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31 Jan 2003 : Column 1127—continued

Mr. Michael Connarty (Falkirk, East): I declare an interest as I am a member of the West Quarter Labour and Community club in my constituency, which is owned by the community and local Labour parties.

The hon. Gentleman referred to the British Legion. Is it not often the case that such social clubs have been superseded by many other facilities? Might it not be better to transfer the value of those assets to something that would be more valuable to the community to which they were originally gifted?

Mr. O'Brien: The hon. Gentleman raises an important point. As I understand both the intent and the detail of the Bill, it would provide that, in the event of evolution such as he describes, purpose is the important factor. There is provision for transfer on dissolution—the most difficult aspect—to another benefit society that satisfies the purpose. The main thing for us to do is rigorously to ensure that there can be no possibility of asset stripping. That would be a wrong motivation. As long as the purpose of the asset is kept, the community benefit is likely to be sustained. However, it would be wrong to set provisions in such a solid form of aspic that there was no chance of responding to changing circumstances such as those described by the hon. Gentleman.

I was pointing out that the Bill would rightly entrench the assets, apart from a purpose-based transfer, such as we have just discussed. A transfer should not benefit an existing cadre of members. Transfer by conversion is a possibility, but the presumption is that the benefit should be maintained for the community over time.

In the past, the Government have been against entrenching assets in principle. That applied to the co-operative sector, too. Do the Government agree with the strategy unit's recommendations and the supporters of the Bill that a different approach is appropriate for community benefit societies? During the proceedings on the Industrial and Provident Societies Act 2002, the strategy unit deliberations were referred to frequently, especially as regards the use of an asset lock and how it could be introduced for community benefit societies.

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The unit's recommendations supported the concept of entrenchment and the modernisation of industrial and provident society law.

In parallel with this debate, we need to consider the wider implications; for instance, the Government's proposals for foundation hospitals, which also have an element of asset lock. The Government need to ensure consistency and clarity in their approach to legislation for different bodies; I hope that they will support the Bill in that regard.

Mr. Love: There is already an asset lock in relation to charities and credit unions. As Members who have read the strategy unit report know, it suggests that community benefit societies are a halfway house and that such protection should also be available to them.

Mr. O'Brien: The hon. Gentleman is right. However, the Government have not yet made clear their response to the recommendations in the very good report of the strategy unit. Of course we need to debate many aspects of the detail but the report is extremely useful in broad terms. In a sense, the Bill pre-empts much of what might follow from the recommendations and is one of the three measures that might be developed from them. We await the Minister's comments on that.

As the hon. Gentleman pointed out, the Bill would regularise the position for the community benefit societies, which have become trapped between two stools. As he and my hon. Friend the Member for Buckingham (Mr. Bercow) have pointed out, it offers a middle way.

The Government need to show that they have internal consistency in their approach to that aspect of the law. The point also applies to their proposals for foundation hospitals, which are being considered by Parliament.

Naturally, we have reservations about some of the technical aspects of how asset locks might work. For example, what would happen to the assets of a society when it dissolved? That is addressed in paragraph (a), subsection (1) of clause 1, and although the Minister may not be able to go into such points in detail on Second Reading, they certainly warrant careful scrutiny in Committee.

I urge the Government to support the Second Reading of the Bill. We are generally supportive of the measure and I look forward to debating a number of the points raised today during its—I hope—successful passage through Committee.

10.38 am

Mr. Gareth Thomas (Harrow, West): It is a pleasure to follow the hon. Member for Eddisbury (Mr. O'Brien), especially given his fulsome support for the objectives of the Bill promoted by my hon. Friend the Member for South Derbyshire (Mr. Todd). As I am the first Back-Bencher to speak in support of the Bill, may I lead the tributes to the way in which my hon. Friend introduced the Bill? He demonstrated a grasp of the legislation and of many of the difficulties that face the community benefit society sector. His introduction of the subject will give the House confidence as he takes the measure into Committee and beyond.

My hon. Friend has done an especially important job. As he rightly said, the fundamental legislation on industrial and provident societies dates from the

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19th century and has been largely unreformed since then. He offers the House the chance to modernise a little further the rules and regulations under which co-operatives and community benefit societies operate and that is enormously welcome.

Such organisations have, unfortunately, been in a twilight zone between the public and private sectors. Some of the enormously good work undertaken by the most successful co-operatives and community benefit societies has not received the publicity and attention that it warrants.

