Building Societies Act 1986 (Amendment) Bill
Friday 19th January 2024
(10 months, 1 week ago)
Commons ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Julie Elliott (Sunderland Central) (Lab)
I beg to move, That the Bill be now read a Second time.
It was a privilege to come out at the top of the private Member’s Bill ballot for this parliamentary Session. It is a ballot I have entered at every opportunity since I was first elected in 2010, so it was great to be drawn, but to be drawn first is a huge responsibility. I was on my way to get the train to my constituency in Sunderland, and when I got off the tube at King’s Cross, my phone had dozens of messages. My immediate reaction was that the Government must have called a general election, but no—that is something else we can look forward to in the year ahead. I had, in fact, been drawn at the top of the ballot.
I am delighted to be here in the Chamber to present a Bill that will make important and long-awaited amendments to the Building Societies Act 1986. It is a Bill that the sector wants; a Bill that is true to Labour and Co-operative values; and, importantly, a Bill that has received Government support. Although it will not solve all of the issues in the broken housing market, it could free up and make available more money to lend in mortgages, and because building societies lend more in percentage terms to first-time buyers, it should enable more first-time buyers to get on to the housing ladder. Clearly, there also needs to be wholesale reform of the rental market, in order to address the housing crisis that we have in this country today.
I must take this opportunity to thank everyone who contacted me about issues and with proposals for potential Bills. I would have happily taken many of them forward, but I could choose only one Bill. However, I feel that the Bill I have chosen can make a real difference to people’s lives, especially young people’s lives. I hope it will support first-time buyers and more community-based banking, in the interests of working people.
Christian Wakeford (Bury South) (Lab)
The entire point of building societies was to compete with banks on a truly level playing field—they were founded to enable working people to own their own home. That is why this Bill is so important. As my hon. Friend says, it will expand that ownership, particularly to young people and first-time buyers. Does she agree that not only should we absolutely be doing this, but it should already have been done?
Julie Elliott
I absolutely agree, but the bureaucracy of Government sometimes gets in the way of things happening.
The Bill will help level the playing field, enabling building societies to compete more fairly with banks. It will support them to lend more money in a safe and secure way. Over half of building society lending—55%—goes to first-time buyers. Crucially, as the building society sector directs a greater proportion of lending to first-time buyers than banks do—there is a theme here—that will benefit more people looking to get on to the housing ladder.
Modernisation of building society legislation is long overdue. There are some archaic requirements about the way building societies fund themselves that put them at a competitive disadvantage compared with banks. Competition in banking is good for consumers, and given that building societies drive innovation, particularly in supporting first-time buyers, strengthening the sector is a great route to supporting aspiration across the UK at the same time as supporting a sector that works co-operatively and mutually. Building societies work for the benefit of their members up and down the country, engaging in a system of co-operative banking for mutual benefit, not for profit.
We are lucky to have three building societies in my Sunderland Central constituency: Newcastle, Yorkshire and Nationwide building societies all have branches in Sunderland, so I see at first hand the excellent support they give to members. It is incredibly important to my constituents to have a branch that they can visit to talk through any financial issues and receive the support they need face to face. I see the work of building societies as both a strong British tradition and a strong Labour tradition. I am delighted to have the support of the Co-operative party and the Building Societies Association, which represent both traditions.
The first form of a building society was in 1775, when Richard Ketley brought people together in a pub—in what is now the constituency of my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) —to put money into a shared fund, collecting regular subscriptions until there were sufficient funds to be able to provide a house for one of them. They drew names, very much like the drawing of names for a private Member’s Bill, to decide which member would be the next beneficiary; this continued until all members of the group had a house. The arrangement required trust, hope and a commitment by the community that no one would be left behind.
At that time, most building societies were created as terminating societies, which meant that the building society terminated trade once all its members were housed, so many were created, housed their members and then disappeared. That practice continued until 1980. By 1825—50 years after the first building society was created—over 250 terminating building societies were in operation, although it took until 1845 for the first non-termination society to be formed: the Metropolitan Equitable.
In 1836, the first legislation dealing with the industry was introduced, recognising building societies for the first time in this House through the Regulation of Benefit Building Societies Act. The legislation, along with previous court cases, led to the formal recognition of the rights of building societies as entities, resulting in a boom in the sector. By 1860, the number of building societies had risen to almost 3,000. In 1874, the Building Societies Act was passed—an historic precursor to the Building Societies Act 1986, which I hope to amend through my Bill.
The history of building societies has played an important role in the history of working people supporting each other in their mutual ambition of owning their own home, and in financial institutions serving the communities they represent. It is a trend that is even more prevalent today; as banks shut branches at an alarming rate, building societies are gradually taking a bigger share of branches in the community that remain open. Building societies now account for 28% of all high street branches in the UK, as opposed to only 14% 10 years ago. Although this may be caused by the closure of bank branches in the main, it shows a commitment to keep branches open by building societies, on which so many of my constituents rely. That face-to-face engagement, personal support and visibility is so important to many people. Branches are so much more accessible to those who have specific needs, especially in the digital age, where those with internet access often have the best opportunities and access to the best deals.
The original purpose of building societies embodies the famous phrase in clause 4 of the Labour party’s constitution, that
“by the strength of our common endeavour we achieve more than we achieve alone”,
with communities coming together to support each other and provide a strong and secure economic foundation for their collective futures. Families in Sunderland and across the country are struggling to find a secure home. Research by the Resolution Foundation shows that 80% of 25 to 34-year-olds would prefer to buy their own home than to rent. Home ownership is something many strive for, to provide financial security and ultimately to turn a house into a home. My Bill aims to support them in doing just that.
As I have said, it is quite clear that there is a housing crisis in this country, for homeowners and renters. We must at this point consider the damage done by the previous Prime Minister and her Chancellor, and the economic damage caused by her Government to the country, especially people with mortgages. I believe we also need reform in the rental sector to sort this out. The system is broken and is not working for people. The Bill will go some way towards making the housing ownership landscape easier for all.
Sir Oliver Heald (North East Hertfordshire) (Con)
I support the Bill, as I hope do Members across all parties. It is good to see something that will, hopefully, strengthen the principle of mutuality. Does the hon. Lady agree that is an important principle to retain, and is she confident that her Bill will do that? Will it lead to a situation in which there is less desire among building societies to become banks?
Julie Elliott
I agree. Building societies were certainly part of my life when I was growing up. I got my first mortgage with a building society—a very long time ago, because I am getting old. The principle of mutuality is really important and does set building societies apart from banks. They are a very different model and serve communities in a much closer way than banks do.
By introducing welcome flexibility to a sector that does so much for first-time buyers and others, the Bill, although it does not directly provide provision for the building of homes or assure the retail customer of any extended product lines, does provide more room for the sector to work in, given that its use of finance is different from that of banks as it lends significant amounts of money to first-time buyers.
The building society sector is made up of 42 separate building societies and currently has almost 26 million members. It holds over £352 billion of mortgage assets and £313 billion of savings from individuals. It is not a small sector, but it is a sector that can grow.
Building societies face significant challenges. The Bill has the potential to unlock billions of pounds in additional lending capacity for them. It is estimated that for every £10 billion of new lending capacity, the sector could support an additional 20,000 mortgages. As we know, over half of building society lending goes to first-time buyers, so the potential impact of the Bill is huge. Since 2020, building societies in the north-east and Cumbria have lent £3.4 billion to first-time buyers. In the first nine months of last year, they supported nearly 4,000 first-time buyers—4,000 people who last year started their journey of home ownership, with all the financial security and benefits that brings. Increasing lending capacity is incredibly important in supporting hard-working people. It is essential to the UK’s future prosperity and desperately needed for economic growth.
I want briefly to run through the four clauses of the Bill and the impact the changes will have. It is not a standalone Bill; it amends the Building Societies Act 1986 by inserting new provisions. Clause 1 deals with funds that can be disregarded by a building society for the purpose of calculating its wholesale funding limit. The 1986 Act currently requires them to obtain at least 50% of funding from their members—from individual member deposits. The retention of this 50% minimum requirement ensures that the members remain the primary owners of building societies; it is what makes the sector so unique. The other 50% can come from external sources. This balance will not be changed, but there is a need to modernise the rules governing the sector in order for building societies to compete with banks on a level playing field.
The Prudential Regulation Authority and the Financial Conduct Authority engaged with the sector on this issue in 2021. The conclusion of the Government’s consultation recommended the exclusion of some sources of funding from building societies’ wholesale funding limit calculations, as well as the modernisation elements that come later in the Bill. The recommendations were never implemented, which is why the Bill is needed.
Clause 1 will disregard the following from the 50% wholesale funding limit: Bank of England liquidity insurance facilities, debt instruments raised to meet the minimum regulatory requirement for own funds and eligible liabilities requirements, and sums received under sale and repurchase agreements, with a view to complying with Prudential Regulation Authority rules.
These changes will not dilute the unique ownership model under which building societies operate. They will not increase the financial risk to the sector, because these liquidity insurance facilities, the debt instruments and the sale and repurchase agreement sums will be effective tools at a time of national economic crisis to ensure that building societies remain comfortably solvent and active in the interests of their members. These changes will help to future-proof building societies from external factors, economic shocks or periods of financial stress.
The specified facilities and so on will be described in a statutory instrument laid by the Government of the day, which will provide additional detail to allow the funding disregards broadly described in subsection (2) to be activated. The Bill is designed so that any Government at any given time can react to the needs of the building society sector, the Bank of England and the Prudential Regulation Authority. Enabling such changes in regulation to be made by means of secondary legislation will make the sector much more sustainable and able to react to changes in circumstance.
The changes presented in the Bill formed part of the Edinburgh reforms. All the responses to the Government consultation were in support of these changes. Prudent lending is crucial to the UK’s economic growth. Making this change will make building societies safe, more secure, and competitive in the long term, without affecting their status as mutuals.
Clause 2 is about modernisation. It amends the 1986 Act to explicitly allow the option of real-time virtual member participation in building society meetings. The change presented in the Bill aligns the sector with modernisations made to company law by section 360A of the Companies Act 2006. It will allow virtual attendance and voting as part of hybrid meetings, making it clear that nothing in the 1986 Act precludes this. Allowing hybrid meetings will improve accessibility and will hopefully allow engagement from members who cannot currently travel to meetings, enabling a broader cross-section of members to participate.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with companies. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause IV defines the territorial extent of the Bill, which covers all four nations, and specifies that the Bill
“comes into force at the end of the period of two months beginning with the day on which it is passed”—
the standard period set out in legislation.
The Bill has no implications for public funds, as the impact assessment shows, and does not contain any provisions that will require a money resolution or a Ways and Means resolution.
Ultimately, the Bill does a lot of things in a succinct way. It will enable the modernisation of the building society sector and brings it up to date; it will put the sector on a more level playing field with banks; and it will potentially allow them more scope for supporting their members or future members. The Bill has overwhelming support from the sector, including from the Building Societies Association, the representative body of the sector, and its members. The BSA was founded in 1869 and is now the voice of the sector, representing 42 building societies and seven credit unions, and serving 27 million members up and down the UK.
The sector has helped 3.5 million people to buy a home with mortgages totalling over £375 billion. That accounts for 23% of total outstanding mortgage balances in the UK. The building societies that the BSA represents account for 19% of cash savings in the UK, and 40% of all cash ISA balances. Across the country, the sector employs 51,500 people, both full-time and part-time, working in around 1,300 branches in the UK. The BSA contributed greatly to the consultation process in 2021, and I am proud that it supports the Bill. I also wish to thank His Majesty’s Treasury for the support it gave me in preparing for today’s Second Reading.
The Bill will make building societies lend on a similar basis to banks, freeing up more money to help more working people in the UK. It has the potential to unlock billions of pounds of additional lending capacity at a time when so many people need it. I commend it to the House.
George Freeman (Mid Norfolk) (Con)
It is a huge pleasure able to join Friday business as a Back Bencher and to support this important Bill on behalf of my Mid Norfolk constituents. Let me start by congratulating the hon. Member for Sunderland Central (Julie Elliott) on introducing the Bill and on winning that prized first place in the ballot, so that she can make a difference with the Bill. I thank the Government for working with her and all of us who have supported her on the Bill. This is a good example of cross-party work, and of the Government working with Back Benchers in the interests of our constituents and the shared and mutual interests of the citizens of this country. I only wish more people around the country were able to see the quality of the work going on in the House on days like this.
I want, particularly, to highlight the importance of the Bill for rural areas such as mine. The hon. Lady represents the magnificently urban constituency of Sunderland Central, but I represent a magnificently the rural constituency of Mid Norfolk—114 villages and five towns. As I candidate, I rashly promised to cycle the border one Saturday morning, but then discovered it was 94 miles long. It took me rather more than one Saturday morning. Much of this country is rural, up north as well as down south and in the south west. I want to focus on the importance of the Bill and building societies in rural areas and on our town high streets in providing cash facilities, and supporting first time-buyers and pensioners with cash.
In Dereham recently, I saw Nationwide packed, with queues outside of pensioners moving from the bank, which is closing, to support Nationwide, as Nationwide supports them. In my part of the country we have a huge number of retired folk who want cash—they do not all want to be totally digital. They value and need that interaction with a living and breathing human being when they go to save or take out cash. Nationwide Building Society is doing great work to support them. I am really keen to support the Bill, as the hon. Lady knows, largely because of that particular rural need.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I should declare that I am a member of three building societies, and until recently I had a mortgage with Nationwide. I agree with my hon. Friend about the importance of building societies in rural communities. I think of local examples such as Suffolk Building Society, but elsewhere around the country there is Newbury Building Society and similar. That connection to the community really matters. It is important to get on with this primary legislation, but we also need to get the negative secondary regulations through as quickly as possible so that we can boost mortgage borrowing for families who are keen to get on to the housing ladder.
George Freeman
I completely agree—my right hon. Friend makes an excellent point, and we will come to that in due course. She is absolutely right.
I want to focus on building societies in rural areas. The flight of the banks, in particular from rural areas but also from a lot of high street banking and the role they have traditionally carried out—this is partly why the Bill is so important—highlights the importance of cash in the rural economy. Many of my local small businesses are really struggling with how to bank cash properly. We also have a problem in our part of the world with ATMs now being subject to JCB theft—ATMs being ripped out of the wall. So, there is a cash problem and building societies have a really important role.
As well as reflecting the very best of old Labour, this is also, if I may say so, the very best of civic conservatism. This is Edward Burke’s little platoons. This is the weft and the warp of local connected responsible civic community-based capitalism; the sort of capitalism that small platoon civic conservatism has long championed. I would argue that all parties in Government over the past 40 years have slightly forgotten that that needs to be championed. We have seen the rise and the domination of big capital, big banks and big disconnected capitalism. I am here today as a card-carrying supporter of the mutuality model and civic capitalism. I think both main parties have that in common in their different traditions and history.
On rural banking and finance, in Mid Norfolk we have five towns and 114 villages. We are not quite halfway between Cambridge and Norwich. Traditionally, it has been something of a rural backwater. It is an agricultural community, with many retirees and pensioners moving to quiet rural Norfolk. It is a real challenge to ensure that our villages remain vibrant and our towns remain thriving. The model of development over the past 40 years has been over-focused on commuter housing. People drive their cars to Norwich and Cambridge during the day, and that sucks the life out of many of our villages.
The rise of online commerce and digital retail has also taken quite a lot of the life out of many of our towns, and our high streets are struggling to remain vibrant. The Government’s moves to reduce business rates has helped, but the pandemic and the cost of energy crisis, coming off the back of the Ukraine war, has hit rural areas disproportionately hard. That is a theme I will be picking up in the coming months in this House in the run-up to the Budget. Everyone has been hit by the cost of energy increase of course, but in rural areas there is a double triple whammy. Every member of staff in a company has to drive. Most of my relatively low-paid working families have one, two or three cars. They are not a luxury; they need them to be able to get to work. All our public services are hit—our bus services and our county council services—all across rural areas. We are paying a double whammy because of an over-dependency on transport and heating. That huge rural impact is hitting remote backwater rural areas very hard, particularly in my part of Norfolk.
In that context, it is urgent that we encourage the revival of the rural economy. I have long believed and campaigned locally that, with a slightly different approach to planning and development in our area, we could trigger something of a rural renaissance, with many small businesses popping up off the back of the Cambridge phenomenon and the Norwich Research Park. Small businesses often start off by working from home or looking for converted farm units; they are not in the city centre, but distributed. If we can get more businesses back into villages and small towns, we will have more people of working age in communities during the day. That will reduce congestion and commuting.
