House of Commons
Wednesday 17 July 1996
The House met at half-past Nine o'clock
PRAYERS
[Madam Speaker in the Chair]
Co-operative Movement
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Bates.]
9.34 am
Mr. Ken Purchase (Wolverhampton, North-East): I must start with a declaration of interest as I am a fully paid-up member of both the Labour party and the Co-operative party. I stand here as an official Labour and Co-operative party Member of Parliament. At the forthcoming election I shall stand as an official candidate of both parties. Indeed, it is my hope that the media will so designate me and my 25 colleagues who will also stand as Labour and Co-operative candidates.
It should not trouble Conservative Members that the Co-op is a loyal supporter of the Labour party. We are not troubled by the firm support given to the Conservative party by its retail friends and other friends in big business. It is not surprising that the people's business should support the people's party via its own political party. The difference is that the Co-op supports the Labour party via the Co-operative party quite openly, whereas one is never quite sure which businesses do or do not support the Tory party, not least because businesses operate under such a variety of trade names.
The Co-operative party was set up in 1917 to put co-operators into Parliament. It is the political party of the co-operative movement. Our first Member of Parliament was elected for Kettering in 1918. We currently have a parliamentary group of 15, with four in the Lords and six Members of the European Parliament. We also have more than 700 local councillors. Our first Member of Parliament took the Labour Whip, and from 1925 the Labour party and the Co-operative party have been linked by a formal national agreement.
I should mention at this point that following the new proposals on openness and transparency in the House, the Co-operative party has just written a new agreement with the Labour party to ensure that that transparency is there for all to see and to understand. It is only the fourth time since 1945 that that agreement has had to be renegotiated.
There are three key concepts of great importance to the co-operative movement. First, the Co-operative party is a political party representing the co-operative movement. Our candidates stand as joint representatives of the Labour and Co-operative parties. That link is also declared in our election literature so there is no pretence or camouflage.
I hope to demonstrate by example what co-operative principles mean in practice. To take a wider view, the co-operative movement in the United Kingdom is
significant because of its economic impact and the diverse range of products and services provided by its members. Co-operatives are active in retailing, insurance, banking, agriculture, housing and in a variety of industrial and commercial activities as worker co-operatives and credit unions. Those unions are the fastest growing sector of our movement and they enable members to save together to provide loans at very low rates of interest.
The diversity of the co-operative movement is reflected in the range of services organised co-operatively and include taxi drivers, actors' agencies, general practitioners and even some symphony orchestras. I hope that Members who belong to the Wine Society, which was founded in 1874, will not be too surprised to learn that it is also a co-operative. Tower colliery in south Wales is one of the newest and most successful co-operatives, showing what can be achieved when workers come together for their mutual benefit.
Co-operatives make a major contribution to the economic life of this country. The ubiquitous Co-op, with nearly 5,000 outlets, is a force to be reckoned with on the high street and out of town. It has a combined turnover of about £7.5 billion and employs about 120,000 staff nationwide. Following the creation of Milk Marque, the co-operative that replaced the milk marketing boards, the turnover of the agricultural co-operative movement approaches that of the retail sector.
Other sectors are much smaller but provide the crucial element of choice to their members. Latest estimates suggest that about 10,000 co-operators are working for their own benefit in 2,000 worker co-operatives. I pay tribute to the industrial common ownership movement, which is to be congratulated on the work that it has done since the introduction of the Industrial Common Ownership Act 1976.
Tenants are exercising control of their living environment in more than 530 housing co-operatives. There are 500 credit unions, encouraging their members to save and providing low-cost finance to members, many of whom lack access to traditional forms of credit. For instance, in my constituency, there are now three credit unions, all in what might be termed areas where income is at a premium, where people have often been exploited with high-interest loans. Through the new system of credit unions they are gaining access to low-cost finance. An increasing number of employees of large organisations, such as British Airways, the local authorities and the police service, have joined credit unions or formed credit unions of their own.
Co-operatives are dynamic organisations, responding to their members' needs and gaps in the marketplace and in the competitive environment in which they operate. Imaginative projects are developing in every sector. In the past two years, The Creative Consumer Co-operative Ltd. raised more than £800,000 in a share issue to open a chain of shops entitled Out of this World. These embodied the value of ethical customers--those who want to shop for a better world. Its fourth shop, in Oxford, is about to open, following in the footsteps of Bristol, Newcastle and Nottingham. Four more are planned, responding to the demands of shoppers in towns and cities throughout the country.
In February this year, Lord Merlyn-Rees, with the support of the Co-operative bank, launched the Co-operative Housing Finance Society. It seeks to build
on the advantages of fully mutual housing co-operatives, by creating a financing system that will achieve lower funding costs and greater availability of loans to housing co-operatives. Already, agreed facilities of about £24 million have been put in place, with commitments from the Nationwide, Woolwich and Alliance and Leicester building societies.
