Co-operative and Mutual Businesses

Adrian Bailey Excerpts

Thursday 27th June 2019 Commons Chamber

[Gareth Thomas]

I absolutely endorse my hon. Friend’s comments. I know that fisheries co-ops are another part of the sector in which she is interested. They, too, make a huge contribution, and could do a lot more with a little more help.

The economy is not some separate space to be run only by so-called management experts on grotesque levels of pay who can continue to ignore the rest of the country. Why should our neighbours, our friends and those we see at the school gate not have a say in how businesses and services on which they depend are run? They are allowed a say in political decision making, so why should they not be allowed a say in the businesses that they work in or depend on? Co-ops and mutuals can be life-changing and transformative, and the Government and the other Opposition parties should join Labour in committing themselves to double the size of the sector from between 4% and 5% of GDP to 10%.

The Oxo Tower on London’s South Bank was redeveloped by the enterprise Coin Street Community Builders. It now contains five floors of social housing run by Redwood Housing Co-op, subject to some of the lowest rents in the capital while being in one of London’s prime spots. Armed forces credit unions are another powerful example of the difference that co-ops can make. They were established after a long campaign by the Co-operative party, and are helping to combat the problem of payday lenders who prey on our armed forces personnel. Those are two remarkable stories, in my view, but much more is possible. Access to capital, further legislative reform, better Government funding, more Whitehall efforts to raise awareness and more expertise on the sector in the civil service are the key asks of Britain’s co-op and mutual sector.

I appreciate that finance is not an issue or problem reserved to co-ops and mutuals, but because of their different ownership models they often have real difficulty in accessing finance for expansion, and indeed for getting started. Big corporations can access large investment through debt funding or, crucially, can create capital by selling shares. Co-operatives and mutuals cannot at the moment do the latter without demutualising. Clearly we need to protect this unique governance model but also allow mutuals to issue permanent investment shares— that is to say, create indivisible reserves—which cannot be distributed to members even beyond the lifetime of the mutual. The European Union states offer this already in their mutual and co-operative legal set-ups, and a further five EU states have it in a slightly different form, yet in the UK we do not offer this route to raising significant finance for co-ops and mutuals.

Such a form of co-op and mutual share capital would offer stronger protection against demutualisation and therefore maintain and enhance corporate diversity. Above all else it would allow co-ops and mutuals to compete in the marketplace with other big businesses without one hand tied behind their back. In the UK building societies have a version of this already, called core capital deferred shares, which allows them to access capital markets without risking their mutual nature, but other financial mutuals and co-ops in the UK do not have anything like that.

Outside the EU, Desjardins in Quebec has raised more than $4 billion through this route, and Australia passed legislation on 5 April this year allowing its co-ops and mutuals to issue share capital while protecting their co-operative and mutual nature. If the Australians can do it, if most of Europe can do it, and if British building societies have it already, why should not British co-operatives and other mutuals also be allowed to raise finance in this way?

I recognise that the Minister and his officials have looked at this once already in the light of Lord Naseby’s successful Bill in the other place, and indeed my own and mutuals’ representations, but I hope he might be persuaded, particularly given that similar legislation is now on the statute book in Australia, to bring key experts in this area together with officials again to try to find a resolution to the problems that have stopped this method of raising finance being allowed in the UK. The Co-operative Group, other retail co-op societies, Co-operatives UK, friendly insurers and the Building Societies Association all support progress on this issue, and I urge the Minister, who has been sympathetic to co-operatives and mutuals in the past, to be willing to take a fresh look at this.

Britain’s co-op and mutual movement suffers from a lack of dedicated banking funds. Across Europe, dedicated mutual or co-op banks exist, are highly profitable and have been around for ages. I have long thought that the Royal Bank of Scotland could and should be converted into a mutual to help address this gap in the UK and to challenge the continuing big banking monopoly in the City. The Minister may not yet be ready to join me in making that jump, so perhaps I can ask him to explore whether the British Business Bank might begin to have a dedicated mutual growth fund to encourage the setting up of new mutuals.

Responsible Finance, an excellent organisation that champions Britain’s existing community banks, highlights the need for dedicated finance for start-up worker co-ops. There is at present an absence of patient capital or capital blended with grants to reduce investment risk for start-up worker co-ops. A dedicated fund would enable specialist co-op lenders to take a higher level of risk in this area and mean that more capital would be available.

