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I shall make some general remarks about the importance of the mutual sector before turning to the details of the Bill’s proposals. We should not underestimate the vital contribution that co-operatives make to the economy. One in three of the population are members of at least one mutual, and among Members of Parliament that rises to the staggering proportion of seven in 10. That strikes me as a very high proportion and shows that it is not just on the Labour Benches that there is interest in,
and membership of, the co-operative and mutual sector. I myself am a member of a credit union, the Portsmouth Savers credit union, and my wife is a member of the Co-operative Retail Society. The largest supermarket in the part of my constituency in which I live is run by the Co-op, as indeed are many of the convenience stores. Co-ops are sometimes characterised as being something of the north—I say that as someone who was born and brought up in Durham, and whose mother still remembers her dividend number—but the co-operative and mutual societies movement spreads across the whole country. Every community is touched in some way by its work.
There are more than 16,000 mutual organisations, ranging from building societies to NHS foundation trusts—a new approach in which the model of mutualities has been used. Football supporters’ clubs are also in the mutuals sector, and mutuals as a whole employ almost 1 million people and serve a membership of 23 million. Not only are mutual societies popular, they have an important contribution to make to the economy as a whole. They have annual revenues of £85 billion and a portfolio of assets of £477 billion, so they play an important role in the economy. As a number of hon. Members have commented, the increased scepticism about some of the more conventional models of ownership has led to a renaissance of interest in mutuals. Of course, the large mutuals compete alongside the very best in the private sector. The hon. Member for Edmonton and others mentioned the acquisition by the Co-op of Somerfield, and in the retail sector we also see the continuing success of John Lewis, which is a partnership and an employee-owned co-operative.
Despite the changes in society, mutuals remain an important part of its fabric. Why is that? Because the very best mutuals harness the power of mutuality to ensure their survival. Good mutuals offer excellent products and services focused on the needs of their customers, as well as strong accountability to their members. Mutuals continually need to justify their existence, and what better way for them to do that than reminding members that they are the owners, and that it is to the owners that the management are accountable? If an organisation’s owners are its customers, accountability comes through not just the formal mechanism of meetings but the buying decisions that the members make.
Mutuals are going through a renaissance as mutuality is applied to new areas. The growth of credit unions, on which a number of Members have focused, is a good example. Increasingly, policy makers see benefits arising from models of mutuality, because in many different ways they fill a gap between the public and private sectors. To use an old Blairite phrase, they are the third way, offering the best of each. They are democratically accountable and have a public service ethos, with the characteristics of the public sector, but with dynamism and customer focus, which are often the characteristics of the private sector. They have provided a vital bridge between the public and private sectors, bringing the advantages of democratic accountability and consumer focus.
We are starting to see, for instance through changes in the health service, how mutuals can be used in the provision of services to our communities. In a way, it is an echo of the pre-1945 model of health care. Prior to the introduction of the national health service, a lot of health care was provided by mutuals. Now, as primary
care trusts are splitting off some of their provision from their commissioning role, mutuals are again seen as a way of providing a governance framework for the provision of services.
Mutuals are not just a focus of Government policy, but a matter in which the Conservative party is particularly interested. That is why we set up the Conservative co-operative movement—to explore new and creative ways in which communities can deliver public services. I shall give an example from overseas. One thing that we are keen to explore is liberalising the supply side of education by enabling co-operatives to be a vehicle for the governance of establishing new schools. They could play a key role, as parent-run co-operatives provide both accountability and consumer focus. They could retain the public sector ethos yet be dynamic, because they would be freed from unnecessary bureaucracy. That model is used in Spain, where there are more than 600 co-operative schools, and in Sweden where there are nearly 100. There is one co-operative-run school in the UK, in Redditch. We believe that such models can be applied to the provision of public services in future.
What has stood out in the debate is that whether it is new models of public service delivery through mutuals or the way in which co-operatives continue to thrive in providing financial or retail services or as football supporters’ trusts, mutuals have thrived despite an arcane legal framework. We welcome the fact that there have been successive moves over recent years to modernise that arrangement and provide co-operatives with the framework that they need to continue to develop in the 21st century. Indeed, that is the purpose of the Bill.
However, we need to be mindful about whether we are creating the impression that mutuals are in every way perfect. As the hon. Member for Edmonton and others pointed out, they are not successful all the time. Sometimes there are problems. That is why mutuals need effective regulation and an effective legislative framework. That is why we need to think for a moment about some of the provisions in the Bill and how they may interact.
