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Dr. John Pugh (Southport) (LD):
The Liberal Democrats support the Bill and it is worth putting on record why. I do not think that we will be alone in that. The Government will support it and a good number of Labour Members here are warm in their support for it. The reason why we support it is obviously that credit unions address the
issue of financial exclusion. They deal with people who cannot use banks or who are uncomfortable with using banks. I dare say that more people then ever are uncomfortable with using banks these days. Certainly it is best that such people avoid the loan sharks, which were mentioned by the right hon. Member for Croydon, North (Malcolm Wicks), or the pawnbroker, with all the horrific consequences that they often entail.
The right hon. Gentleman is right to suggest that the time has come for this idea: the time for credit unions is now. He spoke of substantial expansion in this sector—mergers, developments and the introduction of big players such as Britannia. Local authorities now look very positively on credit unions—as something other than a marginal aspect of their work—and the Government look fairly positively on them, too. The thinking is that, perhaps, credit unions should extend their reach beyond the usual groups to which they appeal to people in middle-class and suburban areas who have not thought of them as a viable financial alternative. There is no doubt that credit unions will become an increasingly significant player.
If we accept that credit unions are to become larger, better funded and state supported, however, we must look very hard at governance. There is a dilemma, because although we do not want them to lose their volunteer base, which is their strength, we want them to gain a proper professional approach. The Joseph Rowntree Foundation recently studied credit unions and decided that, in many cases and for no bad reason, they were devoid of a range of skills that would help them enormously in their work: skills in management, in product marketing, and critically, in accountancy.
The Bill provides for those skills, to some extent, by bringing in regulation, because a properly regulated credit union will have to possess those skills or be asked to acquire them. However, the foundation makes the point that, with increasing local authority involvement and state and local authority support, we must be very careful not to denature an organisation so that it becomes something else—just another financial institution. We do not want to diminish the role that people play as individual contributors and depositors.
Some reassurance on that—possibly during the winding-up speeches—would be helpful, as would some reassurance that smaller credit unions, which, perforce, will want to stay small and will stay small, will not be crushed by the burden of regulation. It is important, however, that we do our maximum to encourage probity in those organisations, because probity is crucial to the reputation of credit unions but, in some cases, has not always existed.
There is one point that the right hon. Gentleman did not make, and it is worth considering in the context of the debate. Credit unions often start in working-class areas and provide a method for the community to pull itself up by its own bootstraps, but an unstated and important aspect of their role, which is often missed, is informal financial education. Will the right hon. Gentleman consider whether that, too, should be supported and encouraged by legislation or, indeed, whether legislation can actually do so? That aside, the Bill deserves to progress and may do much good.
10.33 am
Mr. Andrew Love (Edmonton) (Lab/Co-op): I congratulate my right hon. Friend the Member for Croydon, North (Malcolm Wicks) on introducing the Bill, which is an important contribution to the changes taking place in the mutual movement. I congratulate him for several reasons. The Bill is modernising legislation. It will bring industrial and provident societies and credit unions into the 21st century, and that is important at this stage in their development. Crucially, for industrial and provident societies, it will modernise their image: they are finally beginning to get away from their origins in 19th-century philanthropy. The words “provident” and “industrial” in the context of co-operative and credit unions are misnomers, and this change is long overdue.
Dr. Pugh: I hope the hon. Gentleman is not suggesting that there is anything wrong with 19th-century philanthropy.
Mr. Love: The hon. Gentleman can take that for granted. Those organisations were built on the strength of 19th-century philanthropy and owe it a great debt, but they also owe it to current and future generations to be relevant to the purposes for which they are required at this point in their development. This legislation will make a positive contribution to that, and I hope to explain why.
The legislation is also important because it will create a level playing field and protect organisations’ assets, as companies’ assets are protected. It will also protect the membership, which is often dependent on those who run the organisation, and help to modernise it. The Bill affects a not insubstantial part of the economic and social fabric of our country. My right hon. Friend mentioned that it was part of both the third sector—a very large sector—and of the so-called mutual movement. We are dealing specifically with industrial and provident societies, community benefit societies and credit unions, and they have an important role in providing goods and services for their members and communities throughout the country. The Bill will improve the administration of those organisations.
