would not be having another slew of government amendments on Report. I cannot that there will not be any more: I think there may be a very small number—but it will be a very small number. Thirdly, I undertake to write to your Lordships between now and Report and address in a bit more detail the impact of these amendments.
Baroness Barran
Member’s explanatory statement
This would ensure that the description of pension assets in Clause 1(5)(c) includes the right to elect how to receive pension benefits.
Member’s explanatory statement
This would remove words in the description of client money assets in Clause 1(5)(e) that are unnecessary in the light of the government amendment at page 2, line 45 and consequential changes proposed to be made by the government amendments to Clause 12.
Lord Bassam of Brighton
“(5A) Additional assets may be added to the scheme using powers under section 19, including where this is recommended by a report laid under section (Requirement to review the operation of the dormant assets scheme).”Member’s explanatory statement
This amendment makes clear that the list of assets in Clause 1(5) may not be exhaustive, given the existence of the Clause 19 power and the Government’s commitment to keep included asset classes under review.
Lord Bassam of Brighton (Lab) [V]
My Lords, this amendment is grouped with others that will have a similar effect, which is to secure reports on the operation of the dormant assets scheme. I think that we are all fishing in the same pool here. We all want the same thing and it is always nice to be able to agree with colleagues across the piece on something such as this.
We need periodic reviews. My amendment seeks to have the first periodic review after two years and subsequent reviews every five years thereafter, and I think that there is a degree of consensus that that is desirable. Why do we want to do that? Well, clearly, it makes sense; we need to know what other dormant assets can be released into the fund and how they are consulted on when they are brought forward. We also need to ensure that mechanisms work properly and that any new additions are sufficiently worked out. That is the purpose behind the amendment.
We also need to know why other fund that are dormant are not being released—in particular, I guess, some of the pension funds. I know that concern was expressed about that at Second Reading, because many of us see dormant pension funds as having a lot of potential. I know that the Government said that the dashboard was not yet ready or bedded in, but we could use periodic reviews to ensure that we are regularly updated on this.
So, very simply, that is my introduction to this amendment. I am sure that there will be a degree of consensus in the Committee on this issue, and I hope that the Minister can be positive about it and that, between now and Report, between us we can fashion amendments to the Bill that give expression to that consensus and that the Government can be happy with as well. I am more than happy to talk to other colleagues about this, so that we get it right, because ensuring that we have regular and periodic reviews is important, as it will build up trust in the legislation and across the sector that will benefit from this. I beg to move.
Lord Davies of Brixton (Lab)
My Lords, I really do not have anything extra to add to my noble friend Lord Bassam’s comments. The proposed clause is about a review of the functionality of the scheme, so it does not really get to the issues that I referred to earlier, so I think that I will leave it there. I am happy to support the amendment.
Lord Etherton (CB)
My Lords, I shall address Amendment 62. Like other amendments in this group, especially those of the noble Lord, Lord Bassam of Brighton, and the joint amendment of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer, Amendment 62 provides for a general review of the dormant assets scheme. Some of the other amendments are framed in rather narrower terms—for example, a review of whether further assets should be added—but I am looking at the issue of a general review in Amendment 62, as do the other amendments that I have referred to.
As a matter of principle and policy, the desirability of a review has already been recognised and provided for in Section 14 of the 2008 Act. Section 14(1)(a) provided:
“The Treasury shall carry out a review of … the operation of this Part”.
Section 14 is necessarily limited to the assets specified in the 2008 Act; it does not extend to any additional dormant assets subsequently added to the scheme under the Bill. But I would suggest that, by parity of reason and policy, there should be a provision in the Bill for a review of the scheme as enlarged by the Bill—or indeed if there are any further assets in the future to be transferred.
Now, I confess that I have made a mistake—a technical mistake, I suppose it could be called—in my amendment, in that the review under Section 14 of the 2008 Act was to be completed
“within three years from the date when a reclaim fund is first authorised.”
I have not seen that review, but I assume that it was duly conducted. Technically, therefore, I suppose, the section is spent. That is, presumably, why it is not repealed.
It would be possible, and quite easy, to extend Section 14 of the 2008 Act to Part 1, which is what I suggest by my amendment, just by extending the date for completion of the review specified in Section 14. I failed to deal with that in my proposed amendment but, having considered the other proposed amendments in this group, I agree that it would be better for there to be an initial review, as there was in Section 14, and then periodic reviews.
As the noble Lord, Lord Bassam of Brighton, said, there is minimal disagreement between people about what the time period should be. Some have suggested that there should be a general review within two years or three years and then periodic reviews thereafter every five years or three years. My alteration is minimalist because Section 14 provided for only one review, not periodic reviews, so that, if we were to extend the date for the review, as I said would be possible, there would be only one review. It seems sensible that there should be periodic reviews, whatever the period is, and I do not feel it is necessary for me today to specify whether I think it should be three, four or five years.
There is a difference between all the amendments proposed in this group about what is specially to be included in any review. The amendments I have mentioned provide for a general review and then the provisions go on to say, “bearing mind specifically x, y and z”. Section 14 of the 2008 Act is rather narrow, but it covers the identification of transferor banks and building societies.
Amendment 45, tabled by the noble Baroness, Lady Noakes, would determine whether additional assets can be covered by the scheme. I suggest, with respect, that that is too narrow. The noble Lord, Lord Bassam of Brighton, specifically addresses that purpose and the extent to which new dormant assets since the last review have contributed to meeting the underlying policy objectives. That is wider than Section 14 and is quite a wide objective. The amendment tabled by the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer, addresses wider issues and has a structure similar to Section 14 of the 2008 Act.
I suppose this is in a sense taking up a comment made by the noble Lord, Lord Davies of Brixton. My amendment is directed in terms of mentioning certain matters that must be specifically included in the general review. It is looking at identifying where these various assets have come from, where they have gone to and what has happened to them. We need to understand that in order to see why there are dormant assets. It is quite an important process to go through to identify how many there are and what proportion of them have come from, for example, banks, pension funds, ISAs or whatever it may be, and then we want to know why. If, for example, the information reveals a great disparity between where the assets have come from, that would raise a question that is worth investigating, and then we can go down the route that the noble Lord, Lord Davies, suggested and ask why this category produces so many dormant assets. I have also said that one should identify what has been spent in relation to each category of person and activity and what assets have been successfully claimed.
In subsections (2)(a) and (2)(b) of my proposed new clause, I have sought to get together enough information to understand whether we can learn something about why there are these dominant assets so that Parliament can identify whether some policy is being pursued that is not explicitly apparent in the way that the asset is applied. Having fully admitted that my own amendment is, to the extent I have mentioned, defective—I also think it is too narrow now—I certainly support the suggestion of the noble Lord, Lord Bassam of Brighton, that, together, surely we ought to be able to arrive at a consensus as to what should be covered.
Baroness Barker (LD)
My Lords, following our Second Reading, I went away and reflected on the way in which the Bill has been received and debated in your Lordships’ House. It would be fair to say that noble Lords as a whole wish to be supportive of the Government in what they are trying to do in the Bill. However, from a number of different perspectives, we all have questions about the effectiveness and efficiency of this method of doing things.
In particular, I tabled my Amendment 63 to make the point that nowhere in this Bill, or in its predecessor, is there an explicit statement about what these assets are supposed to be used to achieve. If we do not know what the objectives are, it is difficult to measure either the effectiveness or the efficiency with which the vehicle that has been constructed is doing that. It therefore seems that we as a House have an obligation to look at the reporting mechanisms that already exist. There are many of them in different places. They are all bits and pieces that you have to go and look at in, for example, the National Lottery Community Fund reports or the Reclaim Fund Ltd reports. Much of the detail of income and expenditure is in those reports, but there is very little in any of them on what has happened in terms of the impact.
My understanding is that the fund exists to use dormant assets not just because they happen to be there but for specific purposes of financial inclusion and developing financial literacy, particularly within poorer communities. That is what I really want us to try to have. When the Minister introduced the Bill at Second Reading, I was very struck when she said to us that the main impetus behind it coming to us was from the financial services industry, which wishes to see more dormant assets being used. That is fine—I absolutely agree with that—but to what end, and is the expenditure on this being done properly?
Noble Lords have to understand that the charitable sector is in a seriously bad way. A year ago, the Government asked the charitable sector what it thought the impact of Covid would be. In the initial lockdown, it thought that it would lose £4 billion. We have been through three lockdowns since that one. The government funds released to the sector in response to that figure of £4 billion were £750 million, of which £150 million came from bringing forward some of the dormant assets referred to in the Bill. The whole of the charitable sector is going to experience severe problems. It is every part of it, from Cancer Research UK already having to delay some of its projected work for the next five years through to the small neighbourhood organisations.
It is therefore extremely important that these assets be used for the express purpose for which they have been given and used as effectively as possible. We must also be able to work out from all the reporting that we do get to see that the principle of additionality is being adhered to: that these are funds for a specific reason, and that they are largely treated as one-off and not as ongoing revenue, particularly when government comes to talk about its overall response to the charitable sector.
My amendment was in part a nod to the Public Accounts Committee’s report of 9 June, in which it came up with its analysis of the Government’s response to the charitable sector and Covid. I understand that that report relates not just to the £150 million of dormant assets funding but to the £750 million. Nevertheless, the PAC raised significant questions in it, not least about the National Lottery Community Fund being able to provide sufficient data about what is happening with the distribution of some of its funds to poorer communities. Similarly, the report raised questions with the Charity Commission and the Government about the ongoing viability of charities, which are sometimes involved in quite essential charitable work.
For all those reasons, I came up with my amendment. I am agnostic on the length of time to be taken. I do not think that, for a programme of this kind, it is worth doing reports of anything under three years, because I do not think that you can generate significant data in fewer than three years, but we should have reports that are something more than a succession of different sets of accounts and annual statements for the different bodies responsible for the collection or the distribution of money, and we should look at whether this will continue to be the best way to deal with this issue. That is my amendment.
