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Lord Brabazon of Tara moved Amendment No. 1:


Page 58, leave out lines 5 to 9 and insert--
("(a) a company or a subsidiary undertaking of the company acquires the whole, or substantially the whole, of the business of a mutual financial institution;").

The noble Lord said: In moving this amendment, which stands in the names of the noble Lord, Lord Kimball, and myself, I shall speak also to Amendment No. 2.

This matter was referred to at Second Reading. The problem with the changes to the five-year protection rule caused some degree of consternation among the converting building societies when the Minister announced the plans to change them. I hope that my noble friend the Minister will confirm that there was no mention of changes to the five-year protection in the draft Bill of March 1996. No mention was made until my honourable friend the Economic Secretary answered a Question for Written Answer on 5th November last. In the meantime, societies such as the Alliance and Leicester had long since announced their plans to recommend conversion to their members, which is a lengthy and costly process. The society was advised to encapsulate the proposals in a transfer document to be sent to its voting members. That document was scrutinised by the Bulding Societies Commission before release to ensure that there were no inaccuracies or falsehoods in that most important prospectus.

That document recognised that the society would be given protection from takeovers for five years after conversion. Only then, well after the document was sent to members and votes were being cast, did the Economic Secretary to the Treasury announce a fundamental turnround. It cannot be reasonable that we in this Chamber are willing to legislate in a way that leaves 2.4 million people to take the consequences of having voted on a financial proposal which we have made invalid.

The Alliance and Leicester, like other converters, will have to diversify, alter its structure and acquire other financial services companies in order to grow and survive after conversion. This Bill will fundamentally alter the terms of that conversion after a decision has already been taken by its members. That is what the Alliance and Leicester means by the impact of this Bill being retrospective in effect. After close examination, I concur with that view.

I remind noble Lords that we introduce retrospective legislation with the greatest foreboding. We have a double responsibility to ensure, if we are to pass legislation which on other occasions would be given more consideration, that we do not make rash decisions in haste. I draw noble Lords' attention to the problems of over-hasty legislation. We have passed anti-terrorism legislation swiftly out of urgency but that should be a rare occurrence required in extreme circumstances. One only has to look to another place to see a dangerous dogs Bill going through its remaining stages, a Bill which seeks to rectify failings of the Dangerous Dogs Act 1991 that was passed with undue haste.

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The amendment that my noble friend Lord Kimball and I propose rightly strikes a balance. After all, the Bill, with great support from all sides of the Chamber, seeks to protect and enhance mutuality. That is a fitting objective. But the constraints imposed by Clause 41 go further than protecting the mutual building societies. They impose a straitjacket on the commercial freedom of converted societies with no obvious merit. These amendments protect mutual building societies, friendly societies and mutual insurers. They seek a consensual way out of the problems created by Clause 41 without upsetting or affecting the central thrust of the Bill.

Therefore, I urge the Minister and the Committee to support the amendment and indeed to welcome the compromise. Without it, we take away rights from the companies that are converting without an opportunity for them to adjust their plans so late in the day. I hope that by accepting this amendment we shall spare future governments the task of revisiting this area of policy again in the near future. I beg to move.

Lord Stewartby: I begin by declaring an interest as a non-executive director of the Portman Building Society, which has no intention of converting itself into a public limited company. Also, and more relevantly to what I want to say now, as my noble friend Lord Brabazon reminded the Committee, I was the Minister responsible for the 1986 Act. It is in that former capacity that I should like to make a few remarks on these amendments.

Perhaps I might also be permitted one or two introductory remarks about the nature of the legislation, which is specifically relevant to this amendment. I did not speak at Second Reading as I should have had to repeat myself on two occasions during the progress of the Bill. When the legislation was introduced in 1985, I was very worried that it might not last even 10 years because of the pace of change in financial markets. I am quite pleased that it has in fact, although becoming progressively more out of date in the past few years, enabled a very remarkable change in the building society movement to take place during that time.

