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Lord Howard of Rising: My Lords, I thank the Minister for his kind remarks and for easing my debut on this occasion. I thank him for the introduction of the regulations and the order, with which we on these Benches broadly agree. The support of community and friendly societies is to be welcomed. No doubt the ability to restrict assets to the purpose for which they were intended could be helpful in attracting new members.

Will the Minister please clarify whether the asset lock is reversible should there be a genuine and overwhelming wish on the part of the members so to do? The Financial Services Authority already has many responsibilities. It is to be hoped that it will take the necessary time and trouble to create regulations for this sector which are simple and easy both to understand and to operate; a light-handed approach rather than overkill. The Financial Services Authority has also been given powers to impose penalties in the event of breaches of regulations. Does the Minister think it is wise to give the FSA a free hand when some argue that its record in this field does not bear scrutiny?

I am told that systems have been improved but the FSA has an unenviable reputation for imposing disproportionate fines for the most trivial offences. The Financial Services Authority disciplinary procedures
 
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have only once been examined by an outside body. That was in the matter of the Legal & General company where the Financial Services Authority's internal appeal rejected Legal & General's case. Legal & General appealed to the Financial Services Tribunal, a process available only because of an amendment introduced in this House by my noble friend Lord Saatchi. The company was shown to be substantially correct and the Financial Services Authority wrong. The costs of making an appeal of this nature would not normally be available to those looking after a community benefit society.

With regard to the order, I agree that any step which reduces the present level of regulations is to be welcomed. However, if it is appropriate for non-charitable friendly and industrial and provident societies not to have their accounts audited when their turnover is below £5.6 million, might it be sensible for charitable friendly and industrial and provident societies and charities to have the same level of turnover below which accounts need not be audited, rather than the £500,000 proposed in the Charities Bill? I hope that the Minister can offer some answers in his response and I am pleased otherwise to agree to the two measures.

Lord Newby: My Lords, we on these Benches agree wholeheartedly with the Minister on the importance of co-operative and community benefit societies. Like him, we have watched with interest as over recent years the sector has transformed itself and is now undertaking a wide range of new activities. The original founders of the co-operative movement and the original members of community benefit societies would have been amazed at the thought of football and rugby clubs being administered under the same provisions in which they thriftily undertook their activities. But it is a sign of the flexibility of the concept that it has been able to adjust to modern times.

Given that these co-operative and community benefit societies now see new areas of growth, it is extremely important that the legislation regulating them is appropriate and, in particular, is updated regularly. Indeed, it is noticeable that it has taken some time for these orders to come before the House. They relate to Bills which were passed in 2002–03—the asset lock mirrors the provision in the community interest company legislation—so it is a pity that the Government could not bring these provisions into force in parallel with the provisions in earlier legislation, rather than leaving it.

I understand what the Minister has said about why the Government have decided to exclude registered social landlords from the asset lock, but I would welcome his assurance on one point. If a registered social landlord decides that it wishes to transfer its assets to a straightforward commercial landlord under existing legislation, what prevents it from doing so? As your Lordships may be aware, earlier this week in your Lordships' House, I referred to the status of some of the Octavia Hill estates in London, some of which have already been transferred to a joint venture between a commercial and a registered social landlord. It is clear
 
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that rents will rise in many cases to market levels where they were not at market level before. What was previously social housing is likely to end up within a number of years as being, in effect, not social housing. Given demand pressures on the social housing sector and incentives for any registered social landlord to sell assets, I would welcome any further underpinning of what the Minister has said about the asset lock already.

I agree with the decision that the FSA should be the regulator. I do not know who else could logically do it. The phrase "light touch" in the same sentence as FSA causes one or two eyebrows to be raised slightly quizzically, but the FSA has attempted, against its better judgment almost, to adopt a lighter touch in recent times. On the level of fines and penalties, the noble Lord, Lord Howard, said that some people think that their fines are too onerous. Others have argued that they are not onerous enough. So this may be a case where the FSA has broadly got it right. However, given that its whole raison d'être and remit is to manage financial services providers, it is logical that it should deal with these forms of society.

The audit order seems to be eminently reasonable. Finally, the Minister said that IPS law would be reviewed in the light of the new companies Bill. Can he assure us that that will be done speedily and—I finish as I began—that the regulations affecting these societies will be brought into line with latest practice affecting other bodies in the corporate world?

Lord McKenzie of Luton: My Lords, I am grateful for the support given to the two orders by both Benches opposite. I shall try to deal with some of the questions that have been raised. The noble Lord, Lord Howard, asked whether the asset lock is reversible. It is not. There was discussion of the FSA's role; I am pleased that we are agreed that the light touch is an appropriate way forward. The FSA has a duty to maintain confidence in community benefit societies and must exercise its powers for this purpose. It cannot impose penalties, but it can require restitution. There is an opportunity to appeal to the High Court for a decision against the FSA. The consultation that took place on a range of matters associated with these orders showed increased satisfaction with the FSA.

The noble Lord, Lord Newby, asked specifically about RSLs, acknowledging that they are outside the asset lock provided for in these orders. I think that he was pressing for further specific detail as to the nature of the current asset lock. I cannot give the noble Lord any specific detail here and now; I know that it is an issue he has pursued in another area. They would, of course, be able to transfer assets to a community benefit society that did have an asset lock, but I cannot say to what extent they can transfer outside arrangements that have an asset lock. The import of these orders is that there are restrictions on that, otherwise it would have taken us down the path of including RSLs in the orders.
 
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As regards updating company law, an exercise is under way to review the amendments introduced into the Company Law Reform Bill and to identify what can usefully be used to amend IPS law using the power contained in the Industrial and Provident Societies Act 2002. It is difficult to give a commitment to a time scale, particularly having sat through two sittings only so far of the Committee stage of the Company Law Reform Bill. That itself is going to be quite an extended process. The point about the need to make progress on that is well taken.

The issue of the different thresholds applicable—or to be applied—to audit cut-offs was raised. We obviously cannot comment on what the outcome of the Charities Bill might be; it is still going through the process. The objective is to align—as this aligns non-charitable IPSs with non-charitable companies—the charity sector so that charities are on a level playing field. At the moment there is disparity but we recognise that charities should be subject to a higher standard of audit than commercial and other societies. I think that that has long been accepted as a principle.

I hope that that has dealt with each of the points raised. I am, again, grateful for the support given. In conclusion, these two statutory instruments take important steps forward. Not only do they contribute to creating a more level playing field between IPSs and companies but, even more important, they will enable these societies to continue to play their valuable role in our economy and society. We are keen for the sector to grow and flourish. These two instruments will help to drive that agenda forward. I commend the order to the House.

On Question, Motion agreed to.


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