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10.57 am
Dr. Vincent Cable (Twickenham): I want to add to the weight of all-party consensus on this useful and important Bill, which would strengthen mutuality and the co-operative principle. I have become involved in the past few years through the Save Our Building Societies campaign, and my colleagues on the Liberal Democrat Benches would strongly endorse the thrust of the Bill. As we were reminded by the helpful intervention of the hon. Member for Wolverhampton, South-East (Mr. Turner), we are dealing with not only ideologically driven bodies, but practical grass-roots organisations. I am a member of my local British Legion club, which falls within the industrial and provident societies structure, as do political clubs and allotments.
I was intrigued by the reference to the Rugby Football Union, as my constituency hosts it. Whenever I get involved in disputes with the RFU, as I do because my constituents are often inconvenienced by it, I am always told that it is running a business. When I next speak to the RFU, I shall remind it that it is covered by the common bond and that it should perhaps take more account of my constituents' interests.
I must take up an important point made by the hon. Member for Epsom and Ewell (Chris Grayling). I congratulate the hon. Member for Harrow, West (Mr. Thomas) on taking the issue up for his private Member's Bill, but there is a question about why such important legislative change has to be dealt with in this way. Our approach to legislation for companies and for the mutual sector is not balanced. The last major companies legislation review was in the mid-1980s, but a new one is under way and no doubt flagship legislation will be introduced when it comes to fruition. However, it has been much more difficult to change mutuals legislation.
Building societies are the most important sector. The Government have helpfully introduced secondary legislation, but the all-party building societies group and the Treasury Committee, of which I was a member, recommended stronger primary legislation, for which time
has never been found. A lot of encouragement is being given to credit unions, but if they are to take off, as they have in Ireland and the United States, major legislation is needed.Friendly societies were reformed accidentally. When the Financial Services Bill was going through Parliament, they urged me to table amendments to modernise their rules in the way that this Bill does. Initially, my amendments were rejected, but I am pleased to say that Treasury Ministers got the point and made the necessary changes—which, although it was an afterthought, gave the friendly societies a fillip. It is, however, unfortunate that a private Member's Bill should be seen as the only means of achieving modernisation of this kind.
There is something of a paradox here, in that although we pay lip service to—or, in some cases, genuinely believe in—the importance of mutuality, it has become a bit like motherhood and apple pie. The brutal reality is that the key parts of the mutual movement have been in serious decline for a long time. Members have mentioned building societies, whose share of the market has fallen from about 75 per cent. to 25 per cent. in the last six or seven years. Much of the mutual insurance sector has disappeared very quickly, and only a few companies remain. Equitable Life has not exactly covered itself in glory, and the co-operative movement has been in decline for some time, quite apart from the Lanica takeover. The friendly societies are but a relic of what used to be a major lending movement.
We can, however, view the situation in a slightly more positive way. Mutual organisations of a different kind are bubbling up all over the place, although they are often not recognised. I did not know until recently that the after-school kids' clubs that have sprouted all over the country were mutual organisations. The Workers Educational Association, a very creative force, operates through mutuality, as does the University of the Third Age. Like that of the hon. Member for Corby (Phil Hope), my constituency contains doctors' co-ops, which have sprung up to provide after-hours care. Mutuality can be found even in high-tech business: the Linux computer software outfit is a mutual. We are talking not just about additional structures, but about modern organisations.
Why do we see this paradox, whereby some of the traditional mutuals are seemingly in decline while others are bubbling up and growing? Provident societies, and mutuals in general, have a problem, in that while there are strong arguments for mutuality, it has its weaknesses, because unless the system of legislation and regulation is pitched just right negative forces will take over.
Let me summarise the positive aspects. First, mutual organisations—including industrial and provident societies—provide diversity. It would be undesirable if profit-seeking plcs or private companies formed the only basis of organisation; the banking sector gave us an effective reminder of that. The only real opposition to banking charges for cashpoint machines came from the Co-op bank and the Nationwide building society. Those are also the only two organisations that have argued for ethical standards in banking, thus resisting a trend in the rest of the sector. That positive development would not have occurred without mutuality.
