Co-operatives and Mutuality

Debate between Damian Hinds and Gareth Thomas

Thursday 30th June 2011 Westminster Hall

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I welcome the opportunity to have this debate and I congratulate my hon. Friends the Members for West Bromwich West (Mr Bailey) and for Islwyn (Chris Evans) on convincing the Backbench Business Committee to allow it to be held. I also echo the welcome for the opportunity to speak under your chairmanship, Mr Amess.

I am a member of the Co-op party; indeed, I am privileged to chair the Co-op party, and to be a Labour and Co-op MP. I therefore particularly welcome the opportunity to speak in this debate for the official Opposition. As other hon. Members have said, it is taking place during co-operatives fortnight, which runs until 9 July. It is an opportunity to celebrate the considerable contribution that co-ops and mutuals make to British economic and social and cultural life. However, it would be wrong of me, speaking for the official Opposition, not to go further and undertake some scrutiny of the Government’s record to date on providing assistance, or not, to the co-op sector.

First, let me acknowledge the contributions made by hon. Members who have taken part in the debate. My hon. Friend the Member for West Bromwich West, in setting out the scope of the debate, rightly alluded to the stereotypical view of the co-op movement that there certainly was throughout the 1990s and the early part of the current century. It saw co-ops not as dynamic and forward looking, but as things that were associated very much with the past. He rightly drew attention to the considerable change in the fortunes and perceptions of the co-op movement. I am sure that he shares my view that part of the reason for the turnaround in the perception of the co-op ideal in recent years has been the performance of the Co-op Group, notably under Len Wardle as chair and Peter Marks as chief executive.

I also echo my hon. Friend’s tribute to Cliff Mills, a solicitor from Cobbetts and an expert on the law surrounding co-ops. When I had the privilege of taking a private Member’s Bill through the House in 2002-03 that, I hope, began the process of modernising co-op law, Cliff Mills was a huge support and source of expertise. My hon. Friend was right to pay tribute to him.

The hon. Member for East Hampshire (Damian Hinds) rightly drew attention to the contribution that credit unions make and to their considerable potential to do more. He drew attention to the opportunity for the current Government to build on the work of the previous Government in encouraging access to credit unions. He gently asked—I paraphrase—why on earth the Government had not got on with the legislative reform order. Perhaps the Minister will be able to tell us when that order might appear before us.

A number of hon. Members drew attention to the difficulties that many people in the community that we represent have in needing to access money. I remember from my time in government the huge concern that grew and still exists today, which no doubt the Minister will want to comment on, in relation to illegal money lending. I pay tribute to my predecessor as the Minister responsible for consumer affairs, Ian McCartney, for, among other things, creating the concept of illegal money lending teams. That resulted in multidisciplinary teams, whose members included police and people from housing associations. They worked together not only to crack down on loan sharks, many of whom were particularly unpleasant individuals—there has been real success in bringing loan sharks to justice—but to ensure that victims had support to get out of the financial problems that had drawn them into the web of the loan sharks. Credit unions were often a crucial part of helping the victims of loan sharks to move towards a more sustainable future. In that context, I will come in due course to a point that my hon. Friend the Member for Islwyn made about access to credit unions across the country.

The hon. Member for East Hampshire raised the issues relating to social ISAs. I would be interested in the Minister’s response to the view expressed by the hon. Member for East Hampshire about their potential. The Minister may be aware of the Big Lottery Fund’s launch of a social impact bond—a particular model that it has backed. Again, I would welcome hearing from the Minister the Government’s view on whether that bond has considerably more potential and in particular whether it has the potential to help co-operatives to expand, perhaps in the way that my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger) alluded to in the context of renewable energy.

My hon. Friend the Member for Islwyn drew attention to the success of Tower colliery following its conversion to a worker-led co-operative. I echo his praise of the leadership of the colliery. I enjoyed my visit to Islwyn with him. I very much enjoyed the opportunity to see the Islwyn community credit union. Some fantastic people are involved in the leadership and running of that organisation and are making a real difference to his community. He referred to the considerable success that Wales has had in ensuring that there is access to a credit union for anyone and everyone in Wales if they want to join one. That is surely an ambition that we should have for England. It would be good to hear from the Minister whether the Government share that ambition and what they intend to do about it.

My hon. Friend made a very interesting proposal when he talked about whether we should consider lowering the age at which someone can join a credit union. That might encourage far earlier recognition of the potential of credit unions and thus draw people away from the very high interest rates charged by some of the legal companies. Some of them offer small amounts of money on what are often very high interest rates, relatively.

