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Building Societies Bill
6.9 p.m.
Lord Mackay of Ardbrecknish: My Lords, I beg to move that this Bill be now read a second time.
It gives me great pleasure to propose that the Building Societies Bill be read a second time this evening. The Bill has strong support from societies themselves, and from their representative organisation, the Building Societies Association. I am pleased to say, too, that in another place Opposition parties co-operated fully to ensure its successful passage through all its stages on 10th March, and again on Monday of this week.
It is vital for the long-term viability and competitiveness of building societies that this measure completes its passage through both Houses before the election. So I am sure that all those who support building societies--and I know that there are many in your Lordships' House who do that actively as well as passively--will wish to facilitate its passage here so that societies can enjoy the benefits which it brings as soon as possible.
As noble Lords will know, the Bill has three objectives. The first is to increase societies' commercial freedom, so that they will be able to compete more effectively in providing a wide range of retail financial services, giving customers more choice. At the moment, societies' boards spend a lot of time examining with their lawyers whether a new service or product which they want to provide falls within their current powers. The new permissive approach that the Bill introduces will make such difficulties unnecessary.
Societies will no longer be in danger of finding themselves unable to participate in new developments in the areas where they operate. For example, the Bill will sweep away the qualified asset holdings regime which places stricter limits on smaller societies. Societies will also be able to conduct, in their own name, a range of commercial activities which at present require them to set up subsidiaries. The scope of a building society's principal purpose will also be extended so that lending to finance rented housing will, in future, be regarded as part of core business.
The second objective of the Bill is to update the prudential supervision powers of the Building Societies Commission, so that the reputation for safety and security that building societies rightly enjoy as the home for the savings of millions of members can be maintained in the new, more permissive regime that will exist in the future. Examples of the commission's new powers include the ability to require societies to restructure their business profile if, for example, considerable growth in one area begins to push it outside even the more generously defined limits in the new Bill. The commission will also be able to direct a society to merge or be taken over in extreme circumstances if that becomes necessary in order to protect savers' funds.
The Bill's third objective is to bring societies even closer to their customers by underlining their mutual identity and making it easy for ordinary members to play a full part in their affairs. Many building society customers appreciate their position as members and the extra relationship that that brings. One of the virtues of mutuality is that members count. They, and they alone, are the people for whom a society is run. But time moves on, and the Bill gives us the chance to identify new ways in which that relationship can be further improved by increasing the availability of information and enhancing members' ability to have a say in what their society does and how it does it. Under the Bill, borrowing members will be given broadly similar rights to investing members in deciding how a society is run. Members will receive a statutory right to call a special general meeting; there will be tiered and, in a number of cases, lower limits on the number of backers required by someone standing for election to the board, and the
period when a would-be director may submit a nomination has been extended. Any proposal to expend more than 15 per cent. of a society's own funds on a new business outside its core activity will also need members' approval.This Bill is urgently needed. It has been the subject of extensive consultation with the industry, consumer groups and other interested parties. The Bill before your Lordships today fully reflects that. I believe that it is a balanced Bill. It leaves with societies and their members decisions about whether or not they want to remain mutuals--but, if they do, it gives them the freedom to extend their operations in new and exciting ways to their benefit and that of their customers. For those societies that have already decided to convert to PLCs, it offers relief from the costly requirements of the priority liquidation distribution right provisions in the 1986 Act and continues to give them five years' protection from takeover unless they choose to give it up either by a vote of 75 per cent. of their shareholders or, if they enter the takeover business themselves, by acquiring another authorised financial institution operating in the United Kingdom.
Building societies have a glorious past. The Bill gives them an assured future. With it, they will be able to carry into the next century those traditions of self-help and mutual support out of which the movement grew in this century. I commend the Bill to your Lordships.
Moved, That the Bill be now read a second time.--(Lord Mackay of Ardbrecknish.)
6.14 p.m.
