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Mr. Deputy Speaker: Order. The hon. Gentleman must bear in mind that, when he is referring to a Member of the other place, he should call him the noble Lord. The stricture that I applied in the case of the right hon. Member for Wokingham also applies to Members of the other place.

Mr. McNulty: I fully accept that, too, Mr. Deputy Speaker.

All that I will say in passing about the Royal Bank of Scotland is that it has just recently confirmed a £4 million overdraft for the Conservative party.

Perhaps we should not worry unnecessarily about the record of Cairngorm or Murray Financial, because they are not particularly good at what they do--but they do it on the back of money they take from private investors. If they are not pension mis-sellers, they may be the Barlow Clowes of the 1990s. Either way, they are corporate charlatans. They are raising funds with the aim of wrecking mutual societies.

I say to Conservative Members who dabble with mutual society wreckers that they may prefer to join a new Brit pop band that happens to be called Redwood, rather than the predatory bandits from Murray Financial, who, as demutualisers, come bearing gifts but ultimately want to asset-strip and no more.

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It is a real pity that any hon. Member is remotely involved in such disreputable business. No one is suggesting that any hon. Member has used their position to change the policies of the House--

Mr. Deputy Speaker: Order. The hon. Gentleman must not by clear implication accuse another hon. Member of disreputable behaviour. It would be proper for the hon. Gentleman to withdraw that remark, or to make it clear that he did not intend to make such an accusation.

Mr. McNulty: I certainly shall, Mr. Deputy Speaker. I was referring to the disreputable business of those companies; I would not impugn any hon. Member for behaving disreputably. I fully and happily withdraw the remark.

If anyone in the corporate sector wants anything to do with demutualisers such as Murray Financial, he or she should think twice. Demutualisers are not there to serve the interests of mutual societies' current or future savers. I heartily endorse what hon. Members on both sides of the House have said in this debate--long may mutual societies continue. I hope that the resounding vote at Nationwide shows the way ahead.

10.40 am

Mr. John Whittingdale (Maldon and East Chelmsford): I should state at the outset that I have twice been a beneficiary of cash payments--once as a result of being a long-standing investor with the National and Provincial building society, and once as a result of being a policyholder with Scottish Amicable.

I congratulate the hon. Member for Edmonton (Mr. Love) on securing this debate. He, the hon. Member for Twickenham (Dr. Cable) and I have fairly recently emerged blinking into the daylight after considering the Finance Bill in Committee for eight weeks. It is a pleasure to be reunited again so soon.

In his time in the House, the hon. Member for Edmonton has already shown a close and informed interest in the future of building societies. Today, once again, he has cogently stated his case. I generally share his support for the institution of mutuality, and his wish for it to continue--although I am not quite sure that I am as gloomy about its prospects as some hon. Members who have spoken today.

This has been an harmonious and useful debate, although I regret the rather sour note that entered into it in the previous speech. Today is not an occasion to try to make cheap party political comments. The speech of the hon. Member for Harrow, East (Mr. McNulty) reflects badly on him, not on my right hon. Friend the Member for Wokingham (Mr. Redwood).

Mutual societies in the United Kingdom go back over 200 years. They were created by their members to help themselves obtain that most basic need--a house. As a Conservative, I instinctively support the principle of self-help. I believe that there could be a continuing role for mutual societies in the provision of welfare benefits more generally, as an adjunct to, if not a substitute for, the state. I am told by the hon. Member for Edmonton that such self-help may be some version of "the third way", but I have always regarded it is a sound Conservative principle. However, I do not wish to be drawn down the path of party political philosophy.

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Although there has been over the years a steady decline in the number of mutual societies--some were wound up as termination societies, whereas others merged--only in the past 10 years has the building society sector changed beyond recognition. There is no doubt that some mutual societies had become somewhat remote from their members. My hon. Friend the Member for Ryedale (Mr. Greenway) strongly made that point, and drew attention to the fact that some societies have concentrated more on trying to attract new business, consequently sometimes neglecting the interests of current policyholders. Consequently, the advantages of mutuality have perhaps become less apparent.

There is also no doubt that increasing competition from other financial institutions has put pressure on societies to offer a wider range of services to their members.

Mr. Gareth R. Thomas (Harrow, West): If mutuality is such a sound Conservative principle, will the hon. Gentleman take this opportunity to dissociate himself from those who advocate demutualisation or associate themselves with demutualisers?