Lord Hodgson of Astley Abbotts (Con)
My Lords, the noble Baroness, Lady Barker, made a very important point about impact. I will come back to it in a moment in my remarks.
In the first instance, we heard from the noble Lord, Lord Bassam of Brighton, and the noble and learned Lord, Lord Etherton, about the timing of reviews to look at whether the structure is working effectively now and will work effectively at some date in the future. I want to probe the Minister a little further about the situation now and the current operation of the system. Specifically, I want to ask her whether the Government think that the existing powers to investigate, measure and check are sufficient.
As I understand it—I stand to be corrected—under the present system, money from the fund is passed to recipient bodies or recipient groups by what are called distributors, which have clear responsibilities to decide which bodies are worthy of funding and should get the money, and, after the funds have been passed over, to ensure that the proceeds are spent properly, effectively and in accordance with the way envisaged at the time of the grant. Again, as I understand it, there are currently four distributors: Big Society Capital, Access, Fair4All Finance and the Youth Futures Foundation.
The work of these four distributors is overseen by the Oversight Trust, which has no power to determine where the money goes but is charged with ensuring that the distributors have effective procedures in place to ensure good governance and proper performance of their duties. Clearly, the Oversight Trust has a very important role to play in maintaining public trust and confidence in the dormant assets scheme.
Can my noble friend enlighten me on three points? First, can a new distributor be appointed or dis-appointed? Who decides that and initiates it? If a decision is made to go ahead, what powers, if any, does the Oversight Trust, which is responsible for monitoring that body, have in making that final decision? That is my first question: can we remove or add distributors? How do we do it? What role does the Oversight Trust have in that process?
Secondly, and more generally, are the Government satisfied that the Oversight Trust has the powers necessary to fulfil this important role? For example, are distributors required or obliged to collaborate and co-operate with the Oversight Trust to ensure that it performs its duties effectively?
Thirdly—this point was made by the noble Baroness, Lady Barker—what role, if any, does the Oversight Trust have in measuring the impact of what the distributors are doing? Do we look in any way at whether the distribution policy being followed by one of the four groups now in power to do this makes sense for our society, or are they free as a bird? It would be helpful if the Minister could say a little about that.
Finally, it must be of importance, as we begin to see the expansion of the whole scheme—I think every Member of your Lordships’ House thinks that it is a good idea in principle; I certainly do—to ensure that the governance structure is adequate for the increased responsibilities that will be placed on it. I hope that my noble friend the Minister will be able to reassure me on these points when she replies to the debate.
Baroness Noakes (Con)
My Lords, Amendment 45 in this group is in my name. As has already been pointed out, it differs from the other amendments in the group, which call for reports, as it is a targeted amendment focused on ensuring that the scope for new asset classes being added to the dormant assets arrangements under the Bill is kept under review. The other amendments are broader and seek reports on the impact and operation of the scheme. I do not support littering legislation with reports on the impact of Bills—that is what the post-legislative scrutiny process is for—so I do not support the other amendments in the group.
I was going to point out to the noble and learned Lord, Lord Etherton, that his amendment is ineffective because Clause 31 deletes Section 14 from the 2008 Act, but he got there first. I would just explain that Section 14 was put in in the very specific context of the first Bill, the then Dormant Bank and Building Society Accounts Bill. At the time, there was considerable controversy about whether a voluntary scheme would work. There was much scepticism about whether banks and building societies would yield their assets, which is why that specific reporting section was put into the 2008 Act. It reported within a few years. It has been some time since I looked at that report but, broadly, it concluded that it had been effective. Not absolutely every bank and building society is in the scheme but, in terms of value, substantially the whole amount are.
I focused my amendment on bringing in other asset classes because it took a long time for this Bill to come forward after the 2008 Act. It was 13 years before more asset classes appeared, which is just too long. Indeed, my noble friend the Minister admitted as such at Second Reading when she said that the industry had been “nudging”—a polite term—the Government to get on and get this Bill done. I do not think that we can necessarily rely on the Government to prioritise or be proactive about the source of new funds coming into dormant assets, which is why I suggested a periodic report specifically on asset classes to keep up that pressure.
When the Dormant Assets Commission, which was set up to be independent of government, reported about four years ago it identified a number of additional assets. It decided to concentrate on the financial services sector, but even within that it noted, as we discussed at Second Reading, that a number of sources of assets in the financial services sector have not yet been brought within the scheme’s scope. The report also outlined a long list of assets outside the financial services sector, ranging from Oyster cards—I was astonished to find that there are 42 million cards with a balance on that have not been used for more than a year—to a large amount of money in unclaimed gambling winnings, which I find surprising. There are also lots of balances on things such as telephone accounts and energy accounts. There are lots of forms of dormant assets hanging around; they ought not to be retained by the companies that hold them but ought to be released for the kind of good works that are fostered by this Bill and the 2008 Act.
I hope that one day the Treasury will be shamed into no longer being the only body keeping its dormant assets out of the scheme, in the form of National Savings & Investments accounts. I believe it amounts to something close to state larceny for the Treasury to insist that it can keep dormant National Savings & Investments money because it has been used to fund public expenditure. It is not the Treasury’s money to keep. However, I acknowledge that shame is not something generally found in the Treasury, so we may have to wait a very long time to see those assets come within the scheme.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, it is quite useful to speak relatively late in this debate, because we have had a good flavour of the things that noble Lords are interested in. I agree with the noble Baroness, Lady Noakes, about additional assets, although I disagree with her in that I think there is room, as many other noble Lords have suggested, for a more general review clause. As has been suggested, between us perhaps we can find what shape that should have. There may also be a question over whether to load the review of potential new assets into that repeating review or to have separate reviews. That is something I have not yet resolved on in my own mind.
Amendment 65 in my name and that of my noble friend Lady Kramer concerns the report to Parliament, which is styled in the manner of a report from the Treasury and encompasses many of the features already discussed. It is obviously a probing amendment at this stage and covers a review of how the dormant assets scheme has worked, and then a review every three years.
It is probably too long not to have a review until three years from now. I almost want a review now, because an early review makes sense from the perspective of the point of transfer to Treasury responsibility and because there are now several years of experience of how the bank account side of things has progressed over time. That provides a datum against which to measure progression of other assets as they are brought in, and maybe to understand more about the differences as they emerge. I am sure that such monitoring has to be done anyway, but it is a matter of interest to Parliament. I therefore think it is reasonable to have the basis to interest Parliament with a review and to have a few more debates. I have not come across a debate on this before, though obviously I am much newer to this House than some other noble Lords.
I will highlight two specific things from my amendment. The first is the mention in proposed new subsection 1(b) of reviewing
“the effectiveness of the efforts made by financial institutions to secure that those entitled to money in inactive accounts are made aware of the fact.”
It now appears that there have been rather fewer claims on dormant assets than originally provided for—a matter we will return to in later amendments—but that does not explain what the various steps are and when they are taken.
I am curious about this from a recent personal experience when a bank used the notifier on a death certificate to locate the next of kin for one of my husband’s deceased brothers, but it was over 14 years after he died. The notifier had in fact moved, fortunately only once, and a letter eventually got to her and thence onward to my husband. I have absolutely no knowledge as to whether that is a typical time period before using such steps for tracing to take place, but it seems that the chance of success is much greater if tracing happens sooner and does not wait for when transfer to the dormant assets system is possible or imminent.
For pensions, of course, we are hoping that the pensions dashboard and other digital mechanisms will help keep people more attached to their money, but I am interested to know the point at which efforts are made, because it seems that it should not wait until that transfer point. It is thoughts such as that which lie behind seeking review of the effectiveness of efforts made by financial institutions. When things are done is as key to effectiveness as what has been done.
The second thing I want to highlight—it is really a collection rather than an individual point—are the issues in my subsection (2), in particular about the promptness of transfer of funds, their use and the value for money of the scheme. Again, as we will come on to in later amendments, there will have been caution over transfers at the start but by now there should be much more confidence about projections and risk assessments, and that should have flowed through to the efficiency and value for money of the scheme. It will also be important to follow what I would expect to be a similar kind of cautious and then maybe more aware progression for the new assets.
More generally, there seems to be a good case for review of all the matters that have been raised by the amendments in this group, and I hope that the Minister will note the interest in that and look favourably on an amendment on Report. If the Government were so inclined—as they seem to like amendments so far—to bring forward some more as a consequence of our discussion, maybe this is even something we could all work together on.
Baroness Kramer (LD)
My Lords, the amendments in this group touch on quite a wide range of topics. I hope it will be acceptable if I skim over them.
I want to start by picking up the issues raised by the noble Lord, Lord Bassam, and even more strongly in the amendment in the name of the noble Baroness, Lady Noakes, which stress the significance of—and make sure that there is capacity for—additional assets to be added to the scheme. The noble Baroness, Lady Noakes, summed up that particular set of problems exceedingly well. There is absolutely no reason why the Treasury should be sitting on a whole lot of dormant assets. In fact, there is no reason why anybody should be sitting on a whole lot of dormant assets.
I would like an answer to the question about lifetime ISAs that I raised in the first group. I have no idea of the size of the pool of lifetime ISAs that cannot be put into the dormant assets scheme because without amendment that would trigger a taxable event. It would be good to have clarity on whether these are tiny sums or rather big numbers; I fear it is the latter. This would be a good opportunity to put some pressure on the Treasury to sit down and write the two or three clauses needed to amend that particular set of problems.
At Second Reading I mentioned that the noble Lord, Lord Foster of Bath, was considering tabling some amendments which would expand the scheme to include dormant betting accounts. I need to tell the Committee that he has decided not to, for some fairly straightforward reasons. After discussion with the industry, it became clear that it would not agree to participate in the scheme, which is voluntary. This is because under the current arrangements those dormant accounts can be reclassified into the profit lines of the various companies in the industry. Of course, they then pay taxes on those profits and it does impact nominally on the size of their contribution to the voluntary levy they are involved in, but it is still a meaningful source of income for them. I know that there is going to be reform of the gambling industry; this strikes me as an excellent opportunity to deal with that problem, because surely this should not be money for a company’s bottom line—these are dormant accounts, and I think all of us across the Committee would far rather see them put to good use.
