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19 Oct 2007 : Column 1093

Philip Davies: My hon. Friend has been in Parliament much longer than I have and knows all the tricks of the trade that Governments can use. Something that sounds reassuring at a superficial level may not be so in reality. I am grateful to him for reminding me of the dangers that he has outlined.

I would like the Minister to address another aspect of amendment No. 3. When we discussed that before, the then Economic Secretary to the Treasury, now Secretary of State for Children, Schools and Families, said that the mutual insurers had to be left out of the Bill because of the possibility of contravening EU law. He said:

the new clause in Committee. Given that that was turned on its head when Lord Evans said that the amendment

it would be helpful for the Minister to explain how we have gone from the stage of something being specifically ruled out, because it would breach EU law, to the stage that we are at now, where something is going to be incorporated to ensure that it complies with EU law. That strikes me as a sharp turnaround in a short space of time. What assurances can she give that the legal opinion on which the amendment is based will not be subject to challenge and will be watertight for the future? I am not a lawyer, and my hon. Friend the Member for Christchurch knows much more about such things than I do, but if we can have a turnaround in a legal opinion in such a short time, I am not convinced that there cannot be a further turnaround in future.

We have not discussed amendments Nos. 4 and 5 very much, but it seems that they are necessary to comply with EU law. Perhaps the Minister can clarify that. Without them, a mutual in another EEA state would have to establish a UK company subsidiary to benefit from the changes, which might place it at a disadvantage. The changes would ensure that UK and EEA mutual societies were treated equally. The amendments’ purpose is not to benefit UK mutual societies in particular, but to benefit mutual societies in other EEA member states.

Lembit Öpik: There is a potential slight contradiction between the hon. Gentleman’s comments and those of some his colleagues. They see the benefit of harmonisation of regulation across Europe, but he is concerned about that. Surely we would all benefit from a degree of harmonisation to ensure that we at least understand the terms. When a potential linkage or merger between a British-based financial institution and one based elsewhere in Europe is considered, some of the uncertainties and subjective determinations would at least be clarified.

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Philip Davies: The hon. Gentleman makes a good point. He may well be right that that would be a good thing and make sense, but why do we need the amendments? Will the benefits be felt by mutual societies in other EEA countries rather than mutuals here? What will be the consequences in practical terms?

Amendment No. 6 provides for the Financial Services Authority to charge fees for any functions conferred on it by the Bill. It is an eminently sensible addition. It would be perverse should the FSA be out of pocket as a result of the changes. I welcome the amendment. Perhaps the Minister will explain whether that would cover not just the costs of the work in front of the FSA at the time, but the costs of the extra staff that it may have to employ to deal with the additional workload. Lord Evans acknowledged that that would

Presumably, that means that if it is providing additional work, we need additional staff to cope with it. I hope that the fees charged on that basis will cover those additional costs for the FSA as well as the costs incurred at the time when such things are being debated. I welcome the amendment if it means that the fee-charging powers would be extended in that way.

When I was talking about amendment No. 3, I forgot to mention an important point about its definition of an EEA mutual society. Will the Minister tell the House how many mutuals across the EEA will be brought under the scope of the Bill as a result of the amendments? What are the practicalities of that? Can she outline what the Treasury envisages happening as a result of the provisions, and which mutual societies it has in mind?

I welcome the Bill. Some of the amendments are absolutely necessary, but I share some of the concerns expressed by my hon. Friend the Member for Christchurch, especially about amendment No. 1. I look forward to the Minister addressing all the concerns that have been raised this morning.

Kitty Ussher: I am extremely positively encouraged by Opposition Members’ forensic scrutiny of the Bill during today’s debate. I am grateful to the hon. Member for Bournemouth, West (Sir John Butterfill) for presenting the Bill and congratulate him on its success; it is a credit not only to him but also to the plethora of outside organisations, which I support, with which he has been working. The measure will lead to long-lived improvements in our economy.

