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Mr. Gareth R. Thomas: I, too, read the 1998 consultation document, and I tried to reflect the concerns expressed in it in the drafting of the Bill. Clause 2(1)(c), which I referred to when I intervened on my hon. Friend the Member for Leigh (Andy Burnham), gives the flexibility to allow community benefit societies to sell assets and deal in the usual way, but it locks in the value of those assets for community benefit. To take the example of the British Legion club, to which the hon. Gentleman says that he is affiliated, there is nothing in the Bill to prevent the British Legion club or anyone else from selling their building if they want to, but the cash realised by the sale must continue to be used for community benefit. That is the additional protection that the clause offers.
Mr. Chope: I am grateful to the hon. Gentleman for clarifying that point.
I have a principled objection to clause 3. It would enable the Government to impose company law provisions that do not currently apply to industrial and provident societies, by means of an unamendable statutory instrument. It would enable not only existing company law, but company law as it might become at any stage in future, to be imposed without effective parliamentary scrutiny. An extensive legislative shake-up of company law is imminent. The effect of the clause would be that company law could be amended in a Bill confined to companies, and later applied to industrial and provident societies without the same scrutiny.
My solution to the problem of the interrelation between certain provisions of company law and industrial and provident society law would be to ensure that industrial and provident societies were brought within the long title of any Bill to amend company law, so that Parliament could properly debate which provisions should apply to industrial and provident societies and which should not.
Such a Bill could cover in its long title all corporate bodies whose liability was limited. As that feature is common to companies and industrial and provident societies, there could be proper consultation beforehand with those who might be affected. It would also enable industrial and provident societies, through their organisations and through Members of Parliament, to table their own amendments and make their own suggestions, and perhaps instigate their own legislation for debate. That option is not open to them if we are dependent on the use of statutory instruments instigated at the behest of the Treasury, which are unamendable.
My concerns about clause 3 are supported by Robin Pooley, the chairman of NFU Corporate. The hon. Member for Harrow, West referred to the National Farmers Union's support for the Bill in general, but Mr. Pooley has grave concerns about clause 3. I understand that he has expressed similar concern to the hon. Gentleman.
The omission of clause 3 would improve the Bill beyond all measure. It would confine it to the limited role that is appropriate for private Member's legislation, by amending law to address a specific and important problem in a defined way. It should be for the Government to legislate to provide for large-scale changes in the law, and the opportunity presented by the need to legislate in the aftermath of the wide-ranging review of company law should provide just such an opportunity.
The hon. Gentleman referred to minor deregulatory changes, which could be made under the Deregulation and Contracting Out Act 1994. That is fine—deregulatory changes would be made by statutory instrument—but clause 3 suggests that new regulatory burdens would be imposed by statutory instrument.
If the changes were deregulatory, they could be dealt with under the Deregulation and Contracting Out Act. So we are talking about increasing regulation on industrial and provident societies by statutory instrument, without the opportunity for proper debate or amendment. That is not the right way to proceed, not least because, as has already been made clear during the debate, industrial and provident societies vary enormously in scale and purpose.
There is a small club in my constituency called the NADSS club, which is part of the National Association of Discharged Soldiers and Sailors. It is the last remaining club founded after the first world war, and it has a very small membership and a relatively small income, but probably quite valuable assets. To impose new regulations on that club would be unduly burdensome, and I should like to allow greater flexibility. A proper debate in the House would allow the legislation to be tailor-made to the needs of different sorts of societies, and I would much prefer that to the blanket power in clause 3.
Linda Gilroy: Does the hon. Gentleman accept that the Companies Act 1985 has been extensively amended, often using order-making powers? Does he further accept that the Treasury has consulted widely on this issue and that proposals such as those that he mentions would reflect changes made to Government controls on directors' interests that have long been standard in companies?
Mr. Chope: The hon. Lady is right to say that such proposals might be made in statutory instruments, but all sorts of other regulations are envisaged in the Government consultation paper—for example, changes to corporate governance that might be appropriate for very large industrial and provident societies, but not for the smaller societies. For the House to give the Treasury the power to introduce wholesale changes that would impact on all industrial and provident societies by statutory instrument alone would be wrong in principle. If the hon. Lady thinks that some important changes could be made now, she could move amendments to the Bill in Committee.
Mr. Gareth R. Thomas: I heard a hint that the hon. Gentleman was concerned about clause 3, so I have listened extremely carefully to his comments on that clause. I shall try to reassure him by flagging up the fact that the Bill makes it clear that the affirmative procedure must be used, so parliamentary scrutiny would be available in the order-making process.
