Dormant Assets Bill [HL]

Baroness Barran Excerpts

2nd reading
Wednesday 26th May 2021 Lords Chamber

Moved by

[Baroness Barran]

That the Bill be read a second time.

[The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Baroness Barran) (Con)]

My Lords, this Bill delivers on the Government’s commitment to expand the dormant assets scheme. Not only does the scheme provide a great opportunity to support industry’s work to reunite more people with their assets but it also has the potential to unlock hundreds of millions of pounds for good causes.

The dormant assets scheme takes a pragmatic approach to forgotten money. Rather than leaving funds to languish in dormant accounts, money can instead be channelled into long-term initiatives that address some of the UK’s greatest challenges. Since the scheme was established a decade ago, more than £1.4 billion has been transferred voluntarily into the system by banks and building societies. Of the total transferred, £106 million has been reunited with owners. The scheme responds to the imperative to put any money that is not reclaimed or reserved to good use. So far, £800 million has been released, including £150 million for coronavirus response and recovery.

I hope noble Lords will indulge me for a few minutes as I reflect on the impact of the original scheme. In England, funding is distributed via expert organisations. The first, Big Society Capital, was established in 2012. It received £425 million of dormant assets funding with the explicit aim of growing the social investment market. Since then, with partners, it has been able to invest more than £2 billion in social impact organisations. This includes around £200 million directly targeted at place-based investments, supporting left-behind communities to develop vibrant, local, social economies that reduce poverty and inequality.

The second, Access—The Foundation for Social Investment, seeks to support the development of enterprise activity and improve access to social investment. It has developed a £21 million programme of flexible recovery finance for the social sector and has made £7 million available for emergency Covid support through social lenders. Together, these organisations have grown the social impact investment market from £830 million in 2011 to more than £5 billion today.

More recently in 2019, the scheme supported the establishment of Fair4All Finance and the Youth Futures Foundation. By 2025, Fair4All Finance will have supported community finance providers to increase their lending capacity from £300 million a year to over £900 million, enabling more than 800,000 people to access affordable loans and escape high-cost credit. It is also working to grow the financial services market to support 14 million people in vulnerable financial circumstances. The Youth Futures Foundation is targeting support to young people from marginalised backgrounds facing barriers to work. By the end of this year, it will have directed £40 million towards funding and evaluating the largest range of youth employment interventions ever initiated in England.

Scotland and Wales use dormant assets funding for projects focusing on young people, climate change and sustainability, while Northern Ireland has worked with the National Lottery Community Fund to establish a £20.5 million Dormant Accounts Fund NI for the voluntary, community and social enterprise sector.

I thank in particular all those involved in the development, passage and implementation of the 2008 Act, several of whom are in the Chamber today; without their vision of what could be achieved, this would not have been possible. I am proud of what the current scheme has achieved to date and I hope that the Bill will continue to build on its notable successes.

With 34 banks and building societies now participating in the scheme, including all major high street banks, the current scheme is reaching a mature state, with significantly fewer funds flowing into the system each year. Over £300 million was transferred in 2011, but this will decrease to around £42 million per year in future. Expansion means that the flow of funds is not only maintained but will be increased substantially.

Consumer protection remains at the heart of the expanded scheme, with the continued priority being to locate and reunite people with their financial assets. Where that is not possible, expansion will enable more responsible businesses to redirect money to some of the nation’s priority issues. Full restitution will also continue to be a core principle. Asset owners will always be entitled to reclaim what they would have been owed, had their assets never been transferred into the scheme.

Industry expects that around £1.7 billion-worth of dormant assets could be eligible for transfer after expansion. Once transferred, a proportion is held back to satisfy any future reclaims and around £880 million could then be released. Money must fulfil the additionality principle, so it cannot be used as a substitute for central government funding. We have worked closely with industry leaders on how best to design expansion. I record my warm thanks for the support we have received throughout this process. I also thank everyone who responded to the public consultation, whose contributions have informed the shape of the Bill.

