Co-operatives and Mutuality

Adrian Bailey Excerpts

Thursday 30th June 2011 Westminster Hall

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

Thank you, Mr Amess, and I welcome you to the Chair. I think that this is the first time that I have spoken in a debate that you have presided over. I suspect that this debate will not be the most difficult debate that you will ever have to adjudicate on. All the same, I am sure that you will handle whatever comes up in your normal equitable and even-handed manner.

Before I go into the substance of my remarks, I should declare an interest. Like other Members here in Westminster Hall today, I am a Labour and Co-operative Member of Parliament. Indeed, prior to entering the House, I was employed for 18 years by the co-operative movement. I will not detain Members today with a résumé of those 18 years working in the movement, but there are obviously a number of things from my past experience that I want to draw on.

Before I do that, I should thank the Backbench Business Committee for allowing this particular debate. My hon. Friend the Member for Islwyn (Chris Evans) and I originally asked for it because we are in co-operatives fortnight, which runs from 27 June to 9 July, and therefore it seemed appropriate that we used this particular window of opportunity to have a debate that would highlight the contribution that the co-operative movement makes at this time, not only to the total economy but to thinking in community and Government policy circles. It is also an opportunity to test and if necessary challenge the Government on those areas of their policy that they say are supportive of co-operatives, to get some idea of what progress is being made.

I will start off with a somewhat philosophical question, “What is a co-op?” Perhaps 30 or 40 years ago, there would have been a fairly simple response to that question—“It is a company registered under the Industrial and Provident Societies Act.” At that time, one’s local Co-op store would immediately come to mind and I suspect that Members of my generation, if not perhaps newer Members, can easily quote their parents’ divvy number. It was something indelibly etched on our memories.

Of late, however, the term “co-operative” has come to embrace a number of corporate structures, including the mutual building society and other structures in the financial mutual sector, friendly societies and in some cases employee share-ownership companies. Not all of those have a traditional co-operative structure but the values that underpin them are very similar in each case to those of the co-operatives and they also have certain basic principles in common with co-operatives. They are, of course, democratic ownership and participation; one member, one vote; and the reinvestment of surpluses. These organisations are intended to make profits, but it is the distribution and allocation of those profits that distinguish them from other forms of proprietary corporate structures. They may also demonstrate a higher commitment to what is measured as “ethical trading”, value for money and a certain level of community involvement, although they do not necessarily demonstrate those things. In general, however, those are the sort of principles and values that underpin the different sorts of corporate models that we loosely term as “co-operative”.

It is probably fair to say that for a long period of time co-operatives were somehow stereotyped as a slightly idealistic and not necessarily appropriate business model to survive in the highly competitive capitalist world that we now have. Crucially, however, if we go back to the roots of both the co-operative and mutual sectors, we realise that these forms of organisations did not arise out of an idealistic or visionary approach. Essentially, they arose out of groups of people trying to get out of a particular problem and realising that it was only through self-help and working together that they could actually do so.

I was particularly struck by two quotes in a pamphlet by Cliff Mills on mutual organisations. The first is:

“The different types of traditional mutual business (co-operative societies, building societies, friendly societies, mutual insurers) operated in different ways, but the underlying reason for existence–self-help–was the common theme.”

[Jonathan Evans (Cardiff North) (Con)]

On that specific point, Members of Parliament will recall the example of the Tredegar Medical Aid Society, in which my grandfather was very proud to serve and which Aneurin Bevan said was the forerunner idea for him in establishing the national health service. It was a programme in which all the miners in Tredegar contributed a sum and then elected the doctors who would offer services to all of that mining community in the absence of any sort of state provision of health care.

[Mr Bailey]

I am grateful to the hon. Member for Cardiff North (Jonathan Evans) for bringing that issue to my attention. I was not familiar with that society but it is a very good example of the values and qualities that I have been describing as the foundation of the co-operative movement and of the subsequent development of our public policy.

In his pamphlet, Cliff Mills goes on to say that mutuality

“was the response of people with often desperate needs”—

as the hon. Gentleman has just demonstrated—

“to find a solution for themselves and others in their community. It was based on self interest (the need to provide for me and my family), not philanthropy or charity; but—”

and now Cliff Mills comes to the crucial point—

“the genius of mutuality was that it captured that self-interest, and by channelling it through collective self-help, was able to produce an economically sustainable business.”

As I say, that is the crucial thing about the co-operative movement and the variety of business models that it incorporates. As Cliff Mills says, the movement is “channelling” self-help, but doing so in a way that enables someone to advance themselves or to deliver the service or product that they want to deliver in a way that can compete with the wider and less idealistic commercial world that they have to exist in.

