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CONSULTATION ON THE DISTRIBUTION OF FUNDS FROM DORMANT BANK AND BUILDING SOCIETY ACCOUNTS

Responding to this consultation paper

We are inviting written responses to this consultation paper by 8 September 2008. Our preferred method of response is by email. We understand that not all consultees will have access to email: in those circumstances please send your response to the undernoted address.

Email address: DBBSA@scotland.gsi.gov.uk

Online Repsonse Form

Or by post to:

Carol Elder

Third Sector Division

Scottish Government

Victoria Quay

Edinburgh

EH6 6QQ.

Email address DBBSA@scotland.gsi.gov.uk

If you have any queries contact Carol Elder on Tel: 0131 244 5462 or Glen Buchanan on Tel: 0141 271 3740.

This consultation and all other Scottish Government consultation exercises, can be viewed online on the consultation web pages of the Scottish Executive website at http://www.scotland.gov.uk/consultations . You can telephone Freephone 0800 77 1234 to find out where your nearest public internet access point is.

The Scottish Government now has an email alert system for consultations (SEconsult: http://ww.scotland.gov.uk/consultations/seconsult.asx). This system allows stakeholder individuals and organisations to register and receive a weekly email containing details of all new consultations (including web links). SEconsult complements, but in no way replaces SE distribution lists, and is designed to allow stakeholders to keep up to date with all SE consultation activity, and therefore be alerted at the earliest opportunity to those of most interest. We would encourage you to register.

Handling your response

We need to know how you wish your response to be handled and, in particular, whether you are happy for your response to be made public. Please complete and return the Respondent Information Form which forms part of the consultation questionnaire as this will ensure that we treat your response appropriately. If you ask for your response not to be published we will regard it as confidential, and we will treat it accordingly.

All respondents should be aware that the Scottish Government are subject to the provisions of the Freedom of Information (Scotland) Act 2002 and would therefore have to consider any request made to it under the Act for information relating to responses made to this consultation exercise.

Next steps in the process

Where respondents have given permission for their response to be made public (see the attached Respondent Information Form), these will be made available on the Scottish Government consultation web pages by 13 October. We will check all responses where agreement to publish has been given for any potentially defamatory material before placing them on the website.

What happens next?

Following the closing date, all responses will be analysed and considered along with any other available evidence to help us reach a decision on the distribution of funds from Dormant Bank and Building Society Accounts. We aim to issue a report on the consultation process by October 2008 . It is anticipated that funds will become available for distribution at some point in 2009.

Comments or Complaints

If you have any comments about how this consultation exercise has been conducted, please send them to:

Name: Carol Elder

Address Scottish Government

3H Bridge

Victoria Quay

Edinburgh

EH6 6QQ

Carol.Elder@scotland.gsi.gov.uk

Dormant Bank and Building Society Accounts Consultation 2008

The Dormant Bank and Building Society Accounts Bill is currently progressing through the UK Parliament. The money will be invested exclusively in the third sector. Dormant is defined as a period of 15 years during which the customer has not initiated any activity on the account. In England the assets will be distributed among defined priority areas of providing opportunities for young people, improving financial inclusion and supporting institutions involved in social lending - but it is for Scottish Ministers to set the priorities for the Scottish share of funds and they have initiated a consultation process.

It is estimated that Scotland's share for investment in the third sector would be approximately £40m. The money would be distributed by The BIG Lottery Fund (Scotland). It is hoped that the Fund would be operational at some point in 2009.

A series of four local consultation sessions are being held across Scotland during June and July. Additionally, The Scottish Government has opened a formal consultation process to encourage a wider debate about the uses of the Fund.

The Consultation Questions are presented below. A paper on funding options prepared by the Big Lottery Fund Scotland is also appended.

