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House of Lords

Friday, 11 December 2009.

10 am

Prayers-read by the Lord Bishop of Salisbury.

Co-operative and Community Benefit Societies and Credit Unions Bill [HL]

Bill Main Page
Copy of the Bill

Second Reading

10.05 am

Moved By Lord Tomlinson

Lord Tomlinson: My Lords, the Bill began as a Private Member's Bill in another place, piloted through there by Mr Malcolm Wicks. It passed all stages in the House of Commons, but when it reached here, it was subjected to a critical report from both the Delegated Legislation Committee, and, perhaps more significantly, the Constitution Committee. Those criticisms were, quite properly, picked up by the noble Baroness, Lady Noakes, and formed the basis of certain amendments that she tabled.

It was impossible to make the necessary progress before prorogation, so, in essence, the Bill that I am introducing today has exactly the same purpose as the previous Bill, but the technical problems that were brought to our attention by the two committees and by the noble Baroness, Lady Noakes, have now, I hope, been ironed out. Certainly the Select Committees have given the Bill in its present form their blessing. I again express my gratitude to the committees and to the noble Baroness for their careful scrutiny of the Bill and for their constructive criticism, which has led to what I hope noble Lords will agree is an improved version of the Bill before the House today, and one which I hope that the House will be able to adopt in its present form.

I do not propose to go over all the background to the Bill or to sing the virtues of its subjects. Suffice it to say that, as far as I am concerned, it is axiomatic that co-operatives, community benefit societies and credit unions are good things. They are good of themselves, but they have been working in a very out-of-date legislative framework. The Bill, taken together with the legislative reform order which the Treasury will be introducing, makes the legal framework fit for the 21st century.

I mention the legislative reform order because the Bill arises from a wide public consultation on co-operatives, community benefit societies and credit unions. Everything that can be done by way of a legislative reform order will be introduced by the Treasury in that form, but essential parts of the outcome of the public consultation depend on primary legislation, and the Bill addresses that. As I said, the Bill forms part of a package to reform legislation affecting industrial and provident societies and credit unions. The Government will introduce

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their legislative reform order, but today I draw your Lordships' attention to the framework changes set out in the Bill.

Clause 1 deals with a change of name. It provides that societies wishing to register under the Industrial and Provident Societies Act 1965 shall be registered as co-operative societies or community benefit societies. Clause 2 changes the name of the Industrial and Provident Societies Act 1965, and other Industrial and Provident Societies Acts, removing a term, "industrial and provident societies", which I believe is somewhat outdated-much more a 19th and early 20th century term-from the statute book.

Clause 3 applies the Company Directors Disqualification Act 1986 to officers of industrial and provident societies as it applies to officers of companies, building societies and friendly societies. The Company Directors Disqualification Act 1986 provides for the disqualification of officers of companies and various bodies when such officers have seriously mismanaged them. Disqualification means being prohibited from being involved in the management of a company or acting as an insolvency practitioner for a period of time. Under the current law, officers of industrial and provident societies who have mismanaged their societies cannot be disqualified. Clause 3 makes their disqualification possible.

Clause 4 gives the Treasury power to apply to industrial and provident societies, with appropriate modifications, company law on the investigation of companies, company names and dissolution and restoration to the register. I shall give two or three examples. It gives the Treasury power to apply company law on striking off and dissolving defunct societies by the registrar of industrial and provident societies, which will become the Financial Services Authority, with appropriate modifications, which will include allowing the assets to be transferred to a society with similar objects. It also gives the Treasury power to apply company law on the investigation of companies and the requisition of documents to industrial and provident societies by giving the Financial Services Authority powers equivalent to those of the Secretary of State for Business, Enterprise and Regulatory Reform. Finally, it gives the Treasury power to apply company law provisions about company names, including general requirements on company names, indications of company type or legal form and power to direct a company to change its name if it is similar to other names, if the company provides misleading information in order to register by a particular name or if the name of a company gives a misleading indication of its activities.

Clause 5 enables provisions corresponding to building society law to be made for credit unions. The power will allow any provisions of building society legislation that are deemed appropriate to be mirrored for credit unions. Building society law has been tailored to deal with this use and is specific to institutions that accept deposits. It is therefore a suitable model to allow credit union law to keep pace with credit unions' expanding membership and operations. Clauses 6, 7 and 8 deal with technical issues, such as the making of consequential amendments and regulations under the Bill, commencement and territorial extent.