If we look at the formation of the traditional co-operative movement—via the Rochdale Pioneers in 1844, and the different mutual building societies and insurance companies—all the bodies within it were rooted in that idea of self-help and they all had to survive in a very difficult external commercial environment. Indeed, the co-operative movement, which I have more experience of than other movements, was formed in the 1840s because its members needed good-quality foodstuffs, which they could not get through local private traders, and at the sort of prices that they could afford, which again were often not available. In addition, they needed to be able to use any surpluses that came from trading to reinvest in their own communities and their businesses, both to strengthen those businesses and to provide education and other help for the communities that they lived in.

[Roger Williams (Brecon and Radnorshire) (LD)]

I congratulate the hon. Gentleman on securing this debate. The setting up of the co-operative movements was perhaps not as utilitarian as he suggests. A key aspect of the miners’ welfare halls in my constituency was libraries and the ambition of self-advancement, and we might have to return to a similar system in the future.

[Mr Bailey]

Yes. My references were specifically to the Rochdale Pioneers. One characteristic of co-operative societies was the way in which they reinvested surpluses in community education, and libraries were, of course, part and parcel of that.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

Further to the comment made by my hon. Friend the Member for Brecon and Radnorshire (Roger Williams), it would be a poor history that did not include the role of Robert Owen in this field. The Robert Owen Society in Herefordshire does an enormous amount of work, representing the wide-ranging approach to human well-being of which, as the hon. Member for West Bromwich West (Mr Bailey) says, the Rochdale Pioneers were acutely aware.

[Mr Bailey]

I am grateful to the hon. Gentleman for raising that matter. Robert Owen was of course the pioneer of these ideas, and although he did not succeed in his own lifetime, many of his ideas were incorporated during the formation of the co-operative movement in the 1840s through the Rochdale Pioneers.

The co-operative movement took a knock in the post-war era. The traditional retail societies lost an enormous amount of their market share to the emerging supermarket chains, and their structure found it difficult to adapt. Equally, in the ’80s and early ’90s, many building societies—the traditional mutual sector—fell prey to the prevailing philosophy of privatisation and the free market economy, and the conventional wisdom was that co-operative principles were somehow anachronistic and inappropriate to survival in what was then a highly capitalistic and business-orientated world.

[Steve Baker (Wycombe) (Con)]

As I listen to the hon. Gentleman, it strikes me that co-operatives are almost inherently part of private enterprise and the free market. Can he help me to understand, therefore, why those things are in opposition? I just do not see it that way.

[Mr Bailey]

The crucial difference is that the co-operative and mutual movement exists for the benefit of the participating consumer-members or worker-members. In the free market, the wider movement is the proprietary sector, with outside investors investing in, taking profits out of, and controlling the businesses. That is the crucial structural distinction, and there is also a huge difference in values and ethos.

[Alun Michael (Cardiff South and Penarth) (Lab/Co-op)]

I am sure that my hon. Friend agrees that for many years there was confusion about what “the third sector” meant. It was often taken to mean the voluntary sector, but the third sector of the economy was always seen as the co-operative sector, a business sector aiming to be profitable but having, as he has indicated, a wider set of values than merely profit as the driver behind its engagement and success.

[Mr Bailey]

One thing that attracted me to work in the co-operative movement for so many years was that as a believer both in the market and the need to succeed in it, and in certain values, I felt that it was a model in which successful businesses could reconcile the two. That is clearly demonstrated, and is part and parcel of the reasons for today’s debate.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

I hope that we are not bracketing co-operatives in the third sector; they work in the private and public sectors as well. They speak to all of our economy, and if we see them in that way we are much more likely to have an ambitious agenda for them.

[Mr Bailey]

The Minister can rest assured that I was going to come on to demonstrate the range of businesses in the co-operative sector. One problem that the mutual and co-operative sectors had in the ’80s and ’90s was that they failed to highlight sufficiently their difference, and a minority of co-operatives did not appear to be effective business models—being more charitable, for example—with the result that movement as a whole suffered.

[Jonathan Evans]

It would be unwise to leave the subject of the 1980s without saying that there were well run mutuals in the sector, which focused on customers’ experience and recognised their role. Others, such as Equitable Life, might historically have been mutuals, but did not appear to recognise that and behaved, in a sense, like private companies. That was also a factor in some change being necessary.

