Co-operatives, Mutuals and Friendly Societies Bill (First sitting)

(Limited Text - Ministerial Extracts only)

Committee stage
Wednesday 30th November 2022 Public Bill Committees

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you as Chair, Mr Mundell. I begin by thanking and warmly congratulating my hon. Friend the Member for Preston on securing cross-party support for this important Bill.

Britain has a long tradition of fostering the principles of co-operation and mutual support. The histories of the Co-operative party and the Labour party in this country are closely entwined. That relationship was institutionalised in 1927, when the Co-operative party and the Labour party entered an electoral agreement to stand joint candidates in elections. Nearly a hundred years later, that agreement is going strong—as one of many Labour and Co-operative MPs, I can attest to that.

To this day, both parties continue to make the case for co-operatives and friendly and mutual societies. I have always been proud to work with the Co-operative party to promote the co-operative businesses that are leading the way in improving equality and productivity at work. As a shadow Treasury Minister, I am keenly aware of the role that co-operatives and mutuals play in trade sectors as diverse as agriculture, renewable energy, retrofitting, creative industries, manufacturing, distribution, wholesale, retail and financial services.

Those British businesses play such an important role in supporting working people across the country in gaining greater control over their lives. In the financial services sector for example, building societies provide people with a low-risk, member-focused banking alternative and research has shown that trust in building societies is consistently high. Building societies are also typically well capitalised, making the sector more resilient to financial shocks and better able to lend and plan for the long term.

At the same time, credit unions serve 1.9 million members and 2.1 million depositors across the UK. Currently, around £1.7 billion has gone out in loans to credit union members, providing a crucial lifeline to the most financially vulnerable in society and preventing people from turning to loan sharks and high-interest loans.

With the right support, the co-operative sector has the potential to provide solutions to many of the crises and challenges we face as a country, such as the cost of living crisis or climate change. But despite the distinctly British character and history of mutually and co-operatively owned companies, and the important role they play in promoting financial responsibility and resilience among their members, the sector’s needs have too often been ignored. The number of mutual credit unions has fallen by more than 20% since 2016. Ordinary families have paid the price, with many forced into the arms of unethical lenders. That will only get worse as the cost of living crisis deepens.

Unlike the United States and many other European countries, the UK is uniquely lacking in mutually or co-operatively owned regional banks, which could play a crucial role in providing the affordable credit that small and medium-sized businesses need to reach net zero. The growth of co-operatives in this country is being held back by a legislative and regulatory framework that is not designed for co-operative businesses. Given their unique structure, co-operatives, mutuals and friendly societies are often excluded from traditional investment methods.

Sadly, as we have heard, the sector is also under threat from demutualisation. There was celebration across the co-operative and labour movements last year when members voted to reject the controversial takeover of the insurer Liverpool Victoria by the private equity firm Bain Capital, yet demutualisation remains a real and present threat to the sector. That is why the provisions contained in the Bill are so important and will help to ensure that mutual capital is maintained for its intended purpose.

We welcome the Government’s support for the Bill, and we would like to use this opportunity to urge the Government to consider wider reform, such as giving co-operatives more freedom to issue perpetual capital to fund investment, to secure the future of this important sector. The Financial Services and Markets Bill, which is currently passing through the House, contains some welcome and long overdue provisions, such as enabling credit unions to offer a wider range of products, but if the Treasury wants to unlock the economic potential of the sector, it could go much further. That is why I hope that, alongside supporting this Bill, the Government will consider supporting the amendments tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq) to the Financial Services and Markets Bill, which would give the regulators—the Financial Conduct Authority and the Prudential Regulation Authority—an explicit remit to report on how they have considered specific business models, including mutuals and co-operatives, to ensure they are given parity of esteem with standard providers.

It is time to radically reform the rules governing the sector, to give greater flexibility and to allow mutuals and co-operative financial services to grow. The Labour party and the co-operative movement share a commitment to building a society in which power and wealth are shared fairly. That is why the Labour party and the Co-operative party have agreed an important ambition for government: we will double the size of the co-operative and mutual sector in the UK. We recognise that the Bill represents an important step toward achieving that aim, and we will be giving it our full support today.

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure to serve under your chairmanship, Mr Mundell, and it is always a pleasure to follow the hon. Member for Ealing North. I congratulate the hon. Member for Preston on reaching Committee stage with this important Bill and on the role played by him and his team in championing the needs of the mutuals sector. I also congratulate my predecessor, my hon. Friend the Member for North East Bedfordshire, who did so much to pilot the Bill in its early stages and has given it his wholehearted support. It is always a pleasure to work with him, and I am pleased that we can take it forward.

I am pleased with the warm reception that the Bill has received right across the sector and on both sides of the House. A number of my colleagues look forward to their membership of the co-operative movement, and would it not be a wonderful thing if the co-operative movement once again graced both sides of the House? I always pay tribute to my thought leader in this space, my hon. Friend the Member for Devizes, who has consistently advocated the benefits of a place-based approach to policy. We continue to hang on his every word as to how we can make that a reality as we seek to level up the United Kingdom.

My hon. Friend the Member for Gloucester raised some important points. I will write to him with what I consider to be the best legal position on the perfectly fair points he raised in pursuit of facilitating transactions that would protect mutuals, and not seek to undermine them or create a loophole, which I am sure is not the spirit of what he suggests. Nor would the Government want to see that or support that.