For example, the excellent Tower colliery in south Wales—the only employee-owned coalmine in Europe—was set up precisely because a public sector organisation wanted to shut down the coalmine, with devastating consequences for that constituency. The initiative and entrepreneurial skills of the local community, using the co-operative model, have restored the coalmine for the community and kept wealth locked in that area.

The attraction of co-operatives and community benefits societies is that they entrench real power and decision-making opportunities in the communities that are affected by the decisions that need to be taken. Many public sector organisations and, now, many private companies recognise the need to consult local people. Some of the best local councils use citizens juries, citizens panels and residents forums to assess what they do. Companies—for example, developers involved in planning—also seek to consult local communities. However, whereas those organisations retain the real power to make decisions for themselves—they keep it in the council chamber or the corporate boardroom—co-operatives and community benefit societies keep the power with the people who are affected by the decisions that have to be taken.

Mr. Colin Challen (Morley and Rothwell): My hon. Friend talks about strengthening power in the community. Does he agree that the Bill, if passed, should enhance that power against that of financial institutions, which tend to regard community benefit co-operatives or mutual sector bodies as rather strange, unusual things to which they cannot lend money and on which they put pressure to transform themselves into the normal kind of institution that they recognise?

Mr. Thomas: My hon. Friend is right to suggest that there is a lack of understanding about the co-operative and community benefit society model. Indeed, the fact that it is unreformed compared with company, building society and friendly society legislation has put off many organisations that may have wanted to use that structure. That has helped to reduce any enthusiasm among those who might lend to such organisations and has prevented them from doing so. The Bill offers the opportunity to reform several weaknesses in the legislation, which is excellent news.

I particularly welcome clause 1. As my hon. Friend the Member for South Derbyshire said, we attempted to cover that topic last year in considering the Industrial and Provident Societies Act 2002. Indeed, those on all three Front Benches supported our proposals, but we were unable to resolve some of the technical concerns that rightly needed to be resolved. So my hon. Friend

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deserves particular praise for giving the House the opportunity to put that provision into law so soon after the strategy unit's ringing endorsement of the principle of clause 1. As the hon. Member for Eddisbury rightly said from the Opposition Front Bench, there are examples where the provisions in clause 1 already apply. Charities, housing associations and credit unions were mentioned. Clearly, clause 1 gives us an opportunity to provide consistency across the community sector.

In addition, it is worth highlighting the importance of clause 2, on modernising the ultra vires or capacity issues, particularly given my hon. Friend's intervention. Clause 2 would help to give confidence to third parties in dealing with co-operative or community benefit societies. Let us consider the rugby club analogy. It is possible to imagine that similar towns have two clubs. We might call one the Tigers rugby club, which uses the industrial and provident society model; the other rugby club in the neighbouring town might choose the company model. Both clubs decide that they want to borrow £250,000 from the bank to build an extension to house a bar facility. If the England rugby team starts to do very badly in future and that has an impact on the membership of those clubs, the revenues will start to decline at both clubs. Both clubs run into financial trouble and cannot pay back the loans. The bank considers its options. What can it do? The bank knows that the rugby club that is a company has a charge on the club's assets and could get its money back. However, the rugby club that is an industrial and provident society could argue, if there is no reference in its constitution to providing social facilities, that the loan was ultra vires and therefore that it does not have to pack it back.

That type of problem has occurred in the past. For example, in the 1980s, councils engaged in a number of interest-rate swaps. As has been said, that problem motivates financial services organisations to be cautious about lending to industrial and provident societies, so we need to use the Bill to resolve that unreformed element of the legislation.

As I have said, this is an excellent Bill. I hope that the House will not only agree to it on Second Reading, but speed on to consider it in Committee and on Report. I hope that the House will consider in Committee or on Report whether the Bill offers the opportunity to modernise the legislation on a number of other issues, too. For example, it is worth seeking clarification on why Northern Ireland should be exempted from those reforms, given the existence of so many industrial and provident societies there. Why should those organisations be excluded from the benefits?

I also hope that, now or on Report, the Minister will give some clue about a time scale for reforming the audit and accounting requirements that impose a much greater financial burden on industrial and provident societies than on companies. Will she say whether the Bill offers the opportunity to reform the regulator's powers to inspect societies? At the moment, the Department of Trade and Industry can, of its own volition, investigate a company that it suspects of fraud or wrongdoing. In the case of a regulator for co-operatives and community benefit societies, the Financial Services Authority cannot do that; it has to wait until it receives a complaint from a society member. Again, reform is needed because of the FSA's lack of power to intervene of its own volition, as that puts off

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organisations from dealing with industrial and provident societies or from using that route in the first place.

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