Mr. Simon Burns (Chelmsford) : On a point of order, Madam Speaker. I should be very grateful for some advice on whether you are prepared to look into the operation of the rules concerning the use, for satirical programmes, of recordings of proceedings in the House. I should like to know whether recordings may be used other than in factual programmes such as the BBC's "Today in Parliament" and "Yesterday in Parliament".
Madam Speaker : The hon. Gentleman obviously has some programme in mind, and I am not a mind reader. I am not refusing his request, but in the first instance he should refer the matter to the Supervisor of Broadcasting.
Mr. Tony Banks (Newham, North-West) : Further to that point of order, Madam Speaker. I may be able to assist you and the House by suggesting that the hon. Gentleman is probably referring to a programme called "Party Pieces", which is broadcast by Capital Radio.
Mr. William Cash (Stafford) : On a point of order, Madam Speaker. Standing Order No. 127 deals with the Select Committee on European Legislation. May I, as a member of that Committee, ask you to give some thought to the fact that discussions will take apparently place tonight concerning papers under article O, dealing with the question of enlargement of the blocking minority? It appears either that, under Standing Order 127, there is no provision for such matters to be referred for scrutiny, or that matters that ought to have been referred have not been. I should be grateful if you would give some thought to a potential black hole in our scrutiny arrangements, and ensure that matters of such vital importance are capable of being drawn to the attention of hon. Members, either on the Floor or in Standing Committee.
Mr. Bryan Davies (Oldham, Central and Royton) : On a point of order, Madam Speaker. I appreciate that it is your concern that there should be balanced discussion during Question Time. Would it be possible on occasion to call consecutive questions from Opposition Members, especially when, as during questions to the Department of National Heritage today, important matters such as the film industry and football are being dealt with ? No Conservative Member showed the slightest interest in those important topics today.
Mr. Michael Fabricant (Mid-Staffordshire) : On a point of order, Madam Speaker. Given the charm and the swiftness with which you conducted Question Time today, as well as the grave discourtesy of Opposition Members who did not turn up to put their questions, and given that, if it had not been for the fact that, had we reached 3.30, we should have run out of questions, might it be necessary to increase to 40 or 50 the number of questions on the Order Paper ?
Mr. Fabricant rose
Madam Speaker : Order. Of course I consider it a discourtesy if I am not informed when Members or Ministers are not to be present. Today, however, I was informed of a number of hon. Members who would be absent. The hon. Gentleman may not have been aware of that.
Mr. Ian Bruce (South Dorset) : On a point of order, Madam Speaker. As we now seem to be moving very swiftly through questions, and as that seems to be very much for the convenience of the House, would you wish publicly to give any indication of how many times you intend to call the Leader of the Opposition during Prime Minister's questions ? It seems to us that, when one considers the way in which the questions are laid and when the Leader of the Opposition knows that he is going to be called three times, they are spread out to ensure that there are enough to keep going for three questions. Several hon. Members rose
Madam Speaker : Order. I do not need any help with this. As I told an hon. Gentleman earlier, I think that such matters might be left to my discretion. I am very pleased about the pace at which we are proceeding. It is important that hon. Members are called, and it is equally important that the Executive are held accountable. I want to see that that happens.
Mr. Dennis Skinner (Bolsover) : I think that you could also say, in response to the argument that the Leader of the Opposition has three bites of the cherry at Prime Minister's Question Time, that, in a very short time, Conservative Members will be glad that a Tory Leader of the Opposition has the same chance.
That the draft Building Societies (EFTA States) Order 1994, which was laid before this House on 24th January, be approved.
This order is made under section 14 of the Building Societies Act 1986, which allows the Treasury to designate countries or territories outside the United Kingdom where building societies may lend on the security of land. The order designates all the European Free Trade Area states : those which have joined the European Economic Area--Austria, Finland, Iceland, Norway and Sweden--together with Switzerland, which has voted against entry, and Liechtenstein, whose entry will be delayed.