I reassure Opposition Members that there are no scary and subterfugeal attempts to achieve anything from the amendments that is not blindingly obvious. I shall use the few moments available to me to—

Mr. Simon Burns (West Chelmsford) (Con): We have three hours.

Kitty Ussher: In the few moments that I intend to use, given the 32 Bills listed for debate during the next couple of hours, I shall briefly set out our understanding of the amendments and respond to specific points that have been made.

The amendments fulfil the commitment given in the House to extend the Bill to mutual insurers, which answers one of the main points made by the hon.
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Member for Shipley (Philip Davies). The Government continue to be appreciative of the support from all those involved in developing the Bill and look forward to implementing its provisions for the benefit of the mutual sector. We shall of course support the amendments, given that we introduced them, with consultation and co-ordination, in the other place. I hope that both sides of the House will be able to support them, too.

Clauses 3 and 4 will make it easier for one type of mutual society to transfer to the ownership of another type of mutual society as a subsidiary company while retaining the important elements of mutuality; for example, individual members transferring to the subsidiary company may be given voting rights in the holding mutual society. Mutual insurers and certain European mutuals will be included as a result of the amendments made in Committee in the other place on 10 July. I shall explain how they fit into the Bill as it left this place.

11.45 am

Clause 3 concerns transfers to subsidiaries of other mutuals. Amendment No. 1 ensures that any order made under clause 3, which may have effects peculiar to a particular mutual, will not be dealt with under the hybrid instrument procedure, as has been much discussed this morning. As a result of the addition of the words “EEA mutual society” to clause 3—in amendment No. 2—it is possible that an order made under the clause could impose requirements on a mutual insurer or other EEA mutual society acquiring a UK mutual. That could include, for example, a requirement to give transferring members full membership rights in the holding mutual. If the holding mutual has a unique legal form, that may raise a procedural question of hybridity, as we have discussed.

The hon. Member for Shipley asked which amendments would comply with EU law. Amendments Nos. 2 to 5 fulfil the dual purpose of extending the scope of the Bill to mutual insurers, as we decided we wanted to do following the comments of my predecessor that the hon. Gentleman quoted, and thereby complying fully with EU law. Amendments Nos. 1 and 6 are necessary as a result of amendments Nos. 2 to 5. I hope that is clear.

The hybridity provision will ensure that the hybrid instrument procedure of the other place would not apply in the situation I described. It is a standard provision to exclude the hybrid instrument procedure, which will reduce complication and delay in making an order under clause 3. We have had considerable discussion as to whether that is a good thing and in that regard I shall refer to the letter that I think the hon. Member for Christchurch (Mr. Chope) was looking for—perhaps he would like to wave it at me—which makes it entirely clear that if one of the affected companies has a unique legal form, for example if it had been established by a private Act of Parliament, the provisions that we may or may not introduce as a result of the Bill could raise a technical question of hybridity. I believe that it really is a technical question. The important point is that the amendment is merely a precaution.

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I shall be completely honest with the House: at this stage we do not know how this part of the Bill should be implemented. My firm view—and, I believe, the view of the hon. Member for Bournemouth, West—is that it is better to have proper democratic consultation on the specifics of how we can fulfil our aims under the Bill, and to look at all possible options, rather than to exclude, by not having the hybridity amendment, one of the possible options that we may subsequently decide to pursue. No decisions have been taken on the implementation of the Bill. We shall consider and consult on the various ways of implementing clause 3, to achieve the aims of the Bill while protecting mutuals and their members, so including the hybridity provision is mainly a precaution. Our consultation will be extremely democratic.

Mr. Chope: This is the first time I have had the privilege of hearing the Minister speak in her new role. She is obviously very much on top of the issue, and as someone who has much experience of the City of London she will be familiar with the concept of a blank cheque. Is she not asking us, in effect, to sign a blank cheque today? In light of what she has just said, might it not be better for the Bill not to make progress so that the consultations she describes can take place? The Government could then legislate on the matter, in their time, in the coming Session.

