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31 Jan 2003 : Column 1143—continued

Mr. Stephen O'Brien: I hope that in the spirit of the constructive approach that hon. Members on both sides of the House have taken to the Bill, and to speed its passage, any amendments that the Government have in mind can be shared, perhaps even before we reach Committee.

Ruth Kelly: We shall certainly seek support from hon. Members on both sides of the House to ensure the smooth passage of the Bill. I look forward to fruitful discussions with all interested parties.

I should like to examine briefly the main clauses. Clause 1 proposes to allow community benefit societies to include a rule in their constitutions, which could not subsequently be reversed by its members, prohibiting the distribution of their assets to any person or body other than another society with an equivalent rule or a charity. It also prohibits conversion to a company or other body, unless that company or body has an equivalent rule.

At the moment the Financial Services Authority will not in practice register a community benefit society unless it has such an asset lock-in in its constitution, but that restriction is not totally binding. For example, a society could convert to a company and some time later reverse the asset lock-in rule in its company constitution.

During the passage through Parliament of the Industrial and Provident Societies Act 2002, the same asset lock-in provision was considered. At the time it was acknowledged that there were benefits and potential drawbacks to such an approach, but we were not in a position to consider both the policy and legal implications within the time scale of the private Member's Bill process. Since then the strategy unit has recommended that an asset lock-in provision is made available to community benefit societies.

We will need to study carefully responses from the public consultation on the strategy unit report, but I understand that those on the asset lock-in proposals have been positive. The Government therefore wish to undertake further work on the possibility of an asset lock-in provision for community benefit societies to examine how a scheme might work. We will further consult on the detail and the possibility of introducing legislation to enact such a regime, if it continues to appear sensible and feasible to do so.

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I am doubtful that it will be possible within the time scale available in Parliament for the Bill to establish in detail exactly what substantive provisions should be made in relation to an asset lock-in regime and what amendments would be needed to make it fully workable. However, the Government support that proposal and wish to examine the suitability of an asset lock-in regime. I therefore commit to continue to work with my hon. Friend the Member for South Derbyshire to see whether proposals can be brought forward during progress on the Bill that will ultimately facilitate the implementation of an asset lock-in regime for community benefit societies.

The hon. Member for Twickenham (Dr. Cable) raised a couple of specific issues in relation to a possible asset lock-in. In particular he asked whether a large mutual might consider changing its constitution to become a community benefit society so as to take advantage of the proposals that are under consideration. In principle, we believe that a company could set up a community benefit society and transfer its assets to it. However, it would need to satisfy the criteria of benefiting that society, a condition which is part of the constitution and make-up of community benefit societies. He also queried the 75:50 thresholds for conversion. I cannot give a commitment now that the Government would wish to pursue that matter, but I am sure that the issue will be debated further in Committee and I look forward to the hon. Gentleman's contributions on that subject.

Mr. O'Brien: I am grateful to the Minister for giving way a second time. I understood her to say that, while the Government broadly support the Bill, she is concerned that the timetable for private Member's Bills might mean that the Government will not be ready with the detailed proposals that might fit into the Bill. She cloaks that with the promise of further consultations with the hon. Member for South Derbyshire. Can she explain the impediments to fitting in with that timetable? It seems to me that, with the support of hon. Members on both sides of the House, delay may be unnecessary so she might need to revise her idea that this measure is not intended to pre-empt the strategy unit report, given that she also supports its recommendations in this regard.

Ruth Kelly: Yes, I can. The strategy unit report raises various issues that we will need to consider in detail. They include precisely how a regulator would work, and the precise terms under which assets could be transferred to another community benefit society. In principle, we could overcome many of these difficulties, given more detailed consultation. The plan is to enable the passage of such legislation in due course, subject to detailed consultation, particularly with the benefit society movement, to make sure that we get it right, rather than to suggest provisions during the passage of the Bill which may be counter-productive to the movement. In particular, we are concerned about preserving the flexibility of the movement to deal with unforeseen circumstances. Clearly it needs to be sufficiently flexible to evolve over time to changing circumstances. We will need to get the precise details right, but in principle the Government are supportive of such a move and it may well be possible to work with my hon. Friend the Member for South Derbyshire and come up with a proposal that would allow us to pass legislation in due course.