The agreement on the European Economic Area, signed at Oporto on 2 May 1992, enables credit institutions authorised in any Member state of the European Community to extend their business to all the countries of the European Free Trade Area. A protocol signed on 17 March 1993 revised the agreement to take account of the no vote in the Swiss referendum, including the consequences that that has had in postponing Liechtenstein's entry.
The agreement has been implemented in the UK by the European Economic Area Act 1993 and regulations made under it. In particular, the passport available to banks and building societies under the second banking co- ordination directive has been extended to cover the European Economic Area by the Banking Co-ordination (Second Council Directive) (Amendment) Regulations 1993.
Building societies already have powers to establish mortgage lending subsidiaries throughout the European Free Trade Area, including Switzerland and Liechtenstein, by virtue of the Building Societies (Designation of Qualifying Bodies) (No.3) Order 1993, although they cannot undertake lending in those countries until this order comes into force.
This order completes the picture by enabling building societies to compete on equal terms with other financial institutions in the provision of mortgage services throughout the European Free Trade Area. Societies can already lend on mortgages in other EC member states by virtue of the Building Societies (Member States) Order 1992.
The order enables building societies to make full use of the extension, to those European Free Trade Area states which have joined the EEA, of the passport available to them under the second banking co-ordination directive. The passport allows societies to operate throughout the EEA on the basis of authorisation by the Building Societies Commission. For societies currently wishing to operate in Switzerland and Liechtenstein, separate authorisation by the host state will continue to be required.
The order represents a further useful and sensible measure to deregulate building societies' activities and to ensure that they can take full advantage of the expanded single market. I commend it to the House.
Mr. Alistair Darling (Edinburgh, Central) : I am grateful to the Minister for outlining very succinctly why the order is before the House. However, I would like to ask him several questions, the most fundamental of which is
Column 24why the order is being introduced now, as it is hardly urgent. As the Minister said, it first came before the House last summer, but it was hastily withdrawn when the Swiss referendum went in an unexpected direction. I understand that the Government withdraw it because they did not wish Conservative anti-Maastricht Members to take another opportunity to humiliate them over the difficulties they then had. The order was before the House last Monday, when it was unexpectedly removed.
My main question is why the order is before us now, when the Government have not completed the review of the Building Societies Act 1986 which they announced on 20 January. Before we give building societies any more powers, we are entitled to ask a number of pertinent questions about the way in which they operate, particularly in relation to the Building Societies Act. On 20 January, the Government announced that they would review the way in which the 1986 Act worked. It would be helpful to the House if the Minister would tell us whether the findings in the review will be made public. The note to editors that accompanied the relevant press release--as far as I am aware, there has been no announcement in the House--stated :
"It is hoped that the first stage of the review will be completed by the early summer"
I assume that that will be May or June. When can we expect the review to be available, and will it be brought before the House at an early stage ? Many hon. Members are concerned about the way in which building societies operate, and building societies are concerned about a number of the restrictions presently imposed upon them. As the Minister said, the Deregulation and Contracting Out Bill, which is in Committee, addresses in particular two problems about which building societies have complained. That Bill would make it be possible to grant third-party mortgages and to take part in syndicated lending, which I understand is of particular assistance in the funding of housing associations.
Building societies have long argued that if, banks are entitled to take part in syndicated lending, so should they. The Minister will be aware, however, that those two additional powers form just one small part of a submission
Madam Speaker : Order. I am sorry to interrupt the hon. Gentleman, but the scope of the debate covers empowering building societies to operate in the member states of the European Free Trade Association. Is the hon. Gentleman aware of that ? Will he return to the subject of the debate, which is limited ?
Mr. Darling : I am conscious of the fact that the debate is limited. I had assumed, perhaps wrongly, that, in advancing an argument about why the order might not pass through the House, it was permissible to canvass a number of reasons to support that argument. The fundamental reason to which I referred was that it seemed premature to pass the order before certain other matters were addressed.
As I said, there were a number of other matters relating to building societies' powers generally that seemed to be
Column 25important when considering whether or not we should allow building societies to participate in lending activities in the EFTA countries.