Before I do that, however, I want to draw one distinction. In my opening remarks I lumped all mutuals together as a class, but there is quite an important legislative distinction, which comes through in the Industrial and Provident Societies Act 1965 and is repeated in the Bill. The Bill relates to industrial and provident societies, whose remit is set out in the 1965 Act, which makes it clear that a co-operative society
“does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person.”
There is therefore a clear distinction between what industrial and provident societies are able to do and what other mutuals are able to do. Clearly there is a fairly extensive legislative framework for other mutuals, such as building societies, credit unions, which are touched on in the Bill, and mutual insurers, which are regulated much more closely than industrial and provident societies are, by the Financial Services Authority. Of course the FSA regulates industrial and provident societies by operating the register, but it regulates only those industrial and provident societies that are registered under the 1965 Act.
In Northern Ireland there is a comparable Act—the Industrial and Provident Societies Act (Northern Ireland) 1969—and the role of the registrar is played by the Department of Enterprise, Trade and Investment. The importance of getting the regulatory regime right for industrial and provident societies is emphasised by some recent events in Northern Ireland and the fate of one particular industrial and provident society, the Presbyterian Mutual Society.
The Presbyterian Mutual Society was registered under the 1969 Act and was strongly supported by members of the Presbyterian Church. Sadly, the society is now in administration, because of a run on it by creditors and members. We should bear in mind the fact that the definition used for Northern Ireland in the 1969 Act is exactly the same as the definition used in the 1965 Act, which applies to industrial and provident societies set up in Great Britain. However, it appears that the Presbyterian Mutual Society was, under the nose of its regulator, the Department of Enterprise, Trade and Investment, acting as a bank. That was not picked up, either by the society’s own regulator or by the FSA, in its role as a regulator of financial services.
Because the Presbyterian Mutual Society is outside the regulatory remit of the Financial Services and Markets Act 2000, it is not covered by the Financial Services Compensation Scheme, so its members are dependant upon the outcome of the administration to recover their investments. That will cause a great deal of hardship and uncertainty for its members. According to the investigation carried out by the FSA, the Presbyterian Mutual Society should have sought authorisation from the FSA, but it did not do so. As a consequence, the Presbyterian Mutual Society’s members lack the normal protection that members and customers of a financial mutual would have.
The Treasury and the Department of Enterprise, Trade and Investment have announced an investigation of the regulation of Northern Irish industrial and provident societies. However, does the Minister agree that we need to ensure that the investigation looks at why neither the Department of Enterprise, Trade and Investment, as the registrar of industrial and provident societies in Northern Ireland, nor the FSA, the UK’s financial regulator, picked up on the fact that the Presbyterian Mutual Society was acting in breach of law?
We owe it to the members of the Presbyterian Mutual Society to consider the issue carefully. I would also like to ask the Minister whether he is confident that the procedures used by the FSA, in its role as registrar of industrial and provident societies, and by the Department of Enterprise, Trade and Investment in Northern Ireland, were sufficiently robust to enable them to spot industrial and provident societies operating in breach of the rules. Is there adequate oversight of the sector to ensure that what has happened to the Presbyterian Mutual Society cannot happen again?
What has happened is, along with the problems with the Dunfermline building society, a timely reminder that mutuals are a hugely important part of the economy. They are trusted by so many people, but they need proper supervision, regulation and legislation. That is an important reason why we support the Bill—because
it takes forward those opportunities so much further and provides reassurance to members of industrial and provident societies.
The Bill flows from the consultation that the Government initiated in 2007 on the legislation covering industrial and provident societies and credit unions. The purpose of that review was to identify areas where inflexible regulation hinders operational effectiveness and acts as a barrier to societies being used in the 21st century, and to ensure that their members have the same safeguards that shareholders of companies would have. Bringing the rules that govern industrial and provident societies into line with those that affect companies is an important aspect of the Bill. That is also true of bringing the legislation for credit unions into line with the measures that are already set out for building societies.
The issues covered in the Bill range from corporate governance and accounting standards through to competitiveness. However, as the review indicated, not all the things identified as barriers to operational effectiveness required primary legislation. Some of the issues, such as lowering the minimum age for membership of a society and auditing and capital requirements, can be addressed either through the forthcoming legislative reform order, which has received widespread support from across the mutual sector, or through secondary legislation. The remit of the Bill is important, but it is also quite narrow. The Bill should therefore be seen as only part of the modernisation of the legislative framework for financial and non-financial mutuals.
