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8.40 pm
Mrs. Diana Maddock (Christchurch): Like the hon. Member for Gloucester (Mr. French), I declare my interest--in my case, as vice-chairman of the all-party building society group. I also have various other interests in building societies. I certainly associate myself with the hon. Gentleman's remarks about the five-year rule and the future of mutuality.
There may be arguments over whether we should have had a new Building Societies Bill somewhat sooner, but I begin as others have done by congratulating the Economic Secretary on getting the Bill to the Floor of the House in this form. Despite what was said earlier, hon. Members
know that there was consultation with a wide range of people. First, we had a draft version, then more consultation, then another draft before Christmas; finally we had the Bill as it appears today.
That is in stark contrast with what happened to the Bill that became the Housing Act 1996. The day before we were due to discuss part of it, the people behind the security of loans for social housing suddenly discovered what was going on, faxes began to fly to and fro, and there was a great threat to the whole financing of some social housing projects. That is why I pay tribute to the Minister for her work to avoid the same happening again, and to come up with a Bill with which all parties are in broad agreement.
Many of us were disappointed to find that the Bill, contrary to expectations, was not mooted in last autumn's Queen's Speech. Thereafter, however, the Minister promised to do all that she could to find time for the Bill--if she could get agreement on its contents. She has been as good as her word, on which I congratulate her. We may not know the whole truth, but I suspect that she may have had some difficulties with the Deputy Prime Minister. At least she won--that is the main thing.
My one objection is to dealing with the final stages of the Bill all at one time next Monday. There should be a gap between the Committee and Report stages, however well the Bill's contents have been dealt with. There ought to be more time for consideration on a Bill as large as this.
Why do we need another Bill 10 years on from the last one? If we examine the role of the building society movement, and what has happened in the financial world in recent years, we can see part of the answer. That movement has tremendous strengths and brings great strengths to our economy. Its traditional function--matching savings to housing finance--remains predominant: it does the job very well. For millions of savers and home buyers, building societies are the trusted one-stop shop.
Over the years, the building society movement has taken care to protect its customers from the effects of society failures, which have been extremely rare. Building societies are also of great importance to the regional economies of Britain, not just because of the employment in their branch networks but because their headquarters, like those of the major insurance companies, are to be found not in London but in our provincial cities and towns. They act as a welcome counterbalance to the centralisation of financial affairs in London.
Shortly after I entered this House three years ago, my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), at that time financial affairs spokesman for the Liberal Democrats, was asked to address the annual lunch of the Building Societies Association.
Mr. Austin Mitchell:
Exciting stuff.
Mrs. Maddock:
In fact, we did create some excitement at the meeting. Anyhow, my right hon. Friend described some of the problems to which the Bill today offers some solutions. For instance, he mentioned the problem, during the recession, of the over-promotion of credit which led to a lot of people ending up with negative equity. Some of them still have it.
My right hon. Friend also said that building societies often help first-time buyers instead of looking after their current members' interests. He also raised the
accountability of building societies to their members--an element of the Bill that we all welcome. My right hon. Friend ended by saying:
I was particularly struck by Will Hutton's comments in The Guardian in July 1995, when he stated even more forthrightly:
Mr. Butterfill:
The payouts are likely to happen after the general election, not before it.
Mrs. Maddock:
There is some dispute about that.
As I was saying, many of the concerns expressed in recent years about mutuality have been dealt with in the Bill.
The Building Societies Association welcomes the Bill, as do many of us who are in favour of mutuality. It will preserve the unique characteristics of building societies and ensure that their record of safety continues. All of us welcome the fact that the legislation is to be permissive rather than prescriptive.
The new legislation will place building societies on the same footing as other organisations, in that they will be able to do many more things that will be of interest to their members. However, many us believe that their concentration on the requirements of personal savers and on housing is important. I welcome the fact that they will be able to invest in rented housing. The need to do something to make lending for renting stack up has become obvious to me in my time as housing spokesman for my party. We have a problem in trying to expand the private rented sector, because the different tenures are so concentrated in one form.