The Building Societies Association said in crude terms that it was looking for a relaxation of the constraints on buildings societies to allow them effectively to become banks. Clearly, that is a fundamental departure from the way in which building societies presently operate, but the Minister will be aware that the association's submission at the end of 1992 mentioned a number of difficulties that were curtailing building societies' ability to conduct business. It asked for primary legislation to relax the constraints under which building societies now operate.
As I understand it, one of the problems facing building societies is that they have insufficient funds available to lend money at rates that will compete with banks operating in the same sectors. Before we decide whether we should allow building societies to start to lend money in EFTA countries, we should address the problems they undoubtedly face in this country.
It would be helpful if the Minister could say whether he proposes to review the matters mentioned in the submission of the Building Societies Association, which was made two years ago and with which he will no doubt be familiar. If he is of a mind to allow building societies effectively to become banks, that is a matter of some importance to us.
Banks are becoming increasingly aggressive in their attempts to take mortgage business. They can lend in EFTA countries and other European Union countries, whereas building societies cannot. Banks can also compete with building societies in this country. Are the Government prepared to allow building societies to increase what are called "nature limits" from 40 per cent. to 80 per cent. ? One of the constraints on building societies is that they can borrow only 40 per cent. of funds outside the money which they raise through building society deposits.
Are the Government prepared to deal with those problems ? If so, it will have an impact on how much money building societies are likely to lend in the EFTA countries.
Mr. D. N. Campbell-Savours (Workington) : This little order seems interesting. Will my hon. Friend, with his wide knowledge of the matter, say whether its implications are that money could be raised in low-interest countries and lent in high-interest countries ? What are the implications of that for housing in the United Kingdom ? Is that what this little proposal means ?
Mr. Darling : Not quite in those terms. The order would allow building societies to lend money for the same purposes as they are currently allowed to lend money. The constraints on them for raising money in countries, whether high or low-interest countries, depend on the general constraints to which I was alluding. Basically, building societies have two main sources of income : first, from the money they take in through deposits ; and, secondly, from the money they raise on the general markets. Where they raise that money is a matter for their judgment.
The question that arises is why building societies, given their problems with banks in this country, would want to raise money for lending in EFTA countries. It would be useful if the Minister told us the position on that. So far, he has not said why the order has been brought before us.
Column 26There is another fundamental problem. If building societies are to have wider powers, the House will need to look again at the prudential supervision of building societies. At present, they are supervised slightly differently from banks. In their submission, they make the point that they may reach the stage where it would be appropriate for their supervision to be carried out by the Bank of England, as opposed to the present regime. That is a matter for them, but the Minister needs to say a little about it.
In his brief introduction, the Minister said that EFTA states include Liechtenstein. The House will be aware that there is a problem with Liechtenstein. It is very well for the Government to say that, if building societies wish to invest in Liechtenstein, they now have a passport to do so in terms of the appropriate European directive, but Liechtenstein's regulatory regime is murky at best. We should not be satisfied with allowing building societies to operate in Liechtenstein or, on a reciprocal basis, to allow Liechtenstein building societies--if such things exist--to lend money in this country until we are satisfied that there is transparency, which does not exist at present.
I am not aware of the regimes in other EFTA countries or of any particular problems, but there is clearly a problem with the Liechtenstein authorities. If I heard the Minister correctly, he said that the Liechtenstein part of this order would not come into force for some time. If that is correct, it would be helpful to know when he expects it to come into force and precisely what the difficulties are.
On prudential supervision, it is important that, if the Government propose to change how building societies are regulated and, in particular, if they propose that they should be regulated by the Bank of England, the Minister should say whether that is part of his review.
Mr. Michael Bates (Langbaurgh) : On a point of order, Madam Speaker. As you have already pointed out, this is a narrow order relating to building societies. The hon. Gentleman has just referred to supervision by the Bank of England, which relates to a press release that went out in his name this morning. I seek your guidance on whether it is appropriate to discuss the make-up of the governing body of the Bank of England in debating an order on building societies in EFTA states.
