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I spent a little time in retail banking in the UK and Africa, but I am not an accountant, so I am a little confused about the issue of pari passu—people who deposit money in building societies being placed on an
equal footing with creditors. Will the Minister confirm that those people are on an equal footing with people who deposit at banks? My hon. Friend the Member for Bournemouth, West made a comparison in respect of investing in banking shares, but I am not sure that that is the exact comparison that we need. Perhaps the Minister will look further into it.
I support the Bill, but I was a little concerned when my hon. Friend the Member for Bournemouth, West started talking about it becoming an enabling Bill, allowing the Treasury to introduce changes through negative rather than affirmative resolution. I am not making a party political point, but I have considerable distrust in the idea of handing over more power to the Treasury and the FSA. It will be interesting to explore further in Committee what checks and balances are in place to ensure that the power is discharged reasonably and sensibly.
Meg Hillier (Hackney, South and Shoreditch) (Lab/Co-op): I am interested to hear the hon. Gentleman’s comments, but it seems to me that one of the advantages of the Bill’s crafting is that it does not require primary legislation. If the hon. Gentleman does not want powers put in the hands of the Financial Services Authority, what is his alternative suggestion?
James Duddridge: When it comes to what appears directly in the Bill, I would be more inclined to see a better balance in the light of the complexities. We do not want to see too much detail, which would mean drafting a new Bill every time we wanted change. It is a balancing act. I am simply flagging up the fact that I would like to see the problem explored further in Committee. I am certainly not saying that the FSA should not have authority to propose changes, with the double lock that they must be supported by the Treasury.
I was about to conclude. I view this as a welcome deregulatory Bill, and the House should support it.
10.48 am
Meg Hillier (Hackney, South and Shoreditch) (Lab/Co-op): I congratulate the hon. Member for Bournemouth, West (Sir John Butterfill) on securing the debate and on his well-crafted Bill. Speaking as a new Member, elected only in 2005, I often come to the Chamber to watch and learn. We can see the advantages of a well-crafted Bill that does what it needs to do without pushing the boundaries so much that it makes it difficult to legislate on a complex issue. I therefore congratulate the hon. Gentleman and hope that, one day, I might reach his record for private Members’ Bills, as so far I have not been lucky in the ballot.
I am proud to stand here today as a Labour and Co-operative MP—one of many in one of the largest groups in Parliament. The fact that the Bill has cross-party support and the fact that the all-party group is one of the largest shows how mutual endeavour and co-operative values transcend party politics. They genuinely benefit the consumer, and it is important that we MPs recognise that.
As I said in my intervention on the hon. Member for Bournemouth, West, it seems sensible to allow the
Financial Services Authority flexibility over the percentage of funds that can be raised from the markets. I am sure that the issue will be explored in greater detail in Committee, and I understand that discussions are being held about whether the percentage should be set at 75 per cent. It is sensible not to put a figure on the face of the Bill, because this relates to market sensitivity. The FSA, in its role as protector of the consumer, should make such decisions. Clearly, it would require Treasury support, but I hope that the Economic Secretary to the Treasury agrees that it would be inappropriate for the Treasury to be too heavy-handed or to go into too much detail, and that it should leave the FSA to do its work. The Treasury should then rubber-stamp the FSA’s decision.
The provisions in the Bill that put members on an equal footing are critical. If we really believe in mutuals and in the co-operative sector, we must also believe in the members of those mutuals. This measure is long overdue, and it should be introduced as quickly as possible. It is also common sense to make it easier for a financial mutual to transfer to another mutual outside the financial sector. I appreciate that there are problems with that measure, but I hope that they can be resolved.
I have experience in the housing association sector. Over the years, housing associations have grown and developed, and many have taken on other responsibilities. At first, they used to renovate street properties and, when they got the money to do so in the 1970s, build a small amount of housing. They then expanded to provide care packages, care homes, regeneration packages and building services. Sometimes, they also provided private housing for sale to cross-subsidise their other work.
The housing association sector and, in particular, the National Housing Federation have done a great deal over the years to ensure that all those different interests can co-exist within one group structure. Some have merged and come together under one umbrella, while others have diversified from their original base under one umbrella. That has allowed multiple businesses to exist within one organisation. The governance of the housing association sector has developed to tackle the challenges of the modern world, and I hope that lessons can be learned from that and applied to the issue of the transfer of engagements, so that multiple co-operative and mutual businesses can co-exist under one umbrella.