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

Does my hon. Friend agree that almost all start-up businesses have difficulty in accessing finance but that, ironically, it is more difficult for co-ops, notwithstanding the fact that the survival rate of starter co-ops over five years is almost double that of other businesses? That is an anomaly that we would reasonably expect the financial services market to correct.

[Gareth Thomas]

My hon. Friend is absolutely right. I pay tribute to the work of programmes such as Co-op UK’s Hive programme, the resources that are available from Stir to Action, some of the local measures that we have seen in Manchester and Preston, and Social Investment Business’s mutual Reach Fund, but these are all relatively small-scale and need to be scaled up.

The Minister will not be surprised to hear me—and, I suspect, other hon. Members—urge the introduction of further legislative reform to help credit unions offer more services to their members and enable them to invest their members’ money in an expanded range of ways to generate a return for savers. Credit unions are the most active, responsible lenders to the poorest and most financially vulnerable and excluded people in the UK, but they are held back from doing more by outdated legislation and a digital approach to regulation by the Financial Conduct Authority.

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

What a pleasure it is to contribute to this debate. I congratulate the previous speakers, who have all, in their own particular ways, not only articulated the benefit of co-operatives, mutuals and so on, but played a part in promoting them during their careers. I think my hon. Friend the Member for Huddersfield (Mr Sheerman) is possibly one of the few people, certainly in the Commons Chamber, whose longevity and experience exceeds even that of my own.

I joined the Co-operative party well over 40 years ago. I spent 18 years as a political organiser in the party: first, trying to combat the process of Thatcherism and privatisation; but secondly, I have to say, trying to convince those within my own political party—the Labour party, which is the sister of the Co-operative party—of the benefits of co-operation and mutuality. It is not a fight that has had just one front.

I joined the co-operative movement all those years ago because I saw it as some sort of middle way. It was different from state ownership, which I felt lacked buy-in from both employees and consumers, and which, while it still had a role in our economy, did not satisfy all the values and aspirations that I felt were incorporated within the Labour movement. On the other side was the shareholder proprietary model, under which it seemed to me the benefits of consumers’ purchasing power and employees’ skills were inappropriately spread, with the shareholders getting a far greater benefit from that combination of organisations. Co-operatives, mutuals and employee share ownership companies were, in their own different ways and in their own different sectors, incorporating those values, and locking in the benefit of employees’ skills and consumers’ purchasing power, in a way that reinforced the quality of the businesses they were engaged in.

It is worth reflecting for a few moments on the sheer longevity of some of the businesses involved. As we all know, the co-operative movement started in Rochdale in the 1840s. Even though there is now a much reduced number of co-operative societies—the largest being the Co-operative Group—they all have histories of well over 100 years, with some in excess of 150 years. Building societies similarly started in the middle and later part of the 19th century, and although there has been a process of amalgamation and in some cases privatisation, they are still a huge player in the financial services market. They may be much changed from their origins, but they still incorporate the basic community-based values that we have discussed.

John Lewis is an employee share ownership company that started in the second half of the 19th century. It started giving its employees shares in the 1920s and is still going strong today. When I look at companies being founded nowadays, I wonder how many will still exist in the next 150 or 200 years. The fact that the basic model of co-operation, mutuality and employee share ownership has survived all the social changes and economic vicissitudes over the last 150 to 200 years is a testament to its resilience, adaptability and relevance in the current economy.

Having said all that, there is a recognition that despite the success of some of the major companies in the sector, and the proliferation within the movement of a whole range of co-operatives, we are still not living up to the potential that the model has in our economy. Ironically, the co-operative and mutual sector plays a far greater part in economies such as those of the United States and Germany, which are by no means considered socialist economies. It is reasonable to look at why that is the case and why we have underperformed in our development of this area.

Previous speakers have highlighted some of the barriers that have existed. The raising of finance is a crucial one, although I will not repeat the lucid exposition of that problem by my hon. Friend the Member for Harrow West (Gareth Thomas). Ironically, the economic rationale for the privatisation of the building societies in the 1980s was their inability to raise capital to expand, so we had that process and we know where it ended up. One cannot help but think that if Governments of that time had looked at providing the financial mechanism by which the building societies could have raised more money, that rationale would have been destroyed. I am not saying that human greed would not still have prevailed in some cases, but it would have been far more difficult to prosecute the case for it.

