Small and Medium Sized Co-operative Development

Adrian Bailey Excerpts

1st reading: House of Commons
Tuesday 8th November 2016 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I beg to move,

That leave be given to bring in a bill to remove the requirement for small co-operative societies to appoint lay auditors; to increase the threshold for co-operative societies to disapply the full audit requirement to the same level as PLCs; to require auditors to report contingent on a threshold of share capital instead of turnover or on a special resolution at a general meeting; and for connected purposes.

Co-operatives are owned and run by the people closest to them, who may be customers, employers, suppliers or local residents. They all have one thing in common: they own the business and have an equal say in what it does and how its profits are shared. Historically, the public perception of co-operatives has been largely determined by the Co-op retail movement, but there are now more than 7,000 co-operatives, with 15 million members, and they contribute an estimated £37 billion to the economy. They range widely, covering retail, agriculture, consumer-based enterprises, creative industries, supporters trusts, local community energy schemes, housing and community care.

It is striking that according to YouGov polling from February carried out by The Hive, a new business support group designed to start or grow co-operative organisations, some 58% of people say big businesses are out of control; 59% of people say they have no control over the economy, and that rises to 62% for those who say they have a lack of influence over business; and 68% of people in work feel they have no control in their workplace. On the other hand, 62% of people see co-operative businesses as fair, whereas only 11% say the same of plcs.

It is clear that co-operatives offer a solution. They give people control of the businesses they are closest to, whether they shop at them, work at them or supply them. They also give people control over things that matter to them, in the process boosting productivity, harnessing innovation and giving them a real stake in their business. That is the co-operative advantage.

Most political parties have recognised and acknowledged the advantages that the co-operative business model has over its plc counterparts. The Labour party has committed to working with the co-operative movement to double the size of the co-operative economy in government; this would take the sector from £40 billion or so to £80 billion. To do that, co-operatives need to compete with the plc business model on a level playing field. That has been a long-standing aim of the Co-operative party and a long-standing demand from the co-operative movement. Too often co-operatives come up against the regulation and legislation designed with other business forms in mind.

This Bill aims to ensure that smaller co-operatives enjoy the benefit of a level playing field and to help unleash the potential boost from co-operation to the UK economy through higher employee engagement, which, according to Co-operatives UK could be well over £50 billion. Furthermore, through levelling the playing field for smaller co-operatives, the economy as a whole benefits from increased business innovation. Innovation accounts for 70% of long-term economic growth in the UK, and the most common sources of innovation are employees and customers.

There are thousands of smaller and medium-sized co-operatives in this country, all of which bring the benefits of the model I have already described to their communities, members and local economies. It is important to note that eight out of 10 co-operatives created in the last five years are still going strong. A combination of sharing risks, harnessing the ideas of many and the stake members have on their own business means that co-operatives demonstrate significant business resilience. My Bill calls for small but important changes to the Co-operative and Community Benefit Societies Act 2014. These changes and the removal of red tape will bring the treatment of co-operatives in line with that of other business models.

First, the Bill would remove the requirement for the very smallest co-operatives to appoint lay auditors. That would mean that the very smallest co-operatives, with a turnover under £5,000 a year, were treated the same way as small companies, and would not have to appoint lay auditors to scrutinise their accounts. 

Secondly, it would level the playing field between co-operatives and other types of companies by increasing the turnover threshold at which co-operatives have to apply full audit requirements from £5.6 million turnover to £6.5 million. This change would put small co-operatives on the same footing as companies regarding the turnover threshold at which they have to appoint professional auditors.

Thirdly, the Bill would make the requirement on co-operatives for an auditor’s report contingent on the amount of share capital raised by a co-operative rather than a turnover threshold. It would allow small co-operatives that have not raised significant share capital to grow without facing additional requirements that are not applied to small companies. It will also mean those co-operatives that have raised significant share capital will have to have a professional auditors’ report.

To provide added protection to members, the law would give them the right to require an auditor’s report regardless of the share capital by passing a resolution at a general meeting. I anticipate that these changes would benefit thousands of small co-operative societies around the country.

These legislative changes are designed to give further impetus to a business model and movement that are flourishing but are yet to achieve their full potential. There is a powerful argument for a dedicated team of civil servants to be set up within the Department for Business, Energy and Industrial Strategy to act as a champion for co-operatives and—in line with the Prime Minister’s thinking—to examine ways of developing a more inclusive society that works for working people. The proposals in the Bill are small but critical to that approach.

On 3 December we will be celebrating small business Saturday. Let us give small co-operative businesses an additional reason to celebrate by supporting the Bill today.

Question put and agreed to.

Ordered,

That Mr Adrian Bailey, Mr Barry Sheerman, Mrs Louise Ellman, Stephen Doughty, Luciana Berger, Mr Gavin Shuker, Mr Gareth Thomas, Anna Turley and Christina Rees present the Bill.

Mr Adrian Bailey accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 3 February 2017 and to be printed (Bill 90).