Co-operatives, Mutuals and Friendly Societies Bill (First sitting)
Wednesday 30th November 2022
(1 year, 5 months ago)
Public Bill CommitteesRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drinks are permitted during sittings of the Committee, except for the water provided. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk.
My selection and groupings for the sitting are available online and in the room. I have selected the three amendments in the name of the sponsor of the Bill, Sir Mark Hendrick. Amendments will be considered alongside the existing content of the Bill in a single debate.
Clause 1
Power to restrict use of assets of relevant mutual entities
Sir Mark Hendrick (Preston) (Lab/Co-op)
I beg to move amendment 1, in clause 1, page 2, line 2, at end insert—
“(ba) provide for the case mentioned in subsection (2)(a) to be subject to such exceptions as may be prescribed;”.
This Amendment would enable the Treasury to make provision in the regulations about exceptions to the case allowing for a mutual entity to use or deal with assets for a purpose for which the activities of the entity are carried on.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Clause 2 stand part.
Amendment 2, in title, line 1, leave out from “Make provision” to “to permit” in line 3.
This Amendment and Amendment 3 would amend the long title of the Bill to reflect that the purpose of the Bill is to permit the capital surplus of mutual entities to be non-distributable.
Amendment 3, in title, line 4, leave out—
“; to amend the Friendly Societies Act 1992”
See the explanatory statement for Amendment 2.
Sir Mark Hendrick
Good morning, Mr Mundell. It is a pleasure to serve under your chairmanship. I am grateful to you and to Committee members for joining me to look at the detail of the Bill.
Co-operatives, mutual insurers and friendly societies have an important part to play in the biodiversity of our economy. These businesses share their origins in self-help movements that are relevant to the economic and social challenges faced by people today, and they need a business environment that facilitates their activity. I have therefore introduced a Bill to make long overdue changes to the legislation that governs co-operatives and mutuals and to create a more modern and supportive business environment for them to operate in.
Members on both sides of the House agreed on Second Reading that a strong network of co-operative and mutual businesses can play an important role in a diverse and modern economy. Co-operatives and mutuals represent a serious contribution to the UK economy, accounting for more than £133.5 billion of income annually.
The Bill will ensure that Government policy understands and supports the difference of mutual businesses. It will also create legislation that permits co-operatives, mutuals and friendly societies to undertake their business purpose of serving their members’ needs in the best way possible. Crucially, it will give co-operatives and mutuals the opportunity to opt into a framework providing greater safeguards for their assets and more protection against demutualisation.
The Bill does that by proposing simple voluntary legislation that would give every mutual the right to choose a constitution—either at the point of establishment or thereafter, with an appropriate level of member approval—that preserves legacy assets for the purpose for which they were intended. As witnessed in 2021 with Liverpool Victoria, or LV=, mutuals remain a target for asset-stripping demutualisers attracted by legacy assets built up over generations. That is unfortunately incentivised by the legislation governing mutuals and remains a real and present threat to the mutual sector.
The Bill is about giving mutuals the option to maintain mutual capital for the purpose for which it is intended. Legacy assets have been built up over generations of membership and often constitute a significant part of the working capital of the business. Current members typically have not contributed to that capital base, but have enjoyed the benefits of previous years of successful trading. The Bill disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purpose for which they were intended.
The Bill empowers mutual members to decide what should happen to assets on a solvent dissolution. It would match the best legislation that exists in many countries. The Bill achieves that by introducing a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets would be non-distributable; to detail precisely the destination of any capital surplus on a solvent winding-up; to outline the procedures necessary to include such provisions in a mutual’s rules; and to insert a statutory provision for the relevant rules to be unalterable.
The Bill defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. The Bill introduces new provisions to maintain the destination of the capital surplus. It ensures that, where a mutual’s rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company shall also include a provision to transfer the capital surplus, as provided by the rules, in the event of a solvent winding-up.
Danny Kruger (Devizes) (Con)
May I say how much I appreciate the Bill? I am pleased that the Government are supporting it. Does the hon. Member agree that the value of the asset lock he proposes for mutual funds will enable places that have suffered from deindustrialisation and globalisation to have a base of capital with which to build the local economy, and that what he is doing very much supports the wider levelling-up agenda?
Sir Mark Hendrick
Yes, I totally agree. The Bill is consistent with the levelling-up agenda. It is meant to ensure that the assets remain in place for the purposes for which the asset base was originally intended.
Let me set out the detail of the clauses and the amendments. Amendment 1 addresses an inconsistency in the legal text in clause 1(2)(a), which results from trying to capture the varied range of entities that make up the mutuals sector. As I said, there are co-operatives, mutuals and friendly societies—different types of organisation and company. In its current form, the Bill proposes an asset lock for a purpose that is for the objects of a mutual entity. The purpose of a co-operative is often seen as one that is for the benefit of its members. It could be argued that demutualisation, which involves distributing surplus funds to members, is for the benefit of members. However, given that the Bill aims to reduce incentives for demutualisation, the amendment is needed to close that loophole; otherwise, the ultimate purpose of the Bill risks being defeated. The amendment also ensures that the Bill is sufficiently broad that it is future-proofed and works for the wider mutuals sector.
The other two amendments are technical changes to ensure that the long title reflects the current contents of the Bill—namely, that the purpose of the Bill is to permit the capital surplus of mutual entities to be non-distributable. They leave out the words from “Make provision” to “to permit” and the words “; to amend the Friendly Societies Act 1992”.
I would like to express some disappointment that the overall ambition of my original Bill is not included in this version. In addition to allowing co-operatives, mutuals and friendly societies to safeguard their legacy assets to disincentivise demutualisers, the Bill’s initial proposals addressed some other issues: co-operatives needing the ability to issue perpetual capital to fund investment and growth—that would have meant a new type of share—and mutual insurers and friendly societies needing to be able to issue mutuals’ deferred shares to fund investment and growth without suffering disproportionate tax penalties. I discussed that issue in some detail with Ministers—both the current Minister and the former Minister, the hon. Member for North East Bedfordshire, who is on this Committee. The initial proposals also dealt with friendly societies needing an updated legal framework to facilitate their contribution as modern businesses working to help level up and promote economic prosperity. Friendly societies have not seen their legislation updated for quite some time; that is long overdue.
The Bill does not cover the whole scope of what I wanted it to achieve, but I am extremely pleased that the Government are backing a key aspect of my proposals concerning mutual assets. They have also given assurances that they plan to conduct a wider review of key legislation underpinning the co-operatives, mutuals and friendly societies sector with some firm proposals, instructing the Law Commission to conduct a review as part of that process. That is major progress and a step forward for the sector.
Richard Fuller (North East Bedfordshire) (Con)
Would the hon. Member be interested, as I would, to hear an update on the progress the Minister has made on that front? It is a key part of what the Bill is trying to achieve, and we want to ensure that we do not lose this opportunity.
Sir Mark Hendrick
I thank the hon. Member for his contribution and for the part he played in my getting this far with the Bill. I hope the Minister will indicate what moves are afoot and what progress will be made in that direction.
Richard Graham (Gloucester) (Con)
The Bill is hugely supported by everyone present, but will the hon. Member clarify his proposed amendment to line 3 of the title to reflect the fact that the Bill aims
“to permit the capital surplus of mutual entities to be non-distributable”?
I understand exactly what he means about potential creditors moving those assets into a different structure—he mentioned the LV= situation—but what happens when a mutual, for whatever reason, sadly fails? At that stage, does the Bill allow for any remaining capital to be distributed to the members of that mutual?
Sir Mark Hendrick
I thank the hon. Member for his intervention. A lot depends on how it is framed at the start when the mutual or co-operative decides to register. Remember that this is an opt-in; therefore, any conditions upon the dissolution of the company will depend very much on its registration and constitution. Those would allow for this, if the organisation were so set up. I am sure that the Minister will comment on that as well.
Returning to the previous intervention, I hope the Minister will give some assurances, because there are obviously none in the Bill. I hope that moving in the direction of the Law Commission setting up a review of the sector and of the two pieces of legislation he wrote to me about that need review will bring the rules and legislation on co-operatives, mutuals, associations and friendly societies up to date with what is seen as best practice across Europe. Italy, France, Spain and Germany are far more advanced in how they help the sector, in terms of both taxation and the way in which organisations are viewed and are able to expand.
Gareth Thomas (Harrow West) (Lab/Co-op)
My hon. Friend has done an impressive job of getting his Bill to this stage. He will know that one problem with increasing access to capital for mutuals has been the roadblock of His Majesty’s Revenue and Customs. When the Minister reflects on the question raised by the hon. Member for Gloucester and on the contribution of my hon. Friend, will he clarify whether he has instructed HMRC to co-operate fully with the Law Commission’s work? If it does not, we will still have a roadblock in terms of increasing access to capital for mutuals.
Sir Mark Hendrick
I concur totally with my hon. Friend.
Let me close by thanking you, Mr Mundell, and by thanking my colleagues for their contributions and for being present to support the Bill. I also thank everyone who has worked so hard to make it a success, including Peter Hunt and Mutuo, the Co-operative party, the co-operative sector, and the Minister and his Treasury officials. Only by working in a modern and supportive business environment will co-operatives, mutuals and friendly societies be able to make a full contribution to the prosperity of our country by serving the interests of customers, and, indeed, citizens.
Richard Graham
I should mention that I once worked for a mutual group and with co-ops, mutuals and friendly societies, Mr Mundell. That is, if you like, a declaration of historic interest.
Today’s Bill is indicative of the huge support for the sector from the hon. Member for Preston. He highlights the fact that co-ops, mutuals and friendly societies can still, and do, play a key role in modern finance. I congratulate him and successive Treasury Ministers on their partnership in bringing the Bill forward. In fact, everyone here is so supportive of the sector that we probably all qualify for the support of the Co-operative party—a recruitment opportunity that I hope it is alert to.
Richard Graham
Thank you.
On the substance of today’s amendments, will the Minister clarify the point I raised in my earlier intervention, about whether the constitutions of the different categories of existing mutuals allow for the distribution of any remaining capital to members where that mutual—and, by application, its members—has decided for whatever reason to wind up?
Will the Minister also clarify that mutuals can use some element of capital, if they wish, for the purposes of merging to create more scalability? As we know, the challenge for mutuals is to raise capital—that has been part of the weaknesses of one or two of the co-ops over the past decade—and, should they no longer be able to go forward, it is important that members do not necessarily lose everything they have put in.
Gareth Thomas
Is there not a risk that what the hon. Member is advocating would actually drive a coach and horses through the purpose of the Bill, which is to stop demutualisation and the distribution of assets to members? Any demutualisation is usually driven by the directors, who will benefit enormously from it. What the hon. Member appears to be suggesting risks creating a loophole that actually protects members in terms of demutualisation going forward. Has he not considered that possibility?
Richard Graham
Sure, but what I am trying to ensure is that that option is not ruled out where one small co-op could benefit from merging with a couple of others to remain mutual, rather than demutualising. That is the key point.
We have seen that in a slightly different way with credit unions. I helped merge a small credit union in Gloucester with a number of others in Gloucestershire to create one single Gloucestershire Credit Union. That enabled it to survive for another decade, although, sadly, it has now failed.
The key thing is that there are moments when even a mutual can benefit from additional scale by merging with other mutuals—specifically so that it does not need to demutualise. That is really my point, and I am sure the Minister will be able to shed light on the issue.
Sir Peter Bottomley (Worthing West) (Con)
I will raise a few points, but I am happy for the Minister to write to me afterwards, rather than trying to respond to them straightaway.
One question is whether the Bill applies to credit unions. I doubt it does directly, but I would say in parenthesis that the Minister ought to consider referring to the Law Commission the law on credit unions, to see whether there are ways in which we can fill the gap between credit unions, whose interest rates are strictly controlled, and other private lenders, whose rates can be enormously high. It seems to me that giving credit unions freedom to do more of their work more effectively and for a greater number of people is important. I also believe that it should be possible to confirm whether the law could be such that people could give money to credit unions as though they were giving to a charity.
Some of the questions that have been raised today are actually dealt with by the terms of friendly societies, co-ops and the like. They can transfer their assets to another one, if they fail. That is not covered in this Bill; this Bill gives permissive power, as the hon. Member for Preston told us. It does not deal with the challenge that it is possible to persuade members of a co-operative, mutual or friendly society to change their regulations to allow distribution—I think that is still within scope—but it means more difficulty.
