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Dormant Bank and Building Society Accounts Bill [HL]

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2. I wish to speak also to Amendment No. 2A and to the other amendments in the group. I remind noble Lords of the objective of this Bill. I am not unmindful of the fact that the noble Lord, Lord Shutt of Greetland, holds a somewhat different view from the Government on this. I shall in no way, shape or form attempt to pre-empt his arguments. I will, of course, bend the ever-listening ear to what he has to say, but wish to indicate the strength of the Government’s position as we see it. The Bill sets out to facilitate fair and efficient distribution of funds in dormant accounts for the benefit of the wider society. Small banks and building societies often play a key role in supporting and engaging with their local communities. For this reason, the Government have always been clear that small, locally based institutions would be able to focus dormant account assets on real needs in their local communities. Of course, the Government recognise the value of ““small and local””. We consulted with the bank and building society sector, and the Government identified a £7 billion turnover as a credible threshold to define small and locally based institutions. The Building Societies Association advised us that more than 90 per cent of building societies with less than £7 billion total assets have all their branches within 70 miles of their head office. Thus ““small”” also means reasonably local. By contrast, the big building societies are, by definition, not small and are not local. The noble Lord, Lord Shutt, will forgive me if I draw attention to a building society based in Yorkshire, as he is likely to quote Yorkshire-based examples back to me. The Leeds Building Society, which is the smallest of those that will be above the £7 billion threshold, with assets of £9.2 billion, has branches the length and breadth of the country, from Aberdeen to Southampton and from Belfast to Braintree. We are confident that the asset limit that we have identified enables genuinely small and local institutions to provide support for their local communities, while ensuring that funds from institutions that operate on a national scale are distributed towards the agreed national spending priorities in a co-ordinated fashion. Let us be clear: the Government are of course committed to supporting mutual organisations and recognise the many benefits that they bring to society and communities across the UK. If I had any doubts about this matter, my recollection of exchanges with the noble Lord, Lord Shutt, and other noble Lords in the House earlier in the year would have convinced me of the virtues of the mutuals. We recently introduced new legislation to support the mutuals sector, including improving rights relating to members’ shares and improving the procedures involved in transferring business to the subsidiary of another mutual. Let us also be clear that the vast majority of building societies will be eligible for the alternative scheme. According to the BSA’s November 2008 statistics, 50 of its 59 members, nearly 85 percent, will meet the ““small and local”” definition and the distribution of resources within that framework. It was pointed out at Second Reading that the building societies that will not be eligible hold the vast majority of the dormant account funds in the sector. That is correct. To be precise, the BSA estimated that of the £130 million in dormant accounts in the sector, £100 million lay in the larger institutions. Much has been said of the great need in the areas to which the spending priorities of this scheme have been directed. The noble Lord, Lord Shutt, will take solace in knowing that this was a subject of considerable debate in the other place. It was hardly likely that Members of Parliament, with their representative role in their constituencies, would miss the opportunity of emphasising the local good that this dormant accounts scheme could provide from the institutions that would contribute to it. However, MPs emphasised also, with great force, the advantages to their communities of the priorities to which the major resources from the big building societies and banks would be directed: youth facilities, a social investment wholesaler and improving financial capability and inclusion. On the latter point, we are all too well aware that the more difficult the economic circumstances, the greater the need for people to be able to manage their affairs effectively. If the largest building societies do not take part in the main scheme, quite simply we undermine our ability to fund these very important initiatives for the wider society. The Government are aware that banks and building societies already support a variety of good causes in different communities, and we applaud those initiatives, but are they really in the best position consistently to consider the needs of wider communities throughout the UK? If we allow dormant account money to be administered through multiple individual foundations, that will inevitably lead to significant overlaps and also to possible gaps in provision. In the interests of the fair and efficient distribution of substantial funds, it is right that we concentrate on establishing centralised, national distribution. With respect to the main scheme, the Big Lottery Fund has a track record of ensuring that all communities benefit from its funding. At this point, I should say that I am all too well aware that for every success in relation to National Lottery allocation, there will be attendant disappointments, and that therefore Big’s record will be subject to criticism. However, given the forebodings expressed during the passage of the Bill about the arrangements for the National Lottery and the distribution of its funds, and given the flurry of questions that were asked shortly after it began to operate, it is markedly the case that the lottery’s distribution work is subject to much less criticism than was foreshadowed. That suggests that the Big Lottery Fund is doing its job ably and reflects the fact that it is well placed to do so. It has a track record of ensuring that all communities benefit from its funding; it has used, and will be expected to use in relation to dormant accounts assets, a variety of methods to achieve a fair regional and local spread of funding; and it already has a comprehensive infrastructure in place for distributing funds on a national level, in line with spending directions. Therefore, here is an institution with considerable knowledge of, and experience in, fielding grant applications and in administering the volumes of money that the dormant accounts scheme will be expected to generate. We welcome the October statement from the Building Societies Association supporting the Bill and the Government’s proposals for an alternative scheme for smaller financial institutions. We also welcome the statement of the coalition of building societies expressing its members’ commitment to making the scheme a success and its intention to participate in it. Likewise, the British Bankers’ Association offered a statement confirming commitment to participate from banking groups which represent 90 per cent of the UK retail banking market. The proposed scheme is designed to be simple and efficient to minimise costs to institutions and the scheme overall, and to maximise funds for distribution. The asset limit provides a balance between giving small, locally based banks and building societies the flexibility to directly benefit their local communities against maximising assets for the main scheme. The government amendments are designed to create an alternative scheme for small, locally based institutions. Those require a definition, which is given accurately in the Bill, and I therefore hope that the House will support Commons Amendment No. 2 and the other government amendments when they are brought forward. Moved, That the House do agree with the Commons in their Amendment No. 2.