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31 Jan 2003 : Column 1131—continued

Mr. Love: One of the more successful aspects of company law has been the Company Directors Disqualification Act 1986, which does not apply to industrial and co-operative societies. If we are to get some of the benefits, we must ensure that directors of those societies are treated in exactly the same way as company directors.

Mr. Thomas: My hon. Friend is absolutely right, and I hope that we might hear about when such reforms might take place for co-operatives and community benefit societies. He may well remember that some of those issues were thrown into stark relief during the consideration of the Enterprise Act 2002, as such provisions were reformed and modernised for companies, but not entirely for industrial and provident societies.

I hope that, during our consideration of the Bill, we might also hear whether there is a time scale for introducing, by statutory instrument, powers to modernise the insolvency provisions that exist for industrial and provident societies but have not been implemented.

I pay tribute to my hon. Friend the Member for South Derbyshire for choosing this topic. He has done an excellent job in introducing the Bill, and I hope that it will have a smooth passage today and throughout its remaining stages.

10.49 am

Mr. Adrian Bailey (West Bromwich, West): In speaking in support of the Bill, I should first declare an interest. I am a Co-operative Member of Parliament and vice-chair of the co-operative group in Parliament. Prior to coming to the House, I was employed for 18 years as a national organiser of the Co-operative party, and I am a member of many co-operative societies. To keep a certain political balance, I was once a member of the Winsford Labour club. I do not know whether it still exists and—if it does not—what happened to its assets on dissolution. Perhaps the hon. Member for Eddisbury (Mr. O'Brien) could advise me.

I congratulate my hon. Friend the Member for South Derbyshire (Mr. Todd) on promoting the Bill. He may not recall the first time that we met. It was several years ago on a wet, windy, dark night in south Derbyshire, when he agreed to address a function that I had arranged on co-operation. On that occasion, he waxed eloquently on his commitment to the co-operative cause. In these days of cynicism about politicians, it is gratifying to see him demonstrate ably that he practises what he preaches in public. As he and others have said, one of the Bill's main purposes is to ensure that community benefit societies, registered under the Industrial and Provident Societies Act 1965, can dedicate their assets permanently for the community: the so-called asset lock.

Ironically, the democratic nature and management of bencoms contain the potential for their ultimate self-destruction. The more successful such open and

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democratic organisations become and the more assets they accumulate, the greater their vulnerability to takeover by those whose only desire is to enter the organisation, manage it, and asset-strip it for their benefit. It seems appalling that, hitherto, there has been no legal barrier to prevent bencoms from being taken over by such a self-seeking bunch of individuals.

Earlier, my hon. Friend the Member for South Derbyshire referred to the sepia-tinted photographs associated with co-operative societies. In my previous incarnation, I visited societies on many occasions to see those sepia-tinted photographs of the bewhiskered, waistcoated gentlemen who founded such societies—unfortunately, it was mainly gentlemen. We may feel that the values of those philanthropic visionaries are a little outdated, but the Bill is a way of updating those values and providing a framework in which they can continue to serve the very objectives that those bewhiskered Victorian gentleman envisaged.

Fresh in the minds of most co-operators are the events that occurred in relation to building societies a few years ago. There was little protection within the rules, or within legislation, to prevent them from being taken over. About two thirds of the building society movement disappeared over several years. While there may have been legitimate issues to be debated concerning building societies, there can be no doubt whatever that the motives of the great majority of people in voting to privatise those companies had nothing to do with the long-term welfare of those societies. It was merely an opportunity to gain a windfall profit.

Building societies have adapted their rules. The Nationwide led the way by enforcing a rule that new members should donate any windfall gains to charity. In many ways, that principle has been incorporated in the Bill. It would be a mistake, however, to think that the danger has passed for organisations registered as industrial and provident societies. It is astonishing that there are more than 8,300 of them, with assets of £61 billion, which provide potentially rich pickings for anyone motivated to try to take over some of those societies.

Mr. Stephen O'Brien: In a constructive attempt to help the Bill's progress, may I ask the hon. Gentleman whether he accepts that there is a clear difference between building societies, whose purpose is to benefit current members at any one time, and community benefit societies, whose assets would be deliberately endowed in perpetuity for the purpose defined? That is why a proper distinction should be drawn and why it is proper to consider the asset lock provision in the Bill.

