Home > Publications > Selected cases — Parliamentary > Selected Cases and Summaries of Completed Investigations - May - September 1998 > C.645/97
First Report Session 1998-99
Volume 3 - 1st Report - Session 1998-99
DEPARTMENT OF THE ENVIRONMENT, TRANSPORT AND THE REGIONS
Failure to notify members of a savings scheme of its termination
4.1. Ms X complained that the Department of the Environment, Transport and the Regions (DETR) (formerly the Department of the Environment) and the National Savings Bank (NSB) (part of National Savings), had failed to notify her that the Home Purchase Assistance Scheme (HPAS), of which she was a member, was to be discontinued; and that as a result she had lost the opportunity of benefiting under the scheme.
4.2. The investigation began in September 1997 after I had obtained comments from the Permanent Secretary of DETR and the Chief Executive of National Savings after referral of the complaint by the Member. I have not put into this report every detail investigated by the Commissioner's staff but I am satisfied that no matter of significance has been overlooked.
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Background
4.3. The Home Purchase Assistance and Housing Corporation Guarantee Act 1978 gave rise to HPAS, a scheme aimed at assisting first-time buyers to acquire homes. Administrative arrangements were settled by the Home Purchase Assistance Directions 1978 and amplified by notes on procedure. HPAS was administered through recognised savings institutions, one of which was NSB, and recognised lending institutions. Prospective first-time buyers were required to save with a recognised savings institution for at least two years and to have had at least £300 in their account during the 12 months prior to claiming assistance and at least £600 at the time of their claim. Applicants gave notice to a recognised savings institution of their intention to save by completing form HPA1, a copy of which would be retained by the institution and the saver (in the case of banks other than NSB, a copy was kept only by the saver). The Directions and notes did not specify where the savings institutions were to keep their copies of the forms or require them to set up any system for identifying which of their customers were registered under HPAS. Savers would identify themselves when they applied for assistance when they were ready to buy a home. There was no maximum period after notice of intention to save within which the saver was required to apply for assistance. Assistance was in the form of an interest-free loan of £600 repayable after five years and a tax-free, non-repayable bonus of up to £110 depending on the amount saved. DETR's function was to finance the loans and bonuses on the basis of claims by the participating lending institutions. DETR had no regular contact with the savings institutions and no record of individual savers.
4.4. In 1988 the Government decided to wind up HPAS. The Local Government and Housing Act 1989 enabled the Secretary of State to specify the dates for the end of HPAS. The Home Purchase Assistance (Winding Up of Scheme) Order 1990 provided that no new savers could be registered after 31 March 1990 and no applications for assistance could be made after 31 March 1993. It contained no requirement to notify individual participants in HPAS of its winding up.
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Investigation
4.5. On 1 October 1985 Ms X gave notice, by completing form HPA1, of her intention to save under the provisions of HPAS. Her form was registered at NSB on 24 October.
4.6. On 1 September 1988 DETR held a meeting to discuss the procedure for the forthcoming abolition of HPAS. They noted that it had been agreed that the scheme should be closed down in a way which could be seen as fair by the public; those who had already saved under the scheme for two years and were eligible for assistance should be given several years after the end of registrations to claim it, and publicity should encourage them to do so. They decided to investigate the best method of informing savers of the impending abolition, especially whether they could be identified for individual notification, and to prepare a leaflet for that purpose. On 3 October DETR began to investigate the possibility of sending a leaflet to every registered saver, either themselves or through the savings institutions. In a submission to Ministers dated 29 November DETR suggested that entry to the scheme should cease from 31 March 1990 and a reasonable amount of time should be given for the last beneficiaries to claim assistance; since the last joiners had to save for at least two years before becoming eligible for assistance, and then had to find a home to buy, assistance could not realistically be ended before 31 March 1993. They added that although they did not wish to draw more attention than necessary to the end of HPAS they had to alert savers, potential savers and the lenders to their plans. They intended to send details of their proposals to the savings and lending institutions and were investigating whether it would be possible to notify existing HPAS savers, but their impression was that savings institutions did not have records of people who had registered for HPAS. On 2 December Ministers decided that the last date for claiming assistance under HPAS should be 31 March 1993.
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4.7. On 2 February 1989 DETR wrote to the Chief Executives of all the participating institutions setting out the proposed timetable for closing HPAS and asking for their help in telling customers of the proposals. They asked the institutions to circulate a DETR briefing note to their branch staff who dealt with HPAS customers. That note said: 'From now on, whenever you deal with a customer who is thinking of joining the Homeloan Scheme, or you know has already joined, please give them the Department's leaflet...which tells them about the ending of the Scheme.'. No request was made to send copies to all individual participants. On 2 March 1990 DETR issued a press release about the end of the scheme saying that first-time buyers had until 31 March to register to participate and that those registered would be able to claim assistance until 31 March 1993.
4.8. On 5 December 1996 Ms X wrote to NSB complaining that when she had contacted DETR about the purchase of her first home she had been disappointed to discover that HPAS had been discontinued. She said that DETR had told her that it was a legal obligation of the bank with which she was saving to have told her of the conclusion of HPAS, but she had received no such notification. She said that she had been relying on the bonus and interest-free loan provided by HPAS to assist in the purchase of her home. She added that had she known that the scheme was to be wound up she might have moved her savings under HPAS to her building society account, in which event she would since have qualified for more than £800 in free shares. She asked what steps NSB were prepared to take to compensate her for the losses she had suffered as a result of their failure to notify her of the end of HPAS.
