Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill

Ben Everitt Excerpts

2nd reading & 2nd reading: House of Commons
Friday 11th September 2020 Commons Chamber

[Gareth Davies (Grantham and Stamford) (Con)]

I join other colleagues in saying what a pleasure it is to be part of this debate, and I congratulate the hon. Member for Cardiff North (Anna McMorrin) on bringing the Bill before the House. As someone with possibly one of the most Welsh names ever and a grandfather from Mumbles, I enjoyed her speech very much. I really enjoyed the history of the Welsh co-operative movement—far more than I enjoyed the Maoist quotes from the hon. Member for Croydon Central (Sarah Jones), I have to say.

I entirely agree with the spirit of this Bill and the support for co-operatives. The Conservatives have a good track record on co-operatives, which form an important part of our economy. As my hon. Friend the Member for Clwyd South (Simon Baynes) has said, the Conservatives enacted the Co-operative and Community Benefit Societies Act 2014, which reduced legal complexity for co-operatives. We have made it easier to register co-operatives digitally, and in 2014 we increased from £20,000 to £100,000 the amount of share capital that members can put into a co-operative. We are, therefore, strongly supportive of the co-operative structure.

I also welcome the spirit of the Bill as it relates to climate change, which is close to my heart and something that the Conservative party take very seriously. As hon. Members know, we have reduced emissions faster than any country in the G7; we have announced the £2 billion green homes grant scheme; we were the first major economy to legislate to achieve net zero by 2050; and we have generated more electricity from offshore wind than any other country in the world. I strongly support the green focus of the Bill, and I acknowledge that the hon. Member for Cardiff North had a long career in the service of this cause before her election to the House. We need more people with her expertise in the House.

Finally, I support the spirit of this Bill as it relates to private capital markets as a source for good. Just like my hon. Friend the Member for Clwyd South, I spent many years in capital markets. I have seen their power, and they can be the solution to many problems, not the cause. I have brought my own experience to this House and, as many colleagues know, I have sought to advance the benefits of green bonds as an effective tool for moving private capital towards environmental causes. I believe the case for green bonds is extremely strong, and there is great potential for the UK Government to issue a green gilt, following behind many other developed countries.

[Ben Everitt (Milton Keynes North) (Con)]

This is in the spirit of my hon. Friend’s interventions on the hon. Member for Cardiff North (Anna McMorrin). Does my hon. Friend agree that green gilts and green bonds are a much more precise way of targeting the interventions that are so clearly the intention behind the hon. Lady’s policy?

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[Ruth Edwards (Rushcliffe) (Con)]

It is a pleasure to follow my hon. Friend the Member for Christchurch (Sir Christopher Chope)—a veteran, as he says, of sitting Fridays—on this, my first sitting Friday. I congratulate the hon. Member for Cardiff North (Anna McMorrin) on securing this Bill and on choosing this issue. Her clear concern for the environment and for strengthening the UK’s economy after the coronavirus pandemic is truly commendable.

As I have mentioned to the House before, now is the time for promoting green investments. Their performance, quality and potential are widely documented. The environment is an issue that the whole House and indeed both Houses stand firmly behind, and I am grateful to be a part of the debate on the Bill. As colleagues have said, Members will be aware of the benefits that co-operatives bring to productivity, innovation and entrepreneurialism across the economy. The Government are in no doubt about the added value they bring. Indeed, I know that previous Governments have legislated to make the setting up and running of our co-operatives simpler, cutting red tape and promoting parity between co-operatives and companies when it comes to areas such as registration and audit.

Across the UK, membership of co-operatives has remained firm in recent years, with more than 7,000 independent co-operatives employing nearly a quarter of a million people and serving more than 14 million members. Clearly, co-operative values are popular among a significant cross-section of society: values of democratic ownership; autonomy; independence; promoting common economic, social and cultural interests of their members; and concern for the community. Without this shared ownership, many people may feel that they have less of a stake in society, in their community and in the economy.

Co-operatives have historically proven their mettle. This year’s annual assessment of the sector by the industry network, Co-operatives UK, indicates that a staggering 76% of co-operative start-ups are still running after the first five years, compared with less than half of all new companies. At a time when we are embracing innovation and entrepreneurship, co-operatives have demonstrated that they remain a productive part of the UK’s competitive spirit going forward.

[Ben Everitt]

Perhaps my hon. Friend will agree with me—I think she will, given what she might be implying here—that co-operatives are an absolutely fantastic addition to the corporate landscape of the UK, but that is so because they are part of a diverse landscape of corporate structures. We must recognise that it is within the system that they are most precious to us and that we cannot push things too far.