I want to pick up a couple of issues raised in Amendment 65 in the name of my noble friend Lady Bowles, to which I have also added my name—particularly the paragraph she discussed on
“the effectiveness of the efforts made by financial institutions to secure that those entitled to money in inactive accounts are made aware of the fact.”
As she said, the right moment for this is as soon as the accounts begin to look dormant, not 14 years later.
I note the memo from the insurance trade body, the ABI, which most of us have probably received. It said that
“a step change in reconnection efforts will only truly be achieved through the use of Government data, which can be used to verify customers’ addresses and would vastly improve industry’s tracing efforts.”
Can the Minister comment on that? If things could be done at government level to greatly enhance reclaim, that would be useful and a comfort to all of us as we become much more aggressive about making sure that more and more assets go into the dormant assets scheme.
I move to the points made by my noble friend Lady Barker on the impact of the dormant assets scheme. The noble Baroness, Lady Noakes, suggested that it is not something to review, but we have to recognise that this is not a straightforward area. Since we have mandated the scheme, we surely have a responsibility to know what happens with those dormant assets and exactly what they are achieving. I make a gentle point, noting the 9 June report of the Public Accounts Committee in the other place on the distribution of Covid support for charities, which says that it is
“unclear what influence special advisers had over some funding decisions, with some charities awarded government funding despite the Department’s officials initially scoring their bids in the lowest scoring category, including four out of the five lowest scoring applications.”
This suggests that identifying who should be a recipient is not straightforward. While we hope, of course, that we have chosen the right intermediaries, that they have processes in place and that the oversight is working, I believe that Parliament cannot walk away from this—so it is necessary that a report comes back to us covering this range of issues.
We will address additionality later but, if the Minister is concerned to explain constantly that the dormant assets scheme is entirely independent from the Government, she might want to look at the Government’s own website. I was going to quote it next week and had it in front of me just a moment ago. Anybody reading it would certainly assume that the Government were entirely in control, certainly of the £150 million from dormant assets that was used to support Covid. I have the text before me now. It says:
“The government has pledged £750 million to ensure VCSE can continue their vital work supporting the country … including £200 million for the Coronavirus Community Support Fund, along with an additional £150 million from dormant bank and building society accounts.”
To anybody reading that document, the Government have made clear that this is their decision, direction and influence. If that is not the case, it should not be written in that way; the Government cannot have it both ways. This may be independent and the money distributed on the basis set out in this legislation, but we are moving towards a situation in which the Secretary of State will be able to have a great deal of direct influence over where the money is distributed by changing the uses of the funds, et cetera. All of that brings us back to reporting for clarity, to make sure that everything is transparent—that strikes me as crucial.
I very much support all the measures here which, in various ways and in different clauses, call for proper review and transparency. Many of us coming to this for the first time have been quite shocked at how little anybody seems to know about a scheme that has been controlling £1 billion in assets and will be controlling several billion more in assets, and which surely will have a very significant impact for good, ill or indifference—so we really do need answers to all our questions.
Baroness Barran (Con)
My Lords, I thank your Lordships for your proposals on reviewing various aspects of the dormant assets scheme, and for raising the important issue of transparency. Like the noble Baroness, Lady Kramer, I will try to organise the amendments into different groups, because I believe that they cover three aspects of reporting. The first relates to regular reporting to Parliament on the operation of the scheme. The second relates to the role of reporting as a mechanism for encouraging further expansion of the asset classes that are eligible for inclusion in the scheme. The third relates to reporting in relation to the impact of the scheme.
On the first aspect, I turn to Amendments 61, 62 and 65, in the names of the noble Lord, Lord Bassam, the noble and learned Lord, Lord Etherton, and the noble Baronesses, Lady Bowles and Lady Kramer, which call for a regular government report on the scheme’s operations, including, for example, the amounts transferred into the scheme, by whom they were transferred, how they have been applied and the amounts reclaimed from RFL. I am grateful to your Lordships for raising these issues, and certainly agree on the importance of such transparency.
We believe that there are a number of mechanisms already in place for reporting on the scheme’s operations. Some of them are well established. For example, as the scheme administrator, RFL publishes annual reports that set out, among other metrics, the amounts it receives from participants and the value of reclaims. Other mechanisms have only recently been set up with RFL’s establishment as an arm’s-length body of the Treasury. For example, the Government will now be monitoring RFL’s delivery against the scheme’s objectives on a quarterly basis. In addition, the relevant Select Committee can always probe the working of the scheme at any point, and the Bill may be subject to post-legislative scrutiny, which takes place between three and five years after Royal Assent. In addition, starting in the current financial year, RFL will be audited by the Comptroller and Auditor-General, who will be able to report to the House of Commons the result of any value-for-money assessment it carries out. This will enhance Parliament’s oversight of RFL’s delivery of the scheme.
The noble and learned Lord, Lord Etherton, asked about the transposition of Section 14 from the original Act into this Bill. As he noted, the original Act required the Treasury to undertake a review of the legislation and lay it before Parliament within three years of the date that the reclaim fund was first authorised—and this review was indeed published in 2014.
I have tried to set out a number of the mechanisms that are now in place for reporting on the scheme’s operations, and we believe that these combined efforts do provide a greater level of transparency on the scheme’s operations and allow for flexibility in monitoring RFL’s delivery of the scheme as it works on the phased introduction and implementation of these new and more complex assets. By tightly prescribing the timing for carrying out such a review, an equivalent to Section 14 would, we believe, have a potentially limiting impact.
However, the basic principle that I have heard from your Lordships this afternoon is the importance of transparency and robust reporting—how much money, where is it coming from, what is the asset type, what is the purpose and what is the reclaim experience? We believe that all these points are covered, but we are anxious that your Lordships should agree that they are transparent and easy to access. So I am very happy to meet your Lordships ahead of Report to go through this in more detail and make sure that our understanding of the transparency that we believe the current reporting mechanisms offer indeed aligns with what your Lordships seek.
I will now turn to Amendments 4, 45 and 61, in the names of the noble Lord, Lord Bassam, and my noble friend Lady Noakes, relating to the role of reporting in encouraging further expansion of the scheme. Over the past five years, the Government and the reclaim fund have worked closely with industry on the scope and design of an expanded scheme, and I am extremely grateful for their hard work and dedication in helping to realise these very ambitious plans. While our industry stakeholders are keen to maintain momentum, they have consistently recommended a phased approach to expansion. This will allow participants to deepen their understanding of the scheme and to implement new processes progressively. This also enables RFL to build experience managing these new and more complex assets.
Decisions on which assets should be included in the future will depend on a number of factors, including identifying asset classes with high instances of dormancy and then setting the dormancy definitions for, and quantifying the value of, such assets. Consideration may also be given to whether other mechanisms for dealing with dormancy already exist and how these could interact with the scheme. Any further expansion will require the same close collaboration between the Government, the reclaim fund and industry, which has supported this phase of expansion.
The noble Lord, Lord Bassam, asked about the inclusion of additional asset classes, and my noble friend Lady Noakes strayed into the territory of state larceny—on which, obviously, I could not possibly comment. To be clear, at this stage the Government are not considering widening the net to include non-financial services assets. My noble friend talked about Oyster cards; the Bill contains a power to extend the scheme in future by way of regulations, and this obviously offers a more flexible avenue to reconsider whether some types of non-financial assets should be included in future. The noble Lord, Lord Bassam, also asked about the potential to expand to other forms of pension. Occupational pensions are excluded under the scheme as they are trust based, belonging to a fund or a group of investors rather than a specific identifiable individual. Only contract-based pension schemes are within the scope of the Bill.
To date, bringing new assets into the scheme has required primary legislation. As I just mentioned, Clause 19 provides a power to extend the scheme without need for this. In future it will be subject to the draft affirmative procedure, rightfully allowing Parliament the opportunity to scrutinise such regulations before they are made. It is natural that we will continue to review which assets may be suitable for further expansion. I will consider the best mechanism and timing to achieve this, taking into account the implementation of this phase and RFL’s quarterly reporting to the Government.
Further to this, the UK Government remain committed to engaging with the devolved Administrations on any legislative proposals or statutory changes that could have an impact on transferred or devolved matters of competence. This is in line with the principles set out in the devolution memorandum of understanding between the UK Government and the devolved Administrations. We will consult with the Northern Ireland Executive where the provision of any statutory instrument laid under Clause 19 will have an impact on transferred areas of competence in Northern Ireland—for example, the regulation of credit unions—with a view to obtaining mutual agreement on any approach before taking it forward.
Before I turn to Amendment 63 in the name of the noble Baroness, Lady Barker, I would like to make sure that we are on the same page about the £750 million and the £150 million. The £750 million was funding from the Treasury for the charitable sector, including social enterprises. The £150 million was in addition to that; it came from dormant assets and was distributed to the existing organisations.
Amendment 63 considers the impact of the scheme. I reiterate my thanks to the noble Baroness for placing emphasis on having transparency and clarity in reporting on this issue. If I followed her question correctly, she asked why this was not in the Bill. As she knows, this is something that we proposed putting into secondary legislation, with the purposes being specified through a public consultation.
As your Lordships know, the scheme provides long-term flexible funding that enables expert organisations to focus on creating positive and systemic change. It is essential that this funding has a positive impact by contributing to the social and environmental initiatives for which it is designed. The independent spend organisations are regularly reviewed by the Oversight Trust, which is their parent body, to examine their effectiveness in delivering against their objectives. They are also subject to standard annual reporting requirements.
