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Mr. O'Brien: I am aware that a number of building societies are using sometimes ingenious ways of addressing the issue, but the hon. Gentleman makes the point that it is clearly a matter of concern to many building societies, including the Portman. We need to know the Government's view.
The only real explanation for the absence of the two-year clause that the Minister has offered so far is that building societies themselves can devise a scheme to
ensure that investors obtain no benefit from conversion. That is possible in theory. However, a conversion or takeover scheme that is influenced by a hostile predator might mean that the society would be unable to enforce such a restriction. A society is not in a position to deter speculative inflows by its own two-year clause, as those contemplating a speculative bet would simply reason that the building society would be unable to uphold the rule when confronted by a hostile bid.
The Minister also deployed the argument that those expecting a bonus in future should be on the same footing as those who have received a bonus in the past. If defective legislation were passed, as it was in the 1986 Act, and if Parliament's will and intention in the 1986 Act are frustrated because of inadequate drafting, are the Government saying that there should be no attempt to alter the Bill because someone has benefited by frustrating Parliament's will in the past?
Neither of the arguments deployed so far seems to hold a great deal of weight. However, in her reply to the debate the Minister may supply us with other arguments that address the issue. Obviously, we are anxious for the Bill to become law and we do not want to frustrate its course, but we also want to be sure, as hon. Members have a duty and a responsibility to do, that we discuss the issues fully and ultimately make good law.
Mr. Tim Smith:
I have considerable sympathy with what the hon. Member for Great Grimsby (Mr. Mitchell) had to say about the amendment. First, I agree that it is not a satisfactory way in which to legislate. The Bill comprises 47 clauses and nine schedules, all of which are being taken on the Floor of the House and will not receive the detailed consideration that they deserve and would have received in Standing Committee. I understand that the Bill was subject to very wide consultation with interests outside the House, which is obviously welcome, but it is not some substitute for parliamentary consideration. It is right that we should put forward the views of our constituents--many of whom will be members of building societies--on the Bill's detailed provisions. I do not really understand why the hon. Member for North Warwickshire (Mr. O'Brien), who spoke from the Opposition Front Bench, is in such a hurry to get the Bill through.
It seems that the Bill is designed to protect mutual building societies, which is good. It is clearly in the public's interest that many such societies should continue because they will offer a better deal to depositors and lenders than commercial banks will ever be able to offer.
Mr. Butterfill:
My hon. Friend is suggesting that the Bill is designed to protect mutual building societies, but sadly, as we have just heard, it fails to do precisely that. It allows them to do rather more than they have been previously permitted to do under the Building Societies Acts 1962 and 1986, but it does not protect them in any realistic way apart from making them a little more financially viable and a more attractive target.
Mr. Smith:
That was what I meant when I used the word "protect". It is because such building societies will have greater commercial freedom that they may be less tempted to go down the public limited company route. I recognise my hon. Friend's point. Against that we must balance the apparent proposal to drop the two-year rule
The Economic Secretary to the Treasury (Mrs. Angela Knight):
I have considerable sympathy with many of the points that have been raised. I know that all hon. Members present have a real concern about mutual building societies, which I share.
The hon. Member for Burnley (Mr. Pike) mentioned two points in opening the debate on this amendment. He was concerned about the Bill's further progress. I can confirm that the issue of what happens after we have finished our proceedings today is being discussed at this moment. I sincerely hope that the decisions that are reached elsewhere will result in the Bill becoming law because the mutual building societies want that. His second procedural point was whether it was conceivable that such a Bill could go through very quickly. All stages of the Friendly Societies Act 1992 went through on the nod. There is therefore a precedent--one that we are not trying to emulate since we shall be giving good consideration to the Bill--of such a Bill going through very quickly due to announcements such as the one made today.
My hon. Friend the Member for Eltham (Mr. Bottomley) and the hon. Member for North Warwickshire (Mr. O'Brien) both said that they were members of a building society. I am not sure whether I am or not. When my right hon. Friend the Prime Minister gave me my present job, I was told that one of its requirements was that I am not allowed to touch anything financial whatever. Such affairs are dealt with by a power of attorney. I pay the bill, but have no knowledge about what is happening--and will not have until I no longer hold the job. The important point is that many people, including hon. Members, are involved in a building society in some way. The northern savings ethic means that many people who live in the midlands and the north are involved in building societies.
Mr. Butterfill:
I represent a southern seat--one cannot get much further south than Bournemouth--so I must contradict my hon. Friend. Saving is equally prevalent in the south, and there are more building society branches in Bournemouth than almost anywhere else. We are also honoured to have the headquarters of the Portman building society in the area.
Mrs. Knight:
I had no intention of excluding Bournemouth from the proceedings, and I am grateful to my hon. Friend for those points.
The debate has two components. First, there is a technical aspect and, secondly, there is the general concern behind the amendments. I will explain the technical aspects and then deal with the other matters. I understand the concerns that have been raised, especially about speculation, and the belief that the restoration of the two-year rule could deter speculation.
The amendments would restrict all the long-established rights of membership, as well as the new rights that the Bill will introduce, to those who had been savers and borrowers for two years or more. One effect of that would be to rule out share distributions to anyone who is not a two-year saver, effectively reviving the two-year rule. However, the amendments would go further and, potentially, would damage the building societies' constitutions. All savers are full members with an equal right to a say in the running of their society by voting. The amendment would introduce a category of savers who have no membership rights, but elsewhere in the Bill we try to ensure that members will not be disfranchised. All of us have, no doubt, received letters from constituents who have deposit accounts that they thought made them full members of the society. The amendments would increase that anomaly substantially.
The link between saving and membership is crucial for mutual societies. Therefore, narrowing the membership would vest control in a privileged subset of longer-established savers and would deny millions of people an equal say, even if only for a set period. Those people, for right and genuine reasons, are members of their society.
It may help if I give some specific examples. The amendments, as they are drawn, would result in the eligibility to nominate a director being vested in individuals who have been with the society for more than four years. At the moment, people have to have been members for two years. The amendments would also mean that an individual would have to be a member for four years to propose and circulate resolutions at an annual general meeting. That provision would also apply to a special general meeting on members' requisition. The amendments would deny rights to members who, for right and proper reasons, are members of their society.
Mr. Tim Smith:
Is my hon. Friend saying that there are already two classes of saver, in the case of certain resolutions, such as electing directors and calling special general meetings? If there is already a distinction, why cannot we build on it?
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