Monday 21st June 2021
(3 years, 6 months ago)
Grand CommitteeDormant Assets Act 2022 View all Dormant Assets Act 2022 Debates Read Hansard Text 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 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.
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.
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.
Baroness Barran
Member’s explanatory statement
This amendment is consequential on the government amendment at page 3, line 35.
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).
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.
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.
Baroness Barran
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).
Baroness Barran
Member’s explanatory statement
This would make the language in Clause 15(1) consistent with Clause 14(1)(a).
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.
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).
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.
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.
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.