Dormant Bank and Building Society Accounts Consultation 2008

1. What should be the governing principles of the Fund?

2. Which of the funding models set out in the BIG paper would be most valuable for the third sector?

· Grants

· Trust Fund

· Loans

· Contracts

· Other

3. Should the Fund be used for a particular type or mix of funding? - e.g.,

· Capital and/or revenue

· Short or longer term investments

· A particular size/range of investments

· Particularly innovative uses … or for use beyond innovation funding

· Community development endowments for the most disadvantaged areas or groups

4. What sorts of timescales should be set for the release of the estimated £40m? - e.g.,

· £40m over 2 years or £10m per year for 4 years

· Smaller amounts into perpetuity - e.g., an endowment release of £2m per year could offer £100,000 for 20 organisations, or £50,000 for 40 organisations

5. Should the Fund be used for a particular purpose that would apply across the sector? - e.g.,

· Capacity building

· Governance training

· Public policy research

· Organisational growth

· Modernisation

· Improvement

6. Are there particular priority areas where the Fund could make the most impact?

7. Please use the space below to make any other points ………..

BIG LOTTERY FUND ADVICE NOTE May 2008

1. Options for structuring and managing Dormant Bank and Building Society Account money in Scotland.

Introduction

The Dormant Bank and Building Society Accounts Bill will create the legal and administrative framework for the distribution of money from cash accounts that have been dormant for fifteen years or more. This money must be distributed to the third sector, for social and environmental benefit. The Big Lottery Fund will be the body responsible for distributing this money across the UK.

The Scottish Council for Voluntary Organisations (SCVO) hosted a national scoping seminar on behalf of the Scottish Government on 13 May 2008. Participants - drawn from across the third sector - were interested in how this new resource could be managed to generate ongoing benefit and impact in and for the third sector. They suggested that non-traditional options should be considered in the development of the fund, so that it could be used by and for the sector as a unique source of investment.

The following paper briefly describes how this money might be managed and delivered by the Big Lottery Fund in Scotland. It has been written to help inform the consultation process during June-August 2008.

The Big Lottery Fund is able to distribute funding in three ways: through grants, loans or contracts. Dormant Account funding might be delivered through one, more or a combination (eg, a trust that makes loans or grants) of these mechanisms.

1. Grants - simple model

Grants can be made as a one-off payment (for obvious reasons, this is rare) or can be paid by instalments over a set period or number of years. The Big Lottery Fund in Scotland has made grants between £500 and £8 million through Awards for All and its current Investing in Communities portfolio.

Grants are usually made under an agreement, which makes payment to recipients subject to their meeting specified conditions. For example, conditions may set milestones that require recipients to carry out certain activities, produce outputs or achieve outcomes within a certain timescale, to defined quality levels. The payment of grant instalments can be linked to these conditions. This gives the grant giver some control over what the grant is used for and how successful the funded project might be in achieving its objectives and outcomes. If the grant is large and for a capital project, the funder may also take out security over the project. If a grant term is breached, the funder can then require the grant to be paid back.

There can be open competition for grants. Placing eligibility limits can refine competition. Alternatively, specific organisations can be invited (or solicited) to apply to receive grants. Also, for strategic reasons, the total amount available in grants can be allocated provisionally against, for example, geographic or subject areas so that the available funding can be spread over a particular geographic area or range of themes.

Grants can be made directly to a recipient for a project which the recipient will carry out themselves, or they can be made to a recipient who will then be responsible for distributing the grant amongst a number of projects, which the recipient manages.

Decision-making

The Big Lottery Fund has utilised a variety of decision-making models, including publicly appointed general committees (such as the current Scotland Committee) or specialist panels or committees. Other mechanisms can also be employed to inform decisions on applications for grants. For example, BIG set provisional allocations for the maximum amount of money that each local authority area in Scotland could receive from its Young People's Fund. With the help of partners, BIG established young people's panels in all 32 local authorities. These panels were made up of young people who lived in the area and provided views on whether applications submitted in their areas fitted with what they considered to be the priorities and needs of the young people who lived there. The panels also suggested what priority should be given to applications. All applications received were submitted to the national Young People's Fund Scotland Committee for decision. Young people aged between 11 and 25 formed the majority on the national Committee.

Another mechanism adopted by BIG, this time with its Better Off community drugs rehabilitation programme, was again to set provisional allocations for each Drug Action Team (DAT) area and to have the DAT endorse and rank the applications received in their areas before they were submitted to a national committee for decision.

BIG has also involved the public in deciding which projects should receive funding. The People's Millions programme allowed the public to vote by telephone for projects that they thought should be funded. BIG is currently working with BBC Scotland on the Primetime initiative, where BBC Scotland viewers and listeners will vote by telephone for projects for older people.

