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New Section 40C allows a person to stand as both a councillor and a member of the proposed executive—that answers the point of the noble Baroness, Lady Hanham—and makes provision as to what should happen in the event of a councillor being returned as a member of the executive. If elected, a vacancy will arise in the office of councillor and it will prompt the need for a by-election. So, yes, if a member of the slate also stands as a ward councillor and is elected as a ward councillor, a by-election will at that point be triggered. It is the same situation as arises when a person is returned at the same time as both an elected mayor and a councillor. Like an elected mayor, an elected executive member will have been elected by all the electors and therefore should act in the interests of the whole council area, not just in the interests of a specific ward or county division. Clauses 69 and 71 are consequential on that.

Lord Greaves: I apologise again for interrupting. I hope that the noble Baroness was not suggesting that all the existing councillors who represent wards and divisions in England represent only their wards and their divisions and do not look at the interests of the whole area. That would be outrageous.

Baroness Andrews: I am not suggesting that. In this model, we are making a distinction between the executive, which represents the whole area, and the ward councillor, who represents his ward. Of course the ward councillor will also take an interest in the whole area but, in the executive model, there is a difference in the function of the executive and the ward councillor in that sense.

Lord Greaves: I am sorry. I speak as a member of an executive who has got to know lots of others. Surely the vast majority of people who are in executives and in cabinets in local authorities, whatever model it is, represent their ward just as much as they represent the whole area. What are known now as front-line councillors or ward councillors, particularly in regard to their overview and scrutiny functions, are councillors for the whole area. It has always been the case that councillors have different responsibilities; they represent the people who have elected them and they represent the council in the whole area. There is no real conflict in this. The Government are introducing conflicts and tensions that they cannot get rid of at the very heart of local government.

Baroness Andrews: I stick by what I have said. I am certainly not disputing what the noble Lord said about the present arrangements.

Clause 69 includes within the definition of “elected executive member” the members of an elected executive. The legislation provides that the other categories of members that come within the definition of elected executive member could be—would be—members of

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some new form of executive created by regulations under Section 11(5) of the 2000 Act. That section provides for other forms of executive models, which we will discuss later. We do not have any plans today for any extra executive models, but the power is there. Finally, Clause 71 inserts into the 2000 Act new Section 42A, which extends the preference voting system to the election of an elected executive.

The amendments are both significant and consequential. Essentially, Amendments Nos. 122 to 124, 140, 152, 154 to 156, 158, 159, 162, 167 to 169 and 194 are all consequential amendments, for the reason given by the noble Lord. I have explained why we have put this model in place as an option that supports the notion of visible executive leadership in a novel way. Removing the model would remove a choice. The Committee has asked where the model has come from. I have explained that there are some European models but, as the notion of a slate is not new, we also responded to suggestions from Stockton that this model was worth looking at and trying. In order to be inclusive and to offer choice, there was no reason why we should not put it on the face of the Bill as another option.

Noble Lords have argued that the processes are unworkable and that it makes no sense to have a system under which, after the election, there might be several by-elections for councillors if candidates on the successful slate also stood as ward councillors. In fact, the system is simply an extension of the 2000 Act, which provides that, if a person stands as both a councillor and an elected mayor, he has to stand down. Again, there is nothing very new about this. We have taken it forward in the notion of an elected executive, elected on a manifesto for the authority as a whole. Everyone aspiring to office will be identified. It provides greater clarity and I believe that the model is entirely compatible with the direct and democratic role of ward councillors.

I do not have time now to go into the processes in detail. I will be happy to explain at length to noble Lords how we think the model will work, in conversation or in writing. I hope that noble Lords will feel that they can live with this and not press their amendments. We will come back to this issue.

Baroness Hanham: I would like some advice. We are in the midst of one of the most important debates that we shall have on this part of the Bill. Either we are allowed to carry on and keep the next business of the House waiting, or we could stop and come back to it. I feel extremely uncomfortable that we are not going to be allowed to continue with the debate on the amendments, because there are many questions left unanswered. I would be grateful for the advice of the Clerk on that.

Baroness Morgan of Drefelin: It is possible for us to adjourn in the middle of a debate, if the Committee wishes to do so. With nods all around, that is what I will do. I beg to move that the debate on Amendment No. 115 be adjourned.

Moved accordingly, and, on Question, Motion agreed to.



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Baroness Morgan of Drefelin: I beg to move that the House do now resume. In moving this Motion, I suggest that the Committee stage begin again not before 8.40 pm.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Consolidated Fund (Appropriation) (No. 2) Bill

7.41 pm

Brought from the Commons, certified by the Speaker as a money Bill, and read a first time.

Building Societies (Funding) and Mutual Societies (Transfers) Bill

Lord Naseby: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved accordingly, and, on Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clauses 1 and 2 agreed to.