I shall now outline the main contents of the Bill. Currently, the dormant assets scheme accepts transfers only from dormant bank or building society accounts. The Bill expands the scope of eligible assets, so certain assets from the insurance and pensions, investment and wealth management, and securities sectors will be eligible for transfer. Our consultation response committed to considering how legislation could best provide the flexibility to expand the scheme further in the future. In reply, the Bill introduces a new power to broaden further the pool of eligible assets through future regulations.

The Bill also enables the specific focus of the English portion of funds to be set through secondary legislation, subject to statutory consultation. This harmonises the mechanism in England with the devolved Administrations and will allow the scheme to respond more flexibly to changing needs over time.

After 10 years of operation, we are at a critical juncture in considering the scheme’s overall operation, and now is the right time to think about how the scheme can deliver the greatest impact once it has been expanded. Therefore, subject to the Bill passing, we will launch a public consultation on the use of funds in England. The current restrictions of youth, financial inclusion and social investment will continue until any new arrangements come into force.

The Bill also includes provisions to improve the operation of the scheme: for example, by making owner reunification efforts a requirement before funds are transferred, with the exception of situations where efforts are considered disproportionate or unnecessary.

The Bill also reflects Reclaim Fund Ltd’s recent establishment as a Treasury non-departmental public body. It names Reclaim Fund Ltd as the scheme’s only authorised reclaim fund, and as a result the Government are seeking a power to enable the Treasury to add, substitute or remove an authorised reclaim fund in future through secondary legislation. The Bill also enables the Government to cover the liability for reclaims should any authorised reclaim fund face insolvency, in the form of a loan. Such a liability will be established following the usual parliamentary process.

In closing, I emphasise our mission to support industry efforts to reunite owners with lost money and to provide a practical way for unclaimed and unwanted funds to be put to good use. I hope that the Bill receives strong support from your Lordships so that we can proceed swiftly with its passage and continue to build on the scheme’s success. I look forward to all noble Lords’ contributions to this debate but in particular to the maiden speech of my noble friend Lady Fleet. I beg to move.

--- Later in debate ---

[Baroness Barran (Con)]

My Lords, with the leave of the House, I thank all noble Lords for their valuable contributions today. The debate has indeed been very wide-ranging, and your Lordships have set me a difficult challenge in trying to cover your points in the time allowed. If I may, I will therefore follow up with a letter to noble Lords after this debate.

I join other noble Lords in congratulating my noble friend Lady Fleet on her excellent maiden speech; I look forward to listening to her speak many times in future. I also echo the best wishes expressed by the noble Lord, Lord Blunkett, to the noble Lord, Lord Field, and wish him well. I congratulate the noble Baroness, Lady Bennett, on starting a new trend of supporting, agreeing with and welcoming government legislation.

I shall touch on some of the broader points that went beyond the direct scope of the Bill. The noble Lord, Lord Adonis, challenged the Government on their ambition in relation to levelling up. The Queen’s Speech had a very strong theme of levelling up going through it. I highlight in particular the changes we have already made to the social value legislation and the potential it gives for social enterprises, charities and SMEs more broadly to benefit from £49 billion of government commissioning.

My noble friend Lord Vaizey managed to combine Dickens, the BBC and the National Fund in an incredible bit of knitting. As he is aware, the National Fund is currently subject to court proceedings, so there is no more that I can do to release it, but perhaps when we get there it will be a combination of “Sleeping Beauty” and Hard Times, if that is not too bad a combination.

Finally, and importantly, I thank my noble friend Lord Bates for stressing the incredible generosity of the British people over the past year in donating to charities and in volunteering for the NHS responder scheme to help with the vaccination rollout. I am sure that we will shortly see an incredible outpouring when volunteering options for the Commonwealth Games open in a couple of weeks.