Coincidentally and interestingly, I received through the post this week, as I suspect other Members did, the first “Mutuals Yearbook 2008”, produced by an organisation called Mutuo. The yearbook tells me that the mutuals sector has just over 16,000 member organisations and a United Kingdom membership of 23 million, and that, if members linked arm in arm, they could stretch from London to Sydney and all the way back again. With a turnover of £83 billion a year, it is, by any yardstick, a substantial movement, and it consists of a diverse group of co-operatives. I have been involved with worker, housing and community co-operatives, but in the movement’s orbit there are also agricultural co-operatives and various other organisations in different parts of the economy.
The retail and consumer co-operative movement is probably the best part of the sector, as it is so prevalent on high streets throughout the country. As my right hon. Friend mentioned, the Co-operative group recently took over the Somerfield group of companies and, as a result, that co-operative is now the fifth largest retailer in the country, providing significant benefits to its members in communities throughout England and Wales.
Linda Gilroy: My hon. Friend has a long and respectable history in housing, so does he share my puzzlement at the fact that co-operative housing has been a relatively small sector of housing provision in the United Kingdom, and does he hope for a renaissance in co-operative housing development?
Mr. Love: I thank my hon. Friend for that question, because it gives me the opportunity to describe a conundrum: we often talk about the need not to get tied up in housing tenure, so we should talk not about rented or owner-occupied accommodation but about providing good accommodation. Co-operative housing shifts the focus off tenure and tries to deal with quality and the provision of decent standards in housing. I am amazed that, while Scandinavian countries, Canada and many other western countries have significant co-operative housing movements, the United Kingdom, sadly, does not. As policy makers, we ought to think seriously—although perhaps not in this debate today—about trying to create the conditions in which a housing co-operative movement can flourish.
Let me return to the retail co-operative movement. Bob Dylan’s “Blowin’ in the Wind” has been part and parcel of the Co-operative’s insignia and television adverts, and the group has taken over Somerfield; furthermore, Co-operative Financial Services and Britannia building society have amalgamated. Some suspect that the first super-mutual is being created. We can thank the hon. Member for Bournemouth, West (Sir John Butterfill), whose legislation created the conditions under which that could happen. I hope that the Bill will help to create conditions in which the co-operative and credit union movements can go forward.
Credit unions have been growing relatively fast since the original legislation that created the credit union movement came into being in the late 1970s. Currently, there are about 650,000 members of credit unions, with roughly £590 million in assets. We ought to look at the ambition of the movement if we are to grasp the possibilities. In conjunction with the Co-operative bank, credit unions have recently been able to set up current accounts for their members, and many are considering partnerships that will allow them to issue credit cards. Moving into mainstream financial services is the way forward for credit unions, and we must do everything we can to foster that.
At the time of the original legislation in the late 1970s, this country’s credit unions, formed mainly through immigrant Irish and West Indian communities, had fewer than 10,000 members and assets of less than £1 million. We can see how much credit unions have advanced in that time, but they have much more to do if they are to be relevant to communities and members throughout the country. I hope that the Bill will allow us to make changes. Credit unions still exist under the framework of the original Act of Parliament, and modernisation is long overdue. I hope that my right hon. Friend’s Bill will help to achieve it.
What will the Bill do for co-operatives and credit unions? First, it will allow them to improve their services. Member and customer loyalty is important, and the Bill will help strengthen it. It will help create greater trust. We know, for example, that the public trust building societies much more than banks, and all the evidence says that the public—especially credit union members—also
trust credit unions. Retail and other co-operatives undoubtedly have a strong link with their members, and that trust, which is critical, is fostered in the Bill.
The Bill will help the organisations to respond to community and membership needs, which is also critical. Co-operatives, community benefit societies and credit unions serve particular markets—often markets ignored by the private sector. We have talked about the need of low-income consumers for basic financial services; often, they cannot go to a bank or any other conventional high-street organisation, and credit unions are critical in helping them get such services.
The Bill will help modernise the movement and make it more relevant. It will also help the organisations to innovate. As was mentioned, the 2007 Treasury consultation is pertinent. The members and customers of co-operatives, credit unions and community benefit societies were consulted about what they needed to improve their organisations. Not everything will appear in the Bill, although it does a great deal; other things could be enacted through secondary legislation in the House, and many are critical for the future of credit unions.