[Ruth Edwards]

I completely agree with my hon. Friend. In fact, protecting the integrity of the co-operative model is one of the issues that I have with this Bill.

Returning to my opening remarks about the strength of green investments, I have made the case in the past that such investments should lead the way in helping us to recover from this pandemic. There is no point in building back to what we had before. Studies have shown the strength and resilience of these sorts of investments following from times of crisis and uncertainty, such as after the 2008 financial crisis.

The Bill outlines that the capital gained from green bonds is to be invested in a way that can maintain and enhance a biodiverse natural environment with healthy functioning ecosystems that support social, economic and ecological resilience. This entails the invested capital being centred around the green economy and climate action, including in new and emerging technologies, renewable energy, transport, housing and waste management. I remind the House that those are areas of considerable Government attention and investment in recent spending rounds, contrary to some of the opinions that we have heard today from those on the Opposition Benches. There are too many achievements to list today, but I am going to name a few relevant examples.

We have reduced emissions faster than any other G7 nation, while also leading the G7 countries in economic growth and providing £3 billion for contracts to help develop less established renewable technologies by 2022 to 2023. We have put funding into hydrogen fuel research and established the Hydrogen Advisory Council. The Chancellor recently announced a £2 billion green homes grant, which is going live this month, to support the retrofitting of houses across the country, benefiting communities and reducing fuel poverty. For electric vehicle markets, a round of private capital was raised in 2018, backed by the Treasury, bringing the private sector on board and directing significant and meaningful investment to the electric vehicle supply chain. Many of these plans will bring the added bonus of generating sustainable, high-quality jobs for the green economy. Our landmark reforms in agriculture, the first of their kind in 30 years, will promote sustainable and productive livelihoods for UK farmers.

Data show that co-operatives do great work in many areas of the country. The Government are doing a lot to remedy geographical imbalances in our economy, and I join them in supporting the UK-wide levelling up agenda. Although we seek to support the continued growth of co-operatives, we should remain mindful of the core and foundation principles by which co-operatives operate. I acknowledge the intention of the Bill to protect the mutual status of co-operatives while allowing access to new routes of capital, with environmental parameters as to how that capital is used; however, the autonomy and democracy contained within a co-operative is one of its core strengths and appeals, and I feel that much more detail is required to explain how, in practice, many of the Bill’s ideals will function without undermining those values. To me, there remain questions of compatibility between the ability of members to vote and the demands of investors parting with their money.

First, I believe that co-operatives would need to state in the clearest of terms how they intend to use the capital to attract the right mission-minded investors in the first place. That is especially important when considering that the Government have already increased the capital limit that can be raised from members from £20,000 to £100,000, as several hon. Members mentioned earlier. If we are talking about an ambition to attract investments greater than £100,000, investors will almost certainly demand a high level of detail in advance. In practice, it could be difficult for co-operatives to reach a democratic consensus on that detail. I worry that the uncertainty might be off-putting for some types of investors, and indeed the amount of money that the Bill intends to attract.

I also wonder about the autonomy of a co-operative after receiving such substantial levels of investment. One reason for the £100,000 limit on individual membership capital is so that no single member can command undue influence as a result of their financial contribution. I think it is naive to believe that investors will have no demands or will not lobby the membership to vote in certain directions, and would be satisfied paying into a co-operative—even a community benefit society—that they were otherwise not previously a member of, even with the other benefits that membership brings. That last point is especially true when shareholders only entitlement is, to quote the Bill,

“the general level of compensation”

otherwise afforded to members.

I also fail to see how investors will be enticed by the ability to redeem their shares for only the nominal value of the investment, as set out in the Bill. If individual retail investors or existing co-operative members seek to buy green shares, there is the potential that the risk of the instruments could be underestimated or understated. It appears from the Bill that there is no ability to withdraw their capital, counter to the usual way membership capital is treated in a co-operative.

That sort of risk, even generated from a well-intended scheme, resonates strongly with me because in Nottinghamshire we have recently had a huge eye-opener to how schemes set up with the greatest of intentions can go horribly wrong if the right risk management and governance is not put in place. I am referring to the, now failed, Robin Hood Energy company, which was set up by Nottingham City Council as a not-for-profit company to deliver affordable energy in a sustainable way to people living in fuel poverty.

That is a highly commendable aim, but the company’s structure meant that it did not have to pay dividends to shareholders, and it could use its savings to universally reduce the cost of energy to its customers. It promised average annual savings of £237— all very good aims, but throughout its operation the firm was reported to have admitted that the scheme did not provide value for money, and that dozens of cheaper tariffs existed elsewhere in the private sector.