2. Grants - Trust Model

A grant can be made to set up a trust. A trust is set up when the funder makes a single grant to a recipient, and the grant is held 'on trust' to be used as an expendable endowment over a set number of years. This means that the grant should be invested to produce an ongoing income, and the trust deed (the governing document which stipulates the use of the funding) will set out a date by which all the investment and income must be spent. The recipient may be an existing or a new charitable or non-charitable organisation, acting through its trustee or trustees. Wider benefits of this model may be generated through the type of investment chosen (eg, in renewable energy projects or ethical investment options).

An advantage of trust funding is that it provides both the funder and the trustee or trustees with a relatively high degree of financial certainty for a longer period (usually, a minimum of 10 years). It may also mean that the funder might not be asked to provide the organisation administering the trust, or the projects which the trust supports, with further revenue support in the longer term. And having undertaken a thorough assessment process, including due diligence checks, the funder can be confident that it has entrusted its investment to a 'can-do' organisation that will deliver the outcomes set for it in the trust deed.

A trust is subject to additional regulatory controls imposed by charity and trust law, which govern the activities of the grant recipient, as well as to the funder's terms and conditions of grant. These external regulatory controls may give the funder sufficient comfort to apply fewer terms itself. However, when funds are held on trust, they are effectively ring fenced for the purposes set out in the trust deed, and cannot be used for any other purpose (eg, including the settlement of debts of the recipient), which are not attributable to the trust.

An advantage for the recipient of a grant made by way of an expendable endowment is that it perhaps gives the recipient the opportunity to develop different or more diverse types of projects over a longer-term timeframe, while acquiring new skills and confidence for itself. Recipients may also be able to attract new sources of funding and act as trustee of a number of separate trusts, even though the objects of each trust might be different.

Example

The Big Lottery Fund in Northern Ireland is currently establishing its Building Change Trust. It has £10 million available to make one grant as a ten-year expendable endowment. The grant must be invested to produce an income, and BIG will require all the investment and income to be committed between 2008 and 2018.

BIG believes that the creation of a new Trust offers the greatest potential for this funding to be used in imaginative and innovative ways. The aim for the Building Change Trust, and for the work it supports, is to build the capacity of the voluntary and community sector by equipping it to meet the changing needs of disadvantaged communities in Northern Ireland. The Trust will have the ability to fund and support change in the voluntary and community sector, beyond a traditional grant making approach. It is anticipated that the Trust will build on the work, skills and expertise of existing organisations to reshape, restructure and modernise the voluntary and community sector and provide a legacy that extends beyond the life and scope of lottery funding. The Building Change Trust should have a transformational impact on the voluntary and community sector and disadvantaged communities in Northern Ireland.

3. Loans

A loan is the temporary provision of funds to a borrower at a zero or some other rate of interest, and with an agreed and legally binding repayment schedule.

Some of the advantages of providing loans are:

· They allow available funding to be stretched further since funds can be revolved and become available again later down the line to support other projects;

· There is evidence that loan finance is more effective than grants in helping organisations lever income to attract future funding;

· They enforce a financial discipline that can encourage sustainability;

· There can be 'added value' in providing grants and loans, for example, through providing a package of grant and loan funding, or providing loans to organisations already in receipt of grants;

· They are increasingly being looked upon as the most appropriate means of supporting the development and expansion of voluntary and community sector (VCS) activities that are expected to generate an income stream, and social enterprise activities in particular;

· They may encourage organisations to use different types of finance, and thereby to be more self-reliant in the longer term and less reliant on grant support.

The main risk attached to giving loans from a funder's point of view is that the recipient cannot pay it back. Also, not every organisation (especially in the third sector) will be able or willing to take on loan finance.

4. Contracts

Funding may also be distributed, for a number of purposes, by way of contracts. In this mechanism, the funder procures or contracts for services or activities from one or more organisations. Although procurement processes can be complex and comparatively lengthy, contracts can give a funder a degree of flexibility not available through the other mechanisms. Contracts can be individually tailored, and managed and varied over time. They can specify a wide range of deliverable outcomes, activities or products.

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