My noble friend Lord Hodgson asked a number of specific questions about the role of the Oversight Trust. He will be aware that it was set up relatively recently in its current form. I will cite the example of Fair4All Finance, which was established in February 2019 following widespread consultation with almost 100 organisations, and I am sure that, had the Oversight Trust existed at that time, it would have been part of that. I do believe that it has the powers necessary to look at the impact of the different distribution organisations. As my noble friend knows, the issue of measuring impact in this area—attribution versus contribution and all the other complexities—is genuinely very difficult, but we are extremely encouraged by some of the early reports from the Oversight Trust on the way that it has approached that. I will briefly comment on that now.
As I mentioned, the independent spend organisations are regularly reviewed by the Oversight Trust on their effectiveness in delivering against their objectives—that happens every four years—and they are also subject to standard annual reporting requirements. The Oversight Trust’s review of Big Society Capital was published in 2020. It reported that Big Society Capital had made substantial progress in catalysing development of the UK social investment marketplace, which was one of its primary original objectives. For example, social property funds, which did not exist at all in 2012, are now worth more than £2 billion.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
I have received a request to speak after the Minister from the noble Lord, Lord Davies of Brixton.
Lord Davies of Brixton (Lab)
I naively had it in my mind when I spoke that I was speaking only to Amendment 4. I cannot come back on the substance of the amendments, but I have a couple of specific questions. First, in the formal consultation, and in the previous reviews, the Government said that they recognised
“the strong interest in the ways that funds can best be spent”,
even though it was outside the consultation, and that:
“Accordingly, we will consider whether this is an area that should be reviewed”—
in other words, other ways of spending the money. Is this what the Minister just referred to or is it a separate exercise that is being considered?
In the Second Reading debate, the Minister referred to the additionality principle in her introduction. She said:
“Money must fulfil the additionality principle, so it cannot be used as a substitute for central government funding.”—[Official Report, 26/5/21; cols. 1035.]
In response to the debate, she said:
“There was a lot of discussion about the additionality principle. This is set out in paragraph 9 of Schedule 3 to the 2008 Act and remains unchanged.”—[Official Report, 26/5/21; cols. 1084.]
Of course, I turned to the 2008 Act. It is far from explicitly set out; it is actually set out only at one remove. It refers to the need for the Big Lottery Fund to cover the issue in the annual report and to say how it complied with that requirement. It does not set out explicitly what is meant by additionality, so my second question is would it not be better to have a clear and specific definition of what is meant by additionality, given the emphasis the Government place on it as a pillar of the scheme?
Baroness Barran (Con)
I thank the noble Lord for his additional questions. He talked about other ways of spending the funds. I was talking about other causes; I am not sure whether we are using different words for the same thing. In the consultation that we are proposing, we will invite the public to name the issues they care about on which these funds should be used—the aim being to have that in secondary rather than primary legislation to make it a bit more flexible—as opposed to using different types of spend organisations. I was referring to the causes on which that will be spent.
I think that issues of additionality are likely to come up quite frequently, particularly on Wednesday, when we debate some of the other amendments. Perhaps we can take that issue in the round then, if the noble Lord is agreeable.
Lord Bassam of Brighton (Lab) [V]
My Lords, the noble Baroness, Lady Kramer, said it all, in the sense that this has been an extremely wide-ranging debate covering many topics, even though, as I said at the outset, we are fishing in the same pool here looking for a form of review. I thank the Minister for her very full, detailed and thorough response. I will have to read it carefully before deciding what to do about this subject area on Report.
I also thank her for the opportunity she has afforded us through her response of meeting and considering what other ways there may be to look at the impact of the dormant assets review and how we can best formulate it. I think she was inviting us to subscribe to an amendment that covers that point, but I am not sure yet. I look forward to having that discussion with her.
It is perhaps worth reflecting on comments that colleagues made. The noble Baroness, Lady Noakes, knows that I agree with her that there is not much point bringing forward amendments that lead to pointless reports unless those reports have an action at the end of them. That is why my amendment in particular calls for a review with the purpose of leading to something. That is why it is important that we have an early review. The noble Baroness, Lady Bowles, asked for a review now. “Now” may be in two years’ time after the Bill has passed—that would be about right—and periodic reviews thereafter.
The good thing about this legislation is that flexibility is brought into it. Although at the moment it is limited to financial products, in her response the Minister did not seem to rule out entirely that it might be extended to cover non-financial products. I liked the noble Baroness, Lady Noakes, looking at things such as Oyster cards, gambling winnings and utility accounts. At Second Reading I raised that assets from criminal activity might be brought into the scheme. That is perhaps going a bit far at this stage, but we are all looking at ways in which we can expand dormant assets so that they can be used for a broader social purpose.
The noble Lord, Lord Hodgson, was right to ask whether the powers are sufficient at the moment. I want to be confident that is right. As the Minister acknowledged, the Oversight Trust is very much in its early phase of development, though clearly it has done some important and valuable work so far.
The Minister said that transparency could be guaranteed through a number of routes: the RFL, Select Committees and post-legislative scrutiny. That is true—there is no doubt that those routes are available—but one of the reasons I am keen to see a review process built into the legislation is that we need to have that review in one place so that we can look across the piece in a more coherent and cohesive way, decide whether the dormant assets are having impact, determine whether there are other financial and non-financial assets that could be brought within its scope and see that there is a degree of transparency about the way in which the legislation is operating. That is why I am keen to see a review process.
The noble and learned Lord, Lord Etherton, made a good point about the need to look at the derivation and application of funds: where from and why? That is really part of the thinking behind my amendment and, I think, other amendments in this group.
We have had a very good discussion on this. It is an important part of the legislation. I welcome the Minister’s offer of some discussions and restate my intent to bring back an amendment that captures the best of the other amendments and brings them to bear on how we move forward in reviewing how this legislation works. I am grateful to everybody for their interest and support on this. I beg leave to withdraw my amendment.
Baroness Barran
“(9) In this Part—(a) any reference to an amount owing (or payable) to a person includes a reference to an amount which is not immediately payable to the person only because it is necessary for a request for payment to be made or for the person’s entitlement to payment to be verified, and(b) any reference to the right to payment of an amount owing (or payable) includes, in the case of an amount described in paragraph (a), the right to request payment of the amount.”Member’s explanatory statement
This would ensure that the provisions of Part 1 relating to transfers of dormant assets to an authorised reclaim fund cover not only cases where an amount is payable immediately (i.e. as a debt) but also cases where the person entitled to an amount needs to request payment, or that person’s entitlement needs to be verified, before the amount becomes payable immediately.
Member’s explanatory statement
This would correct an inconsistency between Clause 2(2)(a) and corresponding provisions elsewhere in Part 1, such as Clause 8(2)(a).
Lord Parkinson of Whitley Bay (Con)
My Lords, on 14 June the Minister tabled minor and technical amendments that, as she has explained to the Committee, are needed to ensure that the Bill works properly. These included changes for clarity and consistency and updates to references and consequential amendments. My noble friend set out these amendments, along with some further detail, in her letter to all noble Lords on the same date.
The changes relating to consistency can be grouped into two categories. The first, including Amendments 6, 10 and 12, seeks to ensure consistency of language in the insurance and pension transfer provisions. This includes a change of tense to align with other transfer provisions. These amendments would change references to a person to whom the benefits or proceeds
“were payable immediately before the transfer”
to a person to whom they are
“payable immediately before the transfer”.
The other change to the insurance and pension transfer provisions is to correct a minor terminological error in Clause 7(5)(c), which should refer to the “benefits” rather than the “proceeds”, aligning with the pension benefits mentioned in the opening words of Clause 7(5).
The second category, including Amendments 34 to 37, seeks to ensure consistency of language in references to shareholders. In particular, it would change references to the individual in whose name the share was “held” to the individual in whose name the share was “registered” so that there could be no doubt that the Bill refers to the same individual. I beg to move.
Baroness Kramer (LD)
I have nothing to add. I looked at the amendments and they all seem to make technical sense to me.
Lord Bassam of Brighton (Lab) [V]
My Lords, I have nothing to add except that government Amendment 12 is described as a “verbal error”. I am not quite sure that you can have a verbal error in a piece of written legislation; perhaps the Minister can help us with that one.
Lord Parkinson of Whitley Bay (Con)
I am grateful to the noble Baroness and the noble Lord for their support and brevity. As I said, these are minor amendments.
The noble Lord, Lord Bassam, alighted on “verbal”. I changed that word in my opening to this short debate to “terminological”; I hope he agrees that that is a bit clearer. Either way, I hope he sees that it is de minimis.
Baroness Barran
Member’s explanatory statement
This amendment is consequential on the government amendment at page 3, line 35.
Member’s explanatory statement
This amendment is consequential on the government amendment at page 3, line 35.
“(2A) Proceeds of a contract of long-term insurance held in a Lifetime ISA are excluded from subsection (1) if their transfer to an authorised reclaim fund would result in liability to pay a withdrawal charge to HMRC.”Member’s explanatory statement
This would secure that insurance proceeds held in a Lifetime ISA are excluded from “eligible insurance proceeds” only when their transfer to a reclaim fund would trigger liability to a withdrawal charge payable to HMRC.
Baroness Barran
Member’s explanatory statement
This would correct an inconsistency of expression between Clause 5(2)(a) and corresponding provisions elsewhere in Part 1, such as Clause 8(2)(a).
Member’s explanatory statement
This would correct two minor errors in Clause 7(3)(b)(ii). The reference to subsection (2)(a) is unnecessary and should be removed. And “a person” at the beginning is more accurate than “the person”, as there may be no person of the kind mentioned.
Lord Parkinson of Whitley Bay (Con)
My Lords, again, these amendments relate to the minor and technical amendments about which the Minister, my noble friend Lady Barran, wrote to your Lordships on 14 June.
Amendments 66 to 72 are consequential amendments to the schedules to other pieces of legislation. Amendment 66 would amend references in the Financial Services and Markets Act 2000 to an “authorised reclaim fund”; it would also amend the regulated activities order to ensure that it reflects the wider activities of a reclaim fund provided for by the Bill.