It is appropriate that my hon. Friend the Economic Secretary is going to respond to the debate. He is the first Co-operative Treasury Minister to deal with legislation on the financial mutual sector, and we are delighted to have him as a member of our Co-operative group in Parliament. I hope that augurs well for the passage of the Bill. We shall certainly have some interesting discussions in our private meetings if he proves unwilling to support certain aspects of it. I feel confident, however, that he and his colleagues in the Treasury will give the Bill a fair wind, because it tidies up aspects of the Building Societies Act that need tidying up, and puts members at the heart of the business.
I should like to use this opportunity to talk about the history of the co-operative and mutual sector, in which
the Bill represents a staging post. The sector is made up of a complex and diverse range of organisations, but they have one common feature: they belong to their members. They do not belong to shareholders and they are not owned by an individual or a few individuals. They are a group of organisations with a long history of providing mutual self-help and of strengthening community bonds. Throughout our history, the mutual sector has not only acted to provide services on which working people relied, but strengthened the bonds that are so important in the communities that we represent.
The earliest mutuals were societies or self-help organisations that provided a means of mutual insurance through regular member contributions. Members of these friendly societies were bonded to each other, perhaps by locality or trade, and their regular contributions ensured benefits for them and their families in the event of sickness or death. Happily, the days are long gone when we had only each other to rely on. Now, we have a welfare state that protects people at difficult times, but in the early days of the mutual sector, the friendly societies were vital for preserving family life and people’s actual lives.
Mr. Love: Earlier in the debate, the hon. Member for Bournemouth, West (Sir John Butterfill) talked about opinion polling showing that trust in mutual organisations was significantly higher than trust in other organisations. Does my hon. Friend agree that that trust is based on the movement’s history of representing ordinary people and of the institutions being owned and controlled by their members?
Meg Hillier: I could not agree more. These organisations belong to the people who benefit from them and run them for each other. When I am with my children on the 349 bus in Hackney, I point out to them that the people working on the bus own the company that runs it, Hackney Community Transport, and that we can therefore expect a better service. The company is owned and run by its employees for its passengers. That thread runs through every aspect of the mutual sector. When I was much younger, we saw the effect of carpetbagging and the loss of many building societies. I remember regretting that we were losing that crucial membership because people were selling their long-term benefit for a short-term gain.
Sir John Butterfill: That is an important point. The assets of a building society have been built up by all who have contributed to it in the past, and they are held on trust by the members for all who will come after them. The activities of carpetbaggers have robbed future generations of what should have been their inheritance.
Meg Hillier: The hon. Gentleman makes his point eloquently and passionately, and I absolutely agree with him. My own children will have fewer choices in the marketplace, thanks to that sad and unfortunate period in the history of mutuals, but I hope that the Bill will help to strengthen the role of members, and I congratulate the hon. Gentleman again on that.
By the end of the 19th( )century there were about 30,000 registered friendly societies with around 4.5 million members. Building societies emerged from
the friendly society movement, and the first was established in the late 1700s. There had previously been temporary societies, which were wound up as soon as they had provided housing for their members. The garden suburbs in London were formed through mutual housing set-ups, which people paid into and borrowed from while their houses were built, and which ceased to exist in that format thereafter. So the long history of mutuals has even had an impact on our city of London.
The first building societies in a form that we recognise can be dated to 1845. Funds for building houses were supplemented by funds from people wanting to save, but not necessarily wanting a house, thereby addressing some of the problems with the earlier form of building society. This left them able to borrow money from investors to build houses more quickly, and able to create reserve funds across generations of members.
We cannot mention building societies without mentioning the co-operative movement and its birth in Rochdale in December 1844, with the establishment of the Rochdale Equitable Pioneers Society, a consumer co-operative, founded by just 28 members. That is just one fewer than the number of Co-operative Members of Parliament—perhaps there is a lesson for us there. They registered their society with the registrar of friendly societies on 24 October 1844 and opened their first store just before Christmas, on 21 December, on Toad lane in Rochdale, with the objective of
“selling pure food at fair prices and with honest weights and measures”.