Mr. Bailey: I accept the hon. Gentleman's point, but the point that I want to emphasise is that a group of highly organised individuals are targeting mutually based organisations with a view to exploiting any deficiencies in their rules or legal structures in order to take them over and asset-strip them. There is an organisation that is specifically dedicated to that purpose, but I will not advertise it in the Chamber today. It exists, however, and we must be aware of it and the threat that it poses to co-operative and community benefit societies.

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One positive development that arose from what happened to building societies was that it forced those that survived to demonstrate the virtues of mutuality. It also provoked something akin to a public debate on the advantage of mutuality. Above all, it alerted the Government to the potential that community benefit organisations can offer to the delivery of public services in a more market-sensitive way. The Bill is needed not just to protect existing bencoms but for a positive purpose: to enhance the attractiveness of alternatives to existing company models. It is not just a defensive piece of legislation, but one that offers enormous potential. I would single out three areas in that regard.

The first is the existing social enterprise sector, which is growing but will no doubt grow faster if it feels that enterprises will not at some time in the future succumb to members taking over and using their accumulated efforts and assets for speculative purposes. People who invest in social enterprise do so to meet specific social needs. They will have the security of knowing that there is a way of protecting their form of contribution, whatever happens in the future of the bencom. Existing bencoms will also be provided with an opportunity and an incentive for members, in considering whether to introduce the asset lock, to debate the long-term purposes of their organisation. That will raise awareness and potential commitment.

It is not only the existing social enterprise sector that could benefit. My hon. Friend the Member for South Derbyshire mentioned in his speech the dissatisfaction with the privatised utilities. It is fair to say that the privatisation of those utilities demonstrated that shareholder-driven priorities did not sit comfortably with public good or public welfare. The route proposed in the Bill offers an alternative somewhere between the monolithic state provision of old and the profit-seeking, shareholder-driven private sector company of more recent years. Currently, the favoured replacement mechanism appears to be the company limited by guarantee, which may be appropriate in some cases, but I and many others believe that the model proposed in the Bill offers far more potential for the future. Above all—this may be crucial in the Government's development of public service policy—the Bill offers a model to provide public services, particularly in health and social care, that will enhance participation, enable access to a wider source of investment and develop roots in local communities. The Bill will deal with one of the major problems that impede that development—the security of public assets once they have been transferred.

In many ways, the old demarcation between the public and the private sector is becoming blurred. The consumer is more concerned about the quality of services than how they are delivered. In order to improve services, it is important to give people a stake in them, and I believe that bencoms, by reinvesting profits in the service rather than rewarding shareholders, and by encouraging community involvement and participation by employers, offer an important alternative to existing structures and models.

The Bill removes a major obstacle to the development of bencoms. They may or may not be the answer in every case, but there can be no doubt that if the Bill is enacted they will become a relevant and significant option in the delivery of our public services.

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11.1 am

Dr. Vincent Cable (Twickenham): I support the Bill both as a party spokesman and as an individual. Indeed, I was privileged to be asked to sponsor it. I pay tribute to the hon. Member for Harrow, West (Mr. Thomas), who led the way in developing legislation in this field.

I came 10th in the ballot for private Members' Bills last year, and was treated to a seminar from the Government Whips in which it was spelled out in terms that even the slower among us could understand that there are two choices: either one can choose a Bill that is useful, practical, sensible and uncontroversial, in which case there is a reasonably good chance of its going through, provided that the shadow Leader of the House is in a benign mood on the relevant Friday morning, or one can go for something radical and controversial that annoys Ministers, in which case one gets a few hours of fame and then nothing else. I can see that the hon. Member for South Derbyshire (Mr. Todd) benefited from the same seminar and came to the same conclusion as I did. As a result, we have a useful and practical Bill that I hope we can all rally behind.

Five years ago, many of us who were enthusiastic about the mutual movement felt that there was an opportunity for a big leap forward. There was a burst of enthusiasm for mutuality among think tanks such as Demos, philosophers such as Anthony Giddens and politicians such as the right hon. Member for Birkenhead (Mr. Field), who was suggesting that the welfare state should be recast around mutual institutions. There was a great deal of hope, but in practice, although there has been some growth, it has been modest and incremental. The positive changes to the building society regulations have certainly helped. The legislation promoted by the hon. Member for Harrow, West helped, too, as will the three Bills in the pipeline, but they are quite modest.