The model of a vibrant rural economy is key to so many of the priorities of successive Governments. We will never get to net zero if we keep shovelling people into cars and making them commute long distances in congested traffic jams. The more we can get people to work from home or nearer to home, travelling when they need to during the day and not in peak hours, the better. That vision of rural renaissance is key, but it will never happen if young people cannot afford to buy a house near to where they work, if thriving businesses on the high street are unable to cash-up, save and deposit cash safely, and if pensioners are unable to save, take out their deposits and interact with banking in the way they have for the past 50 or 60 years. We need to ensure that we build an economy for the people who live there.
That is what my campaign, The Norfolk Way, is all about. It is a project to promote that vision of rural growth. The Bill touches on much of that. One has only to see the flight of the mainstream banks out of such areas—I know that colleagues in other constituencies see that—and the desperation that people feel, whether they are first-time buyers or pensioners.
James Daly (Bury North) (Con)
My hon. Friend is making an excellent speech, but we should not see building societies as a panacea; they are closing branches in my area as well. How do we encourage building societies to keep branches open when they are closing throughout the country?
George Freeman
My hon. Friend makes an excellent point. I do not want to suggest that they are a total panacea; I am lauding and applauding Nationwide in Dereham because it is doing great work, but we need to make sure that the Bill is part of a broader approach. I hope that Treasury Ministers, thinking about the run-up to the Budget and looking ahead, will think about how we can encourage more choice, more competition and more presence from both building societies and banks. We need choice and competition in rural areas and other areas that are not well served as well as in areas that are.
The opportunity for rural renaissance was hit hard by the pandemic, as well as by the Ukraine war, with its impact on energy prices, Putin turning off the gas taps and the cost of living crisis that we have all experienced. It is in that context that the Bill represents a chink of light and has been hugely supported locally. I am delighted to have helped the hon. Member for Sunderland Central bring it to the House.
I want to say something about the banks, because over the 13 years for which I have been privileged to be the Member of Parliament for Mid Norfolk the closure of banks—a cause on which I remember fondly working with the former Prime Minister, my right hon. Friend the Member for South West Norfolk (Elizabeth Truss), in 2009—has gradually hit much of rural Norfolk. Everyone understands that we cannot have a hugely staffed bank branch in every village, but there is a contract at the heart of the state between citizens, Governments and operations such as banks that work under regulations. Banks are there to provide a service, too, and if they are not going to provide that service we need to look at who will.
Sir Oliver Heald
Given the number of people going into banks to do their business these days, it is not unreasonable that there should be some restructuring. I think the idea of banking hubs where all the main banks club together to ensure that there is a proper facility in a town or substantial village is a good idea. Does my hon. Friend think that it is important that they should take in cash and takings from small businesses, because they do not all do that?
George Freeman
I do. My right hon. and learned Friend amplifies exactly the point I was making. He is right that sparsely populated or rural areas will often require different solutions, in the same way as small rural schools require us to network and support them through multi-academy trusts. Similarly, we need to be imaginative in how we support cash access and banking and saving in rural areas. That touches on a deep problem that I have witnessed over many years: Whitehall tends to see these problems through an urban lens, and we need to think a bit about how rural areas often need a slightly different approach. I hope that the Bill and the cross-party support for it will help to encourage the Treasury to think about how we can do more to make this a moment to encourage greater choice and competition out in the market.
It is particularly sad that the banks have stepped back from the service I described over the two or three decades in which many of them have focused rather more on big, international and complex financial trading—the derivatives that led to quite a lot of problems we had back in the great crash. It is particularly sad in Norfolk given that it is where one of our great banks, Barclays, actually started, with the Gurney and Barclay families. The first bank had its roots in King’s Lynn docks. As people were required to pay duties, they required credit finance. I encourage anyone who has not been to King’s Lynn to go there, as it has a beautifully regenerated and refurbished Georgian dockyard, where they can see the plaque commemorating the first credit facility that became the great Barclays bank. It is particularly sad to see a bank such as Barclays step back from the place in which it started. Everyone has history, roots and heritage, and I am not such a romantic that I expect Barclays to put a bank in every Norfolk village, but I do think there is a responsibility on all these companies to make sure that the people they are there to serve are getting the service they need.
I wish, in particular, to highlight the importance of access to cash on high streets for small businesses, as it is becoming a serious problem. I know that the Minister understands it, and I am grateful for his acknowledgement of it. Across East Anglia, and I am sure this is happening elsewhere, we are seeing an increasing frequency of ATM raids, where JCBs are driven into banks and ATMs are taken out. However, that is the thin end of a bigger wedge, and many businesses in Dereham, Attleborough, Wymondham, Watton and Hingham are beginning to struggle with what to do with cash on a Monday morning, and many local people are struggling to find a bank they can access.
I know that many people wish to speak this morning, so I will not detain you or the House for too long, Madam Deputy Speaker, but I want to touch on mutuality, which my right hon. and learned Friend the Member for North East Hertfordshire (Sir Oliver Heald) addressed earlier. We need to talk about, celebrate, champion and promote it more in this House. Some 300 years ago, we were writing the rule book for modern capitalism, defining the joint stock limited company and setting out the legal framework in English constitutional law, in common law, that drove the industrial revolution. We created limited liability companies, which allowed people to invest, raise money and back projects, and that was a key part of what this country did.
In an age of globalised capitalism and high technology, we have a challenge to make sure that capital does not become disconnected from the people who are providing the money, the savers, and the people who need the money to build businesses. For capitalism to work, we need a connection between money, the people who are saving it and the people who are borrowing it. The last crash in the City was a clear example of what happens when a disconnection is allowed to get to crisis proportions, whereby people do not know where the money that they have deposited is going and people who buy a complex derivative bond do not know what it is built on or what is underpinning it. We then have a serious problem. I am not suggesting that we go back to an agrarian revolution of trading wheat for a lift on a cart into Dereham, but I think there is a real issue in our economy in respect of connected capitalism.
Conservative Members in particular, as card-carrying advocates for the market, need to continue to champion and make clear the fact that markets work when they have values, connection and people at the heart of them. When markets are completely disconnected, they have no sense of the requirements of the people putting the capital in or taking it out, they do not value that connection and regulators do not understand the importance of the bond of responsibility between people who are trading with each other.
Mutuality is a proud tradition at the heart of the old labour movement, but it is also a proud tradition in civic conservativism—it is Burke’s little platoons. In a spirit of cross-party philosophising on this Friday morning, perhaps I can put some wind in the sails of the movement for mutuality. I would love to see more mutuality in different sectors, such as in finance, banking and housing, where, clearly, the building societies have been a great reform—I would argue that the housing associations have also been a great Conservative reform in housing.
There are many examples of where we could blow on to the embers of mutuality and encourage more of it in different areas, particularly in some of our social care sectors and health provision. It should not be a stark choice between private profit and public state. There is a whole third sector of mutuality— membership organisations that can deliver public goods, with cost reimbursement and important disciplines of financial control that are not necessarily either public sector, with all the efficiency challenges that go with it, or private sector, with all the incentives for high profit. There is a whole raft of organisations out there that we could be deploying better—in health and care, but also in criminal justice and a whole range of areas where the state has struggled in the past few decades to achieve its stated objectives.
James Daly
My hon. Friend is making an outstanding speech, and we could philosophise all day, which I am tempted to do very badly. Mutuality in the modern day requires a profit element. For all building society branches to remain open, the business has to produce a profit. Mutuality in the sense of Ketley’s Building Society in 1775 is a different concept completely. We therefore should always come back to the point he makes that, for mutuality to succeed, it must be based on a civic, conservative and capitalist model. It cannot work in any other way.
George Freeman
My hon. Friend makes an excellent point and encourages me to wrap up my philosophising. He is right—I am not at all anti-profit; it is about what is done with the profit. One of the geniuses of mutuality is that the profit is recycled back in to pursue the interests of those who put in the capital in the first place.
Sir Oliver Heald
I am grateful to my hon. Friend for giving way again—I must not keep trespassing on the House’s time, because I have a Bill coming up later. Does he agree that if we look at pension funds and the possibilities of extending that sort of approach into social care, there would be a lot in the idea of mutuality? Also, on the point about profit, if those funds were invested in national goods, such as important national infrastructure and things of that sort, we could all benefit, but of course it has a financial aspect to it as well.
George Freeman
Again, my right hon. and learned Friend makes the point even more eloquently than I was trying to do, and he is right. I make this point in all seriousness: in so many areas, such as infrastructure, as he says, I dream of a world in which people can put their own savings into mutual vehicles. I would love people to be able to invest in the Cambridge-Norwich railway development corporation to fund the regeneration of neglected stations, or to create and fund investment vehicles. There is a whole wealth of instruments, vehicles and bodies rooted in that fertile period of 18th and 19th-century English capitalism, and Scottish capitalism, too—the enlightenment in Edinburgh was a big part of it. We could draw on those models better in pursuit of many of our public sector objectives.
As I wrap up, I will return to the more mundane and practical issues. This is an important Bill for updating the law and giving building societies a chance to get back to where they were in the early ’90s. They were responsible for something like 60% of the market; they have dropped down to 20%. We want to help building societies compete and get back to providing their core service to help those who want to save in building societies, not banks, and first-time buyers who, particularly in my part of the world in Norfolk, do not have high salaries and are looking for a safe and reliable local building society that could hopefully help them acquire a local house built for them, rather than for commuters moving into Norfolk. We need to think about the people who are driving public services and the rural economy. For first-time buyers, this is an important measure.
As the hon. Member for Sunderland Central said in introducing the Bill, increasing lending capacity is in itself a huge step forward. I think the figure is £10 billion of extra lending capacity, which will allow the provision of another 20,000 mortgages. That is hugely important, particularly for first-time buyers. I conclude by genuinely congratulating and thanking the hon. Lady for bringing the Bill forward, the Government for working with her and us on it, and all those who have helped. The Bill strikes a small but important blow and sends a key signal that building societies are back. We want to support and help them as part of a broader commitment to civic, small, local-platoon connected capital that can help people in communities up and down this country to save and withdraw money in the way they need, which will support the local economies on which the national economy is built.
Jo Gideon (Stoke-on-Trent Central) (Con)
I congratulate the hon. Member for Sunderland Central (Julie Elliott) on bringing forward this important Bill. As has been said, she has support across the House. It is with some trepidation that I follow my hon. Friend the Member for Mid Norfolk (George Freeman): he has taken the debate into a much wider context, as I also intended to do, although from an urban and community banking perspective. He is absolutely right about the importance of civic activity and community-based financial services, and the Bill goes a little way towards triggering that by bringing about a level playing field between building societies and banks so that they can compete more fairly.
The Bill will support building societies to do more lending in a safe and secure way, and it is welcomed by many, as the hon. Member for Sunderland Central said, including the Building Societies Association. It is a great starting point, but the economic landscape continues to change and building societies need the opportunity to remain competitive, so secondary legislation will be required to ensure that changes to regulations for other financial service providers are matched by updating the framework for building societies. The Government consulted on similar changes in 2022, and the Bill largely mirrors the proposals from the consultation, which were welcomed by the industry.
There are some modest but fundamental changes in the Bill that are really important. Building societies were founded to help working people to own a home of their own, and their mutual status means that their sole purpose is to serve their customers. They direct a greater proportion of their lending to first-time buyers than banks do, but they are constrained by archaic legislation unfit for today’s economy. Without this small but important piece of legislation, the competitive playing field in lending is not as level as it could or should be.
Under the Building Societies Act 1986, building societies are subject to funding limits that their high street banking competitors are not. Those limits require at least half their funding to come from savings deposits made by retail savers. In areas such as Stoke-on-Trent, both the average savings and the number of savers are lower than in more affluent areas, and consequently smaller local building societies are restricted in the numbers of mortgages they can offer, even though they are needed.
The proposed changes to the 1986 Act will not alter the funding limit but, as the hon. Lady outlined, they will remove certain key impediments, thereby enabling building societies to lend more and ensuring that more mortgage loans are available to UK homebuyers at competitive rates, and, crucially, to first-time buyers, who are the lifeblood of the housing market, as well as those further up the ladder.
Indeed, the Bill seeks to unlock billions of pounds of extra lending for first-time buyers and homeowners. It is estimated that for every £10 billion of new lending capacity that is unlocked there is the potential to support an additional 20,000 average first-time buyers. Risk needs to be managed, but smaller building societies in particular should not be tarred with the same brush as high street banks. Regulation needs to be simplified and made easier for them, because within their customer base they cater for a group of people who are on the edge of mainstream banking.
If local building societies did not exist, some people would be entirely disenfranchised by banking, so their mission is a social one as much as a financial one. The banking sector has essentially become a risk management business. As building societies grow, they manage more risk and the regulators are not keen to take that on. Although the inertia that creates is understandable, it makes it incredibly difficult to change the system. One particular issue on which I have campaigned for some time is the one-size-fits-all regulation that burdens smaller lenders and stifles innovation in the banking and non-banking financial sector.
The Netflix movie “Bank of Dave”, which tells the story of Dave Fishwick’s journey trying to open a community bank in Burnley, hit the top 10 in America four days after its release and captured the imagination of the British public last year. Dave’s innovative ideas make sense to the nation, but the existing regulatory framework does not seem able to adapt and respond to them. I have been working with Dave Fishwick and forward-thinking organisations in the financial services sector to push for a simpler regulatory framework and to enable a model that can provide the template for the creation of community banks throughout the country.
We do not have enough regional banks or facilities such as building societies, where those who serve local people understand their needs. People do not want to be faced with a computer that simply says no. If anywhere needs a healthy local banking system in which local people feel included, it is Stoke-on-Trent—as well as Norfolk, of course. We need small businesses to be able to access loans and homebuyers to be able to secure mortgages from those who understand the people they are serving, and whose bottom line is helping their community, rather than maximum profit.
In our quest for economic growth, we know that the biggest growth sector is small businesses, which represent more than 95% of all business, yet high street banks are not lending to them because they represent the highest risk levels. Many small businesses need to borrow to grow, and the current options are not adequate, so let us enable the smaller challenger banks and community development finance institutions to flourish, and make it easier for building societies to lend more to first-time buyers.
Building societies offer a huge opportunity. They are communities paying for the community, which matters hugely in places like Stoke-on-Trent where there is a great sense of place and pride and people want to help each other. Building societies can offer more to the community than high street banks because they have a social mission. I recently spoke to Hanley Economic building society in my constituency, and it shared its plans to use funds from dormant accounts to invest in local projects. It still protects the dormant account holder 100%, but in the meantime wants to use the business to make a difference in Stoke-on-Trent. It makes sense, because it uses local people’s money to invest in local projects.
Modernising the legislation on building societies is long overdue. Building societies were founded to help working people to own a home of their own and are an essential part of our communities. In order to be sustainable, building societies need to be allowed to grow, at least at the pace of the rest of the sector. In order to do that, they need to lend, but without the retail funding that the Bill would allow, they cannot do so effectively. Other sectors, whether that be mutuals or friendly societies, have had similar updates to bring their regulation in line with competition in the sector, so this is a crucial opportunity to enable building societies to do the same.
The Bill is an important starting point, and primary legislation is needed, but as the economic landscape changes building societies need the opportunity to remain competitive, so secondary legislation will be necessary to ensure that the legal framework is up to date. That includes measures to tidy up anomalies in the 1986 Act. One long overdue piece of legal housekeeping is to make the directors’ retirement age provisions in the Act explicitly consistent with the Equalities Act 2010. Section 60(8) of the 1986 Act states that the normal retirement age for a director of a building society is 70. A retirement age for plcs used to be set out in the Companies Act, but after the Equality Act 2010 outlawed age discrimination, the provision was deleted from the Companies Act. Nevertheless, the statutory normal retirement age has not been removed from the 1986 Act.
It may seem like a silly example, but it currently means that there are two contradictory statutory provisions. It would be much better if the retirement-age provisions of the 1986 Act were removed, as has happened for plcs. Simply because a director has just had their 70th birthday—I feel this personally—does not mean they are no longer competent. They have huge amounts of experience, they understand the market, and firing them would be demonstrably wrong for the business.
The Bill will support building societies to better weather periods of financial stress and help to minimise risk in the banking sector. Building societies have around 1,300 branches. As we heard earlier, that is down by around a fifth compared with 2015, but the number of bank branches has declined even faster, more than halving since 2015, so there is a real need for more locally based lending in communities throughout the country, as well as more encouragement of savings that stay in the community to support lending.
The changes in the Bill will help to level the playing field for building societies to compete more fairly with banks, and will support them to do more lending. Crucially, as the building society sector directs a greater proportion of lending to first-time buyers compared with banks, that will benefit more people looking to get on to the housing ladder. Increased lending is essential to the UK’s future prosperity and economic growth.