Amendments 67 to 71 would amend the Dormant Bank and Building Society Accounts Act 2008. Amendment 67 would ensure that the provisions made in Clause 17(1) of the Bill, on trust and fiduciary duties, apply to banking assets. Amendments 68 and 69 would clarify that the Reclaim Fund is to transfer money from unwanted assets to the National Lottery Community Fund while being able to retain the amount it needs to meet regulatory requirements or expenses. Amendment 70 would remove an unnecessary reference to the deduction of expenses from surplus funds. As these have already been identified as surplus and therefore available in full for transfer to good causes, no further deductions would be needed. Amendments 71 and 72 would ensure that the 2008 Act refers to all types of eligible pensions benefits.
The other amendments—Amendments 11, 32, 38 to 41, 43, 47 to 49, 73, 74 and 76—would ensure that cross-references to the Bill are correct. I beg to move.
Baroness Kramer (LD)
My Lords, I will again be brief but I went nearly mad trying to track some of these amendments through. I accept that they are consequential but I have one question. FSMA 2000, an Act with which I have spent far too much of my life, will—after these amendments—now use the phrase “unwanted asset money”. Are the Government comfortable that we do not have a problem with the word “unwanted”? There is a difference between dormant money and money that is unwanted. We all know that the reclaim process is critical but I want to be sure that we have not got ourselves into any tricky corners with all of that. That is my only comment; the intent is obviously consequential.
Lord Bassam of Brighton (Lab) [V]
My Lords, I too am broadly satisfied with this collection of amendments, although they raise some questions about the initial drafting. I made a point about that at the outset of this afternoon’s deliberations. I just wonder why we have to amend the definition of “third party” by government Amendment 47. Also, what is not right—this is in government Amendment 49—with the definition of “repayment claims” that requires amendment? Perhaps the Minister could help us with that.
Lord Parkinson of Whitley Bay (Con)
Again, I am grateful to the noble Lords for their support, particularly given the large number of amendments, albeit small ones. To answer the question of the noble Baroness, Lady Kramer, the use of “unwanted asset” is the intended terminology. “Unwanted” is different from “dormant”.
On the question raised by the noble Lord, Lord Bassam of Brighton, if he will forgive me, given the speed of progress on this group, it might be better if I make sure that I have understood it and write to him with a full answer so that he has that before Report. With that, I commend these amendments to the Committee.
Baroness Barran
Member’s explanatory statement
This would correct a minor verbal error in Clause 7(5)(c), which should refer to “the benefits” i.e. the pension benefits mentioned in the opening words of Clause 7(5).
Baroness Barran
Member’s explanatory statement
This amendment is consequential on the government amendment at page 8, line 30.
Member’s explanatory statement
This amendment is consequential on the government amendment at page 8, line 30.
“(3A) An amount held in a Lifetime ISA is excluded from subsection (3) if its transfer to an authorised reclaim fund would result in liability to pay a withdrawal charge to HMRC.”Member’s explanatory statement
This would secure that an amount held in a Lifetime ISA is excluded from “eligible amount owing by virtue of a collective investment” only when its transfer to a reclaim fund would trigger liability to a withdrawal charge payable to HMRC.
Member’s explanatory statement
This would amend Clause 9(5)(a) so that it applies in the case of a wound-up OEIC or sub-fund of an OEIC which is an “umbrella company”. The term “umbrella company sub-fund” is defined in the text proposed to be inserted by the government amendment leaving out paragraphs 9(6)(b) and (c) on page 9.
Member’s explanatory statement
This would amend Clause 9(5)(b) so that it applies in the case of a wound-up unit trust scheme or a terminated sub-fund of an umbrella unit trust scheme. The term “umbrella unit trust scheme sub-fund” is defined in the text proposed to be inserted by the government amendment leaving out paragraphs 9(6)(b) and (c) on page 9.
Member’s explanatory statement
This would amend Clause 9(5)(c) so that it applies in the case of a wound-up authorised contractual scheme or a terminated sub-fund of an umbrella co-ownership scheme. The term “umbrella co-ownership scheme sub-fund” is defined in the text proposed to be inserted by the government amendment leaving out paragraphs 9(6)(b) and (c) on page 9.
Member’s explanatory statement
The amendment would leave out words rendered redundant by text proposed to be inserted by the government amendment leaving out paragraphs 9(6)(b) and (c) on page 9.
“(b) “umbrella company sub-fund” means a separate part of the property of an umbrella company that is pooled separately;(c) “umbrella unit trust scheme sub-fund” means a separate part of the property of an umbrella unit trust that is pooled separately;(d) “umbrella co-ownership scheme sub-fund” means a separate part of the property of an umbrella co-ownership scheme that is pooled separately.”(7) In subsection (6)—“umbrella company” means an OEIC whose instrument of incorporation provides for pooling in relation to separate parts of the scheme property and whose shareholders are entitled to exchange rights in one part for rights in another;“umbrella co-ownership scheme” means an authorised contractual scheme whose contractual scheme deed provides for pooling in relation to separate parts of the scheme property and whose unitholders are entitled to exchange rights in one part for rights in another; and“umbrella unit trust scheme” means an authorised unit trust whose trust deed provides for pooling in relation to separate parts of the unit trust property and whose unitholders are entitled to exchange rights in one part for rights in another;and in this subsection and subsection (6) references to pooling are to such pooling as is mentioned in section 235(3)(a) of FSMA 2000 (collective investment schemes).”Member’s explanatory statement
This would define the terms “umbrella company sub-fund”, “umbrella unit trust scheme sub-fund” and “umbrella co-ownership scheme sub-fund”, as used in Clause 9(5).
Baroness Barran
Member’s explanatory statement
This is a drafting amendment to secure consistency of expression across Part 1 of the Bill in consequence of the proposed removal of subsection (3) of Clause 12 by the government amendment to page 11, line 14.
“(a) a person to whom the amount is payable immediately before the transfer ceases to have any right against any investment institution to payment of the amount, but”Member’s explanatory statement
This is a drafting amendment to secure consistency of expression across Part 1 of the Bill in consequence of the proposed removal of subsection (3) of Clause 12 by the government amendment to page 11, line 14.
Member’s explanatory statement
This amendment is consequential on the government amendment to leave out subsection (3) of Clause 12.
Member’s explanatory statement
This amendment, with the other government amendments to Clause 12, would remove references to a person entitled to direct the payment of an amount of dormant eligible client money and brings Clause 12 in line with other similar provisions in Part 1. Cases where payment of a dormant amount needs to be requested, or entitlement verified, before an amount becomes owing (or payable) to a person will be covered by the government amendment to Clause 1 proposed at page 2, line 45.
Member’s explanatory statement
This amendment is consequential on the government amendment at page 11, line 31.
“(5A) Client money held in a Lifetime ISA is excluded from subsection (5) if its transfer to an authorised reclaim fund would result in liability to pay a withdrawal charge to HMRC.”Member’s explanatory statement
This would exclude from “eligible client money” client money held in a Lifetime ISA at a time when its transfer to a reclaim fund would result in liability to pay a withdrawal charge to HMRC.
Member’s explanatory statement
This amendment is consequential on the government amendment at page 11, line 31.
Baroness Barran
Member’s explanatory statement
This amendment is consequential on the government amendment to leave out subsection (3) of Clause 12.
Member’s explanatory statement
This amendment is consequential on the government amendment to leave out subsection (3) of Clause 12.
Member’s explanatory statement
This amendment is consequential on the government amendment to leave out subsection (3) of Clause 12.
Baroness Barran
Member’s explanatory statement
This would correct an inconsistency of expression between Clause 14(2)(a) and corresponding provisions elsewhere in Part 1, such as Clause 8(2)(a).
Member’s explanatory statement
This would limit the scope of the definitions in Clause 14(3) to Clauses 14 to 16, as there are other references in the Bill to a share for which the Clause 14(3) definition is inapt.
Member’s explanatory statement
This amendment is consequential on the government amendment at page 13, line 4.
Baroness Barran
Member’s explanatory statement
This would make the language in Clause 15(1) consistent with Clause 14(1)(a).
Member’s explanatory statement
This amendment is consequential on the government amendment at page 13, line 4.
“(1A) An amount held in a Lifetime ISA is excluded from subsection (1) if its transfer to an authorised reclaim fund would result in liability to pay a withdrawal charge to HMRC.”Member’s explanatory statement
This would secure that an amount held in a Lifetime ISA is excluded from “eligible proceeds or distribution” only when its transfer to a reclaim fund would result in liability to pay a withdrawal charge to HMRC.
Baroness Barran
Member’s explanatory statement
This would make the language in Clause 16(3)(a) consistent with Clause 14(1)(a).
Baroness Barran
Member’s explanatory statement
This amendment, with the government amendments at lines 9, 11, 14, 17 and 19 on page 14, would ensure that Clause 17 refers to the correct provisions of Part 1.
Member’s explanatory statement
See the explanatory statement for the government amendment at page 14, line 4.
Member’s explanatory statement
See the explanatory statement for the government amendment at page 14, line 4.
Member’s explanatory statement
See the explanatory statement for the government amendment at page 14, line 4.
Member’s explanatory statement
This amendment would remove an unnecessary word in Clause 17(4) to ensure it applies correctly to a right to payment of the reclaim amount referred to in Clause 8(2)(b).
(5) In this section—“extinguishing provision” means section 2(2)(a), 5(2)(a) or (3)(a), 8(2)(a), 12(2)(a) or 14(2)(a);“right to payment provision” means section 2(2)(b), 5(2)(b) or (3)(b), 8(2)(b), 12(2)(b) or 14(2)(b); and“transfer provision” means section 2(1)(a), 5(1)(a), 8(1)(a), 12(1)(a) or 14(1)(a).”Member’s explanatory statement
See the explanatory statement for the government amendment at page 14, line 4.
