Dormant Assets Bill [HL]

Lord Davies of Brixton Excerpts

2nd reading
Wednesday 26th May 2021 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, first, I welcome the maiden speech of the noble Baroness, Lady Fleet. I made my maiden speech in what is more like a school language lab than the Chamber, so it must have been particularly intimidating for her. She made a point to which I will return.

My noble friend Lord Adonis set me a challenge to oppose the Bill in principle. Of course, I do not: why should these dormant assets hang around unused or, worse, potentially fall into private hands? However, I do wish to raise two issues—I fall short of calling them concerns. First is the issue of where this money comes from; I feel that insufficient attention has been given to this. I feel some queasiness about the source of it: why have we constructed this system whereby ordinary people end up losing contact with unfeasible amounts of money?

It is all too easy to blame the individuals. One speaker referred to people’s failure to “manage their money effectively”. I question a system that ends up with this sort of result. There is something particularly odd about a system whereby we end up having to use dormant assets to solve the problem of dormant assets, when it might be better not to create the problem in the first place.

I am particularly interested in the provisions of the Bill on pension scheme assets, which we will return to in Committee. I think the Government have got this just about right, at least at the initial stage. The provisions are particularly limited, and I think that is right. Pension scheme money is there to provide pensions, and that should remain the focus. A number of references have been made to the potential impact of the pensions dashboard, which is currently under construction. The initial focus of the dashboard will be to put people in touch with their money; the problem here is money needing to be put in touch with individuals. It will happen in due course, but not particularly soon.

I have expressed my unease about the source of the money. I also have concerns about its destination. I have a problem because, as a proponent of high levels of public provision, I find it very difficult to see examples of where charities should take the leading role. There will always be room for charitable action on the part of individuals and organisations, but regarding the issues raised in this debate for which the money should be used, my question is: why are we not doing it anyway? Why do we have to rely on dormant assets to achieve these public goods? Would it not be better just to achieve them anyway? Strengthening the social structure, which a number of speakers have referred to, is certainly worth doing, but it is worth doing in any event—public action should take the lead.

It is very easy to agree in principle with the aim of always having additionality, but it is perhaps more difficult to agree what things count as additionality and what the public sector should be doing in any event. For example, under the current regime we have financial inclusion and youth employment. The state certainly has an important role in the latter; financial inclusion is slightly different, to the extent that it is not part of the normal curriculum of schools and further education. Perhaps this is an area where the finance industry as a whole should be doing more.

Of course, the Bill raises the possibility of new objectives for the use of dormant assets. I hope the Minister can provide us with more information about what possibilities have been floated—this can probably be done in Committee.

There is also the issue of how the money should be used. The noble Baroness, Lady Fleet, mentioned music education in her maiden speech. I am sure we can all agree that the education we provide in this area should be strengthened but, as a past leader of the Inner London Education Authority, I must say that, back in the day, we took it for granted that this would be done by the local authority. Unfortunately, this has fallen by the wayside, so maybe we do have to rely on the dormant assets. But to me this is most regrettable. My noble friend Lord Triesman gave another example, social housing, which I wonder why the state is not providing, as I would expect it to.

Finally, regarding the use of the term “social capital”, I have been involved over the years in making grants to voluntary organisations for worthwhile objectives, and the problem you always encounter is that the capital expenditure is always a lot more exciting than the routine running expenditure. I want some assurance from the Government that in establishing whatever structure they have for the use of this money, sufficient attention is given to running costs as well as capital funding. Where you have a capital fund, there is this ease of making capital grants, but providing the running costs is always much harder work. Can the Government respond on that issue?

Dormant Assets Bill [HL]

Lord Davies of Brixton Excerpts

Committee stage
Monday 21st June 2021 Grand Committee

[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.

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[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.

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[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.

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[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.

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[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.