[Damian Hinds]

I am sure that the shadow Minister knows that the junior savers club mentioned earlier is not the only one. Many credit unions operate junior savers clubs, which allow young people to become more familiar with credit unions and encourage them to get into the savings habit.

[Mr Thomas]

Indeed, but that brings me back to what I said about the difference between Wales and England. Credit unions have a far greater reach in Wales than they do in England. We definitely need to see better access to credit unions in England, and better teaching in our schools about their potential to encourage saving from an early age.

The hon. Member for Hereford and South Herefordshire (Jesse Norman) made a number of important points about the contribution that co-ops have made. He adds to the pressure on the Government to prove their commitment to the co-op sector, as opposed to making worthy speeches about them. I echo his tribute to the life of Robert Oakshott. However, I gently suggest that he needs to do a little more to convince us that there really is a Conservative co-op movement, and that it is not just an oxymoron. We shall doubtless hear more from him on that subject in due course.

I turn to the contribution of the hon. Member for Chatham and Aylesford (Tracey Crouch). She made a number of references to the role of co-ops in the south-east, and I am sure that that will have been appreciated by the members and leadership of those co-operatives. She also alluded to the possibility of Conservatives standing under the banner of the co-operative movement. I understand why she would want to tone down the Conservative brand at the next election, but I doubt that that will be enough to help her.

My hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) spoke about the role and contribution of supporters trusts. He and the House may not be aware that the two greatest football teams in Wales and England, Swansea City and Arsenal, both have supporters’ trusts, and both have been helped by Supporters Direct. My hon. Friend will know, as will some of my other hon. Friends—but not Government Members, I suspect—that Supporters Direct was originally proposed by the Co-operative party and taken up by my right hon. Friend the Member for Leigh (Andy Burnham) when he worked for Lord Smith of Finsbury.

I join my hon. Friend in urging the Premier League and the Government to sort out the funding problems for Supporters Direct. It would be a terrible tragedy if the misjudged comments of someone who has now resigned from the leadership of Supporters Direct were to undermine the concept of football supporters’ trusts and the ambition of giving fans ownership and some further involvement in the running of football clubs. Perhaps the Minister can give us an indication of the Government’s thinking on that, and say whether they have been able to sort out future funding for Supporters Direct.

A number of hon. Members referred to the contribution of the Rochdale Pioneers. It is worth restating that, in opening their first shop on 21 December 1844, they were responding to the acceleration of mechanisation implicit in the industrial revolution. They put forward fairly radical ideas, typical of the traditions of the centre-left, in challenging the status quo to make things better for their community. In part, they were driven by the terrible poverty in the community and the need to provide people with affordable food. Some Members praised the contribution made by Robert Owen and the other community examples of co-operation in action that took place before the Rochdale Pioneers set up their first shop; they were right to acknowledge that co-operative spirit.

Today, the global co-operative movement has about 800 million members. It employs 100 million people and secures the livelihoods of some 3 billion people—half the world’s population. Indeed, there are 20% more jobs in co-operatives around the world than in multinational corporations. If only the same attention were given to the needs of co-operatives as is given to multinational corporations, the co-op movement would be in even better shape.

My hon. Friend the Member for West Bromwich West identified the traditions of collective self-help and the entrepreneurial spirit as driving influences in setting up effective co-operatives. As we heard, the UK has almost 5,000 successful co-ops, with almost 13 million members. The turnover of UK co-ops has risen by some 25% over the past three years. Perhaps the best-known example of co-ops in the UK is the Co-op Group, of which the Co-op bank is an essential part. Its move into renewable energy was mentioned by others. There is also, of course, the excellent John Lewis Partnership. If I may crave your indulgence, Mr Amess, I praise also those who are part of the Rainbow Saver credit union, in which I declare an interest, and those who run the excellent Harrow and Hillingdon credit union.

As I said, I had the privilege of piloting a private Member’s Bill through the House, which enjoyed the support of a huge number of co-operatives, including those running Labour clubs, rugby clubs and even armed forces clubs—and, surprising to me at the time, those running Conservative clubs. They all supported my Bill, which helped me to get it past the then Member for Bromley and Chislehurst, one Eric Forth.

Ministers have made a number of positive speeches over the past 12 months or so about the potential contribution of co-operatives, but the Government’s record over that time suggests that the apparent enthusiasm for co-ops shown by the coalition is not backed up by the reality.

The hon. Member for Cardiff North (Jonathan Evans), who is no longer in his place, and my right hon. Friend the Member for Cardiff South and Penarth (Alun Michael) have, on many occasions, raised the issue of the possible remutualisation of Northern Rock. Indeed, Co-op Members on the Opposition Benches have been pushing for some time for the Government to give serious consideration to the case for remutualisation.