In 2021, the Bank of England launched a project called “Strong and Simple”, the aim of which was simplification and which goes to the heart of what I was saying earlier. Smaller building societies, and smaller banks and other lending institutions, spend far too much of their time having to comply with regulations that were written for high street banks and large global billion-pound or billion-dollar businesses. If things were made less onerous for them, they could innovate more and proliferate throughout the country.
“A strong and simple prudential framework for non-systemic banks and building societies”, published by the Prudential Regulation Authority, set out a vision for simplifying the prudential requirements for smaller, domestic-focused banks and building societies while maintaining those firms’ resilience. The invitation to comment seems to have met with resistance from the risk-averse industry, which in my view is based on penalising the minnows while protecting the giants, so inertia reigns and progress is slow.
I hope that small changes such as those proposed today to make for fairer competition will be the forerunner of larger reforms, such as a new framework for small domestic deposit takers that will enable the financial services sector to embrace change for the benefit of the most marginalised and under-served communities and businesses.
Mrs Natalie Elphicke (Dover) (Con)
I am pleased to follow my hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon), who made an excellent case for the importance of both the local aspect of building societies and the way in which they help people in her community, and other people in deprived communities who need to get on to the housing ladder.
I congratulate the hon. Member for Sunderland Central (Julie Elliott) on her good fortune in securing the top slot in the ballot, which is like winning the lottery for us parliamentarians on the Back Benches. Her choice of Bill is a tribute to the seriousness with which she has taken that good fortune and that responsibility. The Bill is important to my constituents in Dover and Deal and the local villages, and it will have an impact on the whole country, which really matters.
I strongly welcome the Bill’s aims: to begin to level the playing field between banks and building societies by updating the funding rules for building societies—which will enable them, as we have heard, to raise additional capital, and will open up competition for the benefit of customers in the mortgage and savings markets while retaining that critical mutual model, and without reducing financial stability—and also to modernise arrangements for meetings and the execution of deeds.
I am a proud member of Principality building society. I served for six years as a main board director and chaired the group risk committee. I have a passion for the importance of mutuals in general and building societies in particular. We have heard of other mutuals and other not-for-profit organisations such as housing associations, and I agree with what was said by my hon. Friend the Member for Mid Norfolk (George Freeman), but building societies are vital in having purpose as well as, for instance, providing funds.
During my time at Principality I faced an annual re-election to the board at the annual general meeting, as did every other board director, including the chief executive. Every year now, as a member of the building society, if I am unable to attend the AGM in person I can vote electronically. That annual act of receiving and responding to the AGM papers connects me directly and personally to my building society. I enjoy looking at the papers and considering the performance and the objectives of the society, and reading about the current board members.
Let me turn first to the Bill’s proposal to allow members to attend and speak at AGMs remotely, as well as to vote. Hybrid and, indeed, virtual-only meetings have become more common since covid. It will be important to consider how a decision to use hybrid arrangements will be made, and who will make it. For example, will members be consulted? Will it be the sole decision of the chief executive, or will it be a decision for the whole board?
It will be important to ensure that a decision to proceed with virtual arrangements does not diminish effective participation, and that the decision is not made for other reasons, such as to cut costs or to hold an AGM somewhere more difficult for members to get to, on the basis that they can participate virtually. This particularly matters because, as the House has recognised, physical attendance has a special value.
It should be noted that, in this Chamber, it is perfectly possible to have virtual debates, virtual questioning of Ministers and even virtual voting, all of which happened during the covid pandemic, but we now meet in person, debate in person, question Ministers in person and, over many hours and often late into the evening, vote in person. Although often considered, further modernisation of this place has been rejected. Many Members may share the view that more could be done to modernise Parliament further, but it must be noted that being together in one place has particular benefits that carry much weight.
On Lords amendment 22B to the Levelling-up and Regeneration Bill, we recently voted not to allow council meetings to be held with virtual participation. The basis of the Government’s position, set out by Earl Howe in their lordships’ House, included the need for councillors to interact with citizens and to be held accountable.
When I was a board member at Principality, I was subject to the scrutiny of the members who attended the AGM and the interaction and engagement that comes with that. I enjoyed and looked forward to those AGMs, which were well organised and well attended. Year after year, members would come to chat and have a cup of tea with the board of directors, which was really important.
I remember one of my regulars, Mrs Jones, who would come along with Mr Jones, who said rather less. Mrs Jones would invariably take me to task on the rate of interest on savings, asking why it could not be higher. Members would comment on financial performance and the savings rate, and many took huge interest and pride in the building society’s purpose and passion, be that the commitment to first-time buyers or the commitment to building homes.
Principality became the first building society in recent times to put “build” back into “building society.” Building societies are rooted in building homes for home ownership. I championed this renaissance at Principality, with the Ely Mill development creating quality, affordable homes and hundreds of new jobs on a brownfield industrial site in Cardiff. The first-of-its-kind project was led by Principality Commercial and the Welsh Government, leading the way for other building societies to consider how they could reconnect with their house building roots. The project was an exemplar in how to remediate brownfield land in a way that captures value and improves viability for development, and it showed again how the community purpose, focus and interest brought forward by being a building society rooted, embedded and committed to its community can make a difference.
I know at first hand that the discussions and feedback at an AGM are every bit as important for an effective board as the discussions and feedback we might have at meetings with our constituents, or in the Lobbies and corridors of Parliament, are for us. Although the provision to allow hybrid AGMs is a welcome step forward, we should not ignore the caution or concern to ensure that such changes improve, and do not detract from, engagement, all the more so because, while companies are already doing this, a building society is not just another company. It is something very special and very different. That difference means engagement, connection and participation with members. That is at the heart—in the very DNA—of what it means to be a building society.
The experience of companies has not always been to the benefit of shareholder participation. Indeed, in 2022 the Financial Reporting Council issued guidance for best practice in remote corporate meetings, with a particular focus on annual general meetings. The guidance provides helpful insights into the sorts of issues that may be beneficial for securing effective hybrid participation, including ensuring that virtual moderation is transparent, that any character limit for text questions is reasonable, and that there is fair representation between questions asked virtually and in person. If building societies choose to exercise that virtual opportunity, it will be important that they do so in line with similar best practice and their core values. They must never miss the wisdom and accountability that come from building society members such as Mrs Jones.
Clause 3 is a long-overdue amendment to align the execution of documents for building societies with that of companies. It will be heartily welcomed by company secretaries and lawyers alike. I must say, as a former transactional lawyer in banking and finance, that ensuring that the right authorities are in place, that the right people under those authorities sign the documents, and that the documents are completed in the right way, could not be more important. They are not legal unless that happens. As we consign those heavy seals to legal history, I look forward to them re-emerging in their new life as doorstops and bookends.
Let me turn to clause 1 on the funding structures of building societies. Building societies support a great number of our constituents, as we have heard. There are around 26 million customers of the 42 building societies, ably represented by the Building Societies Association. Some of those building societies are large and very familiar household names, such as Nationwide, while some are less well known nationally. Many have geographical names, such as Leeds Building Society, Coventry Building Society, the Principality, the West Brom and many others. That local aspect is key to understanding what makes building societies so special. They are not just mutual; they are rooted firmly in and for communities.
The funding structure with which building societies began, which has evolved—and the further evolution of which we are debating today—was not that of a bank. The description of their history has been set out fully and ably by the hon. Member for Sunderland Central. The clue, of course, is in the name: the building society. They were clubs of ordinary people who came together for a purpose: to get a home of their own. What an extraordinary and wonderful purpose. How very relevant that is today, as it ever was. The whole House knows that we are not building enough homes, and that the rental market is in dire need of urgent reform and, indeed, of reduction in favour of home ownership and affordable rented housing. Surely we must be due a revival of co-operative, mutual housing delivery that promotes and enables the funding and building of homes just like those early building societies. That may be something to consider further in Committee.
The Bill has secured cross-party support. In that spirit, I echo the words of the first Labour Prime Minister, Ramsay MacDonald, who said that no movement of co-operative self-help is more worthy of support than that of the building societies. He said:
“A house should be an expression of a personality, and wherever it is possible it ought to be owned, not merely rented. Would that every workman could own his own house, just as he owns his clothes.”
Those words resonate through the decades.
As we have heard, it is on the Conservative Benches that there has been a long-standing commitment to mutuality. The Conservative Prime Minister Mr Stanley Baldwin wrote of the expansion of the building societies movement that councils should use the powers of co-operation enabled by the Chamberlain Act to work with building societies: imagine—local authorities working closely with building societies to deliver homes for local people. He wrote:
“They afford abundant evidence of the growing popularity of the Building Society as a medium for the investment of savings, and of the success which has been achieved in the encouragement of thrift and independence, which was one of the main objectives of the founders of the movement. These figures indicate also a steady increase of the number of those who are becoming owners of their own homes… The work and aims of the Building Societies will commend themselves to all thinking people.”
How right he was.
As we look at this Bill, we should have firmly in the front of our minds those purposive elements of access to home ownership for working people to have a home of their own, and the public and private benefits of savings, thrift and independence; they are as relevant today as they ever were, and solutions to such issues for ordinary working people are needed as much as ever. Linking savings and home ownership is so important. Indeed, during my time at Principality I was pleased to have the support of the Treasury Committee Chair, my hon. Friend the Member for West Worcestershire (Harriett Baldwin), in my work to promote a building society ISA, which became the help to buy ISA, to make that link through a Government-backed housing deposit savings scheme.
Although building societies strive to maintain a distinct and clear purpose and function, the current regulatory and legal framework puts them at a disadvantage to the dominantly financial purposes of banks. Today we are looking at what the Bill will do to address that disadvantage and level the playing field, but I encourage Members to consider how they too might lead the way. In Dover and Deal, we have a proud tradition of MPs and mayors being directly involved in the building society movement. It was a mayor of Dover, William Clarke, who set up the Dover Investment and Mutual Building Society—one of the early terminating societies that we heard about earlier—and it was a Member of Parliament, Sir Brook Bridges, who headed the Dover Cottage Building and Improvement Society, based in Buckland in Dover. Local people and businesses have been involved throughout the history of the movement in Dover and east Kent.
In 1846, the Dover and East Kent Building Society and the Dover Investment and Mutual Building Society felt in competition with each another—at one point, there was much rivalry between different organisations. As the movement developed, there was also the establishment in 1850 of the Dover Permanent Benefit Society, which took in the Dover Cottage Building and Improvement Society that had been set up by Sir Brook Bridges MP some years before. The list goes on, with examples of people’s active engagement, active leadership, and active participation in creating, leading and delivering mutual models based and embedded in the communities they represent. All Members of Parliament and those in local governance roles have that opportunity to lead, establish and show the way. I very much commend the excellent history of those building societies in The Dover Historian—produced by local historian Lorraine Sencicle—as an excellent insight into the development and role of people and places for the benefit of providing housing.
Let me turn to today’s changes and the matter of levelling the playing field. The banking market dominates the mortgage markets but that was not always the case. As recently as the early 1980s, building societies held the dominant position in the mortgage market. Liberalisation of the banking market during the 1980s created a massive change in participation in the mortgage market by the banks and increased mortgage fund availability. But now a small number of players dominate the market. Lloyds Banking Group is the biggest mortgage lender by outstanding balances in 2022; it has a 19% market share of mortgages, which is nearly one in five mortgages across the country. The net effect of the changes was a near-reversal of the position of dominance of the building societies and that was a result of the financial market liberalisations and changes in legislation and regulation. That is to the detriment of competition, price and availability for customers.
The Bill will go some way to levelling the playing field between building societies and banks but there is more to do. Let us consider a responsibly run financial entity like Principality with its approval for running its own internal risk ratings basis. That means it is able to use its internal models to determine the risk rate assets and can decide, on the basis of these highly technical professional models, how much capital it needs to cover its risk. It can do that; it does not need to follow the standard one-size-fits-all for other organisations. This is a tough regulatory hurdle requiring detailed and extensive engagement with the PRA and the Bank of England, and I can say at first hand that it is a tough threshold requiring forensic and detailed work because I made it one of my key priorities to help secure that approval when I chaired the group risk committee at Principality. It is taken very seriously and only responsibly run financial entities with very good technical and risk management are allowed to do that.
We should compare that with other banks such as Metro Bank, which has been a failing bank due to poor financial controls and inadequate systems, including a serious accounting scandal. Time and again Metro has been on the financial brink so no wonder it has been rejected for its AIRB—advanced internal rating-based—approval. For too long successive Governments have not backed our established responsible building sector movement and instead have favoured failing or second-rate challenger banks. I hope this matter will be explored further in Committee, but I also hope the Minister will reflect further on it.
Turning to deposit funding, the context of clause 1 is that building societies must fund 50% of their funds from customer deposits—in other words, from customer savings accounts. As we have heard, the Bill does not change the percentage but does propose to change the calculation for three funding types. This will enable building societies to go further towards the 50% threshold than currently; it will give them greater flexibility and allow them to better manage their funding streams and the price and availability of products in the interests of both the customer and competition.
However, the current dominant deposit funding approach to customer savings that applies to building societies still puts building societies at a disadvantage to banks in other ways that are not fully taken into account. The Financial Services Compensation Scheme operates on the basis of size of deposits rather than size of the risk. That disadvantages building societies because they are financed largely by their deposits while the banks are financed largely by their wholesale markets. Building societies will have more deposits and therefore will have a larger amount of deposits with regard to their overall liabilities under the scheme.
Alongside today’s amendments, I hope the Bill Committee will consider the operation of the Financial Services Compensation Scheme to level the playing field for building societies, including increasing the deposit protection amount from £85,000 to £100,000 to capture more accounts, given the role of building societies in having savers; to provide better and separate protection for small and medium-sized businesses, which should be funded by those who provide SME banking services; and to provide faster access for customers in getting hold of their compensation when there is a failure, by funding it from the Bank of England, with recovery to follow either from the failed entity or, if necessary, the FSCS levies.
Finally, I will comment on the three proposed exceptions to the funding limit that we are addressing today. These will enable building societies to raise additional capital and open up competition for the benefit of customers in the mortgage and savings market, while retaining their mutual model and without reducing financial stability. The first change is to exclude the Bank of England’s support funds from the funding limits. Those funds are made available precisely for the purpose of managing financial stress events. They should not artificially dilute the calculation of savings ratios that are held by the building society. The amendment in the Bill will address that issue.
The third exception is to end the current double counting of sale and purchase agreements that support greater liquidity in challenging markets. That means that building societies will be able to better test and manage liquidity in a situation where there is a market event to which they will apply those sale and purchase of asset agreements. The second exception is to exclude financial instruments that are structured to act as a form of equity for regulated capital purposes, including—under the latest capital rules—core capital deferred shares, which are a form of common equity tier 1. Put simply, it is a form of capital raising that is entirely consistent with the mutual ethos and strengthens, rather than dilutes, the regulatory core equity limits required for financial stability. It brings in more capital to the building society, enabling it to do more for customers.
There is undoubtedly more scope for permanent mutual shares and bonds to bring significant long-term investment into building societies, housing and other assets. That has happened in some other countries, such as Australia. I understand that the Treasury has assessed that the overall effect of those three changes in relation to capital raising may be modest—but they should not be. There is an opportunity for a significant expansion of mutual funding structures. I hope that that will be considered further in Committee, including further steps to level the playing field and introduce effective competition from well-run and well-capitalised building societies.
I am grateful to the hon. Member for Sunderland Central for introducing this Bill, which I strongly support. As she has said, it has the support of Government, the Building Societies Association, and the sector and its members—it will be helpful. I would be very pleased to support the hon. Lady’s work in Committee if that would be helpful to her.
Nicola Richards (West Bromwich East) (Con)
I extend my thanks to the hon. Member for Sunderland Central (Julie Elliott) for bringing this Bill before the House. It is an honour to follow my hon. Friend the Member for Dover (Mrs Elphicke), who made a number of excellent points.
Across the country, building societies have a fascinating tale to tell about how they have become part of the social and economic fabric of the area. In my constituency of West Bromwich East, we have the headquarters of the West Brom, as it is now known, but myself and my constituents still refer to it as the West Bromwich building society. I must declare an interest: like many of my constituents, I have had a savings account with that building society since I was a child. I still have that little purple book.
The West Brom was originally called the Co-operative Steelworkers’ Society of West Bromwich. It was founded on St George’s day in 1849 by 20 local citizens who appealed for people to avail themselves of the advantages of the society and thereby become their own landlords. The initial gathering of founding members took place at the former Paradise Street Methodist chapel in West Bromwich, marking the establishment of one of the earliest building societies of its kind. It comes as absolutely no surprise to me at all that the people of West Bromwich East, just like those in the rest of the Black Country, have a strong history of being innovative and respecting hard work, independence and thrift. The society aimed to enable its members to acquire property from the fruits of their own honest industry and frugality, from a common fund raised by members’ contributions paid fortnightly, together with a facility to provide the safe deposit of money in large or small sums, as either temporary or permanent investments.