In the LV= situation, members were asked to approve something; they could also be asked to change the rules. As far as I understand it, if a society, mutual or co-op uses this Bill when it is enacted, its provisions can be undone by the members. They are not fixed in concrete forever, but it means that those who intend to preserve the assets and stop them being given out can put a first roadblock in the way.
Marion Fellows (Motherwell and Wishaw) (SNP)
It is a pleasure to serve under your chairmanship, Mr Mundell. I am overawed by the experience of the other Members of this Committee. I welcome the questions that have been asked and I agree with the hon. Member for Preston that it is disappointing that not all of his ideas have been taken forward, and I put on the record our support for this Bill.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Mr Mundell. I begin by thanking and warmly congratulating my hon. Friend the Member for Preston on securing cross-party support for this important Bill.
Britain has a long tradition of fostering the principles of co-operation and mutual support. The histories of the Co-operative party and the Labour party in this country are closely entwined. That relationship was institutionalised in 1927, when the Co-operative party and the Labour party entered an electoral agreement to stand joint candidates in elections. Nearly a hundred years later, that agreement is going strong—as one of many Labour and Co-operative MPs, I can attest to that.
To this day, both parties continue to make the case for co-operatives and friendly and mutual societies. I have always been proud to work with the Co-operative party to promote the co-operative businesses that are leading the way in improving equality and productivity at work. As a shadow Treasury Minister, I am keenly aware of the role that co-operatives and mutuals play in trade sectors as diverse as agriculture, renewable energy, retrofitting, creative industries, manufacturing, distribution, wholesale, retail and financial services.
Those British businesses play such an important role in supporting working people across the country in gaining greater control over their lives. In the financial services sector for example, building societies provide people with a low-risk, member-focused banking alternative and research has shown that trust in building societies is consistently high. Building societies are also typically well capitalised, making the sector more resilient to financial shocks and better able to lend and plan for the long term.
At the same time, credit unions serve 1.9 million members and 2.1 million depositors across the UK. Currently, around £1.7 billion has gone out in loans to credit union members, providing a crucial lifeline to the most financially vulnerable in society and preventing people from turning to loan sharks and high-interest loans.
With the right support, the co-operative sector has the potential to provide solutions to many of the crises and challenges we face as a country, such as the cost of living crisis or climate change. But despite the distinctly British character and history of mutually and co-operatively owned companies, and the important role they play in promoting financial responsibility and resilience among their members, the sector’s needs have too often been ignored. The number of mutual credit unions has fallen by more than 20% since 2016. Ordinary families have paid the price, with many forced into the arms of unethical lenders. That will only get worse as the cost of living crisis deepens.
Unlike the United States and many other European countries, the UK is uniquely lacking in mutually or co-operatively owned regional banks, which could play a crucial role in providing the affordable credit that small and medium-sized businesses need to reach net zero. The growth of co-operatives in this country is being held back by a legislative and regulatory framework that is not designed for co-operative businesses. Given their unique structure, co-operatives, mutuals and friendly societies are often excluded from traditional investment methods.
Sadly, as we have heard, the sector is also under threat from demutualisation. There was celebration across the co-operative and labour movements last year when members voted to reject the controversial takeover of the insurer Liverpool Victoria by the private equity firm Bain Capital, yet demutualisation remains a real and present threat to the sector. That is why the provisions contained in the Bill are so important and will help to ensure that mutual capital is maintained for its intended purpose.
We welcome the Government’s support for the Bill, and we would like to use this opportunity to urge the Government to consider wider reform, such as giving co-operatives more freedom to issue perpetual capital to fund investment, to secure the future of this important sector. The Financial Services and Markets Bill, which is currently passing through the House, contains some welcome and long overdue provisions, such as enabling credit unions to offer a wider range of products, but if the Treasury wants to unlock the economic potential of the sector, it could go much further. That is why I hope that, alongside supporting this Bill, the Government will consider supporting the amendments tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq) to the Financial Services and Markets Bill, which would give the regulators—the Financial Conduct Authority and the Prudential Regulation Authority—an explicit remit to report on how they have considered specific business models, including mutuals and co-operatives, to ensure they are given parity of esteem with standard providers.
It is time to radically reform the rules governing the sector, to give greater flexibility and to allow mutuals and co-operative financial services to grow. The Labour party and the co-operative movement share a commitment to building a society in which power and wealth are shared fairly. That is why the Labour party and the Co-operative party have agreed an important ambition for government: we will double the size of the co-operative and mutual sector in the UK. We recognise that the Bill represents an important step toward achieving that aim, and we will be giving it our full support today.
The Economic Secretary to the Treasury (Andrew Griffith)
It is a pleasure to serve under your chairmanship, Mr Mundell, and it is always a pleasure to follow the hon. Member for Ealing North. I congratulate the hon. Member for Preston on reaching Committee stage with this important Bill and on the role played by him and his team in championing the needs of the mutuals sector. I also congratulate my predecessor, my hon. Friend the Member for North East Bedfordshire, who did so much to pilot the Bill in its early stages and has given it his wholehearted support. It is always a pleasure to work with him, and I am pleased that we can take it forward.
I am pleased with the warm reception that the Bill has received right across the sector and on both sides of the House. A number of my colleagues look forward to their membership of the co-operative movement, and would it not be a wonderful thing if the co-operative movement once again graced both sides of the House? I always pay tribute to my thought leader in this space, my hon. Friend the Member for Devizes, who has consistently advocated the benefits of a place-based approach to policy. We continue to hang on his every word as to how we can make that a reality as we seek to level up the United Kingdom.
My hon. Friend the Member for Gloucester raised some important points. I will write to him with what I consider to be the best legal position on the perfectly fair points he raised in pursuit of facilitating transactions that would protect mutuals, and not seek to undermine them or create a loophole, which I am sure is not the spirit of what he suggests. Nor would the Government want to see that or support that.
Richard Graham
It was interesting that the shadow Minister, the hon. Member for Ealing North, raised an ambition to double, effectively, the size of the mutual sector. Although that is an admirable ambition, in an isolated sense, I think that there is work to be done on a review of the sector to see why some credit unions have failed, where the inability to raise capital is holding back the co-op and mutual movement, and what more can be done on some of the points mentioned by colleagues on both sides of the Committee to see where things are holding the sector back. Otherwise, the ambition in itself may not lead anywhere.
Andrew Griffith
I thank my hon. Friend for his point. It is a laudable ambition, which I am certainly happy to devote time to. Mutuals with the values of people in the community at their core are genuinely central to the vibrant, competitive and diverse—we are in favour of financial diversity—way in which the UK can serve the whole community. It is right that we look at how we do that, and how we can access capital. There are some technical points—I believe that Opposition Members understand that—in ensuring that we retain the tax advantages of mutuals, and do not inadvertently make them look more and more like corporate entities, which they are not, thereby prejudicing that tax treatment.
Gareth Thomas
I take the Minister’s point that there are some technical issues, but there has seemingly not been a great deal of will from HMRC thus far to try to find a way forward on them. Will he set out what instructions he has given to HMRC officials, perhaps to co-operate with the Law Commission, or whether separate work is being done within the Treasury to find a way around those technical issues? One of the things that came out of the LV= story—it was not a particular issue for LV=, but it certainly was for other mutuals—was that access to capital is holding back the development of friendly societies and their ability to offer more wide-ranging products and services.
Andrew Griffith
I am sure that my steely-eyed colleagues at HMRC do not need any particular direction, but they will have some challenge from me. I have already started to engage in that space. The hon. Member will appreciate that the corpus of law in this area is substantial, and that we should proceed cautiously. I will come on to the Law Commission, and perhaps that can be—
Gareth Thomas
There has not been a problem with their being cautious; the problem has been getting them to do something.
The Chair
Order. We cannot have a conversation. The hon. Member should either intervene or not.
Andrew Griffith
I also associate my remarks with those of my distinguished friend and neighbour, my hon. Friend the Member for Worthing West, about the potential for the sector. He too made the point about its important contribution to a diversity of models, and potentially looking at the cap on the rates that mutuals can attract. Particularly in an environment of rates moving around, we should look at that with an open mind, and I will continue to do so. I am sure that the hon. Member for Preston will continue to be a doughty champion for the sector, and I look forward to engaging with him going forward. I know that the Bill does not go quite as far as he would like. It is great that we have such strong ambition, but I do not think that we should let the perfect be the enemy of the good. We should celebrate this really important concrete step, which will prevent the predation of demutualisation.
More widely, the Government are supporting credit unions through the Financial Services and Markets Bill, as the hon. Member for Ealing North reminded us. It would be good to see a higher number of them. As he knows, they are regulated by the Credit Unions Act 1979, which the Bill amends to allow for a significantly wider range of products and services, including for the first time hire purchase agreements, conditional sales agreements and insurance distribution services—the ability to act as a distributor of insurance, helping both the reach of those products and their own financial growth. That will be of genuine benefit to members.
The Government are also helping building societies, another part of the broader mutual movement, to expand their opportunities for growth by ensuring that they operate within a modernised legislative framework. We have concluded our consultation on the Building Societies Act 1986 and look forward to how we will respond to it to help that important part of the sector.
Gareth Thomas
Will there be an opportunity for the House in some way to consider whether the scope of the review is as wide-ranging as those of us who are advocates of the sector across parties think is necessary?
Andrew Griffith
I am always happy to engage with the hon. Member. The simple answer is that I do not know whether it is for the House to engage, but I am happy—I hope my actions to date speak as loudly as my words—to engage on what that scope should be. I certainly assure him that, before the launch of a review, the sector will be consulted. If hon. Members have particular points to make, I am keen to hear them.
The future of mutuality looks bright and prosperous. That ambition is supported by the Government. I commend the hon. Member for Preston for his work on the Bill. The Government will support it.
Sir Mark Hendrick
I am grateful for the co-operation that the Government have shown on the Bill through successive Ministers over the past four or five months. I am encouraged to hear about the co-operation of the Law Commission and the moves to be made to involve it in a review of the sector. I look forward to seeing what the review brings forward. In the spirit of what my hon. Friend the Member for Harrow West said, I hope that the House will get the chance to deliberate the outcome of the review and to produce future legislation that will go towards solving many of the problems that I identified in my original draft of the Bill.
This is not the Bill that I introduced, but a good chunk of it is there, and I am grateful for the asset lock that is being introduced. I hope that we can also work to deliver, in future, further aspects of my original Bill in order to reach what I think is a conducive and favourable environment for co-operatives, mutuals and friendly societies in this country. If we look at the examples of the sector in other countries, in particular in mainland Europe, we can see that we are well behind in the degree of contribution to the GDP of those countries, compared with the degree of the contribution to GDP of the sector in this country.
A lot remains to be done, but I thank the Minister for bringing forward that work to ensure that we can get there at some stage in the future. Thank you, Mr Mundell, and I thank the Minister, the Treasury team and everyone else present today to support my Bill.
Amendment 1 agreed to.
Clause 1, as amended, ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Title
Amendments made: 2, in title, line 1, leave out from “Make provision” to “to permit” in line 3.
This Amendment and Amendment 3 would amend the long title of the Bill to reflect that the purpose of the Bill is to permit the capital surplus of mutual entities to be non-distributable.
Amendment 3, in title, line 4, leave out—
“; to amend the Friendly Societies Act 1992”.—(Sir Mark Hendrick.)
See the explanatory statement for Amendment 2.
Bill, as amended, to be reported.
Co-operatives, Mutuals and Friendly Societies Bill
Friday 24th February 2023
(1 year, 2 months ago)
Commons ChamberRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Sir Mark Hendrick (Preston) (Lab/Co-op)
I beg to move, That the Bill be now read the Third time.
The object of my Bill is to help ensure the best business environment for co-operatives and mutuals, and that means three things. First, we need a good policy understanding of the importance of mutual business, and that must stretch across Government to Ministers and officials. We recognise that it is always a challenge to get attention from a busy Department such as the Treasury, but well-informed and motivated Ministers and officials will give us a fighting chance. Co-operatives and mutuals are an important feature in a mixed economy when their different business purposes are recognised and allowed to flourish. Good policy is the foundation stone for that.