The Bill will require new industrial and provident societies to register as either co-operatives or community benefit societies, as well as renaming the various industrial and provident societies Acts. The Bill will also apply the Company Directors Disqualification Act 1986 to industrial and provident societies and their management, which is important. Where someone involved in the management of an industrial and provident society has let down its members, we should ensure that they cannot have a management role in a similar society in the future. That provision strengthens the protection for members of industrial and provident societies and gives people much more confidence in the governance of such societies.
Much of the Bill is about enabling the Treasury to bring forward various powers. The Bill gives it the power to apply company law provisions to industrial and provident societies in respect of the investigation of companies, company names and dissolution and restoration in respect of the register. The hon. Member for Edmonton asked whether the FSA was seeking to purge such societies from its register. It is important that someone seeking to find out whether a society is valid and active should be able to consult an up-to-date register. My concern is how, if there are too many societies in the register, including dormant societies, people will be able to be reassured that a society is a valid organisation that is not being used for wrongful purposes. As I said earlier, the Bill also gives the Treasury powers to make provisions for credit unions correspond to any provisions applying to building societies.
I have yet to find a word of criticism for the Bill. [ Interruption. ] The right hon. Member for Croydon, North is encouraging me to sit down. I will do so shortly. The Bill has been greeted with popular support,
which is positive. It is rare that a measure comes to the House about which there is not a word of criticism from some quarter or some corner of life.
The proposal to change the name of industrial and provident societies is certainly necessary. One of the comments in the feedback was that the title “industrial and provident society” was outdated and could even have a negative impact on the sector by appearing old fashioned and out of touch. We want these societies to be seen not as industrial or providential relics of the past but as institutions that are ripe for the 21st century. Going back to a point made by the hon. Member for Plymouth, Sutton (Linda Gilroy), the great phrase from the former Deputy Prime Minister about “traditional values in a modern setting” could also apply to the renaming of these societies. It is funny how all these phrases from the past are proving so helpful in discussing the Bill today.
The synchronisation of the laws governing companies with the laws governing industrial and provident societies is an important provision. Respondents to the consultation felt that there was no reason for mutuals to be treated any differently from other companies. That applies particularly to the disqualification procedures. There were calls for the legislation to go slightly further, and a suggestion that the winding up of mutuals that had become dormant should be simplified, so as to accelerate the process and to make it more akin to the process relating to companies. A response to that suggestion, however, highlighted the need to be mindful of the nature of mutuals, because the objectives of the societies and the requirement for fair treatment of their members mean that the winding up of a dormant mutual must be much more sophisticated than the winding up of a dormant company.
The Bill also makes provision for credit unions, and the consultation summarised the need for a degree of compromise in that area. The trade bodies were unanimous in favouring further consultation on whether there should be a power to assimilate the law for building societies and companies into the law for credit unions. That would mean that credit union law could be kept up to date with the latest developments in related fields by order rather than by primary legislation, which might not be available. Respondents did not want credit union law to fall behind, but were keen to ensure that changes that were made as a result of the Bill were consistent with the nature of credit unions and made only after consultation. It is important to ensure that we do not simply railroad the changes for building societies through wholesale in relation to credit unions as well. As the sector develops and strengthens, we need to ensure that the changes are made in consultation with the sector. We should not lose sight of the unique features of the credit unions; we must ensure that the law preserves them.
There has been widespread support for the proposals in the Bill. It has been welcomed, and we are happy to support it. As I have said, it is not the final word on reform; the legislative reform order will take that further. I would like to raise a couple of points with the Minister. There is some pressure for the implementation of previous changes to carried out. The Industrial and Provident Societies Act 2002 introduced a power which allowed society law to be updated if company law had changed. A number of areas in the Companies Act 2006 have
been changed, and societies would like to take advantage of them, but the power under the 2002 Act that would enable them to do so has still to be implemented. Further work needs to be carried out in that area.
The Electronic Communications Act 2000 is also relevant. A number of co-operatives have pointed out that many credit reference agencies use online sources for credit checks these days, but very little information on the societies is available online at the moment. We need to look at that area carefully. If we are to enable co-operatives, industrial and provident societies and other forms of mutual society to compete on a level playing field with private companies, we need to ensure that credit reference agencies can treat them in the same way when getting hold of their information. We need to see what more can be done to ease that process.
