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Clause 10
Amendments made: No. 6, in page 16, line 14, after '(2)', insert 'or (3)'.
No. 7, in page 16, line 19, after '(2)', insert 'or (3)'.
No. 8, in page 17, line 11, after '(2)', insert or (3)'.--[Mrs. Angela Knight.]
Clause 10, as amended, ordered to stand part of the Bill.
Clauses 11 to 26 ordered to stand part of the Bill.
Clause 27
Question proposed, That the clause stand part of the Bill.
Mr. Austin Mitchell: Although my amendment to the clause--amendment No. 3--has not been selected, I believe that the clause could still be strengthened by modification. The problem is that directors are being appointed to mutual building societies even though their interests go rather wider than the building society movement. Furthermore, they do not always come from the areas in which the societies are rooted. In effect, building societies are being white-anted by these people.
With the Halifax, more and more impossibly dignified and important people, mainly from London and the financial sector of the economy, have been appointed directors. These people do not have the interests of mutuality or of the building society at heart; they are much more concerned with the wider financial markets. It would therefore be better to include in the clause--it sets out the qualifications and election procedures for directors--some way of securing these people's testimony to their devotion to the principle of mutuality and to the building society of which they are being appointed director.
The clause deals purely with the mechanics, whereas our concern is with the principle of mutuality. Thus while defining those mechanics it would have been useful to take the opportunity to require directors to show their commitment to that principle--indeed to show that they are as committed to it as those who make up the society and those who have kept it going.
Mrs. Angela Knight:
I rather agree with the hon. Gentleman that directors should be prepared to stand up for mutuality. After all, they will be directors of a mutual society so they need to be committed to the concept. But what concerns me about the hon. Gentleman's sentiments is that if the Bill states that someone standing for director has to commit himself to mutuality, how will we know that that is true? Surely the best way to ensure someone's commitment to mutuality is for him or her to choose of their own volition to state that mutuality is a concept that they believe to be correct. That should be included in the statement that they put to members asking them to vote. If someone does not include that in the statement being
Question put and agreed to.
Clause 27 ordered to stand part of the Bill.
Clauses 28 to 40 ordered to stand part of the Bill.
Mr. Butterfill:
I beg to move amendment No. 4, in page 58, line 5, leave out paragraph (a) and insert--
The First Deputy Chairman:
With this, it will be convenient to discuss amendment No. 5, in page 59, line 5, at end insert--
Mr. Butterfill:
The amendments deal with the principle of what is known as the five-year rule, imposed by the Building Societies Act 1986 to afford some measure of protection to converting societies.
Before 1986, the activities in which building societies could engage were severely limited. The 1986 Act was the first realistic attempt by the House to allow societies to engage in a greater number of activities. It was envisaged by that Act that, for some societies, the desire to offer an ever greater range of services might ultimately lead to their deciding to demutualise and become banks.
It was also recognised by the 1986 Act, however, that although a greater range of activities would be permitted under the Act, their number was still severely restricted. So it would not be possible for converting societies to have knowledge and experience of all the activities that banks could undertake. It was therefore felt that converting societies might be more vulnerable to predatory takeovers by the big banks, which might want to prevent competition by taking over the societies immediately they had converted. It was felt by Members on both sides of the House, therefore, that some protection should be given for a period of five years.
I suggest that, although certain things have changed since 1986--the world has moved on and many societies have become much more sophisticated, engaging in a wider range of activities than hitherto--the position has not changed completely. Societies still cannot engage in very many activities, and even under the Bill some activities will continue to be prohibited to those who call themselves building societies. It is appropriate, therefore, that some transitional protection remains.
It has been suggested that it would be wrong for converting societies to be protected yet be able to be predators. I have some sympathy with that view because
we should retain diversity of lending. If we are not careful, mortgage lending in the United Kingdom may be dominated by a handful of major institutions--predominantly banks. That is a grave danger, because it would restrain competition and choice for the consumer and, ultimately, act against the national interest and the interests of depositors and borrowers. I am anxious, therefore, that we have as diverse a range of lending organisations as possible.
There should be three types of lending and deposit-taking institutions. The first tranche would consist of the big banks, which are very large, are established and are secure in their present activities. The second tranche would consist of several converted societies, competing with the banks. Few hon. Members would disagree that some banks need fresh competition, because for a long time they have had things far too much their own way. A little healthy competition would not go amiss and would improve their service. The converted societies would compete with the banks in their range of activities but retain some of the essential elements of service to the community that they had initially as mutual societies.
A third tranche would consist of the remaining mutual societies that it would be in the public interest to retain to a large extent. That is the purpose of the amendments tabled in my name and those of the hon. Member for Normanton (Mr. O'Brien) and others. There is widespread agreement in the Committee, at least on the Back Benches, that transitional protection is required for converting societies.
I accept that it would be wrong if the converting societies were enabled to be untrammelled predators on the mutual building societies. Indeed, my amendments seek to protect not only mutual building societies but all mutual institutions.
Mutuality is a very important concept. It is an almost uniquely British one. It is extremely valuable, and the Committee would be foolish if it were to enact legislation that would diminish it. I therefore propose effective protection for friendly societies and mutual insurance companies. All mutual financial institutions would be protected because, if a converting society bid for a mutual, it would lose the protection that it enjoyed under the five-year rule.
I know that the banks would say, "That is unfair because converting societies can bid and they receive some protection from predation, but we don't." I am not sure that I agree that the banks need such protection. They are big, grown-up boys and have been playing the game for a long time. They do not need the protection that the converting societies need and deserve.
Banks will say that converting societies could do all sorts of other things without losing protection. They could buy mortgage books--I am sure that many of the large banks would like to get rid of some of their duff mortgage books, following unwise lending--or chains of estate agents. All sorts of financial institutions were unwise in their acquisition of chains of estate agents and would dearly like to unload them on some of the converting societies. With respect, however, we want not that type of competition but competition in the key areas of banking and customer service, which the converting societies will seek to offer. Therefore I put it to my hon. Friend the Economic Secretary that there is a case for retaining a much greater measure of protection than she proposes under the Bill.
'(a) the company or a subsidiary undertaking of the company acquires the whole or substantially the whole, of the business of a mutual financial institution;'.
'"mutual financial institution" means a financial institution--
(a) the objects of which do not include the making of profit for any persons other than the members of the institution (however described) on whose behalf the funds of the institution are held or invested; and
(b) as respects which, on the institution being wound up or otherwise ceasing to exist, any surplus assets, after providing for all liabilities and the costs of liquidation, must be distributed among such members;'.
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