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Lord Kimball: My Lords, there may not be, but I think your Lordships will agree that usually there is a period when people may even introduce mischievous legislation. I hope that after further consideration my noble friend will agree that the sensible thing to do is to withdraw the Bill now and come to an agreement that, after the opening of Parliament, and before other Bills are ready, we should get down to a month's sensible consideration of this Bill in all its aspects.
Shortly my noble friend Lord Brabazon and I will move an important amendment. However, the real reason for asking for this Second Reading debate is that we should realise that there is a certain amount of unhappiness in certain sections of the building society industry as regards this Bill. My noble friend will say that there was massive consultation before the Bill was brought forward. However, despite that, no agreement was reached on the particular points put forward by the Alliance & Leicester Building Society.
With those words of warning, I hope that if other objections are raised my noble friend will seriously consider whether it is right to push on with such haste on a Bill that could well be given proper and due consideration in May.
6.23 p.m.
The Earl of Kinnoull: My Lords, in taking part in this Second Reading of the Building Societies Bill I should first declare an interest in that I have the honour to be a director of the Woolwich. I speak of course in a personal capacity and am not putting forward any Woolwich policy. I add that I fully supported its decision to go down the plc route, which recently received overwhelming approval from its members and, I believe, offers an exciting future.
Times have changed dramatically over the past few years in the financial services market. Banks, building societies and insurance companies are all competing as never before to maintain or to gain their market share,
largely to the benefit of consumers. Almost every week one sees a new and innovative financial product being launched, and the industry becomes almost as bewildering as the air travel fares jungle if one wishes to fly abroad. One thing appears certain; namely, that the financial services industry will contract in significant numbers in the future through either friendly or hostile mergers or takeovers. Mutual building societies or mutual insurance companies are not immune from that competitive world. One could cite the Scottish Amicable in that regard.Building societies are valuable targets for banks or financial institutions with their large membership and often considerable spread of branch offices. A great deal of profitable cross-selling can be achieved with new financial products from their large base of members. All of us, I am sure--as we have already heard--have admired the valuable role that mutual building societies have played over the past 150 years not only in providing mortgages for millions of members and helping to increase home ownership, but also in providing a safe haven for their precious savings. It is a special movement and has played a most valuable role in our society. No investing member has ever lost a single penny through investing in a building society. One cannot claim the same for other financial institutions. One might ask why that is. The answer is that if a society runs into difficulties the movement generally will stand behind it and perhaps a large society will take over the problem. The Woolwich has had a proud record of such action in the past. This valuable movement, caught up in a highly competitive and changing market-place, deserves in my view--as my noble friend Lord Kimball said--the most careful parliamentary scrutiny as regards any new framework that is designed for societies to operate in during the next decade.
I regret very much this poor procedure today, just before an election, which reduces this important Bill to being treated like some unattractive horse deal to be whistled through this House in one day. One has to ask what is the urgent rush. My noble friend asked exactly the same question. Why could not both main parties give an undertaking to introduce a Bill giving Parliament a right to scrutinise the new powers?
I appreciate that the provisions of the Bill have been thoroughly discussed, as my noble friend said in his introductory speech. They have been thoroughly discussed within the industry. I pay tribute to the Building Societies Association for the work it has done in that regard. Nevertheless not all opinion is unanimous, as my noble friend said and as those of us who have received briefings from the Alliance & Leicester can see.
I support the general tenor of the Bill. It seeks to modernise the operational envelope within which the mutual building societies can operate in the future. That largely meets the current criticism of the limitations of the 1986 Act and will no doubt help societies to compete in tough financial markets. I have no quarrel with that. My quarrel concerns the future, and the danger that a contracting industry is faced with as regards hungry predators jockeying for position to snap up societies.
Those predators are likely to be banks and insurance companies rather than building societies--because, of course, building societies fit so well into their plans.My honourable friend the Minister in another place gave some assurances last Monday that the mutual building societies are not sitting ducks waiting to be snapped up by City predators. I must say that I do not share her confidence. We could have added to the Bill some additional defence to enable the genuine mutual societies to operate with stability. The problem she did not address is how one counters a leaked bid from a large predator which is immediately taken up in dramatic form by the media, which list in detail the benefits to members. The bid will probably value the society way above its existing performance in the form of a knock-out bid. It would take a very skilful board and advisers to counter such tactics, to remain credible, and to keep the confidence and support of members. The evidence does not support any complacency on the part of mutual societies that they are immune from the market-place.
