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Lord Carter: My Lords, a lashing!
The Earl of Northesk: My Lords, I was going to say a lashing. Without in any way debasing the contribution of other noble Lords, I cannot help feeling that perhaps we are all a mildly indigestible filling to a distinguished sandwich.
I turn to the Bill. In the circumstances, it is with delight, perhaps even a little relief, that I say that we on these Benches are entirely happy to support its purpose of allowing the industrial and provident societies' sector to flourish and to develop. One of the most striking things about this form of organisation is how deeply entrenched in the fabric of our society it is, especially at local level. As the noble Lord, Lord Graham, has told the House, the range and diversity represented is spectacular: consumer co-operatives, worker co-operatives, credit unions, housing associations, social clubs (not least Conservative, Labour and Liberal clubs), football supporters' trusts, allotment societies and so on. It is little wonder, therefore, that the Bill has attracted cross-party support.
The noble Lord, Lord Graham, has of course explained its provisions with his customary verve and good humour. None the less, I have a few observations about its clauses. Manifestly, where ventures are organised for the benefit of their membership, it is appropriate that a decision to convert to an entirely different business model should be based on a definitive and clear-cut opinion from that membership. Clause 1 deals with that problem admirably. Indeed, as other noble Lords have observed, the drafting here is consistent with the current position in respect of building societies. As the noble Lord, Lord Fyfe, suggested, greater protection against predators will have the desirable effect of creating improved opportunities for existing industrial and provident societies as well as facilitating the establishment of even more.
I turn to Clause 2. First, I echo the comments of the noble Lord, Lord Graham. Thanks to thoughtful and effective scrutiny, this part of the Bill has emerged from another place in much better shape than when it began its passage through Parliament. Colleagues in another place and on all sides of the political divide are to be warmly congratulated on their work in this regard. That said, I should flag up those few areas where we have slight residual concerns.
We do not doubt the utility of Clause 2 as the means to allow the sector, as it were, to catch up with company and building society law. After all, despite numerous Acts in those sectors, this is the first legislation on industrial and provident societies for some 30 years. Yet, as the Economic Secretary, referring to the Government's review of company law, observed in another place:
- "We expect the review to be far reaching—the most important reform of company law in a generation and, perhaps, the most important in 150 years or so".—[Official Report, Commons; Standing Cttee G, 13/2/02; col. 23.]
As to the substance of Clause 2, we continue to have slight reservations about subsection (3)(b), which is the inclusion of a power to create new criminal offences. Can either of the noble Lords, Lord Graham or Lord Carter, assist me on this point: what precedents are there for the use of secondary legislation to achieve this purpose?
On a separate point, your Lordships will be aware that the fee structure that is being developed for industrial and provident societies by the Financial Services Authority is a source of anxiety for many. Indeed, that was a recurrent theme of debates in another place. For illustrative purposes, I cite the example of the Women's Institute country markets. In the past these worthy organisations—of which there are some 500 operating throughout the country—were required to pay a £15 fee per annum to the Registry of Friendly Societies for filing their accounts. As I understand it, under the FSA's proposals, this will rise to about £240 a year with a further £80 backdated for last year.
I readily accept that the diversity of the sector creates difficulties for the FSA. None the less, for many societies, especially those that are most in tune with their local area, the rise in fees is a particularly heavy financial burden that may even drive some out of business. I also recognise the obligation of the FSA that it should be self-financing. But, surely, an increase of 960 per cent or so, plus the additional burden of a retrospective charge, is, in any circumstances, unreasonable.
Can the noble Lord, Lord Graham, tell us how the meeting last month between the FSA and the promoter of the Bill in another place, Mr Gareth Thomas, went? Was any progress made in terms of resolving the problem? Certainly, any comfort that may have emanated from that meeting would be welcome. After all, there is a fundamental point of principle at work here. If the situation in relation to these fees persists, it will put very severe obstacles in the way of mutuality. Such an outcome would be inconsistent with the admirable and worthy purposes of the Bill explained so eloquently by the noble Baroness, Lady Thornton.
I conclude with this thought. As befits a Private Member's Bill, its provisions are essentially modest, but that should not in any way detract from the significance and merit of their purpose. As I say, we on these Benches support the Bill; and, in so doing, we wish the noble Lord, Lord Graham, every success as he steers it through its remaining stages.