[Mr Bailey]

I agree up to a point. Some mutuals certainly embraced or sustained the principles of mutuality more than others, but in the ’80s and ’90s the great majority of the public would have been unable to distinguish between a building society and a bank—indeed, I have occasionally heard Ministers and shadow Ministers confuse them in the Chamber. That was a reflection of the mutual movement’s failure to highlight sufficiently its difference and market it successfully, but much has changed in that respect in the past few years.

The traditional co-operative retail movement has in many ways gone back to its roots, and has successfully reinvented itself as a community-based consumer co-operative. That is reflected in the huge increase in turnover and profitability, with turnover in the sector increasing by 4.4% in the past year. At a time when the economy has grown by only 1.3%, that is a very creditable performance. In 2008, the increase was 21%, and by anyone’s standards that was an incredibly difficult time in retailing. However, the building society movement emerged, not completely unscathed because it took some hits—we unfortunately saw the demise of the Dunfermline building society—but relatively so, compared with the proprietary banks, and in no way was it a contributory factor to the banking problems. A lot of credit for that goes to the largest national co-operative—the Co-operative Group—but credit also goes to a number of other co-operative societies. One of my two local societies, the Midcounties, increased its profits last year from just less than £20 million to £26 million, and the Midlands—I have to be careful not to mention one and not the other—increased its profits from £22 million to £26 million. Such societies have demonstrated that this form of organisation can compete and thrive in even the most difficult of climates.

It is fair to say that the success and potential of that model is now recognised by all political parties. To return to the point that the Minister raised, the areas where co-operatives and mutual organisations are thriving include traditional consumer co-ops; worker co-ops, whether in service delivery, conventional trading or business co-ops; and employee-owned businesses. The John Lewis Partnership is perhaps the most well known, but many others are successful as well. They include agricultural, fishing and housing co-ops and football supporters’ trusts, and rugby supporters’ trusts are being considered as a model for other sporting clubs. Financial co-ops include credit unions, building societies and mutual insurers. I am sure that I have missed quite a few, but no doubt people will remind me of them during the course of this debate. That list is a clear demonstration of the model’s relevance to a range of public services and business activities.

The Government have embraced the approach. The pathfinder programme is designed to encourage co-operative models in the delivery of public services, and we are waiting on the “Open Public Services” White Paper, which will give us an opportunity to debate where Government policy in that area is going.

Although I generally welcome the Government’s recognition of co-operatives and mutuals, I will issue one or two words of warning. First, the essence of mutuals and co-operatives throughout their history is that the individuals forming them must have a desire to make them a success; we cannot just legislate for them, or point to a group of people and say, “You will work in a co-operative manner.” The desire is absolutely essential. Similarly, we cannot just look at a failing business and say, “Become a co-operative and you will succeed.” That will not happen. If the business model is wrong, just putting it into mutual ownership will not do. Particularly in the context of the debate on Post Office and Royal Mail, those issues have not yet been fully explored. We will certainly seek to do so, and other hon. Members here might wish to comment on them.

There are a range of potential opportunities—some might say potential pitfalls—for co-operative development. The obvious and most public one, of course, is the re-mutualisation of Northern Rock. I know that the movement feels that if it can be done, it will be an almost iconic recognition of the renaissance of mutuality and its relevance, and it intends to probe the Government on what they consider the prospects to be. I am disappointed that the previous Government’s commitment to British Waterways has not been upheld. Again, I would welcome hearing the Government thinking on that. The removal of the funds available for the formation of community pubs is also disappointing. However, I do not mention those things in a churlish way. They are matters that we need to debate. Hon. Members from various parties might feel that it is possible to pursue them and join others intent on promoting the co-operative agenda to achieve them.

[Jesse Norman]

I have considered closely the possibility of re-mutualising Northern Rock. I could not get over the question of how to handle an enormous vendor note —the vendor financing from the Government to the employees—to be paid out over 10 or 20 years. That has proven an insuperable practical burden, as far as I can see. I welcome other thoughts on the matter. However, I am sure that we all share the hon. Gentleman’s aspiration that the mutual ethos should return to the financial sector.

[Mr Bailey]

I thank the hon. Gentleman for that intervention. Perhaps I should have recognised earlier the work that he has done as chairman of the all-party group on employee ownership. I held the same position in a previous incarnation. He has done a good job, and I accept that he is intent on resolving some of the problems and issues that arise from the Northern Rock situation.

I will finish, as I know that many people want to raise specific interests during this debate. To return to where I started, co-operatives and mutuals are a form of self-help that is relevant in a range of business activities and public services. It has been clearly demonstrated that their impact on the economy is increasing and that public support for them is improving. Their membership is also rising; I think that nearly 13 million people in this country are now members of one form of co-operative or another. This debate will play a small part in raising awareness, assembling ideas and testing the Government to see how deep their commitment is and how they can take the agenda forward.