Mr. Whittingdale: As I shall say later, the merits or demerits of mutuality versus plc status are finely balanced. Although there are advantages in mutuality, retaining that status is a matter not for me but for a society's members. The position of both the previous Government and the current Government has been that the decision is for the membership. However, I shall expand on those points later.

The history of the change goes back only about 10 years. The Building Societies Act 1986 was the first legislation to allow building societies to become banks if they wished to do so, and it was a liberalising measure. It also allowed mutual societies to provide more services while remaining mutual. The Act led to the flotation, as we know, of Abbey National, Woolwich, Alliance and Leicester, and all the other societies that have converted. However, in each case, the decision was taken by the membership itself.

The attraction of releasing the capital--in the form of cash payments or shares--that was locked up in the societies was, of course, one of the principal motives for those voting in favour of a flotation. Although there is not necessarily anything wrong with such a motive, it is not the only reason for demutualisation--the pros and cons of which, as I said, are finely balanced.

The Building Societies (Distributions) Act 1997, which was passed with all-party support in the final days of the previous Parliament, has already been mentioned in this debate. Some hon. Members have said that that Act was intended to make it easier for societies to convert. However, it did not seek to influence members' decision, and further liberalised the rules governing building societies to enable them to compete more equally with other financial institutions. As the then Economic Secretary to the Treasury said on the Second Reading--in an accurate, if not entirely original, comment--the purpose of the Bill was to give societies a "level playing field".

In the same debate, the then Opposition spokesman said:


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    That position is, of course, right, and it has always been the position of the Conservative party. However, I entirely accept--as several hon. Members have said in this debate--that there is benefit in diversity in the financial services sector, to provide competition and choice for customers.

Mutual status brings advantages, and it is important to recognise them. My hon. Friend the Member for Ryedale mentioned the philosophy of mutuality, and that point was picked up by the hon. Member for Brighton, Pavilion (Mr. Lepper). Undoubtedly some investors regard mutual societies as a safer and more sympathetic haven for their money.

Mutual societies also have clear economic advantages. Professor David Llewellyn has compared the records of mutuals and plcs and--as the hon. Member for Edmonton said--stated that societies undoubtedly have a "margin advantage" due to the absence of external capital that has to be remunerated, allowing societies both to build up their reserves and to offer highly competitive mortgage and saving rates.

That advantage has been borne out in practice. As several hon. Members have said, the current margin spread is greater for societies that have converted than for those remaining as societies. Consequently, remaining building societies have been very successful in winning increased market share. Building societies are therefore fighting back effectively.

In the next 24 hours, we shall learn the outcome of the vote of the Nationwide membership. I was interested to hear that the hon. Member for Wyre Forest (Mr. Lock) is undertaking, or has just completed, an Industry and Parliament trust fellowship, and entirely endorse his comments on the value of those fellowships. It is perhaps surprising that the Nationwide vote is occurring only a year after the previous one, in which candidates wishing to demutualise the society were rejected. Although it would be premature to speculate on the result, like other hon. Members I hope that Nationwide members will once again firmly endorse the board's position.

Events at Nationwide demonstrate some of the problems that have been mentioned by every hon. Member who has spoken so far--the instability and uncertainty caused for mutual societies by perpetual pressure, often from a minority of investors, to demutualise and become a plc. We have heard stories about queues outside building societies, telephone systems being inundated with calls and the difficulties that has caused to genuine investors.

There are some safeguards. Some societies have tried to deter speculators by raising their minimum deposit levels, although that raises the danger that they will penalise legitimate small savers. The 1986 Act introduced the two-year rule that forbids the distribution of cash bonuses to shareholding members of less than two years and to borrowers. Nevertheless, I recognise the real concerns expressed by the remaining societies that they are potentially faced with unending disruption and instability caused by annual challenges from the proponents of conversion.

The Government have already raised the threshold for turnout for those voting in favour of conversion to 50 per cent., but that does not address the problem of elections in which candidates can be nominated by just 50 members. Societies such as Nationwide and the Bradford and

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Bingley have asked for greater protection. I have sympathy with them, but, in attempting to find a solution, we have to be careful not to diminish the accountability of the board to the members.

Mutual societies were created for the benefit of small savers, and it is essential that their interests and rights are fully protected. Members have already shown that they are prepared to back the judgment of their board and to take a long-term view. I have no doubt that they are better placed than anyone else to decide the future of the societies they own.


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