Building Societies Act 1986 (Modifications) Order 2024

Lord Altrincham Excerpts

Monday 18th November 2024 Grand Committee

These are relatively small things but the lessons of the past are that temptation can be quite powerful in any organisation engaged in the financial sector. It is very hard for the regulators to genuinely monitor such a wide range of institutions. I am therefore concerned to understand why that decision is being taken. To me, these are not ordinary companies. They are companies whose integrity is far more fundamental to our well-being and our economy than many other institutions. We will not oppose this but I would say that, in my own head, some red flags are raised here.

[Lord Altrincham (Con)]

My Lords, I note my interest as a director of the Co-operative Bank, which has agreed to be acquired by the Coventry Building Society. I agree with the comments from the noble Baroness, Lady Jones, on the advantages of the mutual sector. I possibly hesitate to agree with the comments of the noble Baroness, Lady Kramer, given that the Co-operative Bank is not the best example of the virtue of the mutual sector as opposed to capitalising banks under the Companies Act in the normal way and funding them in public markets. These things can be looked at in different ways.

Building societies have long been the backbone of local communities. They embody the principles of mutuality and prudence, offering a model of finance that places people before profit. Yet, as our economy evolves and the needs of homeowners and savers shift, so too must the regulations that govern these vital institutions. This draft order amends Sections 60 and 61 of the 1986 Act to remove all references to the normal retirement age or the compulsory retirement age for directors. It will update that Act in line with the Companies Act 2006, under which there are no longer corresponding restrictions for company directors following the repeal of Sections 293 and 294 of the Companies Act 1985 by Section 1295 of and Schedule 16 to the 2006 Act.

The draft order also amends Section 80(1) of the 1986 Act so that the current requirement for the balance sheet of a building society to be signed by two directors and the CEO is changed to allow one director to sign the balance sheet on behalf of the board. We would support that on these Benches. This amendment will modernise the 1986 Act, aligning the provisions with Section 414 of the 2006 Act and, on these Benches, we welcome it. This order would reduce a small but unnecessary burden on building societies, providing them with the equivalent accounts sign-off procedures for companies.

It makes sense to modernise the 1986 Act, or at least to bring it in line with the Companies Act 2006. As Conservatives, we will not oppose a measure that will ease unnecessary burdens on businesses and financial institutions, and thus I welcome this order.

[Baroness Blake of Leeds (Lab)]

I start by thanking noble Lords for their attention on this important matter. As I stated in my opening speech—I hope this gives some reassurance to the noble Baroness, Lady Kramer—the Government are committed to supporting the mutual sector, which we see as a key component in delivering inclusive growth across the country. I refer noble Members to the Mansion House speech delivered by the Chancellor of the Exchequer just last week, when she announced multiple new measures to unlock the potential of the mutuals sector. I do not need to go through all the specific points that were made then, but that speech amounted to a very strong commitment and recognition of just how important their contribution is and how much more could be achieved.

I specifically refer to the comments that the noble Baroness, Lady Kramer, made about the change to one director being allowed to sign off the balance sheet. I repeat that the amendment will not impact on the reliability and accountability of the process. The full board of the building society will still be required to approve the annual report and accounts, and the director’s responsibility is not enhanced by this change. Additionally, all building societies are public interest entities and are regulated by both the Prudential Regulation Authority and the Financial Conduct Authority, meaning that building societies are required to comply with the regulatory obligations of these entities, ensuring that their accounts are appropriately checked and scrutinised. In addition, Section 60(11) and (13) of the 1986 Act will specify, after the amendment of the SI, that all directors must step down after three years, regardless of age, although they may be re-elected. Therefore, wider members will still be able to scrutinise the performance of all directors.

There is really no justification for preserving age restrictions for building society directors when these have indeed been removed for companies. I thank the noble Lord, Lord Altrincham, for his comments and support for the proposals that are being considered today. It is our strong belief that these will update certain outdated and unnecessary provisions in the Building Societies Act 1986 and will therefore ensure that building societies can benefit from a legislative regime that is fit for the 21st century. I am sure that noble Lords will join me in supporting these amendments.