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I shall briefly address the major amendments to the original draft of the Bill. I again express my gratitude to all those who by their diligence in scrutiny led to the reconsideration. The Bill contains the same substantive changes to legislation that were set out in its predecessor, but the concerns that were raised about it form the basis of the amendments. The Delegated Powers Committee supports the amendments to the Bill and the Constitution Committee, in its first report for the Session 2009-10, which was published yesterday, also supported the changes. In essence, the concerns were in connection with powers granted to the Treasury to import measures from the Companies Act in relation to industrial and provident societies under Clause 4 and to apply building society law to credit unions under Clause 5. Specific concerns were expressed in respect of the powers granted to the Treasury to create criminal offences and of the fact that there was no express duty in the Bill to consult before making regulations under Clause 4. In addressing these concerns, I draw your Lordships' attention to Clauses 4(7)b and 5(1), which ensure that the Government can create offences only in circumstances corresponding to the offence in the legislation being applied and subject to a maximum penalty no greater than is provided in the corresponding offence. Additionally, I refer your Lordships to Clause 4(8), which makes explicit the requirement to consult before assimilating company law measures into industrial and provident society legislation. Such a requirement to consult in relation to building society law and credit unions existed in the previous draft of the Bill and is contained in Clause 5(6).

The co-operative sector and credit unions fully support the changes in the Bill and the legislative reform order that has been laid in another place. I hope that your Lordships will agree that the Bill provides much-needed amendment to legislation that has grown sadly out of date and that they will support its passage as quickly as possible.

I am not going to repeat what I said in the previous Session about how strongly I support the co-operative sector, the community benefits sector and the role of credit unions, particularly in the present economic circumstances. That should be taken for granted. Today, I am dealing with the technical differences between this Bill and the previous Bill. I beg to move.

10.16 am

Lord Kirkwood of Kirkhope: My Lords, it is a great pleasure to follow the noble Lord, Lord Tomlinson. I fully support everything he said. The House owes him a debt of gratitude for picking up this Bill and having the presence of mind to persuade the usual channels to give it a fair wind and an early start. It will need them if it is to reach the statute book in good order and due time. I hope it will, and I pledge myself to do everything I can to assist that progress.

I have two preliminary points. First, it is reassuring that the processes in this House have so acutely picked up any potential defects in the legislation. We should take some comfort from the fact that this place works so well. The committees that work behind the important considerations given to these issues in the Chamber do valuable work and we owe them a debt of gratitude.

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Secondly-perhaps the Minister can help me understand this; I freely confess that I have stolen the point from my noble friend Lord Newby's speech on a previous Second Reading-I do not understand why this important tranche of financial legislation is left merely to Private Members' consideration. I do not mean to say that Private Members' consideration is not important, but if we think that this element of the nation's financial provision is as serious as some of us think it is, is it any longer safe to leave it to them? Members have difficulty in ensuring that they get all the provisions right. Perhaps it is just convention and practice. If so, perhaps I may simply make a plea that the Treasury should think about taking the matter in-house, looking after it and doing it as government business in future. I hope that this business will prosper and develop; and if it becomes much bigger, the legislative framework should be undertaken by the Government.

I declare an interest. I am a non-remunerated, non-executive director of the Wise Group, a social enterprise that provides intermediate labour markets in Glasgow. Part of that experience has reminded me of the issues that the noble Lord, Lord Tomlinson, referred to at the end of his excellent speech. These organisations are qualitatively different for a series of reasons. My Co-operative divvy number was 22919; I bet that the Minister cannot remember his. There are two types of person in this debate today: those who remember their divvy numbers and those who do not. Maybe he does not have one, or maybe memory loss affects us all as we advance. I used to use it as my computer password because it was the only number that I could ever remember. These are important matters.

As well as congratulating the noble Lord, Lord Tomlinson, I must say in passing that the excellent Mr Malcolm Wicks, who is a serious player, did the issue splendid service in the House of Commons. I enjoyed and learnt a lot from reading his speeches. He has had a deep interest in this matter for a long while.

There is a renaissance available to us. This is a technical Bill. The noble Lord, Lord Tomlinson, has explained exactly what it seeks to do. It is right that it should and important that it does, but it is not sufficient to leave it there. We need to understand, again as the noble Lord, Lord Tomlinson, said, that there is a timing issue here. It is apposite for this House to pass the Bill, but in passing it we must recognise what contribution we can make in the circumstances in which we will find ourselves in the future.

