Official Report: Minutes of Evidence

The Deputy Chairperson (Mr D Bradley): I welcome Emer Morelli, head of supply in the public spending directorate of DFP, and Maryann Smith from the supply division of DFP. I invite you to make an opening presentation.

Ms Emer Morelli (Department of Finance and Personnel): Thank you, Chair, and thanks to the Committee for the opportunity to appear before you this morning on the dormant accounts scheme. The background paper set out some of the detail, and I will rehearse some of the key points.

The Dormant Bank and Building Society Accounts Act 2008 makes provision for the use of moneys from dormant accounts and building society accounts for social or environmental purposes. Following the 2008 Act, banks and building societies can voluntarily transfer account balances that have been dormant for 15 years or more to a reclaim fund. Reclaim Fund Ltd is a private body managing private funds. It was authorised by the Financial Services Authority (FSA) in March 2011. The transfer to Reclaim Fund by banks and building societies is discretionary. The rights of legal persons entitled to dormant funds who are subsequently identified are preserved.

The 2008 Act also provides that the Big Lottery Fund shall distribute dormant accounts moneys for meeting expenditure that has a social or environmental purpose. It is the Reclaim Fund's responsibility to determine the amount to be transferred to the Big Lottery Fund. The money transferred to the Big Lottery Fund is then apportioned between England, Scotland, Wales and Northern Ireland, according to a set formula that has been agreed by the Westminster Parliament.

Government Ministers in Wales, Scotland and Northern Ireland have the power to give the Big Lottery Fund legally binding directions regarding the use of the transferred funds. The Finance Minister is responsible in Northern Ireland. There is currently £6·423 million available for Northern Ireland spending priorities. The distribution of money for meeting Northern Ireland expenditure is set out at section 21(1) to section 21(4) of the Act. That requires that any order made under that section of the Act is laid before and approved by a resolution of the Northern Ireland Assembly. That means that the proposed way forward in respect of the use of the dormant accounts money must be subject to consultation.

You will be aware that the utilisation of dormant accounts money had been subject to public consultation in 2009. That consultation focused on restricting the purposes for which, or the kinds of persons to which, the distribution of dormant accounts money could be made. The outcome of the consultation was not conclusive and was not published. A further consultation exercise was undertaken in 2012 to determine the level of interest among potential fund administrators. That consultation ended on 2 November 2012, and its outcome demonstrated a significant level of interest among potential fund administrators in Northern Ireland.

Following consideration of the previous proposals and subject to the outcome of a future consultation exercise, the Finance Minister has decided that the spending priority in Northern Ireland should be raised to social investment in general. It is the Minister's intention that, subject to the outcome of the consultation, this will be distributed by the Big Lottery Fund, which may appoint a third-party distributor in Northern Ireland to manage the dormant accounts fund with the potential to provide match funding and that the available moneys will be used to provide loan funding to social enterprises and community and voluntary groups etc. As announced by Minister Hamilton as part of Budget 2015 and agreed by the Executive, it is his intention that the fund should be established in 2015-16 and should be known as the social innovation fund.

We are happy to take any questions that the Committee has.

The Deputy Chairperson (Mr D Bradley): Thank you very much, Emer. The paper mentions that £6·4 million will be available. Is there any likelihood of additional money becoming available in future and, if so, have you any estimate of how much that might be?

Ms Morelli: There is potential as further accounts are identified as dormant and brought into the general fund by Reclaim Fund. This is likely to be significantly less than we have had to date because the majority of funds have been identified and brought forward. The indications are that Northern Ireland will continue to get a 2·8% share of whatever additional money comes forward, but we do not know the quantum at this time.

The Deputy Chairperson (Mr D Bradley): By the time anybody receives this money, it will have been well travelled. I note that it is going from the banks to Reclaim Fund to the Big Lottery Fund and to a fund administrator and so on. Will it be worth anything at the end of the day?

Ms Morelli: The administration costs —

The Deputy Chairperson (Mr D Bradley): I am sorry; I am joking. Is there no way in which that movement of money can be streamlined, which would obviously speed things up a lot?

Ms Morelli: By raising the priorities to social investment in general, the Minister has taken a significant step forward. Subject to the outcome of the public consultation, the moneys should be available in 2015-16 with the establishment of the fund in Northern Ireland.

The Deputy Chairperson (Mr D Bradley): I do not dispute that, but does it have to go through all these hoops? Why does it have to go through all these hoops before it gets here?