I find unfortunate the timing of the announcement by my honourable friend the Minister of a change in the protection clause for those societies already declared to be proceeding down the plc route. First, to confirm last March that there would be no change in the protection clause when aware of the four societies moving down the plc route, and then to change the rule at virtually the last minute, was somewhat confusing. I am not sure that this move will have much effect in deterring carpet baggers.
Certain reasonable compromise amendments were put forward in another place and rejected on the ground of lack of parliamentary time. I think that such a parliamentary pickle is a poor reflection on the need to provide the best possible framework that building societies deserve to take them safely into the next century.
6.30 p.m.
Lord Brabazon of Tara: My Lords, I am grateful to the Minister for his explanation of the Bill. It was only after considerable thought within the final hours of this Parliament that I decided to speak in the debate, and to do so from a starting-point of considerable sympathy with and support for the objectives of the Bill and the efforts of the Government to complete their legislative goals with time pressing.
I come to this issue having had some experience in a former existence as a Treasury spokesman. I took the Building Societies Act 1986 through this House. I am glad to see my noble friend Lord Stewartby in his place. He was the Treasury Minister with responsibility for that Bill at that time; and we worked well together, if I may say so.
There was recognition then that building societies needed greater commercial freedom within defined limits to be able to compete more effectively in the increasingly competitive financial services market. I am pleased to see that the Bill necessarily updates and improves on that job.
As has been said, building societies are an extraordinary creation founded on the collective savings of individuals and families of often modest means. In the last century few would have predicted that they would become the central part of the financial service providers that they are today, with the most distinctive brand names on the high street among their number.
Quite rightly, the Bill seeks to broaden the financial scope of building societies while maintaining their fundamental character. As a result of the Bill we should see greater accountability to members and the removal of some of the restrictions imposed by the 1986 Act, while the fundamental purpose and character of mutual building societies are maintained. To that extent, the Bill is the product of diligence, consultation and not a little good fortune with the legislative timetable.
Perhaps the Bill is an apt demonstration that, however much consultation a Bill may go through, changes introduced at the eleventh hour may upset the good work undertaken and have adverse consequences.
I stress that the Bill, which is in many ways one for the industry and ultimately for the good of the consumer, must be based on consensus. It is not a flagship Bill defining the Government's mission. It is not, I believe, an electorally sensitive Bill. It therefore falls on all our shoulders to ensure that the Bill contains consensus measures, particularly given the shortage of time, to iron out any wrinkles.
To a large degree, the Minister can claim great credit. The Bill has been seriously canvassed since 1994. A draft Bill was published in March 1996. Comments on the contents were submitted from many parties including many building societies; and there was a good deal of disappointment when the Bill did not appear in the Queen's Speech.
Having said that, we now have before us a Bill of 47 clauses and 9 schedules which we shall take through all its stages this evening. It was introduced into this House only yesterday, having received a three-hour Second Reading in the Commons on 10th March, with Committee and remaining stages taking place only two days ago, on 17th March, again in under three hours.
I was alerted to a potential cause for concern by representatives of the Alliance & Leicester building society; and for the avoidance of doubt I should emphasise that I have no connection with any building society and am neither a borrower nor a lender with one. I shall expand on that cause for concern at Committee stage, but should point out that I met them only last Thursday. I have also had the opportunity to speak on the point to my honourable friend the Economic Secretary, for which I am grateful. But there has been little time for building societies or other financial institutions to make their points to noble Lords. It is all very well having lengthy consultation with the industry--that is good, but not at the expense of leaving Parliament out of it. I must ask my noble friend the Minister, as did my noble friends Lord Kimball and Lord Kinnoull, whether it is really necessary to rush this Bill through at the speed with which it is being taken. I remind my noble friend that when I took the Building Societies Act through this House in 1986 in Committee
we had to have something like 200 drafting amendments before the Bill was in the right shape. Some of those amendments were moved by me for the Government, and some by one of my noble friends on behalf of the Building Societies Association. Altogether the amendments amounted to some 200 before the Bill was right. I only hope that my noble friend can assure the House that this Bill is really well drafted and will not lead to the kinds of problems that would have resulted had the previous Bill been rushed through. With those words of caution, I welcome the general principles of the Bill.6.36 p.m.