Baroness Barran
““withdrawal charge payable to HMRC” means a charge payable under paragraph 8 of Schedule 1 to the Savings (Government Contributions) Act 2017.”Member’s explanatory statement
This would define “withdrawal charge payable to HMRC” by reference to the primary legislation governing Lifetime ISAs.
Baroness Barran
Member’s explanatory statement
This is a drafting amendment to secure greater consistency of expression in references to a person’s right to payment of a dormant amount owing.
Baroness Barran
Member’s explanatory statement
This would amend the definition of “third party” in Clause 22(2) so that it refers to claims arising by virtue of Clause 5(3)(b), as well as those arising by virtue of Clause 5(2)(b).
Baroness Barran
Member’s explanatory statement
This amendment would ensure that Clause 24(1) refers to claims arising by virtue of Clause 5(3)(b), as well as those arising by virtue of Clause 5(2)(b).
Baroness Barran
Member’s explanatory statement
This would amend the definition of “repayment claims” in Clause 25(3) so that it covers claims arising by virtue of Clause 5(3)(b), as well as those arising by virtue of Clause 5(2)(b).
The Deputy Chairman of Committees (Lord Haskel) (Lab)
My Lords, we now come to the group consisting of Amendment 50.
Amendment 50
Baroness Noakes
“Examination by Comptroller and Auditor General
(1) The Comptroller and Auditor General (“the Comptroller”) may carry out examinations into the economy, efficiency and effectiveness with which Reclaim Fund Ltd has used its resources in discharging its functions.(2) An examination under this section may be limited to such functions (however described) of Reclaim Fund Ltd as the Comptroller considers appropriate.(3) Before carrying out an examination under this section, the Comptroller must consult Reclaim Fund Ltd.(4) The Comptroller may report to the House of Commons the results of any examination carried out under this section.”
Baroness Noakes (Con)
My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, for adding her name to the amendment.
At Second Reading, I asked the Government whether they would switch from using private sector auditors for Reclaim Fund Ltd to using the Comptroller and Auditor-General. I was disappointed that my noble friend the Minister did not reply to that when she wound up the debate; nor did she write to me following the debate. However, the Government’s Back-Benchers are well aware that they are generally not the priority of Ministers and I do not hold it against her.
At Second Reading, my primary focus was on switching the statutory audit arrangements. All limited liability companies, apart from very small ones, are required to be audited by statutory auditors. The Companies Act 2006 opened up the possibility, for the first time, of the appointment of the C&AG to companies in the public sector. That was in response to a report by Lord Sharman, who sadly has now retired from the Liberal Democrat Benches. I hope that my noble friend the Minister will explain what arrangements will be made for the statutory audit of Reclaim Fund Ltd, now that it is fully within the public sector. It has been audited by private sector auditors to date. I continue to believe that it should be audited by the C&AG.
Last week, I had a helpful meeting with my noble friend the Minister and her officials. They said that the audit would be carried out by the C&AG in future and that the power for this existed under the National Audit Act 1983. This left me a little confused because that Act does not deal with the statutory audit of companies incorporated under the Companies Act. I hope that my noble friend will be able to clarify the position today. In the first group, she referred to value-for-money auditing—I shall come to that in a moment—but she did not refer to statutory audit.
My reasons for shifting the financial audit of Reclaim Fund Ltd from private sector auditors were partly because it would be cheaper but mainly because the National Audit Office carries out value-for-money work, not just financial audits. I believe that there are strong grounds for believing that the activities of Reclaim Fund Ltd would benefit from a value-for-money audit. For example, I believe that the ultra-cautious approach to the investment of the huge funds that are retained within the company has not optimised the income of the company. It has offices in St James’s Square, which, I wager, is not the most cost-effective location. Every penny that is either spent unwisely or represents forgone income translates into less money flowing to the good causes that should be funded by the dormant assets.
This is why I have tabled an amendment for Committee that focuses on value-for-money audits alone. Value-for-money audits are a routine part of auditing in the public sector, and those bodies that are in the public sector but are not government departments usually have the C&AG specified as their auditor by statute. However, some, like Reclaim Fund Ltd, are not set up like this and value-for-money audits generally proceed on a voluntary basis. I assume that this will be the basis underpinning the upcoming VFM audits that my noble friend referred to earlier.
As there have been some difficulties in getting the NAO into some bodies in the past, it has been necessary from time to time to make statutory provision for this. However, these have generally been big beasts rather than a small company such as Reclaim Fund Ltd. My amendment is drafted on the basis of what is now Section 7D of the Bank of England Act 1998—inserted by the Bank of England and Financial Services Act 2016—which was necessary to get access for the C&AG to carry out value-for-money audits in the Bank of England. Obviously, it would be best if the C&AG did both financial and value-for-money audits on Reclaim Fund Ltd.
I very much look forward to hearing what my noble friend the Minister says. I beg to move.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I added my name to this amendment because I support entirely the objective that has been so well outlined already by the noble Baroness, Lady Noakes. Like her, I share the view that both the statutory audit and the value-for-money audit should be provided for. I will defer to her superior knowledge in terms of which bodies tend to be routinely audited or where there is a degree of optionality, or, at least, life is made difficult so that you have to have something like Section 7D of the Bank of England Act 1998. I too had a meeting with colleagues and the Minister in which I believe it was said that the audit would be by the Comptroller and Auditor-General, but I am not sure now whether that is absolutely the case, given what the noble Baroness, Lady Noakes, has said.
It is very important that we have, for the record, a knowledge of exactly what is expected to happen and whether there is any optionality about it. If there is some kind of optionality, then it is necessary to have an amendment of the kind proposed by the noble Baroness, Lady Noakes. The record has to be clear as to what will happen. I am sure the Minister has all the best intentions, but it is obviously not quite such a clear-cut situation as we have been led to believe. If no fulsome response is available at this point in time, then it is absolutely necessary that we have the information about that well in advance of Report so that we can know whether there is still a need for the amendment.
Lord Davies of Brixton (Lab)
My Lords, I thank the noble Baroness for the amendment, which I support in principle. I am not saying this in jest, but I am always gravely suspicious of lists which involve alliteration, because you are left wondering whether the wish to have all the words starting with the letter E—economy, efficiency and effectiveness—overcomes the need to comprehensively describe what the audit should be doing. Where does “economy, efficiency and effectiveness” come from? Maybe it is a standard phrase which is well established and understood to be comprehensive, but reassurance on that would be helpful.
Baroness Kramer (LD)
My Lords, I very much support everything that has been said so far, and I hope that we will get some clarity. Value for money is critical when we are dealing with these kinds of organisations.
I decided I would take a quick look at the financials of Reclaim Fund Ltd—which does not take very long as they are not hugely detailed—and the number that knocked me over and made me very concerned that value for money was definitely on the agenda was the remuneration of the chief executive. They may be an absolutely stellar individual and I would not wish in any way to criticise the individual personally but, according to the numbers I was looking at, there are 12 employees of Reclaim Fund Ltd, one of whom is the chief executive himself, and the chair. The median CEO salary in 2019 at the largest 100 charities was £155,000 a year, but in 2020 the chief executive of Reclaim Fund Ltd earned £217,000, if I add up simply salary and performance-related pay and leave out the pensions stuff. It struck me as prima facie rather out of line. Making sure that there is an audit that takes value for money into account would certainly give us all much more confidence that these issues were being handled appropriately. I fully understand that, as the asset base expands, there will be more complexity, so maybe there is a changing situation. But the 2019 pay packet was similar and I want to make sure that the appropriate body is focused properly on these issues and that value for money sits right at the front of the audit responsibility.
Lord Bassam of Brighton (Lab) [V]
My Lords, it is always nice to be able to agree with the noble Baroness, Lady Noakes. We have crossed swords many times, but I very much share one thing in common with her, and that is a desire to have an absolutely laser focus on getting value for money. So I am very supportive of her amendment; it certainly goes to the right place. The noble Baroness, Lady Kramer, touched on the importance of that in drawing our attention to remuneration levels within Reclaim Fund Ltd.
We need to be assured that we are getting value for money. Getting the Comptroller and Auditor-General involved in looking at the Reclaim Fund Ltd is a valuable use of the time of that body, because we need to better understand how funds are being used and be reassured that the best possible value for money is being secured. After all, this is a very significant funding mechanism and we need to ensure that, as part of it, the Reclaim Fund Ltd operates to the best and highest of standards. My noble friend Lord Davies is right that we need to focus on issues such as efficiency and effectiveness of spend, so I am very supportive of the amendment moved by the noble Baroness, Lady Noakes.
Baroness Barran (Con)
My Lords, Amendment 50 seeks to provide a power for the Comptroller and Auditor-General, the C&AG, to examine the Reclaim Fund Ltd for its economy, efficiency and effectiveness in using its resources to carry out its functions—also known as a value-for-money assessment—and to lay the result of the examination before Parliament.
I will first address the question on RFL’s auditors that my noble friend Lady Noakes asked at Second Reading. As set out in the Government’s framework agreement with RFL, which has been published in the Libraries of both Houses, the C&AG will audit the company’s accounts. This will be possible because of the explicit agreement made between RFL and the Treasury for such an arrangement. I hope that my noble friend will feel that that is sufficiently clear.
I know that my noble friend was also anxious to confirm that both the value-for-money assessment and the audit would be carried out by the same body, so, to continue in that vein, the C&AG may also carry out value-for-money assessments of the Reclaim Fund Ltd in the way proposed in subsection (1) in my noble friend’s amendment. The C&AG can carry out value-for-money assessments of public bodies under the National Audit Act 1983. The Act enables the C&AG to carry out value-for-money assessments of a body if there is an agreement between the body and a Minister of the Crown that requires the body’s accounts to be examined and certified by the C&AG and that enables value-for-money assessments to take place. This is set out in Section 6(3)(d) and 6(5) of the National Audit Act. An agreement has been made between the Treasury and RFL that meets these conditions of the Act, and this arrangement is outlined in the RFL/Treasury framework agreement.