—(Lord Davies of Oldham.) Lord Shutt of Greetland moved, as an amendment to the Motion that this House do agree with the Commons in their Amendment No. 2, leave out ““agree”” and insert ““disagree””. The noble Lord said: My Lords, this issue is about the best way to dispense moneys when we all agree that the beneficiaries should be good causes. Perhaps I should declare an interest as a grant-maker. For nearly 35 years, I have been a trustee, particularly with the Joseph Rowntree Charitable Trust and the JRSST Charitable Trust, and I am a vice-president of the Community Foundation for Calderdale. In our previous discussions, we have resolved that all building societies should be encompassed in the scheme for the smaller banks and building societies. That was the position when the Bill left this place on 31 January. At that time, there were 59 building societies, 51 of which were regarded as small and eight of which were regarded as large. I want to recap the case that was made then. First, the big eight wanted to be included in the smaller banks scheme. They did not want to be volunteered into the bank scheme; we are told that it is a voluntary scheme. Secondly, seven out of eight of those big building societies have in place their own building society foundations. They are experienced grant-makers and they have independent trustees who are at arm’s length from the institutions. Thirdly, we believed then, and the House agreed, that it was invidious to exclude them on the basis of 51 to eight. The Nationwide, as a big society, is an exception. I still do not accept that the others are big societies in the same way as are those that demutualised, which were much bigger. Surely the aims of the Nationwide are splendid in terms of its foundation and the good that it is doing throughout the land. Fourthly, decision-making by those building societies and their foundations is often speedy and in many cases the members are involved. Fifthly, grants are made to local and regional groups, away from the centralised position that we are offered with the National Lottery. Since the Bill left this place in January, it has been dormant for 10 and a half months, but quite a bit has happened in the banking and building society world. Let us look at building societies. We had the big eight but, as the noble Lord, Lord Davies, has indicated, we have the November list, in which we find that we now have the big nine. The Derbyshire has passed the threshold and gone over the £7 billion level. However, because of difficulties in the building society movement, the Derbyshire and the Cheshire are to be taken over by the Nationwide; furthermore, the Scarborough is to be taken over by the Skipton; the Barnsley is to be taken over by the Yorkshire; and the Catholic is to be taken over by the Chelsea. That means that the assets in the smaller societies are now £43.2 billion rather than £58.5 billion. Similarly, 16.5 per cent of the building society movement was in the smaller societies but, after the mergers take place, the figure will be 12.2 per cent. A quarter of the funds that would have been distributed to local and regional causes will now be distributed by the National Lottery. Next, we have the credit crunch. Regardless of the views of noble Lords on banks and the way in which they behave, the banks have had a good record on grant-making and on their social responsibilities. The financial sector has been a good donor. Indeed, many years ago, this House saw to it that one such bank was a good donor. When the TSB was privatised, the late Lord Taylor of Gryfe inserted an amendment requiring 1 per cent of its profits to go to good causes. When Lloyds took over the TSB, it had to be a reverse takeover and the 1 per cent still followed. What is going to happen to grant-making by financial institutions in the current climate? Grant-seekers who have been looking in the financial services area could be in some difficulties because the way in which the banks are functioning after the bail-out and the restriction on dividends may make the institutions feel that they cannot be as generous. I hope that they do not take that view, but I can see circumstances in which they will not be able to be as generous. Members of this House know about grant-giving and grant-seeking, but I hope that that point will be pondered. The mergers that I mentioned have not yet taken place, although we have every expectation that they will in the next few months. However, there is another. The Britannia Building Society, the second largest building society, has announced that it is in exploratory talks with Co-operative Financial Services, including over a possible future merger. It said: "““This would be enabled through the introduction of measures contained in the Building Societies (Funding) & Mutual Societies (Transfers) Act—known as the Butterfill bill … A merger would also have to be approved in a vote by Britannia's members … The organisations … have similar values and share a mutual ethos, so there would be a strong cultural fit””." If that merger takes place, what sort of animal does the Britannia become? Does it become part of the Co-op? If it does, is it not covered by the Bill? Many of us argued that the definition of dormant assets was far too tight and that we should be looking at insurance and so forth. We found that in one of the American states there are more than 100 definitions of dormancy, but we were told that we had to be tight and consider banks and building societies only. Will the Britannia escape because it becomes a different being? The amendment that I was able to persuade the House to accept meant that people believed that resources would be available to communities, localities and regions. Communities in Derbyshire, Cheshire, Barnsley and Scarborough certainly have every expectation that that is the case, yet if the Minister has his way the resources will go into the large scheme and those places will not share on a local basis. Three points were raised by the Minister. He mentioned that the Building Societies Association suggested that the Bill is the right way forward. The Building Societies Association seems to be a strange outfit. It may be good in many respects, but it seems strange for an association to say that it supports a position while 83.5 per cent of its members by financial weight think rather differently. However, that is its affair; perhaps it is good at doing other things. It was interesting that the Minister mentioned the Leeds Building Society. Back in 1959, as an articled clerk, I was involved in auditing it. In those days, it was the Leeds and Holbeck. It may have branches based substantially in Leeds—when I was there, it had eight or nine branches in the city and it certainly has branches throughout Yorkshire—but, like many others, it has put its tentacles a little further. Look at the board; you will find that it is based in Leeds. Thirdly, the Minister talked about undermining the scheme for youth. In my view, there is plenty to go at with the resources that will be available from the larger banks. The amazing thing about the Bill is that, regardless of the credit crunch and other financial problems, cash is cash. What we are talking about today are the same resources that we talked about 10 and a half months ago. It is not some stock that has fallen in value and is now worth a quarter of what it was; it is exactly the same. If noble Lords would like to see diversity in grant-making and support for localities and regions, they should support the amendment.