Lord Carter: My Lords, I start by thanking my noble friend Lord Graham of Edmonton for bringing the Bill before the House today. It is an important Bill that will bring welcome changes to industrial and provident society law.
I also thank noble Lords for their many kind words about my role as Chief Whip. I am afraid that the business today, including the Motion for the House of Lords Reform, is rather like a memorial service with the subject present and alive and well. I am extremely grateful for the much over-stated and much exaggerated kind words that have been said.
Before outlining the Government's support for the Bill, perhaps I may say how pleased I am that my swansong from the Dispatch Box, after 10 years on the Official Opposition Front Bench and five years on the Government Front Bench, is a Bill introduced by my good and noble friend Lord Graham of Edmonton on a subject which has been dear to my heart for nearly 40 years; for some 30 years as director of an agricultural co-operative; and for four and-a-half years as chairman of the United Kingdom Co-operative Council before entering government. That post was most ably filled by my noble friend Lord Graham of Edmonton when I resigned on becoming Government Chief Whip.
I turn to the Bill. The Government believe that it is important that industrial and provident societies are not unnecessarily disadvantaged relative to companies or other mutual organisations and are able to operate on a level playing field—that familiar phrase—where appropriate. The Bill provides an important stepping stone to achieve that level playing field. That mixes two metaphors.
We believe that mutuality has a great deal to contribute now and in the future, offering potential benefits to individual members and to the communities on which they are based; for example, greater consumer choice and innovative services at a fair price. As a chairman of the United Kingdom Co-operative Council, I was pleased to organise research, for example, into co-operatives for community care and healthy living centres—new forms of co-operation of which I am sure that there will be many more in years to come.
It is because the Government have recognised the value and potential of mutual societies that we have recently been involved in initiatives to help to maximise the benefits that such societies can offer their members. For example, the Performance and Innovation Unit is currently undertaking a broad-ranging review of the legal and regulatory framework for charities and the voluntary sector. It deals with what are known as the "bencoms"—societies for community benefit.
The aim is to enable existing and new not-for-profit organisations to thrive and grow in all sorts of sectors. The report will examine the specific role of industrial and provident societies—I must agree with the noble Lord, Lord Newby, that that is a rather outdated term, but if he does not mind, we shall not have an amendment to change the Long Title—and changes that could be made to help that part of the mutual sector.
The DTI has set up the Social Enterprise Unit, which is examining the barriers to growth of social enterprises. The unit aims to identify how the Government can help to improve the credibility of social enterprises and help them to become more effective businesses. We are also taking action in the wider mutual sector. For example, we have brought forward proposals to reduce the number of restrictions on credit unions' operational powers to allow them to offer a wider and more competitive range of services to their members.
The measures that we are taking will have an impact across a wide range of mutual societies including credit unions and building societies and industrial and provident societies. That is why we have been keen to lend our support in other areas, including this Private Member's Bill. The Government have made it clear from the outset that we support the Bill in principle and we are now able to lend our full support for it as currently drafted.
My noble friend Lord Graham and other noble Lords have examined the Bill's two main clauses, so there is no need for me to go into great detail. To summarise, the first clause relates to voting procedures for all industrial and provident societies in the event of a demutualisation bid. That is a useful modernisation measure that would bring the rules for such votes in industrial and provident societies into line with those for building societies. We fully support the clause.
The Government have already strengthened members' rights in building societies and ensured that decisions to change their nature are not taken lightly—and are certainly not to be reversed. The issue is getting the right balance by protecting mutuality without diminishing democracy or accountability in any way. The measures proposed in the Bill would ensure that a vote on conversion to a company, if successful, was the result of an active decision of its members to opt for company status and not of the actions of a small minority—who are otherwise known as carpet-baggers.
The other main clause of the Bill would enable the Treasury to update industrial and provident society law by assimilating it to company law. The scope of the power as drafted is similar to powers in the Building Societies Act 1986 and the Friendly Societies Act 1992. I welcome the opportunity to improve consistency amongst those different types of mutual organisation in this area.
The Bill will produce an important mechanism whereby industrial and provident societies will not fall behind changes that may be made to the legal framework of companies. We will, of course, need to consider how we use the power as and when company law changes. We will need to take into account the views of Parliament, the sector and the wider contribution that changes may make to the efficiency with which societies are able to provide goods and services.
