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Mr. Kerry Pollard (St. Albans): Does my hon. Friend agree that, after the last major demutualisation, there was so much money sloshing about that it distorted the retail economy? We may still be suffering from that, and perhaps that major input of money has caused interest rates to be slightly higher than they might otherwise have been.

Mr. Lock: My hon. Friend is right. I understand that the windfall produced a cash injection larger than that stimulated by any Budget since the war.

People who invest in building societies are exercising choice, rather like the choice that is exercised in investing in a greyhound. If they watch it going around the track a few times and decide that they do not like how it runs, they should not try to vote to convert it into the hare. They have invested in a greyhound, and they are stuck with it.

Such reasoning applies to executives and board members, as well as to members of societies. If people want to join the board of a financial organisation that focuses on maximising profits to shareholders, they should get themselves elected to a bank. For people who are on the board of a mutual organisation, no amount of free shares, share options or other freebies should encourage them to abandon the basis of the organisation to which they have been elected.

I do not accept the business case for conversion. Other hon. Members have set out the grounds for that, and I shall not go over them. There is a compelling business case, now being demonstrated in a competitive market, that mutual organisations have the edge. For example, the current standard bank variable rate is 8.95 per cent., but the building society rate is about 8.1 per cent. That is because the costs of converted building societies are increased by about 40 per cent. by the need to pay savers. I would prefer those moneys to go back to investors. In June last year, the Paymaster General said:

Despite demutualisation, experience to date is good. Since that time, the outlook has not been so rosy, because money is flowing into the mutuals, attracted by their competitive advantage. It is interesting to note that the chief executive of Abbey National bank plc was quoted as saying at about that time:

    "there is no long-term future in the mortgage market".

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    It is not surprising that the bank takes that view, because it seems that it simply cannot compete.

There is another reason for the importance of building societies, and it relates to their local and regional functions. To get a mortgage decision from some banks, it is necessary only to make a call on an anonymous phone line, answer a series of questions, and, regardless of one's personal position, family or area, get a decision that is generated purely by computer. Building societies have a local focus, and are adaptable.

There is a third difference, and it is in the way that building societies do business. They are owned by their members, and any profit belongs to the customers. They are judged on their services to customers, not on the profit made for the organisation. I can give an example of that from the time that I worked with the Nationwide. It was approached by some mortgage brokers and asked whether it would promote a certain policy. The brokers presented it to the society on the basis: "Your members want this protection, and there will be a reasonable premium, but the payout will be very low, so you and I will be able to make a considerable profit."

Had the building society been a bank, it would have been prepared to accept that deal. However, as it was owned by its members, it said, "So you want us to promote a policy to our members which is not actually in their interests or to their benefit. Although they may think they need this cover, you and I know that the payouts will be low, which means that there is no value in it for our members. No, we are not prepared to do that." That is the crucial difference in the way that membership affects business decisions.

I appreciate the fine balance that the Government must ensure between proper financial regulation and encouraging the mutual market. I echo much of what my hon. Friend the Member for Edmonton (Mr. Love) said. The Government should not be tempted by the fence--sitting on it is not appropriate, for the reasons given by the hon. Member for Twickenham (Dr. Cable)--particularly the competition between the carpetbaggers and the long-term interest.

I invite the Government to consider four areas. The first is the number of members needed to kick start demutualisation.

Mr. Lindsay Hoyle (Chorley): Does my hon. Friend agree that there is a danger of pure short-term greed prevailing over long-term loss of customer choice? In my constituency is one of the smallest building societies in Britain, the Chorley building society. We are worried that, if people cash their chips overnight, that will be the end of customer choice in my area, because the society is too small to become a bank. I am sure that that is also true of societies in other constituencies.

Mr. Lock: I agree with my hon. Friend. The Government need to raise the number of members needed to kick-start demutualisation.

The second area is the number of people needed to nominate to a board, which is also low. Thirdly, there is the turnout needed for success. Unions in the workplace need a 40 per cent. turnout, but only 25 per cent. is needed to sell off someone's financial heritage. The percentage should be raised. There should be a time limit on anyone

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who votes in a ballot. Selling off long-standing assets should be the privilege only of those members who have had a long-standing interest in the society.

10.33 am

Mr. Tony McNulty (Harrow, East): In my brief speech, I want to concentrate on the bandits who call themselves demutualisers. I need no excuse to include in that Murray Financial, from which the right hon. Member for Wokingham (Mr. Redwood) gets £12,000 a year. Out of courtesy, I notified the right hon. Gentleman that I might have a little chat about him this morning.

Ken Murray, who launched Murray Financial, is an old hand at banditry. He set up the Cairngorm investment trust and J. P. Cairngorm. Despite the view of the right hon. Member for Wokingham, the company is a bandits' trust for demutualisation. An article in the Financial Times last September stated that Cairngorm claimed that the

Mr. Ken Purchase (Wolverhampton, North-East): Will my hon. Friend give way?

Mr. McNulty: Very briefly.

Mr. Purchase: I will be brief. I congratulate my hon. Friend on raising this matter, and I want to add to the sum of his knowledge. Birmingham Midshires building society is a victim of the very tactic referred to by my hon. Friend, and it needs strongly to resist it.

Mr. McNulty: I thank my hon. Friend for that information. I am aware that that building society is based in Wolverhampton, despite its name.

The Financial Times said that those bandits, through their advertising, are targeting the general public rather than institutional investors. It says that they offer

Effectively, they are the financial boot boys of the 1990s, doing in just as crooked a way what the pension mis-sellers were doing in the 1980s. They should be declared as such. It would be a travesty for anyone on the Opposition Front Bench to have anything to do with them.

Mr. Murray has said:

The clear implication, especially for mutual building societies, is that he wants his gravy, he wants his cut from demutualisation, he wants it now, and he does not care about the services rendered by the mutuals, about their strengths or about their virtues. His plan is to asset-strip and wreck, and he is now focusing on the mutual societies.

Unfortunately, the trail of City cronies with the blood of mutual societies on their hands does not end at Mr. Murray's doorstep. The right hon. Member for Wokingham will be assisted in his future conquests of consumer choice by two other expert hands. His fellow

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directors at Murray Financial include Philip Court, the former chief executive of the Birmingham Midshires building society--

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. The hon. Gentleman is sailing close to the wind in his references to the right hon. Member for Wokingham (Mr. Redwood). I remind him that, if he wishes to launch a full criticism of another right hon. or hon. Member, he must do so by substantive motion, not in the way that he is doing now.

Mr. McNulty: I appreciate that, Mr. Deputy Speaker.

In addition to Philip Court, who was also involved in Cairngorm with Mr. Murray, the directors include Chris Jones, a former executive with the Cheltenham and Gloucester building society, which is now part of Lloyds TSB. One has already overseen the demutualisation of a building society, and both have insider knowledge of how they operate. Both are, in effect, demutualising henchmen, out for a quick buck and no more. They could not care less about the services that mutuals provide.

Other connections could be made. The company directors' register lists a number of companies, principally in Glasgow, called Murray--Murray this, Murray that and Murray the other. I do not suggest that they are all linked to Murray Financial, but one of them, Murray Enterprise, has as one of its directors a Mr. C. Jones--who may or may not be related to the C. Jones who was formerly of Cheltenham and Gloucester building society and who is now a demutualisation bandit. Murray Enterprise is part of a reputable group in Scotland, part of which is chaired by the newly ennobled George Younger. He also happens to be chairman of the Royal Bank of Scotland. That is fine; I am not suggesting--

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