Co-operatives, Mutuals and Friendly Societies Bill
(Limited Text - Ministerial Extracts only)
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Chris Clarkson (Heywood and Middleton) (Con)
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on bringing forward the Bill and I thank my hon. Friend the Member for North East Bedfordshire (Richard Fuller) for the amount of work he did on it —he has a lot to be proud of.
I should declare an interest: my Heywood and Middleton constituency is located in the Metropolitan Borough of Rochdale and includes the western third of the town. As Members will be aware, Rochdale is the home of co-operativism—I am almost certain I can hear someone furiously typing on Twitter to tell me that it did not start in my constituency, but we were certainly among the first—so this subject is very dear to me.
I have something else in common with the hon. Member for Preston: we are both alumni of Salford City Council, along with the much-missed Paul Goggins and the formidable Hazel Blears. Members can tell from that list that I am a bit of an outlier, as I sit on the Conservative Benches—
Chris Clarkson
There is form now for Greater Manchester MPs. [Interruption.] No, you are welcome to him.
Having begun with the founding of the Rochdale Society of Equitable Pioneers in 1844, the Co-operative Group is now a major employer nationwide, and particularly in Greater Manchester. Co-operativism is at the heart of our town and plays an important part in our wider national identity. It gives agency to workers, ensures fair trade practices and drives up the quality of products and services. The Rochdale principles by which most co-ops are guided—equity, anti-discrimination, participation and democratic control—are fundamentally British principles. The co-op was the at the nexus of modern society in this country. It educated people, gave them a voice and treated them as partners in their endeavours at a time when most workers could only dream of that kind of relationship with their employer.
As I said, co-operatives are not the only thing the hon. Member for Preston and I share, and Salford City Council is actually now a co-operative council, as he will know. When we discussed how to bring the Government’s localism agenda to Salford, it was decided that the best way to proceed was as a co-operative council. That change has been hugely successful in including Salford’s citizens in the way we run things. It has created credit unions and given people control over things such as childcare by making it affordable and accessible. There is a huge amount of benefit in how co-operatives work.
I am pleased the legislation acknowledges that although the co-operative movement started in the 1840s and is still going in the modern era, it needs a bit more flexibility to operate in the society in which we now live. Collectively, co-operatives and mutuals are worth roughly £40 billion to the economy and represent 250,000 jobs; the sector is relatively small compared with some of its foreign cousins, so there is a bit of work to do. More co-operatives would bring huge amounts of extra economic benefits to this country. There is a traditional view that because the Co-operative party is associated with the Labour party, co-operativism is a left-wing ideal, but it is not: it is apolitical in its operation. It is just a way to ensure that people can participate fairly in their endeavours.
The Bill will give co-operative societies the option to adopt a statutory provision that guarantees that their residual capital surpluses are non-distributable among members, without interfering with co-operative societies’ ability to distribute profits to members or to pay interest on share capital. It also has the potential to enable significant new investment, innovation and development in a wide range of co-operatives. The hon. Member for Preston pointed out that that will be part of the review, and I would like to see that as well. It is a bit of a win-win: if we can make co-operatives more agile and economically flexible, that can only be a good thing. By creating more optimal conditions for investment and asset growth in co-operative societies, setting the right boundaries and engaging with the appropriate motivations of entrepreneurs, members and investors, and preventing perverse incentives to destroy co-operative values, such as unnecessary demutualisation, the position of existing co-ops will be enhanced, offering greater market agility, boosting business investment and committing more capital surpluses to reinvest in economically, environmentally and socially productive enterprise. The Bill will enable societies to issue equity shares that are repayable at the option of the society, rather than being withdrawable at the option of shareholders. At present, societies looking to raise equity are hampered by legal uncertainty as to whether they can repay non-withdrawable shares at their option. Again, this should enhance the position of co-ops by reducing financial costs in the sector.
I thank the hon. Gentleman for introducing the Bill and providing options for a modern, more agile framework for co-operatives and mutuals to operate. I am very much looking forward to supporting this Bill as it goes forward.
The Economic Secretary to the Treasury (Andrew Griffith)
It is always a pleasure to follow the hon. Member for Hampstead and Kilburn (Tulip Siddiq). May I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who has joined us on the Front Bench this morning?
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on reaching Second Reading with his Bill and on the committed and passionate advocacy that he and his team have shown on behalf of the mutuals sector. It takes a team effort to get things done, as my colleagues could sometimes benefit from remembering, and this is no exception. I pay tribute to my predecessor, my hon. Friend the Member for North East Bedfordshire (Richard Fuller), for his hard work over the summer, with officials, to bring us to this important moment. I also thank the hon. Member for Cardiff North (Anna McMorrin), who started the ball rolling; it is delightful that she was able to join us today. As the hon. Member for Hampstead and Kilburn says, this is a cross-party endeavour, and it is all the stronger for it.
The fantastic speeches from Members across the House have brought to life the tapestry of co-operatives and mutuals and their contribution to society across the United Kingdom. We heard about the Darlington Building Society’s five-year sponsorship of the Darlington rail heritage quarter. We were reminded of Robert Owen and the origin of the Welsh co-operative movement. My hon. Friend the Member for Heywood and Middleton (Chris Clarkson) took us back to the birthplace of the co-operative movement. My hon. Friend the Member for Hastings and Rye (Sally-Ann Hart) spoke about the contribution of White Rock Neighbourhood Ventures, which is helping to build her society. My hon. Friend the Member for Devizes (Danny Kruger) made a typically thoughtful contribution; he not only auditioned for the support of the wider co-operative movement, but rooted co-operative and community values firmly in the tradition of Disraeli.