Lord Ezra: My Lords, I had submitted my name for inclusion on the list of speakers but for some reason it was not included. It has been suggested that I speak in the gap. I do so briefly.
I make it clear from these Benches, that we, too, support the thrust of the Bill. We think it timely and important. We fully support the mutual movement. We think that the changes which the Bill proposes to make the regime more permissive, rather than the prescriptive regime of the 1986 Act, are wholly desirable. We believe that if the mutual societies feel, with the support of their members that they want to demutualise they should be able to do so. Broadly, therefore, we are in agreement with the Bill.
However, there are two issues on which I hope the noble Lord will comment when he replies. Both have already been mentioned. First, I refer to the two year rule. That led to considerable discussion in another place at Committee stage. There is the feeling--to some degree I share it--that the handouts which have been proffered as a result of demutualisation have led to a good deal of speculative movement in the membership of the mutual societies which is contrary to the spirit in which those societies were originally established. The two year rule was intended to limit that but in practice the arrangements appear now to be that each society decides for itself the limits that it places on the handing out of the benefits arising from demutualisation. I should have thought that it was a situation which requires clarification. I share the views expressed by the noble Lord, Lord Eatwell, on the subject.
Secondly, I sympathise with the views expressed by the noble Lord, Lord Kimball, the noble Earl, Lord Kinnoull, and the noble Lord, Lord Brabazon, on the modification of the protection clause. While I agree with the modifications proposed, there is a retrospective element about them. That is causing, I think rightly, concern among certain societies. Those societies decided, on the basis of the existing protection clauses, to demutualise. This now puts them in a difficult position. I know that some are pondering seriously what they should do next. I very much hope that in dealing with the amendment to be introduced later at Committee stage the Government will be able to suggest some way in which at least the retrospective element in the proposal, which is otherwise acceptable, can be introduced. Apart from those two comments, I support the Bill.
6.40 p.m.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to those of your Lordships who have spoken for the general level of support for this Bill. My noble friend Lord Brabazon of Tara mentioned the time it took for the 1986 Bill. When I was thinking about what I might have to do in this Session of Parliament I reckoned that perhaps if this Bill was introduced at the beginning of the Session I might get a few more hours of parliamentary time under my belt and another large notch, if I can so describe it, on my gunbelt, to use the jargon of the western. Instead, I suspect I shall only be able to make a very tiny notch there. However, perhaps your Lordships might be relieved at that because some of your Lordships might feel that I already spend more than enough time at the Dispatch Box--and certainly may feel that the clan does, if today is anything to go by.
Can I start by answering a question put by my noble friend Lord Kinnoull: what is the rush? I believe that that was also a point put by my noble friends Lord Brabazon of Tara and Lord Kimball. The reason for the rush is that there has been extensive consultation, to which I shall refer later; but the Building Societies Association was very keen for the Bill to go ahead now. They did not wish us to wait until after the next election.
This is one of the first Bills to be published as a draft in advance, and is part of our initiative towards better legislation. The very fact that it has been published in draft means that there has been quite a long time in which to discuss and amend it. I hope that that goes some way towards explaining to my noble friend Lord Brabazon why, unlike some other Bills, this Bill is probably less in need of detailed scrutiny and amendment than some others that have been brought before to your Lordships' House.
The Bill was announced in 1994, in the review of the Building Societies Act. It was stated that the Government were contemplating a Bill of this nature. That was followed by consultations on the framework. The draft Bill, which I have already mentioned, was published for consultation in 1996 and the revised Bill was published in December 1996. We introduced it as soon as we possibly could. As your Lordships may recall, back in the autumn there was speculation about this Bill forming part of the Queen's Speech. Unfortunately, it did not manage to achieve its place in the main timetable, so to speak. However, I think that my honourable friend Mrs. Angela Knight made it clear that we would seek any opportunity to introduce the Bill and try to get it through in this Session, if that was possible. That indeed has been made possible with the agreement of both Opposition parties in this House and in another place.