Kitty Ussher: No, I do not agree with that. I do not feel that it is a blank cheque. I genuinely feel that technical issues may arise if we choose to implement the Bill in a certain way. We have not decided how to implement it yet, and hon. Members of all parties and representative interest groups can respond to the consultation with arguments that include the question of hybridity if they would like to. When we finally put forward our proposals, we will do so through the affirmative resolution procedure, and those issues can be discussed in that forum. I genuinely believe that that is a sensible way to proceed; it is not a way to stifle debate.

Philip Davies: I would like to pick up on something that the Minister said earlier. She said that amendments Nos. 2 to 5 were required to comply with EU law. Much as I dislike having to pass laws to comply with EU law, I understand the need to do so under our current arrangements, but she said that amendments Nos. 1 and 6 were necessary as a result of those amendments. Would she clarify that point? I understood that amendment No. 1 is not necessary to comply with amendments Nos. 2 to 5. I understand why amendment No. 6 is necessary as a result of the other amendments, but not amendment No. 1. Is it not the case that the Bill could progress with all the amendments apart from amendment No. 1?

Kitty Ussher: That is not my understanding. The amendments address the specific point that my predecessor made in Committee: if one wants to extend the Bill to mutual insurers, there is a corresponding issue of ensuring that the provision is not challenged under EU law, which I think is right and proper. I am simply telling the hon. Gentleman of what I have been technically advised.

Mr. Chope: Will the Minister give way?

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Kitty Ussher: I am aware that the hon. Gentleman has had a substantial opportunity to contribute. I shall take one more intervention.

Mr. Chope: I am grateful to the hon. Lady for accepting this final intervention. She referred to the precautionary principle, but since when has the precautionary principle been used by the Government to exclude individual rights, at a time when, by the Government’s own admission, they do not know how the Bill will be implemented or how those rights might be adversely affected?

Kitty Ussher: I do not believe that I am excluding rights by addressing the point of hybridity at this point during the passage of the Bill. It is a correction of a potential technical anomaly that may become necessary later on as we consult and work together to ensure that the Bill is implemented in the right way.

Amendments Nos. 2 and 3 widen the definition of mutual society in clause 3 by inserting a definition of EEA mutual. There has been some discussion of that. An EEA mutual can be a European co-operative society, a co-operative society established in any European economic area state or any other type of co-operative or mutual body as specified by the Treasury in secondary legislation. That will ensure that any changes made under the Bill apply where the transfer is to a subsidiary of an EEA mutual, as well as where the transfer is to a subsidiary of another UK mutual. That incorporates the conversations we had this morning on proposed paragraph (c) in amendment No. 3, and the way in which it would be considered by Parliament.

In response to the Conservative Front-Bench spokesperson, I can clarify that primary legislation is considered under the affirmative resolution procedure. However, the power in proposed paragraph (c) in amendment No. 3 is subject to the negative resolution procedure, because it simply allows the Treasury to specify other co-operatives or mutuals, including those in other EEA states, to which a UK mutual may transfer. It may need to be exercised at short notice—for example, to specify a new kind of EEA mutual in a potential and live takeover situation. We believe that the negative resolution procedure is appropriate in that case. The power cannot be used to amend primary legislation, where of course it is right and proper that any such changes should be subject to the affirmative procedure.

Mr. Hoban: I am grateful to the Minister for that clarification. She listed the three types of EEA mutual. With regard to what we discussed earlier, can she tell me whether that means that non-financial EEA mutuals can merge with a financial UK mutual?

Kitty Ussher: I presume the hon. Gentleman is going back to the wine example. It is not for me to specify which sectors should be pursuing alliances with other types of sectors. It is theoretically possible that the situation he describes may happen, but that does not cause me any concern at all.

