 House of Commons |
Session 2006 - 07 Publications on the internet General Committee Debates Financial Mutuals Arrangements Bill |
Financial Mutuals Arrangements Bill |
The Committee consisted of the following Members:Emily
Commander, Committee
Clerk
†
attended the Committee
Public Bill CommitteeWednesday 25 April 2007[David Taylor in the Chair]Financial Mutuals Arrangements Bill9.30
am
The
Chairman:
It is hoped that the Committee will conclude
consideration of the Bill at this afternoon’s sitting. If that
is not possible, before we adjourn I shall invite Sir John to move a
sittings motion specifying the date and time of our next meeting. In
the event of a third sitting, I do not intend to call starred
amendments.
Clause 1Removal
of the funding limit for building
societies
Question
proposed, That the clause stand part of the
Bill.
The
Chairman:
With this it will be convenient to consider
Government amendments Nos. 7 and 8, and Government new clause
1.
Sir
John Butterfill (Bournemouth, West) (Con): First, may I
say what a great pleasure it is to serve under your wise chairmanship,
Mr. Taylor? We are looking forward to an interesting debate.
Secondly, I wish to express my personal thanks for the co-operation
that we received in the drafting and, indeed, extensive redrafting of
the Bill from Treasury officials, who have been most helpful
throughout. I thank also those lawyers representing the Building
Societies Association, and Mutuo. Without their combined effort, we
would not be where we are
today.
When I first
presented the Bill, I little appreciated how legally complex it was
likely to be given the large number of interactive former measures that
it will affect. At the moment, we have a slight problem in that one
particular group of mutuals—the mutual insurance
companies—is effectively excluded from the provisions of the
Bill. However, I am hopeful that we may find a way to overcome that
problem in the future. Everyone concerned has made a splendid effort
and I am very grateful to all of them for their
help.
The
Economic Secretary to the Treasury (Ed Balls):
It is a
pleasure to serve once again under your chairmanship, Mr.
Taylor, although for the first time in a Committee of this nature. I
also thank Treasury officials, the staff and experts from Mutuo and the
Building Societies Association, and particularly the hon. Member for
Bournemouth, West, whose leadership and determination to see such
important reforms through to the statute book have been demonstrated in
recent months.
We had
a full and substantial debate on Second Reading when we aired the wider
issues surrounding
the important role that the mutuals sector plays in our economy and the
reason why such flexibilities are needed in order to allow building
societies and wider mutuals to operate on a level playing field. I
repeat what I said on Second Reading in paying particular tribute to
the hon. Gentleman’s work. The Government support the principles
that underpin the Bill, and we will endeavour to do everything that we
can to see it through to the statute
book.
There is no
deviation from the principles that underpin the Bill, but since Second
Reading, extensive and detailed discussions have taken place to ensure
that it can be made operational and effective, given the corporate
company and wider European legislative framework in which it is
necessary for the clauses to operate when they become law. The Bill
introduces amendments to building societies legislation on the
wholesale funding limit and the position of members in the event of an
insolvency. It also updates other mutuals’ legislation to
transfer the ownership of a different type of mutual society as a
subsidiary company. As I have said, taken together the measures will
strengthen the competitive position of mutuals and benefit their
members.
New clause 1
amends section 7 of the Building Societies Act 1986 to give the
Treasury the power to increase the limit to the proportion of funds
that may be raised from sources other than individuals’ shares.
As I said on Second Reading, that power should reside with the Treasury
and would be operated with full consultation with the Financial
Services
Authority.
Currently,
societies must raise at least half their funds from shares held by
their individual members. The remainder can be raised from other
sources—generally wholesale funding. The power will allow the
Treasury to increase the external funding limit up to 75 per
cent. However, the Treasury will be able to use that power only if it
also makes an order under new clause 2, which I will come to in a
moment. The new power will be subject to affirmative
resolution.
New clause
1 also amends section 5 of the Building Societies Act 1986, which
defines the “principal purpose” of a building society to
be making loans secured on residential property which are funded
substantially by its members. The new clause gives the Treasury a power
to amend that principal purpose requirement to reduce the extent to
which loans are required to be funded by the society’s members.
That is to bring the requirement in line with changes to the
funding limit. Again, that power is subject to affirmative resolution.
Government amendments Nos. 7 and 8 make appropriate changes to
the long
title.
Increasing the
funding limit will increase the amount of “wholesale”
funding that societies may use, giving access to cheaper funding and
creating a more level playing field with banks. That change was
recommended by the 2004 Miles review of the UK mortgage market. The
figure of 75 per cent. leaves a significant element of member
funding.
On
Second Reading, the hon. Member for Bournemouth, West made it clear
that he was in favour of using the negative resolution procedure for
the various orders that will be necessary to implement the Bill. We
have considered that point carefully during the drafting of amendments,
and I have discussed the matter with him
personally. We believe that all the main implementing orders for the
Bill should be made under the affirmative resolution procedure, in line
with the usual procedure for Henry VIII powers.