Let me say a little about the Government’s intentions for the Bill. I can confirm that we will support it because we believe in, understand and recognise the contribution that the mutual model makes to society and financial inclusion, which is important to hon. Members on both sides of the House, and the diversity that it provides for the financial services sector. We have a fantastic financial services sector in this country, and mutuals are an important part of that and we wish to see them continue. The scale is often not fully understood, but Royal London is the largest mutual life insurance, pensions and investment company in the UK, and has assets under management of £164 billion—8.8 million policies in force. Therefore, as well as contributing to their communities up and down the United Kingdom, mutuals are also a very important part of our financial sector.
We heard, too, from my hon. Friend the Member for North Devon (Selaine Saxby) about Parracombe, from my hon. Friend the Member for Bosworth (Dr Evans) about the contribution being made by the Hinkley and Rugby Building Society, and from my hon. Friend the Member for Warrington South (Andy Carter). This shows the real contribution that these organisations make.
Let me make some progress on the Bill itself. The Government see this private Member’s Bill as a valuable attempt to build on progress, and further support the mutual model by granting His Majesty’s Treasury the power to make changes to what co-operatives, mutual insurers and friendly societies are able to do under legislation.
The House will note that the final Bill is more focused compared with the original long title. Allow me to briefly set out what we aim to achieve through the Bill. The Bill will allow co-operatives, mutual insurers and friendly societies further flexibility in determining for themselves the best strategies for their business relating to surplus capital. More specifically, this allows the Treasury to create regulations to provide these mutuals with the option to restrict the distribution of surplus capital—defined as equity minus members’ shareholdings and share interest—to their members on solvent dissolution of the mutual, or on the sale or conversion of the mutual to a company. The Bill does that by providing the power to create regulations to allow co-operatives, mutual insurers, and friendly societies to choose to adopt legal restrictions on the use of their assets. The intention is that, where the members choose to adopt these restrictions, the use of the assets would be limited to specific purposes in line with the purpose of the mutual society.
The Government anticipate that this will provide additional safeguards against demutualisation for those societies that choose to adopt the so-called “asset lock”. The Government understand that many here today were motivated by the proposed sale and demutualisation of LV= in 2021. Although, ultimately, that sale did not go through, because the vote in favour of selling was not backed by a sufficient proportion of members, we understand that it is right to interrogate the demutualisation process and consider the case for reform.
Voluntary asset locks—to prevent the distribution of legacy assets on the dissolution, sale, or conversion of a mutual—are already successfully adopted and freely entered into by co-operatives, mutual insurers, and friendly societies. The aim of these voluntary asset locks is to limit the financial incentives that many believe sit behind demutalisation processes. For example, many mutual entities have adopted “charitable assignment clauses” into their rules. This determines that any capital surplus on the dissolution, conversion, or sale has to go to a nominated charitable cause and not to the members at that moment in time. Within this, it is an established practice for mutuals to adopt high voting thresholds when members are deciding on decisions that affect the future strategic direction of the mutual.
We think these aims are laudable, but what the Government want to do is to build on the safeguards already in place to preserve the mutual movement. By placing an ironclad guarantee in legislation, we aim to support mutuals to make these locks harder to unpick in the future so that a mutual’s funds continue to be used for their social purpose and the social contract with its members and future members continues to be honoured, where the members choose to implement it.
By bringing forward this legislation, we are granting these efforts with a statutory footing should a mutual and its members decide that this is the best route for them. The optionality of the statutory asset lock is key, for it leaves the decision on the future of a mutual in the hands of mutuals and their members. Throughout, we have been guided by the core value of what it is to be mutual—with the interests of their members and communities at the heart of what they do.
If possible, I would like to go further: in alignment with the spirit in which the hon. Member for Preston has introduced this Bill, we are exploring the options for delivering reviews of key legislation underpinning the sector, including engagement with the Law Commission to help us to finalise our approach. I cannot go further than that today, as my hon. Friend the Member for North East Bedfordshire pressed me to, but that is something we are looking at and will move forward with.
Richard Fuller
I am very grateful to my hon. Friend for the opportunity to press him again. As he makes these considerations, will he commit from the Dispatch Box that, at Committee stage, he will come forward with the framework of the recommendations and, if he is minded to pursue this with the Law Commission, what issues it might cover?
Andrew Griffith
My hon. Friend is familiar with the process for establishing the final Law Commission review. I will undertake to keep him and the hon. Member for Preston informed as we move forward, and I hope he will be happy with that undertaking.
In conclusion, I have outlined the Government’s stance on the private Member’s Bill brought forward today for Second Reading. It is unusual for a Government to support a private Member’s Bill tabled by a member of the Opposition, but that only speaks to the value of this Bill and the work done to build consensus. I hope the House will recognise that the Government are committed to the development and growth of mutuals, including co-operatives, mutual insurers and friendly societies, and that they have been listening to and celebrating with us the work that is being done in our constituencies. The Government see great value in the mutual sector, not just because of the contribution to our economy, but because of the contribution to our communities. That is why we have already taken steps to support all types of mutuals and will always be open to ideas for broadening that support. Our goal and the goal of this Bill is the long-term growth and success of the sector, and for that reason I commend it to the House.