The Government have clearly rejected that option, but it is important that they publish the work that one hopes has been done on that subject by United Kingdom Financial Investments Ltd. That is necessary not least because, when the Government said that they intended to sell Northern Rock to the highest bidder, there was much media speculation, presumably briefed by Treasury sources, that the Government did not expect to receive in full what they had injected into the bank. Will the Minister assure the House that all the paperwork that UKFI has produced on the feasibility of remutualisation will be published urgently, so that the House can assess whether UKFI and Deutsche bank, its advisers, did a thorough piece of work?

The Minister will be aware of the real concern about other aspects of the financial mutual world, particularly about the new European capital requirements to enable financial services businesses better to absorb losses, and how they will impact on building societies following the introduction of the new Basel standards. They do potentially pose a threat to the future of building societies. I recognise that the Government have acknowledged that and have been in discussion with European partners. I would welcome an update on that and further reassurance from the Minister that the Government are on the case to ensure that these new requirements do not prevent successful mutuals such as Nationwide, the Coventry and the Principality from being able to play an important role in the financial services sector in future.

The Minister will also have been briefed about the concerns about the future of friendly societies and the way in which the Financial Services Authority has revisited its own rule book and used a piece of legal advice. A former Minister, who was re-elected to the House in 2010, introduced the legislation on which that legal advice is based, but has said that it should not be applied to mutuals. None the less, that legislation is being used by the FSA as the basis of a piece of legal advice, which it will not publish, that is causing a series of friendly societies to face the prospect of demutualisation in the long term. It cannot be in the interests of the country to have an important part of the financial mutual sector facing such a threat.

I appreciate that both Hector Sants, the head of the FSA, and the Financial Secretary to the Treasury, who has responsibility for financial mutuals, have come to the all-party parliamentary group on building societies and financial mutuals to answer questions on the issue. As yet, though, there appears to be no serious effort by the Treasury and the FSA to find a resolution to the problem. I urge the Minister, who has made positive comments about co-operatives and mutuals in the past, to use the influence of his position to turn that situation around.

Furthermore, will the Minister explain what on earth has gone wrong with the coalition’s support for co-operative schools? Schools that want to become co-operative trusts have traditionally been funded to the tune of some £5,000 to help with the process. Currently, there are more than 100 schools that want to become co-operative schools. Given the success of that programme, why has the Education Secretary decided to end funding for that programme?

My right hon. Friend the Member for Cardiff South and Penarth mentioned that the previous Labour Government had intended to announce the mutualisation of British Waterways. Will the Minister explain how it will become a genuinely mutual organisation that involves people other than just a select group of trustees in its running?

The Minister has done much work on the future of the Post Office and has announced plans for it to become a mutual. One of the concerns that has been expressed both on the Opposition Benches and outside the House is about whether or not there is a viable business plan. I welcome the mutualisation of the Post Office, but there needs to be a viable business plan if it is to be successful. Will the Minister provide further clarity on that matter?

Will the Minister explain why the Government have decided to scrap the funding that supports the development of community pubs? The previous Government worked with the Plunkett Foundation to set up a programme to support such pubs. The scrapping of the funding can only hasten the demise of pubs in many communities across the country, making it far more difficult for people to come together and organise themselves.

My hon. Friend the Member for Liverpool, Wavertree talked about the failure of the Government to encourage community energy projects. Given that the Minister is a member of the same political party as the person who is responsible for that dismal record, will he pledge to take back to the Secretary of State for Energy and Climate Change the concern of the Chamber over his lack of commitment to co-operative energy projects?

Lastly, in terms of a critique of the coalition’s record on co-operatives, will the Minister explain to the Chamber why the Secretary of State for International Development is refusing to fund again the International Labour Organisation’s project for helping co-operatives in Africa? That programme has had considerable success in helping to strengthen the co-operative model, particularly in the financial sector in Africa, and such a decision seems somewhat at odds with the coalition’s commitment to both international development and co-operatives.

This has been an interesting debate with some important contributions from all parts of the Chamber. None the less, the only conclusion that one can draw after 12 months of the coalition Government is that there have been a lot of fine words about support for co-operatives, but not much action. I hope the Minister will give us some clarity as to when that situation will change.

