Dormant Bank Accounts: Unclaimed assets to be seized and used for community projects

Gordon Brown has confirmed that hundreds of millions of pounds are to be withdrawn from dormant bank accounts and returned to their rightful owners or given to worthy causes in deprived areas.

The Chancellor ruled that cash in accounts untouched for at least 15 years could no longer be left in the hands of the banks.

He said: "It is a feature of modern life that people often lose track of small sums and deposits. Over time these build up as unclaimed assets in the banking system. Unclaimed assets, when identified, will be put to use to improve youth and community facilities around Britain."

Mr Brown's decision to define an account as dormant only after 15 years - not three years as had been mooted - means the amount destined for worthy causes will be smaller than would have otherwise been the case.

The Government, angered by reports that some banks had been using the cash to flatter profits, has asked Apax Partners' former chairman Sir Ronald Cohen to look into how best to return or distribute the money.

He heads the Commission on Unclaimed Assets, which was set up by the Scarman Trust with backing from eight charities, including the Rowntree Foundation and the Carnegie Trust.

The commission promises to consult with banks and consumer groups before making its recommendations next June. Worthy causes can expect to start receiving funds by 2007.

The commission's priority is to return the money to its rightful owners, who will always be able to reclaim deposits. Should returning funds prove impossible, the commission must decide how best to make use of them.

To that end, Sir Ronald, 60, is planning a mechanism to allow charitable donations to be matched by private capital to create self-sustaining ventures.

Matthew Pike, secretary to the commission, said: "One has to start with a recognition of the huge issues facing our disadvantaged communities. Current public money cannot possibly do justice to the challenges they face. We need to maximise the amount of cash available."

The Republic of Ireland legislated on dormant accounts in 2001. There, some 60 per cent of funds found their way back into the pockets of their rightful owners. However, in the Republic - unlike here - unclaimed government gilts, national savings and post office accounts were also included under the scheme.

The Government committed to take action on unclaimed assets in its 2005 manifesto. Plans to tackle the issue have been stymied by disagreements over how to identify the accounts and how do distribute the funds.

The banking industry has welcomed yesterday's announcement. A spokesman for HBOS said: "We are naturally disappointed that some of the money will not be invested through our charitable foundation. Nevertheless, HBOS will do its very best to make this work."

Privately, banks question whether the Government has a legal right to re-direct this money and are worried that they may be hit with administration costs. Credit checking firm Experian, which runs an unclaimed assets database, has found the cost of re-uniting other types of assets with owners to be £2.50 per case.

Mr Brown has also been accused of cronyism over Sir Ronald's appointment. The founder of Apax has donated £800,000 to Labour in the past decade, and accompanied Mr Brown and Mr Blair on trips to the Middle East. More recently, he has been identified as a backer of Mr Brown's ambitions to succeed Mr Blair and is tipped to replace Lord Levy as chief party fundraiser.

However, Mr Pike said: "As we have seen with other commissions, there is a balance to strike between objectivity and having the ear of the Chancellor. We have that balance right."