Over the years, the West Brom continued to grow and flourish amid periods of economic prosperity and a rise in demand for housing in the Black Country. It is worthy of mention that in 1881, a time when there were only 946 building societies across England and Wales boasting an average membership of 330 and receipts totalling just over £17,000, the West Brom stood out with over 2,500 members and an income exceeding £60,000.
In 1923, the Prime Minister Neville Chamberlain introduced the Housing Act 1923, which incentivised the private sector to engage in the extensive construction of housing, which was desperately needed. As a result, unlike its neighbouring areas, the town of West Bromwich experienced relatively low rates of unemployment during the depression, leading to strong support for building societies such as the West Bromwich. The West Bromwich has always been seen as one of the best managed and most successful societies. Its reputation for prudent lending and sound management enabled it to grow and consolidate its position during world war two and the post-war years, and to weather the storms of the early 1990s recession and property market slump.
Since its establishment, West Bromwich Building Society has undergone several relocations on West Bromwich high street before settling into its purpose-built headquarters at Providence Place in West Bromwich in 2016. One of the first constituency visits I made after I was elected to this place in 2019 was to the West Brom, where I was delighted to meet chief executive Jonathan Westhoff and learn about its enduring focus as a traditional building society. It provides a secure haven for its savers’ funds and enables individuals to achieve the ultimate goal of home ownership. As a mutual entity, those principles have guided the West Brom since its inception in 1849.
Like all building societies, the principal motivation behind every decision and course of action that the West Brom takes has been the wellbeing of its members. Through initiatives such as the community grant scheme and dedicated funding, the West Brom has significantly contributed to our local communities in West Bromwich, the Black Country and the wider west midlands. I am sure that many other hon. Members will have similar stories to tell about their local building societies in their constituencies—we have heard many already today. I am sure that many will continue to hold accounts with them.
An example of how much local people value West Bromwich Building Society is that last July, the Black Country Living Museum opened its own branch of the West Brom, which is set in 1949 and replicates the former premises in Cape Hill, Smethwick. I went there last summer, and it was amazing to see the beautiful old building, with the little yellow books. It is a great way to teach children about the history of our local community, which we are really proud of, and about financial incentives to save and home ownership.
The history of our local building societies and their success in supporting their members in home ownership show us that this model continues to endure and deliver for our constituents. But all such institutions must evolve. Given the illustrious history of many of our building societies, as I just outlined, it is only right that we continue to support them, as the Bill does. I am pleased that the Government are supporting it, as it will go a long way to supporting the nearly 23.4 million investors and 3.5 million borrowers who are members of the 42 building societies in the UK. I know that many people in my constituency and across the country rely on building societies for that most important function: providing their mortgage. Although significantly fewer people use building societies now than pre-1997, building societies still account for more than a fifth of mortgages. I have heard for myself just how vital a community asset these financial institutions are to so many people.
I know that the Building Societies Association supports the Bill and is especially pleased that the three types of funding outlined in it are to be excluded from the 50% member funding limit in the 1986 Act. Although the Bill will not make a drastic change to the operation of our building societies, it will allow them to raise a higher proportion of their funds from sources other than member savings. It has met with the approval of the financial industry, and it follows a Government consultation published in December 2021, the response to which was published in 2022. It received input from three building societies, with broad consensus that this is the right change to make, especially as it will allow more flexibility in accessing liquidity.
The Bill will allow building societies to continue to play their unique role and maintain the gap between how they and the banks operate. It will reassure consumers and the industry that we support this important part of our financial services industry, equipping building societies as they embrace the changing way we save, with increasing online options.
The example of West Bromwich is just one of many across our country. I look forward to continuing to work with the industry to do what I can to support it in this place. I am pleased that the Government have listened to the results of the consultation and are continuing to back our building societies. This Bill is the perfect demonstration of that.
James Daly (Bury North) (Con)
I congratulate the hon. Member for Sunderland Central (Julie Elliott) on bringing her Bill to the House. I refer to my entry in the Register of Members’ Financial Interests as a practising solicitor and a partner in a firm of solicitors.
When MPs stand up and say “Everything in my speech has already been said,” it feels as if they are claiming the credit for things that they have not said. But having followed such outstanding speeches—especially from my hon. Friend the Member for Dover (Mrs Elphicke), who set out the technical case for why the Bill is needed—I will keep my remarks to what I would call the social and cultural case for building societies.
In a debate on another subject in this House, I have talked about the Gigg Lane football stadium in my constituency. What does that have to do with building societies? Well, Gigg Lane was bought by a person in a capitalist society, but it is an institution of cultural and social value to the area in which it sits. The question I posed to the Minister in that debate was whether we view sporting institutions in the same way we view a branch of Tesco or Sainsbury’s—great businesses though they are—or whether businesses and institutions that act within the financial market but have a great history and social contribution to make to their local area should be viewed somewhat differently. There is an argument to make about building societies in that respect.
This debate makes me nostalgic, because my university days were spent behind the counter at the Yorkshire Building Society in Huddersfield, where I worked for many years. My hon. Friend the Member for Dover spoke about being a board member of a building society; I know from my experience behind the counter talking to people that building societies are important as not only financial but social institutions. I used to see the same people coming in every day, or certainly every week. It was about company; it was about community; it was about family. That has been reflected in hon. Members’ remarks today.
The building society is an institution that has been in place since Ketley’s was founded in 1775, as the hon. Member for Sunderland Central noted. It is an institution that has changed to reflect society, but as politicians we must do everything we can to protect it. The Bill is fundamentally about fairness in the market in which building societies carry out their business. It is about allowing them not only to do the social good that they have done for 250 years, but to survive. We could have a huge debate about these issues.
The 1986 Act effectively allowed societies to demutualise and become fully fledged banks. We saw the and Abbey National do that. Speaking as a as a capitalist, it should be a good thing to have freedom of choice within the market—but is it? We have seen what has happened to the market since then, as my hon. Friend the Member for Dover ably set out. Has it benefited the banking sector? Has it benefited the country? Has it benefited the people who were members of those great institutions? Where I am from in Huddersfield, Halifax was a huge employer and a huge cultural institution, and sadly it has been somewhat diminished as a result of the actions taken and the opportunities that the 1986 Act gave it. This piece of legislation is addressing some of the problems that the previous Act put in place.
It is important to reflect briefly on the history of building societies, as the hon. Member for Sunderland Central ably did. They developed as a response to societal changes and, as has been said, they were a means to allow people with ambition, who wanted to own their own home, access to capital to do that. It was a positive; it was what I would call Disraelian conservatism. I am nowhere near as articulate as my hon. Friend the Member for Mid Norfolk (George Freeman) in this respect, but to me, Disraelian conservatism says that there are certain enduring institutions within society that Government and the state must do everything to protect. Those institutions can be viewed as the monarchy and all types of things, but I think building societies fall within that category. They do so much social good that we must be somewhat—and I hate using this word—protectionist to ensure that they are allowed to flourish. If we look at the development of societies and changes within our society, self-terminating building societies, which were terminated when all members had a house, were still going up until 1980, when the First Salisbury and District Perfect Thrift—now that is a great name for a building society—came to an end.
We have seen legislation on this subject. We saw the Building Societies Act 1874, which provided legislative backing to allow for the growth of societies, and by 1910 there were 1,723 societies in existence across the country. After that, building societies went into decline, but we saw another period of expansion in the ’60s and ’70s; the Building Societies Act 1962, which granted further powers to building societies, was the charger for that. We can see that legislative amendments provide building societies with the opportunity to develop their businesses, to thrive and to succeed in the market in which they sit.
I think we have 42 or 43 building societies left, and it is fundamental that we allow those building societies to thrive. We have talked at length about banking in rural areas, but I also have concerns about banking in somewhat urban areas such as mine and, I am sure, in other constituencies. In Ramsbottom, a great town within my constituency, there are no banks on the high street now. We have a banking hub, but I am afraid a banking hub does not provide the social benefit that a building society does. As a free-marketeer capitalist I am constantly looking at the profit of a Barclays Bank, or any bank, and at its social good. If an institution has a profit of £1.6 billion, which I think Barclays did for the last quarter of 2023, I wonder why there is not capacity within the system to maintain a branch presence in many towns throughout the country. Building societies, in their social and moral mission, are fundamental to our financial sector.
I do not intend to make further comments, because everything has been articulately set out, but we are blessed in this country to have institutions that have their origin in the mid-1700s and have developed and responded to social and political need. Let us bear in mind that building societies effectively increased the franchise, because the only people who could vote in the 1800s were people who owned a house. Those who were voting would not have been able to do so unless building societies had lent them the money, so they have had a huge impact in every way, shape and form. This amendment to the 1986 Act is about fairness, competition and benefiting first time buyers. It has much to recommend it and I thoroughly support it.
Anna Firth (Southend West) (Con)
I will keep my comments brief, not least because we have had so many learned and expert speeches, particularly from my hon. Friends the Members for Dover (Mrs Elphicke) and for Mid Norfolk (George Freeman). That is not the only reason I intend to be brief. We have many important Bills that we want to discuss today, not least, of course, my own Pet Abduction Bill, which is coming next.
I congratulate the hon. Member for Sunderland Central (Julie Elliott) on introducing this important piece of legislation. I fully support it. I declare an interest immediately, as I have had a number of mortgages over my time. We have a mortgage with the Halifax and of course we have had various savings accounts, although none with building societies at the moment.
Building societies fulfil a fantastic purpose. They are often, as we have heard today, the last institution standing on many high streets, still providing a face-to-face banking service. That is exactly what is happening in my constituency in Leigh-on-Sea, which I shall come on to. I welcome the Bill because it aims to put the building societies on a more level playing field with other retail deposit takers, such as banks, particularly on their capital raising and corporate governance requirements. It will make them more competitive and they will therefore be more effective in the financial services sector. Not only will building societies offer more to consumers and my constituents, but they will offer better support to their members. I can only see positives, particularly given everything we have heard about the support that building societies give to the first-time buyer and have given for many, many years.
I am sure that we all have our stories to tell about how exciting it was when we got our first mortgage and the keys to our very first place—a flat, in my case—and about what an important step that was for us all. After someone gets their first job and starts to pay tax and make a first contribution to society and the economy, the next thing is getting their first home and becoming a stakeholder in our property-owning democracy. Sadly, that experience is not available for as many young people as it was in my time. That is a crying shame, and I hope that the Bill will lead to building societies beginning to expand even more into that first-time market.
What I really want to talk about is the fact that in recent years bank branches have closed in Southend West. I do not have a single bank in my constituency offering that essential face-to-face service. I only have the Nationwide, a fantastic building society on Leigh Broadway.
Sir Robert Buckland (South Swindon) (Con)
As the Member of Parliament for Nationwide, whose headquarters are in Swindon, I am delighted that my hon. Friend mentions that building society, its leading role in mutuality in this country and its commitment to high street branches, which are a vital lifeline for our community. I am grateful to her.
Anna Firth
I am grateful to my right hon. and learned Friend for his intervention. Nationwide does so much in all constituencies where there is a branch. My Nationwide in Leigh-on-Sea has a dedicated cost of living expert who is helping the most vulnerable members of our society navigate the challenges caused by the cost of living crisis. The branch is also going out of its way to ensure that people who are not as tech savvy as some of the rest of us, particularly the elderly—I have a very elderly constituency on in Leigh-on-Sea—get that extra help. They have tea and tech events, which are very popular, that teach people how to use online banking and apps to manage their money. Digital exclusion is a real problem in our society, and it is so encouraging that the building societies are doing so much more. I could wax lyrical about all the other things that the Nationwide is doing, but because of the Bill that is up next, I am not going to.
I will end on the need for face-to-face banking services. The banking hub is a very good model, but none of the banks will provide such a hub if there is a building society that provides face-to-face services. But one should not exclude the other. I have been campaigning on this issue, but this is a fitting moment to pay tribute to my hon. Friend the Member for Derbyshire Dales (Miss Dines) for her “Save Our Banks” campaign, which I wholeheartedly endorse.
I fully support the Bill and thank the hon. Member for Sunderland Central for introducing it. I hope it will ensure that building societies can do even more for their local communities, not just in Southend West but across the whole country.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on bringing this important Bill to the House for debate. It is very lucky to get the first slot in the private Member’s Bill ballot, but it also takes a lot of work to find a Bill that generates such cross-party support and talks to such an important issue, as we have heard today. I hope you will indulge me for a minute, Madam Deputy Speaker, while I speak about the fabulous work that my hon. Friend has done in the House, because it is not often that we get to talk about and congratulate our comrades in quite this way.
My hon. Friend, who has been in the House since 2010, has done valuable work on the all-party parliamentary group on state pension inequality for women, which I am sure everyone will recognise. Before she was elected to the House, she worked closely with the National Asthma Campaign to ensure that life was easier for people who suffer from asthma, as I do. I commend her for that and for all the work she did with the GMB to change the law around the compensation paid to victims of asbestos-related diseases. This is, then, not the first piece of legislation she has worked on, but it is an important Bill and it shows how valued she is as a Member of the House.
I know how closely my hon. Friend has worked with civil servants, Ministers and the Treasury to produce a Bill that has such cross-party support and of which Treasury Ministers approve. From my dealings with them, I know that that is rare. I am delighted to say that the Opposition will back the Bill wholeheartedly today. I also acknowledge the important work of Labour’s sister party the Co-operative party, and the wider mutual sector, including the Building Societies Association and Nationwide. They have spent a great deal of time feeding into the Bill.
As has been said throughout the debate, building societies have a long and proud tradition of supporting working people to access affordable finance. The sector continues to play an invaluable role in promoting financial responsibility and resilience among its members, including by supporting young families to take their first step on to the housing ladder.
Building societies direct a greater proportion of their lending to first-time buyers than any other part of the financial services sector. They supported 70,000 first-time buyers in the first three quarters of 2023, and since 2020 building societies have supported 360,000 first-time buyers—that is more than £63 billion provided to help people to buy their first homes. The Bill is so important because it will empower societies across the UK to raise more funds and help our vulnerable constituents.
As my hon. Friend the Member for Sunderland Central set out in her compelling speech, her Bill could unlock significant additional lending capacity from building societies to support more working people to become homeowners. The hon. Member for Mid Norfolk (George Freeman) talked about how every £10 billion of new lending capacity, secured through the changes in the Bill, will potentially support an additional 20,000 first-time buyers. I agreed wholeheartedly with everything he said; dare I say, some of his comments sounded quite socialist—[Interruption.] I see he does not agree with me about that.
The debate has been interesting because I have agreed with lots of the Members who have spoken. In fact, the hon. Member for Dover (Mrs Elphicke) even quoted the first Labour Prime Minister favourably. There are plenty of spaces on the Labour Benches if anyone ever wants to come across.
Building societies have never been more important in the UK’s economy and public life. As a result of the cost of living crisis, many families have, as has been noted, been forced to use their savings in the face of rising energy prices and food prices. But building societies have continued to support people to save and to build financial resilience during this very difficult period. They attracted £18.9 billion in cash savings during the first nine months of last year. They are bucking the trend of the decline in savings balances that we have seen across the wider sector. Building societies have proven resilient in the face of hardship.
Lots of Conservative Members spoke about the role that the sector played during the pandemic. Leeds building society, finding that the requests for mortgage deferrals had increased to 2,000 a day, increased its use of robotic process-automation technology to create a fully automated web form for customers. At Nationwide, a team of mortgage, technology and AI specialists trained the society’s virtual assistant, Arti, to handle common covid-related mortgage queries.
Such resilience has allowed the sector to support its members, whether through covid or the current cost of living crisis, which is why clause 1 of the Bill is so important. It will allow building societies to exclude from the funding limit funds accessed from the Bank of England in stress scenarios, types of loss-absorbing debt instruments, and sale and repurchase agreements. That will level the playing field with banks and provide an extra level of protection for buildings societies during times of financial crisis, so that they can continue to support their members for many decades to come.
As I mentioned, in recent years we have seen many building societies adapt to new challenges and adopt exciting technologies and digital ways of working. Principality building society has delivered an online mortgage payment holiday service in partnership with the fintech company Podium Solutions. The service allows members to access a mortgage holiday repayment calculator and an online application process to better understand their mortgage outcomes.
The changes introduced by clause 2, which would allow real-time virtual participation in annual general meetings, are long overdue. Building societies have proven time and time again their ability to innovate and adapt to changing consumer behaviour. I agree with what the hon. Member for Dover said about other places having moved on, but in Parliament we do it face to face. We should cater to changing consumer behaviours, and there is no reason to subject the sector to outdated restrictions that do not apply to the wider financial services sector.