[Richard Graham]

It was interesting that the shadow Minister, the hon. Member for Ealing North, raised an ambition to double, effectively, the size of the mutual sector. Although that is an admirable ambition, in an isolated sense, I think that there is work to be done on a review of the sector to see why some credit unions have failed, where the inability to raise capital is holding back the co-op and mutual movement, and what more can be done on some of the points mentioned by colleagues on both sides of the Committee to see where things are holding the sector back. Otherwise, the ambition in itself may not lead anywhere.

[Andrew Griffith]

I thank my hon. Friend for his point. It is a laudable ambition, which I am certainly happy to devote time to. Mutuals with the values of people in the community at their core are genuinely central to the vibrant, competitive and diverse—we are in favour of financial diversity—way in which the UK can serve the whole community. It is right that we look at how we do that, and how we can access capital. There are some technical points—I believe that Opposition Members understand that—in ensuring that we retain the tax advantages of mutuals, and do not inadvertently make them look more and more like corporate entities, which they are not, thereby prejudicing that tax treatment.

[Gareth Thomas]

I take the Minister’s point that there are some technical issues, but there has seemingly not been a great deal of will from HMRC thus far to try to find a way forward on them. Will he set out what instructions he has given to HMRC officials, perhaps to co-operate with the Law Commission, or whether separate work is being done within the Treasury to find a way around those technical issues? One of the things that came out of the LV= story—it was not a particular issue for LV=, but it certainly was for other mutuals—was that access to capital is holding back the development of friendly societies and their ability to offer more wide-ranging products and services.

[Andrew Griffith]

I am sure that my steely-eyed colleagues at HMRC do not need any particular direction, but they will have some challenge from me. I have already started to engage in that space. The hon. Member will appreciate that the corpus of law in this area is substantial, and that we should proceed cautiously. I will come on to the Law Commission, and perhaps that can be—

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[The Chair]

Order. We cannot have a conversation. The hon. Member should either intervene or not.

[Andrew Griffith]

I also associate my remarks with those of my distinguished friend and neighbour, my hon. Friend the Member for Worthing West, about the potential for the sector. He too made the point about its important contribution to a diversity of models, and potentially looking at the cap on the rates that mutuals can attract. Particularly in an environment of rates moving around, we should look at that with an open mind, and I will continue to do so. I am sure that the hon. Member for Preston will continue to be a doughty champion for the sector, and I look forward to engaging with him going forward. I know that the Bill does not go quite as far as he would like. It is great that we have such strong ambition, but I do not think that we should let the perfect be the enemy of the good. We should celebrate this really important concrete step, which will prevent the predation of demutualisation.

More widely, the Government are supporting credit unions through the Financial Services and Markets Bill, as the hon. Member for Ealing North reminded us. It would be good to see a higher number of them. As he knows, they are regulated by the Credit Unions Act 1979, which the Bill amends to allow for a significantly wider range of products and services, including for the first time hire purchase agreements, conditional sales agreements and insurance distribution services—the ability to act as a distributor of insurance, helping both the reach of those products and their own financial growth. That will be of genuine benefit to members.

The Government are also helping building societies, another part of the broader mutual movement, to expand their opportunities for growth by ensuring that they operate within a modernised legislative framework. We have concluded our consultation on the Building Societies Act 1986 and look forward to how we will respond to it to help that important part of the sector.

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[Gareth Thomas]

Will there be an opportunity for the House in some way to consider whether the scope of the review is as wide-ranging as those of us who are advocates of the sector across parties think is necessary?

[Andrew Griffith]

I am always happy to engage with the hon. Member. The simple answer is that I do not know whether it is for the House to engage, but I am happy—I hope my actions to date speak as loudly as my words—to engage on what that scope should be. I certainly assure him that, before the launch of a review, the sector will be consulted. If hon. Members have particular points to make, I am keen to hear them.

The future of mutuality looks bright and prosperous. That ambition is supported by the Government. I commend the hon. Member for Preston for his work on the Bill. The Government will support it.

[Sir Mark Hendrick]

I am grateful for the co-operation that the Government have shown on the Bill through successive Ministers over the past four or five months. I am encouraged to hear about the co-operation of the Law Commission and the moves to be made to involve it in a review of the sector. I look forward to seeing what the review brings forward. In the spirit of what my hon. Friend the Member for Harrow West said, I hope that the House will get the chance to deliberate the outcome of the review and to produce future legislation that will go towards solving many of the problems that I identified in my original draft of the Bill.

This is not the Bill that I introduced, but a good chunk of it is there, and I am grateful for the asset lock that is being introduced. I hope that we can also work to deliver, in future, further aspects of my original Bill in order to reach what I think is a conducive and favourable environment for co-operatives, mutuals and friendly societies in this country. If we look at the examples of the sector in other countries, in particular in mainland Europe, we can see that we are well behind in the degree of contribution to the GDP of those countries, compared with the degree of the contribution to GDP of the sector in this country.

A lot remains to be done, but I thank the Minister for bringing forward that work to ensure that we can get there at some stage in the future. Thank you, Mr Mundell, and I thank the Minister, the Treasury team and everyone else present today to support my Bill.

Amendment 1 agreed to.

Clause 1, as amended, ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Title

Amendments made: 2, in title, line 1, leave out from “Make provision” to “to permit” in line 3.

This Amendment and Amendment 3 would amend the long title of the Bill to reflect that the purpose of the Bill is to permit the capital surplus of mutual entities to be non-distributable.

Amendment 3, in title, line 4, leave out—

“; to amend the Friendly Societies Act 1992”.—(Sir Mark Hendrick.)

See the explanatory statement for Amendment 2.

Bill, as amended, to be reported.