Mutuality is based on 19th century philosophy, which I will not go back to. It underpins local loyalties and enhances the idea of collectively owned assets. These organisations are basically run democratically. They meet mutual needs and have no requirement to make a return on capital. All these things make them special and apposite for the financial circumstances that we face as a country at the moment. In addition-I have learnt this from my experience in the Wise Group-they generally operate at lower cost because they can galvanise volunteer activity very positively, which helps, they serve specialist markets, but more than anything else they promote local loyalty.

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My interest in this House is low-income families and low-income communities, and more than anything I think that promoting an attachment to people's local circumstances is missing from the work that is being done to increase the amounts of money available to low-income households. Actually, you need to do more than that, which is what the mutuality of co-operative credit unions and other organisations of that kind does. There is an urgent and important need to promote and develop these organisations right now as we go into the three-year public sector spend period, which will be very difficult, during the next Comprehensive Spending Review.

I agree with the noble Lord, Lord Tomlinson, that one of the most important things that this Bill will promote is a new image, a refreshing of the brand, an intelligent encouragement of the thought that this is useful and compatible with the internet age, because it can be if it is promoted properly. It is also a very good fit with a lot of other government policy goals. The consultation was referred to earlier. I acknowledge that the Government have done a lot of work in this area, and I do not think that anyone can deny that, but it needs further promotion and development. An example of an important government policy fit is the important work that the FSA is doing on financial capability and the pilot projects on face-to-face financial advice.

Another thing that credit unions do is to enhance greatly people's understanding of what financial arrangements they need to make for themselves in future. It is self-help in the very best sense and it is needed now more than ever. Credit unions are very important. They have developed very positively, but they need further attention and support. Importantly, as the recent Joseph Rowntree Foundation report said, credit unions are not just for poor communities. They are for communities across the board, and if they become organisations that are exclusively for the poor they will become poor organisations as a result. We need to bear that in mind. All sorts of communities throughout the length and breadth of the United Kingdom should consider promoting the interests of credit unions more generally.

The Government are in the very important position of being able to offer contracts to some of these new community-benefit organisations and mutuals. As an organisation and a service provider, the Government can offer service deals to a lot of these companies. I know this from the Wise Group, because we are applying for some of the Flexible New Deal contracts. These are very big contracts. These are not penny numbers, or street-by-street organisations competing for tiny amounts of money. It is now possible, with support and proper governance and advice, for social enterprise companies to compete with the biggest and the best in the private sector to offer their services for public-service delivery in the future, and the Government should promote that more actively.

Indeed, I would go further. Given that we are introducing programmes and pilot schemes such as those for the Flexible New Deal, we should encourage people who have been unemployed for long periods to consider setting up mutual organisations and becoming involved in that sort of activity, as well as considering

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important advice and suggestions about moving towards self-employment. There is a lot that the Government could do, and I hope that the government Front Benchers will think about that very carefully.

Finally, with all the work that is being done on the legislative reform order and the process that I know is ongoing, I hope that the momentum is being kept up. We have obviously lost a little time with the Bill, for the reasons that the noble Lord, Lord Tomlinson, has perfectly well explained, but I hope that the Minister can give us some assurance that, in addition to this Bill, there is activity downstream on the LRO, so that the other changes that can be made and that will fit behind the primary legislation that we are considering this morning are actively and urgently pursued.

I am very pleased to support this Bill. I hope that the Government understand the need to generate more interest around the whole subject, in addition to the valuable work that they have done in the past, and that the government Front Benchers will not only support the Bill but will champion the cause in future.

10.27 am

Lord Elystan-Morgan: My Lords, I am very happy to reiterate the words of the noble Lord, Lord Kirkwood, in congratulating the noble Lord, Lord Tomlinson, on introducing this Bill for the second time in five months, in addition to initiating a debate some two months ago on this very subject. These efforts crown his apparently many decades of distinguished and conscientious service to the principle of mutuality and co-operation. I have no doubt that this Bill will have impact and considerable importance in a wide area, both socially and financially.

I will confine my remarks this morning to credit unions, which in one respect are the most classical form of mutuality possible. They were once described as people's efforts on behalf of people. That is as good a definition of mutuality as one can ever have. I have no doubt that Clause 5 will greatly strengthen the legal and commercial position of credit unions. I appreciate also that the Treasury will make use of delegative framework powers, which are contemplated if they have not already been used, in this connection.

