Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017

Debate between Lord Young of Cookham and Lord Mawson

Thursday 1st February 2018 Lords Chamber

[Lord Mawson (CB)]

My Lords, I agree with the noble Lord, Lord Kennedy. Although I am not sighted on the detail of the co-operative and community benefit societies order, it feels like the right direction of travel. My point is really just a general one. I spend a lot of my life in SMEs and small charities, and at the moment many of them are becoming overwhelmed by the amount of bureaucracy, red tape and other things that are appearing on their desks. My question is really one that the Minister might take back to government. Someone needs to look carefully at what is happening to these small organisations, in terms of the amount of red tape and things that are appearing on their desks, and whether we can create this direction of travel for some of them. It is just a general point and a concern.

I was at a small charity last weekend, with one member of staff and two part-time people working in it, which is doing a great piece of work around education in the local community. The amount of treacle and stuff they were having to deal with was immense and extraordinary. You can feel many good people, who want to do good things in their community, wondering how much longer they can have a role in these kinds of things. They become very fearful of the 92-page document that appears on their desk. It is a general point, but one that needs to go back to government.

[Lord Young of Cookham]

My Lords, I am grateful to all noble Lords who have taken part in this brief debate and hope to address as many points as I can in response.

The noble Baroness, Lady Kramer, asked why the figures for the thresholds had been chosen. The reason is given at point 7.4 of the Explanatory Memorandum:

“These thresholds are out of step with both inflation over the last decade, and current company law. Over the same period, the thresholds for private limited companies of comparable size have been updated”.


We are aligning the thresholds in this order with those for companies. As we heard from the noble Lord, Lord Kennedy, this has by and large been welcomed. The noble Baroness made a different and wider point, which goes to the heart of the Co-operative movement— namely, how it takes decisions. Not just those on audit, but all decisions in co-operatives are nominally taken by the members. If she wants to press that issue, it goes to the heart of what the Co-operative movement is and how it is regulated. It is a much broader point than the specific one on audit. As I said, they would have to vote for this exemption. In addition, there is still an opportunity for the regulator to intervene if he is concerned, and there will still have to be an ordinary audit of the accounts.

A number of noble Lords, including the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, asked about the exemption for building societies and were slightly concerned that it might go broader. But if one looks at new paragraph (d) in Article 2 of the SI, it is very narrowly drafted. The general exemption, which the noble Baroness referred to, is lifted in the very constrained circumstances of complying with,

“an obligation imposed by a recognised clearing house”.

So it does not open the building societies into the wider field of trading in derivatives and of speculation.

The noble Baroness asked a general question about cascades. When I introduced the order, it was in the specific context of a limited failure and the members having to bid for the interests of the defaulting member. On the broader question of what happens if the whole system collapses, the briefing I have here says, “I will write”. It is a good question about what happens if there is a systemic failure. As I say, I will write about that.

The noble Lord, Lord Kennedy, asked about consultation with the Building Societies Association. Yes, we consulted representatives of the BSA and they are supportive of the change. As I said a moment ago, the exemption is sufficiently narrowly drafted so that building societies will not be able to engage in speculation.

The noble Lord, Lord Tunnicliffe, asked about the delay in transferring the registration responsibilities from Northern Ireland over to the FCA. It was caused, first, by the transfer of the responsibilities of the FSA to the FCA and PRA, which were established in 2012. Secondly, time was needed to prepare for the transfer between the FCA and Department for the Economy officials. I do not think there is anything sinister behind it. Northern Ireland Ministers agreed with HM Treasury to transfer the function, and the Department for the Economy in Northern Ireland has indicated that it does not have the resource to continue providing this function. If it had kept on doing it, it would have had to increase the fees. As I said when I introduced the order, it is logical to have registration and regulatory oversight sitting with the same body.

The noble Lord, Lord Mawson, raised a more general point about regulation for charities. I will take that away, but we have recently made it easier for charities to reclaim the tax through Give As You Earn, by making it less bureaucratic to claim the extra tax. I think I remember taking through an SI, or indeed a Bill, on that a year ago. I will write to the noble Lord, because he raises a good, general point about the regulatory burden on charities, which we certainly want to lift.

I think I have covered all the points raised, apart from the systemic one about cascade failure. I beg to move.