Lord Eatwell: My Lords, I should like to thank the noble Lord, Lord Mackay, for introducing the Building Societies Bill and to assure him that from these Benches we welcome the legislation. We regret that the Government did not see fit to introduce such an important measure earlier in the parliamentary Session; for this Bill affects the financial affairs of 17 million building societies members, and it affects the future of the building societies industry as a whole which has, without doubt, been one of the success stories of post-war Britain.
Home ownership has become a fundamental part of British democracy. There can be no doubt at all that it has been the mutual building societies which have played the predominant role in the growth of our property-owning democracy. It is a growth which the Labour Party enthusiastically applauds. I said that the Labour Party regrets that the Bill has appeared so late in the parliamentary Session. It is indeed regrettable that noble Lords will not have an opportunity to give such an important financial measure the careful and detailed scrutiny which it deserves.
Having got that gripe out of the way, perhaps I may emphasise the commitment of the Labour Party to do everything possible to support and strengthen the mutual sector. As organisations owned by both borrowing and depositing members, building societies can provide highly competitive financial services to their members. This Bill gives them the freedom to do just that. The removal of the prescriptive regime of the 1986 Act, and
its replacement by a permissive structure (suitably buttressed by the requirements on lending for house purchase, and the requirements on the acquisition of finance and by the regulatory regime, outlined by the Minister) provides a new secure base from which building societies can compete.I must express some disappointment that the Government have not seen fit to enforce the two-year rule. There is a considerable danger of the building societies' movement being destabilised by speculative flows of capital in search of likely candidates for conversion. It is not good for building societies or for the financial services industry as a whole that that situation should pertain. I would be grateful if the Minister would reassure us that adequate safeguards are in place, and that new speculating members will not overwhelm older members who want their society to remain as a mutual.
The Labour Party enthusiastically supports the building societies' movement. The Labour Party also enthusiastically supports the extension of competition and choice in financial services. For those reasons, we are happy to support the Bill.
6.16 p.m.
Lord Kimball: My Lords, one of the first public functions that I ever attended was when my father represented the Loughborough division of Leicestershire in another place. In 1943 I accompanied him to Loughborough for the opening of the first office that the Leicester Permanent Building Society opened outside the City of Leicester. On that occasion I was given one of the first numbered accounts that were available. I should tell noble Lords that it was an account which failed to stand up to the pressures of undergraduate life at Cambridge, and was soon emptied. Therefore, I have no real interest to declare beyond the fact that, as a Leicestershire Peer, I realise what a major player in the financial field the Alliance & Leicester Building Society is now. I also realise what an important and historic role the whole movement has played. I am sure that the Bill will strengthen the movement and will help building societies, as we know them today, to achieve a secure future. In that way, the Bill is helpful. I fully understand the Government's good intentions and the support of the Opposition in that respect.
However, I believe that an amendment to the Bill is necessary but, before discussing its substance, I should like, first, to raise a number of points relating to the legislation. My noble friend the Minister said that the Bill was urgently needed, but it has been lying about for some considerable time. Indeed, there was no reason why it could not have been brought forward at a sensible time so that we had a proper opportunity to look at all its clauses and the schedules attached to it.
In fact, the Bill has been lying about for over 10 years and we have now reached a situation where this important legislation is being rushed through all its stages. I should like to be assured that we will not make the mistakes that were made in the 1986 Act. One might have thought that the priority for all concerned this time would be to see the Bill through and ensure that we get
everything right. How are we to know that, when the Bill is being pushed through in this extraordinary manner, or are we about to inflict some more unsatisfactory legislation on the industry? I ask your Lordships to consider this carefully.
In addition there is another great failing in this Bill in that I believe certain aspects of it represent that thoroughly reprehensible principle of retrospective legislation. On Monday night this Bill of 47 clauses and nine schedules--none of which will receive detailed consideration--was pressed through another place. I believe that it is our duty to scrutinise this legislation properly. I do not see how we shall be able to do that today. If this Bill is so important, surely more time could be found for it after the general election. Both sides of the House agree that this is an important Bill. Whoever wins the general election, there is always a slack period from the opening of Parliament until a new government--
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