Secondly, on legislative reform, the Bill is part of making legislation on co-operatives and mutuals fit for purpose for a modern economy. Co-operative law was first introduced to this House in the 1860s, and formed the basis for co-op law in many countries around the world, but it has sadly not been kept up to date. We want to draw on the best practice in the world, which is why the idea of protecting assets for their intended purpose is so important.
Countries that have adopted such provisions have much more robust co-operative and mutual business sectors. The removal of the incentive to demutualise means that they can continue to grow in line with the interests of the members they serve. There is more to do on legislative reform, as my original Bill identified. We look forward to working with the Government to ensure that legal options are no longer a poor relation but match the standard of the best in the world.
Thirdly, we need regulators to appreciate the role of co-operatives and mutuals. We can have the best policy and legislation, but in practical terms, progress can be thwarted if regulators lag behind. They should no longer see their role as facilitating demutualisation, as they unfortunately did in the LV debacle. Instead, the true champions of consumers should be driving corporate diversity and choice. If there was one lesson to take from the global financial crisis, it was that we do not want all businesses following the same mistaken strategy. In that regard, diversity is strength, and regulation should take seriously its role in ensuring that co-operatives and mutuals are not ignored, or worse, homogenised into a single idea of business driven by shareholder-owned interests.
The Bill is one of a series of such private Members’ Bills over the last 20 years. I am proud to have played my part in bringing it to the House in the way that my predecessors did. There have been five Bills to modernise co-operative and mutual law, all of which have received Royal Assent. It is welcome that our efforts and endeavours have had the support of Treasury Ministers and from both sides of the House. This is one area in which there is genuine and lasting cross-party consensus. It is no less welcome that we enjoy today the support of His Majesty’s Government for this sixth such Bill. It is perhaps less positive that we have had to take this piecemeal private Member’s Bill approach to legislation, but I sincerely hope that the promised Law Commission review puts that right, and that a modern framework for business is established once and for all.
My Bill is about giving mutuals the option to maintain mutual capital for the purpose for which it is intended. There is a fundamental distinction between the rights of members of a mutual society and members of an investor -owned company. Members of a company—shareholders — have the right to a pro-rata share of distributed profits, or dividends, based on their shareholding, and to a pro-rata share of the underlying value of the company. The more capital they own, the greater their share of the profits and of the value of the company.
By contrast, members of a mutual society generally have neither of those rights because a mutual’s profits are not generally used as a mechanism for rewarding capital, and members of a mutual do not have any expectation of or entitlement to a share in the increased value of their society. As members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of the society exceeds the capital provided by members—otherwise known as capital surplus on solvent winding up—has no specific owner. It is effectively a legacy asset held by the society for future generations, enabling the society to provide for and invest in its future. That is a core part of the mutual’s identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations. The society was originally set up not to make capital surplus to reward members, but to provide goods and services for those who need them. That was its purpose, and it was the basis upon which previous generations have taken part in its trade.
Seen through the lens of investor ownership, a capital surplus is a tempting asset—a windfall of unearned profit that, were mutual members to be replaced by investor-shareholders, could be shared out among those shareholders. Capturing that asset is the usual incentive for a demutualisation, which is when a capital surplus or legacy asset is divided up between shareholders, when the mutual agreement between the former members, whereby they engaged in their society on the basis that they would not personally profit from its trade, is broken up. In short, it is when a mutual purpose for the common good is replaced by a profit-driven purpose for private benefit.
In UK law, there is no generic or principled recognition of the value to wider society of mutuality or the legacy asset of a mutual society. As a result, the ability to access legacy assets actively incentivises demutualisation. Provided that relevant formal procedures are completed, including securing consent from a statutory minimum threshold of members, a demutualisation cannot be stopped. The statutory minimum threshold has been changed from time to time for different types of mutual society to make demutualisation less likely, but these measures provide only partial protection. There is currently no statutory mechanism for ensuring that surpluses, which the previous generations never intended should be a private reward for anybody, remain committed to the wider public purpose.
At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. That leaves mutuals vulnerable to those simply aiming to liberate the legacy asset, share it out among those they choose and convert the business into an investor-owned company. That has resulted in much of the UK building society sector being lost, and their businesses then either failing or transferring to non-UK ownership. That has been bad for mutuality, and bad for the economy with the damage it has caused to corporate diversity. Demutualised former building societies were mostly absorbed into the banks that failed in the financial crisis.
Legislation is needed to help UK mutuals to preserve their legacy assets for the purpose for which they were intended: to maintain and encourage greater corporate diversity and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions that have a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval. That will be even more important if the legislative reforms for co-operative and community benefit societies I have explained are taken forward. To optimise the successful implementation of new legislation, properly recognising legacy assets for the benefits they bring will be an important ingredient for building confidence.
Many jurisdictions have acted to preserve mutual ownership by ensuring that the assets may be used only for the purpose they were intended. That ensures they cannot be distributed to members or third parties, thus disincentivising demutualisation. Mergers, dissolutions and transfers of business are still permitted, so this arrangement does not hamper the evolution of a business in any way. Ideally, such measures would be universal, but in some legal traditions that is considered problematic, as it arguably alters the ownership rights of members retrospectively. It is not desirable to cut and paste legislation between different traditions, so solutions are required that respect the political culture of different legal frameworks. To deal with this, simple legislation can be introduced in common law jurisdictions that would give every mutual the right to choose a constitution that preserves legacy assets for the purpose they were intended. My Bill does that.
My Bill disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purposes for which they were intended. It will empower mutual members to decide what should happen to assets on a solvent dissolution, and it will match the best legislation in many countries around the world.
My Bill would introduce a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets, or the capital surplus, would be non-distributable. It would detail precisely the destination of any capital surplus on a solvent winding-up and would outline the procedures necessary to include such provisions in a mutual’s rules. It would make statutory provision for the relevant rules to be unalterable. It defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. It would introduce new provisions to maintain the destination of the capital surplus and ensure that where a mutual’s rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company will also include a provision to transfer the capital surplus, as provided by the rules in the event of a solvent winding-up.
That is my Bill, Madam Deputy Speaker. I thank the Minister and his team for their co-operation and help in bringing it forward.
Rob Butler (Aylesbury) (Con)
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on his Bill’s successful Committee stage and on its reaching Third Reading today. Mutuals and co-operatives are not an insignificant sector of our economy: across the UK, the industry comprises more than 7,000 co-operatives, employing some 250,000 people with an annual turnover close to £40 billion. The sector is not standing still; it is growing, with more co-operatives forming despite the very challenging circumstances caused by the covid pandemic.
Perhaps nothing highlights the purpose of the Bill better than mutual insurers and friendly societies, the origins of which stretch back to the late 17th century. In 1703, the Amicable Society, chartered by Queen Anne, was set up to provide support to widows and children in the event of the policyholder’s death. Such organisations spread rapidly across the country. As the industrial revolution took hold in our towns and cities, mutual insurance and friendly societies acted as a social safety net for their members in case they were injured in what Blake described as the dark satanic mills. Thankfully, we have moved very far from those working conditions, but that does not mean that we no longer require mutual societies. The development of the sector continued for much of the 19th and 20th centuries. Many of the UK’s now well-known insurance companies began as mutual societies; there were then the various amalgamations, mergers and takeovers to which the hon. Gentleman referred.
There are 50 financial mutuals currently operating in the UK. According to the Association of Financial Mutuals, they represent 30 million members and write £20 billion of premiums annually; as I said, the sector is not at all insignificant. Many farmers in my constituency have policies with their local NFU Mutual, and people can remember the days of the man from the Pru—it was frequently a man—coming round to collect membership subs. Mutuals take many different forms. The Hughenden valley community shop in my constituency is a fine example of such an organisation today; it does a tremendous service to people in the area, and was particularly welcome during the pandemic.
In the insurance market, mutualisation is no longer the norm in the UK. Many of the well-known mutual assurance societies of old have been demutualised. The Prudential, Aviva—previously Norwich Union—and Scottish Widows were all mutual insurance societies, but are now fully commercial entities or subsidiaries of larger financial institutions. While I in no way criticise the work of those commercial entities, fully commercial organisations with shareholders have different priorities from mutual organisations, as the hon. Gentleman pointed out. There is absolutely room for both in our economy.
Mutuals now represent just 7.9% of the insurance market in the UK, according to the International Cooperative and Mutual Insurance Federation. That is far below the market influence that such organisations have on the continent: the market share is 58% in France, 60% in the Netherlands and 46% in Germany. There is scope for mutuals to grow again in the UK, and I welcome any comments from my hon. Friend the Minister about how we can increase competition in the insurance market to ensure that mutuals can compete with their commercial rivals
On the specifics of the Bill, although I appreciate that it does not represent the full proposals that the hon. Gentleman wished to bring before the House, he should be congratulated on and pleased with what he has achieved in securing Government support for this important piece of legislation. As my hon. Friend the Minister said in Committee, we should not let the perfect be the enemy of the good.
The changes proposed by the Bill will allow the Treasury to bring forward regulations to allow members of the society to choose to adopt legal restrictions, with the effect, as has been outlined, that the assets would be limited to specific purposes in line with the objectives of the mutual society. That will bring in a new degree of parity. At present, of course, the restrictions for mutual organisations are voluntary and based on the vote of the membership. As many hon. Members have noted in the Bill’s previous stages, that raises the possibility that restrictions could easily be removed in future, which would ultimately make it easier to demutualise.
The Bill will permit those mutuals that wish to remain mutuals a greater degree of certainty in protecting their legacy assets in future. It will also remove some of the financial incentives of demutualisation. Notwithstanding those potential advantages, I am particularly pleased that it is an opt-in system, because it is not for the state to dictate how such societies should operate; that should always be for their members. We should enable the possibility, rather than obliging any organisation to behave in a specific way. I commend the hon. Gentleman for bringing forward the Bill and I hope to see it on the statute book shortly, following its successful passage in the other place.
Jo Gideon (Stoke-on-Trent Central) (Con)
I, too, commend the hon. Member for Preston (Sir Mark Hendrick) on his strong advocacy for co-operatives and mutuals, and on the progress that he has made with the legislation. I am delighted that the Bill has been supported by hon. Members on both sides of the House at all stages.
Mutuals and co-operative societies are distinctive organisations in that they are owned by and run for the benefit of their members. Whether employees, suppliers or the community and consumers that it serves, those who are actively involved in the business control decisions, rather than outside investors. Mutual ownership therefore helps to ensure that decisions are focused on the long-term sustainability of the business. Profits are not distributed among members but returned to the community, so such organisations provide a legal structure designed for social enterprise.
Indeed, co-operatives spring from local communities. They are bottom-up, grassroots organisations that are set up to provide goods and services for those who need them. Clearly, mutuals play a hugely important role in our local areas for education, engagement, charity and, fundamentally, the financial services that they offer. They provide a way for communities to come together to solve problems.
I have always been a strong advocate for the social enterprise movement in this country. Social businesses, including those that are community owned, are responsible for job creation in areas of deprivation—jobs that last and provide the crucial spirit of enterprise and innovation that our left-behind areas need. That makes the growth of co-operatives in the UK an integral part of the levelling-up agenda.
In 2021, co-operatives were five times less likely to permanently close than other UK businesses, and they were significantly more likely to tackle other important projects, such as decarbonisation, technology and the current cost of living challenges. Co-operatives have been incredibly resilient in the face of the pandemic, with the sector growing by an impressive £1.1 billion in 2020, despite the economic challenges resulting from national lockdowns.
On Second Reading, it was good to hear hon. Members acknowledging the start of the co-operative movement, so it would be remiss of me not to mention its history in Stoke-on-Trent. One of the earliest co-op traders was a potter called James Colclough, who opened Stoke-on-Trent’s first co-operative store, and the Birsle Co-operative Society was founded in north Stoke-on-Trent in 1901. It became one of the most successful mutual commercial enterprises that Stoke-on-Trent has known.
Originally, there were 200 members who each subscribed four shillings and promised to make those four shillings into £1 as soon as convenient. In the first balance sheet issued by the society in 1901, the amount of share capital plus interest was £175. By 1932, the amount of share, loan and bank capital of the Burslem and District Industrial Co-operative Society was £1,209, and it had 50,000 members and 112 shops.