I especially welcome the measures designed to approve societies' accountability to their members. Election to the board will be more transparent, borrowers will have votes and, for many societies, fewer people will be required to nominate members for election. There will be a legal requirement to hold special general meetings at request, members will have to vote in favour if a society wants to make significant acquisitions of business not related to mortgages and savings, and if a society decides to transfer to plc status, it will have to ballot its members and have
an additional advisory vote on any proposed enhanced remuneration packages for directors. I welcome all those measures on behalf of my party.
We want to enact the legislation quickly, partly because we are about to embark on a general election. Because of the problems that we have had in the rapidly changing financial world and because so many building societies have started to move towards plc status, we must move as quickly as possible to safeguard the mutuals that many of us want to flourish. That is why my party is happy for the Bill to proceed.
Mr. Peter L. Pike (Burnley):
I hope that the Bill will receive Royal Assent before the general election, because it represents the best way of preserving the building society movement and the concept of mutuality.
I declare an interest as a member, but not an officer, of the all-party group on building societies. I am also a member of several building societies. I voted no to the National and Provincial takeover by the Abbey National and to the Leeds takeover by the Halifax, and I was one of the 3 per cent. who voted no to the conversion.
At the appropriate stage, I shall take the advice of the hon. Member for Gloucester (Mr. French) and remove my custom, but, if the shares are to come, I may as well take them first; I make no bones about that. I have been a Halifax customer for many years and I feel that I may as well take the shares even though I disagree with what has been done.
The hon. Member for Bournemouth, West (Mr. Butterfill) referred to the Building Societies Act 1986. He underlined the view of those of us who were in the House when that legislation was passed: we thought that it was a bold step forward and a challenge to the general concept of building societies at that time. Indeed, I remember saying that I was conservative on building societies and wanted them to remain as they were, because they had a good record over many years of service to both lenders and investors. I wanted banks to be banks, and estate agents to be estate agents.
Times have moved on rapidly, however, and I accept that we are in a different world, so I fully support the view that we must change and that, if building societies are to be able to compete and indeed to remain as mutuals as we move forward to the 21st century, we must enact the Bill.
I share many of the views and concerns about the Halifax expressed by the hon. Member for Gloucester. According to its figures, 3.5 million of its customers are not entitled to a handout as a result of its conversion, and I have heard that it could be as many as 4.5 million. Even 3.5 million is far from an insignificant number.
In 1986, the Halifax gave various briefings to Members of Parliament, and there was no doubt that, if we had had to bet on which building society would be the last to consider conversion, we would have chosen the Halifax: no society was more committed at that time to the spirit of mutuality. I do not know whether the board is guilty or whether it is Mike Blackburn, whom I criticised for leaving the Leeds and then taking it over in a so-called merger while at the same time recommending conversion, but, at the end of the day, the chief executive cannot act alone and must secure the board's approval. I greatly regret what has happened.
The Bradford and Bingley building society rightly says:
It has been rightly said that the Building Societies Act made the banks more competitive and responsive to customer needs. The hours that banks open may have been influenced by the fact that they have to compete with building societies; they have had to change their approach. Some building societies were complacent, sat back and assumed that things were all right. The 1986 Act, what is happening now and the way that things have moved, may also have made building societies shake off the dust and recognise that, if they are to survive, they must be competitive in the marketplace. No harm has been done from that point of view.
The Building Societies Association states that it and the
I regret that the Bill does not, as several hon. Members, have said, deal with the two-year rule. It is not unreasonable that people should have been members for two years before they can benefit from a conversion. The Nationwide says:
Clause 41 deals with protection, the 15 per cent. rule and the five-year rule. If societies convert and become predators, they should lose protection. The protection is not dissimilar to that which existed for the Trustee Savings bank. Share dealing in that commenced on
10 October 1986. The Trustee Savings Bank Act was passed in 1985. The initial threshold imposed a maximum holding restriction of 5 per cent. of the company's equity. After 29 September 1991, that was allowed to rise to 15 per cent. There are parallels. There were originally many small shareholders, but, when protection went, that changed rapidly. As soon as the 15 per cent. rule came in, it was not a question of when it would be taken over, but of who would take it over. Ultimately, it became part of the Lloyds group, which had already taken over the Cheltenham and Gloucester building society.