Mr. Darling : Madam Speaker, there are many ways in which matters can be raised in the House, not purely during a debate on a narrow order relating to building societies. I am sure that you would have been the first to stop me if I had attempted to go out of order. My point is that there is concern about the prudential supervision of many financial institutions. If the Government propose to make a change with regard to building societies, we should know about it. Also, if building societies intend to lend money to EFTA states or, indeed, other parts outside the United Kingdom, it is important to know what impact that will have on lending practices in this country. Some concern has been expressed about the discrepancy between the prevailing bank rate and the mortgage rate. Will this order affect that ? Presumably the Minister must know the position, because I understand that the order was made in
Column 27response to representations by building societies. It is not something that the Government have brought before the House of their own volition or initiative.
Given that there is a differential of about 2.5 per cent. between the prevailing bank rate and the mortgage rate at present, can the Minister tell us whether the order will make any difference to that ? Some concern has been expressed that building society mortgage rates are higher than they otherwise would be.
The order is extremely narrow. None the less, there are matters that concern us : the effect that increased building society activity in EFTA states will have on their activities in the United Kingdom, the question whether this order in any way pre-empts the wider inquiry that is being carried out by the Government, when we can expect to see the results of that inquiry and the whole question of prudential supervision which is crucial not only for building societies but for all financial institutions.
We are entitled to answers to those points before the House is asked to approve an order which may appear to be a comparatively small matter, but which may make a substantial change to the way in which building societies conduct their business. It is on that basis that I put those matters to the Minister. I hope that he will tell us a little more, rather than the bald statement that he made earlier. 3.51 pm
Mr. A. J. Beith (Berwick-upon-Tweed) : This order has been generally welcomed by building societies, but I suspect more in principle than in practice. I know of little evidence of building societies preparing enthusiastically to operate in the EFTA states. Indeed, there has been little movement so far within the existing opportunities for building societies to carry on their activities in Europe. Bradford and Bingley is perhaps a rare example, because of its commitment in Germany. However, I believe that it had to obtain a German partner in order to carry out its activities.
For those of us who believe in free trade, the financial services sector still remains a minefield of obstacles, not least in some European countries. There are few signs that genuine free trade is taking place in financial services, and there are endless obstacles to doing so.
Any building society that contemplated taking advantage of the order could reasonably face a fair degree of debate among its members as to whether it was a prudent and wise step for the society to take. After all, building societies have expanded in various directions which have not proved to be a good idea. The expansion into estate agency proved to be a disaster for building societies. The development of various sorts of financial instruments--for example, home income plans--brought a trail of destruction in their wake. Therefore, it is conceivable that some members of a society might well say that they did not want to see their society take expansion into EFTA states as the appropriate route. In that context, the increasing dislike of building societies for the processes of democracy by which a member could make clear his opposition to such a move is worrying.
The Financial Secretary will know that I spoke to the Building Societies Association last autumn and stimulated a bit of a debate in the trade press. For example, the
Column 28Mortgage Finance Gazette referred to members who had a difference of policy with the board seeking election to it. The editorial said :
"The biggest question being what would happen if the membership voted onto the board an ordinary member with no business experience and no obvious qualifications for directorship . . . it is not beyond the bounds of possibility. Boards should have in place a contingency for such an eventuality. They must be prepared to explain to members voting at the annual general meeting, that patronising though it might seem, the incumbent board does not feel the membership would be best served by voting for this particular candidate."
The Minister must be made aware of the certain hostility towards the stirrings of democracy within building societies. That is rather worrying in this context. I hope that he will not add to it by, for example, releasing building societies from their obligation to notify their members of annual general meetings.
Building societies are quite ready to issue weekly circulars announcing new financial products or services. I am sure that the Minister's doormat is as littered as mine with letters from building societies offering such new services. If they could not be bothered to include in one of those mailings the notice of their annual general meetings, it would be a pretty poor do.