This Bill is important to ensure that co-operatives and mutuals continue in the modern era. The increase in legal certainty that wealth built up over time will not be squandered by future members for short-term personal gain will encourage confidence, reassuring investors. This legislation is needed to help UK mutuals preserve their legacy for the purpose for which they were intended, which is making sure that additional available capital surplus can then be re-invested in economically, environmentally and socially productive enterprises. We should not allow capital to be blown at the whim of speculators and investors. It is important to lock capital in the places where it belongs for the benefit of the people it was invested for.
In the UK, the sector is relatively small compared with some European economies. Less than 1% of businesses in the UK are co-operatives. Germany’s co-operative economy is four times larger than the UK’s, and France’s is six times larger. Clearly there is some work to be done here, but this Bill provides an opportunity to rediscover and promote the co-operative model. I do not know if Members have seen the film “Bank of Dave”, but it is the very inspirational story of a gentleman from Burnley who set up a bank for the benefit of the community. I have been campaigning for this sort of thing in Stoke-on-Trent, because I think that a financial model enabling people to lend to each other, but also for them and community charities to benefit from the profits, is one we should all be looking at.
I just want to thank the hon. Member for Preston for giving us the opportunity to discuss these issues today. There is clearly a significant appetite for reforms of the mutuals sector, and I look forward to hearing about its success following his Bill.
Greg Smith (Buckingham) (Con)
It is a pleasure to follow my hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon). I join her in congratulating the hon. Member for Preston (Sir Mark Hendrick) on bringing forward this important Bill, piloting it through its stages so far and, indeed, securing the important cross-party support that he has secured for this Bill. Co-operatives play a vibrant part in our economy, as others have said. They bring greater choice to consumers and greater choice to people who need the goods and services that they put together. I hope I maintain the spirit of cross-party support for the Bill when I say that the co-operative movement is part of a vibrant free market economy in the United Kingdom, and we should celebrate that.
As my hon. Friend the Member for Aylesbury (Rob Butler), my constituency neighbour, commented, the more we can drive the ability for co-operatives to compete with their commercial counterparts, the stronger our economy overall can become. I particularly endorse the point he made about the importance of this being an opt-in Bill. It is not the state dictating or this House setting out a “how it must be” clause for co-operatives, friendly societies and so on to operate; it is something about which those organisations must make an active choice for themselves.
To go to the heart of the Bill—this is why I believe it to be an important Bill that, as the hon. Member for Preston said, brings the legislation up to date and moves the sector forward from its legislative origins all those decades, if not centuries, ago—the very hub or core of the co-operative movement is about people doing something because they want to create a better society, a legacy and, indeed, something lasting. When organisations fail or are forced into some form of closure we can see that that legacy can be lost all to easily if there is no protection around the assets. That is why I believe it to be so important, and as my hon. Friend the Member for Aylesbury indicated, this is no small undertaking. The helpful House of Commons Library paper on this details how 7,200 co-operatives were employing 250,000 people across this country. That is no small thing; that is a significant part of our economy, stretching across 14 million members. My hon. Friend mentioned the Hughenden valley community shop in his remarks, and that is a wonderful example from Buckinghamshire. A simple search of the Co-operatives UK website indicates just how far reaching co-operatives, mutuals, and friendly societies are in my constituency.
The Buckinghamshire Community Energy company works across the whole county. It is registered in my hon. Friend’s constituency at Stoke Mandeville, but it enables schools, public buildings, and businesses across the county of Buckinghamshire to cut their carbon emissions. The wonderful Brill Village Community Herd, and the 335 square miles of the Buckinghamshire constituency that I am fortunate enough to represent, is without question the most beautiful part of the United Kingdom. Indeed, Brill common, which the Brill Village Community Herd serves, is among the top most picturesque parts on top of that. The work it does is so important to maintain not just the village of Brill, but the picturesque countryside, nature, and biodiversity of Buckinghamshire.
The Buckingham Rugby Union football club exists on this model—an important community asset. I was lucky enough to speak at its President’s Lunch the other week. Buckingham has had a poor season so far and they have not yet won a match. They were playing a team from the constituency of my right hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), but unfortunately there were no careless mistakes in the match, which led to Buckingham losing again. Nevertheless, it is an important asset. We have the Cuddington Allotment Society, the Kimble Allotment Society, Long Crendon Community Social Club, the North Marston community shop, Ickford village association shop—so many organisations, including Westbury community shop and café, Wing Allotment 1972 Society, the Royal British Legion, Winslow Rugby Union Football club, and Twyford village stores.
Matt Western (Warwick and Leamington) (Lab)
I am learning a great deal about the hon. Gentleman’s constituency that I was not previously aware of, so I think him for that. I recognise what he is discussing because I, too, have such cases in my constituency. I wanted to ask about the building societies that we still have, and the diversity of our financial services sector. If we had retained more of the mutual building societies in the ‘70s, for example, would we still have had the same financial crash in 2008?
Greg Smith
On the point about high street banks, it is noticeable across the Buckinghamshire constituency that in 335 square miles there is only one high street premises left standing, which is the Nationwide in the town of Princes Risborough. I do not share the hon. Gentleman’s projection that we would not have had the 2008 crash had we not seen the demise of so many building societies, as many other factors were at play there. Indeed, a note highlighting one of those factors was left by the former Labour Chief Secretary to the Treasury for the incoming Government in 2010. [Interruption.] If he would like another bite, I would be delighted.
Matt Western
Perhaps the hon. Gentleman could be more precise about the point I was seeking to make, which was whether we would have been more financially resilient in the financial services sector, and the public’s money more secure, had we had a greater diversity and spread of those sorts of institutions in our economy, as perhaps they have in France.
Greg Smith
I am grateful to the hon. Gentleman for his clarification. I believe that for a successful economy, there does need to be that diversity and spread of different models and different institutions—fully commercial enterprises, co-operatives, friendly societies and mutuals. As a committed free marketeer, which I accept the hon. Gentleman perhaps is not, those are the building blocks for a successful economy, and I certainly would not seek to diminish the role of building societies and mutuals in securing that diverse, successful and buoyant economy. We can certainly find some common ground there.
Having highlighted the wealth of friendly societies, mutuals and co-operatives across my constituency and their value to the United Kingdom economy, let me say that this Bill is a welcome bringing up to date of the legislation. I look forward to hearing my hon. Friend the Minister confirm the Government’s full support for the Bill as it passes Third Reading and goes to the other place. I hope to see it receive Royal Assent before too much longer.
Mark Eastwood (Dewsbury) (Con)
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on bringing this Bill before the House, and also congratulate my hon. Friend the Member for Buckingham (Greg Smith) on listing pretty much every business in his constituency during his speech, which is quite the feat.
This is a really important Bill, and I want to cover some of the key points that make it so important, some of which have already been mentioned by other hon. Members and hon. Friends. It proposes a way for co-operatives, friendly societies and mutual insurers to grow and develop their organisations while maintaining their commitment to member ownership and control. That is important, as it will enable co-operatives to compete on a more even playing field with their corporate counterparts and increase their impact across all sectors.
The current legislation that governs the raising of capital by co-operatives is, as we know, somewhat inflexible. The Bill would enable co-operatives to raise more money by issuing equity shares that are repayable at the option of the society, rather than being withdrawable at the option of the members. By introducing repayable shares, the Bill would enable co-operatives to raise amounts in excess of the current £100,000 holding limit for withdrawable shares. It would also provide legal certainty as to whether co-operatives can choose to repay non-withdrawable shares. Those changes have the potential to lead to large, capital-driven co-operative societies raising millions of pounds or more each year in equity, which could then be used to invest in important initiatives, tackling issues such as decarbonisation, technology, and the current cost of living crisis. The Bill would enable co-operatives to secure increased investment while retaining their democratic structures and ensuring they work in the interests of their members, something that I know is of great importance to the hon. Member for Preston.
We need to talk about co-operatives and about the British co-operative movement, starting with its history. In 1844, on the other side of the Pennines, the Rochdale Pioneers founded the modern co-operative movement to provide an affordable alternative to poor-quality and adulterated food and provisions, using any surplus to benefit the community. That was the start of the modern co-operative movement; as my hon. Friends the Members for Aylesbury (Rob Butler) and for Buckingham mentioned, the movement has grown substantially since then, with 7,200 co-operatives employing 250,000 people, 14 million members, and a combined turnover of just under £40 billion. That is how big the modern co-operative movement has grown.
When we talk about the co-operative movement, people mainly associate it with retail. I have many retailers in my constituency, in Dewsbury, Mirfield, Kirkburton and Denby Dale. We have a large Co-op in Mirfield; we have a smaller one around the corner from me in Dewsbury, on Leeds Road, as well as one in Skelmanthorpe and one in Shepley. Those Co-ops are an important community asset for the larger towns and the small villages in my constituency. One thing I do have a quandary about is that in 2015, the Co-operative Group decided that it would carry on financial contributions to the Labour party, so that always puts me in a difficult position when I go into a Co-op retailer. Having said that, the lure of French grain vodka and the pork and chorizo pies far outweighs that concern, so I am happy to go in there, hold my nose and buy those items.
I take issue with my hon. Friend the Member for Aylesbury, who mentioned the man from the Pru. Many years ago, I was the man from the Co-op. Co-op Insurance Services provided an essential route to plan for funeral costs for people who were less wealthy, in a fairly similar fashion to the man from the Pru—but I have to say, I prefer the man from the Co-op, as I was at the time. The Co-op had penny policies. We would go around as financial services reps and collect pennies from people in their houses, which would provide for their funeral costs in the future. That has obviously expanded now, but people were literally giving me a year’s worth in advance—I would get 52 pence. If they were particularly well off, they would give me 10 pence a week on a four-weekly basis, which was £52 for the year.
That was really essential, and it shows that the co-op movement was providing funeral services for people and offering affordable burial costs, which, as we know, are really expensive. Co-op Insurance is now a multibillion-pound business that provides pensions, investments and essential services. There are various parts of the Co-op, such as banks, funeral services, which I have already mentioned, and travel services. This demonstrates the importance of the co-operative movement—despite, obviously, its association with the Labour party.
In conclusion, I commend the hon. Member for Preston for introducing this very important Bill, and I wish him the best of luck with it.
James Murray (Ealing North) (Lab/Co-op)
I begin by warmly congratulating my hon. Friend the Member for Preston (Sir Mark Hendrick) on his important Bill, which receives its Third Reading today. My hon. Friend has worked tirelessly to build cross-party support for the Bill, the success of which has been evident today. I also congratulate him on securing Government backing for this legislation, and for that support I extend my thanks to the Minister.
As we have heard during debates on the Bill, including today, Members across the House see the huge value of co-operatives, mutuals and friendly societies. There are now over 7,000 co-operatives operating in the UK, with a combined turnover of almost £40 billion, and almost 235,000 people earn their livelihoods directly through co-operatives trading in a range of different sectors.
Co-operatives have proven resilient in the face of hardship. Despite the covid-19 pandemic and the economic challenges resulting from the national lockdowns, the co-operative and mutual sector grew by an impressive £1.1 billion in 2020. The resilience of co-operatives is also evident in the higher levels of productivity that can result from employee ownership. In the United States, for instance, the National Centre for Employee Ownership tracked the performance of more than 57,000 firms and reached the conclusion that employee ownership can greatly improve a business’s productivity and its chance of success. However, despite the fantastic contribution that co-operatives and mutual societies make to society and the economy, outdated legislation has prevented the sector from reaching its full potential in the UK.
Given their unique structure, co-operatives, mutuals and friendly societies are often excluded from traditional investment methods. Today, less than 1% of businesses in the UK are co-operatives. By comparison, as another hon. Member mentioned, Germany’s co-operative economy is four times the size of that of the UK. In Emilia-Romagna, Italy, co-operative enterprises generate close to 40% of GDP, and the province has the lowest socioeconomic inequality of any region in Europe.
Sadly, as we know, the sector is under threat from demutualisation. There was celebration across the co-operative movement last year when members voted to reject the controversial takeover of the insurer Liverpool Victoria by the private equity firm Bain Capital. I want to take this opportunity to recognise the work of my hon. Friend the Member for Harrow West (Gareth Thomas) and other in this House in protecting the mutual status of that historic firm.
Matt Western
My hon. Friend just cited statistics about Germany and Italy, but does he agree that one of the interesting things is the culture of mutuals and co-operatives? Their thinking on financial investment and return is much longer term, and that is surely to the benefit of investors.
