Dormant Bank and Building Society Accounts Bill [HL]

moved Amendment No. 23: 23: After Clause 5, insert the following new Clause— ““Treasury support for repayment claims (1) If a reclaim fund is unable to meet repayment claims for any reason, the Treasury shall make those repayment claims or arrange for them to be paid on its behalf. (2) A reclaim fund shall be obliged to provide the Treasury with whatever information it needs to make repayments under subsection (1). (3) Any amounts paid by the Treasury under subsection (1) will be treated as a liability of the reclaim fund to the Treasury. (4) In this section ““repayment claims”” has the meaning given by section 5(5).”” The noble Baroness said: Amendment No. 23 also inserts a new clause after Clause 5. The new clause is entitled ““Treasury support for repayment claims”” and subsection (1) states: "““If a reclaim fund is unable to meet repayment claims for any reason, the Treasury shall make those repayment claims or arrange for them to be paid on its behalf””." I have tabled this purely as a probing amendment to find out what happens if a reclaim fund runs out of money. The whole scheme of the Bill is that the banks and building societies hand over their dormant account money and the related obligation to their customers—or ““account owners””, to meet the terminology preferred by my noble friend Lord Higgins—is extinguished. It would have been difficult, if not impossible, to set up a scheme which did not protect the banks and building societies in this way, and we support that. The money is then handed over to the reclaim fund, which assumes the obligation to repay the customer. Under Clause 5(l), the reclaim fund's objectives include meeting repayment claims and managing dormant account funds, "““in such a way as to enable the [reclaim fund] to meet whatever repayment claims it is prudent to anticipate””." While not all account holders are expected to come and ask for their money back, there will be some and the reclaim fund must, as we have already discussed, keep enough money back so that it can meet repayment claims. The Minister has so far given us no information on what sorts of prudent level of reserves the reclaim fund will need. When we tried to discuss figures in yesterday's sitting, I remarked that the Minister’s remarks at Second Reading suggested that the Government do not have much idea how much money is involved in dormant account money or how much would be involved in subsequent repayments. Indeed, the Minister told me yesterday that there was ““much work”” to be done on how the structure will develop, and I was told to be patient. Well, it is 24 hours later, and I have come back for more answers. I am sure that the reclaim fund will be set up with some excellent and diligent directors who will look at this very carefully. I know that the noble Lord, Lord Newby, will probe later on who those directors are. However, there is no magic formula for working out how much will be needed. As the noble Lord, Lord Shutt, rightly told us yesterday, there will be a judgment about the level of reserves. But, like all judgments, they will be validated only after the event. The Treasury may or may not leave this entirely to the directors. The Treasury will have the power under Clause 5(4) to direct the reclaim fund to comply with its articles, which include the requirement to set up provisions relating to repayments. The Treasury will have to consider whether the directors’ reserving policy is adequate and form a view on whether it needs to use the power of direction. So, by act or omission, the Treasury will be closely associated with the policy of reserving. Regardless of whether it chooses to exercise a direction, it must have considered whether that requirement to set aside money to meet repayment claims has been met. The amendment is asking what happens if the directors and the Treasury do not get it right and the reclaim fund runs out of money. It cannot realistically ask the Big Lottery Fund to let it have its money back. The banks will have handed over the whole of the dormant account money and they will not want to shell out again. One way or another, the Treasury will look like a natural port of call. I do not believe that that could be a problem in the early years when the backlog of dormant account money is transferred to the reclaim fund. Reserving policy will be largely immaterial when there are significant inward flows, but the issue will become highly relevant once the backlog is cleared and the amounts flowing in annually have dropped to the much lower level. The Minister himself has pointed out that the sums available for transfer to the Big Lottery Fund and transferred to the reclaim fund as liabilities will depend on how successful the reuniting activities are. As we know, the charities are very keen to ensure that reuniting activities are better than they have been in the past. It is just possible that, if that is successful, the amount of dormant account money declared for transfer via the reclaim fund in future will drop down to a significantly lower level. In some ways that would indicate the success of the policy, but it would not necessarily indicate success in getting money to the Big Lottery Fund. So if the reclaim fund did not set aside enough money when the money was flowing in, possibly because pressure was put on it to release as much as possible for good causes, we might find that the ongoing annual inflows were not enough to fund the ongoing demands for repayment, especially as the repayments may well be much higher than the amounts originally handed over. As we also know, interest may well be added on to those figures, which will increase the amount that has to be repaid. If we assume that about £500 million flows in in the first few years, in line with the figures quoted by the BBA and the BSA, and that the annual flow then drops down to £10 million annually, which is broadly what the BBA has suggested, an error of only 2 per cent in the reclaim fund’s reserving policy would use up the whole of a year’s inflow. If those inflows were actually lower due to more successful reuniting, the ongoing cash problems could become severe. It is therefore not a fantasy amendment: this is something that could happen down the line because not enough was kept back when large amounts flowed into the fund. I understand that the reclaim fund will be covered by the Financial Services Compensation Scheme so that any unpaid repayment claims could eventually be recovered within the terms of that scheme. That raises two sorts of problem. First, the cost of the compensation scheme is met by the whole financial services industry. The Minister will be aware that there is currently considerable controversy about how the costs of the compensation scheme are borne. Asking the whole of the financial services sector to underwrite the potential costs of over-distribution of dormant account money via the Big Lottery Fund would at the very best be unpopular. Secondly, the compensation scheme presently covers only £35,000. The Government are consulting on proposals to increase that to £100,000 but, as the Minister will also know, that proposal is itself not without controversy. Only last week, the British Bankers’ Association voiced considerable opposition to that proposition. Whatever the compensation limit is set at, the Bill imposes on an account holder the possibility that the strength of his covenant will be weakened. If I had a dormant account with, say, Barclays, I would not worry unduly about the compensation scheme terms or limits because I would see the strength of the Barclays balance sheet as my main security. The reclaim fund is quite a different proposition. If my dormant account money went via the reclaim fund, the Bill would give me the covenant of the reclaim fund, which would operate on completely separate financial dynamics. I am not at all sure how the Government have managed to convince themselves that the loss of security entailed in going into a much smaller and weaker organisation does not breach Article 1 of the European Convention on Human Rights. Perhaps the Minister will comment on that. I do not like Treasury guarantees any more than the Government, but the Treasury has created this scheme and it cannot simply turn its back on how the scheme works out in practice. Even if there is not an explicit Treasury guarantee, will there not be an implicit guarantee because of the existence, if not the use, of the Treasury’s powers of direction? So, I ask again: what happens if the reclaim fund runs out of money? I beg to move.