Distribution of Dormant Account Money (Apportionment) Order 2011

Lord Higgins Excerpts

Tuesday 5th July 2011 Grand Committee

[Baroness Verma]

My Lords, this apportionment order marks the culmination of a long process to do something useful with dormant account money. The Dormant Bank and Building Society Accounts Act 2008 created the legislative framework required to use this money for the good of society while protecting the rights of account holders. In line with the original Act and in consultation with the Big Lottery Fund, which is the designated distributor of dormant accounts money, England, Scotland, Wales and Northern Ireland are all determining their own spending priorities for it. As the Prime Minister announced in July of last year, England’s portion will be used to set up a big society bank.

Current estimates suggest that there is about £400 million of eligible dormant accounts in the UK. Some of this will be kept back to meet claims from customers, as is right and proper. However, the Reclaim Fund estimates that between £60 million to and £100 million will be released for public spending over the course of the first year. Subsequent releases will be made according to the rate of reclaim.

This order sets out how the money available for public spending will be apportioned between England and the devolved Administrations. In accordance with communications at the time of the original Act in 2008, the order divides the money on a per capita basis; in other words, in line with the Barnett formula. Based on the latest population estimates by the Office for National Statistics, the percentages are as follows: England, 83.9 per cent; Scotland, 8.4 per cent; Wales, 4.9 per cent; and Northern Ireland 2.8 per cent. While the application of the Barnett formula to the apportionment of dormant account money is in line with previous expectations, the decision to use the formula was made only after a period of consultations with the devolved Administrations, as required by the Act.

Following the passage of the transfer of functions order on 31 January, the Minister for the Cabinet Office had responsibility for leading this process. Prior to the formal consultations, Cabinet Office officials informed officials in the devolved Administrations and territorial offices of the Government’s intention to use the Barnett formula, thereby preparing the way for the ministerial process.

The formal consultation process was conducted through an exchange of letters between the Minister for the Cabinet Office and his ministerial counterparts in the devolved Administrations during March and April. A number of concerns were raised about the use of the Barnett formula, principally revolving around the established criticisms that the formula is outdated and does not take into account the varying needs across the constituent countries of the UK. I can assure noble Lords that we have considered these concerns very carefully. However, based on advice from the Treasury and in line with normal devolved spending, we maintain that the formula remains the most transparent, robust and sustainable method of apportionment. This judgment was communicated to the devolved Administrations in letters from the Minister for the Cabinet Office on 6 April, thereby formally ending the consultation process.

While keeping within the constraints of the parliamentary timetable, we have been keen to ensure that the apportionment order is passed as soon as possible so that the dormant account money can be put to good use as soon as the first tranche becomes available later in the summer. While England’s portion will be used to establish a big society bank, which will help build a social investment market and broaden the finance options open to civil society organisations, with the passing of this order, Scotland, Wales and Northern Ireland will be able to use their portions to fund their own social and environmental programmes. I therefore commend the order to the Committee. I beg to move.

[Lord Higgins]

My Lords, I have a long-standing interest in the question of dormant bank accounts. Indeed, at one stage I was an arbitrator on the claims resolution tribunal for dormant accounts in Switzerland.

I have only one or two points to make on the order, the first of which concerns the question of distribution. As the Minister said, there were considerable discussions on this issue. She said that in the course of the discussions the devolved Administrations argued that the allocation of the money should be changed and that it should be distributed in relation to the various needs of the devolved areas, whereas the very good and helpful brief states that it does not take into account need. It is not the same thing. “Need” implies that certain groups of people have a need for money as against the overall allocation—which, presumably, will happen in the course of normal government decisions.

In all events, could the Minister say what evidence the devolved Administrations produced to argue that it ought to be done on the basis of need? Whatever one thinks about the Barnett formula—and many views have been expressed about it, not least by the noble Lord, Lord Barnett—I have come to the conclusion of the Treasury that this is probably right way of doing it.

The second point, which is interesting, is that this money is normally going to go, as I understand it, to the Big Lottery Fund. The money going to the devolved Administrations—I presume, the Minister will correct me if I am wrong—will be allocated by the fund. However there is also an intriguing passage in the Explanatory Memorandum, which states:

“With the Prime Minister’s announcement on 19 July 2010, England’s portion is committed to setting up a Big Society Bank, which will be a social investment wholesaler”.

I am not at all clear what a “social investment wholesaler” is—perhaps the Minister could clarify that. But in all events it looks as though England will have its chunk allocated to the big society bank, whereas the other devolved Administrations will not.

I understand and support the idea of a big society bank, and the idea of the big society, which the Prime Minister is understandably so enthusiastic about. But if that is so, why has an apparently arbitrary decision been taken, which I do not think is reflected at all in any of the legislation, that England’s portion shall go to the big society bank, rather than any of the other uses which the lottery fund might have used it for?

Although we have a Big Lottery Fund which is responsible for making this kind of decision, it is apparently to be overruled in this case by the Prime Minister’s statement. I am not the least bit clear what the financial and legislative basis is for his decision to overrule that, and why—instead of the normal process of going through the Big Lottery Fund—we suddenly find it is to be done by a big society bank. No doubt that has not been set up yet. I presume there will be some delay, whereas if it went straight to the Big Lottery Fund, the money would be allocated immediately, or at least much sooner than it would under the arrangements set out in the Explanatory Memorandum. I would be most grateful if the Minister could clarify those particular points.