The paradox is that, although there is great enthusiasm for mutuality across the party political spectrum—many people think that it is the model of organisation—many mutual bodies have struggled. That is especially true of the traditional mutuals rather than the community benefit societies. The hon. Member for West Bromwich, West (Mr. Bailey) spoke about the tribulations of the building society. When I first became a Member, I belonged to a group called Save Our Building Societies, which tried to stop the process of attrition. Market share has now stabilised at around 20 to 25 per cent., with the help of regulatory change and the ingenious asset lock devised by the Nationwide, but it is not an expanding sector. The mutual insurers—Equitable Life, Standard Life and others—have struggled even more. There are problems in the friendly society sector, which does much useful work but is a shadow of its former self. The Co-op almost suffered a humiliating takeover by an asset stripper.

At the same time, there has been tremendous grassroots growth of mutuality, although it is sometimes difficult to recognise. For example, there are the after-school kids' clubs, which have about 15,000 to 20,000 members and are growing rapidly, and the pre-school playgroups, which had well over 100,000 members at their peak, although they have taken a hammering from the nurseries. They are predominantly community benefit mutuals.

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There are also groups such as the Workers Education Association and, in a way, its successor, the University of the Third Age, which is a nationwide mutual with many thousands of adherents, providing community benefit, which is expanding and flourishing.

There has been a growth of mutuality in the health sector. Regardless of whether foundation hospitals succeed and take a mutual form, many local doctors have formed mutuals to deal with after-hours care, for example. Mutual organisation provides a useful vehicle for that. Many mutuals are so successful that we forget that they are mutuals at all: we tend to think of BUPA as private medicine, but in fact it is a mutual. Some mutuals have become highly successful multinational companies. If Bill Gates lies awake at night worrying about competition, he worries not about traditional companies, but about Linux, which is a true mutual. I am interested in whether the community benefit provisions would apply to such big operations, which could well define themselves as community benefit societies. Would they fall within the provisions in the Bill? I do not know whether the Government have thought about that.

All those new organisations are not emerging artificially. Several of those who have spoken today have explained the demand and need for mutuals, which is partly an impetus towards diversity and getting away from the rigidity of the private limited company on the one hand and state or local government bureaucracy on the other. It also stems from the fact that many activities require a blend of community mindedness with businesslike efficiency and entrepreneurial flair. Somehow, those have to be combined in the same institution. Mutual organisations, and especially community benefit institutions, are really the only models that achieve that. The mutual structure is ideal for something that is rooted in the local community but none the less businesslike.

Despite the need, and the good things that are happening, community benefit societies are not spreading as rapidly or on the scale that they should be. One of the main reasons for that is tackled in the Bill—the problem of assets. There are many reasons why the lack of an asset lock can be extremely debilitating to mutual organisations. The Co-op has been mentioned. Although I represent the Rugby Football Union as the Member for Twickenham, my heart is still with my old football club in York, which is where I grew up. York City is a wonderful example of a club succumbing to unscrupulous asset strippers but then being rescued by community spirit.

A problem that is perhaps less acute than that of asset stripping is, however, more difficult to deal with. When a mutual community benefit organisation has become fuddy-duddy and inward-looking and people within it want to do new things and make it grow, they often take the view that the only way of doing that is to escape from the mutual structure. There are often, in a sense, creative reasons why mutuality breaks down, and somehow that has to be overcome.

Then there are cases in which a community benefit group is providing a useful service but has valuable assets. Allotment holders and British Legion clubs, for

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example, find themselves, because of economic change and development, sitting on a gold mine. There is great temptation to try to find a way of cashing in the assets and distributing them among members in such a way that the community benefit is lost. Those different factors lead to the need for a more positive approach to the asset lock question.

I understand the dilemma. I remember debate on the Industrial and Provident Societies Bill, promoted by the hon. Member for Harrow, West, in which the Treasury argued that there are dangers in asset locks—assets get tied up in unproductive uses. That is a problem, for example, with private trusts. However, there is now a weight of evidence that one must be much more positive.

The hon. Member for Edmonton (Mr. Love) intervened to remind us that asset locks are available in the credit union and charitable sector. They are widespread in the European Union, which is one reason why mutuals on the continent are so much more successful. The Government strategy unit report effectively endorses the principle, too. So, we have got to the point where I hope that the Government accept the principle and recognise that the argument is not always clear cut.

The one question that I have is why the provisions must be quite so restrictive. As I understand the Bill, in order to vote an asset lock into perpetuity it is necessary to have a 50 per cent. turnout and 75 per cent. agreement. I would have thought that 50 per cent. of members voting for such change would be adequate. I ask the Minister and the hon. Member for South Derbyshire to justify such a restrictive provision. Given that minor query, I strongly support the Bill. It is an excellent step forward. I hope that the Government will endorse it and that it speeds through the House.

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