The accountability of building societies is important if they are to expand into new sectors such as the EFTA states. I am not sure that that is a live prospect at the moment for building societies, partly because of the obstacles that still exist in some of those states. Such major policy changes are surely what the building society democracy is supposed to regulate.
There are legitimate differences of interest between existing borrowers and existing lenders in a society, who might feel that consolidation is the most important objective and the professionals in the society, who want to be judged according to how effective they are in expanding it. They want to make it look bigger and more visible in a whole series of markets. Their careers and their ability to move on to a bigger building society may depend on how much of a record of expansion they can show.
That policy is not always in the interests of the existing members of a society, and those members should not be denied the means of expressing their particular interests when a policy decision of this kind, to expand into overseas markets, is considered.
I hope that in pursuing the order, which I support, the Minister will bear those considerations in mind.
Mr. Austin Mitchell (Great Grimsby) : I shall make a brief contribution, because this is a comparatively unimportant order. It is just one of the automatic provisions that we must make because of the Economic Area negotiations.
I do not view with any great joy the extension of our building societies into Liechtenstein, although I know that they could have provided accommodation for the late Robert Maxwell on his occasional visits. I do not view with any great joy the extension of building societies into Europe. I am aware of the new venture of the Bradford and Bingley building society in Germany. As the right hon. Member for Berwick-upon-Tweed (Mr. Beith) has just said, however, it has made it in partnership, because such ventures have implicit risks. That is the problem to which I want to refer when I express certain doubts about the way in which building
Column 29societies have been allowed to function here. The Minister must consider whether those doubts should be of concern not only to him but to the regulators in the countries in which our building societies will be now allowed to operate under the order. It is clear that the Government are going through one of their periodic deregulatory phases with regard to the building societies. It is less than 10 years since the Building Societies Act 1986 was passed, and already the deregulation task force has come up with a series of suggestions.
I wonder whether those suggestions for deregulation will incapacitate the building societies, because if they extend into EFTA countries or into the European markets, that might create a situation where they became unstable through being over-extended. That is my worry. I am also worried by the proposals in the Deregulation and Contracting Out Bill and the Minister's own announcement on 20 January.
We are only now managing to deal with the problem that the building societies got themselves into when they went in for a near frenzy of lending in the 1980s as part of the Lawson boom. That created a situation in which they placed themselves in unnecessary danger. I am therefore worried about the possibility of further danger, created by the order, which would allow them to lend on property in the EFTA states. We must learn the lessons from that frenzy and apply them to the lending institutions--particularly the building societies, but also the banks.
In his recent memoirs, Lord Lawson puts the blame fairly and squarely on the Bank of England for not stopping the frenzy of lending on property by the banks. We are talking about the building societies, however, and how they got themselves into a dangerous situation. It was not as bad as the savings and loan crisis in the United States, but it was still a dangerous situation.
I am worried about the order's provision for debt. We cannot presume that house and other asset values will increase for ever in the way they did in the 1980s. There could be periods in which property values in particular are stationary or perhaps even fall in this country, EFTA states and the European Union. Rather than relax regulations, we should think of imposing stricter accountancy. The standards of recommended practice for banks on debt provision are much stricter than those recommended by Coopers and Lybrand in its report on building society lending three years ago and practised by building societies today. Societies make provision for repossessions, but they are not required to make the same automatic provision in respect of loans that are not performing, either because they have not paid out three or six months of the year or because they represent negative equity.
It follows as night follows day that loans that cease to perform will eventually become liable to repossession. The societies have discretion to decide whether to repossess, because they must make provision for repossession, but not for non-performing loans. That situation could strain the societies' capital and financial base. As the number of repossessions has fallen and more people can keep up their mortgage payments, this is the right time to strengthen that financial base, and to ensure that societies can lend successfully in EFTA states, by tightening up recommended practice for non-performing loans.
Building societies are, in a sense, the people's capitalism. The number involved in the mutual principle is
Column 30far greater than the number involved in banks. The majority of societies provide a better, more efficient service, and we do not want that endangered. As a concomitant of the societies' ability to lend in EFTA states, I hope that the Minister will consider stricter regulation--particularly in respect of non-performing loans debt provision.
