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It is probably wrong to pick out any particular sector, but I happened to meet housing association representatives yesterday and they were keen to remind me that they are not just about bricks and mortar; they are also about providing community services through employment, health and education projects. They are important partners of regeneration. A recent audit of those services found that they annually invest at least £435 million in that work.
Whether the bodies in the sector are building societies, housing associations or football supporters clubs, they need the right legislative framework, and one that is suited to the 21st century, and this Bill provides that. As the right hon. Gentleman said, the Bill addresses four key issues. First, it requires new industrial and provident societies to register as co-operatives or community benefit societies. Secondly, it calls for the renaming of the Industrial and Provident Societies Acts; it has been agreed that the term industrial and provident society is arguably an outdated term, and hides the wide range of bodies that can be constituted as mutuals. Secondly, it applies the Company Directors Disqualification Act 1986 to industrial and provident societies. It is my understanding that there was no outstanding reason why officers of mutual societies should not be dismissed for negligence, as they can be under company law. Thirdly, it gives the Treasury powers to apply to community benefit or co-operative societies the company law on investigation of companies, company names and dissolution and restoration to the register. Finally, it gives the Treasury powers to make provisions for credit unions corresponding to any provisions applying to building societies. The clear theme is one of recognising the contribution mutuals have made to our economy by passing legislation that updates the framework within which they operate.
The Bill has been widely consulted on, and the mutual sector is broadly happy with the proposals. It is customary now to thrash out any issues left hanging after Committee stage, but this Committee stage lasted 14 minutes, at least two of which, I understand, were taken up by my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) praising the Bills sponsor for his integrity and experience. Given the career implications of that, it must have been the longest two minutes of the right hon. Gentlemans life, but I am glad to see that he has recovered from the experience, and has been here today to guide us through proceedings at a steady pace.
At this point, however, we must sound a note of caution. Cross-party consensus must not become an excuse for lack of scrutiny. The Bill is important. It will modernise the legal framework of co-operatives and protect the interests of their members and industrial and provident societies through the provisions. It is not simply a tidying-up exercise. There are instances where co-operatives should be considered as companies and credit unions should become more like building societies, but mutuals are not companies and credit unions are not building societies and should not strive to be. We need to make sure that these legislative reforms are able to deliver the necessary modernisation while protecting the unique status of societies and credit unions. They are not the solution to all our problems either. There have been many casualties in the mutual sector throughout the financial crisis. It is not the case that all mutuals are well managed and it is in the interests of the members and customers of mutuals that their directors are brought
within the remit of the Company Directors Disqualification Act 1986. As a result, although support for the ethos of mutuals is unanimous, so should be the recognition that they need effective regulation and the right legislative framework in which to operate. The Bill is principally an enabling one, and much will depend on the secondary legislation and the legislative reform orders that will follow. The standard of scrutiny that we have seen thus far must be maintained. The one thing that did emerge from the Committee was the news that the secondary legislation is yet to be drafted, and even when that has happened, it will be subject to extensive consultation. It is vital that those changes have the support of the sector, and that can be achieved only by proper consultation.
In conclusion, Conservative Members welcome the Bill, which should help mutuals to achieve their full potential through a more modern legal framework. We welcome both the protection that it gives members of mutuals from poor directors and the modernisation of credit union legislation. We wish this welcome Bill well.
The Financial Secretary to the Treasury (Mr. Stephen Timms): I am delighted to provide the Governments response to this Bill. I thank my right hon. Friend the Member for Croydon, North (Malcolm Wicks) for the leadership that he has shown in introducing this Bill and I pay tribute to his commitment to the cause of mutuality. I echo what the hon. Member for Ruislip-Northwood (Mr. Hurd) said about the achievement that this Bill represents. I know that this is not the first time that my right hon. Friend has piloted a private Members Bill through the Househe did so with carers legislationso this is a field in which he is well experienced and this Bill reflects that. It makes an important contribution to improving the framework within which co-operative and community benefit societies and credit unions will be able to work in future.
The Government place a high value on the role that co-operatives and credit unions play in the UK economy. Along with other mutuals, such as building societies and friendly societies, they have had an immense influence on the development of our financial system as it stands today. The hon. Member for Ruislip-Northwood is right to underline to us the extent and scale of this sector of the economy; mutuals provide a very wide range of services to millions of people up and down the country. The building society sector has traditionally had a very strong presence in savings and mortgage markets, but it is a particular characteristic of mutuals such as credit unions and industrial and provident societies that they reach into communities to help people who might otherwise not have any access to mainstream financial services. That is a particularly important strength that the sector offers.
Mutuals have combined total assets in excess of £400 billion and about half the UK population has membership of at least one mutual, so there is absolutely no doubt that mutuals are a major part of the financial landscape. This debate has touched on the history of demutualisation and people sometimes give the impression that there is nothing left following the demutualisations that have taken place, but that is certainly not the case;
this is a large sector that makes a very important contribution, and we need to support it in the way that this Bill will help us to do.