Clause 3 [Transfers to subsidiaries of other mutuals]:

Lord Evans of Temple Guiting moved Amendment No. 1:

The noble Lord said: We are grateful to the noble Lord, Lord Naseby, for taking forward this Bill, which started out as a Private Member’s Bill in the other place in the name of the honourable Member for Bournemouth West. We are also grateful for the continuing assistance of the noble Lord and his advisers in developing the amendments that I am putting forward today.

The Government are introducing the amendments to fulfil a commitment given in the other place to extend the Bill to mutual insurers. That in turn has given rise to other issues, such as mutuals in other EEA states, hybridity and the charging powers of the Financial Services Authority, which the amendments also deal with. Finally, the amendments allow the Bill to be extended to the Channel Islands and the Isle of Man. There was insufficient time to consult the islands’ authorities on that during proceedings in the other place.

Before moving on to the substantive issues raised by the amendments to Clause 3, I shall briefly remind the Committee about the overall purpose of the Bill. It introduces helpful amendments to building societies legislation in relation to the wholesale funding limit and the position of their members in the event of an insolvency. With regard to today’s debate, the Bill will also make it easier for one type of mutual society to

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transfer to the ownership of another type of mutual society as a subsidiary company, while retaining important elements of mutuality. Mutual insurance companies and equivalent European mutuals will be included as a result of the proposed amendments.

The Government welcome this opportunity to update the legislation on building societies and other mutual societies. We are sympathetic to the reforms that are being introduced, particularly as they have the potential to significantly benefit members of mutuals. The Treasury will consult publicly on the secondary legislation that will implement the Bill.

7.45 pm

I turn to the detail. Clause 3 gives the Treasury the power to modify legislation relating to transfer of business of building societies, friendly societies and industrial and provident societies. I will refer to these together as “mutual societies”. The clause will allow the Treasury to modify the statutory provisions that apply to such transfers, to make them less onerous. That is intended to make it easier for mutual societies to acquire other mutuals and develop group structures. Certain safeguards, such as members’ rights and safeguards against demutualisation, will remain in place.

In Committee in the other place, the Government gave a commitment to try to extend Clause 3 to mutual insurers by introducing amendments at Third Reading. A mutual insurer could be one of the three types of mutual society, or it could be a Companies Act company or have another legal form. The effect would be that a mutual society could transfer to a subsidiary of a mutual insurer under the new provisions on the same terms as it could transfer to a subsidiary of another mutual society.

In the event, it was not possible to introduce amendments at Third Reading, which was held two days after Committee, on 27 April. However, at Third Reading the Government gave a further commitment to consider amendments and, if possible, to table them in your Lordships’ House. The second and third amendments fulfil that commitment, and I will explain them first.

Amendment No. 2 widens the definition of “mutual society” in Clause 3 to include EEA mutual societies. Amendment No. 3 defines “EEA mutual society”, which can be a European co-operative society, a co-operative society in any EEA state or any other type of body specified by the Treasury by order. That definition is wide enough to encompass mutual insurers and, by permitting transfers under the new provisions to a mutual society established in any EEA state, it ensures that there will be no breach of EC law. The power to specify other types of body will be exercised by the affirmative resolution procedure if made in the main order amending the transfer provisions for mutuals, or by the negative resolution procedure if made independently of that order.

The effect of the amendments is that modifications made by an order under Clause 3 to the legislation governing transfers of mutual societies will apply in two cases: first, where the transfer is to a subsidiary of one of the three types of domestic mutual society;

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secondly, where the transfer is to a subsidiary of an EEA mutual society. The wide definition of “EEA mutual society” ensures that mutual insurers and other mutual societies in any EEA state wishing to acquire other mutual societies as subsidiaries will be able to benefit from the changes in the same measure as domestic mutual societies. The additional power gives the Treasury the flexibility to specify particular types of mutual society as and when the need arises, which it would not be possible to do in primary legislation.

The first amendment standing in my name concerns the procedures applying to an order made under Clause 3, which will amend the provisions in legislation dealing with transfers by the various types of mutual society. As Clause 3 will be extended to EEA mutual societies, an order made under that clause may have effects that are peculiar to a particular mutual and so would, potentially at least, fall to be treated as hybrid under Standing Orders but for this provision. In particular, the order may make provisions as to the rights of members under subsection (2) in consequence of a transfer. Those provisions could include giving members of the transferring mutual membership rights in the holding mutual society, which could affect the constitution of that society. I remind noble Lords that the Clause 3 power uses the affirmative resolution procedure. I beg to move.

Lord Naseby: I am grateful to the Minister for making time to take this Committee stage and, more important, for having listened to the representations made in another place to see whether it was possible, given that we had already made considerable progress in helping the mutual movement, to go a little wider and look at the situation of mutuals in Europe. I would also like to place on record the appreciation of both Houses for Sir John Butterfill, who was primarily responsible for the Bill, although I should also mention the All-Party Building Societies and Financial Mutuals Group, which is one of the largest all-party groups in Parliament—I have the pleasure of being one of the founder members. We should not forget that 19 million people belong to mutuals throughout the United Kingdom. That is a huge number of people and it demonstrates the importance of the Bill.