The first area of discussion by your Lordships related to the size of the assets that will be released; that was raised by the noble Lord, Lord Blunkett, and several other noble Lords. To reiterate, industry valuations show that expansion has the potential to make £1.7 billion available to transfer to Reclaim Fund Ltd, which is based on an estimated £3.7 billion of dormant assets in the new asset classes that will be included in the Bill. The industry believes that, with enhanced tracing and verification efforts, £2 billion could be reunited with its rightful owners. The noble Baroness, Lady Wheatcroft, talked about whether we could do more, as did other noble Lords. This represents an important step forward. Obviously, in the regulations we propose to make further expansion of the scheme more flexible and, when that happens, the money will of course increase.

I listened intently to the noble Lord, Lord Triesman, talking about social housing and was writing down all the good things that Big Society Capital had done—but of course that was exactly where he was going with his comments. However, it is also important to recognise the multiplier effect that some of these specialist distribution organisations have had and the additional funds that they have brought into areas such as social housing, where the market is now I think over £800 million. I absolutely agree with him about the potential for both impact investment and impact philanthropy.

My noble friend Lord Bellingham also talked about the greater potential both to reunite people with their assets and to release money for good causes. I reiterate the point that the Bill includes the principles not just of reuniting but of full restitution.

The noble Lord, Lord Blunkett, and my noble friends Lady Sater and Lord Taylor of Holbeach asked about increased efforts in relation to tracing, verification and reunification. The requirement to make efforts to trace, verify and reunite the owner with their asset before transfer is set out in the agency agreements between current participants and the authorised reclaim fund, and that will be mirrored in future. However, the Bill strengthens that position by ensuring that the reclaim fund can accept transfers from a participant only if it has made satisfactory contractual or other arrangements with it.

A newspaper—not my noble friend Lady Fleet’s former employer but another—has a supplement called How to Spend It, and here we come to the “How to spend it” section of the debate. It is absolutely right that we should bring this focus if we are to expand the scheme and review where those funds can be spent. We have had such a rich and knowledgeable debate, and I thank in particular my noble friend Lord Bates, the noble Baroness, Lady Lister of Burtersett, the noble Earl, Lord Devon, and my noble friend Lady Eaton for their contributions here. During the consultation on expanding the scheme, we received multiple calls to change the current restrictions. There was some concern from a number of your Lordships about the restrictions in Section 18 coming to an end and there being a gap before the new restrictions would apply. That is not correct; they will apply until a new order has been made.

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. There was perhaps a misunderstanding on the part of the noble Baroness, Lady Barker, reiterated by the noble Baroness, Lady Kramer, in suggesting that there had been a breach of that principle in the last year. There was absolutely no breach. I am not quite sure where that idea comes from, but it is not correct. The additional £150 million that was given to the dormant asset distribution organisations came from dormant assets themselves. Their mission was absolutely as set out in the legislation. There was no government interference whatever.

The noble Earl, Lord Devon, commented on the valuable role played by social enterprises. I share his support for that sector, with which I engage very regularly. The Act does not currently specify social enterprises as particular beneficiaries of the funds; rather, they will often deliver in the social and environmental areas which are the funds’ focus. Since that broad area of focus will stay unchanged—the restrictions may change beneath it—we would very much expect them to continue to be part of the ecosystem.

There were a number of questions about the consultation, particularly from the noble Baroness, Lady Lister. The position was made clear in the press pack, which noble Lords may be forgiven for not having read. It is absolutely in the public domain that we have committed to a full public consultation with all the groups that the noble Baroness talked about. Regarding the comments made by the noble Baroness, Lady Bennett, it is important to remember that dormant asset funding is entirely dependent on industry participants who voluntarily transfer into the scheme, as well as the general public’s trust in it. It is therefore very important that we listen to those groups as well as the others that were cited.

The noble Lord, Lord Davies of Brixton, asked about capital versus revenue funding. To clarify, it is up to the distribution organisations to decide what they want to make grants to; the Government do not interfere as to whether it is capital or revenue. They will use their expertise to find the best way to have a positive impact on the issues they are seeking to address. On the points raised by my noble friends Lord Patten, Lord Polak, Lord Bellingham and other noble Lords, the distribution to small organisations already happens through those four distribution organisations.