James Murray
My hon. Friend is absolutely right to point out some of the wider benefits of employee ownership and involvement, including longer-term thinking, greater investment and greater productivity. It is a real showcase for the value of co-operatives, friendlies and mutual societies, which Members from across the House have come together today to recognise.
Demutualisation remains a real and present threat to the sector. The provisions in the Bill are crucial as they will help to ensure that mutual capital is maintained for the purpose for which it is intended. Beyond this Bill, we believe that further support, such as giving co-operatives more freedom to issue perpetual capital to fund investment, would help to secure the future of the sector. We recognise that today is a significant, important step forward, and we are very pleased to give this Bill our full support.
The Economic Secretary to the Treasury (Andrew Griffith)
It is always a pleasure to follow the hon. Member for Ealing North (James Murray). Today of all days, our thoughts are with the Ukrainian people. To that end, I also extend my thanks to the financial sector, which, through the provision of basic bank accounts, has ensured that more than 70,000 people and families who have come and made their home here are able to receive income, send money and pay for goods.
I congratulate the hon. Member for Preston (Sir Mark Hendrick) as his Bill reaches this important milestone. Its aims are as laudable as his long-standing advocacy for the sector. I also thank my team of officials, on his and the House’s behalf, for their work on taking this important reform forward—Joshua Grey, Logan Cuthbert, Lucy Alawi-Yates, Emma Kavanagh, Alanna Barber and Harriet Hill.
We are all aware—this has frequently arisen in discussions about this Bill—of the UK’s special place in the history of the mutual movement. We heard that again this morning from many hon. Members of this House, including my hon. Friend the Member for Aylesbury (Rob Butler). My hon. Friend the Member for Stoke- on-Trent Central (Jo Gideon) raised the Burslem and District Industrial Co-operative Society. My hon. Friend the Member for Buckingham (Greg Smith) reminded us of the importance of the co-operative movement in the free market movement, and mentioned the Buckinghamshire Community Energy co-operative and the Brill village community herd. We cast new eyes on my hon. Friend the Member for Dewsbury (Mark Eastwood) as we look at him as the man from the Co-op, come to collect, not spend his penny.
We have heard of how communities came together over a century ago, pooling their resources to meet their shared needs and face their common challenges. The hon. Member for Preston, of course, appreciates the unique history and impact of mutuals, not least because of the constituency he represents. The north of England is widely recognised as one of the birthplaces of the modern co-operative movement. It was in 1844 that a group of 28 artisans working side by side in the Rochdale cotton mills first came together. Their objective was to consolidate their scant resources so that they could assure access to better quality food and goods that their community had been excluded from.
The Rochdale co-operative movement was based on principles of openness and democratic control—one member, one vote. In that way, the 28 Rochdale pioneers shared in the profits that their custom generated, and triumphed over the poverty that had been blighting skilled workers at the time.
This is part of our shared UK history, and there are even earlier examples of self-help co-operative organisations lifting communities above their common challenges. The Fenwick Weavers’ Society was the result of a collective decision by a group of weavers in Fenwick, Ayrshire, to form a society. The group’s 1761 foundation charter sits in the National Library of Scotland. Its formation was a response to a period of rapid flux for the textile industry in the mid-18th century, and its members came together to set a fair price for their work and guarantee a sustainable future for their trade.
Today the nation, communities and people face different challenges, having come through a global pandemic while a war in Europe rages on and inflation, although coming down, continues to make everyone poorer. That is why our Prime Minister has set this Government five clear challenges, the first of which is to halve inflation in order to give respite to businesses, ease the cost of living for households and give people financial security. The second is to grow the economy, and in doing so to create better-paid jobs and spread opportunities across the length and breadth of the country. That is doubtless at the heart of the co-operative movement. Fourth, fifth and sixth are to cut our national debt, to cut NHS waiting lists, and to pass new laws to stop small boats so that ordinary workers in this country get the fair deal that they deserve.
As Members will know, the first seed of the original mutual movement lives on in our modern mutuals sector, which consists of diverse, commonly owned and democratically controlled enterprises that exist to provide vital services to their members—a genuinely diverse part of our wonderful United Kingdom financial services sector. According to one recent analysis, the UK mutual insurance sector served 32.3 million policyholders and collectively employed 26,400 people in 2021. Another form of mutual organisation that continues to thrive and deliver value to society is the co- operative, which, as we have heard today, operates across all industries and in many constituencies including my own, in sectors from farming to retail to housing. Owned and controlled by members close to them—whether they are workers, shoppers, suppliers or co-residents—co-operatives give people a stake in how they are run. Analysis by the trade body Co-operatives UK found that this sector was worth nearly £40 million to the UK economy in 2021.
Because of their ownership model, mutuals are uniquely invested in doing right by their members rather than in gaining short-term profit at all costs. That makes them key partners in many of the Government’s policy priorities, such as the financial inclusion agenda that is so important to me. It is no coincidence that financial mutuals lead the way in many of the low-cost product offerings, such as affordable healthcare solutions or investment products at price points that—if not quite a penny a week—encourage the financial participation of a broader swathe of society.
Modern mutual banks, invested in the success of their local economies, are able to leverage locally based decision making to ensure that their services reflect the needs of the communities they serve. They are a real asset in our mission to level up and spread economic activity across the regions. I would like to see more mutual organisations of every type, and I am very open to proposals such as those in the Bill, which the Government are proud to support. I am very open to ways in which we can tailor our regulatory structure to promote the growth and, indeed, the new formation of mutuals across our financial sector. This is a real form of diversity.
Mutuals are a big deal in the here and now. In many cases they rest on the legacy left behind by others—the successive generations of memberships who paid into the pot, as the hon. Member for Preston reminded us. They did so on the presumption that that surplus would be held in common, without personal entitlement, to support their peers in times of need, for the betterment of society and for future generations. That is why I have always been receptive to the view expressed by Members on both sides of the House that these funds should remain in mutual hands for the purposes originally intended.
I support actions to secure our mutuals heritage, which is why the Government are pleased to support the hon. Member’s Bill. The Bill applies to co-operatives, friendly societies and bodies corporate that carry on the business of mutual insurance, and it aims to equip those mutual entities with a stronger option in law, an asset lock, to restrict the use of surplus funds for their chosen purposes. By permitting a stronger lock in law for those entities that wish to adopt it—and I am sure many will—the Government aim to provide the sector with an additional deterrence against demutualisation.
Rob Butler
Will my hon. Friend say a little more about the significance and importance of the opt-in, as opposed to compulsion?
Andrew Griffith
My hon. Friend, as well as being a doughty champion for the co-operative movement in general, is right to emphasise the voluntary element. It is right that those membership organisations that wish to use the lock have the architecture within the Bill to do so, but it is not the business of Government to interfere with the strategy, desire or, in some cases, need of those in the mutual sector to consolidate or raise capital through other means by taking all those options off the table with a mandatory asset lock.
That approach is typical of this Government. My hon. Friend will understand, as an experienced man of business, that our principle is to allow people to regulate and conduct their affairs in the way they feel best serves their needs. As he knows, we have heard very clearly that the mutual sector likes this architecture and will benefit from it. In that context, it is right for the Government to support the Bill.
Jerome Mayhew (Broadland) (Con)
As my hon. Friend says, it is important that the Government are in favour of the mutual movement, yet last year Liverpool Victoria was at risk of being taken over by private equity. Does he think we have the right balance between the free market being at liberty to appoint capital as it thinks best and the Government’s objective of supporting the mutual movement and allowing it to grow?
Andrew Griffith
My hon. Friend raises a point we have discussed a number of times during the Bill’s progress. It is a poster case for the need to provide some sort of protection. Without getting into the details of that case, Liverpool Victoria clearly continues as a mutual to this day, after deciding not to accept those offers. It is probably right that people were able to make those offers, but it is equally right that members were able to determine the outcome for themselves.
As I hope my hon. Friend recognises, the tapestry of the Government’s financial regulation role and the needs of a vibrant and competitive market occupies all my waking hours. It is a difficult task to calibrate, but we are greatly assisted by the presence on these Benches of so many colleagues with so much experience to offer. It is always a joy to receive representations on behalf of the myriad parts of the sector, all of which we are trying to help grow and deliver jobs across the economy. As I never fail to remind the House, two thirds of jobs in the financial services sector are outside London and the south-east. The sector touches communities across the country, as we have heard again today.
By permitting a stronger lock in law for those entities that wish to adopt it, the Government are aiming to provide the sector with an additional deterrent against demutualisation. It will empower mutuals to continue the legacy left by previous generations of members to deliver in service of their members and wider society. However, the Government are not seeking just to play defence on the mutual model; we want to advance the interests of the sector and to grow diversity so that we have a rich financial services sector that has all sorts of forms of ownership within it.
As the House will be aware, we are taking action to support credit unions, which are another type of member-owned, democratically controlled financial institution. This Bill does not apply to credit unions, but through the Financial Services and Markets Bill we are seeking to promote that sector. As the latest Prudential Regulation Authority data shows, there are 249 credit unions in Great Britain, representing more than 1.4 million adult and child members. There are exactly 650 constituencies; would it not be wonderful if every one of them had a thriving credit union? That is a vision for us to hold in mind.
As the Financial Services and Markets Bill makes its way through the other House, we are making a number of important amendments to the Credit Unions Act 1979 to allow credit unions to offer a wider range of products and services. Where they decide it is in their interests to do so, they will be able to offer hire purchase agreements and conditional sale agreements, and to distribute insurance products to their members. Those are all ways in which they can increase their utility to their members, and improve their own scale and financials, which is one of the challenges that they have had. We will also allow them the option to lend to and borrow from other credit unions on a short-term basis, which will sometimes allow them to manage their liquidity better. Again, that will improve the strength and resilience of the sector. That delivers on interests that were raised with the Government by the sector.
The Financial Services and Markets Bill also gives the Government a new power to allow credit unions to offer further products and services in the future through secondary legislation. The message is that the door is ajar. If we hear representations from the sector about more ways in which this Government can be on its side, it should keep pushing, because we will have the ability through secondary legislation to do that.
Additionally, the Government are taking forward a programme of work to ensure that building societies, mutual savings providers and mortgage lenders have a modern and fit-for-purpose legislative framework that promotes opportunities for growth. We have concluded our consultation on the Building Societies Act 1986. As was announced in the Edinburgh reforms package, the Government will in due course bring forward legislation to amend that Act. That will give building societies further flexibility in raising wholesale funds and help to modernise corporate governance requirements, enabling building societies to compete on a more level playing field with retail banks and, again, to promote competition and diversity of provision within the financial services sector.
We are not stopping there. The Government are committed to the health and prosperity of the mutuals sector, and we recognise the valuable contribution mutuals make. It is a matter of record that I believe we need to go further to cement a modern and supportive business environment in which mutuals can thrive. That is why we continue to have active discussions with the Law Commission on options to proceed with reviews of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching those reviews in the next financial year. Work is ongoing to define the terms and scope of the reviews, which includes close engagement with the sector, and I expect to be in a position to provide an update with more detail very soon, particularly as I know that many Members here today have a keen interest in that work. Clearly, that is something we wish to see move forward and I am sure it will. As such, I can confirm that a core aim of the reviews will be to focus on dysfunctions in the law that result in those organisations being unnecessarily impeded or facing additional time, expenditure or opportunity cost.
In conclusion, the prospects for mutuals are bright. I am delighted that we have been able to make progress on this important Bill today. I commend the cross-party spirit in which the hon. Member for Preston and the Opposition have worked closely with the Government and officials. I am very happy to commend support for this Bill.
Sir Mark Hendrick
With the leave of the House, I wish to thank all my friends and colleagues in the House for their support of my Bill. I also thank the variety of Treasury Ministers who, due to a number of reshuffles, have been able to work with me on the Bill from last year to now, including the hon. Member for North East Bedfordshire (Richard Fuller) and the current Economic Secretary to the Treasury. My thanks go out to all the Treasury civil servants who are present in the Chamber today. I wish to thank Peter Hunt and Mark Willetts at Mutuo for their help and advice in drafting the Bill, and also the Co-operative party, which has supported me throughout the whole of my political career, stretching back to the 1980s when I was in local government, the 1990s when I was in the European Parliament, and since 2000 when I entered this House.