Clause 3 paves the way for reducing the administrative burden in respect of executing documents. Similar provisions are already in place for banks. That is why I will enthusiastically support the Bill. Labour believes that further legislation is needed to level the playing field, secure the future of the sector and achieve our ambition of doubling the size of the mutual and co-operative sector, in which building societies play a critical part. That is why Labour has committed to requiring financial services regulators to report annually to Parliament on how they have considered the specific needs of mutuals, including building societies.
Labour recognises the Bill as an important step forward and will give it our full support today. I look forward to being on the same page as the Treasury Minister, he will be pleased to know. And a final word of congratulations to my hon. Friend the Member for Sunderland Central, who has done a tremendous job of putting together this important Bill.
The Financial Secretary to the Treasury (Nigel Huddleston)
I, too, congratulate the hon. Member for Sunderland Central (Julie Elliott) on, first, being lucky, and secondly, choosing to be impactful by introducing a Bill that will help to support the future growth and success of the mutuals sector. I understand that her husband, Andrew Fletcher, is in the Gallery today to observe her performance. I am sure he will be rightly proud of the work she is doing with others to make a real impact on people’s lives right across the country. I know that she is driven by a desire to support building societies so that they are able to compete on a level playing field with retail banks, and I am pleased to say that the Government share that desire. That message has also been clear from the Members’ speeches.
I will run through some of the comments we have heard—there were some excellent speeches. The speech by my hon. Friend the Member for Mid Norfolk (George Freeman), with his insights on Labour co-operativism and civic conservatism, was a true tour de force. As always, he spoke passionately about the importance of mutuals in rural areas. My hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon) spoke warmly about the importance of community banking and mutuals in more urban areas, reiterating the importance of those institutions right across the country. I agree completely with her comment about the contribution of the over-70s in society.
My hon. Friend the Member for Dover (Mrs Elphicke) spoke passionately and knowledgably about her experience with mutuals, and with Principality in particular. She raised points about the logistics of arranging virtual meetings and a few other matters. I will certainly ensure that the City Minister, my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), is aware of some of her comments. She spoke warmly about the human experience she had and about her interactions with Mr and Mrs Jones. In this sometimes remote area of banking, we are dealing still with human beings. In a rare experience, we also heard somebody volunteer to be a member of a Bill Committee.
My hon. Friend the Member for West Bromwich East (Nicola Richards) spoke of her affection for the West Brom and the role of mutuals in the west midlands, particularly in promoting and encouraging the habit of saving among young people and promoting home ownership via mortgages.
My hon. Friend the Member for Bury North (James Daly) laid out the strong case for the social and cultural impact of building societies. He spoke about nostalgia, but made it clear that we all need to work together to ensure that building societies and mutuals also have a thriving future.
My hon. Friend the Member for Southend West (Anna Firth) expressed her appreciation for the physical presence of so many building societies that are still on our high streets, particularly in the context of digital exclusion.
We want to ensure that building societies are supported so that they can continue to give people greater choice in where they put their savings, get their mortgage or, in some cases, open their current account. Today, I want to do two things. First, I will set out why the Government value the mutual sector, demonstrated by recent steps we have taken to ensure that legislation is updated so that they are able to grow, compete and succeed in the future. Of course, many have referred to the recent consultation on some of those matters. Secondly, I will briefly outline why the Government are fully supportive of the objectives and principles of the Bill, and I hope the hon. Member for Sunderland Central will set me right if I misinterpret the details of her Bill in any way.
The Government recognise the valuable contribution that mutual businesses play in the UK economy, as well as in the local communities in which they operate. Their unique ownership model means that those businesses are driven by the core values of openness and collaboration. Every member gets a vote and therefore a direct say in how the business operates. Given their unique ethos and desire to drive positive change in society, as well as the vital role they play in our economy, it is natural that the Government have committed to supporting the mutual sector to ensure their place in our future. For example, through the Financial Services and Markets Act 2023, the Government amended the Credit Unions Act 1979 so that, since last summer, credit unions in Great Britain have been able to offer a greater range of products and services.
To date, the Government have allocated £145 million in dormant asset funding to Fair4All Finance, which works to improve the availability of affordable credit, including through support for community finance providers, thereby strengthening the growth of credit unions. Moreover, last year the Government supported the private Member’s Bill of the hon. Member for Preston (Sir Mark Hendrick), which achieved Royal Assent in June 2023. The Government continue to develop a modern and supportive business environment and have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.
To further support the sector, the Government are also progressing secondary legislation changes to the Building Societies Act 1986, delivering on the Edinburgh reforms. Alongside this Bill, those changes will help to modernise the 1986 Act, helping building societies to grow and compete on a more level playing field with the retail banks.
The Government see this private Member’s Bill as a great way to support building societies, ensuring that they can compete with retail banks on a more level playing field while continuing to provide essential competition within the UK financial services sector. The Bill will deliver on key asks from the building societies sector. As the hon. Member for Sunderland Central set out, it makes provisions in three key areas: funds that can be disregarded by a building society for the purpose of calculating its wholesale funding limit; allowing real-time virtual member participation in building society meetings; and aligning provisions in relation to the execution of deeds and other documents with those of companies law. I will comment briefly on each of those.
The 1986 Act sets out building societies’ distinctive model and other legal requirements. Under the Act, building societies are required to obtain at least 50% of their funding from individual retail deposits, thus ensuring that the members are the primary owners. That funding limit is a key feature of building societies’ unique ownership model, ensuring that these businesses are mutually owned and run for the benefit of their members. While retaining that at-least-50% funding model, and thereby maintaining building societies’ unique characteristics and core values, this Bill will enable the exclusion of three key sources of funding from counting towards the wholesale funding limit, which are accessed or held for regulatory purposes. Those will be further specified by the Treasury in secondary legislation.
The other amendments the Bill makes to the 1986 Act relate to the modernisation of building societies’ corporate governance requirements, so that they can operate under the same modern governance flexibilities as companies. The first of those is an amendment to the 1986 Act to allow for the option of real-time virtual participation at building society meetings, which my hon. Friend the Member for Dover focused on in her speech. That change will help to modernise the day-to-day practices of these societies, promoting greater membership engagement and improving the accessibility of these meetings. This will be updated in line with rules for retail banks operating under the Companies Act 2006, thus ensuring that building societies and retail banks are afforded the same flexibilities.
The second amendment to building societies’ corporate governance requirements relates to common seals and the execution of documents. This Bill will provide the Treasury with the power to make secondary legislation to align the constitutional provisions in part 2 of the 1986 Act with updates to company law concerning common seals and the execution of documents. That will give building societies useful flexibilities that will ensure that they continue to operate on a level playing field with retail banks.
I have outlined the Government’s support for the private Member’s Bill brought forward by the hon. Member for Sunderland Central on Second Reading today, and I again congratulate her on it. We expect that the Bill will be greatly welcomed by the mutuals sector, and it clearly has support from Members across the House. The Government intend to work closely with the hon. Lady in progressing this legislation through Parliament. The Government’s goal, and the goal of this Bill, is to modernise the Building Societies Act 1986, so that building societies are able to scale, grow and succeed into the future. For those reasons, the Bill has the Government’s wholehearted support.
Julie Elliott
With the leave of the House, let me say what a pleasure it has been to speak in a debate in which everyone is on the same side—it is a refreshing change. It is not usual and the Minister must not think it will be the future of our confrontations. Let me thank so many Members for coming in this morning and taking part in the debate. All of them have given a slightly different perspective on why building societies are so important, and I want to refer to just a few of the points raised. I certainly did not expect this morning’s debate to contain so much political history, be it on civic Conservatism or Labour history. However, I have to inform the hon. Member for Mid Norfolk (George Freeman) that the clause IV to which I referred was clause IV of the new Labour party, under the leadership of the former right hon. Member for Sedgefield, which was introduced in 1995—a very different clause IV from the old one.
I also want to thank the hon. Member for Mid Norfolk for raising the issues of rural communities and villages. I come from a beautiful village called Whitburn, in the constituency of my hon. Friend and neighbour the Member for South Shields (Mrs Lewell-Buck), so I completely understand the way in which villages rely on the services of local shops and businesses. The hon. Member may not be surprised to learn that the more deprived parts of the country, most of which are in my constituency, face many of the same issues as rural communities.
I must also mention the contribution of the hon. Member for Dover (Mrs Elphicke), who has so much experience in this context. In fact, I first met her when she was doing her work in building societies. She has done a huge amount of work and probably understands the Bill better than anyone in the House, including me—this has been a sharp learning curve. It was nice that she quoted Ramsay MacDonald, the first Labour Prime Minister. As we have been presented with such an array of political history today, I should add that Monday will be the 100th anniversary of the first Labour Government.
As I said in my opening speech, this Bill is simple, straightforward and modernising. These are little measures that can make a massive difference, and I hope that when we discuss housing in the future, we can refer back to the difference they will make in freeing up more money and modernising the system to enable more people, particularly first-time buyers, to get on to the housing ladder.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).
Building Societies Act 1986 (Amendment) Bill
Wednesday 7th February 2024
(9 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Read Debate Ministerial Extracts
The Chair
Before we start, I have a few preliminary remarks. Please switch all electronic devices to silent. No food or drink is permitted in the sitting except for the water provided. Hansard colleagues would be grateful if Members could email their notes to hansardnotes@parliament.uk. The selection and grouping for today’s meeting is available online and in the room. No amendments have been tabled, and we will have a single debate on all clauses of the Bill.
Clause 1
The funding limit: funds to be disregarded
Question proposed, That the clause stand part of the Bill.
Julie Elliott (Sunderland Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hosie. I thank all hon. and right hon. Members for considering my Bill and taking the time to come to Committee, especially at this time on a Wednesday morning; it is unusual for a private Member’s Bill to attract this many people. I thank the Building Societies Association, which represents the building society sector and its 42 member building societies and seven credit unions. It has provided excellent support on the detail of the Bill and is why the sector thinks it is so important. I also thank the Co-operative party for its support, and Anne-Marie Griffiths in the Public Bill Office for her wealth of knowledge and for being there for not just me, but all those who were successful in the ballot; she is a font of knowledge and a credit to the Clerks of this House.
I welcome the support of the Government and the Minister for this legislation. It was announced as part of the Edinburgh reforms but fell off the legislative process, so I am proud to take up the Bill as a strong new chapter in the mutual and co-operative banking tradition. I am also grateful for the support of the Minister and his officials at His Majesty’s Treasury, especially Logan Cuthbert and Nicola Brown, for all their work preparing for the drafting of the Bill, and for ensuring that the voices of the building society sector are heard and its needs met in the Bill’s detail.
The purpose of the Bill is to bring the building society sector in line with the Companies Act 2006 in some important, specific respects, which will put the sector on a more level playing field with banks and ensure that it can remain comfortably solvent during times of economic pressure while accessing further sources of funding. I will not go through all the arguments that I made on Second Reading as to why the Bill is so important, but I will run through each clause, consider its effects and comment on issues raised on Second Reading.
I have already said that the Bill is an important development of the Labour and Co-operative tradition of working people supporting each other; in that vein, I am proud to have the support of the Co-operative party on the Bill. On Second Reading, the hon. Member for Mid Norfolk talked about how it is also an expression of civic conservatism. Although our readings of the Bill might be different, I am grateful to Members across the usual political divides for coming together to support a Bill that is so important for a sector that supports so many people in all our constituencies and can impact so many lives for the better.
We should take a brief look at the numbers. The building society sector has more than 26 million members and holds more than £352 billion of mortgage assets and more than £313 billion of savings from individuals. What is so great about the sector is the support that it gives to first-time buyers. In the first nine months of last year, building societies in the north-east and Cumbria supported 4,000 first-time buyers, and since 2020 they have lent £3.5 billion to first-time buyers alone—that is one of the things that particularly interested me in taking the Bill forward. It is estimated that for every £10 billion of new lending capacity the sector could support 20,000 new first-time buyers, so if we unlock billions with this Bill, as I think there is the potential to do, we can truly help lots of people.
Clause 1 affects those potential numbers more than any other in the Bill. It describes the funds that can be disregarded if the Bill passes, and amends section 7 of the Building Societies Act 1986. Currently, to operate as a building society—there are 42 in the UK—each society must ensure that a minimum of 50% of its funds is sourced from individual members. That minimum 50% wholesale funding limit ensures that the building societies continue to serve the members they were created for. The Bill does not seek to change the 50% limit, but clause 1(2) provides His Majesty’s Treasury the power to specify certain sources of funding to be disregarded from that measurement. The disregarded funding comprises
“amounts drawn by the society from a specified liquidity insurance facility provided by the Bank of England…amounts represented by specified debt instruments issued by the society with a view to maintaining the minimum requirement for own funds and eligible liabilities”
and
“sums received by the society under a sale and repurchase agreement entered into by the society with a view to complying with a specified PRA rule.”
It sounds like gobbledegook, but it really will make a big difference!
The specified liquidity insurance facilities are not named because it is incumbent on the Government of the day to name the particular source of funding building societies can access by reference to the detailed descriptions applying from time to time. By not naming one now, we allow future Governments to specify the relevant funds at that time via secondary legislation, meaning that the Government can be much more responsive to the sector’s needs, and adapt and change when necessary.
George Freeman (Mid Norfolk) (Con)
I congratulate the hon. Lady on everything she has done to bring the Bill to this point. All of us here, and many listening, will be aware of the appalling situation when the Northern Rock building society, a once great pillar of northern building, became something very different. Can she give any assurances that the Bill is designed to support the best of building societies, which are properly rooted in good, connected capital, rather than what we saw then?
Julie Elliott
I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.
The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.
The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.
Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.
The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with company law. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.
The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to speak to the Bill and, as always, to serve under your chairmanship, Mr Hosie. I congratulate the hon. Member for Sunderland Central on introducing it and on reaching Committee stage, which is no mean feat in this place for a private Member’s Bill.
It is clear from the hon. Member’s remarks that the Bill has the noble aim of supporting the future growth and success of the building society sector. As she said, it will do a lot for building societies, which have asked for this legislation—and the Government and the Treasury strongly support them. As my hon. Friend the Member for Mid Norfolk described, building societies are some of the best in the financial services sector for benefiting local connected communities, and that is the sort of activity we want to encourage.
The Bill will help by modernising legislation so that building societies can have more flexibility around their funding and certain corporate governance requirements. That delivers on the key asks from the sector. As the hon. Member for Sunderland Central said, it is rare that something gobbledegook can have a positive impact on people’s lives, but the technical amendments in the Bill—particularly around capital requirements, which I will explain briefly—will have a positive impact on the ability of building societies to contribute to their local communities in all our constituencies.
As member-owned financial institutions, the 42 building societies in this country work to support the financial resilience of communities throughout the length and breadth of the UK, because they encourage savings and responsible lending, and promote financial literacy and inclusion, which often gets lost. They also play a vital role in supporting their members to buy their own homes, and the hon. Member for Sunderland Central has spoken about the potential for the sector to further support first-time buyers. The Bill achieves all that by making provisions in three areas, which she has already set out, so I will give a shortened version.
First, the Bill amends section 7(3) of the 1986 Act. The year 1986 was a very—
Bim Afolami
Exactly—an auspicious year for me.
The Bill amends section 7(3) of the 1986 Act to exclude three specified sources of funding from the 50% wholesale funding limit for building societies. By excluding these sources of funding from the wholesale funding limit, building societies will be able to raise additional wholesale capital, which strengthens their arms to compete with retail banks while promoting competition within the financial services sector.
Mrs Natalie Elphicke (Dover) (Con)
My hon. Friend the Member for Mid Norfolk mentioned Northern Rock, which was a bank, not a building society, when it failed. Does the Minister agree that the provisions being brought in will allow greater access to capital so that building societies can flourish, while keeping in place the checks and balances that have made building societies so much better at being able to respond to the financial crisis than we saw with some of the banks?
Bim Afolami
It is worth explaining the dynamic, because it is not straightforward. In essence, the point of the Bill is to level the playing field between building societies and retail banks in this key area. Resilience, in terms of capital, will not be lower for building societies than for any of the retail banks with which we are all very familiar. That is the first point. The controls that are applied to retail banks by sophisticated people with sophisticated mechanisms will have the same capital requirements as building societies—so I agree with my hon. Friend.