From the Governments point of view there are three major benefits of this Bill. First, by providing support to the mutual sector the Bill will promote choice and diversity in financial services. The hon. Member for Worthing, West (Peter Bottomley) warned us against the danger of placing too much reliance on the mutual sector and that is a fair point. Nobody in the HouseI include my right hon. Friend the Member for Croydon, North in thiswould argue that we should be solely reliant on the mutual sector, but there is an important point to make about diversity. After the problems that we have seen in the financial sector over the past year or two, it is particularly clear that the alternative model offered by the mutual sector is one whose value we should not underestimate. Choice and diversity in financial services are an important gain from the agreement of this Bill.
The second benefit to which I wish to draw the Houses attention is the Bills ability to encourage saving and confidence in it. There has been a big rise in the saving ratio over the past couple of years, for reasons with which all of us will be familiar, but it is important that we encourage a culture of saving and that we encourage people to be confident about saving. The mutual sector is making a very important contribution, not least in the availability of child trust fund savings products, individual savings accounts and other products that it offers, which are attractive to an important cohort whom we wish to encourage to save. Credit unions are also clearly making a very important contribution to the culture of savings. That is a second benefit that we can anticipate from the agreement of this Bill.
The third benefit, which was also touched on by the hon. Member for Worthing, West, lies in the promotion of financial inclusion and capabilityensuring that people have information on and access to a range of products that suit their needs. As my hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry) rightly underlined, we should seek to provide an alternative to loan sharks and the very high cost sources of credit of which we are seeing too much in our constituencies at the moment. It is pretty clear that difficulties in the credit market more generally have pushed people towards those very high cost sources of borrowing over the past couple of years.
The financial crisis has highlighted, in a new way, the traditional strengths of the co-operative modelthe mutual model; it has stood up very well through this crisis. As we have been reminded in this debate, this model has a very long tradition and is based on the values of support, the common good and community. I was not present in the House for the Second Reading debate, but I gather that my right hon. Friend the Member for Croydon, North was able to point to a lineage that stretched back to the Romans, so this model has a very long history indeed. In Britain, it arose, in particular, from initiatives on the part of workers to provide their own social safety net at the time of the industrial revolution and from community-based self-help in newly burgeoning towns and cities that allowed poor working families to secure at least some protection from the harsh insecurity and ravages that
accompanied industrialisation and urbanisation. The hon. Member for Somerton and Frome (Mr. Heath) was right to remind of us Rochdale. I did not know that its Member of the House at the time had previously been a representative of his constituency.
This model has a very long tradition, whereby local community cohesion has provided a very good way of managing credit risk. The bonds formed in communities have proved to be a resilient and sound basis for the development of what went on to become some very impressive and substantial financial institutions. Workers have saved together and borrowed from each other, inspired by the writings of Robert Owen and adopting the model that was put in place by the Rochdale pioneers with the principles that they formulated. My right hon. Friend has reminded the House of that.
Credit unions have a rather different heritage. They originated in rural Germany among agricultural workers and then spread to much of Europe, including Britain, by the end of the 19th century. However, the modern credit unions in Britain have more recent roots, which go back to the 1960s and are linked particularly with immigration from the West Indies, where the credit union movement was a good deal more firmly established at that time than it was in the UK.
We have heard about some of the legislative underpinnings for credit unions, and the Credit Unions Act 1975 set in law the requirement for a common bond, which characterises the movement today. Like my right hon. Friend and others who have spoken in the debate, I am a member of my local credit union, NewCred, the excellent Newham credit union. Unfortunately, unlike my right hon. Friend and his local credit union, I was not invited to address its annual general meeting, although I have spoken to meetings of NewCred in the past. It is another of the patchwork of excellent organisations that several hon. Members have mentioned, strengthening the financial resilience of the communities that we represent.
I wish to associate myself with what my right hon. Friend said about the Presbyterian Mutual Society and the expectation that the administrator will present a report shortly on what happened. I add my sympathies to those that he expressed about the predicament of members of that society and the great anxiety that they have suffered in recent months. I hope that those difficulties will be satisfactorily resolved before too long.
The hon. Member for Worthing, West raised the issue of the Treasurys role in this matter. It is right that the Bill gives powers to the Treasury, because it has policy and legislative responsibility for the mutual sector, of which industrial and provident societies are a part. It is consistent with the powers that the Treasury has in respect of such societies in the existing IPS legislation. The Financial Services Authority has the regulatory role, so in these circumstancesnotwithstanding the hon. Gentlemans illuminating anecdote about retrieving a letter from the Royal Mailit is appropriate that the power is vested in the Treasury.
Peter Bottomley: If the Bill reaches the other place, perhaps it might be possible to unpack in public what the words the Treasury mean. Otherwise, perhaps the Minister could write to me. I accept his point, but do those words mean that an official can do it or is a Minister required to do it? That would be useful information to have at some stage.
We are living through extraordinary economic times. The global economy is forecast to contract this year for the first time since the second world war. We have seen a worldwide financial crisis more severe than for generations. Against that backdrop, the strengths of the mutual sector have been highlighted, and we have seen mutual organisations playing an important part. We have also seen mutuals suffering alongside other institutions, as several hon. Members have pointed out, but the availability of an alternative model during the difficulties that we have experienced in recent months has been valuable, and the importance of that alternative model has been highlighted in a way that has not been the case in the previous few years.
