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Paul Farrelly (Newcastle–under–Lyme): Is my hon. Friend aware of the pain and torment suffered by the Britannia building society, one of the largest remaining mutuals, which does so much for local housing? It is based in north Staffordshire, in the area of my constituency. It has fought off carpetbaggers before, only to find them returning like a particularly virulent form of seasonal blight.
Ruth Kelly: I have regular conversations with the Britannia building society, to which I ask my hon. Friend to pass on my warmest regards. He will, however, recognise the changes the Government have made to protect building societies from carpetbaggers, and to put them in a much better position in future.
The mutual sector is already highly successful. The building society sector alone contains 66 societies with assets worth around £172 billion, which continue to perform well in highly competitive markets that have undergone significant change and faced difficult challenges in recent years. The credit union movement also continues to grow: there are about 700 credit unions, all of which help to promote thrift and self-help among their members. They play a vital role in extending the availability of basic financial services to parts of our society that are often ignored by other financial institutions. They also play a vital role in combating social exclusion, instilling a sense of responsibility, and giving people the means to have more control over their affairs. Moreover, the United Kingdom's largest farmer, one of the largest sellers of cars, and our largest funeral business are all co-operatives.
Because we recognise the valuable contribution that mutual societies can make to the economy and the advancement of social enterprise, we have played an active role in a number of initiatives that we hope will help societies to maximise the benefits they can offer their members and the communities they serve. It is important to provide a level playing field to allow mutuals to make the most of what they see as the mutual advantage—not having external shareholders to satisfy, so they can concentrate on providing their members with goods and services.
We will shortly present legislation allowing building societies to communicate with their members electronically. At first sight that may seem a rather technical change, but the building societies have been calling for it. They believe it will allow them to benefit from the greater efficiency offered by such technologies, and to compete on an equal footing with banks and other PLCs. In October, with the specific intention of strengthening credit unions and allowing them to thrive and prosper, we issued a consultation document containing proposals to reduce the number of restrictions on credit unions' operational powers. Those proposals will allow the sector to offer their members a much wider and more competitive range of services, and to maximise their ability to compete for and attract new deposits by developing the range of products they can offer new and existing members. The consultation period has just ended, and unfortunately is too early for me to give an indication of the results; but I believe that they are very positive, and that the credit unions welcome the proposed changes.
We are currently negotiating in Brussels on a statute for a European co-operative society. The Treasury and the Department of Trade and Industry jointly issued a consultation document last summer, and we are currently deciding how best to proceed on the basis of the responses we have received. It should be clear to everyone that we are keen to encourage the mutual sector and to allow it to flourish.
The hon. Member for Christchurch (Mr. Chope) criticised the Government for not taking seriously enough the consultation on industrial and provident society legislation that took place in the summer of 1998. However, I have outlined the range of measures that we have taken to allow the whole mutual sector to thrive. We are in the long process of developing the sector, and the social unit of the Department of Trade and Industry is considering ways of encouraging social enterprises. The performance and innovation unit is also considering issues pertinent to the sector, and I look forward to reading its report. The private Member's Bill promoted by my hon. Friend the Member for Harrow, West is an important part of the process of strengthening industrial and provident societies. I welcome it, and the contribution that it makes.
The hon. Member for Christchurch also referred to fees. I point out to him that the fees are not quite as high as those he outlined, but I recognise that they represent an increase on what was in place before. Regulation by the Financial Services Authority has been welcomed by the sector and fees are set on cost-covering basis and after wide consultation with members of the sector.
I shall examine the contents of the Bill directly. I welcome it and I am sympathetic to the changes and reform that it is trying to introduce. It has clearly been motivated by a desire to see the industrial and provident society sector modernise and grow without sacrificing—indeed, by reinforcing—the essential principles of mutuality and being rooted in the community that underpin it.
Much in the Bill could be of real benefit in allowing the sector to develop and in offering even greater benefits to individual members and communities. It chimes well with the concerns expressed to me by people in many quarters, including many hon. Members. Although it needs amendment to be workable, and although we will need to scrutinise it and consult interested parties on the detail of some measures, we can support it.