Building societies will still be required to hold specified sources of funding for regulatory purposes. That is the key point. The reason we have the capital limits is that, if a shock happens—however rare or unusual that might be—we need to make sure that there is enough of a buffer of capital so that the building society or, indeed, the retail bank does not go bust. Over the last 15 years, we have been through a huge programme of reform to broadly increase the levels of capital by many multiples of what was required in the 2000s, so that that does not happen. Building societies will adhere to that in the same way as our retail banks. Moreover, building societies will still be required to ensure that at least 50% of their funding comes from their members—again, that is a critical way in which buildings societies are different from a typical retail bank—which ensures that the Bill has no impact on building societies’ important and unique ownership model.
Secondly, the Bill amends the 1986 Act to allow the option of real-time virtual member participation at building societies’ meetings, which, as everybody can appreciate, now happens across the corporate sector—it does not happen in Parliament, but that is for another day. This amendment can help to modernise the day-to-day practices of building societies, promoting wider membership engagement by making such meetings more accessible to a greater number of members. That matters particularly for building societies, because they have a membership model; the point is that members find them accessible and know what is going on.
Given that members can do things digitally and more flexibly in other areas of their lives, this small measure can have quite a big and positive impact on participation, but it is worth stressing that the decision on whether to hold hybrid meetings will be up to the members of each individual building society; the Government are not imposing the requirement for endless Zoom calls. If that is what people want, they can have them—they just have to vote in favour of making the relevant changes to the society’s rules by special resolution, which, if I recall my company law properly, requires passing a 75% threshold.
Thirdly and finally, the Bill will provide the Treasury with the powers to further align the constitutional provisions in part 2 of the 1986 Act that concern common seals and the execution of documents with modifications to company law. I do not need to explain to the Committee that common seals have sort of fallen out of general usage—although I have often fancied having one, because I think it would be rather fun to stamp various documents, rather than sign them. But that is now the past and we are bringing building societies into the modern day, which is positive.
Overall, the Bill will help to deliver important amendments to the Building Societies Act 1986 by modernising the legislation so that building societies can compete with retail banks, better serve their members and, to be perfectly frank, better serve the communities they are set up to support. The Government are fully committed to ensuring that all subsequent secondary legislation, which will be subject to parliamentary timetabling, is enacted as soon as possible. I commend the Bill to the Committee.
Julie Elliott
It is a pleasure to follow the Minister on an occasion when we all agree; it is an unusual situation. I thank everyone who has taken part in the debate and Members of all parties, officials and people in the building society sector for their support.
It has been a pleasure to take this Bill forward. If it becomes law, I hope it will make a real difference for all our constituents’ lives and enable more people to get a first foot on the housing ladder, which is so important to us all.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Building Societies Act 1986 (Amendment) Bill
Friday 19th April 2024
(7 months ago)
Commons ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
Julie Elliott (Sunderland Central) (Lab)
I beg to move amendment 2, page 2, line 9, leave out from “(9B)” to end of line 11 and insert
“may not be made unless a draft of the instrument has been laid before, and approved by a resolution of each House of Parliament.”
This amendment changes the procedure that applies to an SI containing regulations under new subsection (9B) of section 7 of the Building Societies Act 1986 (inserted by the Bill) so that it is subject to the affirmative procedure.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss amendment 1, page 2, line 10, leave out from “to” to end of line 11 and insert
“approval by both Houses of Parliament”.
Julie Elliott
Thank you very much, Madam Deputy Speaker. The variety of Bills is in the strange nature of this place. We are going from the warm and fluffy Bill that we have just discussed, which I am delighted has received its Third Reading, to what is rather a dry Bill —but an important one none the less.
Amendment 2, which stands in my name, changes the procedure that applies to statutory instruments relating to proposed new subsection (9B) to section 7 of the Building Societies Act 1986. They will be subject to the affirmative procedure, rather than to the negative procedure as the Bill currently states. I tabled the amendment after talking to colleagues on both sides of the House. On reflection, it provides for closer scrutiny of the potential changes that could be made via secondary legislation under the Bill. The amendment does not change the immensely positive effect that I believe the Bill will have on the building society sector by bringing it in line with current practices, nor does it change the Bill’s aims, which will, in my view, enormously improve opportunities for people to get on the housing ladder. The result of the Bill will be a better landscape for first-time buyers, and the amendment just improves scrutiny.
Sir Christopher Chope (Christchurch) (Con)
I rise very much to support amendment 2 in the name of the hon. Member for Sunderland Central (Julie Elliott). I am grateful to her for effectively taking forward my amendment 1, which we were told was defective because, although it would achieve exactly the same purpose, it does not use the normal wording that Government drafters like.
After some discussion, it was agreed by the hon. Lady and the Minister that it was sensible to use the affirmative procedure in relation to these delegated powers, and that affirmative procedure is now reflected in amendment 2. It could have been reflected in amendment 1, but what is important is the substance of the matter. These are potentially very significant changes that could be made, and if they are to be made, it is important that they are open to proper scrutiny.
As we know, the negative procedure does not really enable proper scrutiny. As an example, Madam Deputy Speaker, you will recall that legislation was brought forward at the end of last year extending the breeds covered by the Dangerous Dogs Act 1991 to include dogs of the XL bully type. I tabled an early-day motion to try to amend that. That early-day motion was on the Order Paper, but it was never accepted or debated, meaning that that change, which affected hundreds of thousands of dogs and their owners, was made without any proper scrutiny in Parliament. That is why it is important to have the affirmative procedure where possible, and I am very grateful to the hon. Lady for having brought forward this amendment, which I support.
Amendment 2 agreed to.
Third Reading
Julie Elliott (Sunderland Central) (Lab)
I beg to move, That the Bill be now read the Third time.
It is a pleasure to bring this Bill back for further debate, as it now exists in an amended form. It is a key moment for a Bill that is important to the building society sector, and I must thank all colleagues from both sides of the House who have taken part as the Bill has gone through its various stages—they have been so supportive of the Bill. I am going to keep my remarks short so that if other Members wish to speak, they can do so, and to try to make sure that the Bill’s progress is as smooth as possible.
The Building Societies Act 1986 (Amendment) Bill will help level the playing field between building societies and banks, and will support building societies to be able to lend more money in a safe and secure way. To trade as a building society, the Building Societies Act 1986 requires the company to obtain a minimum of 50% of funding from its members—what is known as the wholesale funding limit. This Bill does not change that, and it does not dilute the unique ownership model of building societies. The fundamental nature of a building society—being run in the interests of its members—is not changed by the Bill; in fact, that is what makes the sector so special.
What the Bill does is disregard the following from the 50% wholesale funding limit: Bank of England liquidity insurance facilities, debt instruments raised to meet the minimum regulatory requirement for own funds and eligible liabilities requirements, and sums received under sale and repurchase agreements with a view to complying with Prudential Regulation Authority rules. This means that in times of national economic crisis, building societies will have more options within their gift for remaining comfortably solvent, and will therefore continue to serve in their members’ interests. The Bill is designed to allow future Governments to respond to the financial landscape of the day. That is why it does not specifically define funds, but instead defers the specification of funds to a later date through secondary legislation passed in this House. All the responses from the sector to the Government’s 2021 consultation on this issue, in advance of the Edinburgh reforms, were positive. Those reforms make the sector more robust.
The Bill also seeks to modernise the sector. It amends the 1986 Act to explicitly allow the option of real-time virtual member participation, bringing the sector in line with the requirements that the Companies Act 2006 places on businesses. It also enables the Treasury to introduce more flexibility for societies in relation to common sales and the execution of documents, in line with companies law.
The Bill is important because it would achieve a great deal in a very succinct manner, allowing the sector to operate on a more level playing field with banks. This is positive for a number of reasons, but especially in view of the sector’s support for first-time buyers. More than half building society lending goes to first-time buyers, and since 2020 building societies just in my region, the north-east and Cumbria, have lent them some £3.4 billion.
This Bill follows a number of previous private Members’ Bills—including that of my hon. Friend the Member for Preston (Sir Mark Hendrick), which received Royal Assent last year—that continue to modernise the sector. I will not restate all the facts that I presented on Second Reading, powerful as they are, but it is important to acknowledge that, while the housing sector has recovered significantly since the record low mortgage approvals during the covid pandemic and has recovered from the acute economic shock caused by the last Conservative Administration, mortgage approvals are currently still below the level that that we saw before the pandemic. That is why I think that a Bill such as this, which gives more choice to the building society sector to operate in the interests of its members, is a good thing.
As I have said, the sector has a strong record in supporting first-time buyers, and given that every £10 million of lending could support an additional 20,000 mortgages, I am proud to be introducing a Bill with the potential not just to support the housing sector and the wider economy, but to allow building societies to help more people on their journey to home ownership. I have spoken to many constituents in Sunderland who are struggling to get on to the housing ladder—young couples and families who just want the chance to have a place that is theirs and in which they can feel comfortable, away from a volatile and often unfair rental market. The Government’s failure to reform the sector is a debate to be had elsewhere on another day, but I expect this Bill to do more to support a sector that often goes above and beyond to support its members, and to help people get on to the housing ladder and secure a future for themselves. Its passing would be a landmark moment for the sector, and I look forward to seeing the positive effects that it would bring.
Peter Gibson (Darlington) (Con)
I congratulate the hon. Member for Sunderland Central (Julie Elliott) on presenting the Bill and bringing it this far. Having presented a private Member’s Bill myself, I know all about the joy, and the ups and downs, of the process.
Building societies are financial institutions with the principal purpose of providing residential mortgages, and are funded substantially by their members. I have seen at first hand how their membership system brings people together, and gives many a shared sense of interest and purpose. Darlington—this will come as no surprise—is home to Darlington Building Society, which has been serving the people of Darlington and the surrounding area since 1856. Its commitment to our community is second to none; indeed, only last night at the Tees Business Awards event it walked away with the Community Champion award, which recognises its contribution to our community. While many high streets are seeing the loss of financial institutions, just a few months ago the Minister himself opened a new branch of Darlington Building Society in High Row.
Darlington is also the birthplace of the railways—bear with me here—and some years ago Darlington Building Society commissioned a children’s book by Peter Barron, the former editor of The Northern Echo, to tell the story of Darly the engine. As we approach the 200th anniversary of the railways—a very big year for us—the building society, in collaboration with the west end composer Stuart Brayson and Darlington Operatic Society, is turning the story of Darly into a musical, which will premier in September next year. I am proud to represent a town with such a strong track record of supporting our community.
The Bill is about putting building societies such as Darlington Building Society on a more level playing field with banks, in relation to their capital raising and corporate governance requirements, so that they can compete more effectively in the financial services sector and better support their members. It will help to deliver key asks from the sector itself. I welcome the provisions in the Bill, which largely mirror proposals that the Government consulted on during 2022, and I welcome that both the Government and the building society sector are supporting it. Indeed, Andrew Craddock, chief executive officer of Darlington Building Society, has also voiced his support stating:
“Darlington Building Society supports the proposed reforms to the Building Societies Act. The modernisation will cut archaic red tape by removing outdated corporate governance requirements, which building societies face but banks don’t.”
As a vital part of our financial framework, and with a deep-rooted interest in communities in Darlington, I believe the Bill will help building societies to survive and thrive. It is right that we do all we can to ensure that businesses flourish, so the cutting of red tape is welcome, as is the removing of outdated, bureaucratic governance systems that are not faced by big banks.
To conclude, I welcome the Bill as a way of ensuring that building societies are embraced and enabled to do business with fewer hurdles and red tape. It sorts out certain questions about funding, and it levels the playing field. I am pleased to support the Bill, and trust that the House will give it its full support.
Ben Everitt (Milton Keynes North) (Con)
Every day is a school day, and I am delighted to learn about Darly the engine. I am equally excited about the forthcoming musical, and it is a pleasure to follow my hon. Friend the Member for Darlington (Peter Gibson). I thank the hon. Member for Sunderland Central (Julie Elliott) for her efforts in getting the Bill through its initial stages. It is a Bill we can all get behind because it benefits our constituents, and I am pleased to give it my backing. At the back end of 2021, the Government ran a consultation on amendments that could improve the Building Societies Act 1986. The responses were pretty positive, and I am glad that the Bill reflects many of them.
Building societies play an unique role in the UK economy, serving around 25 million people and going back nearly a quarter of a century, particularly in Darlington. In my constituency, I was pleased to visit a branch of Nationwide Building Society late last year, to receive assurances that it was going to stay open—I am happy to place that on the record in this place—but more to see the impact that it has in the community. It is more than just banking services. People go in there for a chat, or more than a chat. Older members of our community are going in there and having lessons on online banking, how to use an iPad, and receiving advice on countering fraud, either online or on the phone. There is a real place in our communities for building societies.
As member-owned financial institutions, building societies are known for delivering excellent services, particularly on mortgage lending, often to a high level of customer satisfaction. For that reason, anything we can do in Parliament to ensure they remain competitive in the financial sector must be a good thing for both our economy and for local communities. The Bill will rightly put building societies on a more even keel with banks. In a broad sense, the Bill is about levelling the playing field in the financial sector, helping building societies to increase their lending capacity. That can be hugely helpful to first-time buyers, and more people on the housing ladder is something that Members across the House can get behind. In Milton Keynes, getting people on the property ladder is a real priority: it is incredibly frustrating that the average cost of a new-build house in Milton Keynes is about £475,000, while the average cost of any house sold in Milton Keynes last year was about £335,000. Access to finance and anything we can do to support that is a key part of any solution.
On the role that building societies play in mortgage-lending services, according to the Building Societies Association, they are responsible for a third of first-time buyer mortgage completions. It stands to reason that if we can increase the fundraising capacity for building societies, we can get even more people on the housing ladder. As clause 1 describes, the proposed changes can get us there.
The Bill is another good example of cross-party collaboration, with colleagues across the House recognising its clear benefits. From both personal experience and engagement with our constituents, Members can attest to the pivotal role that building societies play in our communities, Strengthening building societies is bound to have a positive economic consequence across the board. I look forward to seeing the Bill progress into law.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (Con)
I place on record my thanks to the hon. Member for Sunderland Central (Julie Elliott) for bringing a pragmatic and important Bill to the House, and I give it my full support today. As always, she works assiduously in making lives better for people across the United Kingdom and in her constituency, and she works in an extremely positive manner across parties to achieve her aims, and I thank her for that, too.
As others have mentioned, building societies are extremely important to the fabric of the financial institutions in our constituencies. I make regular visits to the Nationwide Building Society branch in East Kilbride, as I did just a few months ago. Like my hon. Friend the Member for Milton Keynes North (Ben Everitt), I was reassured to find out that my local branch had no plans to close and was thriving in the community. Many people were coming in to speak and to chat, as well as for socialisation and reassurance regarding finance and debt and how to engage with the new digital banking sector. The reach-out into the community is second to none.
I was impressed by that, particularly as I have had terrible news from East Kilbride just this week that the Royal Bank of Scotland is closing its branch there. That follows on from the bad news just last month that the Bank of Scotland is closing in Strathaven and Lesmahagow, leaving those communities without essential banking, particularly as those branches are the last banks in those local communities. It is distressing for the residents. I am pleased to be able to raise their concerns today and to praise Nationwide for the work it is doing and its assurance that it wants to be at the heart of our community for the foreseeable future.
I declare a personal interest, as my first mortgage was with that building society. I did not know an awful lot about finance or mortgages at the time, but Nationwide took the time to go through the different options with me, and I felt reassured by the manager. Having that face-to-face contact is so important. For first-time buyers who are not sure about the steps to take in getting their first mortgage—it is such a pivotal part of our life journey—these institutions play such an important role in our local communities.
I also place on record my thanks for the work that Nationwide is doing on mental health. I am part of the Money and Mental Health Policy Institute, chaired by Martin Lewis. We know that there is a huge link between mental health and finance. Debt, in particular, correlates with people’s mental health spiralling downwards, and we need to make sure we address those issues through all our banking institutions.
As has already been said, this is an important Bill, which places building societies on par with banks for corporate governance and solvency, and will keep them competitive and at the heart of our communities for the future.
Darren Jones (Bristol North West) (Lab)
I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott). As we all know, it is sheer luck to come top of the private Member’s Bill ballot, but drafting a Bill that generates strong cross-party support and becomes law is the result of tremendous hard work. This is a classic private Member’s Bill that, as she suggested, might look technical in nature but will make a huge difference to those people affected. The Bill is also true to Labour and Co-operative values, and we in the Labour party are delighted to support it.
My hon. Friend has worked painstakingly over many months to draft and develop the Bill, engaging with Treasury civil servants and Ministers. She has also worked closely with Labour’s sister party, the Co-operative party, and the wider mutual sector, including the Building Societies Association and Nationwide. We have heard excellent contributions in the debate that have highlighted the importance of the sector and the positive impact that the Bill will have for communities and families, not least in the context of bank branch closures across the country.