Ms Morelli: The legislation is set out in a very prescribed way with requirements, for example, that the Assembly has to approve the distribution of the moneys in Northern Ireland. Other schemes are in place in England, Scotland and Wales that we could potentially link into, subject to the agreement of the Assembly, but the consultation will give us that outcome.

The Deputy Chairperson (Mr D Bradley): It just seems to have to travel a long and tortuous route. Perhaps that is something that could be dealt with through views expressed in the consultation. Is there any indication of what the areas of focus under the social innovation fund might be?

Ms Morelli: At the moment, it is to provide loan finance to community and voluntary groups and small enterprises that are dealing with social or environmental issues. In Northern Ireland, social enterprises are a key area where the moneys could potentially go. Again, that would be subject to the outcome of the consultation. Youth groups and children's groups are key areas that have benefited in the rest of the UK. We expect that they would benefit here, too.

The Deputy Chairperson (Mr D Bradley): You say that small enterprises might benefit from it. By that, do you mean small enterprises that are small social enterprises?

Ms Morelli: Absolutely, yes. It has to have a social element to it.

The Deputy Chairperson (Mr D Bradley): Aside from the various exercises and the Minister's decision that the spending priority should be social investment in general, why has the whole exercise taken so long?

Ms Morelli: Previous consultations sought views that the moneys would be restricted in Northern Ireland to two specific groups: children's groups and those faith-based organisations that were not able to access routine Big Lottery funding because of the connotations of and associations with gambling. That consultation was not conclusive. By raising the priority to social investment, it widens the opportunity for a range of community and voluntary groups to access a very significant funding source in the current budgetary climate.

The Deputy Chairperson (Mr D Bradley): Did you say that the outcomes of that consultation were not published?

Ms Morelli: They were not agreed and hence not published. A final position was not agreed as a result of the consultation.

The Deputy Chairperson (Mr D Bradley): You said that they were not agreed. Between whom were they not agreed?

Ms Morelli: During the pre-consultation, there was no one consensus of opinion. I understand that the Committee also discussed the issue and that there were differences of opinion. There was no clear solution at that time to move forward. By raising it to social investment, there is an opportunity to use the money in Northern Ireland.

The Deputy Chairperson (Mr D Bradley): OK. What is the timetable for the completion of the actions that you outlined in paragraph 14 of your briefing paper?

Ms Morelli: At the moment, the Department is in pre-consultation. We are talking to the key stakeholders such as the Big Lottery Fund and other interested parties to finalise a consultation document. Subject to the Minister's approval, we hope to publish that by early summer for the routine eight to 12 weeks consultation, although I am conscious that, over the summer, we may need a little bit longer. After that, we will bring conclusions back to the Committee and then to the Assembly.

The Deputy Chairperson (Mr D Bradley): What will the process be for the appointment of the third-party distributor?

Ms Morelli: We are in discussions with the Big Lottery Fund. Under the legislation, we have to consult with it before that process is finalised. That will also be included in the consultation and will allow us to move forward on that.

The Deputy Chairperson (Mr D Bradley): Can you give us any indication of what type of group or organisation might be eligible to be a distributor?

Ms Morelli: The Minister's preference would be for an organisation that has the potential to bring match funding to the fund. So, for example, we could have £6 million and there could be an opportunity to increase that through the third-party distributor and make more moneys available. I suppose that the intention of the fund per se is that it will become self-sustaining. The fund is outside public expenditure moneys, so any additionality would only be of benefit to the groups that are eligible to apply.

The Deputy Chairperson (Mr D Bradley): You said that the distributor may be appointed on the basis of the possibility of it bringing match funding to the table. Are you saying that the distributor would provide the match funding or that it would help to access match funding for groups that apply?

Ms Morelli: It would probably be either option. We will tease that out further in the pre-consultation stage, and it will be subject to consultation. However, the option is really to get loan finance into the system.

The Deputy Chairperson (Mr D Bradley): I am not aware of any distributor of funding that also provides match funding. It is usually the case that the distributor of the money will require the applying group to access match funding from another source.

Ms Morelli: That is one potential option, but we are also looking at models that are in place in the rest of the UK. In England —

The Deputy Chairperson (Mr D Bradley): Can you give us some examples of the models in the rest of the UK?

Ms Morelli: In England, the moneys have gone to Big Society Capital, which has set up an access growth fund. Other potential investors are coming in to supplement the money that is in the fund and are making more moneys available for application.