That commitment to consumers was crucial to its success, although I gather it had some early problems that it overcame. It went on to be very successful at a time when many private shop owners were suspected of cheating their customers by adding impurities to sugar and flour and tampering with weights and consumers could not be sure that they were getting what they should. Those people in Rochdale were pioneers, because over 150 years later we are still talking about the origin of food and wanting to know what is on our plate. In a way, we have come full circle, of which the co-operative moment should be proud.
From that moment, the co-operative movement took off. It was strengthened in 1863 by the establishment of the Co-operative Wholesale Society, which rapidly expanded into other activities such as banking and insurance, and diversified beyond food into other areas of retailing. Those organisations grew out of the needs of working-class families in conditions imposed by the industrial revolution, including the uneven distribution of economic resources, the exploitation of labour, the difficult living conditions in overcrowded urban areas, and the particular vulnerability of families to the loss of a single wage earner. At that time, the dependency ratio—the number of people depending on that wage earner—rose in most parts of England.
It is possible to identify the origins and development of each type of enterprise in the mutual sector as responses to different types of hardship imposed in that era, but I will not go into all that history now. The key features common to each form of self-help are a harnessing of the economic resources of those in work and an adherence to a set of governance values founded on important social ideals. Again, it is
membership that is key to the co-operative movement. I must commend the hon. Member for Bournemouth, West again for his proposal to give members parity with other investors.
The strength of mutuals and the movement came from their functional purpose. They were a way for working-class people to gain some power over their living conditions and productive output. We see that today in local farming co-operatives in developing countries, where people want control over their lives. Exclusion and marginalisation from the political process—adult suffrage was not universal in the early stages of the co-operative movement—left people with no alternative but to work their way out of poverty through other means. The core values of that era remain. While the organisations, along with the country, have moved on a great deal from their roots in the past two centuries, they remain the same in one crucial respect: they exist to provide mutual self-help for their members, rather than to generate profit for investors. Those core values drive high standards of ethical behaviour throughout the sector. The absence of external shareholders means that there are no conflicts of interest between the claims of consumers and owners, leaving mutuals no incentive to exploit their customers for short-term gain. As others have said, that has led to greater trust among consumers for the products offered by the mutual sector.
Crucially, the ethical emphasis in the co-operative moment has led to a greater emphasis on ethical practice by non-mutuals, and I pay tribute to the work of several colleagues, including the work of my hon. Friend the Member for Portsmouth, North (Sarah McCarthy-Fry), on corporate social responsibility. That desire for businesses to have wider social responsibility stems from the important values laid out by the co-operative movement.
In a wider sense, the membership base also enables co-operatives and mutuals to take a broader view of the interests that they aim to serve, to pursue values that are not purely financial, and to take a long-term view of their members’ interests. It also gives them space to pursue social and ethical goals and support members’ communities.
Perhaps the best, iconic example is that of the Co-operative bank in the 1990s, which, under its chief executive Terry Thomas, now Lord Thomas, pioneered ethical banking before it was flavour of the month. That approach to investment is now being taken up across the banking sector, and consumers are getting savvier about what they should be asking for. In the same way, the Co-operative bank pioneered the recognition of the importance to business of environmental concerns. It sponsors and supported the first environmental business centre, which opened in Manchester in the mid-1990s, showing that business, too, had a responsibility to the environment, and that responsibility could be met in giving economic benefits to banking, business and the community.
Retail co-operatives were the first major retailers of fair trade products, which we now see on supermarket and shop shelves up and down the country. The success of the Co-op in selling fair trade products no doubt encouraged other businesses to sell them too. Fair trade product sales have risen from £32 million in 2000 to over £290 million last year. My borough of Hackney is
attempting to become a fair trade borough. By doing so, it will also support co-operatives in the developing world, which is entirely appropriate given the make-up of Hackney’s population: about 13 per cent. of my constituents come from parts of Africa.
Mutuality has not only fostered organisations with a strong moral purpose and ethical function but has driven other organisations to follow suit. The initiatives first taken by mutual organisations have subsequently been taken up by multiple plcs. That would not have happened in the absence of the mutual sector.