Finally, I wish to thank in advance my noble Friend Lord Kennedy of Southwark for agreeing to take my Bill through the other place.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Co-operatives, Mutuals and Friendly Societies Bill
Monday 27th February 2023
(1 year, 2 months ago)
Lords ChamberRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Co-operatives, Mutuals and Friendly Societies Bill
Friday 24th March 2023
(1 year, 1 month ago)
Lords ChamberRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I am delighted to present this Bill to your Lordships’ House today for its Second Reading. I thank all noble Lords who have signed up to speak and look forward to each of the contributions that will follow shortly.
I have been a supporter of co-operatives in all their forms for more than 40 years. I am one of a small group of Labour and Co-operative MPs and Peers sitting in Parliament. The Co-operative Party, of which I am a member, has since 1918 had an agreement with the Labour Party that it seeks representation on public bodies only jointly with it. The Co-operative Party today is proud to have 28 MPs, 16 Peers, 11 Members of the Scottish Parliament, 16 Members of the Senedd in Wales, five metro mayors and nearly 1,000 councillors elected in England, Scotland and Wales. I am a member of the Co-operative Group and, as detailed in my entry on the register, a director of the London Mutual Credit Union, one of the biggest credit unions in the United Kingdom. I first joined the old Royal Arsenal Co-operative Society 43 years ago—I know I do not look old enough—following a meeting with my noble friend Lady Thornton, who at that time was working for it; we have been friends ever since.
This is a small, two-clause Bill. It is another step along the road of reforming and developing the legislative framework to support the sector. I place on record my special thanks to the Member for Preston in the other place, Sir Mark Hendrick MP, for steering this Bill through the other place so skilfully, and also to Peter Hunt and Mark Willetts, the team at Mutuo, for the work they undertook in devising the Bill. I also thank officials at the Treasury for their work in getting us to the place today where the Government are happy to support the Bill. I am still struggling to get such a positive response to my other Private Member’s Bill on residential leasehold, but we struggle on with that one.
The Bill is all about protection. It is about creating the mechanism to enable mutual organisations to opt in to a restriction on the use of their assets. This is permissive, not mandatory. If a mutual organisation does not want to use the powers in the Bill, it does not have to. It allows the Treasury to make regulations that in turn will allow various mutuals, if they so wish, to opt in to a restriction on the use of their assets. Equally, those that do not elect to opt in are free to carry on as they do now. That is a very important point for the House to note, and one of the reasons why the Bill is structured the way it is. The Bill is necessary, as it enables a pathway to protect and preserve members’ accumulated assets from those who would like to mount a raid on them for profit and gain for themselves. In many cases, these assets are considerable and have been accumulated over many years and generations.
As part of our mixed economy, co-operatives, mutuals and friendly societies have their role to play, and the environment they operate in should be as supportive as possible, allowing them to remain true to their founding principles and flourish. This Bill will help them do that with the knowledge that there is a mechanism that they can take up to provide a layer of protection to maintain mutual capital for the purpose intended, if they themselves decide they need this protection.
There are important differences between companies and mutuals, which the Bill is trying to protect. Noble Lords will be aware that members of a company have the right to a share of the distributed profits, based on their shareholding, and to a share of the underlying value of the company. The more capital you own, the greater your share of the profits and the value of the company. Members of a mutual society, by contrast, generally have neither of those rights because, in mutuals, profits are generally not used as a mechanism for rewarding capital and members of a mutual do not have any expectation of or entitlement to a share in the increased value of the society.
As members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of a society exceeds the capital provided by members has no specific owner. It is in effect a legacy asset, held by the society for future generations, that enables it to provide for and invest in the future. It is a core part of a mutual’s identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations.
Seen through the lens of investor ownership, a capital surplus is a tempting asset for a windfall profit, which—if mutual members were replaced by investor shareholders —could be shared out among the shareholders. Capturing the asset is the usual incentive for demutualisation, which is when a capital surplus or legacy asset is divided up between the shareholders. When the mutual agreement between the former members, whereby they engaged with the society on the basis that they would not personally profit from its trade, is broken up, in short, any mutual purpose for a common good is replaced by a profit-driven purpose for private benefit.
The measures in place today provide only partial protection against demutualisation. There is currently no statutory mechanism for ensuring that surpluses, which previous generations never intended to be for private reward for anybody, remain committed to that wider public purpose. At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. This leaves mutuals vulnerable to those aiming simply to liberate the legacy asset, share it out among those they choose and convert the business into an investor-owned company.
This has resulted in much of the UK’s building society sector being lost, and the businesses then either failing or being transferred into non-UK ownership. We all remember the names of those building societies that have long since disappeared, such as the Abbey National and the Bradford & Bingley. This has been bad for mutuality and bad for the economy, with damage being done to corporate diversity. Demutualised former building societies were mostly absorbed into the banks that failed in the banking crisis. Legislation is needed to help UK mutuals to preserve their legacy assets for the purpose for which they were intended, to maintain and encourage greater corporate diversity and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions with a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval.
What does the Bill do? It disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purpose for which they were intended. It empowers mutual members to decide what should happen to the assets on a solvent dissolution. It would match the best legislation existing in many other countries around the world. The Bill introduces a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets, the capital surplus, will be non-distributable, details precisely the destination of any capital surpluses on a solvent winding up, outlines the procedure necessary to include such provisions in a mutual’s rules and inserts a statutory provision for the relevant rules to be unalterable. It defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. It introduces new provisions to maintain the destination of the capital surplus and ensures that where mutual rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company should also include a provision to transfer the capital surplus as provided by the rules in the event of a solvent winding up. That is quite a lot in a two-clause Bill.
In conclusion, I will address the issue of why corporate diversity matters. Diversity of ownership or types of business creates models of corresponding diversity in the forms of corporate governance, risk appetite and management incentive, structures, policies and practices, and corporate behaviours and outcomes. It also offers wider choice for consumers through enhanced competition that derives in part from the juxtaposition of different business models. For the wider market to benefit, each of the corporate models needs to enjoy the necessary critical mass defined as the degree of market share necessary to enable each model to operate successfully and thus provide real competitive pressure on the other players within the market.
Finally, I thank the Delegated Powers and Regulatory Reform Committee for its report, which specifically refers to this Bill. Responding to the points raised, I emphasise that this is a short, skeleton Bill. It is specific in nature and seeks to deal with a real, identifiable problem. The expertise to draw up the regulations lies in the Treasury. It is a Bill which is permissive. A mutual entity is not compelled to do anything on the Bill becoming law, and any mutual entity that does not wish to adopt or use the powers does not have to. Furthermore, the regulations must be brought back to this House and the other place for consideration and affirmative resolutions must be passed. There are proper procedures in place for proper consideration, and the regulations will be considered by the Secondary Legislation Scrutiny Committee before any such debate takes place in this House. I look forward to the contributions from other noble Lords in the debate and I beg to move.
Lord Bourne of Aberystwyth (Con)
My Lords, I support Second Reading of this Bill and declare my interests as set out in the register. I congratulate the noble Lord, Lord Kennedy of Southwark, on his sponsorship of the Bill in your Lordships’ House, and thank the honourable Member for Preston, Sir Mark Hendrick, for steering the legislation through the other place. I also congratulate my noble friend the Minister and the Government on supporting this legislation.
The co-operative movement can be traced back to the Victorian era, essentially in response to the Gradgrind version of capitalism, in contrast to the more enlightened Tory tradition of the Earl of Shaftesbury and others, who legislated to protect workers and who recognised the merit of co-operation. The social enterprise model is an important recognition of a form of business other than the simple shareholder model. Community-owned businesses are a vital part of our life, generating employment, social benefit and continuity.
Demutualisation can be a threat to the mutual sector, facilitating the break-up of a business, as we have seen in the past. The distribution of all the assets, including substantial legacy assets, contrary to the intention of those who set up that business, is not in the interests of us all. Mutuals may, of course, resist demutualisation attempts, as the recent Liverpool Victoria saga showed us in 2021, when the private US equity firm Bain Capital tried unsuccessfully to take it over. This legislation will assist in resisting demutualisation.
The legislation governing mutuals is somewhat archaic. I welcome the possibility that the Law Commission might look at the wider area of mutuals and how they may have access to capital. I hope that the Minister, in responding, can say whether there is a timescale for that and whether it is happening. The United Kingdom has a relatively small mutual sector, compared with other comparable economies such as France and certainly Italy, where it is significantly larger—particularly in Emilia-Romagna, where it is a large part of the enterprise sector.
This Bill will give co-operatives, mutuals and friendly societies flexibility in assessing what fits for themselves as the best model. It enables them to adopt this form of block if they want to do so. As the noble Lord, Lord Kennedy, has said, it is not obligatory. It will help those societies that choose to adopt the so-called asset lock. Voluntary asset locks have been adopted to good effect by some societies, often with so-called charitable assignment clauses, but this legislation will build on that and ensure that, where there is an intention on the part of the business, it can go forward with a lock that is significantly harder to unpick than some of these voluntary locks that have been adopted.
I give an unqualified welcome to what is clearly a sensible piece of legislation. I have just one additional question for the Minister. Looking at the Explanatory Notes, this is a reserved area for Wales and Scotland; that much is clear. It is not a reserved area for Northern Ireland, so what will happen in relation to Northern Ireland? We all hope, I am sure, that the devolved body, Stormont, will be up and running before long. It has been a good week in relation to Northern Ireland, with the success of the legislation going through. It has been a good week for sensible government. I hope that the Minister can say something about how the Northern Ireland part of the United Kingdom can benefit from this legislation in the short term while we do not have Stormont up and running.
However, I will not detain the House any longer, except to give an unqualified welcome to this legislation, and to thank the noble Lord for bringing it forward.
Lord Mann (Non-Afl)
My Lords, I congratulate the noble Lord, Lord Kennedy, and Sir Mark Hendrick, on their work and their diligence in bringing to a likely success this piece of legislation. I declare a relevant interest as a member of a mutual, the Yorkshire County Cricket Club, and as someone who has provided, in the last year, some significant work and advice, including on regulatory issues, with the Financial Conduct Authority. I am currently assisting the club in looking at the raising of finances from the capital markets or elsewhere to deal with its ongoing financial crisis. According to the press statements by those at senior levels in the club, there is currently a major financial crisis, and indeed a suggestion that the club is in some peril. There is an annual general meeting tonight. Doubtless more details will be provided in relation to that.
This Bill is very timely. It raises interesting questions about how new powers could be used and how the Treasury could give guidance to allow an inventiveness in use. Take the situation with Yorkshire County Cricket Club, a mutual. The public face states “a mutual”. It is my understanding that it is a community benefit society. However, I have been unable to get absolute clarification on that. The fact that one cannot get an easy clarification on that demonstrates a weakness in the current system.
Concepts of asset lock are often seen in terms of financing. Yorkshire County Cricket Club has set up a private charity, the Yorkshire Cricket Foundation. However, assets come in different forms. The financial crisis of this mutual is primarily because it has had an investment with non-mutuals in building assets—in this case, a stand, for which lots of money is owed and for which lots of money had to be borrowed. That agreement is within the mutual and yet outside the mutual because that is not an asset that the mutual controls and therefore can asset lock. Within the stadium, there is a hotel that is rather significant in terms of income generation for test cricket. It is owned by a third party. The interrelationship with the neighbouring rugby club, in relation to car parking and other assets, is complex, but in essence it is a mixed picture.
One could argue that the community benefit requirements under law—not least the 2014 law—would have required Yorkshire County Cricket Club to take a greater interest in the 2012 report by Tom Fletcher of Leeds Met university on racism in Yorkshire cricket and racist attitudes in Yorkshire cricket. If that had been done at the time, on some of the things that Dr Fletcher was able to evidence, future problems that emerged might have been avoided. That would seem to be a definition of community benefit that was not fulfilled under the requirements of the law and by the regulation under the FCA at the time.
What the Bill can do on the ambiguity of what is a mutual will be incredibly helpful to mutual members—I am a mutual member, and it is ambiguous to me at the moment—and there are other sporting clubs where the same would be found, but the key thing, which is potentially revolutionary for sporting clubs, is thinking through where asset locks could go. Asset locks are generally seen in terms of finances and supporting profits and how they are held on to. However, asset locks can include the pitch, for example. Therefore, if the mutual members of Yorkshire County Cricket Club were to choose to identify the pitch as a community asset and lock that in, it would mean that, should the club be in such a perilous state that it goes into liquidation and has the threat of a takeover by third parties who, in order to survive, may not wish to retain mutual status in the future, it would give this opportunity to the mutual members and empower them. For example, in a very different way, not by mutual but by private ownership, the private pitch owners at Chelsea Football Club locked in the pitch at Stamford Bridge, and not even Mr Abramovich could assuage them with financial offers to give up that ownership.