Credit unions have functioned now for well over 100 years. I understand that they started in Germany among agricultural workers, and spread to France, and throughout Europe, and to North America and the wider world. The effect is that in many countries they are massive institutions. The noble Lord, Lord Kirkwood, made the point that they should be something more than poor people's institutions. In the Republic of Ireland 50 per cent of people belong to a credit union; in the USA and Canada the figure is over 30 per cent and in Australia it is over 20 per cent. That is the tragedy, if I may so describe it, of the situation in the United Kingdom. I have calculated that at most about 1.2 per cent of our population belong to credit unions.

Despite that, there are 450 to 500 credit unions in the United Kingdom. They have a membership of not far from 700,000, they have assets of about £500 million and last year their income was in excess of £30 million. That is not insignificant, but it is not in the same league as what has been achieved in so many other parts of the world.

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The point that is obvious to us all is that there never was a situation more propitious for credit unions to flourish than exists at present. Infinitely more importantly, there was never a greater need for them. We were reminded in the debate a couple of months ago by the noble Baroness, Lady Noakes, that in Britain the average household debt is some £70,000 per family, of which about £9,000 is unsecured. She also reminded the House that one-third of the adults of this country have no savings whatever, and that among single parents the figure is in the order of two-thirds. These are chilling figures but they form the background to the real relevance of credit unions in this situation.

In this situation where the financial crisis is something that is very near to millions of families, all that is needed is one small factor to operate and people find themselves desperately in need of money-not huge sums very often, perhaps even as small as a few hundred pounds, but they face a critical situation unless that money can be found swiftly. Where can they turn to? Apart from credit unions, in theory they can turn to the high street banks, but those banks do not want to know them. These are small, finicky transactions, and the banks do not regard them as a seam of prosperity. Then there are the sub-prime lenders. Some such lenders are fairly decent but many charge monumental rates of interest, have punitive conditions in respect of default and act unconscionably when it comes to restructuring loans.

Lastly, there are the loan sharks. Their rates of interest are even higher. Someone once asked what the difference was between the worst of the sub-prime lenders and the loan sharks. The real difference is that the sub-prime lenders go to court and manage, usually by a default order, to have a judgment in their favour. The loan sharks use the heavy mob, Alsatian dogs, iron bars and all the other impedimenta of unlawfulness. Some of the cases that have appeared before the courts in the past few months have been utterly shocking. Thousands of people must be held in thrall by these thuggish and inhuman tactics.

That leaves credit unions. What can one do to strengthen the position? I have no doubt that Clause 5 will achieve that, and I have no doubt that the framework powers that I have referred to will bolster it as well. Over the past three years the Government have allocated about £100 million to credit unions, and apparently that has assisted above 160,000 people. I argue that with a stronger legal and commercial base, which this legislation will bring about, the Government should look to much more substantial assistance than that. Few people will have suffered the economic circumstances of the past few years as badly as these people now who are in need of that very assistance with regard to credit unions. Of course one can argue that these are difficult times and that the Government must look to every penny, but in view of the massive assistance that has been given to the banks-I do not cavil at that, because all the other alternatives would have been far worse-then it is only right and proper that a much more substantial subvention should be considered.

Local authorities have their parts to play, and often do so, in providing rent-free premises and giving advice and assistance to credit unions, as has the Assembly of

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Wales, which has shown a great pioneering spirit in this connection. It may be, though, that in practice the most relevant thing that could be considered at the moment is a partnership, though not a marriage, between the Post Office and credit unions. Credit unions have an important product-cheap and available credit for those who need it-but they have no distribution system. They are small, localised micro-units. The Post Office does not have a product but it has a distribution system. Put the two together and you have the possibility of considerable success. I wish the Bill godspeed in the limited road space that it has between now and the end of this Parliament.

10.36 pm

The Lord Bishop of Salisbury: My Lords, these Benches are also keen to support the general thrust of the Bill, Anything that can draw people together in what in our day-to-day prayers we call the building up of our common life with the trust and support of one for another is to be welcomed. It is the foundation of common life in this country that we have a mutuality of concern for one another, and unless that has some secure basis in the way that we legislate to live our life together, we will see increasing fragmentation.

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