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Building Societies Bill
Order for Second Reading read.
7.12 pm
Mr. Austin Mitchell (Great Grimsby): On a point of order, Mr. Deputy Speaker. The Bill changes the balance of power and the relationship between building societies that converge and those that remain mutual. Three or four major societies, including the Halifax, are in the process of conversion. That is going to mean that a lot of money will go to members of those societies. Is it not in order to ask Members speaking on the Bill, if they are going to benefit from a building society's conversion, which is going to give them free shares or money, to declare that as an interest?
Mr. Deputy Speaker: Hon. Members are, I am sure, aware of the rules of the House.
7.13 pm
The Economic Secretary to the Treasury (Mrs. Angela Knight): I beg to move, That the Bill be now read a Second time.
It gives me great and long-awaited pleasure to ask the House to give the Bill a Second Reading. I understand that the opposition parties are prepared to co-operate fully in passing it into law in good time and, if that is true, I thank them for it.
There have been two years of consultation on the Bill. It is one of the first Bills ever to be produced in draft form. The benefits of that have been seen in changes that have been made to the Bill as a consequence of the consultation. Everyone who has been involved has been pleased by that process.
Mr. Frank Field (Birkenhead):
The Minister says that there has been extensive consultation. With whom has the consultation taken place? Is there not a problem in that some building societies have wanted to convert from their mutual status so that the directors can receive share options? That has been one of the big driving forces. Whom has she consulted other than those who will make a considerable amount of money out of selling the trust that members have built up in those societies?
Mrs. Knight:
Those are points that I shall come to later, but, if I may answer the hon. Gentleman briefly, the consultation has involved all building societies and all financial institutions. I am delighted that a considerable number of others with an interest in those matters, both individuals and groups, have also given their comments on the Bill. It has not been a confined consultation in any way. It is one of the broadest-based consultations that has taken place.
Mr. Field:
I am a member of a number of building societies. I have not once been asked by the leadership of those societies what my views are. If political parties asked for or were involved in consultation and did not consult any of their members, there would be a lot of flak in a debate such as this, yet it appears that that is precisely what has happened with members of the building society elite. They have all talked to the Minister, but none of the members has.
Mrs. Knight:
That is not quite correct. We have heard from mutual building societies and from building societies
Mr. Austin Mitchell:
If the consultation has been so long, and it is certainly true that much of the review work began in January 1994, if the Bill has been ready for so long and if the societies are so interested in it, why is it being introduced now in this scuttle-like fashion in the dying days of a dying Parliament?
Mrs. Knight:
The Bill was first published in draft form in March last year. There was then, if you like, the last stage of consultation and it was published in its final form in the autumn of last year. I am sorry, too, that it was not possible to include it in the Queen's Speech, but the hon. Gentleman will know that some legislation was required, particularly that relating to the tragedy at Dunblane, which meant that something had to give way.
I always said that, if it were possible to find a slot towards the end of this Parliament, which is when slots come up, I would introduce the Bill. A Treasury Minister and a shadow Treasury Minister are taking part in the debate. We have only just come out of the Committee that considered the Finance Bill, the last stages of which are tomorrow. It is difficult to see any earlier point at which this legislation in its final form could have been introduced.
Mr. Tim Renton (Mid-Sussex):
I whole-heartedly agree with the decision to present the Bill in this Session. Many building societies such as the Alliance and Leicester and the Halifax are about to become plcs and it is good that societies should know the precise form for doing that. The Bill makes more evident the changes in the building society world.
Mrs. Knight:
My right hon. Friend is correct. Those organisations have been involved as much as the mutual societies in the consultations not only after the Bill was published in draft form but before that.
The Bill is strongly supported by a wide range of people. The Building Societies Association has said that societies warmly welcome its proposals and the Portman building society has said that it could not have come at a better time. The Bill will ensure that societies which choose to remain mutual can develop their business as they wish without the unnecessary constraints of the current legislation.
The Building Societies Act 1986 was a liberalising measure. For example, it enabled building societies to become banks if they wished to do so and it allowed mutual societies to provide more services while remaining mutual. As a consequence of that Act, societies have thrived and developed. Some have decided that their future is as banks. The 16 million people who are due to receive a windfall as a consequence of the Halifax, the Alliance and Leicester, the Woolwich and the Northern Rock building societies converting would not have been able to benefit in that way without the 1986 Act.
My right hon. Friend the Deputy Prime Minister made some of those points quite clear in a Sunday newspaper. I was surprised to find, in that same newspaper, that my right hon. Friend's remarks--that it would enable building societies to convert to publicly quoted companies--were taken to be the Bill's prime aim. That is incorrect. My right hon. Friend made it quite clear that the 1986 Act enables that conversion to take place. Although much is made of the four converters, 72 societies will remain mutual. The 1986 Act prevents them from offering the range of financial services that their competitors, such as banks, can offer. That means that that Act unfairly restricts the mutual sector.
The Government are not in the business of wishing societies to choose one route or another. We aim to change the legislation so that a society can make its own decisions about its future. To use that rather hackneyed expression, we seek to give societies a level playing field because, currently, it is tilted against them. The Bill will introduce permissive legislation because none of us can second guess the future, especially in the financial sector, which is a fast moving market. I expect that, as a result of the Bill becoming law, the mutual societies will flourish and develop and will continue to have close ties with home ownership and with local communities.
The Bill will preserve the unique characteristics of building societies as mutual organisations that are owned by members and that look after savings, ranging from small amounts towards Christmas or a holiday to the larger sums built up over a long time for retirement. Their primary purpose will be to enable people to make the most important purchase in their lives--the purchase of their homes.
As I have said, the Bill is the result of a long consultation process but its objectives are simple. It aims to increase the commercial freedom of societies and bring in increased competition and wider choice for customers. It will also update the prudential supervision of societies by the Building Societies Commission, and it will bring societies even closer to their members and underline their mutual identity.
Building societies are renowned as safe havens for money and are rightly popular with their members. At present, even with gradual deregulation, societies are not free to plan for the medium to long term in the way that their business requires. They are constrained by legislation because they have to wait for new powers to be added. Under a permissive approach, societies do not run the risk of being shut out from new developments, such as considerable technological changes. The Bill will sweep away the qualifying assets holding which places strict limits on societies with commercial assets of £100 million or less. Further freedoms will be created by widening the scope of the lending limits and the principal
purpose so that lending to finance rented housing will, for the first time, be part of a society's core business, if it chooses.
Preventing societies from developing their full potential and preventing customers from getting the friendly and efficient service in the wide range of retail financial services that they have come to expect from savings and mortgages does not make sense in 1997. Societies have a proven track record for prudence and performance, and should be allowed to use their financial experience and expertise to compete with other institutions to provide people with the services that they want. The Bill provides that a society can carry on any business that is set down in its memorandum, subject to keeping within the nature limits, and to the Building Societies Commission's prudential supervision.
There will still be a few restrictions. Societies will not be permitted to trade in commodities or currencies or to be market makers in securities for transactions over £100,000. As with the lending limit, the Bill provides a power to vary those restrictions if that becomes desirable in future. The Bill makes some improvements to the ombudsman scheme. Every authorised society is required by law to belong to an ombudsman scheme that meets the requirements of the 1986 Act and the Bill. The supervisory body is the Building Societies Commission. Its functions include promoting the protection of funds that people have placed with societies and the financial stability of building societies generally.
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