The powers conferred by the
Bill allow the Treasury to make significant amendments to the primary
legislation governing building societies and other mutual societies.
Having considered those matters carefully, we believe that Parliament
should have the opportunity to debate the changes in the light of
consultation on the detail of the
policy.
Sir
John Butterfill:
I am happy with the new clause with one
possible exception: the affirmative resolution procedure. The way in
which building societies and others will be affected is sufficiently
well established by the Bill that it will not necessarily require the
affirmative procedure, which will delay the implementation of various
parts of the Bill and involve much greater parliamentary work. I do not
think that the provisions deal with matters that necessarily require
the further scrutiny that one would normally ascribe to the affirmative
procedure. Nevertheless, it has been very encouraging that any
differences between us have been on a procedural matter rather than on
the principles behind the Bill. Those on both sides of the House, and
indeed all parties in the House, feel that we should try to get the
Bill on to the statute book and implemented as soon as possible. The
amendments are self-explanatory and sensible. I have no difficulties at
all with the new clause.
Dr.
Vincent Cable (Twickenham) (LD): I welcome you to the
Chair, Mr. Taylor. I apologise to the hon. Member for
Bournemouth, West for not being present when he introduced his Bill,
which I strongly support. It seems to be a very important piece of
work. It has been endorsed by the relevant bodies, particularly the
Building Societies Association. I wish it well, and again apologise for
not having been here to make the more general points about
it.
Although the
Government amendments are fully in sympathy with the Bill, they are
very substantial, and I should like to raise one broad question: how
important and pressing are the funding limitations? That is an
important question, because it determines whether we need to make
explicit the raising of the limit from 50 to 75 per cent., or to make
it open-ended, and whether the legislative provisions need to be rapid,
easy or more leisurely.
I got two different
interpretations or answers from my background reading on the Bill. On
the one hand, Northern Rock gave evidence to the all-party group and
argued that its ability to transcend the funding limitations by
demutualisation had been a critical factor in its success as a
commercial organisation. It had been able to grow rapidly and therefore
to cut the spread between its borrowing and lending rates, which were
originally the key attractions for mutuals because they do not have to
pay dividends. Northern Rock made the point that the funding
limitations had been a crucial part of its thinking about the business
model that it adopted.
On the other
hand, as I understand the evidence, few if any mutuals—we are
talking primarily about building societies—have taken advantage
of the 50 per cent. that
they are currently allowed. Why have they not done so if it is a binding
constraint? I raise that question for the reasons that I mentioned; the
answer determines precisely how urgent the process needs to
be.
I also wish
to refer to the procedure set out in the Treasury’s new clauses,
which make it clear that the Treasury rather than the FSA will be the
point of determination. Perhaps the Minister will spell out the
reasoning behind that decision. As someone who has dealt with both
bodies, I can understand that it is probably a sensible decision in
this context. I have never found the FSA to be sympathetic to the
problems of mutuals. I dealt with the FSA extensively on insurance
matters, and it clearly regarded mutuals as an irritating detour from
their preoccupations with the City—it was not interested in the
idiosyncrasies of the mutual movement. Perhaps that is the reason why
the approach has been taken, and the Treasury is too polite it out.
There might be some value, however, in the Minister explaining briefly
why Treasury rather than the FSA should be the locus of decision
making.
In
conclusion, I shall reiterate what I said at the beginning of my
remarks: as someone who was involved in the campaign to stop the
collapse of the building society movement through demutualisation in
the late 1990s, I think that the arrest of the slide is valuable.
Positive initiatives are now being taken to strengthen the legislative
basis of mutuality, and I welcome the Bill as an important component of
that process.
Sir
John Butterfill:
Perhaps I can deal with the hon.
Gentleman’s first point and the Minister can deal with the
second. It is my understanding that the hon. Member for Twickenham is
correct in saying that most building societies are managing adequately
within the existing limits. However, there is a considerable degree of
sentiment that says that that will not remain the case for much longer.
This is a fast-moving area and the competition is becoming ever more
threatening towards building societies, so they will need to move quite
quickly. If the situation developed, building societies would look to
the Government to introduce a Bill of this nature, which might take
quite a long time given the heavy timetable to which the Government are
always subject. This Bill gives us the opportunity to deal with the
situation now, in anticipation of those
needs.
Sir
Nicholas Winterton (Macclesfield) (Con): I say to my hon.
Friend that I fully support the brief argument that he has just
advanced in response to the hon. Member for Twickenham, who speaks with
distinction for the Liberal Democrats. As a sponsor of the Bill, I have
made some inquiries in my constituency. A major mutual, the Cheshire
building society—and a good society it is—is based in
Macclesfield and a smaller building society, the Vernon, operates in my
constituency, although it is based in the Stockport constituency. They
are supportive of the Bill, because they see it as a moat or defence
for the long term. I believe that the Bill’s objectives are
thoroughly
desirable.