Building societies and mutuals have a long and proud tradition of supporting working people in accessing affordable finance. Today, the sector continues to play a crucial role in promoting financial responsibility and resilience among its members. Building societies also enable families to get on the housing ladder. As we have heard, they direct a significant proportion of their lending to first-time buyers, and the Bill could unlock significant additional lending capacity from building societies, supporting more working people to become homeowners, not least in my constituency of Bristol North West, where so many people are struggling to buy their first home.
Since the Bill first came before the House, my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq) has launched the Labour party’s financial services review. That landmark review outlines Labour’s plan to work hand in hand with businesses and the financial services sector to drive economic prosperity. It also reaffirms what the first priority will be of a Labour Government: to provide a secure platform for growth, which builds on the strengths of our economy and gives citizens across the UK financial stability. To deliver on those priorities, a key aspect of the review is Labour’s commitment that the next Labour Government will aim to double the size of the co-operative and mutual financial services sector under. The Bill is an important step towards achieving that aim, as it will help to level the playing field for banks and building societies.
While Labour strongly welcomes the measures in the Bill, we believe that further legislation is necessary to deliver on our ambitions and ensure benefits for communities across the country. That is why our review set out measures that will help to underpin rapid mutual financial services growth, including new requirements on regulators and policymakers to: consider properly the needs of mutuals and actively reduce barriers to their growth; support credit unions in offering more products; and strengthen the small and medium-sized enterprises bank referral scheme, in order to support businesses in securing financial resources from co-operatives and mutuals.
Labour’s ambition, working together with the Co-operative party and the wider co-operative and mutual sector, is clear: to support the sector, so that the vital contribution that it makes to our economy can go further and drive much needed growth in the future. Labour recognises that the Bill is an important step forward, and we are delighted to give it our full support. May I once again congratulate my hon. Friend the Member for Sunderland Central on her excellent work?
The Exchequer Secretary to the Treasury (Gareth Davies)
Let me first congratulate the hon. Member for Sunderland Central (Julie Elliott) on reaching the Third Reading of her important Bill, which will help to ensure the future growth and success of the building society sector. She is a strong advocate for the sector, and has introduced a Bill that will help it to grow and compete with retail banks, so that it can continue to provide vital diversity to the UK financial services sector.
I also congratulate my hon. Friends the Members for East Kilbride, Strathaven and Lesmahagow (Dr Cameron), and for Milton Keynes North (Ben Everitt), and especially my hon. Friend the Member for Darlington (Peter Gibson), who I was delighted to join back in November to open the Darlington Building Society in the middle of town. I saw from him and the employees just how impactful they are in his community, and I am sure that they will go from strength to strength.
Peter Gibson
While the Minister is on his feet, I wonder whether he could outline to the House the gift he received from Robin Blair, our veteran fruiterer and vegetable trader in our historic market hall, who joined him on that opening day.
Gareth Davies
I was not expecting an intervention on that of all subjects, but I did enjoy the satsumas that were provided by the very nice gentleman, who I understand is an institution in the town of Darlington.
As I was saying, building societies are important to all our communities, not least mine in Grantham and Bourne. In Grantham I have the Nationwide Building Society, the Nottingham Building Society and the Melton Mowbray Building Society, a new branch of which is opening in Bourne in April.
Today I wish to outline a few things: first, the Government’s support for the mutuals sector; secondly, the importance of mutuals to our overall financial services sector; and, finally, how this Bill will further support the future growth and success of mutuals. The Government want to promote the growth of mutuals, which make a vital contribution to the UK economy. As outlined in the mutuals prospectus, there are over 9,000 mutuals operating throughout the country, with a combined annual turnover of some £88 billion in 2022, which equates to 3.5% of UK GDP. However, beyond their vital financial contribution to the UK economy, mutuals play an important role in supporting people across the country. Their unique ownership model means that these businesses are rooted in their local communities, and working to make society better.
It is for those reasons that the Government are committed to supporting the growth and success of the mutual sector. For example, last summer the Government amended the Credit Unions Act 1979 so that credit unions in Great Britain can offer a greater range of products and services. Moreover, as the hon. Member for Sunderland Central said, last year the Government supported the private Member’s Bill introduced by the hon. Member for Preston (Sir Mark Hendrick), which achieved Royal Assent in June 2023. The Co-operatives, Mutuals and Friendly Societies Act 2023 will allow the Treasury to pursue further secondary legislation to give co-operatives, mutual insurers and friendly societies greater flexibility in deciding what to do with their surplus capital and the restrictions on their assets. The Government continue to develop a modern and supportive business environment for mutuals. As part of that, we have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.
Building societies are perhaps one of the best-known types of mutuals. There are 42 building societies operating throughout the country, providing mortgage and savings products to around 26 million members. They play an essential role in supporting their members in building savings habits and buying their own home, as the hon. Member for Bristol North West (Darren Jones) outlined. That cause is supported by Members from across the House, but particularly by the hon. Member for Sunderland Central, who has consistently championed the importance of supporting first-time buyers—not just in her constituency, but across the country.
Building societies are especially well represented in communities outside the south-east. For example, the Melton Mowbray Building Society provides vital support in all areas neighbouring my constituency, and I note that the Newcastle Building Society has a significant presence in the constituency of hon. Member for Sunderland Central. It builds on a 160-year history, and its amazing commitment to its members in the communities in which it operates remains strong. It has partnered with the citizens advice fund to provide expert advice to members, answering questions on a variety of important issues. She also has the Yorkshire Building Society in her constituency, which has done great work on financial literacy through its Money Minds programme.
It is clear that building societies contribute to the wellbeing of communities throughout our country, including in the constituency of the hon. Member for Sunderland Central. The Government are fully supportive of this private Member’s Bill, which will help the sector to compete more effectively with retail banks, so that building societies can continue to work.
This Bill is about enabling building societies to grow and compete with retail banks. We are achieving that by updating the legislation in three short ways. First, the Bill excludes three specified sources of funding from the 50% wholesale funding limit for building societies. This will provide them with greater flexibility in raising additional wholesale funding, while still operating within the mutual model. The detail of the funds will be further specified by the Treasury through secondary legislation in due course. Furthermore, the amendment in the name of the hon. Member for Sunderland Central means that the statutory instruments will be subject to the affirmative procedure, allowing for greater parliamentary scrutiny; that comes on the back of very constructive work from across the House. The amendment does not change the policy outcome of the Bill in any way, but simply amends the parliamentary procedure that will be followed when subsequent regulations are made.
Secondly, the Bill allows for the option of real-time virtual participation at building society meetings. This will improve meeting accessibility and promote wider membership engagement, should the members of any building society choose to permit virtual participation under their rules.
Finally, the Bill will provide His Majesty’s Treasury with the power to further align constitutional provisions. Specifically, it will align provisions in part 2 of the Building Societies Act 1986 on common seals and the execution of documents with modifications made to company law. This will remove outdated and burdensome legislative requirements, and update the 1986 Act, in line with modernisations made to company law.
In conclusion, the Government fully support the hon. Lady’s Bill. We recognise the importance of the building society sector, which supports people and communities across the country. I extend my thanks to the hon. Lady for introducing the Bill and for progressing it to Third Reading. She can be assured that the Government share the vision set out in the Bill for supporting the future growth and prosperity of the building society sector.
Julie Elliott
With the leave of the House, I would like to thank all Members who contributed at various stages of the Bill. On Second Reading, I had not expected the political history lesson we had from Members on both sides of the Chamber, but it was quite entertaining. It is an honour to have a debate on a Bill on which everybody agrees; everybody can see the very tangible benefits it will have for all our constituents.
It has taken a lot of work from a lot of people to get to this point. I thank not only colleagues who have taken part at every stage, but Treasury officials, who have been extremely helpful; the Clerks, whose advice, support and guidance is, as always in this place, invaluable; the Whips; the Building Societies Association; and our sister party, the Co-operative party. They have all contributed, and helped with advice and support, as I have taken the Bill through the House. I commend it to the House.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Building Societies Act 1986 (Amendment) Bill
Monday 22nd April 2024
(7 months ago)
Lords ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
Building Societies Act 1986 (Amendment) Bill
Friday 10th May 2024
(6 months, 2 weeks ago)
Lords ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
Lord Kennedy of Southwark
That the Bill be now read a second time.
Lord Kennedy of Southwark (Lab)
My Lords, I am delighted to present this Bill to your Lordships’ House for its Second Reading today. I should declare to the House that I am a director of the London Mutual Credit Union, and while it is not a building society, it is a full member of the Building Societies Association, as it offers mortgages, and the BSA is very much in support of this Bill.
I thank all noble Lords who have signed up to speak in this debate and look forward to each of the contributions that will follow shortly. I am particularly delighted that my good and noble friend Lord Naseby will be speaking. We have worked together many times to support the co-operative and mutual sectors on legislative measures, and I am pleased to have his support again today.
In the last Session, I was able to get the Co-operatives, Mutuals and Friendly Societies Act 2023 on to the statute book following the success of my honourable friend in the other place, the Member for Preston, Sir Mark Hendrick, in steering it through the House of Commons. That Act of Parliament is permissive legislation that enabled mutual organisations to have the ability to opt into a restriction on the use of their assets. The co-operative and mutual sectors enjoy cross-party support, which is one of the strengths of the movement. This Bill has benefited from that cross-party and industry support. I am grateful to my honourable friend in the other place, the Member for Sunderland Central, Julie Elliott MP, for taking this Bill through the House of Commons. She did so with great skill, and we are all grateful to her.
Building societies were originally established to allow people to pool their savings and to buy a home. The world’s first building society was Ketley’s Building Society, founded in 1775 by Richard Ketley, the landlord of the Golden Cross, in Snow Hill, Birmingham. Since then, these important mutuals have played their part in enabling people to own their home. Owning the roof over your head is something that most people in the UK aspire to, and building societies have enabled generations of people to buy their own home.
I am grateful to the Library of the House of Lords and the Building Societies Association for their excellent briefing notes, and to officials at His Majesty’s Treasury for producing the Explanatory Notes explaining the purpose of the Bill in such clear detail. The Bill builds on the Building Societies Act 1986, which is a good piece of legislation that has worked well. The Bill allows for targeted, specific improvements to update and modernise the existing legislation. It comprises four clauses, which I will explain briefly.
Clause 1 amends Section 7 of the Building Societies Act 1986 and enables the Treasury to make secondary legislation, using the affirmative resolution procedure, to allow certain funds to be disapplied from counting towards the 50% retail funding limit. The funds to be exempted from the building societies wholesale funding calculation are set out in the Bill. These are Bank of England liquidity insurance facilities; debt instruments raised to meet minimum requirements for own funds and eligible liabilities; and sums received by the society under a sale and repurchase agreement entered by the society with a view to complying with a specified PRA rule.
Further, Clause 1 would allow the Treasury, through secondary legislation, to specify named funds, descriptions of funds and PRA rules relevant to the sums received under sale and repurchase agreements. Taken together, the clause allows for the exclusion of certain types of funding from the funding calculation, which requires building societies to obtain at least 50% of their funding from member deposits, thereby allowing them to acquire more funds without fear of breaching the funding limit.
Clause 2 allows for building society member meetings to be attended virtually, allows those members to speak and vote, and allows for proportionate measures to confirm the identity of those members attending and participating in the meeting.
Clause 3 extends the powers in Section 104 of the 1986 Act, again using the affirmative resolution procedure, with reference to common seals and the execution of documents, enabling provisions to be updated and processes to be modernised and allowing building societies to take advantage of them.
Clause 4 sets out that the Bill extends to the whole of the United Kingdom and comes into force two months after it becomes law—so it is small in size but not in its proposed effect. It will enable more funds to be made available to members, help more people own their own home, modernise processes and allow for greater participation of members and the more efficient execution of documents. All these changes need primary legislation, which is why we have this Bill today. Other measures will be introduced using secondary legislation outside of this Bill, which will help the sector further.
I was delighted, as I said earlier, when my good friend the honourable Member for Sunderland Central in the other place asked me to take this Bill through this House. In my 14 years of membership of this House, I have sat here as a Labour and Co-op Member of the House of Lords. I have been a member of the Co-operative Party for nearly 40 years. It has had an agreement with the Labour Party since 1918 to seek public office only jointly. The Co-operative Party has always sought to champion the positive role that co-ops, mutuals and friendly societies can play in our economy, in our society and in a variety of different spheres to improve people’s lives and give them the power to have a greater say in the things that matter to them. I am also delighted that Members from all parties support the Bill, and that it has the support of the Government. It is a really important measure which deserves support. I beg to move.
Lord Naseby (Con)
My Lords, it is a particularly exciting morning as far as I am concerned. I got up, the sun was shining; I then heard that, thanks to my Government, we are out of recession; and the icing on the cake is this particular Private Member’s Bill. It is a very exciting Bill because the building society movement is a dynamic element in our society. We see that at every level today and, as we move forward, I reflect a little on the fact that I took through this House one of the few other mutual Private Members’ Bills in my more than 25 years in this part of our Parliament, the Mutuals’ Deferred Shares Act. That was done with the support of the Government of the day, as this one has been, and that is very exciting.
I had the privilege, as noble Lords will know, of doing my national service training as a pilot in Canada. It was the first time, as a young man, that I took out a very small savings account, in the depths of the prairies just outside Moose Jaw, with a credit union. That was my first experience and I was delighted, when I was elected as the Member for Northampton South, to find that there was an active credit union there as well. Of course, the building societies themselves are much more than those relatively smaller areas of the mutual savings market. I had the privilege of being chairman of the Tunbridge Wells Equitable Friendly Society, now the Children’s Mutual, and that element too needs some help in the future.
The important part of this Bill is that the Building Societies Association has been lobbying for changes for some considerable time. I say a huge and sincere thank you to my noble friends on the Front Bench: my noble friend Lady Penn when she was there and now my noble friend today. They have both listened and have now acted, and that is a huge step forward for the whole mutual movement. When we look at the market on the ground, yes, it has been a difficult time for the United Kingdom, but which is the sector of the savings market that is not closing branches and making life very difficult for the citizens of the United Kingdom? The one area that is not closing branches is the building societies.
I happen to bank with the Nationwide, which is the biggest of them, but there are a considerable number of building societies, all of which are really active in the savings market. I say well done to them for coming through this difficult period. If we look at mortgages in recent times that are helping younger couples get on the housing ladder, we see that the vast majority come through the building societies movement. I do not need to go through the Bill in any detail. I will just thank my noble friend on the Front Bench and His Majesty’s Government for picking up what has been quite a long journey to get to this stage, and my noble friend on the Opposition Bench for his skill in taking the Bill through and for paying tribute to the Member of Parliament in the other place for picking it up as well.
All I will say, finally, is that the Bill has my wholehearted support and I will do anything possible at any time, any hour, to make sure that it gets on the statute book.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in Second Reading. In doing so I declare my financial services interests as set out in the register as adviser to Ecospend Ltd. I fully support the Bill and congratulate my friend the noble Lord, Lord Kennedy, on bringing it. He, as much as anyone in this House, has backed mutuals, friendly societies, credit unions and all those organisations doing so much for so many people right across our country. It was also a pleasure to have the pilot of the Bill then followed by a pilot speaking on the Bill. I am going to keep my feet firmly on terra firma and stick to the financial facts, because in no sense is this a minority matter: 25.8 million of us avail ourselves of building society accounts and services, and they have assets racing towards £400 billion.
If we are talking about levelling up in this country, we should also talk about levelling the playing field for building societies, which do such good work in all our communities. In saying that, I thank the Library for its excellent briefing and the Building Societies Association for its briefing and for everything it does to represent this important part of our economy and society. This Bill will look not only at the capital requirements and some important corporate governance matters, but in doing that it will increase scale, growth and competition across our financial services sector. Those are three excellent elements at any time but are critical when we look at the current macroeconomics not just of the UK but internationally. I am delighted to support this Bill and its provisions. It also updates things by enabling virtual, real-time participation in AGMs. It aligns very much with what other countries have been able to enjoy for many years.
I have just three questions for my noble friend on the Front Bench. First, when will the secondary legislation be brought into being? The Explanatory Notes say “as soon as possible”—does that mean before the summer? It certainly sounds better than “in due course”. While the Bill itself is critical, it is as critical that we get the secondary legislation through in a speedy fashion to enable the full impact of these changes to be felt by people up and down the country, and indeed the institutions themselves.
Secondly, what is the Government’s current position on mutuals in general? So many elements of our society—so many economic and social issues—can be addressed by an increased focus on and enablement of mutual structures right across society. What is their current work on mutuals across the piece? They were extraordinarily influential when they first came into being and their potential impact could never be more needed than in the time we are currently experiencing.