I mentioned the recent formation of general practitioner co-operatives to respond to the demands of their new contract. Co-operatives of nurses and care workers are also springing up, and a great deal of interest is being shown in co-operatives as a vehicle for delivering health care. That process culminated in a research study by the Department of Health into the relevance of community well-being centres to the objectives in "The Health of the Nation".
Recently, in response to the Government drive towards the total privatisation of residential care for the elderly, my colleague, my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris), launched his co-operative care initiative to set in train the process of setting up not-for-profit day centres and residential homes, to offer a service that responds to the wishes of elderly people, many of whom are anxious that their care is being bartered on the open market.
The first such schemes are due to be announced later this year and will come on stream soon afterwards. In the black country, in Walsall, a carers' co-op, Walsall Carers' Co-operative, has already operated for about five years, employing about 150 workers who also own the business. They have done a splendid job in co-operation with Walsall social services, providing excellent services for many people in that borough.
Credit unions are expanding rapidly. I welcome the discussions between the two organisations representing credit unions nationwide, and hope that they will lead to more effective representation to national Government of their members in future.
Following years of growing disenchantment with agricultural co-operatives, the creation of Milk Marque shows a growing recognition by farmers that their interests in the marketplace can best be represented by the co-operative form of enterprise.
Overlaying all that activity has been the formation of a representative body for the co-operative movement--the United Kingdom Co-operative Council. Established four years ago as a successor organisation to the National Co-operative Development Agency, the UKCC has undertaken many useful studies. It has established a forum for discussion of relevant issues and created a voice for the co-operative movement in its dealings with Government and Government Departments. Perhaps the most beneficial effect of the formation of the UKCC has been the increasing recognition and understanding of the common concerns of each of the different sectors of the co-operative movement and the need for a unified approach to finding solutions.
I shall briefly consider several of these concerns. Much heat--but often, sadly, not much light--is generated when the Government attempt to establish what is commonly called a level playing field. Even a superficial comparison shows that that does not exist between co-operatives and their competitors in the company sector.
Whereas there have been successive Companies Acts in the past 17 years, the Government have not even taken the opportunity to include co-operatives in many of the provisions of those Acts. Administration orders, created in the reform of the insolvency laws, allow companies in financial difficulties the option of continuing trading in a form of receivership which allows the possibility of re-establishing the business as a going concern at some time. That option is not available to co-operatives, which must either merge or go bust when they could be offered an alternative that might lead to a better outcome.
Registration of a co-operative is significantly more expensive than registration of a company, and more bureaucratic and time-consuming. As a result, many co-operatives can and do register as companies under the Industrial Common Ownership Act 1976. In recent years, most new co-operatives have used the company format in preference to the more traditional Industrial and Provident Societies Acts, and this is likely to continue, even with the limited changes made in recent deregulation orders.
That failure adds considerably to the confusion that currently exists between co-operatives and companies. Not all organisations registered under the Companies Acts are companies, and not all organisations registered under the Industrial and Provident Societies Acts are co-operatives. Co-operatives should have a clear identity, which specifies the unique difference between them and their competitors in the company sector.
Many would comment that recent reforms in company legislation and in the legal framework and regulatory regime for building societies and friendly societies, requiring greater disclosure and accountability to members or shareholders, give co-operatives an added advantage. That is not so.
Member investor confidence is as crucial to the success of a co-operative as shareholder confidence in the company sector. The retail co-operative sector has therefore introduced a code of best practice in corporate governance, which it hopes will achieve the highest standards of transparency and accountability. That followed a report of an eight-member working party which examined the unique features of co-operative organisations. Its key recommendations included the disclosure of contracts and remuneration of chief executives and directors; regular reviews of members' activity, policy and practices; and clear and detailed annual reports, providing balanced and understandable assessment of the society's financial situation, which can easily be understood by its members.
Members welcome the higher standards inherent in current company legislation as a reflection of their commitment to the co-operative movement's ethical values of openness, honesty and social responsibility.
Most seriously, co-operatives are disadvantaged by company law and taxation regimes. In a recent consultation exercise carried out in the co-operative sector, considerable concern was expressed about its future status, arising from the flood of conversions of major building societies. Among the reasons given by the Halifax, Abbey National and the Woolwich for their decision to demutualise were: the need for greater access to capital; diversification; risk; and, in some cases, size. Interestingly, any claims that conversion would achieve greater efficiency have been rather muted. Perhaps that has something to do with the conclusions of the recent
Government review which showed that the sector not only ensures diversity and choice but is characterised by organisations that are financially strong, well capitalised and efficiently managed. That has been amply borne out by independent research comparing building societies with their competitors in the private sector.
The consultation document, including the Minister's last-minute additions to it, was published in March and contained proposals for a new building societies Bill. It has proved a disappointment. It certainly does not live up to the claims that it will give equal treatment to societies that remain mutual and those that convert. With the Government remaining deaf to the pleading of the sector for protection against speculative short-term investment, it is clear that if building societies' status is to be assured, that will depend on their own determination.