Consumer Credit Regulation

Debate between Damian Hinds and Gareth Thomas

Tuesday 9th November 2010 Westminster Hall

[Damian Hinds (East Hampshire) (Con)]

I congratulate the hon. Member for Walthamstow (Stella Creasy) on the clear, in many ways convincing and impassioned way in which she put her case. She has had quite a double whammy over the past few days, with her ten-minute rule Bill last week and now this important debate. It is particularly timely, given the review of consumer credit and personal insolvency and this morning’s statement by the Department for Business, Innovation and Skills on the future of the post office network, which, to be fair, contained rather more of positive interest to people who care about those issues than perhaps some Members have suggested today.

Like the hon. Lady, I will concentrate on instalment credit, rather than revolving credit, although both are relevant. I am sure that the debate will be positive, but I will start with three negative points—three not’s. First, this is not a party political debate. I pay tribute to the previous Government’s work with the credit union sector, for example, which at the time had all-party support. I am also sure that measures to address those problems and help the most vulnerable people will receive support from across the House. I know that that is the case among many of my colleagues in the coalition Government, and it is evidenced to a large extent by the number of Members from both sides of the House who have attended the debate.

Secondly, this issue is not new, although, to be fair, it is changing. The leader in doorstep home credit has been around since Victorian times, but every few years the nature of the market changes a little. There are changes over time regarding the importance of priority debt and that of consumer debt, and there might in future be some change back towards priority debt. However, it would be wrong to suggest that the home credit market has been created by the comprehensive spending review, and everyone who has ever worked in communities that have such issues knows that well. It is also a dynamic market, and there is always something new to worry about: whenever we think we have got our heads around the market, something new comes along, be it the increasing problems with fee-paying debt management agencies, inertia selling, payment protection insurance, the growth in pay-day loans, the appearance of pre-paid sub-prime credit cards or the appearance of so-called credit rehab cards.

Thirdly, it is not all bad. Every segment of the market plays some sort of role. Even pay-day loans can have a role—for example, in avoiding excessive current account penalty charges. We also have in this country, much more so than in the European markets to which the hon. Lady referred, a pretty competitive and diverse market. The effect is that very few people in this country are totally excluded from the legal and, therefore, regulated—one might argue that it is not regulated well enough—and regulable part of the market.

There are always three key aspects to any debate on this subject. The first is the disclosure of information; education, so that people have the wherewithal to do something with that information; and the whole surrounding culture, particularly what we as a society aspire to regarding the balance between savings and debt to help people get through the ups and downs of life, which everyone has. I will not talk about that this morning because there is not much time and many Members wish to speak. The second area, which is the focus of the hon. Lady’s ten-minute rule Bill, is smarter regulation, and the third is alternatives to high-cost credit. I will talk briefly about each of those aspects.

When it comes to regulation, we need to understand our objectives, of which there could be one or two. It might be either to reduce the cost of credit to people on very low incomes and who have great difficulties in their lives, or to reduce the prevalence of credit and debt for those people. That is an important distinction, because it might lead to one or two different things. For example, if one just wanted to reduce the costs, one might liberalise the rules on door-to-door canvassing for cash loans, because that would allow new entrants into the market more easily, which could undercut the existing players and cut the cost. However, not many of us would want to do that. If we are trying to reduce the prevalence of lending in those sectors, we might do the opposite and ban door-to-door canvassing even for non-cash loans—meaning voucher loans—because they are used, as the hon. Lady will know, as the way in to new customers, who can then be graduated on to higher value cash loans. My assumption is that the objective must always be both to reduce the cost to people who are taking on sub-prime loans, and to reduce the prevalence of such lending.

The second key question on objectives is whether we are trying to hammer a particular segment. As I said, each segment, if handled properly and responsibly, has a role. Therefore my assumption is that we are trying to target not a particular segment—for example, pay-day loans or home credit—but the principle of people paying sky-high rates for credit when they need it.

There are perennial problems when trying to make smarter regulation in this area. In particular, because it is such a diverse and organic market, as soon as we deal with one problem, another pops up. In fact, in some ways, it is because we deal with one problem that another pops up. Let me give a couple of examples. If we manage to bear down on cash lending, we will see—this is true in some of the American states to which the hon. Lady referred—an increase in rent-to-own, voucher lending and catalogue lending, with grey pricing. That is where the base price of the item is inflated such that at a 29.9% interest rate, to use a random example, the lender is making considerably more than that in terms of margin. If we bear down effectively on interest charges, there is the automatic tendency, it seems, for lenders to rely more heavily instead on behavioural penalties, which, in many types of lending, can end up costing far more than the apparent rate of interest.

With any cap that we put on the cost of lending, mathematically we will be disproportionately impacting on the highest-risk customers, which in this market means the lowest-income customers and usually the most vulnerable customers. At the extreme end, when we are talking about excluding those people, there is the danger that we will push them into the arms of illegal and unregulated moneylenders—the sort of people whose idea of a late-payment penalty is a cigarette burn to the forearm. Of course we all want to avoid that.