Allied to our discussions this morning, have the Government considered a potential mutualisation of the Post Office—obviously once we are through all the current issues and the liabilities therein? Does my noble friend not agree that a mutualised structure could work incredibly well for such an organisation—a brand that has been part of our society and high streets for over half a millennium? We need a positive Post Office. We need to support all those excellent sub-postmistresses and sub-postmasters, up and down the country. What sensational new chapters could be written for the Post Office and the communities in which it operates? Mutualisation could be at the heart of that.
So I fully support the Bill. I think it will have a positive impact in short order. Scale, growth and competition will deliver economic, social and psychological benefits, increase financial inclusion and well-being and drive possibilities for individuals and small entities right across the United Kingdom. I wish it swift speed into statute.
Baroness Kramer (LD)
My Lords, we on these Benches support the Bill. The main, important provision here is to exclude MRELs, minimum requirements for own funds and eligible liabilities, from the wholesale funding limit for building societies. I had rather hoped that the noble Lord, Lord Kennedy, would explain in opening what MREL was; he wisely avoided that task, so I will just explain it in one line for those who do not spend their time in financial services debates. In effect, it is a layer of debt that automatically converts to capital in case of a failure of the institution, with the notion that that would then protect the taxpayer. I hope that is an adequate summary.
This Bill carefully does not challenge the principle of having that layer of protection but stops the double-counting that goes on when the current rules are applied to building societies, in contrast to banks. I and other members of my party have been calling for years for the unique characteristics of building societies to be accommodated when the UK regulator sets the MREL rules. All of that is permitted under the Basel III regime from which MREL emanates—the regime that came into play after the financial crisis of 2008 to try to find ways of protecting global economies from failures within the financial services sector.
I am also very conscious that raising the non-preferred or subordinate debt, which is the typical constituent and primary instrument of the MREL layer, is very difficult for building societies to do at a reasonable price. It is a very limited market, so having double-counting in the building society system was, frankly, reasonably unforgivable. I take the view that the regulator could have sorted this all out without primary legislation; I am told that the Treasury for a while thought the same but has decided that primary legislation is necessary. So be it. If it is necessary, I am glad that we have it in front of us today.
Like others, we on these Benches are convinced that a revitalised building society sector can fill the geographic and demographic gaps in our financial services provision. The sector and mutuals generally play a crucial role in bringing financial services, including mortgages, to a broader section of our population, especially first-time home buyers.
However, in the context of what some would call an argument for weakening a resolution regime, I should say that I am not going soft. I remain deeply concerned at the steps taken by this Government and the financial regulators to water down the protections brought in after 2008 to prevent a repeat of that kind of financial crisis. Elements of Solvency UK, parts of the proposed Edinburgh reforms, the breaching of the ring-fence in HSBC’s purchase of Silicon Valley Bank UK and the lifting of the cap on bankers’ bonuses are all examples of key shifts that have begun to undermine the protections that were put in place. When these issues are raised, the Government typically say—I wonder whether they will do so again today—that we can afford to encourage much more risk in the financial sector because we now have a powerful resolution regime in place, of which MREL is a key part.
This is not the day to go into detail, but I hope that parliamentarians are aware that, in the two instances when we have had bank failures in the global banking sector following the creation of the resolution regimes, Governments have chosen not to use the regimes, because the collateral damage from enforcing the bank failure and the consequent almost wiping out of those who are holding the preferred debt that is part of MREL, as well as the shareholders, has been assessed as being so great that, in effect, the taxpayer has become the means of resolving the problem. The two examples are the failures of Silicon Valley Bank in the UK, including its UK operations, and of Credit Suisse. The US, UK and Swiss Governments all looked in the face of that resolution regime and decided not to exercise it. This stresses the importance of not having a crisis in the first place—which takes us back to making sure that those initial protections remain strong and powerful.
The other features of this Bill make sense to me, so I will not elaborate. I do want to say quickly that I am conscious that some noble Lords—I have had letters about this—wish to use this Bill to challenge some aspects of the Nationwide purchase of Virgin Money. It is important to say that amending this Bill will simply kill it, as it is a Private Member’s Bill, which would achieve nothing for anyone. So I hope others will support the Bill and I wish it swift passage.
Lord Livermore (Lab)
My Lords, I congratulate my noble friend Lord Kennedy of Southwark on his opening speech and pay tribute to him for not only sponsoring this Bill but his lifetime of commitment to building societies, mutual and friendly societies, credit unions and the wider co-operative movement. I note that some of the principles of this sector are democratic member control, autonomy and independence—not, perhaps, principles you might always associate with a Chief Whip.
I also congratulate my honourable friend in the other place, Julie Elliott MP. Drafting a Bill that generates strong cross-party support and, hopefully, becomes law, is the result of tremendous hard work, working painstakingly over many months and engaging constructively with civil servants and Ministers. I know that she has worked closely with Labour’s sister party, the Co-operative Party, and the wider mutual sector, including the Building Societies Association and Nationwide.
We enthusiastically support the Bill. As my noble friend Lord Kennedy set out in his opening speech—and as the noble Lord, Lord Naseby, said—modernising the legislation around building societies is long overdue. The Bill would enable building societies to compete on a level playing field with banks. It would cut red tape by removing outdated corporate governance requirements, which building societies face but banks do not. Crucially, it would also support first-time buyers by enabling building societies to lend more.
Building societies direct a greater proportion of their lending to first-time buyers than any other part of the financial services sector; it accounts for over 55% of their lending. They supported 70,000 first-time buyers in the first three-quarters of 2023 and a total of 360,000 first-time buyers since 2020. That is over £63 billion provided to help people buy their first home.
That is why the Bill is so important: it will empower societies across the UK to raise more funds. It could unlock billions of pounds of additional lending capacity, helping families and boosting the UK’s future prosperity and economic growth. For example, every £10 billion of new lending capacity secured through these changes potentially supports an additional 20,000 first-time buyers.
Building societies have never been more important in the UK’s economy and public life. During the cost of living crisis, many families have needed to use their savings in the face of rising energy costs and food prices. But building societies have continued to support people to save, bucking the trend of the decline in saving balances that we have seen across the wider sector. In the first nine months of last year, they attracted £18.9 billion in cash savings, supporting people to build financial resilience during this difficult period.
That is why Clause 1 is so important: it allows building societies to exclude funds accessed from the Bank of England in stress scenarios, types of loss-absorbing debt instruments, and sale and repurchase agreements from the funding limit. It will level the playing field with banks and provide that extra level of protection for building societies during difficult times, so that they can continue to support their members for many decades to come.
In recent years we have seen many building societies adapt to new challenges and adopt exciting technologies and digital ways of working. During the pandemic, Leeds Building Society, finding that requests for mortgage deferrals had increased to 2,000 a day, increased their use of robotic automation technology to create a fully automated web form for customers. At Nationwide, a team of mortgage, technology and AI specialists trained the society’s virtual assistant to handle common Covid-related mortgage queries. Principality Building Society has delivered an online mortgage payment holiday service, in partnership with the fintech company Podium Solutions. The service allows members to access a mortgage holiday repayment calculator to better understand their mortgage outcomes.
These are examples of why the changes introduced by Clause 2, which would allow real-time virtual participation in annual general meetings, are long overdue. Building societies have proven time and again their ability to innovate and adapt to changing consumer behaviours. There is no reason to subject the sector to outdated restrictions that do not apply to the wider financial services sector. Likewise, Clause 3 paves the way for reducing the administrative burden of executing documents, with similar provisions already in place for banks.
Labour has long called for modernisation of the Building Societies Act to level the playing field with the wider financial services sector. Indeed, it was a key commitment in our financial services review published earlier this year. We believe that more can be done to unleash the full potential of building societies and the wider mutual sector. That is why our financial services review set out Labour’s pledge to double the size of the co-operative and mutual financial services sector in government.
I once again congratulate my noble friend Lord Kennedy on his opening speech and thank him for his sponsorship of the Bill. It is a vital and important step forward, and we gladly give it our full support.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, I congratulate the noble Lord, Lord Kennedy, on introducing this important Bill to your Lordships’ House. It will help to support the future growth and success of the mutual sector. The Bill has been warmly welcomed by the building societies sector and has cross-party support. It was a veritable highlight in the day of my noble friend Lord Naseby, and he is of course right.
My remarks will be relatively brief, covering two main elements. First, I will look at the detail of the Bill, although many noble Lords have already set it out very clearly. Secondly, I will set out further insight on the Government’s support for the mutual sector. It has been a widespread message from across all Benches in your Lordships’ House today that the mutual sector plays an important role in the UK economy.
Building societies are one of the best-known types of mutual organisations. There are 42 building societies providing mortgage and savings products to around 26 million members. When considering the future of these important institutions, it is right that we reflect on their uniquely British origins.
As the noble Lord, Lord Kennedy, noted, the global building society movement began nearly 250 years ago, in Birmingham, when Richard Ketley established Ketley’s Building Society. It had a very clear purpose: to combine resources from its members, and build a shared fund from those resources that members could draw from to purchase land and construct a home. Like all effective movements, it was much greater than the sum of its parts. As a result of its success, throughout the 19th and 20th centuries more building societies formed across the nations and regions of the United Kingdom. Today, the 42 UK building societies hold total assets of over £500 billion.
The mutual ownership model improves the financial resilience and inclusion of individuals by rooting these businesses in their local communities. The Bill will help to support the prosperity of the building society sector so that it can continue to anchor those roots and to grow.
On the substance of the Bill, the Government support the vision set out by the noble Lord, Lord Kennedy. We agree that the Bill will enable building societies to compete more effectively with retail banks and to better support their members. There are three key measures. First, the Bill will exclude three key sources of funding from counting towards the building society wholesale funding limits; I am grateful to the noble Baroness, Lady Kramer, for providing a little more insight into what exactly the funds are. Under the Building Societies Act 1986, building societies are required to obtain at least 50% of their funding from individual retail deposits, and that will continue. All that is happening is that some of the funds will be excluded from the calculation, meaning that the ownership model will not be diluted. This will enable building societies to raise additional wholesale funds.
The second element, as highlighted particularly well by the noble Lord, Lord Livermore, is that building societies will be able to continue to develop their use of technology. The second part speaks to enabling real-time virtual participation at building societies’ meetings. It will make meetings more accessible to members and might therefore encourage greater support and participation from the membership. It also brings building societies more in line with retail banks.
Thirdly, the Bill will provide building societies with greater flexibilities regarding their funding and corporate governance requirements in relation to common seals and the execution of documents, aligning them with changes made to company law. It will support them in their work serving their members, as well as providing diversity to the UK’s financial services industry.
It is important to note that the changes are supported by industry. As my noble friend Lord Naseby stated, it has been quite a long journey, though not too long as the consultation for the changes occurred from December 2021 to February 2022. There were five responses, with most building societies responding through a single response from the Building Societies Association. All responses welcomed the amendments that will be delivered through the Bill. There are other amendments that were consulted on and are not included in the Bill; the Government are currently progressing these through secondary legislation.
My noble friend Lord Holmes of Richmond asked when the secondary legislation set out in the Bill will be brought before Parliament. I am afraid I can go no further than to say that it will be following the Bill’s Royal Assent and when parliamentary time allows.
To reassure my noble friend Lord Holmes, I will now say a few words on the wider mutuals sector and confirm that the Government are absolutely behind the mutuals sector. There are 9,000 mutuals operating across many sectors in the UK. They are rooted in their local communities and they want to serve their members and work towards a better society. However, despite their social mission, mutuals are not charities. They are thriving businesses with a combined revenue of £88 billion in 2022, employing over 433,000 people. So it is indeed not a minority matter, as my noble friend Lord Holmes noted.
It is due to their economic and social significance that the Government have been and continue to be fully committed to providing an array of support for the whole of the mutuals sector. For example, we are funding the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992. These pieces of legislation underpin the co-operative movement and friendly societies sector respectively in the UK. These reviews will set us up for the most comprehensive modernisation of the sector for a generation.
Last year, the Government supported the Co-Operatives, Mutuals and Friendly Societies Act, which achieved Royal Assent in June 2023. This enables the Treasury to provide co-operatives, mutual insurers and friendly societies with greater flexibility in deciding what to do with their surplus capital. The Government will consider the regulatory options to enact this legislation. However, in the first instance we are directing resources to the Law Commission review, to examine existing legislation. Finally, through changes that the Government have made via the Financial Services and Markets Act 2023, credit unions in Great Britain can now offer a greater range of products and services. This includes hire purchase agreements, conditional sale agreements and insurance distribution services.
My noble friend Lord Holmes asked whether the Post Office might be mutualised. I am aware that the trade body Co-operatives UK recently met with postmasters, postmistresses and the Department for Business and Trade to discuss what potential there is for mutualisation of the Post Office. So I welcome the views of my noble friend Lord Holmes and note that discussions are taking place. One does not know where they will end, but it is certainly an option that is on the table. The Government continue to seek opportunities to support the mutuals sector and those who might wish to join the mutuals sector in this country.
In conclusion, I have today outlined both the Government’s support for the mutuals sector and how this Bill will support the future success of UK building societies. I note again the support for the Bill from across your Lordships’ House and reiterate the point made by the noble Baroness, Lady Kramer, that any amendments to the Bill would probably cause the Bill to fail, which is not in the interests of the sector and not I think the will of your Lordships’ House. This is a worthwhile and necessary Bill. It updates the law in relation to building societies’ funding and corporate governance. Again, I thank the noble Lord, Lord Kennedy, for introducing this Bill to your Lordships’ House and hope that Members across the House will recognise its merits.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank all noble Lords who have spoken in this debate. My noble friend Lord Naseby’s support for the Bill, and his support of the mutuals financial sector over many years, have been very welcome. He is highly respected in the sector. It has been a pleasure to work with him on these issues over many years.
The noble Lord, Lord Holmes of Richmond, in his support for the Bill, highlighted the updating that enables virtual meetings to take place. He made an important point about when secondary legislation would be brought into force. He used the words “scale”, “growth” and “competition”. I very much agree with the noble Lord on those points. We are in complete agreement. I am grateful to the noble Baroness, Lady Kramer, for her support of the Bill and for setting out MREL and explaining it much more clearly than I could have done. I thank her very much for that. It is much appreciated.
My noble friend Lord Livermore again gave the support of His Majesty’s Opposition for the Bill. I am grateful to him. He said how important the Bill was to enable additional lending capacity to enter the market, allowing people to borrow funds and buy their own homes. My noble friend referred to me being the Opposition Chief Whip. I view myself as a very friendly, happy and co-operative Chief Whip—particularly when people are agreeing with me.
I thank the Minister and the Government for their support. I agree with the Minister very much about the importance of the mutual sector and those organisations that are rooted in their communities. We clearly must keep pressing the Government to get the regulations sorted out. Maybe there is scope for a few Oral Questions. Maybe it will get me off leasehold. Anyway, we will come back to that at a later date.
Finally, I refer to the points that the noble Baroness, Lady Kramer, made about any well-intentioned amendments. We can always make things better, but can I plead with noble Lords here? However well-intentioned they are, any amendments will ensure that the Bill fails. It is really important that we do not have any well-intentioned amendments turning up. This Bill does what it says on the tin. The industry supports it, the Government support it—we all support it. We now need to get it through the House with the minimum of fuss.
Building Societies Act 1986 (Amendment) Bill
Friday 24th May 2024
(6 months ago)
Lords ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I understand that no amendments have been set down to this Bill and no noble Lord has indicated a wish to move a manuscript amendment or speak in Committee. Unless, therefore, a noble Lord objects, I beg to move that the order of commitment be discharged.
Building Societies Act 1986 (Amendment) Bill
Friday 24th May 2024
(6 months ago)
Lords ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I beg to move that this Bill do now pass. In doing so, can I make a few brief remarks? I thank the Minister and the officials at His Majesty’s Treasury. I remember ringing my honourable friend in the other place, Julie Elliott MP for Sunderland Central, who put the Bill forward in the other House, when I found out that she was number one in the Private Members’ Ballots there. I knew this Bill was wanted, and I was very pleased that after a few phone calls I had persuaded her to take it forward.
I also thank the Building Societies Association for the work it has done to bring this forward, particularly Robin Fieth, the chief executive, and Kate Creagh, the parliamentary officer, as well as my friend Fiona Stanton, who has worked with me on getting this Bill through to this place today. The Bill itself enables building societies to raise more funds other than from their own members’ deposits and makes changes to administrative rules to bring them in line with banks. It has cross-party support, it will do much good, and it will enable more people to borrow money and own their own home. I thank everyone for their support.
Royal Assent
Friday 24th May 2024
(6 months ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 87-I Marshalled list for Consideration of Commons Disagreement and Amendments in Lieu - (23 May 2024)