--- Later in debate ---

[Baroness Verma]

I thank my noble friends and the noble Baroness, Lady Royall, for their broad warm welcome for the order. I expected the order to raise questions, on some of which, I am afraid, I shall have to write to noble Lords.

My noble friends Lord Higgins and Lord Oakeshott raised concerns around the use of the Barnett formula and asked why not other formulas. It was found that the Barnett formula was the most robust way of allocating the money. The Big Lottery Fund’s way of distribution is not a government formula and therefore does not have a wider standing beyond the distribution of lottery funds. The Government recognise that concerns have been expressed about the system of devolved funding; however, their position remains that the priority is to reduce the budget deficit and that any decision to change the current system must await the stabilisation of public finances. However, we have to find an alternative and, until we do, noble Lords will have to accept that the Barnett formula has its strengths.

My noble friend Lord Higgins asked about the term “social investment wholesaler”. The big society bank will be a social investment wholesaler. It is a term used in dormant accounts legislation and is one of three areas where English dormant accounts can be spent. The other two are youth provision and financial inclusion and capability.

My noble friend Lord Clement-Jones asked about public consultation on the distribution of dormant accounts. The Government carried out a public consultation on how the English portion of the dormant accounts should be spent prior to the 2008 Act. As a result, the dormant accounts Act allows the English portion to be used for youth provision, financial inclusion and capability or a social investment wholesaler.

I was asked about the monies going into the big society bank and whether this would be a one-off. We have £60 million to £100 million that we are going to allocate. However, there is a reclaim fund and we need to see how much of that is drawn on. Of course, if money is then still left, it is only right and fair that it is put to positive and good use through the big society bank so that people and smaller organisations can draw on it. The decision will, of course, be made after the independent reclaim fund has looked at how the progress of reclaim has worked.

The questions that were asked today centred basically around confidence in ensuring that the monies reach the right people and that we are making the best use of the dormant accounts. I think there is agreement over the framework that we are using, which was passed in 2008. Since taking office, the Government have worked hard, taking the necessary steps to make sure that money from dormant accounts made available for public spending is put to good use as soon as possible. A reclaim fund has been established by Co-operative Financial Services and authorised by the FSA. As I have indicated from the outset, the estimated £60 million to £100 million from dormant accounts will be released by the fund over the first year. It is imperative that we are able to spend this money as soon as possible.

In taking the decision, the Government have considered thoroughly some of the concerns that noble Lords have raised today. I stress to the Committee that we understand that there are criticisms of the formula we are using. However, it has proved to be currently the most transparent and easily understood formula of all those that are around. I hope noble Lords will be satisfied. I know I have not been able to respond to all questions but I undertake to ensure that all noble Lords are written to. On that basis, I commend the order to the Committee.

[Lord Higgins]

My Lords, I should like to seek a little further clarification. I stress that I am, despite all its imperfections, in favour of the use of the Barnett formula for the allocation of funds between different parts of the United Kingdom. However, that does not solve the problem of which formula is being used to distribute the money, as against distributing it between the regions. I am anxious to save my noble friend unnecessary correspondence. Why, instead of the normal procedure being used—whereby the money for each of the regions goes into the Big Lottery Fund—is the money suddenly being siphoned off into the big society bank? Apparently this is not happening in the regions, although one would have thought that the big society was a UK-wide concept. Why do we suddenly find the allocation of resources—apparently contrary to the Act, although I might be wrong about that—being left to the big society bank, rather than to the existing arrangements set out in legislation? Alternatively, why is it not all going to the big society bank? How do the criteria for these two bodies differ?

[Baroness Verma]

My noble friend of course wants far more detailed clarification than I am about to give him. I undertake to ensure that such clarification is passed to all Members. However, the devolved Assemblies and authorities can make orders to restrict the kind of purposes and people to which money from dormant accounts may be distributed. That comes under Sections 19 to 21 of the Dormant Bank and Building Society Accounts Act 2008; some safeguards are already in place. However, I completely understand my noble friend’s concern. Therefore, to ensure further clarity, I would rather undertake to write and give a much fuller explanation that will, I hope, satisfy him.

[Lord Higgins]

My Lords, I am afraid that an exchange of correspondence does not clarify something in the same way as having it dealt with on the Floor of the House. Can I be clear? What is the financial basis of the Prime Minister’s statement, allocating this money to the other fund, rather than to the Big Lottery Fund?

[Baroness Verma]

As I said earlier to noble Lords, the Prime Minister has made it clear that for him the priority in England is to be able to set up the big society bank to ensure that dormant accounts are used for the needs of organisations in England. My noble friend is now querying the needs of the devolved Assemblies. However, I would give justice to my noble friend only if I could write to him and to other noble Lords because I would not want to have something misread or misheard in giving clarification. I may be able to do so now but, then again, I may not.

Under the Dormant Bank and Building Society Accounts Act 2008, following the transfer of functions order the Minister for the Cabinet Office must give directions to the Big Lottery Fund on how the English portion should be spent. I am not quite sure that that will satisfy my noble friend and therefore I continue to say that I shall write to noble Lords.

[Lord Higgins]

I am most grateful to my noble friend. I look forward to her letter to see whether the Minister can, in fact, make such an order.

Motion agreed.