On company law, the submission by Co-operatives UK and the New Economics Foundation has made it clear that one of the obstacles is an outdated industrial and provident society legal framework. There seems to be a disparity between the way the Government approach this—which is basically not to do much about it, notwithstanding the efforts of my hon. Friend through his private Member’s Bill—and the way in which company law legislation is continually looked at and revised. If it is appropriate for that to be done for the corporate, private sector, why is it not appropriate for the co-operative sector?

Partly as a result of all this, lack of understanding is a big barrier. Ironically, co-ops, building societies and organisations like John Lewis have strong brand identities and public faith in them, yet the public do not really understand what makes those companies different from others, and how, if they wished themselves to organise within a co-operative, they might go about it. We have had a huge proliferation in the number of people going self-employed. Many of those people might well feel that if they knew more about co-operation, they would be better at working with like-minded people in a co-operative structure to deploy their skills even more effectively.

The New Economics Foundation has pointed out that there are some 120,000 family businesses with owners of an age that means that they are likely to retire. Of course, those businesses may go to management buy-outs or be passed on to younger members of the family, and so on. But there should be an opportunity for management to understand and get support for a potential co-operative model in the event of a buy-out post the retirement of the existing owners. The report by the New Economics Foundation points out that if only 5% of the businesses where owners retired went on to co-operative management, that would double the number of such companies. That is a staggering statistic.

Local economic partnerships and other bodies set up to promote business in different areas seem to be either unaware or under-aware of the potential that co-operatives will offer to businesses in their area. This comes back to thinking about a co-operative development agency that would provide a centre for advice and contacts for access to finance, and would be proactive in looking for co-operative opportunities. I am encouraged that the Mayors in Manchester, Aberdeen and South Yorkshire are now considering having co-op commissioners with a brief to look at ways in which they can work with their local regeneration agencies to regenerate under co-operative models.

[Jim McMahon (Oldham West and Royton) (Lab/Co-op)]

I congratulate my hon. Friend on outlining the benefits of co-operatives. The Mayor of Greater Manchester has identified that about 160,000 residents of Greater Manchester are members of co-operatives. He says that that offers a huge opportunity, beyond just having a commissioner in place, and has now launched a call for evidence for the people who co-produce whatever model is developed there. That is a good example of working together.

[Mr Bailey]

I thank my hon. Friend for that example, which underlines the point I am making. Given that these local government structures, and the policies that they are adopting, are in their infancy, it demonstrates the potential that might be available in those areas for other local government structures to actively promote co-operation.

[Mr Baker]

I should have intervened earlier, but I wanted to check something before I put it on the record. A few moments ago, the hon. Gentleman pleaded for updated legislation, pointing out that the industrial and provident society legislation is out of date. I remind the Minister, who I can see is listening very closely to his speech, that in 2010 we promised a co-operatives Bill, but then, when it came forward, it was just a consolidation Bill—a tidying up exercise. I was very disappointed by that, as I expect the hon. Gentleman was. Let me say gently to my hon. Friend the Minister that if we do promise a Bill again, we really must make sure that it is a meaningful Bill that brings the legislation up to date.

[Mr Bailey]

I thank the hon. Gentleman for that prompt to the Minister. Hopefully it is even more effective coming from his side of the House than from mine.

I will conclude by making one or two general observations. First, we have an economy where a huge number of people feel alienated or not engaged with the world of work that is controlling so much of their life. When there is so much international investment—welcome though it is, and sometimes deployed very effectively—that means that decision making and huge swathes of our economy are often centred in offshore countries or very far removed from the control of the company’s employees.

For the past 10 years, we have suffered from low productivity. It is an issue that does not seem to get any better. In terms of taxation and public expenditure, there are still huge swathes of the economy where the companies involved are not paying an appropriate level of taxation. It is interesting to note that the co-op movement pays more in taxes to the Government than a whole range of high-tech companies, including Google and Amazon. Developing the mutual sector would at least ensure that as these companies grow, they are paying the sort of taxation returns to the Government that would more than pay for any help they had had from Government.

I do not claim that the co-operative and mutual movement is a silver bullet for all these problems, but their performance in terms of both longevity—there are far higher survival rates among new co-operatives than other businesses—and worker satisfaction means that there is a strong case for far more proactive Government involvement and support. To take up the point made by the hon. Member for Wycombe (Mr Baker), I hope the Government will look at introducing a co-operatives Bill that will actively deliver on the ground.