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7.58 pm
Mr. John Butterfill (Bournemouth, West): I pay tribute to my hon. Friend the Economic Secretary for the assiduous and vigorous way in which she has promoted the Bill and brought it before the House. The House owes her a debt of gratitude. The task has not been easy. There have been considerable divergences of view throughout the financial services industry. We have all been subject to the lobbying of the various interest groups that have taken different views. The hon. Member for North Warwickshire (Mr. O'Brien) knows that perfectly well. That is why it has taken longer than I would have liked to bring the measure before the House. Nevertheless, my hon. Friend the Economic Secretary has done a splendid job, and I hope that the Bill speedily becomes law.
The origins of the building society movement demonstrate that it is a uniquely valuable British institution. The hon. Member for North Warwickshire was quite right to say that it developed out of the self-help that working people created to enable them to own their own homes and to save and borrow money on a mutual basis. It is a uniquely valuable asset and I am quite confident that we would all be sad if it were ever to disappear.
It was, however, quite right that, when we decided to liberalise the movement in 1986, significant restrictions were placed on the activities of building societies. At the time, many of us who supported a degree of liberalisation were quite nervous about going too far because of the nature of the societies. They had been constrained into a narrow sector of activity: accepting deposits from savers and lending them on to those who were purchasing their homes. That did not give them much experience in the wider range of financial services. I shared the fear that was expressed in the House that, if they were allowed to go too far, problems might arise and that management expertise was not always adequate and there might be ill-advised lending. That is why, quite properly, restrictions were imposed on the amount of unsecured borrowing that societies could undertake among other activities.
Since then, however, the world has moved on. There have been significant changes in the way in which building societies are run. Most of them are now managed extremely professionally and are eager to offer a much wider range of services, and it is quite right that the Bill should allow them to do so.
On the other hand, it is worth remembering that, even under the Bill, building societies are still not permitted to engage in all the activities that banks and other financial institutions can undertake. Indeed, part I of the Bill imposes severe restrictions on them. Primarily, they can lend only on residential property and, quite advisedly, they are not allowed to engage in some of the more sophisticated financial instruments that have brought problems to more sophisticated institutions. So the balance is right.
The 1986 Act also provided the two-year rule. Frankly, I am sorry that it is not included in the Bill. It would be a valuable power for building societies to possess, because there is undoubtedly rather undesirable speculation in building societies at the moment. The fact that some societies found it necessary to raise the threshold of deposits before conveying membership rights is undesirable, because it undermines a principle that building societies will take the widow's mite and provide a savings vehicle that quite poor people find useful. It would be a sad day if that principle were undermined.
Similarly, the 1986 Act gave protection to societies that, having built up their businesses, decided that they wished to convert. It is known as the five-year rule. That was absolutely proper too. As many societies were quite unsophisticated in the world of financial services, it was quite clear that they could be vulnerable to more sophisticated institutions. The need for that rule has diminished over the years. As my hon. Friend the Economic Secretary said, many converting societies are quite large businesses in their own right. Nevertheless, the need for that protection has not disappeared altogether. I am slightly disappointed that my hon. Friend has not included an element of protection in the Bill. It would be quite wrong if converting societies could then be predators on other mutual building societies. None of us would wish to see that happen, as we all want mutual societies to continue to prosper.
I would have preferred an arrangement whereby any converting society that took over a mutual society--whether by hostile bid or by consent as we all know that consent sometimes involves an element of coercion--would lose its protection under the five-year rule. However, to say that to take over any other financial services business, or almost any such business, will lead to the loss of that protection is going much too far. It means that converting societies will be limited in the sectors in which they can expand their businesses without risking losing that protection.
I know that my hon. Friend will say that it would be unfair to insurance companies and banks who will not be under the same constraints. However, the five-year rule never applied to them as they were never building societies. It was never designed to cater for their circumstances, so that would be something of a non sequitur. Far more important, they are not subject to the constraints that have applied historically to building societies. Before the 1986 Act, since then and even under the Bill, there have been significant constraints on the activities of building societies. Therefore, it is still appropriate that some degree of transitional protection should be available to converting societies, otherwise there is a danger that we shall end up with a two-tier market: we shall have very large banks and other financial institutions, a much smaller group of smaller bodies--the mutual societies--because everything in between will have been gobbled up by the big boys. We shall end up with four or five major lenders for those who wish to buy their homes or make a deposit and a dwindling band of mutual societies which will be very much at the small end of the market.
Mr. Alan Keen (Feltham and Heston):
I am pleased to have the opportunity to support the Bill, particularly in my role as chair of the Co-operative group of Members of Parliament. I shall be brief as others are waiting to speak and I shall concentrate purely on the mutualities.
The co-operative movement understands mutuality better than most as it was founded by people who needed to band together to protect themselves against the difficult circumstances that they faced in the 19th century. In many cases, the monopoly suppliers--often their own employers--insisted that they bought their basic supplies from them. The building societies came later, but helped the same people. They provided a solid base of reliability and trust that enabled people with small savings--a small excess of income over expenditure--to invest and save with security. They of course also provided capital for the purchase of houses which was so necessary in those days, as it is today.
As a young person, I tended not to trust banks. In saying that, I have not forgotten the contribution that the clearing banks have made to the functioning of Britain's financial industry and to industry and commerce itself. We were probably all misled by that famous "bank manager in your cupboard" television advert of 20 or so years ago. It did not take the public long to realise that that bank manager was not necessarily their friend and was beginning to be controlled from head office by computers and faceless people. People also began to realise that the bank manager had a different incentive--he was being pushed and pressed to produce profits early, quite often losing the good will of his own bank in the medium and long term.
Despite the fact that I was very sad over the loss of mutuality, the movement of some of the mutuals into the banking sector gave well-needed competition to the clearing banks in an area where there had been little real competition. I am not being critical of the banks in a destructive way. I am mentioning them to try to highlight the difference between mutuals and the banks, with shareholders to satisfy. It is quite enjoyable to attack the banks, but that is not what I want to do in this debate.
The contribution that the building societies have made can be understood fully only by those who have lived in working-class communities, where the surplus of income over expenditure was very small and people searched to find somewhere that could be trusted to put their money. Building societies provided such small investors with that trust. There is no doubt that those investing in building societies were greatly affected and influenced by mutuality. It gave them the feeling that they were among people who cared for each other. At the same time, they had the satisfaction of knowing that they were helping to put a roof over other people's heads. It was probably an example of a do-good factor as well as a feel-good factor.
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