We have received very useful and thoughtful comments over quite a long period of time from the building societies themselves, private individuals, professional organisations and a number of legal practices. We are very grateful to all those who responded for devoting time and resources to consider a Bill which at the time was actually not assured of a slot in the parliamentary timetable. They raised new issues
and brought a range of different perspectives to bear on the legislation, and we are indeed very grateful to them for their help.Perhaps I may now deal with one or two matters and leave the point about the five-year protection until the Committee stage when we deal with the amendments, if that is agreeable to my noble friends, rather than repeating an argument in a very short period of time.
My noble friend Lord Kinnoull asked how a building society resisted a leaked bid from a predator. The noble Lord, Lord Eatwell, asked what safeguards there were for societies against speculators. The primary safeguard is that only the board of a society has the ability to put transfer proposals to the members. If the board intends to remain mutual, neither speculators nor would-be purchasers can compel it to act against that decision. I hope that that explains the defensive position of a building society.
The main point that was mentioned concerned the two-year rule, and perhaps I may say just a few words about that. The 1986 Act forbade the distribution of cash bonuses to share-holding members who had been shareholders for less than two years and to borrowers; but it has been held by the courts not to rule out certain flat rate distributions of free shares to less than two-year members. The societies and others have asked Parliament to go back and change this rule, which is what we are addressing at this moment. There are a number of reasons, but perhaps I can give two of them. The first is that a society which wishes to convert or to be taken over already has the discretion, by choosing a qualifying date for bonuses, to rule out recently arrived members if it chooses. I do not think it is for government to dictate to a society which members it should rule in or rule out. I think the societies should have the freedom to make that decision.
The second point I wish to make is that the law, as it has been interpreted by the courts, has now stood for something like eight years. During that time we have seen a number of societies convert or be taken over. Indeed, in terms of the number of members, it has been a very much bigger shift than any we are likely to see in the future. I think that a change made now regarding possible future mergers or takeovers would be seen to be unfair and incomprehensible by that society's members and indeed by the wider public, when we compare this situation with what has happened in the round of conversions that we are already seeing coming to an end.
I suspect that if the Government had decided to rule out any distribution to a member of less than two years, then, should another society decide to convert, the Government would be immediately under pressure to bring those people in by means of a change of rule. We should not forget that people open building society accounts and take mortgages from building societies in quite considerable numbers. Either they are looking for a new home for themselves or for their savings. I understand that there is quite a lot of movement between building societies and with new people opening accounts. If I read the newspaper advertisements correctly, the building societies
themselves indulge in very aggressive campaigns to persuade us to shift our savings from one building society to another, or indeed to shift our savings into the building societies from some other place. And of course they also advertise their services as people who are prepared to lend money. I am not sure whether or not at the beginning I should have declared a small interest, as a very small and very modest person who will perhaps gain a little from the Halifax conversion. However, unfortunately, it will not keep me in a life of luxury. We all know that building societies are keen to attract new members and I do not think that there is any evidence that people have joined building societies on a sort of speculative venture that they might shortly thereafter gain from any conversion.I said earlier that I would leave the question of Clause 41 and the five-year protection to the debate we shall be having on the Committee stage of the Bill. I hope that your Lordships will feel that that is a sensible way to proceed in the circumstances.
I should like to say that it is pleasant, in the last debate of this Session, where the noble Lord, Lord Eatwell, and I are exchanging compliments, to say that I agree with the point he made on the importance of the mutual building societies and the important role they have played in extending home ownership in this country, and equally the important role they have played in providing many millions of people with a savings haven in which they can invest their money safely, whether for special events or indeed for retirement. I am very pleased that I have been able to come forward with a Bill which has met, apart from one or two problems that I have addressed already and the ones we shall address at the Committee stage, with such support from all sides of the House and especially from the noble Lord, Lord Eatwell.
It is not usually my fate, as your Lordships will know, to find such universal support from all sides of the House for legislation I bring before your Lordships. However, in this case, if I may say so, I think the building societies have thoroughly merited the support that your Lordships have given to them. I hope that your Lordships will give this Bill a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
Then Standing Order No. 44 having been suspended (pursuant to Resolution of 18th March):
6.50 p.m.
Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.--(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ELLIOTT OF MORPETH in the Chair.]
Clause 41 [Protective provisions for specially formed successors]:
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