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Clause 2 proposes to change the powers and capacities of industrial and provident societies in order to improve their ability to enter into business transactions. The current risk for those dealing with societies is that transactions may be invalid if a society performs an act that is within the law but outside the rules of that particular society. An apparently legitimate business transaction might then prove to be invalid. The current situation therefore places a burden on those trying to do business with societies to investigate the societies' rules. It may also deter some from conducting business with a society if it is perceived to involve a higher risk of a contract being declared void.

The Bill seeks to address this by applying to societies and their committees certain company law provisions which allow a company and its directors to bind the company if it acts outside its constitution but within the law—a contract made under these circumstances remains in force between the contracting parties without absolving directors and other company officers from their obligations or liabilities to company members.

These principles are easily transferable to the industrial and provident society context and measures to this effect would increase protection for those doing business in good faith with a society. They should also facilitate the ability of societies to conduct business and we therefore fully support the principles behind the clause.

Clause 3 aims to make it easier for societies to enter into contracts and execute documents. I do not propose to examine those provisions in detail now, but I take note of the comments made by the hon. Member for Eddisbury.

Mr. Love: I thank my hon. Friend for giving way. A number of hon. Members have suggested further amendments that could be included in the Bill, very much along the lines of the Treasury consultation document that was circulated in 1998 and which included many non-controversial provisions. Would the Minister be sympathetic to some of those non-controversial amendments being included in the Bill?

Ruth Kelly: Following the strategy unit report, the Government will have to make a number of decisions about priorities and which areas we wish to pursue in relation to industrial and provident societies. The Bill's progress and what we can do within its framework will determine how we can take the movement forward. It is a little early for me to say precisely what those priorities may be, although in due course we will make recommendations for the sector.

In principle, we are sympathetic to clause 3, which makes it easier for societies to enter into contracts and execute documents, and we very much hope to be able to support it in Committee. In that context, I look forward to the debate with the hon. Member for Eddisbury on the nature of protection for members.

The proposals are a welcome step towards the modernisation of the industrial and provident society movement, as they would increase its operational

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flexibility. The Government therefore support the principles behind the clause, but again we will need to examine it in detail, and work with my hon. Friend the Member for South Derbyshire to table any necessary amendments to ensure that the Bill achieves what is intended.

Finally, I reaffirm the Government's commitment to a thriving mutual sector. I congratulate all those who have been involved in the preparation of the Bill and look forward to assisting with its progress through Parliament.

11.50 am

Mr. Todd: With the leave of the House, I should like to respond briefly to Members' comments and speeches. First, I thank everyone who has attended the debate, whether they have spoken or not, for demonstrating support for the sector and their interest in its future development.

I thank the hon. Member for Eddisbury (Mr. O'Brien) for his thoughtful and positive contribution to the subject and the way in which he reinforced his points with his experience in the corporate sector. My hon. Friend the Member for Harrow, West (Mr. Thomas) drew attention to the issue of ultra vires and a possible discussion about audit and accountancy frameworks which arises if relevant amendments are tabled in Committee. I am sure that those issues will be debated again should the Bill reach that stage.

My hon. Friend the Member for West Bromwich, West (Mr. Bailey) debated the issue of the asset lock and its meaning, and emphasised the future use of the industrial and provident society in developing the mutual sector. The hon. Member for Twickenham (Dr. Cable) touched on the diversity of existing mutuals and made some detailed points about the democratic framework which, I am sure, will be debated further in Committee. My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) spoke powerfully about the sector's contribution to social enterprise in her constituency and area. My hon. Friend the Member for Sheffield, Heeley (Ms Munn) spoke interestingly about care services and added greatly to my knowledge of the sector. She reinforced the benefits of the co-operative model for that sector.

May I tell my hon. Friend the Member for Leigh (Andy Burnham) that I look forward to my name being used in football chants, although I suspect that I may have to wait some time for that? He rightly drew attention to the importance of the sector in football and the reasons why it is relevant to the football community, which is all too readily dominated by wealthy people with short-term interests. Finally, I thank the Minister for her careful but positive response to the Bill. I look forward, if the House wills it, to debating many of the issues raised this morning in Committee. I very much hope that the House will give the Bill a Second Reading.

Question put and agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).

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