I mention, in passing, the issue of the reform of the common bond, on which there has been debate. Sadly, my own Edmonton credit union is no longer with us, but I remember our many debates about how we could form a common bond that would make it possible for it to expand its services. We are beginning to see the need for that type of reform. Payment of interest on accounts happens within other conventional financial services organisations, and it ought to happen in credit unions. The membership of corporate bodies might seem a simple issue, but it could make an enormous difference to the well-being and progress of credit unions up and down the country.
Many of those changes and the changes in the Bill have been promoted by the credit union movement and co-operatives, and the Bill addresses issues for which there is a need for primary legislation. It has the strong support of members and of the organisations concerned, which is why I am pleased that we are here today supporting it. I understand that Government Front Benchers and one of the Opposition parties support it; I wait to hear the position of the other one. I am sad that so few Members are in the Chamber today, but I hope that everyone here supports the Bill.
I turn briefly to the changes to be introduced by the Bill. I am sorry if I am repeating what has already been said, but it is important that we clarify why the Bill is being brought forward. Industrial provident societies will now be registered as co-operative societies or community benefit societies. I would like to be reassured that the newly named co-operative societies will comprise only bona fide societies that have in their rules the Rochdale principles, on which co-operation is based, if they are to qualify to be called co-operative societies. I am not clear whether that is the case, but it is an important consideration. When the Bill is in Committee, I hope that the Minister will give a reassurance that those principles will be a core component of any organisation that calls itself a co-operative society.
It seems plausible and logical that to be a community benefit society, a society must be for the “benefit of the community”. That is an important consideration. Not all so-called industrial and provident societies that are supposed to be for community benefit turn out to have
a benefit for the community. The upgrade is important and will reassure the public that something called a community benefit society will truly be one.
I mentioned earlier that the Bill would update the language we use, making it relevant to people today and giving them a much more accurate view of what these organisations do. Similarly, clause 2 would change the name of the Industrial and Provident Societies Act 1965 to the Co-operative and Community Benefit Societies and Credit Unions Act 1965. That may sound like a very simple change, but during the passage of previous legislation—other Members here have were present at that time—we have called for a change of this nature to update the name and, without putting it too dramatically, in effect to sweep away industrial and provident societies by renaming them. I congratulate my right hon. Friend the Member for Croydon, North on that—although I have to say that referring to co-operative and community benefit societies and credit unions Acts would be quite a mouthful for those 600,000 credit union members when discussing them at their meetings.
Clause 3 would make credit unions and industrial and provident societies subject to the Company Directors Disqualification Act 1986. One of the most curious anomalies in this area has been that until the time of that Act, these organisations could not disqualify someone who had mismanaged the organisation of which they were part. It seems unbelievable that people could continue to be at the centre of organisations when it was clear that they had totally mismanaged them. The Bill also covers disqualification for criminal conduct—a very welcome clarification that would provide a strengthened role for the membership of these organisations to ensure that they are administered properly.
The benefits of the Bill would be threefold. First, it would in many ways provide a level playing field with other organisations with which these organisations compete in the marketplace. That is very important. Secondly, it would give protection against unfit directors, or trustees as they are called in these organisations, thereby strengthening the membership’s role in ensuring that their trustees act in the best interests of their organisation. Thirdly, it would provide transparency, clarity and consistency for members, again strengthening their role, which is vital in terms of their being democratic organisations.
The next part of the Bill would bring certain provisions of company law into operation for industrial and provident societies and credit unions. As a result, some of the secondary legislation that applies to companies would now apply to these organisations, so that they would be able to carry out investigations. That is absolutely vital. A member should be able to go to the registrar and call for action on something, and it should be able to be done; that has not been the case so far. The ability to take action on company names is an important power. Often, names will exist not to provide transparency but to hide the purpose of the organisation. There would be the power to dissolve societies and to remove them from the register—although I think that that would satisfy the Financial Services Authority, which wants to get rid of these organisations, more than their memberships. Those would be welcome changes, updating the legislation to bring it into the 21st century and bringing it up to the standards of legislation covering other companies and organisations.
