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Bill on unclaimed assets begins journey through parliament

Finance | Gemma Ware | 17 Mar 2008

The Queen has set in motion a law to allow banks and building societies to hand over money lying in dormant bank accounts to community investment, but the government has stopped short of committing part of the funds raised to a social investment bank.

In her speech today during the state opening of parliament, the Queen introduced the Dormant Bank and Building Society Accounts Bill, formerly known as the Unclaimed Assets Bill.

“Legislation will be introduced to enable unclaimed money in dormant bank accounts to be used for youth facilities, financial inclusion and social investment,” the Queen said.

It is estimated that around £400m currently lying in dormant bank accounts could go to good causes. The government confirmed that the new Bill would allow money not needed for potential customer reclamation of dormant funds, to be reinvested in the community through the Big Lottery Fund (BIG).

However, in a briefing on the legislation published alongside the Queen’s speech, the government stopped short of committing to a social investment bank, the proposal put forward by the Commission on Unclaimed Assets to fund a system of grants and loans to help disadvantaged communities.

“In England initial spending would be on youth services, financial capability and inclusion and, resources permitting, a social investment ‘wholesaler’,” it said. Scotland, Wales and Northern Ireland would be able to determine their own priorities as to where the money is spent.

A spokeswoman from the Treasury said the reluctance to commit to a social investment bank was “because the focus was on funding youth projects”.

Toby Eccles, secretary for the Commission on Unclaimed Assets, said: “Each thing we get from the government is warmer,” but that it would have preferred it if the government had been firmer on the funding for the social investment bank.

He said he thought the Treasury was nervous of committing the funding to the idea because it could not yet be certain how much would be raised from dormant bank accounts.

Today’s proposed legislation also resisted the recommendations of a Treasury select committee report published this summer that an unclaimed assets scheme should be compulsory for banks and building societies.

In its report the Treasury committee said the scheme could be abandoned by banks if it remained voluntary. “The prospect looms of some banks and building societies choosing not to participate, particularly if the banking sector sees a downturn in profitability and also once the current spotlight on unclaimed assets has faded,” it said. 

However, in today’s briefing the government said the legislation “would be enabling, not compulsory, for financial institutions”.

Stephen Hammersley, chief executive of the Community Foundation Network, said it looked like there would be no compulsion on banks and building societies to join the scheme. “Government has pulled the plug on a huge swathe of local community funding. This bill was supposed to refill the bath but with the legislation framed as it seems, the inward flow could be little more than a dripping tap.”

He called on BIG to make sure the money filtered down to community groups. “It must now ensure that what money is raised gets to the grassroots, rather than going to the 10 per cent mega-charities that currently absorb nearly 90 per cent of all charitable income.”

Eccles said that the Commission was concerned that the government’s proposals so far fell short of offering security that a self-regulatory scheme for financial institutions would have some teeth.

“The regulatory environment needs to give everyone the confidence that everyone is playing ball,” he said.

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