Today is a small but significant moment in the history of the mutual sector. Through the Bill, we hope to put power and rights back into the hands of members, and to give mutuals a level playing field alongside other key financial institutions. I hope that the Bill gets a fair wind in Committee, and I look forward to seeing it return for its Third Reading.
11.7 pm
Mr. Andrew Love (Edmonton) (Lab/Co-op): I also congratulate the hon. Member for Bournemouth, West (Sir John Butterfill) on introducing the Bill. I was not aware that he had been so successful not only in getting private Members’ Bills on to the Floor of the House, but in piloting them to fruition, on which I also congratulate him. I congratulate him, too, on choosing this subject for his Bill, which is appropriate. As we see in the Chamber, it has a wide range of support across all sections of the House.
I do not want to go into great detail about different parts of the mutual movement. Other Members have already done that. Mutuals compete in the marketplace, and many are successful in doing so: there are mutuals that are not successful, and they must take the necessary action to ensure that they become more successful. In many ways, however, the mutual movement, and certainly those parts that will be affected by the Bill, have been and are successful. We hope that the Bill will help them to become more successful.
Mutuals thrive in the marketplace, but this is not the first Bill to reflect that they face some disadvantage. That disadvantage does not relate to how they compete in the marketplace, but to the legislative framework in which they must operate. In the limited time that I have been a Member of Parliament, significant new measures on company law and the framework for the private sector have been passed by the House, but little has been introduced to reflect the needs of the mutual sector, apart from some private Members’ Bills. I hope that, in some small measure, the Bill will begin to create a more level legislative playing field, so that the many successful mutuals can compete even more successfully than they have done up to now.
My starting point is that we need a mixed economy, not only in financial services but in other sectors. A mixed economy brings real benefits to consumers. Worker co-operatives, mutual insurers and building societies confer many benefits not only on their members but on other stakeholders. The financial services sector of the mutual movement has perhaps been the most successful. As was pointed out by the
hon. Member for Bournemouth, West, mutuals are successful not just in this country but internationally. Many mutual financial services organisations look to organisations such as the Rabobank in the Netherlands, which is one of the great success stories showing how mutuality can deliver for both customers and members.
As many have pointed out today, mutuals also provide a competitive spark in the wider marketplace. For mortgages and mortgage rates as well as for savings rates, mutuals are at the top of the best-buy tables. That benefits not only their own members, but those in other organisations who must compete with the best—and when it comes to those basic services, mutuals and building societies are the best.
The same applies to policyholders in mutual insurance companies. Organisations such as Royal Liver Assurance, Liverpool Victoria and Royal London are doing a tremendous job on behalf of both their members and the wider marketplace. If I had to single out one organisation, though, it would probably be the Nationwide building society, which goes from strength to strength. At this point I should declare an interest, as a former member of the Lambeth building society who has since become a member of the Portman building society and in the next few weeks will become a member of the Nationwide—of which, in fact, I am already a member.
My reason for being a member of the Nationwide is the service that it delivers. It employs 16,500 people, mainly in Northampton and Swindon, and it has 1 million customers. Perhaps most important of all, over the last 10 years it has delivered £4 billion of benefits to its members and customers, an enviable record for any organisation, mutual or otherwise.
But the Nationwide goes much further. It has campaigned on behalf of not just its own consumers and members, but the wider public interest. It conducted a campaign at some cost to itself, pointing out the dangers of taking up attractive short-term fixed-interest mortgages only to pay for them later, and trying to set a standard by which others—including those attempting to compete with it—should operate in the marketplace. It suffered significantly in the early stages of its campaign, but continued its pioneering work in the mortgage market.
Sir John Butterfill: We ought to have known that the Nationwide would act in that way given its former name, the Co-operative Permanent building society, which made it clear that its ethics were unquestionable.
Mr. Love: Indeed. The origins of the Co-operative Permanent building society lay with the employees of the co-operative movement. The society was set up specifically to help co-operative employees to become owner-occupiers. It grew, became independent, and through merger eventually became the Nationwide that we know today. I believe that the Nationwide is so widely trusted partly because of its history of representing its member-owners and trying to reflect not just their limited interest but the much wider interest of consumers generally, which lies at the heart of the consumer co-operative movement.
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