Clause 5 would align credit union legislation with the existing provisions of building society law. That is very important. As I said, credit union legislation has not been comprehensively updated since the original Act way back in the late ’70s. That Act was very proscriptive: it covered almost everything that credit unions could do and limited their room for innovation. The ability to introduce changes that are taking place in building society law would ensure that these organisations do not continue to be left behind. For all those credit union members out there who may be worried about this, the first thing we should say is that none of this would affect the defining characteristics of credit unions. Credit unions would still be financial organisations based in the community and run by their members on democratic principles—important principles that separate credit unions from other financial organisations. Those defining characteristics would be protected in the Bill. Nevertheless, it would facilitate, through secondary legislation, the updating of credit union law to bring it into line with that on building societies, creating a level playing field. These organisations do not want any preferential treatment, but they do not want to be disadvantaged in the marketplace, and the Bill would help to ensure that that does not happen.
What would the Bill do overall to improve the situation for both these types of organisation? Its most important effect would be to increase protection for the ordinary member. For an ordinary member with a deposit in a credit union—I have been one in the past—it would increase the protection they are afforded. For an ordinary retail co-operative member, it would provide reassurance that if something was going wrong, action could be taken. It would modernise the language and the law to bring them into the 21st century. It would—I repeat this point, but it is really important to grasp it—create a level playing field. It would remove unreasonable barriers and burdens that have been placed on industrial and provident societies and credit unions. Much of that would be done through secondary legislation, but the Bill would enable that secondary legislation to occur. On the basis of the provisions in the Bill, including its enabling provisions to make further changes, I commend it to the House.
10.58 am
Mr. Mark Hoban (Fareham) (Con): It is a pleasure to follow the hon. Member for Edmonton (Mr. Love), who speaks on these issues with great passion and eloquence. I thought that he almost argued his case for being a member of the Committee that scrutinises the Bill in referring to the amendments that he envisaged might be tabled to ensure that the Rochdale principles were enshrined in it. I saw the right hon. Member for Croydon, North (Malcolm Wicks) nodding at the prospect of somebody else joining the Bill Committee. If the hon. Gentleman thinks that he might escape joining that Committee by joining the Finance Bill Committee, that might indeed be his only way of salvaging his position.
David Lepper:
The hon. Gentleman mentioned the Rochdale principles, as did my hon.—and Co-operative—Friend the Member for Edmonton (Mr. Love). I welcome
that, but I hope that they will note that those principles grew out of the work of Dr. William King and his newspaper, “The Co-operator”, which was published in Brighton from the late 1820s onwards, and that the Brighton co-operative movement predates that of Rochdale, while contributing to the principles that I hope all Members present wish to support.
Mr. Hoban: It is always interesting to hear about the historical roots of the co-operative movement, and clearly the hon. Gentleman’s comments will go down well in the Brighton Argus. I am afraid that he was trumped by the right hon. Member for Croydon, North and his reference to the Roman mutual societies. No one is in a position to outdo the Romans’ pioneering work in establishing mutuals.
The hon. Member for Edmonton was disappointed so few people were in the Chamber to support the Bill. I think that the Prime Minister is looking to change that with the reforms that he is proposing. His official spokesman said yesterday that he thought they might bring more Members to the House, which would clearly be of benefit on Friday mornings.
The hon. Gentleman asked whether we would support the Bill. He acknowledged that the Liberal Democrats were going to do so, and I see that the hon. Member for Twickenham (Dr. Cable) is a sponsor. I am pleased to say that we, too, will support it. It is very important, as it will modernise the legal framework of co-operatives and protect the interests of the members of co-operatives and industrial provident societies through the provisions that have been expanded on at great length.
The Bill is a link in the chain of private Members’ Bills that have been introduced over a number of years to update the legislative framework for industrial and provident societies. I had the pleasure of leading for the Opposition on the Bill that my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) introduced to update the framework for financial mutuals. As a note of caution for the right hon. Member for Croydon, North, I point out that when that Bill received its Second Reading in March 2007 it was greeted with acclamation on both sides of the House, but when it reached its final stages in October 2007 its main purpose was not quite as popular as it had been just a few months earlier. Its main purpose at the time of its Second Reading was to increase the ability of building societies to borrow from wholesale financial markets. The run on Northern Rock rather put an end to that particular purpose, but of course that Bill has now been used to facilitate the merger of different financial mutuals, which is an important purpose. I have to say to the right hon. Gentleman that I have not spotted any provision in this Bill that might lead to a similar ebbing away of popularity over the course of the next few months, but perhaps if there is any, the Minister might be able to point it out to us.
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