It is worth outlining the key features of the industrial and provident society sector. Organisations registered as industrial and provident societies can be split into two sub-groups: bona fide co-operatives and benefit of the community societies—bencoms. Co-operatives are generally controlled by their members according to the principle of member, one vote and conduct their business for the mutual benefit of their members, with the benefits members receive deriving mainly from their participation in the business. Bencoms use any surplus that they make to further the aims of the society. They are often set up to serve the community in which they are based.
The Bill has three main objectives. The first is to align the voting requirements for demutualisation with those for building societies. The second is to allow bencoms to lock in capital so that the bencom can be used only to serve the community in which it is based. The third is to allow
industrial and provident society legislation to be more easily amended to take account of changes to company law.I shall briefly consider each clause in turn. Clause 1 is about the voting procedures for all industrial and provident societies in the event of a demutualisation bid. This is a useful modernisation measure that would bring the rules for such votes in industrial and provident societies into line with those for building societies. The Government fully support the clause. Currently, 75 per cent. of those who vote on a demutualisation proposal must vote in favour of conversion for a bid to be successful, and this vote must be confirmed at a subsequent general meeting by at least 50 per cent. of those who vote.
Clause 2 proposes to allow bencoms to vote to include in their constitutions a rule that the members cannot change and that would prohibit distribution of the society's assets to any person or body other than another industrial and provident society with an equivalent rule or a charity. It would also prohibit conversion to a company or other body unless that company or body has an equivalent rule.
I see the potential benefits of this proposal and I am very sympathetic to the thinking behind the measure. If new social enterprises wish to set themselves up using the industrial and provident structure, it might help to attract and reassure investors if they could be sure that the capital they are investing is locked into benefiting the community in perpetuity. Of course, industrial and provident societies can insert such provisions into their constitutions now, but it is thought that that may not be binding. Also in clause 2's favour is that it is a permissive measure and would be taken up only if a society's members were disposed to do so.
However, the clause poses some real difficulties and may need significant amendment. In particular, locking in a society's assets could restrict the flexibility afforded to the bencom if it were struggling. It is conceivable that a society could in good faith choose at its inception to lock in its assets in perpetuity but then run into trouble and not find another industrial and provident society in a fit state or willing to take it over. It is not clear how that dilemma could be resolved under the clause. We need to continue discussions to see if we can come to some agreement.
I am also not convinced that a lock-in needs to apply to all bencoms rather than just some. As hon. Members on both sides of the House have said, it is extraordinary how diverse the sector is. It covers all sorts of different organisations. I think that it is fair to say that we need to explore those initiatives in great depth before committing ourselves to locking in assets in perpetuity. I give a commitment that my officials will explore the issues in more depth with the Bill's sponsors and other interested parties. We also think that there are certain technical issues, but perhaps I can discuss those at some other date.
I understand that this issue is being looked at elsewhere in government. I look forward, for example, to reading the performance and innovation unit report on the social enterprise sector when it is published.
Clause 3 proposes to introduce a power to modify industrial and provident society law by assimilating it into company law. It closely resembles powers already in place in building society and friendly society legislation, and I strongly support the principle of levelling the
playing field between those different classes of mutuals. However, the clause as currently drafted gives significantly broader powers to the Treasury than do corresponding provisions in the other legislation that I have just mentioned, a point recognised by the hon. Member for Christchurch. Therefore, although we are prepared to support the clause in principle, we want it to be amended so that it is brought into line with other legislation, particularly that on building societies. I believe that if we made that sort of amendment we would have an appropriate constraint in place.Some may argue that the need to update industrial and provident societies legislation is so urgent that that would be too restrictive, but given that a major reform of company law by the Department of Trade and Industry is under way, the scope for amendment of industrial and provident societies legislation based on changes in company law is likely to be considerable in future.
At this stage, I am happy to give Government support to the Bill. I congratulate my hon. Friend the Member for Harrow, West on introducing it and hope that it reaches the statute book.
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