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[Chris Green]

That is an excellent point. This debate has been very well informed on both sides of the House; we have heard my hon. Friend the Member for Clwyd South (Simon Baynes) and others use their expertise in highlighting their concerns. I think that means that the Bill ought to come back in one form or another. I think that so many people want it to come back because there is so much progress that we can make in this area.

Let me touch on a second aspect. As we see climate change and the activism that goes with it reach the peak of our political agenda—it has been there for a long time and we have no expectation that it will leave the agenda in the near future—we must be concerned to some degree about how political activism can impact mutual societies, co-ops and other membership organisations. I was alerted by what my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont) said. In fact, he was highlighting a point about the protection of these organisations, because he would not want an outside player to invest a significant sum and have a proportionate voice according to how much they are investing in the organisation.

This is about keeping the community voice just as relevant. The flip side of that is that if there is one-vote per investment, that lends itself to political activism. With a small investment, someone can have a significantly disproportionate say in the organisation. We all appreciate that many people involved in different organisations, of all sorts, are not politically active or politically engaged all the time; they make an investment and they want to leave it alone, and they want other people to make these decisions. So where an activist organisation is engaging and making these investments, they might be able to skew the views and values of the mutual organisation. We ought to be cautious about this and very much aware of it.

[Ben Everitt]

I wish just to underline the point my hon. Friend is making about shareholder activism. Does he agree that the mechanism in respect of the demutualisation of any funds, should it be subject to shareholder activism, is dangerous in this context?

[Chris Green]

I agree entirely; if this were a mechanism or route to demutualisation, that would be fundamentally against the views of these organisations as they are at the moment—they could change in the future—and against the views and values of the hon. Member for Cardiff North.

We have heard really positive contributions from colleagues from right across the House. When I look at the Members who are supporting the Bill, I see that it is a distinguished group, which includes someone who is now a Minister. I am sure that the hon. Lady will therefore get a great deal of support in the future in her aims.

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[Peter Gibson]

My hon. Friend raises an important point about the strength of communities represented by Conservative directly elected Mayors. I, too, represent a constituency that falls within a combined authority area that has an excellent Conservative Mayor leading the way on green initiatives.

[Ben Everitt]

The House recognises, of course, that risk needs to be carefully considered and avoided, but as my hon. Friend has so eloquently pointed out in what I think today is a home game for him, risk often has potential upsides and benefits, not only for investors but for wider society.

[Peter Gibson]

My hon. Friend, too, highlights the excellent contributions this morning from our hon. Friend the Member for Grantham and Stamford.

The Conservative manifesto that I and my right hon. and hon. Friends stood on made ambitious commitments on the environment, many of which placed the emphasis on community-driven initiatives. It is right that this Government, and any future Government, be held to account over their environmental duties. These will include meeting the net-zero target by 2050 and the long-term, legally binding targets on biodiversity, air quality, water resources, and waste and efficiency that will be established under the Environment Bill.

In the 25-year environment plan, the Government committed to developing a nature recovery network, and in the long term, to creating and restoring 500,000 hectares of wildlife-rich habitat outside existing protected sites. A new framework for community-led nature recovery strategies will also be legislated for in the Environment Bill, to support the nature recovery network and better direct investment into the environment and green infrastructure, creating places that are richer in wildlife and provide wider benefits for local communities. The Government will also establish the £640 million nature for climate fund, which will be used to dramatically increase community-led tree planting schemes in England. Indeed, more than 40 million trees will be planted to bolster carbon capture. More research is currently being undertaken into the most appropriate species to plant across the country.

In the 2020 Budget, the Government’s record of supporting green business was made clear. I am grateful to the Chancellor for outlining a £552 million fund for consumer incentives for ultra-low emission vehicles and a reduction in taxes on zero-emission vehicles. In the Tees Valley, our excellent Conservative Mayor, Ben Houchen, has led on hydrogen-powered vehicles—from cars, buses, trains and lorries to e-scooters—and sustainable, community-driven economic growth. It is clear that, over the coming years, the Tees Valley will become a shining beacon of how businesses can sustainably grow, with the right legislative backing, to pursue local policy for local people. Teesside is also leading the way in carbon capture and storage through Net Zero Teesside, a huge intervention, with global companies coming together to address the green agenda.

I understand that the Government have already responded to the concerns of those in the mutual sector by taking steps to review our current regulatory arrangements. The Treasury is reviewing the regulatory arrangements that are in place for the issuance and marketing of non-transferable debt securities such as some mini-bonds. I look forward to the outcome of the review, and I am assured that Ministers will give appropriate consideration to the creation of any capital instrument with similar characteristics to mini-bonds.

