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Mr. Deputy Speaker: Order. If everyone who wishes to catch my eye is to succeed in doing so, brevity is essential. I call Mr. Andrew Love.
11.28 am
Mr. Andrew Love (Edmonton): I apologise, Mr. Deputy Speaker, for not informing you earlier that I wanted to contribute to this debate.
After what we might call the wide-ranging contribution from the hon. Member for Southend, West (Mr. Amess), I am sorry that I did not bring along a few more of my
constituency issues; but I crave the indulgence of the House for a moment as I echo and support what my hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) said.
I, too, have a major road scheme in my constituency. It is an extension to the north circular road which cuts in two a small shopping centre. I was approached by some of the traders in that shopping centre and I investigated the situation. I discovered that traders have no right in law to passing trade. It does not matter if they have had regular customers for years and can prove it; they have no right in law. In any scheme of that nature, where car-borne customers are cut off, traders have no recourse to compensation.
I want to reinforce and support the idea that this issue should be examined. Road schemes, especially in urban areas, by their very nature have an impact on the local community and local traders. It is incumbent on us to look closely at what we can do to mitigate the effects while the scheme is being undertaken.
This morning's debate gives me an opportunity to raise the issue of the future of the building societies movement. In the light of earlier contributions, perhaps I should declare an interest--it is not and does not have to be in the Register of Members' Interests--in that I am the chairman of the all-party building societies group in the House.
The thrust of my remarks is that building societies are under threat and that much of the strength of the financial services sector in this country will be undermined if they disappear. Some people will express concern that I should view their future in such stark terms because, after all, the Nationwide successfully fought off an attempt to undermine its mutual status and the Government recently raised the threshold required in any ballot to demutualise, recognising the situation. Both are true and I welcome them.
My concern relates to the failure of the Building Societies Act 1997--it was passed under the previous Government--to provide any safeguard for societies against the activities of carpetbaggers or the impact that that is having on building societies and whether, as a result, their mutuality will be perceived as a hindrance to their future success. Before considering that, I shall talk about the value that mutual organisations bring to the financial services sector.
The consumer benefits from access to the services and products provided by mutual organisations. In other words, building societies offer choice to the consumer and they are popular. Although the remaining societies have only about 25 per cent. of the mortgage market, over the past three months they have lent more to their customers than all the banks combined. Survey after survey confirms that building societies have come top in customer service and friendliness. They provide diversity in their different structures and different objectives. For example, mutuals are able to take a longer-term perspective as they are not driven by the need continually boost to their share prices or to maximise dividends to shareholders.
Many societies are regionally or even locally based which brings them closer to their customers. Many play a significant role in their local communities. I am sure that hon. Members up and down the country would echo that. Building societies provide stability in the market--not for them the false attractions of property speculation or
secondary banking. As a result, no savings have been lost in building societies this century. They are truly prudential organisations.
Most importantly, building societies provide competition to the banks and other institutions in the financial services sector. That is because mutual organisations do not have to pay dividends to external shareholders. As a result, building societies have a margin advantage that allows them to offer cheaper mortgages, or savings accounts which, on average, pay more. Most societies have decided to combine the two. That was most graphically illustrated by the announcement yesterday that the Nationwide was pledged not to raise its main mortgage rate in response to last month's base rate increase. That has opened up a record 0.6 per cent. gap with its main demutualised rivals. The Nationwide has also reaffirmed its pledge to maintain, and even to increase, its savings rate. That will maintain the significant margin advantage that currently exists between the mutual and non-mutual sectors.
In a recent survey, the Consumers Association compared a range of core products--savings accounts, tax exempt special savings accounts, mortgages and overdrafts--and found that consumers would have been nearly £1,600 better off over five years with a building society than with a bank. Without that competitive restraint in the market, it is likely that the banks would widen the margins between their mortgage and savings rates. That has already been shown in research carried out by the Consumers Association.
The building societies sector has been undergoing rapid change in the past few years and that has culminated in the conversion of five of the largest societies this year. However, that still leaves 70 societies with assets in excess of £130 billion. The recent windfall gains to members have created a climate that threatens the very mutuality of those remaining societies.
In that context, I again congratulate the Nationwide on the magnificent campaign that it fought earlier this year. A group of five so-called "members for conversion" stood for election solely on a ticket of demutualisation, in the teeth of opposition from the board, the staff and, as it turned out, the members of the society. At the height of that campaign about 25,000 accounts were being opened daily, swamping the society and making it difficult, if not impossible, to carry out its ordinary business for its main customers. As a result--this is according to the society's management--the level of service it provided fell below an acceptable level.
The Nationwide came through that with flying colours and, fortunately, its members voted in favour of their long-term interests rather than for short-term gain. I do not conclude that that spells the end of the carpetbaggers. I should like to think that that would be so, but I find it difficult. There is growing evidence that others are coming forward to take up the challenge to demutualise.
Although the next annual general meeting of the Nationwide does not take place until April, it is already clear from public statements that at least nine candidates, some who have stood previously and some new candidates, are committed to "members for conversion" and will be standing for election, regardless of the overwhelming result earlier this year.
It is clear that societies, which have to survive in a cut-throat, competitive market, simply cannot continue to be diverted from their core business activities to defend their mutual status. If the attacks continue, even if unsuccessful, societies are likely to be faced with the unpalatable choice of continuing to defend their position against increasing odds or accepting that it would be better for the business and for their other stakeholders to convert on their own terms. That would reduce the number of societies below the level that would make that sector sustainable and would, inevitably, lead to its elimination from the financial services market.
I shall now turn to an argument put most cogently by Professor David Llewellyn of Loughborough university. He said that there is a systemic interest in maintaining mutuality, not because it is somehow an inherently superior form of ownership, but because there is a need for a mixed ownership structure in the financial services sector. If that is accepted, mutuality becomes a public policy issue, and Government, and especially Parliament, must take an interest in ensuring that the consumer does not lose out from continued conversions. How can that be done?
The Minister has already shown the way by raising the threshold for conversion to 50 per cent. It must be right that fundamental decisions about the future of building societies should require at least that level of support before demutualisation can happen. After all, converted societies can be taken over only if 75 per cent. of shareholders vote to confirm such action.
For large mutual societies, the number of people required to nominate candidates for election should be raised above the current maximum of 50. As recent events have shown, that maximum can easily be exploited by a small band of eccentric or dissident individuals. Let us compare what happens in building societies with what happens in general elections, on which the hon. Member for Winchester (Mr. Oaten) commented earlier. A Member of the House must be nominated by 10 electors in an average constituency of 67,000. That is one for every 6,700. The Nationwide, the largest mutual society, has 7 million members; the Bradford and Bingley, the second largest, 2.2 million. For the Nationwide, one nomination per 140,000 members is needed; for the Bradford and Bingley, one per 44,000. Nominations should be based on a percentage of the total membership, with an absolute maximum written into the legislation.
Membership of societies could be restricted to people with an interest in its activities, not abused by those interested only in asset-stripping the society for their own benefit. To gain ownership rights in a society, applicants should be members for a minimum period of, say, one, two or three years. That would return societies to their original ideal of requiring new customers to save with them before gaining membership or its benefits.
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