The Deputy Chairperson (Mr D Bradley): What type of organisations are those other investors?

Ms Morelli: I suppose that they are organisations with an interest in social investment. It is a growing market across the UK, where there is a social and financial benefit under the scheme.

The Deputy Chairperson (Mr D Bradley): You said that the aim is for the fund to be self-sustaining. Would that be self-sustaining from the continual flow of moneys from dormant accounts?

Ms Morelli: No, self-sustaining from the structure of the fund, in that loans would be provided and repaid, therefore making the fund itself self-sustaining. The reliance on additional money coming from dormant accounts; there will not be significant sums coming through. That is our understanding.

The Deputy Chairperson (Mr D Bradley): So, the distributor will be giving out loans.

Ms Morelli: That would be the intention, but this is all subject to the consultation exercise.

The Deputy Chairperson (Mr D Bradley): Is it a common model with the distributor providing loans and the applicant seeking match funding?

Ms Morelli: It is not necessarily the applicant seeking match funding. Under the model, if there was a fund administrator or whatever, the applicant would get the loan, spend it and repay it.

The Deputy Chairperson (Mr D Bradley): Thank you.

Ms Morelli: I again stress that it is all subject to further consultation and different options are being discussed and developed at the moment.

Mr Cree: My question is to do with the area we just touched on. These are really loans, not grants, so what is the likely interest rate going to be on those loans? Will it be a commercial rate?

Ms Morelli: Given the nature of the loan, to make it beneficial, it would probably be below a commercial rate, but all that has to be discussed and worked through.

Mr Cree: We have been consulting on it for the last six years. It really is like a small book now, is it not? Will there be interest paid anywhere along the chain, apart from on the end of it?

Ms Morelli: No, not under the models that we are looking at.

Mr Cree: Will the final fund administrators be paid a fee for their services?

Ms Morelli: It depends on how we structure it.

Mr Cree: Yes, that is what I am asking you.

Ms Maryann Smith (Department of Finance and Personnel): We are working through that at the moment. Legislation allows for an administrative fee.

Mr Cree: So, they may be working simply at this exercise.

The Deputy Chairperson (Mr D Bradley): Sorry, are you finished, Leslie?

Mr Cree: Yes, I just wanted to be clear that the end fund administrator will actually be paid. That is the point. It did not come out in the paper, but that is —

Ms Smith: The legislation clearly allows for the expenses to be —

Mr Cree: Yes, but it is what is actually happening, so that is what you envisage.

Ms Smith: Yes.

The Deputy Chairperson (Mr D Bradley): We have here the Ulster Community Investment Trust (UCIT). Are you not proposing to duplicate some of the work that it does?

Ms Morelli: There is potential for UCIT to be part of this as well, so I do not think there would be duplication.

The Deputy Chairperson (Mr D Bradley): So, in theory, it could be a possible distributor.

Ms Morelli: Yes, but again subject to the outcome of the consultation.

Ms Smith: The 2012 consultation identified a number of people who might be interested, including Charity Bank and UCIT, so it would be subject to the type of —

Ms Morelli: The legislation also requires full consultation with the Big Lottery Fund before we proceed.

The Deputy Chairperson (Mr D Bradley): Would the Big Lottery Fund be a potential distributor?

Ms Smith: Well, under the legislation, yes.

Ms Morelli: It is still under discussion as whether it goes to a third party, but I think the Minister is keen —

The Deputy Chairperson (Mr D Bradley): So, there are a growing number of options.

Mr McQuillan: Is it possible that a social business could be the third party? Could it be a community organisation of some sort?

Ms Morelli: Yes.

Mr McQuillan: Would any interest that would be charged on the loans go back into that community organisation?

Ms Morelli: Yes.

Mr McQuillan: That is the model we should look at, something around that area.

Ms Morelli: We are looking at a number of models at the moment.

The Deputy Chairperson (Mr D Bradley): You are saying that the interest would go back into the fund, obviously.

Ms Morelli: Potentially, yes.

The Deputy Chairperson (Mr D Bradley): Are there any other questions?

Mr Cree: We will wait for the results of the consultation.

The Deputy Chairperson (Mr D Bradley): Yes.

Ms Morelli: We will be back.

The Deputy Chairperson (Mr D Bradley): OK, Emer and Maryann, thank you very much for attending today.