Building Societies Act 1986 (Amendment) Bill

Baroness Vere of Norbiton Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I congratulate the noble Lord, Lord Kennedy, on introducing this important Bill to your Lordships’ House. It will help to support the future growth and success of the mutual sector. The Bill has been warmly welcomed by the building societies sector and has cross-party support. It was a veritable highlight in the day of my noble friend Lord Naseby, and he is of course right.

My remarks will be relatively brief, covering two main elements. First, I will look at the detail of the Bill, although many noble Lords have already set it out very clearly. Secondly, I will set out further insight on the Government’s support for the mutual sector. It has been a widespread message from across all Benches in your Lordships’ House today that the mutual sector plays an important role in the UK economy.

Building societies are one of the best-known types of mutual organisations. There are 42 building societies providing mortgage and savings products to around 26 million members. When considering the future of these important institutions, it is right that we reflect on their uniquely British origins.

As the noble Lord, Lord Kennedy, noted, the global building society movement began nearly 250 years ago, in Birmingham, when Richard Ketley established Ketley’s Building Society. It had a very clear purpose: to combine resources from its members, and build a shared fund from those resources that members could draw from to purchase land and construct a home. Like all effective movements, it was much greater than the sum of its parts. As a result of its success, throughout the 19th and 20th centuries more building societies formed across the nations and regions of the United Kingdom. Today, the 42 UK building societies hold total assets of over £500 billion.

The mutual ownership model improves the financial resilience and inclusion of individuals by rooting these businesses in their local communities. The Bill will help to support the prosperity of the building society sector so that it can continue to anchor those roots and to grow.

On the substance of the Bill, the Government support the vision set out by the noble Lord, Lord Kennedy. We agree that the Bill will enable building societies to compete more effectively with retail banks and to better support their members. There are three key measures. First, the Bill will exclude three key sources of funding from counting towards the building society wholesale funding limits; I am grateful to the noble Baroness, Lady Kramer, for providing a little more insight into what exactly the funds are. Under the Building Societies Act 1986, building societies are required to obtain at least 50% of their funding from individual retail deposits, and that will continue. All that is happening is that some of the funds will be excluded from the calculation, meaning that the ownership model will not be diluted. This will enable building societies to raise additional wholesale funds.

The second element, as highlighted particularly well by the noble Lord, Lord Livermore, is that building societies will be able to continue to develop their use of technology. The second part speaks to enabling real-time virtual participation at building societies’ meetings. It will make meetings more accessible to members and might therefore encourage greater support and participation from the membership. It also brings building societies more in line with retail banks.

Thirdly, the Bill will provide building societies with greater flexibilities regarding their funding and corporate governance requirements in relation to common seals and the execution of documents, aligning them with changes made to company law. It will support them in their work serving their members, as well as providing diversity to the UK’s financial services industry.

It is important to note that the changes are supported by industry. As my noble friend Lord Naseby stated, it has been quite a long journey, though not too long as the consultation for the changes occurred from December 2021 to February 2022. There were five responses, with most building societies responding through a single response from the Building Societies Association. All responses welcomed the amendments that will be delivered through the Bill. There are other amendments that were consulted on and are not included in the Bill; the Government are currently progressing these through secondary legislation.

My noble friend Lord Holmes of Richmond asked when the secondary legislation set out in the Bill will be brought before Parliament. I am afraid I can go no further than to say that it will be following the Bill’s Royal Assent and when parliamentary time allows.

To reassure my noble friend Lord Holmes, I will now say a few words on the wider mutuals sector and confirm that the Government are absolutely behind the mutuals sector. There are 9,000 mutuals operating across many sectors in the UK. They are rooted in their local communities and they want to serve their members and work towards a better society. However, despite their social mission, mutuals are not charities. They are thriving businesses with a combined revenue of £88 billion in 2022, employing over 433,000 people. So it is indeed not a minority matter, as my noble friend Lord Holmes noted.

It is due to their economic and social significance that the Government have been and continue to be fully committed to providing an array of support for the whole of the mutuals sector. For example, we are funding the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992. These pieces of legislation underpin the co-operative movement and friendly societies sector respectively in the UK. These reviews will set us up for the most comprehensive modernisation of the sector for a generation.

Last year, the Government supported the Co-Operatives, Mutuals and Friendly Societies Act, which achieved Royal Assent in June 2023. This enables the Treasury to provide co-operatives, mutual insurers and friendly societies with greater flexibility in deciding what to do with their surplus capital. The Government will consider the regulatory options to enact this legislation. However, in the first instance we are directing resources to the Law Commission review, to examine existing legislation. Finally, through changes that the Government have made via the Financial Services and Markets Act 2023, credit unions in Great Britain can now offer a greater range of products and services. This includes hire purchase agreements, conditional sale agreements and insurance distribution services.

My noble friend Lord Holmes asked whether the Post Office might be mutualised. I am aware that the trade body Co-operatives UK recently met with postmasters, postmistresses and the Department for Business and Trade to discuss what potential there is for mutualisation of the Post Office. So I welcome the views of my noble friend Lord Holmes and note that discussions are taking place. One does not know where they will end, but it is certainly an option that is on the table. The Government continue to seek opportunities to support the mutuals sector and those who might wish to join the mutuals sector in this country.

In conclusion, I have today outlined both the Government’s support for the mutuals sector and how this Bill will support the future success of UK building societies. I note again the support for the Bill from across your Lordships’ House and reiterate the point made by the noble Baroness, Lady Kramer, that any amendments to the Bill would probably cause the Bill to fail, which is not in the interests of the sector and not I think the will of your Lordships’ House. This is a worthwhile and necessary Bill. It updates the law in relation to building societies’ funding and corporate governance. Again, I thank the noble Lord, Lord Kennedy, for introducing this Bill to your Lordships’ House and hope that Members across the House will recognise its merits.