[Mr David Amess (in the Chair)]

We have until 5.30 for this debate. At 5 o’clock I shall call Mr Gareth Thomas, who will speak for 10 minutes, the Minister, who will speak for 15 minutes, and Mr Adrian Bailey, who will sum up for five minutes. There are 13 potential speakers. Obviously, I want to call everyone, so I hope that hon. Members will co-operate and share the time. I will call first those colleagues who wrote to the Speaker.

--- Later in debate ---

[Mr Bailey]

Perhaps I had better start by saying that I am the Member for West Bromwich West, not West Bromwich Albion. Representing, as I do, a constituency that is evenly divided between West Bromwich Albion supporters and Wolverhampton Wanderers supporters, I am always anxious to demonstrate that my football loyalty resides with Cheltenham Town football club. I am a season ticket holder there and a member of the supporters’ trust.

This has been a good debate. There has been some political partisanship, but that is good, and it is probably good for the co-operative movement that the Government are being put on their political mettle to demonstrate their level of commitment. It struck me that it would have been almost impossible to have this debate 10 years ago, because the movement had not then demonstrated how important it is, not just to the economy but to the development of policies relevant to each of the party’s political platform. I ought to mention that that is demonstrated pictorially, and effectively in the Co-operatives UK report “The UK co-operative economy 2011: Britain’s return to co-operation”. If Members have not read it, I recommend that they do so. It is a succinct and easy-to-read document, just right for Members of Parliament, and it graphically and effectively demonstrates the range of co-operatives, their impact and their potential.

Turning to the issues raised, credit unions were mentioned a lot. We will wait with bated breath for the legislative reform order, but it is good that the Government have at least recognised the issue and are prepared to take action to advance that agenda. It has always been a source of amazement to me that credit unions, so powerful in a number of countries that are not regarded as cradles of co-operation, do not seem to have taken off in this country. There is enormous potential for a Government to provide the right legislative background for them to do so, and I welcome that.

There was a fairly sharp political exchange on Northern Rock. From my perspective, there is definitely a feeling in the financial press and elsewhere that the option of any form of mutual ownership has been closed. The Minister says that the door is open and that mutuals still have the opportunity to bid. However, I get the feeling that the conventional Treasury-backed wisdom is that that is not appropriate. My right hon. Friend the Member for Cardiff South and Penarth (Alun Michael) made a point about Treasury thinking.

The Minister commented on the previous Government’s record on de-mutualisation. I cannot remember exactly which building society de-mutualised when, but I know that when Labour first came to office, co-operators found it difficult to get the Treasury and Whitehall to understand what made mutual organisations and co-operatives different and what potential they had. Numerous battles were fought to obtain that recognition, some of them through the passage of private Members’ Bills; my hon. Friend the Member for Harrow West (Mr Thomas) piloted one of them. Over time, we were successful. I do not say that we have won every battle, or that there are not battles still to be fought, but we undoubtedly gained much greater recognition of that difference and the importance of the model within the range of financial services. We need reassurance that that opportunity still exists. If it is rejected, we need the reasons for the rejection to be clearly stated and understandable by the co-op movement.

Several other issues were raised, including that of the Post Office. My hon. Friend the Member for Harrow West said that we are happy that the model is being considered for Post Office, but given the interdependence of Royal Mail and Post Office, the right business relationship between them is needed so that a co-operatively or mutually run Post Office is not undermined. It would be disastrous to the movement for an organisation of the sheer scale and public standing of Post Office to be made into a mutual in such a way that the financial model undermined it and it was not successful. That could put back the cause of mutuality and co-operation for many years.

My last point concerns an issue on which there was a lively exchange—Conservative co-operators, whom I welcome. It is a reflection of the success of the movement that so many politicians are now willing to jump on that bandwagon. However, some of us were co-operators through the difficult days of the ’70s and ’80s and have brought our battle scars into Parliament with us. The commitment and capacity of Conservatives to claim co-operative credentials will be judged only when they can demonstrate what they have delivered during this Parliament. Co-operators such as my hon. Friend the Member for Harrow West can do so, having piloted a co-operative Bill through the Commons. A range of changes were made as a result of pressure applied by Co-operative Members of Parliament. We in the Opposition are looking at Conservative and Liberal Democrat Members to see whether they can do the same with their Government.

Question put and agreed to.