This is an important Bill. It is not controversial, and it will give members of industrial and provident societies the legislative framework that they need in order to feel protected, and that will enable them to continue to do their vital work in the 21st century without being seen as relics of an industrial past.
11.25 am
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I am conscious of the fact that there are other important Bills on the Order Paper today, and that many of the points I was going to make have been made by previous speakers, so I shall try to keep my remarks brief. I should preface my comments by saying that I am a Labour and Co-operative Member of Parliament. Prior to my current employment, I spent 18 years as a Co-operative party organiser, and I am now chair of the all-party parliamentary group on building societies and financial mutuals. My experience in those roles will inform the remarks I make.
I wish to join others in congratulating my right hon. Friend the Member for Croydon, North (Malcolm Wicks) on introducing the Bill. My professional background makes me highly sympathetic to it. Its title—the Co-operative and Community Benefit Societies and Credit Unions Bill—is a demonstration of the fact that a family of corporate models is developing to meet the changing needs of our economy and the changing social habits and values of the public. Different models have different aims, but they share two essential features: they are democratically owned and run by consumers, employees, producers or local communities, and the money earned—the profit—is reinvested, for social, educational or environmental purposes and for the local community. There is an emerging consensus among the public at large that this kind of business is the way forward. The old, traditional perception that our economy should be run by shareholder-driven proprietary companies or monolithic public corporations is disappearing. A new model is emerging that is more sensitive to the needs of local communities and that accurately reflects the public’s values and aspirations.
From my experience as a Co-operative party organiser, I can remember the 1980s and 1990s, when the co-operative movement struggled to meet the challenge of the aggressive retail multiples, and lost market share as a result. That was partly a result of its outdated corporate legislative base. The public perception of the co-operative movement at that time was of an outdated retail provider that was
not responding adequately to changes in retailing habits. The new co-operatives were often unfairly characterised as the province of sandal-wearing, muesli-munching, long-haired, hirsute members providing for a tiny niche market. I might add that my appearance is totally coincidental in this context. Generally, the movement did not reflect the values and public perceptions of the time. The building societies were also under sustained attack. Privatisation was in the air, and they too were often perceived as anachronistic and not delivering the services that the modern public wanted.
What a transformation there has been in the years since! The excesses of the current banking crisis have clearly demonstrated that mutually owned businesses are far more highly regarded than those that are shareholder-owned or shareholder-driven. The co-operative movement has come of age in many ways. It has reinvented and reformed itself as an ethical provider, going back to its community roots. Its turnover is £27.4 billion and it has assets worth just under £10 billion. It consists of 4,700-plus democratic businesses with about 10 million members. It is a very significant proportion of the economy.
There are 55 building societies, which have 23 million members and assets worth £360 billion—huge organisations of enormous significance and, notwithstanding one or two unfortunate examples such as the Dunfermline, with a record of durability that the proprietary sector simply cannot match. Yesterday, I attended the 160th anniversary of the West Bromwich building society, which is not untypical of these organisations and their history. Perhaps they were seen as anachronistic 20 years ago, but now they are not.
A YouGov survey showed that 90 per cent. of people trusted customer-owned businesses; 84 per cent. trusted employee-owned businesses; just 32 per cent. trusted Government-owned business; and only 20 per cent. trusted shareholder proprietary companies.
Linda Gilroy: The present credit crunch started in the US sub-prime market and it severely affected trust. Does my hon. Friend agree that that is one further factor showing what an important role this sector should play in our macro-economic thinking?
Mr. Bailey: I thank my hon. Friend for her intervention. I agree that a clear demonstration of the point has been the flow of investment from the proprietary banking sector to the building society sector as a result of events following the sub-prime market crisis.
It makes sense for the Government to promote legislation that strengthens the sector, so let me briefly highlight a couple of proposals that I particularly support. First, I support the change of name. Speaking as a Co-op historian, I am very sorry to see the demise of the term “industrial and provident society”, which is redolent of those sepia-tinted photographs of moustachioed, waistcoated Victorian gentlemen that I see so often in the Victorian boardrooms of the former co-operative movement, but it does not accord with the wishes and preferences of the modern consumer, which it is important to reflect. Like others, I find it absolutely unacceptable that directors could ruin other businesses or act improperly and that the same actions would be okay for a co-operative.
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