9.45
am
I think that I
understand the Treasury’s intention in tabling the amendments
and the new clause, and I am prepared to go along with it, because this
is one way of getting the legislation on the statute book and, as my
hon. Friend said, that needs to be done soon. Perhaps the Treasury is
being a little bit over-careful, but the amendments do not detract from
the Bill. Like my hon. Friend, who has worked so hard to advance the
Bill, I am happy to accept the Treasury’s amendments and the new
clause.
Mr.
David Curry (Skipton and Ripon) (Con): Over-caution on the
part of the Treasury is always to be welcomed, since we so rarely see
it manifested. Like my hon. Friend, I welcome the Bill and am happy
with the amendments.
I
just wish to say that the Skipton Building Society in my constituency
is one of the big ones and is hugely important. It is the biggest
employer in Craven. Practically no voluntary activity in Craven gets
under way without the support of the building society, and schools that
bid for specialist status do so with its support. In terms of voluntary
society and corporate responsibility, it is difficult to find another
example of so many depending on one institution. Preserving its status
and enabling it to continue to be able to do the things that it does in
the community is crucial. That is the basis of my support for the
Bill.
Ed
Balls:
I entirely agree with the comments of the hon.
Member for Bournemouth, West, who replied to the first of the two
questions asked by the hon. Member for Twickenham. When we debated this
matter in detail on Second Reading, I said that I was pleased that my
party had achieved cross-party support. By saying
“cross-party” I meant not simply the Labour party and the
Co-operative party, but support among Opposition Members as
well.
The speeches
that we have heard from the right hon. Member for Skipton and Ripon and
the hon. Member for Macclesfield, supporting the Bill and the values
and principles that underpin the role that mutuals play in our society,
are welcome and important in respect of constituencies throughout the
country. Mutuals and building societies are playing the role that the
right hon. Gentleman has just mentioned, and if we can take action to
help them do so, either through direct Government legislation or by
backing such a Bill as this, it is right and proper that we do
so.
I
apologise to hon. Members if they feel that the Treasury has been
over-cautious in its desire to ensure full and proper parliamentary
scrutiny and accountability, but I say to the right hon. Gentleman that
this is the way that the modern Treasury seeks to proceed, and it will
continue to do so whenever
possible.
Sir
Nicholas Winterton:
My right hon. Friend the Member for
Skipton and Ripon made an excellent case for the work that mutual
building societies do in the community. They are hugely involved. To
assist the Economic Secretary, his colleague the hon. Member for
Staffordshire, Moorlands (Charlotte Atkins) is fortunate to have the
Britannia Building Society in her constituency, on the borders of my
constituency, as it is a huge employer that is massively involved in
the community, not only in north Staffordshire but in Cheshire as well.
We need to praise the role of the mutual building societies, which do a
lot of wonderful work, much of which is
unsung.
Ed
Balls:
I agree with the hon. Gentleman that we must do
more to promote the role that mutuals play. On the example that he gave
of Britannia’s important role in taking over Bristol and West,
it is taking forward remutualisation in the building society sector. As
I said on Second Reading, it is a matter of pride for the Treasury and
for mutuals and co-operatives throughout the country that the
substantial majority of child trust funds—a Government
innovation with cross-party, or rather imperfect cross-party
support—are being provided by mutuals and friendly societies.
That is an example of the mutuals sector not simply resting on its
values and history, but providing leadership in a new development,
which is being followed by countries around the
world.
As
I said, the hon. Member for Twickenham asked two questions. It is good
to see a member of his party in Committee, given the unfortunate
absence of the Liberal Democrats on Second Reading, to cement fully the
broader cross-party support that we want for the Bill. The hon. Member
for Bournemouth, West set out fully the reason for taking the power to
raise the funding limit, which has been pressed for and supported
widely by the industry. Over the next year or so, we hope to consult in
detail with the FSA and the societies to ensure that we get the precise
number and details correct when we introduce the order, for which the
Bill paves the way. There will be consultation; but as I said, there
has been widespread
support.
The
second question raised by the hon. Member for Twickenham was discussed
extensively, in fact, on Second Reading. Indeed, following a wide range
of very supportive speeches from both sides of the House, my hon.
Friend the Member for Hackney, South and Shoreditch asked me in an
intervention why the Treasury, not the FSA, was taking the power in the
amendments. I explained that, having consulted the hon. Member for
Bournemouth, West and the FSA, we took the view that, although the
latter is the regulator of individual institutions, the responsibility
for setting the overall framework in which that regulation occurs is a
matter for the House and the Government.
Accountability
for getting that legislation correct lies with the House. We therefore
took the view that the Treasury in the House should propose the
framework and take the powers and that scrutiny should occur in the
House. I assure my hon. Friend the Member for Hackney, South and
Shoreditch and the hon. Member for Twickenham that that is being done
in full consultation with the FSA, and with its agreement. I hope that
that will not present difficulties in the Committee
today.
Question put
and
negatived.
Clause
1 disagreed
to.
|
| |
| ©Parliamentary copyright 2007 | Prepared 26 April 2007 |