The biggest predator to date must be the Abbey National building society, which made an unfriendly bid for the National and Provincial building society. I know that society well because it was formed by the merger of the Burnley building society and the Provincial building society. It was supposed to be a merger, but it was more like a take-over, because everything was cleared out from Burnley in only a few years.
The National and Provincial society rather lost its way. At one stage, it was going for conversion; then it was to merge with the Leeds--funny that the Leeds should come into it yet again. Finally, it said that it was committed to mutuality. It sent its customers many documents about mutuality. It held a meeting across the road for Members of Parliament so that Alistair Lyons and Lord Shuttleworth could brief us on its commitment to mutuality.
Then, suddenly, out of the blue, came the bid from Abbey National. The National and Provincial did not want to accept that bid and said that it wanted to consider other bids. Nobody ever got to know what those other bids were and, ultimately, the Abbey National was allowed to take that building society over. It is funny, is it not, that Alistair Lyons is now the executive director of Abbey National and chief executive of its subsidiary, Scottish Mutual Life, while Lord Shuttleworth is the deputy chairman? They did all right out of it, but was it what the customers wanted?
I said at the time of that vote that it was bound to go through. The hon. Member for Gloucester hit the nail on the head, because when so many people face the chance of getting £1,000 or whatever it happens to be, it is only realistic to accept that they will vote yes. At the time of the Abbey National takeover, more than 46,000 of my constituents were entitled to a pay-out in cash or in shares because of the Burnley building society connection. I have no doubt that they voted yes for obvious reasons.
I believe that we want to see building societies remain mutual. I believe that the Bill represents a fair balance, which allows building societies the freedom to move into the markets in which they need to compete in order to survive. I recognise that they must provide customers with the services that they want and must be able to compete with others who are already able to provide such services. I believe that the Bill will enable those societies to remain mutual if they so wish, and I hope that the 72 which are mutual will choose to remain so.
"The British people have invested a lot of their money and a lot of their trust in the building societies, and the results have included wider home ownership than in many other countries and a building society movement which is without equal. It is time for some public reflection on how the industry can build on these strengths."
That reflection has continued in recent years.
"One of the great bequests of the last century to the modern world is withering before our eyes. British building societies, owned and run for the mutual benefit of their members, were a tangible expression of a form of common ownership. Now they are being cannibalised into becoming the latest standard bearers of the public limited company, complete with stock options and a lord on the board--and a credulous public is being offered a sweetener of some hundreds of pounds to offer its assent."
Listening to the hon. Member for Gloucester saying how he thought building societies should think carefully before becoming public limited companies, with the attendant large payouts, I pondered Will Hutton's comments. I must tell the hon. Gentleman, though, that some of his Conservative colleagues are hoping that many people will get their feel-good factor before the general election, in the form of the massive payouts coming their way later this month.
"The legislation will create a more permissive regulatory regime and is welcomed by those societies which, like the Bradford and Bingley, intend to continue operating as mutual organisations. It will provide societies with greater operational flexibility and enable them to compete on a more equal footing, as mutual organisations, with banks and other institutions."
The briefing also mentions that there are 13 million building society members, 2,500 branches and that many staff are employed, especially in the provinces.
"remaining 72 building societies have welcomed the introduction of the Bill."
The association makes an important point on competition and notes:
"A survey in the March edition of What Mortgage found that out of 72 lenders, the top 25 in terms of offering best value for money to customers were all mutuals."
It is significant that the mutuals led the way with better deals for mortgages and for investors.
"Although, in principle, we would support a move to amend the Bill by inserting a two year clause to protect societies against speculators, our over-riding concern is for the Bill's passage to be eased so late in the parliamentary session."
We all recognise that time is short and that the Bill must get through the other place if it is to get Royal Assent before the general election. I hope that an attempt will be made next Monday when we debate its remaining stages to introduce the two-year rule. I would support that. If such an attempt fails, I, like the Nationwide, would accept the Bill as it stands.
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