I have only two small questions. First, will the Minister, when he responds, confirm that the Treasury will consult on all secondary legislation that flows from the Bill? That is fundamental when there are some pretty open provisions on secondary legislation.

My second question involves dipping into my memory bank—it is nice to see the noble Baroness here, with her experience of Europe. Hybridity is a sensitive area. I remember once, as Chairman of Ways and Means, being in charge of determining whether a Bill was a hybrid. Am I right in assuming that Amendment No. 1 has been included because we are dealing with EEA mutuals? If the Minister is not able to answer me this evening, perhaps he would be kind enough to write to me and place a copy of the letter in the Library. I understand that there might have to be provision to remove any question of hybridity in relation to an EEA mutual society, because that opens the door in

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relation to a UK society. Otherwise, we will be in a situation where others may cite this Bill as opening a Pandora’s box in relation to hybridity. I accept that this is rather a technical area and it may be specific to mutuals, but it relates to an important part of parliamentary procedure.

Having said that, I greatly welcome the amendments. This is possibly one of the most dynamic things to have happened in the financial services world, because we are opening up the possibility of linkage between financial mutuals in the UK and their sister bodies throughout the EEA. That is greatly to be welcomed.

Baroness Noakes: I join my noble friend in paying tribute to Sir John Butterfill for introducing this Bill; we dealt with that at Second Reading but I would like to repeat it. I said to the Minister just before we started our proceedings that my only question was how the insurance provisions would be dealt with, so I was glad that he answered that in his introductory remarks. When I read the amendments, I could not see how insurance companies were being brought within the provisions.

Following my noble friend’s comments, I have one question about hybridity. Is there any precedent for the new subsection contained in Amendment No. 1? Like my noble friend, I am concerned that we are creating a precedent with this Bill for disregarding hybridity, which is one of the lesser known but important areas of how we regulate our business.

Lord Newby: I join other noble Lords in congratulating Sir John Butterfill on getting the Bill to this stage and the Minister on setting out so clearly an extremely technical set of amendments. One of the interesting and positive things about this Bill is that it seeks to deal with future developments rather than past wrongs. The amendments today deal with mergers within the EEA. That is a positive and potentially dynamic development and we on these Benches are extremely supportive of the amendments.

Lord Evans of Temple Guiting: I am extremely grateful to noble Lords who have commented on the amendments. Given the sheaf of notes that I have on hybridity, I will take advantage of the offer of the noble Lord, Lord Naseby, and write a full letter to him and other noble Lords who have taken part.

Baroness Noakes: I am grateful to the Minister for saying that, but we will be invited to pass these amendments. Passing them would rule out any possibility of our considering whether this is so unique and unprecedented that we may wish to think again.

Lord Evans of Temple Guiting: In that case, I will spend the next 20 minutes going through the question that the noble Lord asked.

The Government think that the amendment is necessary because an order under Clause 3 could make provisions giving members of a transferring mutual membership and other rights in the holding mutual. That could require changes to the constitution of the holding mutual. Where the holding mutual has

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a unique legal form—a private Act of Parliament, for example—that could raise an issue of hybridity. The amendment excludes the hybrid instrument procedure so avoiding unnecessary delay and complications in making the instrument. It could also affect domestic mutuals—the Wesleyan Assurance Society, for example. I hope that that short answer satisfies the noble Baroness. I will be able to write with more detail within the next day or so.

On the noble Lord’s first question, yes, the Treasury will publicly consult on the provisions before they come into effect. With the commitment that a letter will be written to all noble Lords who have taken part in this debate and put in the Library, I hope that the amendments will be agreed to.

On Question, amendment agreed to.

Lord Evans of Temple Guiting moved Amendments Nos. 2 and 3:

“( ) an EEA mutual society.”(a) a body which is a European Cooperative Society for the purposes of Council Regulation (EC) No 1435/2003 (statute for a European Cooperative Society);(b) a body which is established as a cooperative under the law of an EEA state as mentioned in that Regulation;(c) a body which is a cooperative or mutual undertaking of such description as the Treasury specify by order and which is established or operates in accordance with the laws of an EEA state or any of the Channel Islands or the Isle of Man.”

On Question, amendments agreed to.

Lord Evans of Temple Guiting moved Amendment No. 4:

The noble Lord said: The fourth and fifth amendments introduce the term “relevant company” in Clause 3 and define this term. The effect is that a transfer of a mutual society’s business under the modified procedures could be to a UK company or to a body corporate incorporated in any other EEA state, provided that that company or body is controlled by another mutual society. Again, this is intended to reduce the risk of breaching EC law. Under Clause 3 as it stands, a mutual in another EEA state would have to establish a UK company subsidiary in order to benefit from the changes. That could put it at a disadvantage, as it might face more practical difficulties establishing and running a UK company subsidiary than a UK mutual would. The changes ensure that UK and EEA mutual societies wishing to acquire other mutual societies are treated equally on a level playing field. I beg to move.

Lord Naseby: This is helpful. It clarifies the position, and I support the amendment.


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