I ask the Minister to rethink also the Government's current enthusiasm for the conversion of building societies to banks, which has not been a great success. The Abbey National is the only society that has taken the opportunity. Its loss provision on its estate agency business is substantial. Its decision to operate in that sector was disastrous.
Building societies are right to be cautious about converting themselves to banks. That would provide the freedom to be more irresponsible and to behave in a way that affronts the real role of building societies as popular capitalism and institutions to which the public en masse can entrust their savings and which provide help with property purchases. That is the real function of societies--not lending in Liechtenstein, Iceland or Norway.
At a time when the societies' ability successfully to lend in largely unknown areas and markets is unknown, such an order is irresponsible. I hope that the Minister will therefore deal with the issue of how we ensure the stability of the societies in this country before we encourage them in any of the overseas ventures that he is permitting by the order today.
Sir Peter Emery (Honiton) : I shall be brief. When my hon. Friend winds up, will he make it absolutely clear, because it is important that people outside the House should realise, that the order will do nothing to make it more difficult for a person to borrow from a building society, or make it any less likely that the amount of money being made available for lending on housing by building societies in this country to encourage house purchase should be any less ? Those seem to be the two problems for which people outside the House will want direct answers. They are very simple, and I think that the answers are quite clear, but it would be useful if my hon. Friend could give answers, so that there can be no doubt in anybody's mind about those two problems.
Mr. Dennis Skinner (Bolsover) : Following what my hon. Friend the Member for Great Grimsby (Mr. Mitchell) said, if we can take it for granted that, in less than a decade, £6 billion of irrecoverable debt has been written off on behalf of the top four clearing banks--Lloyd's, Barclays, NatWest and the Midland--will the order in any way, however marginal, assist in the problem of irrecoverable debt ?
That is important to the British taxpayer and the electors generally who have had to foot the bill for that debt by the top four clearing banks, which otherwise would have been paid for in tax. Since it has been written off, it has not been paid in tax, so the taxpayer of Britain has lost around £6 billion.
The last thing I want to do today is acknowledge that, at the periphery, there is a small area of extension of powers for building societies. Will the order in any way,
Column 31however small, add to the problem of irrecoverable debt ? There are 55 million people in this country, many millions of whom are taxpayers. The last thing we should want to do is give them the impression that we are enabling building societies to over-extend to the point that at some stage they will be able to write off some debt, with the taxpayer to pick up the bill.
One thing is certain : the ordinary individual taxpayer cannot go to the Inland Revenue and say, "By the way, I have £20,000 of irrecoverable loans that I have made to other members of my family, friends or whatever. Can I write them off ?" If they are not in business, they will not be able to write them off. Therefore, I want an assurance on whether the order can in any way, however small, extend the possibility of building societies over-extending themselves to the point at which the taxpayer has to write off irrecoverable debts by the Government.
Mr. D. N. Campbell-Savours (Workington) : I wish to clarify one or two issues. As I understand it, no restrictions are placed on the amount of lending that the building societies will be able to organise. That is to say, in EFTA countries, as opposed to the United Kingdom, technically speaking--not for one moment would it happen--under this order, a building society could lend all its borrowings--in other words all its depositors' money--outside the United Kingdom. If I am wrong, I am sure that the Minister will clarify the position.
I ask that because, on the list of EFTA countries referred to in the order, without going into detail, the track record of some countries on inflation is quite appalling. I am looking at a particular country on the list where the levels of inflation in the past 20 years have been quite draconian, and where to some extent its wealth has accumulated only as people have been prepared to invest in property as a way of hedging against the impact of inflation. I would have thought that would have implications for lending institutions wherever they are in western Europe.
I am simply trying to establish in my own mind that there will be some, if not regulatory framework, discipline to ensure that a building society, by way of a negligent decision, might not place all its money in a risky market. It could be said that, at
times--certainly in the 1960s and 1970s--it might have been risky to place one's resources in some countries on the list.