I remind Members that the original purpose of our building societies was to provide a haven for local investors--in bricks and mortar; to ensure that people who wanted to build and live in houses in their own communities had access to reasonably cheap finance; and to give local trades people in the construction industry an outlet for their work. The system worked remarkably well, and only in recent years has the deterioration in a local approach become apparent.
A recent Touche Ross report highlighted a number of key ingredients for success, among them the leadership and the membership of a building society. That is already recognised by a number of societies that remain committed to their mutual status--most notably, the Nationwide and the Bradford and Bingley, not to mention my local society, the Birmingham Midshires.
I welcome this return to the original objectives on which the movement was founded. Quite apart from the abject failure of the Government to recognise the co-operative sector as a valid and viable form of business, the lessons for the mutual movement, which includes the co-operative sector, must include a recognition of the dangers of losing touch with the membership and of power residing with a management over which members have little or no influence.
Co-operatives are democratic organisations, based on the principle of one member, one vote. As commercial organisations, co-operatives also have to work in a competitive environment; hence they need to raise capital to expand their businesses. These two pressures often conflict and push a co-operative in opposite directions, but both are critical to its success and must be considered as such.
I start from the premise that co-operatives should be financed in a way that allows them to achieve their primary objective of providing benefits to their members. That means that they must remain under members' control. In short, the guiding principle is that labour shall employ capital: not the other way round. But in a world dominated by the owners of capital, co-operators have often been limited by a rigid adherence to the principles of their movement, which call for a limited return on capital.
More recently, there has been a widespread recognition--reflected in the new co-operative principles agreed at the International Co-operative Alliance congress in Manchester last year--that co-operatives must secure adequate finance in a way that does not sacrifice the members' control of the enterprise. That clearly implies change, albeit limited.
Capital can be raised from only three sources: from members, from internal sources, or from outside the co-operative movement. Recognising the limitations on the first two sources, the debate in recent years has concentrated on opportunities to raise capital from outside, and the consequential impact on the organisation and its members. It should be admitted at the outset that a number of recent studies in different sectors have tried to show that there is no shortage of capital, and that the main problem for co-operatives is to make better and more efficient use of the capital already at their disposal. I do not want to enter that debate today, although I recognise that we must all strive towards the most efficient use of available resources. There is broad agreement, however, that if the co-operative form of enterprise is to become more widely accepted, access to new sources of capital must be made easier.
Consider as an example the creation of the permanent interest-bearing security as a mechanism for raising funds for the expansion of building societies. Experience has led to the creation of a specialised market for this type of security, in recognition of the special mutual features of building societies. The same would apply to co-operative societies, which would require a similar type of special security in recognition of their unique co-operative nature. The complex legal requirements and costs attached to raising finance--listing particulars and issuing prospectuses--militate against traditional share offers for the development of co-operatives.
An alternative would be to seek new ways of tapping funds from the retail savings market. Currently, co-operatives, mainly in the retail sector, raise capital both from members and by co-operative bond issues. Both ways encounter increasing difficulty competing in the sophisticated retail savings market. The advent of PEPs and TESSAs, offering tax incentives, is having a devastating effect on this traditional source of income from members' funds--yet when the matter was raised in the House the Minister objected to a co-operative TESSA on the grounds of the costs of compliance with the financial services and banking Acts. Retail co-operatives are already subject to heavy compliance costs associated with the co-operative deposit protection scheme. Indeed, escalating compliance costs have become a political hot potato, especially among smaller financial institutions such as friendly societies.
In any review of compliance costs, recognition of the special features of member organisations might offer opportunities for co-operatives to raise funds in the retail market.
Democracy lies at the heart of co-operative activity, but for that democracy to be meaningful members must be fully informed and in a position to exercise their responsibilities as owners of the business. Hence the importance of member education. In recent years there have been numerous examples across all sectors of the movement of innovative programmes to ensure that members and--especially--directors have the knowledge required to undertake their statutory duties. An interesting case in point has been the formation of the Institute of Co-operative Directors in the retail sector, requiring members to undertake a course of study leading to a diploma and to further opportunities to undertake higher studies. Although membership is by no means universal among directors in the sector, the institute has been judged
a success and has made a major contribution to improving the skills of lay members undertaking the stewardship of large and complex retail organisations.
Ordinary members must be kept informed. That may mean members receiving a copy of the annual report--although I recognise that in the agriculture and retail sectors, both of which have large numbers of members, the costs may prove prohibitive. Participation rates in the democratic procedures of co-operatives vary greatly. In worker co-ops rates are generally high, although they decline as organisations increase in size--not invariably, but usually. Credit unions and housing co-operatives tend to have lower participation rates, depending on size and circumstance. Perhaps understandably, retail societies, with their large numbers of consumer members, are at the bottom of the participation league. Rarely do more than one in 100 of their members participate.
I believe that democracy is important enough for co-operative societies to carry out a democratic audit. The registrar should therefore have a monitoring role to ensure that societies are democratically as well as financially sound.
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