There has been substantial consideration of the changes in company law that would be appropriate for industrial and provident societies, and there were various attempts
to reform company law and building society and friendly society legislation in 1986 and 1992, but if the Bill receives its Second Reading, I shall reflect further on what the hon. Gentleman says before it is debated in Committee.
Mr. Chope: I am grateful to the hon. Gentleman for that intervention, and the spirit of friendliness and co-operation that he offers is appropriate to the Bill. Indeed, I look forward to co-operating when the Bill is debated in Committee, as I am sure that that will happen, because the Government realise that they would be extremely unpopular if they were to talk it out today.
For the third week running, a private Member's Bill will receive Treasury support in Committee. I hope that the Government business managers will ensure that some extra Standing Committees are set up so that more than one Treasury Minister at a time can discuss those important Bills in Committee. That is enough from me for the moment, but I look forward to having further constructive debates on the Bill in Committee.
1.14 pm
Mr. Mark Hendrick (Preston): I speak as a Member who was elected under the designation of Labour and Co-operative candidate. I also declare an interest as a member of the United Norwest co-operative society and of the Co-operative party.
The Bill would amend legislation governing the operation of industrial and provident societies, which has not been addressed by the House since 1965—nearly 40 years. I welcome it with open arms. For too long, co-operatives have operated at a disadvantage compared with other forms of enterprise.
My hon. Friend the Member for Wythenshawe and Sale, East (Paul Goggins) mentioned the Rochdale pioneers who set up the Rochdale co-operative society in the 19th century, the first society of the modern era. We have recently been considering what form the movement should take in the 21st century. The newly formed Co-operative Commission was established by the movement to draft a report on the challenges that it faces. The report has been passed to the Prime Minister. It makes important recommendations, and I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on including many of them in the Bill. The Prime Minister was sympathetic to the report and promised to consider the commission's recommendations with a view to legislating.
The Bill is aimed at bringing industrial and provident society legislation into line with company and building society legislation. It will also make possible the establishment of, or conversion to, an industrial and provident society for the delivery of services. Many of my hon. Friends referred to the wide range of services provided. My society offers such a breadth of services and is the second largest co-operative in the country. It has a proud history, deriving, as it does, from the original Rochdale co-operative society and the Pendleton co-operative society in my original home town of Salford.
The Bill would give the Chancellor of the Exchequer the power to amend industrial and provident society legislation to bring it into line with company legislation. It would also allow him to update industrial and provident society legislation as changes to company law arise. As
hon. Members said, the voting requirements for demutualisation of the societies would also be brought into line with those that apply to building societies. Those issues have been much researched in the building society sector. Recent legislation now provides that before any such change can take place to a building society, a vote must be carried by at least 75 per cent. of members and at least 50 per cent. of the membership must participate.Hon. Members also explained that such a provision would mean that a demutualisation resolution would have to be passed by a minimum percentage of the total members rather than a minimum percentage of those attending meetings. That aims to discourage the practice of carpetbagging, which is intended to give large windfall profits to some members and allow some directors of former mutuals to cash in on the accumulated wealth of the wider membership. It is not right that any irreversible changes to their fundamental constitutions should occur without the majority of members participating in the decision.
We need a balance between the original basis on which societies were founded and the need to be able to react to the membership of the mutual, and the market within which it operates. The founders of a mutual business that has been established for the benefit of the community should be able to hold on to the business and its assets for the general benefit of the membership. The Bill would allow the founders of an industrial and provident society set up for the benefit of the community to choose whether to include those private provisions in its rules. The Bill should enable the founders of a society to choose a constitution that cannot be converted. The society should have to specify in its rules the destination of any surplus profit accrued if the society were wound up. That is extremely important, for the reasons that I have already outlined.
My hon. Friend the Member for Leigh (Andy Burnham) highlighted a good example of a new model that has been established. It is one that touches many interests throughout the country. Setting up football clubs as mutuals is, perhaps, a perfect example to highlight not only the continued relevance of such societies in the modern economy but the ambition and imagination shown by the sector in constantly readapting and reinventing itself. Lincoln City is now a mutually owned football club, and fans in many other clubs throughout the country have been looking to follow its example. Those developments, which, as other hon. Members have said, have been supported by the Government through Supporters Direct and by the Co-operative Commission, would be considerably advanced by the Bill.
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