I turn to the expansion of the scheme. My noble friend Lord Patten asked about industry participation and support for the scheme. There has been very strong interest from industry in participating in the expanded scheme. It has, in the nicest possible way, been nudging us along very politely and it backs the swift progression of the Bill. We are continuing to work closely with the dormant assets expansion board, as well as the Reclaim Fund, trade bodies and regulators, as we prepare to operationalise the expanded scheme.

There were a number of specific questions about additional types of assets, including online investment platforms, raised by my noble friend. I will respond in writing to these, including on the proceeds of crime, raised by the noble Lord, Lord Bassam, and gambling proceeds, raised by the noble Baroness, Lady Kramer.

The noble Baroness, Lady Bowles of Berkhamsted, the noble Lord, Lord Davies of Brixton, and others asked about the relationship between the scheme and the pensions dashboard. The consultation cited ongoing changes in the pensions landscape, including the introduction of the dashboard, as needing “time to fully develop”. Many responses asserted that the dashboards would interact positively with the scheme. Both initiatives have the primary aim of reuniting owners with their assets, and the dashboards will make it even more likely that only genuinely dormant pension products that will not be reclaimed will be transferred to the scheme.

The noble Baroness, Lady Bowles, also asked about safeguards against perverse incentives. Legislation may indeed incentivise firms to change their terms in order to participate, but the Bill tightly prescribes the circumstances in which an asset is eligible, including dormancy definitions and reclaim values. If the terms of an asset align with these, it is obviously appropriate for it to be in scope.

My noble friend Lady Noakes asked about dormant national savings accounts. She may be aware that money invested in National Savings and Investment products is passed directly to the Exchequer and used to fund public services, which means that any unclaimed balances are already being used for public benefit. There is also the My Lost Account scheme, which seeks to reunite customers with their money and premium bond winnings. In the past 20 years, £840 million has been reunited in that way.

My noble friend Lord Hodgson of Astley Abbotts asked about the inclusion of shares and dividends. The Government have been engaging with the sector on plans to include them since 2018. More recently, share registrars have joined forces to think about how they will work with companies to operationalise the scheme, which includes thinking about what kind of register would be needed to ensure full restitution.

I turn to the Reclaim Fund and focus on the reserves policy, raised by my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Bassam. I absolutely share your Lordships’ wish to see more money distributed. As your Lordships are aware, the Reclaim Fund is legally obliged to retain a portion of the funds that it receives to repay owners. That portion has been declining over time: initially, 60% of assets were reserved, but that has now reduced to 40%. In relation to the point of the noble Baroness, Lady Bowles, that explains the bumper year in 2019, when there was a large release of assets because of a reduction in the reserving policy, which allowed the establishment of Fair4All Finance and the Youth Futures Foundation.

We expect the approach to reserves to evolve over time. It remains the responsibility of the Reclaim Fund to set the reserves at the right level. My noble friend Lady Noakes asked about whether the guarantee from the Treasury affects this. There is a balance to be struck here, but the principle of additionality and separation of the assets means that the current structure is sound.

I turn to the issues of secondary legislation raised by my noble friend Lord Hodgson and the noble Baronesses, Lady Barker, Lady Kramer and Lady Bennett. We have kept the provisions and the number of delegated powers in the Bill to a minimum and have only included those powers that are necessary for a successful operation of an expanded scheme. Where it is possible and practical, we have implemented future changes in the Bill. However, in a way, the answer to the question from the noble Lord, Lord Bassam, about timing and why it has taken such a long time to get to this point lies in the need for secondary legislation to make this more flexible. It has been about five years since the industry started to encourage us to expand the asset classe,s and obviously through the consultation recently, we heard the calls for more flexibility in deployment of those assets. The secondary legislation will give us that flexibility.

I have appreciated enormously the tone of a generous but critical friend in this debate and I look forward very much to working with your Lordships as we pass this important piece of legislation. I am also able to put my noble friend Lord Hodgson out of his suspense as I look forward to introducing the Charities Bill. With that, I beg to move.

Bill read a second time and committed to a Grand Committee.