Given the Government’s intention to regulate football and, doubtless, a desire to have good management, ethics and systems across all sport in this country, this opens up a huge opportunity. I have put this to grass-roots, low-level—non-league, to be accurate—football clubs in the past. Ownership structures could be changed so that the core assets including the name, the pitch and perhaps the youth structures could be owned on a mutual basis, but the more complex assets such as the stands, corporate facilities and spectator facilities could be owned by a separate owner and not necessarily be mutualised. That would allow people to invest in some of the profit-making potential of bars and related foods et cetera, while guaranteeing that such ownership could never take away the essence of that sporting club.
I proposed that some years ago to Worksop Town Football Club. The owner at the time did not accept the concept, but the obvious way of managing sport in this country remains for a football club of that level and size, or in whatever sport: locking in the assets to a particular location; locking in the key thing in the asset, which is the pitch; and debarring. They certainly had a case at Worksop Town where one owner debarred local youth and schools from using the facility. Giving members the ability to determine who will use the core sporting facility is a semi-veto power of management, but not one that would put off any coherent private investor—who might want some kind of venture that they have built, such as a private sports club as part of a new spectator stand that he or she and their entity have profited from but, in reality, cross-subsided the creation of a stand for spectators, which then cross-subsidised the sporting body itself and the mutual.
It seems to me that, at many levels of football and cricket and, I dare say, one or two other spectator sports with similar complexities of finance, this anchors in the community benefit. The beauty and criticality of the Bill by the noble Lord, Lord Kennedy, is that it allows this to happen under any form of mutual. It is a game-changer in how, at that level—which is the level of most sport in this country—assets could be seen, and in how the supporter base and community could ensure that they have a lock on those assets.
I urge support for the Bill and urge the Treasury to move rapidly in ensuring effective guidance. This could revolutionise the grass-roots asset base in our sport and may well be of future assistance to troubled entities such as the mutual that Yorkshire County Cricket Club is at the moment.
Lord Naseby (Con)
My Lords, I rise to support the Bill and congratulate all those who have been involved in its passage thus far. Mutuals have been part of my political life ever since I got involved in politics: I am member of the Co-op and bank with the Co-op, the NFU looks after my woodlands, and I remain actively involved in other aspects.
I had the privilege of being chairman of the Tunbridge Wells Equitable Friendly Society from 1998 to 2005, along with a man called David White. He and I created the brand of the Children’s Mutual, which was, in my judgment, the most successful unit to sell child trust funds. I am saddened that that very successful concept was replaced by the junior ISA, which did not have the same vision and excitement for young people. That is part of the history, really. I am currently one of the vice-chairmen of the All-Party Group for Mutuals.
I look particularly at Canada, where I have a brother, and at the huge success of the mutual movement there: it is growing, dominating the insurance market there, with a real mutuality of work on the ground. In a lesser sense, one sees the same in Holland and in Europe. I would like to see that happen in my country.
In today’s world, the mutual movement faces two challenges. One is how to utilise retained capital, which is addressed in the Bill, and the other is raising capital. The latter element took me into the legislative process in 2015, when I took a Bill through both Houses with the support of my noble friend on the other Bench—he is now not on the Front Bench, but nevertheless he has been hugely supportive, and I underwrite his involvement in the mutual movement.
I previously had a Bill called the Mutuals’ Redeemable and Deferred Shares Bill. That was to address the issue of raising capital. At that time, you had a situation where, of the five elements that make up the mutual world, building societies, credit unions and co-operatives had already been helped by the Chancellor at that time, but two had not: the mutual insurance companies and the friendly societies. My worry and theirs was that, if we did not do something, they would wither on the vine. Indeed, when one looks back, it was not so many years ago that the mutual insurers had about half the market; today, it is 10%, and I suspect that that is a little generous.
At any rate, that Bill was supported by Her Majesty’s Government, and I still pay tribute to the then Chancellor, Sajid Javid, who helped in taking the Bill through Parliament. We hit certain problems, particularly to do with the requirements of Solvency II and whether the capital raised would be eligible for tier 1 capital, which was absolutely vital for development capital. However, after much negotiating, we got to a situation where we had to remove one element, the redeemable element, because, basically, an election was coming.
When we got that on the statute book, we thought we had got a long way and that it was all going to happen smoothly. Lo and behold, it never happened, because it required a statutory instrument to implement the Act, and that was not made due to concerns at the time that issuing these shares would alter the tax liability of mutuals. So the Bill is still there as an Act. It is still sitting there and I hope something will happen about it, but I will come back to that in a second.
I now turn to the current bill. It is not a huge Bill; it is very much a focused Bill, and that is to its great credit. I praise Sir Mark Hendrick and others who have taken it thus far. The interesting part of what has been happening in the team that has been working on it is the letter—I cannot see the date on it—from Minister Andrew Griffith MP to Gareth Thomas MP, who is chairman of the All-Party Parliamentary Group for Mutuals. The last paragraph is absolutely key. It says:
“Going forward, the Government aims to develop a modern and supportive business environment to set mutuals up for future growth and success and is currently exploring the options for reviews of key legislation underpinning the sector. This will allow the appropriate time and space for engagement with mutuals and regulators to ensure there is consensus on the best way forward.”
That is a very exciting prospect.
I see my noble friend on the Front Bench. It has been a privilege to work with her on the Bill we are doing in the House at the moment on financial matters.
We also have a practical problem. I think every one of us has probably shopped at John Lewis. It is interesting that the chairman, Dame Sharon White, was deeply involved in the early stages of the child trust fund, so she must feel quite strongly that somehow she needs to find a means of recapitalising John Lewis. That is another challenge. Speaking personally, I think John Lewis is part of life in the United Kingdom, and I would like to see that organisation prosper. I think that should basically be at the back of His Majesty’s Government’s review of this whole area.
I read economics at Cambridge—I found a subject I was reasonably good at, having not been terribly academic at school. I was reminded, as it was quoted in the papers recently, that John Stuart Mill hoped that employee ownership would end the standing feud between capital and labour. That is the driving element that I feel as well. I will give this Bill all possible support and do anything I can to help it move forward, and anything I can to help His Majesty’s Government as they look at the broader aspect mentioned in the letter I quoted. I just remind my friend the noble Lord, Lord Kennedy, that when he supported my Bill he said it was the second time. This time it will be third time lucky, I hope. With that, I offer myself as a servant to do anything I can to put this Bill on the statute book.
Baroness Taylor of Bolton (Lab)
My Lords, it is somewhat unusual to stand up from these Benches and agree with virtually every word that has come from the Benches opposite, but that is where I find myself today. I join Members on all sides of the House in congratulating my noble friend Lord Kennedy on sponsoring this Bill, and indeed my honourable friend Sir Mark Hendrick, with whom I served in the Commons, who introduced it. It is good to see that it has had an unqualified welcome from all sides of the House.
It is, as my noble friend pointed out and has been mentioned just recently, a very straightforward Bill. Although there are regulations to be made, I do not, on this occasion, have my usual concerns about a skeleton Bill leaving the detail to later—though of course many people will want to look at that detail quite carefully.
I think that many people in the co-operative movement, and many people who deal with mutuals, would have been surprised, until quite recently, that such legislation is necessary. There have been shocks to the system—mention was made of Liverpool Victoria—that have made people look again at the framework of regulation here. Although this Bill is welcome, it is not the last word on what needs to happen going forward.
The issuing of a statutory asset lock is clearly extremely important, and that need has been highlighted by recent cases. Those who established mutuals and co-operative institutions never thought that the assets that they were creating were not protected. I think that is where the shock element comes from.
The noble Lord, Lord Bourne, gave a bit of the history of co-operatives, and I appreciate that because, as my noble friend Lord Kennedy indicated earlier, many of us were brought up in that particular culture of co-operation. Like many people, I remember going as a child to the local Co-op in Wishaw, where my granny lived, for the morning rolls. I remember to this day, “four, five, seven, six” which was the number you had to give to make sure that, at the appropriate time, the dividend came forward. In Bolton, we had a remarkable system where, when you went to the Co-op shop, you were given a thin paper ribbon with the amount spent that you then had to put on a gummed piece of paper. If I lost it on the way home, my mother was not best pleased, because that again was reflected in the dividend that was often very useful for buying shoes or whatever it was that was the particular purchase of that kind.
It was not just the financial incentive to shop at the Co-op or to have insurance with the Co-op; it was the feeling that you were not being cheated. There was a confidence factor there. The early co-operative organisations were often based on giving people confidence that they were not being cheated but also on a feeling of belonging. It was part of the culture of many working class existences. I think that the co-operation with social enterprises, which was mentioned on the Benches opposite, is something that builds on that. Those who established co-operative and mutual benefit societies and institutions would be horrified at the thought that the assets that have been built up over time could go for other purposes.
I have just one question for the Minister, and it builds on what the noble Lord, Lord Bourne, said. In the Commons, the Minister said that the Government would soon bring forward legislation to amend the Building Societies Act 1986 and are consulting on reviewing the legislative framework governing co-operatives, community ventures and friendly societies. I know Ministers cannot anticipate what might be in the King’s Speech, but I wonder whether we could have a bit of an update on the progress that I hope is being made in this particular area.
Mention has been made of sport, and I think it is important. I know my noble friend Lord Kennedy is a great football fan, although we disagree on which club we should be supporting. He will have seen the real difficulties that many clubs have gone through in recent years. We have one or two football clubs that are going down this particular pattern of trying to work together and have a community asset. I hope there is more scope there.
This is an important Bill. It is a small Bill. It is, as my noble friend said, a permissive Bill. It is not ensuring that all societies go down this route, but I hope that the voluntary powers in it will be acted upon, because that is what the originators of all these institutions would have wished.
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, as a proud member of the Co-operative Party, it is a genuine pleasure to contribute to this debate. I pay tribute, as so many have, to my noble friend Lord Kennedy of Southwark for introducing this incredibly important Bill and for continuing the work started in the other place by Sir Mark Hendrick.
I do not believe that anyone who has listened to my noble friend during this debate or at any other point could doubt his commitment to the co-operative movement. He is a stalwart co-operator and has dedicated many hours to campaigning for the co-operative movement, seeking to ensure a fairer and more equitable approach to our local economy.
As my noble friend outlined, co-operatives, mutuals and friendly societies are not relics of the past but a fundamental aspect of our national economy, and provide a lifeline to communities seeking to be directly involved in the provision of services in their immediate vicinity. As my noble friend Lady Taylor of Bolton reminded us, for many of us nothing is more evocative of childhood than conversations about our family’s divi number. My partner can still cite his grandmother’s: 207619, Thelma Snell. But co-operatives and mutuals are more than retail outlets, important as those are.
As my noble friend Lord Mann and the noble Lord, Lord Naseby, both referenced, the British co-operative movement is as diverse as our economy and includes everything from cricket clubs to football pitches—that was news to me—and from housing providers to funeral societies, credit unions, insurance companies, shared community spaces, retail offers and even the odd public house.
That is why this legislation is so important. In the UK, 14 million of us are members of a co-operative or mutual. They employ more than 250,000 people and generate a combined turnover of £39.7 billion a year. They also collectively hold more than £200 billion in assets, as the noble Lord, Lord Bourne of Aberystwyth, highlighted. While those numbers may seem impressive, they are small fry compared to those of our friends in the EU. The co-operative sector in Germany is four times the size of the UK’s and is a sector of its economy embraced at both a federal and a local level.
Around the world, 12% of the population are members of a co-op and the largest 300 co-operatives and mutuals report an annual turnover of $2.1 trillion. From that comes a view of how capital can be used not for short-term gain but for long-term investment in which members understand that the success of the business and surpluses generated above the original capital asset are used for the common good. This business model also creates a stable and dynamic enterprise; co-operatives are twice as likely to survive their first five years of trading than other start-ups and are known to be much more ambitious in their plans for growth.