To turn to the points that have been addressed to me, the noble Lord, Lord Newby, suggested that the Bill will not bring into force any existing flexibilities in
company law. When further changes to company law are made, IMP law can be updated under Clause 2 to incorporate existing as well as new advantages. That is important. The first question asked by the noble Earl, Lord Northesk, who was kind enough to send his questions to me beforehand so that I could be fully briefed, could more appropriately dealt with in a company law reform Bill—when that appears, which may take a little time. I am not putting a timetable on it. Yes, as a retired Chief Whip, I am pleased to say that I am not putting a timetable on it.Although the clause allows for the assimilation of industrial and provident society law to company law, it is not about the simple extension of company law to societies. The power will allow for the adaptation or substitution of provisions in industrial and provident society law so that they more closely resemble company law. The real subject matter of Clause 2 is industrial and provident society law, not company law as such. It is more appropriately included in this Bill than in a Bill amending company law, for which we might have to wait some time. Similar provisions in building society and friendly society law appear in Acts that specifically govern such societies. That is why the Bill is a more appropriate place for the introduction of the power.
The noble Earl also asked what assurances could be given that any secondary legislation to flow from the Bill had the appropriate checks and balances. There are already several safeguards in place that, we believe, will ensure that the powers available under Clause 2 are exercised appropriately. The affirmative procedure must be used in making an order under Clause 2, meaning that any order made under the clause must be debated and approved by both Houses. The opportunity for parliamentary scrutiny is guaranteed. The power is limited and can be used only when existing company law is modified and only when the change to industrial and provident society law brings it more closely into line with company law provisions already approved by Parliament.
The safeguards in the clause, in which the statutory provisions are set out, cannot be amended by an order made under the Bill. That will ensure that no fundamental change to the nature or character of societies can be effected by the use of the power. The powers in the clause closely resemble existing powers in the Building Societies Act 1986 and the Friendly Societies Act 1992, both of which have been approved by Parliament. The Treasury will, of course, consult on any new proposals that are made under the power.
The noble Earl also referred to new subsection (3B) and asked about precedents for introducing criminal offences via secondary legislation. There are similar provisions in building society and friendly society legislation that expressly allow for the creation of criminal offences. Another example of the power can be found in the European Communities Act 1972. If there exists a criminal offence for a certain act under company law, we do not see why that should not be considered for the equivalent area of industrial and provident society law. That does not mean that we will
always be obliged to create a criminal offence; the clause allows for some discretion as to how company law is assimilated.There is also the vexed question of fees, about which my noble friend Lord Graham of Edmonton will also say something. We are aware of the concern that has been expressed by some in the movement about the fee structure that is being developed by the FSA in relation to its duty under the relevant Industrial and Provident Societies Act. In passing, I must say that I shall look back with nostalgia on the Financial Services and Markets Act 2000, which was the most heavily amended Act ever to go through Parliament. I can remember every amendment.
I stress that the final level of fees for the coming year has not been finalised. The FSA's consultation with the movement has only just drawn to a close. The figures proposed in the FSA's consultation document—I emphasise the word "consultation"—were only illustrative. Many other figures have been quoted publicly but were completely unfounded. We understand that, along with many in the movement, the FSA prefers a flat fee approach. Inevitably, that will affect some societies unfavourably, but we must appreciate that some societies will gain from such a move, particularly those active in developing and updating their government structures.
We must not underestimate what the Bill will achieve: a more robust demutualisation procedure should create more confidence and strength. The ability to update industrial and provident society legislation through secondary legislation will ensure that the legal framework for societies need not fall further behind that for companies. In time, the Bill will have a profound effect in allowing industrial and provident society legislation to catch up in areas in which it is felt appropriate, helping to create a genuinely level playing field—that phrase again—with companies and across the mutual sector.
I thank my noble friend for bringing the Bill before the House and all those who have contributed to the debate. I affirm the Government's support for the Bill.
10.29 p.m.
Lord Graham of Edmonton: My Lords, it is with pleasure and not a little relief that we have come as far as we have with the Bill. I shall begin my closing remarks by telling the House that my noble friend Lord Carter was particularly anxious, regardless of anything else that was happening, to be here to deal with the Bill. I said earlier that as chairman of the UKCC, he had the responsibility six years ago to try to do something similar to what we are doing tonight. The group did a first class job, but it produced a 135-clause Bill. The former Chief Whip was very ambitious.
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