Secondly, the mutuals provide a sense of social cohesion and community. Such things are enormously important. In many instances, moreover, this is simply the sensible way in which to organise. People organising a social club or allotment are not in the profit-making business. They merely want a formal, businesslike structure enabling them to organise but also to co-operate. That structure is not driven by ideology; it just happens to be the most sensible option.
Such organisations, however, have some fundamental weaknesses. Their main weakness is that they often become inward looking and complacent. When I was involved in the democratic side of the co-op movement in the late 1960s and early 1970s, it was blindingly obvious to many people that they were being hit by supermarket competition; but because so many in the movement did not want change or amalgamation, the movement withered.
Often, in mutual organisations, the sense of drive comes from enthusiastic professional managers who want to grow—but in fact they grow away from their roots, or, because they are enthusiastic and entrepreneurial, they want a share of the profits and therefore move away from the mutuality principle. There is an inbuilt tension in such organisations, which is why the regulations must be pitched absolutely right.
Clauses 1 and 2 in particular provide the right combination of answers. I see clause 1 as a guarantee against carpetbagging, and clause 2 as a guarantee against asset stripping. The two are related, but separate measures are needed.
Clause 1 deals with carpetbagging very neatly by bringing the law into line with that governing building societies, but, I ask the hon. Member for Harrow, West, does it go far enough? Those of us who have been involved with building societies are apprehensive, feeling that, even following the Government's two regulatory changes, they do not have enough protection at present. We fear that there may be fresh assaults on the remaining building societies.
I wonder whether this is, in fact, the best model. The Nationwide building society, rather cleverly, has introduced the principle that if building societies convert, the money should go to a charity. That not only protects societies, but preserves the spirit of mutuality—that you are not in it for the money. Would the Nationwide model be applicable under clause 1?
As for clause 2, the hon. Gentleman is right to draw attention to the problem of asset stripping. There are many examples, but I will give just one. I was brought up in York, and as a kid I was an avid supporter of York City football club. I used to follow the team around the country. Some Members may recall the famous semi-final against Newcastle. York City is now in danger of extinction, however—possibly within weeks.
Like most football clubs, York City relies on the support of a few business people who have put in a lot of money. In York, as in other cities, most of those business people treated their involvement as a mutual arrangement, and honoured the spirit of mutuality. One did not, however. He spotted a loophole in the law enabling him to sell off the club and the ground, and make millions. There is not enough of a safeguard in the legislation to
stop that. I think it is a problem relating to industrial and provident societies, in fact, which is why the hon. Gentleman's proposals are so important.
Mr. Gareth R. Thomas: I am delighted that I seem to have provoked a rapprochement between the hon. Gentleman and the Rugby Football Union.
I have met representatives of the Building Societies Association, which, although not a parent body sponsoring industrial and provident societies, supports the Bill. It, like the hon. Gentleman, stressed the fact that the recommendations in the Treasury Select Committee report on demutualisation, produced back in 1999, still had not been given legislative time in the House. I am sympathetic to the proposed changes, but private Members' Bills must be seen to be modest. I have not sought to change the world; I have merely tried to make positive changes for industrial and provident societies. I realise that there are defects in other parts of the mutual movement, which I hope will be dealt with in the future.
Dr. Cable: I thank the hon. Gentleman for that helpful intervention. I certainly was not criticising his Bill; I was simply suggesting how we might look forward.
May I return to the subject of asset stripping? There is a legal problem, reflected in, for instance, inheritance legislation. There are dangers in locking up assets for long periods so that they become unproductive. It has been recognised in regard to mutuals, certainly in the case of credit unions, that entrenchment preventing asset stripping should exist in law, and I think that there are precedents for clause 2. There are precedents elsewhere for clause 2.
We can certainly draw encouragement from precedents created in continental Europe. The co-operative movement is far more successful in France and Germany than it is here. The movement has a far larger market share of the European retail sector, precisely because European legislation governing co-operation provides the protection against asset stripping that the hon. Gentleman is trying to build into the law here. Such moves are to be commended. I add my support to this important and useful Bill.
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