It is therefore imperative that we do what we can not only to foster the creation of new co-operative and mutual societies but to protect the ones we have, which is why the Labour Party has already pledged to double the size of the British co-operative sector after the next general election.
This Government speak a great deal about economic growth and levelling up. The co-operative movement is a vehicle that can and should be involved in delivering both, and this piece of legislation is a small step in helping the sector to move forward. It provides the safety mechanism that allows for any capital surplus to be held over and for the associated funds and assets to remain committed to the wider public good should a mutual cease to trade. It empowers the members of mutual societies to decide what should happen to assets upon the dissolution of their society. It will allow members the right to preserve the assets for the future, to deliver the original guiding intentions upon which their society may have been founded.
Currently, no such provision exists in the UK. Nothing exists that allows members to specifically confirm that any capital surplus would be non-distributable and remove the very tantalising incentive for demutualisation. Those pioneers who set up and found co-operatives, mutuals and friendly societies never do so in the hope of turning a quick profit. They do so because of a desire to enhance the common good, which can be achieved only by co-operation. They seek not only to build a financial enterprise but to provide a community with a tangible solution to a shared need. Indeed, these co-operators have neither the right nor the expectation of securing personal financial benefit from the increased value of their society; this is where the problems arise.
This Bill, therefore, establishes the right from day one, if they wish, for new mutuals, co-ops and friendly societies to enshrine in their governing documents that any capital surplus in the event of dissolution will be held securely in the hope that future generations may, one day, pick up where they left off. It would stop eagle-eyed investors seeking to demutualise, distribute an unearned windfall profit and for ever end the common good that the founding members had intended from their original stake.
This Bill is a bulwark to those who see successful mutuals and co-operatives as an opportunity to asset-strip and make a quick buck on the backs of generations of working people who made a choice about the type of business they wished to support, so it definitely has the support of our Benches.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, all speakers in this debate have recognised the diversity and value that mutuals bring to our economy. At their core, mutuals give people a stake in how businesses and organisations should be run. Their unique, purpose-led, member-focused approach provides an alternative model of economic organisation and activity across all industries, from financial service providers to housing, agriculture, manufacturing and—as the noble Lord, Lord Mann, noted—sports clubs, down to community assets such as locally owned libraries and pubs.
As the noble Lord, Lord Kennedy, described to the House, he has a keen appreciation of the importance of mutuality as a committed member of the Co-operative Group and a non-executive director of the London Mutual Credit Union, one of the largest credit unions in London. I thank him for lending his wealth of experience and expertise as he leads the Bill through this House on behalf of the honourable Member for Preston, to whom plaudits must go for the Bill before us today.
I also take a moment to acknowledge the spirit of cross-party collaboration of which this Bill is a product, particularly that which was fostered between the honourable Member for Preston and my honourable friends the Economic Secretary to the Treasury and his predecessor, the honourable Member for North East Bedfordshire, which saw the Bill move unopposed through all its stages in the House of Commons. Throughout, their endeavours have been backed by significant levels of support and input from the sector itself, particularly the trade bodies Co-operatives UK and the Association of Financial Mutuals, and the think tank Mutuo.
The noble Lord, Lord Kennedy, clearly explained the positive change this Bill seeks to deliver for co-operatives, friendly societies and mutual insurers. This country is rightly recognised as the birthplace of the modern mutual movement. It is right that we protect this legacy by equipping co-operatives, friendly societies and mutual insurers with a stronger option in law to safeguard their funds for the future so that they can continue to contribute value to society and their members for years to come. The merits of the Bill are clear and roundly endorsed by the sector itself. I am pleased to be able to give the Government’s full backing to it. Within the limited legislative time available to us, I look forward to the Bill progressing swiftly.
My noble friend Lord Bourne asked how the provisions in this Bill can be taken forward in Northern Ireland given that co-operatives legislation is devolved and there is no Executive in place. Northern Ireland is governed best when governed locally. The Government believe that this is the moment for the restoration of the devolved institutions. It would be for a restored Executive to take forward any similar legislation, but I assure my noble friend that my officials have had regular dialogue on mutuals issues with their counterparts in Northern Ireland and would be happy to continue that engagement in future.
As noble Lords have noted, the Government’s commitment to this sector is not limited to this Bill. Through the Financial Services and Markets Bill, a number of important amendments are being made to the Credit Unions Act 1979 to support the future growth, diversification and development of credit unions. These reforms include empowering credit unions in Great Britain to offer a wider range of products and services, creating a more agile and competitive sector, which can better adapt to changing market trends to deliver for its members.
Furthermore, the Government are delivering for building societies—mutual savings providers and mortgage lenders—which are not included in the scope of this Bill. As the noble Baroness, Lady Taylor of Bolton, noted, and as announced in the Edinburgh reforms package, the Government will in due course bring forward legislation to amend the Building Societies Act 1986 following the conclusion of our consultation. The amendments will help to establish a legislative framework that is fit for the future and promote a level playing field for building societies to grow and compete.
The Bill is focused on safeguarding the positions that mutuals hold today, but we must also focus on the future. To respond to my noble friend Lord Bourne, my noble friend Lord Naseby—to whom I pay tribute for his long record of support for mutuals—and the noble Baroness, Lady Taylor of Bolton, I say that we are in active discussions with the Law Commission on options to proceed with reviews of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching those reviews in the next financial year. As my noble friend Lord Naseby noted, modernised, fit-for-purpose legal frameworks will enable friendly societies and co-operatives to seize opportunity and grow.
All in this House appreciate the potential of modern mutuality. Mutuals are invested in the success of their members and the local authorities where they operate. Because of that, they can be a real asset in our mission to level up and spread economic opportunity across every region of this country. In the meantime, I look forward to working with noble Lords to ensure the successful passage of the Bill, which is one important step along the road to reform for the mutual sector.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I very much thank all noble Lords who have spoken. I agree with every comment that has been made, which is very unusual in this House, so that is wonderful.
I thank the noble Lord, Lord Bourne of Aberystwyth, for the reference that he made to the campaign against the demutualisation of Liverpool Victoria. That is a recent example of the threat that mutuals face when people see their large assets. It was a great campaign that will be an eye-opener and a wake-up call for everyone, showing that something needs to be done to protect those assets. I thank him for his support, and I generally agree with all the comments that he made.
My noble friend Lord Mann spoke about sports facilities, the benefits they bring to the community and how the assets of those facilities could benefit from a change in their ownership structures. That was a really important point. He highlighted that, with legislation, lots of playing fields and sports centres and grounds could be protected for future generations. Small ones in particular are often under threat.
As my friend the noble Lord, Lord Naseby, said, we have worked together many times on these sorts of issues, and I thank him again for his support, which is really good to hear. His many years of support for the mutual sector are welcome and needed, and we thank him very much for them.
My noble friend Lady Taylor of Bolton also made reference to the Liverpool Victoria situation and highlighted the need for further protection. I agree with what she said about the special place that the Co-op has, in our memories and even today; I am a regular shopper down the Co-op, and it is a wonderful organisation, as are all the mutual organisations in our country, so it is always worth supporting that.
It was great to see the support from the Opposition for the Bill. My noble friend Lady Anderson of Stoke-on-Trent and I have been friends for many years, from long before either of us was in either House of Parliament. She used to serve in the other place. I was so pleased when she joined this House at the end of last year, and I am even more pleased and proud that she is speaking from the Opposition Front Bench. It is great to see her here.
I thank the Minister for her support for the Bill today, and I thank the officials from the Treasury for all the work that they have done. It is good to hear that there is further work going on behind the scenes in the department to look at other legislation. I was pleased that she mentioned the London Mutual Credit Union. I am proud to be a director there. It is a wonderful institution, the biggest credit union in London, and we are actually in the mortgage market now. It is a fantastic organisation. If she ever wants to visit, I would be delighted to show her around and show her all the work that we do there.
Co-operatives, Mutuals and Friendly Societies Bill
Wednesday 26th April 2023
(1 year ago)
Lords ChamberRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.
Co-operatives, Mutuals and Friendly Societies Bill
Friday 16th June 2023
(10 months, 2 weeks ago)
Lords ChamberRead Full debate Co-operatives, Mutuals and Friendly Societies Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, in these few brief remarks, I pay tribute to the Bill’s sponsor in the other place, Sir Mark Hendrick, the Member for Preston. I also pay tribute to Peter Hunt, Mark Willetts and all the team at Mutuo, an organisation that has done fantastic work in the co-operative sector over recent years and had many bits of legislation passed. They have done a wonderful job, and we thank them very much for all their work.
The Bill is passive: it requires no co-op, mutual or friendly society to do anything whatever, but it enables them to take action, if they want, to protect their organisations and prevent unwanted attempts to demutualise. So it is a welcome piece of legislation. I thank the Government and the Opposition for their support, and the noble Lord, Lord Naseby, for his support on these matters over many years. I also thank the Treasury and Treasury officials for their support. I beg to move.
Lord Naseby (Con)
My Lords, this is a vital Bill for the mutual movement of the United Kingdom. It prevents any predator trying to take away the capital put in by individual members of the society, and it is absolutely vital that this goes through. I recognise that another element sitting on the statute book that complements the Bill is the Mutuals’ Deferred Shares Act 2015, which I had the honour of taking through this House some time ago. I say to my noble friend on the Front Bench that we in this country now have a huge opportunity to benefit in the same way that Canada and Holland have from the mutual movement. It is ready to move forward, and we now look to His Majesty’s Government to implement the Bill and take the mutual movement forward. I particularly thank the noble Lord on the Front Bench on the other side of the House for all that he has done to take it this far.
Lord Fox (LD)
My Lords, briefly, it is a pleasure to follow the noble Lord, Lord Naseby, whose speech I agree with completely. The noble Lord, Lord Kennedy, and his colleagues should be congratulated on bringing forward the Bill. It is a passive Bill, and it is no reflection on him but, sadly, it is too late: too many mutuals have been cashed in, with the current generation benefiting from the prudence of past generations. Anything that we can do to halt that decline is excellent. Turning to the Front Bench, I think that this is an important sector that has largely been undervalued over past decades. Taking the theme of the noble Lord, Lord Naseby, I think this is an opportunity to kick off with this sector of our economy and perhaps grow it and make it more valuable, which it undoubtedly has the potential to be.
Lord Livermore (Lab)
My Lords, I congratulate my noble friend Lord Kennedy of Southwark on the success of his Bill. I also congratulate Sir Mark Hendrick MP for steering it through the other place. I know that my noble friend Lord Kennedy has supported co-operatives for over 40 years, and I note that some of the principles of them are democratic member control, autonomy and independence—perhaps not principles you might normally expect to be championed by a Chief Whip, but my noble friend does so with ease. The Bill will help UK mutuals preserve their legacy assets for the purpose for which they were intended, maintain and encourage greater corporate diversity and build a more resilient economy—objectives on which I am sure we can all agree.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, I add my thanks to the noble Lord, Lord Kennedy, for guiding the Bill through your Lordships’ House and for lending his wealth of knowledge and experience to our debates. I also congratulate Sir Mark Kendrick as his Bill reaches this milestone today. In particular, I recognise the close work between Sir Mark and my honourable friends the Economic Secretary to the Treasury and his predecessor, Richard Fuller, who supported the Bill through the House of Commons on behalf of the Government.
At their core, mutuals give people a stake in how businesses and organisations should be run. They make up a diverse sector of commonly owned and democratically controlled enterprises that provide vital services to their members across all industries. That is why creating the right legal apparatus in which mutuals can thrive and grow is so important. The Bill is a contribution towards that. As noble Lords said, it aims to provide the sector with options to safeguard its businesses, have more control over their funds and ensure that they are better equipped to avoid demutualisation.
Hearing support for the sector in this brief debate, I reassure noble Lords that government support for mutuals goes far beyond the Bill. The Financial Services and Markets Bill includes amendments to the Credit Unions Act to allow them to offer a wider range of products and services, and we intend to amend the Building Societies Act as part of the Edinburgh reforms package to modernise legislation for building societies. I am also happy to confirm that the Government will launch reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, conducted by the Law Commission, with the aim of identifying essential updates to the legislation, allowing for a more modern legal structure in which mutuals can be supported to capitalise on new opportunities to grow. So the Bill is the start of more work to come to support this important sector, and I am glad that the Government can support it.
Royal Assent
Thursday 29th June 2023
(10 months ago)
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