Value-for-money assessments can be undertaken under Section 6 of the National Audit Act in relation to many public bodies, including UK Asset Resolution, the British Business Bank and S4C, the Welsh language broadcaster, to name but a few. In future, the Comptroller and Auditor-General will be able to undertake value-for-money assessments in relation to RFL.
Section 9 of the National Audit Act 1983 enables the Comptroller and Auditor- General to report to the House of Commons the result of any value-for-money assessment carried out under Section 6 of the Act. So, the provisions in the Act, which as I have already explained are applicable to RFL, also make provision for the Comptroller and Auditor- General to bring the results of the value-for-money assessments to the attention of the House of Commons.
My noble friend picked up on the location of RFL’s offices in St James’s. My understanding is that this is the registered address of the company secretary and that RFL is actually based in Crewe. I hope my noble friend sees that as a more cost-effective, dare I say levelling-up, option.
Baroness Noakes (Con)
My Lords, I thank my noble friend the Minister for her comments, which seem to have addressed all the points I was seeking to make. I think it is important that all bodies in the public sector are subject to public sector audit for various reasons—not least value for money, the subject of my amendment. I am grateful to her for setting that out in detail and I do not mind what she calls me on that basis. I beg leave to withdraw the amendment.
“(3) The provision in subsection (2) may be taken into consideration by an authorised reclaim fund when setting the amount of reserve that it holds in order to meet any reclaims.”Member’s explanatory statement
This amendment is to probe the Government’s guarantee with a view to enabling a lower reserve: currently Reclaim Fund Ltd reserves 40% of its funds to meet any reclaims and releases the remainder to charity.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, this is a probing amendment standing in my name and that of my noble friend Lady Kramer. I also support the similar aim in the amendment of the noble Baroness, Lady Noakes.
As I indicated at Second Reading, I was surprised at the level of funds kept back from distribution in order to cover possible repayments. It was 40% that alarmed me but, as the Minister explained subsequently in our meeting, it was actually 60%, which is even more alarming. That is travel in the right direction, but it still seems to be excessive prudence.
With regard to bank and building society account assets, even if there were no change in the status of Reclaim Fund Ltd, there is a change of status in that the Government are essentially a guarantor and can provide a loan to cover a deficit. That makes a difference and it should be utilised, whether by influencing the risk appetite, which is where I have directed my amendment, or by specific guarantee, as the noble Baroness, Lady Noakes, suggests.
I am not suggesting that a reclaim fund should take an outlandish view of risk, but the fact is that it should not be necessary to be ultra-cautious, because the consequence of extraordinary and unexpected reclaim amounts would be the triggering of a loan from the Treasury rather than a call on the Financial Services Compensation Scheme. I am well aware that protection of such compensation schemes can feature as a large factor in the mind of the regulators when they give advice about what would be the right approach. We know this to be a fact when it comes to the Pensions Regulator; I have discussed that extensively on another Bill, although that is not in the Minister’s purview. It could well have been a factor in the Financial Conduct Authority’s computations and its part in advising on the provisioning. I would like to know whether that is the case and whether there is any suggestion of reviewing that in the light of the change in status and the removal of access to the Financial Services Compensation Scheme and its replacement with the availability of the Government’s loan.
I recognise the need to protect the public purse, about which the noble Lord, Lord Bassam, is concerned in his amendment, but a loan is not a giveaway; it is a mechanism to smooth the unexpected and remove the need for an excessively cautious risk appetite. That is the direction I am coming from in my amendment: to allow the loan possibility to influence risk appetite and change it from an ultra-cautious to a mid-range approach. The noble Baroness, Lady Noakes, has taken a more formalised accounting approach and I have no problem with that as a mechanism. The point on which we concur is that being ultra-cautious needlessly keeps funds doing nothing. That is wasteful when the loan facility or another mechanism exists. I beg to move.
Baroness Noakes (Con)
My Lords, I have Amendment 53 in this group. It is very much on the theme of Amendment 51, which the noble Baroness, Lady Bowles of Berkhamsted, just spoke to. As she said, the common ground between us is that the amount of money kept back in Reclaim Fund Ltd as reserves for repayment claims is much too high. Like her, I was shocked when I found out that the company started off by holding back 60% of the funds transferred from banks and building societies. The fact that it is now 40% is no great comfort.
When the then 2008 Bill was debated in your Lordships’ House, the Government could offer no estimate of the amounts that would be held back, but the kind of figure that we talked about was 10%. Surprisingly, that is not a million miles away from the experience to date, which is between 5% and 7%. The ultra-cautious reserving policy adopted by the company has meant that around £500 million has been held back. Just think what could have been achieved in the voluntary sector if even half of that had been released.
Nothing in the 2008 Act required this to happen, but the Act did require any reclaim fund to embed in its articles of association the transfer of money for good causes being subject to ensuring that it could meet repayment claims that are prudently anticipated. The issue is about the judgments that have been made for these prudently anticipated repayment claims.
I understand that the calculation of the reserves has been made using actuarial advice. With apologies in advance to the noble Lord, Lord Davies of Brixton, I was once told that people became actuaries rather than chartered accountants because they found chartered accountancy too exciting. That may well account for the fact that an extreme version of prudence has been at work in this provision.
When the Dormant Assets Commission reported to the Government in 2017, it too was concerned about the amounts held back for both repayment claims and a capital reserve. Both appear to be ultra-prudent. So far as the repayment reserves are concerned, the Dormant Assets Commission recommended using commercial reinsurance against the tail risks driving the extent of this provision. Now that the company is firmly in the public sector, it makes little sense to carry on preparing accounts as though it were a free-standing organisation needing to guard against extreme possibilities for future payments.
The plain fact is that, if Reclaim Fund Ltd overdistributes its funds and runs out of money due to unexpectedly high repayment claims, the Treasury will have to step in. I will comment later on the problems I see with the power in Clause 27 to lend money to the company, but I believe that the crucial issue is that the Treasury now de facto stands behind the company. It should now be run from a financial management perspective in that light. It would not make sense to buy commercial reinsurance for the company’s tail risks because the public sector can bear such risks on its own balance sheet, which is why the Government rarely, if ever, buy commercial insurance.
My Amendment 53 could have tried to replicate an internal public sector reinsurance arrangement, but that felt rather artificial. Instead, it would give the Treasury power to guarantee the liabilities of the company, which it de facto does anyway now that it is in the public sector, and to tell the company how much of that guarantee can be taken into account when it makes its determinations under the 2008 Act about how much to anticipate on a prudent basis. It is now the Treasury’s responsibility to determine how much can be released for good causes. It must not hide behind an artificial construct of a limited liability company making its own judgments because, in the context of the public sector, the broad shoulders of the sector is bearing the risks anyway.
Amendment 51 in the name of the noble Baroness, Lady Bowles, basically links the power of the Treasury under Clause 27 to lend money to a reclaim fund when it calculates its provisions for liabilities. I do not think that that works in accounting purposes because, whether or not it is drawn down, the availability of a loan has no impact on the calculation of a liability. A loan is about funding—that is, cash flow—rather than the amount that is or may become payable.
In fact, I believe that the loan power in Clause 27 may be pretty useless. If the directors consider that they are unable to meet their liabilities as they fall due and there is any uncertainty about their financial forecasts, it may well be that the correct course of action for them is to place the company into liquidation. A loan would make sense only if the company had a strictly short-term need for cash but was confident that other funds would flow in from more dormant assets in the future to make up any hole in its accounts.
In any other case, liquidation is the obvious route because directors bear personal responsibility if they trade while insolvent. The Treasury would almost certainly want to avoid liquidation, with the possibility that repayment claims were not met, and would in practice have to recapitalise the company rather than lend money to it if a major loss emerged. So Clause 27 may well be a bit of an illusion, but it is certainly not the basis for reduced provisioning for repayment claims.
Lord Davies of Brixton (Lab)
My Lords, I am going to live up to the caricature—I thank the noble Baroness—and will speak up for prudence. I find this a difficult issue. For me, it will be resolved only if we have access to the advice—I presume that it was made to the reclaim company rather than to the Government because this is a decision by the reclaim company—so I would be interested to know whether it is possible to see the advice that it has received.
It would also be useful to have a bit more information on the mechanics of how the reserving works. It is possible that, as the fund rolls forward, money that was required for reserving date one becomes available because of the way that the fund operates at date two and the reserve is more about when the money becomes available rather than an absolute bar on the availability of funds for charitable causes.
Baroness Kramer (LD)
My Lords, I am definitely in the camp of the noble Baroness, Lady Noakes, and my noble friend Lady Bowles here.
I say to the noble Lord, Lord Davies, that my understanding of the fund—the Minister will correct me if I am wrong—is not that this is sort of an endowment that is meant to subsist in perpetuity, essentially dispensing just part of its income to various charities every year. It looks back historically, and says: “Over years we’ve built up this huge block of dormant assets. Let’s do something with it, and quick.” The people receiving it know that they are not getting a future stream of cash. This is a way basically to say: “We’ve got a pool of dormant assets—money that’s not being used. Let’s just get that out into the community.” The way in which the fund is replenished is by the addition of new categories and classes of asset, not a continuous rate of people keeping up the level of forgotten bank accounts. That is an important message to get through.
I look at the retention rate of 40% against cash—it is not even a question of the value—as extreme prudence. This fund was created ahead of the financial crash. It has been through the financial crash and the Covid nightmare and has never needed anything even vaguely close to a 40% retention rate. You have to say that this has been tested in fire. I cannot imagine anybody looking and saying that 40% makes sense. I have no idea where the actuarial number comes from. It would be interesting to see the logic, but I suspect we would raise our eyebrows if we did.