Mr. Hoban: To clarify, a UK non-financial mutual, which by definition is an EEA mutual, could merge with a UK financial mutual, notwithstanding the provisions in the Bill after it left this House.

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Kitty Ussher: That is my understanding. The changes will allow mutuals in other EEA states to take over UK mutuals on the same basis that other UK mutuals may take them over. Only EEA mutuals specified in the Bill or an order made under it may benefit in that way. To reiterate, it is a matter for the bodies concerned to decide whether a particular takeover is appropriate.

Mr. Hoban: Clause 3(9) specifies three types of UK financial mutual that could merge with other UK financial mutuals. I think that the Economic Secretary said that a UK non-financial mutual or a financial mutual that falls outside subsection (9) could merge with another financial mutual. That means that, for example, a credit union in the UK as an EEA mutual could merge with a friendly society, building society or mutual insurer. That runs counter to what was said on Second Reading.

Kitty Ussher: My understanding is that the purpose of the proposal is simply to create a level playing field. A foreign or UK credit union could in theory acquire a UK mutual. As they are small bodies, credit unions are probably unlikely to do that, but it is possible.

Lembit Öpik: Does the Economic Secretary feel, like me, that we are considering a moot point? If a UK financial mutual wished to merge with a Bratwurst-making co-operative in Germany, a pizza-making co-operative in Italy or a herring-pickling co-operative in Estonia, that would be a matter for them. Nevertheless, the insurance policy is the good business sense of the UK financial institution, plus the necessary requirement for authorisation from its members. Although we can theoretically play games, in practice it is not an issue.

Kitty Ussher: I agree. It is not for the Government to start delving deep into the decisions that essentially private organisations may wish to make.

Lords amendments Nos. 4 and 5 would introduce the term “relevant company” into clause 3. That ensures that a mutual society’s business can be transferred under the modified procedures to a UK company or a body incorporated in any other EEA state, provided that that company or body is controlled by another mutual society.

Lords amendment No. 6 ensures that the Financial Services Authority has the power to charge fees for any functions that the Bill confers on it, extending the FSA’s existing powers to charge fees under the Financial Services and Markets Act 2000. The extension of clause 3 to EEA mutuals will require certain safeguards, equivalent to those that apply to domestic mutuals for membership rights in the holding mutual and further demutualisation. That answers some of the points that were raised. The FSA may have a role in that and, if additional functions are conferred on it in the order that implements the Bill, it may need to charge fees in connection with them. If the FSA exercises its power to charge fees, that could result in costs for businesses that wish to take advantage of the new procedures. However, any such fees would be paid directly to the FSA and would not exceed the FSA’s costs in the transaction in question.

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I was probed slightly further on the power to charge fees, so I shall clarify the matter. Officials in the Department have discussed the principle of fees with the FSA. We will have further discussions at the time of consulting on and making the order. As I said, the FSA’s power to charge fees is in the Financial Services and Markets Act 2000. The amendments widen the power to cover costs relating to the new functions conferred under the Bill. The FSA could charge only its costs for ensuring that adequate safeguards are in place. That seems entirely sensible.

Mr. Chope: Will the Economic Secretary give way?

Kitty Ussher: I said that I would not give way again, so I shall stick to that. I apologise.

I am delighted to commend the Lords amendments to the House.

Sir John Butterfill: I am happy with the Economic Secretary’s reply. She has explained clearly and comprehensively the points that have been raised.

Mr. Chope: I was disappointed that, given the time available, the Economic Secretary was not prepared to take my other intervention. If the Bill goes through today, when will it be implemented? It sounds as though there is a long timetable. Has my hon. Friend any idea how long the process will take?

Sir John Butterfill: The last discussions that I had in the Treasury suggested the consultation would take some months, but I cannot be any clearer than that.

Lords amendment agreed to.

Lords amendments Nos. 2 to 6 agreed to.

Clause 4

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