We need to remember that before that Act, building societies were in a very much more primitive condition, largely depending on Victorian legislation. So Section 101 of the 1986 Act, which is the nearest equivalent to Clause 41 of the present Bill, was a very necessary protection for societies which wished to convert. Up to that time they had not had any opportunity of diversifying their activities or becoming more competitive over a range of financial services, which would enable them to stand on their own feet. If they had become public companies without the five-year protection which we built in at that stage, it would have been a turkey shoot. They would not have been sufficiently diversified or had sufficient experience of the competitive market place in a wide range of areas to ensure their independence for very long.

Therefore, the 1986 Act brought in a considerable range of additional permitted activities for building societies. But the difference between that Act and the present Bill is that the 1986 Act was a prescriptive piece of legislation. It laid down what building societies could

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do in addition to what they had previously been able to do, whereas the new Bill is substantially a permissive piece of legislation which places some constraints but does not try to specify all the individual activities that a building society can undertake. That is a very big difference in the nature of the two Bills. Perhaps I may say in parenthesis that it is one of the reasons why the previous legislation was so complicated and needed so much attention in this Chamber.

But I must ask myself, if I were now the Minister responsible for a new building societies Bill 12 years later, whether that five-year protection provision would still be necessary at all, whether or not it was qualified; because during the intervening time, building societies have been able to take advantage of the provisions of the 1986 Act to become much more widely based financial organisations, which are themselves rather competitive, even if they retain their mutual status. So the point made by the Alliance and Leicester about this clause has to be seen against that background.

If there is a need for protection now, I believe that that need is much less than it was 12 years ago. I am not entirely convinced that it is still a need at all. But my main concern about this amendment is that it would produce an asymmetrical situation for converting societies. They would be in a position where they could be predators but nobody could take them over. We have to look beyond the building society movement and ask whether that is the kind of structure that we want to build into the regime for substantial quoted companies. I am not persuaded that it is. On those grounds alone I would oppose Amendment No. 1. I do not say that the Alliance and Leicester does not have a point; it has something of a point for the reasons raised by my noble friend. But my judgment, having been through the whole process in great detail 12 years ago and having considered all these issues of protection and vulnerability, is that the case is not strong enough to override the distortion which it would bring into the market place as a whole.

In respect of the retrospective argument, it is not really true that a provision which is not yet in force and will only come into force after the passage of the Bill, when it is enacted, can be regarded as being retrospective. If a Bill had been brought forward, say early in the next Parliament, which contained provisions of a similar kind to those in the Bill before us today, it would have been perfectly in order for Parliament to amend it or, indeed, for Ministers to include in it provisions of this kind. But it would still have been within the five-year period from the flotation of the Alliance and Leicester. One specific society could not reasonably argue that there was an embargo for five years on this House or another place introducing a measure in the form in which it is drafted in the Bill. The amendment therefore ought not to proceed, quite apart from the situation of the Bill itself; that is, that there is a general view for it to proceed and the passing of amendments would put that at risk. I hope that the Bill will succeed. The Committee would be wise not to accept the amendments.

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Perhaps I can conclude by saying that I am pleased to note the general support for the Bill from my noble friend Lord Eatwell, and other Members of the Committee who have spoken. I have a great respect for the building society industry. It has made a major contribution to British life over a period of more than a century. I did my best 12 years ago to enable it to go through a rapid period of transition and change. I am pleased to have the opportunity to be here at the initiation of what I hope will be another successful period in its existence.

7 p.m.

Lord Kimball: I rise to support Amendment No. 1 and I hope my noble friend will find it possible to accept it. It protects mutuality; it will better treat converters, and better serve the interests of the savers.

If the architects of the 1986 Act supported the concept of a five-year protection period as being necessary for the converters, it seems illogical to change the vision so radically now. The protection is necessary for converters to reach a critical mass in the market place. That is because building societies have been legally restricted in their activities.

The part of the Bill that proposes to remove protection from a converting society, should it take over an authorised institution, goes too far. Even the Building Societies Association did not propose such a wide-ranging clause when it made its original submission in June 1996. I hope that my noble friend will be able to give a sympathetic reply to the amendment.


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