However, despite the perennial problems, there are still possibilities, many of which were outlined by the hon. Lady. APR is a widely misunderstood measure, and there is always the danger that anything we replace it with will also be widely misunderstood, but total cost of credit has more potential than APR to be understood.

On caps, I am a free-market Conservative, so in general I am not in favour of price controls. However, the hon. Lady made a good point in that regard. If we look throughout the European tradition world and the Anglo-Saxon tradition world, hardly anywhere has a market as liberal as ours in terms of the interest rate regime. Of course, before 1974—when there was a Conservative Government—there was a usury ceiling in this country. We have to ask the question: if we have got this so brilliantly right, how come other countries are not trying to copy us?

I do not think it will work to go after individual markets saying, “We’ll have this restriction on this product and that restriction on that product,” because new products will just be invented. I wonder whether it is possible to come up with a formula that does away with the market’s worst excesses, while not putting any individual segment of it entirely out of business.

I would love to hear the thoughts of my right hon. Friend the Minister on the regulation of rules and supplementary charges on loan roll-over, missed payments, minimum payments and so on. We also need to think about the way in which credit scoring works. By the time that people eventually seek help, many of them have run up eight, nine or 10 separate lines of credit. We have to wonder what the lenders of the eighth, ninth and 10th lines of credit were thinking. This is a matter of responsibility. Of course in terms of the maths, it might be perfectly rational for the lender to issue a lot of loans with relatively low credit-scoring hurdle points, in the knowledge that although they will have to write some off, that is still a more advantageous profit model than rejecting them.

Most of all, I would love to hear from the Minister on something the hon. Member for Walthamstow talked about at length—alternatives to high-cost credit, to which there are multiple aspects. For example, the social fund is probably due for a bit of root-and-branch reform. Here I am talking not about priority debts or emergency loans, but the discretionary fund. In addition, mainstream banks can be exhorted to develop bounce protection credit lines more quickly, which will stop so many people being forced into pay-day loans.

Above all, however, the opportunity is with credit unions. I welcome this morning’s statement on the post office network, which gives some positive indications. Credit unions have made great strides in the last few years. Historically, they had been very strong in the west of Scotland, Manchester, Merseyside and parts of London, but not in the rest of the country. In recent years, the situation has improved, but we are still not at the point at which everyone can access a credit union.

The range of services has also improved dramatically, with the credit union current account, cash ISAs and so on. When the legislative reform order that we all hope will come along very soon is passed, that will make further strides in liberalising the common bond—in being able to pay fixed rates of interest on savings accounts and being able to bank to groups as well as individuals, which fits well with the big society agenda.

[Mr Thomas]

I do not seek to make a partisan point, but will the hon. Gentleman join me nevertheless in asking the Minister to clarify the future of the growth fund, which is due to end in March 2011 and provided significant money to help credit unions and other community finance organisations expand, in order to provide the access-to-credit alternatives he has described?

[Damian Hinds]

I am sure the Minister has heard the question and made a note of it. What I will say about the growth fund is that of course, capitalising credit unions to expand their customer base has many positive aspects. Not all credit unions were fully geared up to make maximum use of some aspects of the growth fund, and particularly the speed of the growth fund.

I would also like to see other ways of further funds for lending going into credit unions. All of us, if we have not already done so, can open a savings account with a credit union. That is not a flippant point. We need to encourage more people at higher and middle rates of income to use credit unions as their place for savings, because then, of course, those savings become the source of loans to other people.

Credit unions do not yet exist on the critical scale at which there is mass awareness of the services available.

--- Later in debate ---

[Mr Thomas]

I will not comment on my hon. Friend’s television viewing habits, other than to say that I know he has raised concerns about the activities of Wonga, and I will come on to that. It is an interesting company in the consumer credit field for a slightly different reason, which I shall come to later.

I join my hon. Friend the Member for Walthamstow in asking the Government to consider including the issues that she raised within the review of the consumer credit sector, and I do so in a spirit of welcoming their review of consumer credit.

[Damian Hinds]

There seems to have been a tiny bit of confusion earlier about the nature of the review to which the hon. Gentleman refers. I think I heard suggestions that it was restricted to credit and store cards only, but the call for evidence was much broader, as he knows.

[Mr Thomas]

As the hon. Gentleman says, there has been a broader call for evidence. I hope the Minister will use the debate to call for further evidence about, and embrace, the areas that my hon. Friend the Member for Walthamstow championed in the debate and in her ten-minute rule Bill.