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4.9. On 6 January 1997 NSB replied to Ms X saying that the control of HPAS and the issuing of loans had been entirely in the hands of DETR. The role of NSB had been to confirm, when required, the amount held in a saver's account. In 1989 when the decision had been taken to end HPAS DETR had decided to let savers know by advertising the decision widely in the national press; there had been no requirement for banks to write to individual savers. They concluded that it would not be appropriate for NSB to consider compensating Ms X for the loss she claimed to have suffered.
The Permanent Secretary's reply to the complaint
4.10. In his comments to me the Permanent Secretary of DETR said that although there had been no statutory requirement to notify HPAS participants of the scheme's closure, DETR had taken various steps to publicise the matter. In particular, in February 1989 they had sought to arrange for savings institutions to give to any customers who identified themselves as saving under HPAS a leaflet saying that HPAS was ending. No provision had been made for customers who did not tell the institution that they were saving under HPAS. The Permanent Secretary said that according to DETR's file towards the end of 1988 they had investigated the possibility of asking the savings institutions to notify all customers who had joined HPAS of its closure; no details of the investigation had been recorded but DETR inferred that it had confirmed their impression that the savings institutions had not kept records in a form which would have enabled them to identify HPAS participants. In early 1993 Ministers had considered publicising the final date for applications for assistance but decided that any expenditure on publicity would be disproportionate to the number of people affected and that no steps should be taken to remind remaining registered savers of the closing date for applications.
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The Chief Executive's reply to the complaint
4.11. The Chief Executive of National Savings told me that NSB had obtained 200 copies of the DETR leaflet concerning the closure of HPAS (and subsequently a further 100 copies of a later version) for distribution to staff most likely to have to deal with customer questions on the matter. They had not sent copies to individual savers, nor had they been asked to do so by DETR. They could not have readily identified all HPAS savers as the savings had been in normal accounts with no special indicator. Because NSB's role had been simply to confirm that a customer had savings of a specified sum they had needed access to individual account details only at the point that the customer applied for assistance. He apologised for NSB's error in their letter of 6 January 1997 (paragraph 4.9) when they had incorrectly said, apparently based on a telephone call to DETR, that DETR had advertised the ending of HPAS widely in the national press. However, he said that having reviewed the case he was satisfied that the rejection of Ms X's request for compensation had been correct given the limited involvement of NSB in HPAS. He added that Ms X had given no indication that she would have been in a position to qualify for assistance under HPAS if she had been told earlier of the ending of the scheme, and that she had been free to transfer her savings to a building society at any time because transfers had been allowed under the scheme and most building societies had participated in it.
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Findings
4.12. It is clear that in setting the closing date for applications for assistance under HPAS Ministers intended that participants should be given ample opportunity to obtain the benefits promised by the scheme. In the light of that the approach initially investigated by DETR of sending a notice to each registered saver was obviously correct. However, it seems that that approach was frustrated by the lack of an easy way of identifying registered savers. I regard that as an administrative failing on the part of DETR; in my view it was incumbent upon them when setting up the scheme to ensure that all participants could be readily identified if necessary. Instead they appear to have left the matter to the discretion of the savings institutions, whose need for such information was plainly less than DETR's. The result of that lack of foresight was that the arrangements made in 1989 for informing participants that they were to be given a further four years in which to obtain the assistance for which they had been saving were reactive rather than active and as such were likely to help only those newly joining the scheme rather than those who, like Ms X, were already participants. I do not regard the press notice which DETR issued in March 1990 (paragraph 4.7) as sufficient to remedy that defect; the likelihood that all participants would see it was not high. The outcome for Ms X was to deny her the promised and intended opportunity to benefit from the scheme. I cannot say whether Ms X would have taken advantage of that opportunity had the need to do so by 31 March 1993 been drawn to her attention, or whether such information would have prompted her to take some other action which might have benefited her financially. The fact remains that maladministration by DETR prevented her from making an informed decision on the matter at the appropriate time. That struck me as an injustice. I therefore asked the Permanent Secretary of DETR if he would consider compensating Ms X for that by way of an ex gratia payment, and suggested that in the circumstances the HPAS bonus of £110 plus the estimated value of a £600 interest-free loan over five years represented the most suitable quantification of such an award. I also asked him to consider compensating any other participants who had missed the deadline and come to his notice on the same basis. In reply he agreed that Ms X would be compensated on the terms suggested. He said that DETR had identified seven other HPAS participants who might be in a similar position to that of Ms X. DETR would write to them to invite them to resubmit details of their particular circumstances; they would then consider whether they merited compensation of a similar nature to that paid to Ms X. Any future correspondence would be dealt with in the same light. I welcome that agreement.
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4.13. I do not however consider that any redress is due in respect of Ms X's claim that had she known earlier of the end of HPAS she might have moved her savings to her building society account and qualified for free shares when the building society became a plc. That action and the possible gains are too speculative to support a case for further compensation. I have not found anything to confirm or not the information that Ms X says (paragraph 4.8) she was given by DETR that NSB were obliged to tell her of the winding up of HPAS but that has no material effect on my findings.
Conclusion
4.14. Failure by DETR to ensure that all participants in HPAS could be readily identified if necessary denied Ms X the opportunity to benefit from the scheme before its closure. DETR have agreed to compensate her for that and to consider compensating other participants who might be in a similar position. I regard that as a satisfactory outcome to a justified complaint.
17 June 1998
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