There was a time when lots of demutualisations were taking place, and it looked as though the value of the mutual sector was not well understood. It is better understood now, for several reasonsand my right hon. Friend has drawn attention to some of thembut not least because of the backdrop of the very serious difficulties that others in the financial services industry have experienced.
In response to the crisis, the Government have taken a range of steps to reinforce the financial system and prevent its collapse, which was on the cards in the autumn of last year. We have also provided direct support for the economy, and we have seen data this week showing that those steps have had the desired effect. We have also cleaned up the banks, enabling them to restructure and increase lending. In the Budget, we also introduced measures to prepare to make the most of the opportunities of the upturn.
At every stage, we have been acting with other countries, because the issues faced by the mutual sector and the financial services industry more generally are being tackled around the world, given the global nature of the crisis that we have been through. That is why we have taken action to strengthen the whole financial system and to restore the flow of credit, which is critical to the success of the economy. We recognise that although banks are the main source of credit in the economy, they are not the only source. We need to build a financial system for the future and my right hon. Friend the Chancellor will lay out the Governments thinking on the future shape of financial regulation before the summer recess.
Against that backdrop, and given the problems that we have seen with access to credit for families and businesses, the importance of the mutual sector and the significance of its potential contribution is clearer today than ever. So the provisions in this Bill will stand credit unions and other co-operative financial institutions in good stead to be part of the renewed financial services industry, meeting Britains needs as we grow out of this crisis. I know that hon. Members on both sides of the House will want to see the importance of the mutual sector reflected in Government proposals for financial services regulation in the future.
The problems that we have seen in the credit crunch have trickled down to households across the countrypensioners worried about their savings, young couples struggling to find a mortgage, and people facing redundancy or the repossession of their home. Issues of personal
finance have been pushed to centre stage, and the potential contribution of the mutual sector has also been highlighted. We have been able to commit to additional funding to boost the capacity of citizens advice bureaux in these difficulties to provide local face-to-face debt advice. In several instances, that will involve pointing people to the opportunities offered by their local credit union. We have also committed an extra sum of money to increase the provision of free telephone advice from the National Debtline service.
Alistair Burt (North-East Bedfordshire) (Con): The Minister is right to talk about the concerns that people have about personal finance. To that extent, it would help them to understand how the Governments spending plans bottom out over the next few years. The Minister is an honest man: can he confirm that the Government plan a 7 per cent. cut
The Government want to see a vibrant and self-sustaining mutual sector, offering high quality services and greater choice for its members. We recognise that one tangible way in which that can be achieved is to ensure that the sector is managed under a modern legislative framework. Increasing expectations from members and global competitive pressures make it important that we have such a framework that will facilitate the growth and expansion of the mutual sector, as well as enable the provision of a high quality service to its members. Those are some of the primary reasons why we welcome and support the Bill.
The main purposes of the Bill, as we have heard, are to modernise and update the law on industrial and provident societies by changing their name; to help to improve their corporate governance framework; and to give the Treasury the power to modify some aspects of the law on co-operative and community benefit societies in line with company law
Yesterday evening, the World Health Organisation raised its pandemic alert status to phase 6. The criteria for making this declaration are based on the geographic spread of the virus and not its severity. There is now clear evidence of sustained community transmission in countries outside north America, which means that we are facing the first pandemic for more than 40 years. Across the world, nearly 30,000 cases have been confirmed in 74 different countries. As of today, there have been 909 confirmed cases in the UK. There have been 144 reported deaths in six countries, but none in the UK.
Yesterdays announcement means that it is even more important that the global community works together to limit the impact of swine flu. Over the last few years, the UK has supported the UN system, including the World Health Organisation, in pandemic preparedness and response capacity. We will continue to support the World Health Organisation and its partners in the crucial months that lie ahead.
In response to this particular outbreak, we have also now set aside a further £6 million in additional help for the international response. The WHO declaration does not, of itself, trigger any material change in our domestic preparations, which have been under way for several weeks now and are at an advanced stage.
The Department of Health is continuing to work with other Government Departments, health protection officers and other health care professionals to slow the spread of the virus. That work includes our strategy of giving antiviral drugs for the treatment of those with symptoms and prophylactically to those who have potentially been exposed to the virus, and, where appropriate, closing affected schools. As our knowledge about the virus has increased, we have been able to refine our strategy to be in line with the best public health assessments.
At discussions at the Civil Contingencies Committee this week, we were able to update our strategy to respond to the latest advice. That includes the use of clinical diagnosis rather than laboratory testing alone where there is a high probability that cases are positive and the more targeted use of antiviral prophylaxis, which is where antivirals are provided on a preventive basis to contacts considered most at risk of contracting the virus. In practice, that will include mainly household or household-like contacts, or, in a school context, those at surrounding desks, for example.
We have been monitoring our domestic response continually. The formal declaration of a pandemic should not affect peoples day-to-day business and it does not affect our assessment of how the virus is behaving in this country. It is important to stress that the majority of cases in the UK so far have not been severe, with those catching the virus making a full and fast recoverythough a small minority of cases have been more serious.
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