Similarly, I welcomed the Chancellor’s announcement in the 2020 Budget that the Government would bring forward legislation to allow credit unions the opportunity to offer a wide range of products and services. Credit unions are a form of financial mutual, and I am proud to support the fantastic work of the Darlington Credit Union. I hope that the hon. Member for Cardiff North welcomes that news, as I am assured that it will help us to continue to grow sustainably over the longer term, while providing a pivotal role in financial inclusion over the coming years for the mutual sector.

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[Tom Randall (Gedling) (Con)]

I am grateful for the opportunity to speak in this debate. I appreciate the contributions of colleagues, who have spoken with great erudition and insight into these issues, and I congratulate the hon. Member for Cardiff North (Anna McMorrin) on bringing this Bill before the House and on her passionate remarks in favour of it.

This is a bold Bill and, I believe, a well-intentioned one, but it is not entirely original. Similar legislation has been passed in other jurisdictions, including Australia. The Treasury Laws Amendment (Mutual Reforms) Bill 2019 was passed by the Australian Parliament last year. In the debate in the House of Representatives, Dr Andrew Leigh, the Member of Parliament for Fenner, said:

“Mutuals build trust and reciprocity. They are an essential part of an inclusive society helping to foster empathy for our fellow human beings. Cooperatives and mutuals, as member-owned enterprises… are voluntary associations of people, democratically run for their members, for the pursuit of a common social, cultural or economic goal.”

If I might be forgiven for quoting not only a Labour Member but an Australian Labour Member with approval, I think that is a noble aim that we can all support. We see that very much in our local communities. There are many examples of local co-operatives in our society, and particularly on the high street, where we see Co-op shops, of which there are many in Gedling. I particularly enjoy my local Co-op, and I am grateful to the staff there for their friendly service. Every Co-op that I have ever visited has always offered a range of high-quality food in a well laid-out store. That is perhaps one of the most visible example of co-ops; we have heard many other good examples in the debate.

[Ben Everitt]

I wonder whether my hon. Friend is aware that the birth of the futures market—one of the most important financial parts of our economy—was the inadvertent result of a co-op of French nuns putting together the sale of a harvest that had not yet been sown.

[Tom Randall]

I was unaware of the enterprise of French nuns, but I am in awe of what they can achieve. I am grateful for that fascinating intervention.

The Bill has laudable aims, allowing co-operatives and community benefit societies to gain powers to raise finance by issuing redeemable green shares to external investors and investing the capital raised in an environmentally friendly, sustainable manner. I also appreciate the intention for there to be safeguards in the Bill to prevent the issuing of shares leading to the undermining of a society’s conversion into a commercial company, though I heard the criticisms of that made eloquently earlier.

It is perhaps worth noting, as my hon. Friend the Member for Rushcliffe (Ruth Edwards) alluded to in her speech, that sometimes when things go wrong, they do so quite badly. As my hon. Friends the Members for Northampton South (Andrew Lewer) and for Clwyd South (Simon Baynes) said, sometimes investments do go down as well as up, and it is possible to lose money in a new scheme.

The hon. Member for Cardiff North spoke a lot about community energy. As my hon. Friend the Member for Rushcliffe outlined, in Nottinghamshire we are scarred by the failure of Robin Hood Energy, which recently collapsed with the loss of over 200 jobs. The setting up of Robin Hood Energy was laudable: it was designed to create a wholly owned subsidiary of Nottingham City Council to create a not-for-profit subsidiary to tackle fuel poverty in Nottingham and provide a real alternative to the big six energy suppliers. As I said in an intervention, it had customers way beyond the city of Nottingham, and it did provide energy, but it has now failed at a cost of tens of millions of pounds to an inner-city local authority.

The rather damning report by Grant Thornton into the reasons for the failure of Robin Hood Energy centred around many of the governance arrangements. It said that the arrangements put in place by Nottingham city council for setting up and operating an energy company—a highly ambitious project in a complex, competitive and highly regulated market—were not strong enough, particularly given the nature of the company and the markets. It has been pointed out that there was insufficient appreciation within the council of the huge risks involved in owning and investing in an energy company such as Robin Hood Energy. There was insufficient understanding within the council of Robin Hood Energy’s financial position due to delays in the provision of information by the company, the quality and accuracy of that information and a general lack of expertise at the non-executive board level.

It perhaps would be unfair to judge the entire co-operative movement on the inept leadership of Labour-controlled Nottingham City Council, but it does help to raise the kind of concerns that might arise over the operation of these companies. My hon. and right hon. Friends have outlined those concerns in more detail. I look forward to seeing how the legislation and the ideas develop.