Select Committee on Treasury Ninth Report

General nature of mutual organisations

3. The main difference which our witnesses identified between a mutual organisation and a company is that the latter is expected to pay dividends to its shareholders, and therefore has a smaller surplus to devote to the running of the business or to use to improve its rates of interest paid to members. As Mr Patrick Frazer, Executive Director of Davis International Banking Consultants, pointed out, however, this distinction is not necessarily valid: not all companies do pay dividends, and some mutual organisations do distribute some profit-related bonus to their members.[6] We return to the effects on competitiveness and value for money in our sections on building societies (paragraph 9) and life assurance offices (paragraph 66).

4. The other main advantage claimed for mutuals is that they are more likely to feel a close bond with their customers, although this may arise because of a local base or because of the type of service provided (e.g. individual savings and loans) rather than because of mutuality as such. Mr Frazer said: "What people see as special characteristics of mutuals in Britain are often not characteristics of mutuality but characteristics due to building society legislation or simply custom and practice".[7] Again, we return to this issue in the corresponding section on building societies (paragraph 16).

6  P. Frazer, Op cit, p 9-10. Back

7  Q 3. Back

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