As my noble friend Lady Bowles and the noble Baroness, Lady Noakes, made clear, we are now in a situation in which Reclaim Fund Ltd is a non-departmental public body. On Wednesday, I will speak to an amendment exploring whether any replacement or addition to Reclaim Fund Ltd would continue to have that status. I take the view that it should, but it now has the Government sitting behind it, for goodness’ sake: it is on books, and if it is on books then let us use it. In effect, we have a guarantee. I doubt that we would ever want to see the retention rate drop to the level where we thought that there was any serious probability that it would have to tap into that government guarantee—that is not what we are looking at—but that number and the 40% for cash are very wide apart. We now have a move by the fund into new classes of asset. I dread to think what retention rate it thinks will be necessary for that. We could easily be looking at 80% or 90% retention rates, which are absolutely pointless.
The purpose of the whole dormant asset concept is to take money that is sitting in pots not being used and get it out there where it can do good. I have one question. Since there is a huge pool of cash sitting somewhere under the auspices of Reclaim Fund Ltd, what is happening to it? Where is it sitting, who is getting fees, who is getting commissions, who is being paid to manage it? It may be my inadequacy in trying to read the accounts, since the only ones I have been able to get have been from Companies House, but I cannot work that out. Can the Minister inform us?
Lord Bassam of Brighton (Lab) [V]
My Lords, this useful set of amendments will help us to tease out the relationship between Reclaim Fund Ltd, Parliament, the Treasury, and the Government. My probing amendment is in a slightly different direction from those of the noble Baronesses, Lady Bowles and Lady Noakes, but they sit comfortably next to each other.
I want to understand what the oversight mechanism is and what will be available to Parliament in the event of Reclaim Fund Ltd requiring money from the Treasury. We have heard that this will never happen, which I am sure is quite right—with the reserve level set at 40% it is extremely unlikely—but I too believe in prudence in the management of funds, and I would like to understand what oversight Parliament will be given. We need a position where we can discuss and debate how it is working. Will that be through some kind of annual report to Parliament? Would oversight by Parliament be triggered in the circumstances of a particular use of funds? Can we perhaps see a situation where there is an annual debate about Reclaim Fund Ltd and how the money has been distributed so that we could test whether the 40% reserve is right?
Parliament needs to be in a stronger position here. These amendments take us in that general direction, particularly the clever one tabled by the noble Baroness, Lady Noakes, which would put the Treasury in the hot seat and ensure that we have a level of accountability enabling a regular look at how Reclaim Fund Ltd operates. I am looking forward to the Minister giving us not only some assurance but a guarantee that we will be able to see how the mechanism is working through a regular oversight session.
Baroness Barran (Con)
My Lords, before I turn to the detail of the amendments, I will respond to the question from the noble Baroness, Lady Kramer, about how Reclaim Fund Ltd invests its assets. The reserves are a mix between cash held at the Bank of England and an externally managed bond portfolio managed by Goldman Sachs asset management. All the assets are held to maturity. The portfolio is not actively traded to save on management fees and the portfolio follows environmental, social and governance principles. I hope that this comforts her or otherwise regarding the fund’s approach.
I turn now to the amendments. Amendments 51, 52 and 53 relate to Clause 27 of the Bill. These amendments seek to understand the oversight that Parliament will have over any loan that the Treasury provides to RFL, and intend to allow RFL to take into account the loan when considering its reserving policy. I will address the amendments together.
In recognition of RFL’s establishment as a Treasury non-departmental public body, the Bill introduces a new provision to provide that, in the event that an authorised reclaim fund is, or looks likely to be, unable to meet its reclaim liabilities, the Treasury would provide a loan to cover these liabilities.
On Amendment 52, from the noble Lord, Lord Bassam of Brighton, the Government agree that Parliament should have oversight of the Treasury loan. Parliament will already be sighted in respect of the loans made from the Treasury by virtue of this being recorded in its annual reports and accounts, which are laid before Parliament on a yearly basis. The terms and conditions of the loan will be set in line with usual Treasury practice, as set out in Managing Public Money. It would not be usual practice to provide the full terms of the loan, which may contain commercially sensitive information. Further transparency to Parliament is provided in the reclaim fund’s annual report and accounts, which, as we discussed earlier, are audited by the Comptroller and Auditor-General.
Amendments 51 and 53, tabled by the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Noakes respectively, seek to understand the impact on RFL of a potential Treasury loan when setting its reserving policy. I will respond, first, by summarising the particular features that govern RFL’s reserving policy, and then turn to the implications on these of the Treasury loan. While the Government agree that as many dormant funds as possible should be channelled to good causes, we also fully recognise that the decision on how much money should be retained to meet reclaims should sit with RFL and not the Government. The RFL board is responsible for overseeing the process for changing the level of reserves, and RFL has confirmed that this is regularly revisited by the board.
I met recently with RFL. Following that meeting, I am satisfied that it follows diligent processes with respect to its reserving policy, which is based on an analysis of the relevant risk factors, actuarial modelling using both internal and independent actuarial advice, and Financial Conduct Authority guidance. This ensures that RFL can achieve its primary objective of meeting reclaims from owners at any time in the future. The fundamental principle that underpins RFL’s current approach to its reserving rates and investing policy is that it is required to meet reclaims in perpetuity. As your Lordships well understand, that makes it very different from, say, an insurance company. Therefore, it has to plan both for any normal trends in the reclaim experience and for any future stress scenarios that may occur, and model those accordingly.
Examples of such stress scenarios include developments in artificial intelligence that help to reunite more customers with their lost assets and, as we discussed in an earlier amendment, future changes in government data access, which could affect participant’s tracing efforts. Any stress scenario could result in a sudden increase in reclaims, and a combination of these scenarios would, of course, have a significant impact on RFL’s reserves. This is reflected in RFL’s regulatory permission and activities under which it is authorised to operate, with the purpose of ensuring that RFL has adequate financial resources to meet its ongoing reclaim obligations without placing it into undue financial distress or business failure.
While I recognise your Lordships’ interest in the current level of reclaim rates compared with money reserved, RFL has informed me that the cumulative reclaim rate is increasing and looks set to increase further in future years. RFL has reviewed and will continue to review its reserving policy regularly, using both internal and independent actuarial advice and modelling, to ensure that it is appropriately prudent and will continue to release as much money as responsibly possible to good causes across the UK, while retaining sufficient funds to meet reclaims. RFL’s remit is expanding to include previously unheld asset classes. I therefore understand why RFL has chosen not to amend its reserving policy at this time, although that decision remains solely with the company.
The Deputy Chairman of Committees (Lord Haskel) (Lab)
The noble Baroness, Lady Noakes, has asked to speak after the Minister.
Baroness Noakes (Con)
My Lords, I hear what my noble friend the Minister has said—that she was speaking to my amendment and that of the noble Baroness, Lady Bowles, which both rely on the loans to reduce the amount of reserving. That is not what my amendment said at all. Mine was based on more explicitly recognising that the Treasury de facto now stands behind the company and that anything else is a complete fiction.
My noble friend talked about industry needing confidence in the scheme being independent of government. Frankly, the whole world has changed: the Treasury now owns 100% of the capital and it has been reclassified as public sector. The fact of life is that this is a public body and its “separate legal entity” nature is just a fiction.
If the Treasury wanted to release more for good causes, it could. That is at the heart of the issue; anything else is some form of dissembling. So I personally am not satisfied with the Minister’s response today. I do not think meeting the chief executive of the Reclaim Fund Ltd will get us any closer to the heart of the matter. The issue is: why will the Treasury not step up to the plate and recognise that it now carries responsibility for the amounts released, and that in public sector terms there is no good reason to withhold significant sums for tail risk?
Baroness Barran (Con)
I accept that I am not going to convince my noble friend this afternoon. Although she may see the fact that Reclaim Fund Ltd is a separate legal entity regulated by the FCA as a fiction, I respectfully disagree. She will decide whether she wishes to meet those from Reclaim Fund Ltd. The reason I felt that it might be helpful is that it may clarify to what extent the current level of reserving is “excessive”, as it was described in the debate this afternoon.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, this has been an interesting debate; it has brought forward shared concerns and different ways of expressing much the same thing. The way in which the noble Baroness, Lady Noakes, explained it has been very informative, in particular the comparison with the original suggestion that maybe you need a 10% reserve and that that approach is the reality. Although I expressed it in a different way—I am sure that her amendment is probably crafted better than mine—we share the view about the tail risk and the role of government meaning that you do not have to provide for that in the ultra-cautious way. This also reflects my noble friend Lady Kramer’s comments that it is not being run as an endowment whereby you have to hang on to money. However, I suppose you can argue that there is a perpetual risk because there is an in-perpetuity claim.
It has been interesting to hear the Minister outline some of the concerns about AI tracing and using government data. If the 40% level will be retained as new assets come along, maybe I am not quite so alarmed. I shared the fear of my noble friend Lady Kramer that when these new assets came in, it was going to shoot back up to 60% or beyond.
We have this strange arrangement whereby limited liability companies that are on the public books but have to run under the Companies Act have the possibility of going into liquidation, which is how the directors can protect themselves, but the fact is that the Government will have to pick up the tab. It seems a bit wrong, somehow, not to use what is, in effect, a de facto “extreme circumstance” reinsurance provision that will be triggered come what may. We have to reflect the reality of that, and it is probably rather an excuse to say, “We will have to have it at arm’s length from the Treasury so that it is not interfering in the way the funds will be used.” We will get on to that when we begin to talk about additionality and some of the ways that the money has been deployed.
It may be interesting to have a bit more information on the figures; there are noble Lords who can get their heads around some of this. I am open to having more information and Parliament needs to see this level of it, but I am not entirely certain that I am satisfied at this point—particularly as the section regarding the loan turned out to be really rather meaningless, as the noble Baroness, Lady Noakes, outlined. We need some kind of explanation and reassurance either that that is not the case or that it can be made into something meaningful. Otherwise, what is the point of it being there?
This has been a very useful debate, which will continue. I too may consider returning to it on Report. I feel I know more—I have had a little comfort but maybe not yet enough—but, for now, I beg leave to withdraw my amendment.