Building Societies Act 1986 (Amendment) Bill

George Freeman Excerpts

2nd reading
Friday 19th January 2024 Commons Chamber

[George Freeman (Mid Norfolk) (Con)]

It is a huge pleasure able to join Friday business as a Back Bencher and to support this important Bill on behalf of my Mid Norfolk constituents. Let me start by congratulating the hon. Member for Sunderland Central (Julie Elliott) on introducing the Bill and on winning that prized first place in the ballot, so that she can make a difference with the Bill. I thank the Government for working with her and all of us who have supported her on the Bill. This is a good example of cross-party work, and of the Government working with Back Benchers in the interests of our constituents and the shared and mutual interests of the citizens of this country. I only wish more people around the country were able to see the quality of the work going on in the House on days like this.

I want, particularly, to highlight the importance of the Bill for rural areas such as mine. The hon. Lady represents the magnificently urban constituency of Sunderland Central, but I represent a magnificently the rural constituency of Mid Norfolk—114 villages and five towns. As I candidate, I rashly promised to cycle the border one Saturday morning, but then discovered it was 94 miles long. It took me rather more than one Saturday morning. Much of this country is rural, up north as well as down south and in the south west. I want to focus on the importance of the Bill and building societies in rural areas and on our town high streets in providing cash facilities, and supporting first time-buyers and pensioners with cash.

In Dereham recently, I saw Nationwide packed, with queues outside of pensioners moving from the bank, which is closing, to support Nationwide, as Nationwide supports them. In my part of the country we have a huge number of retired folk who want cash—they do not all want to be totally digital. They value and need that interaction with a living and breathing human being when they go to save or take out cash. Nationwide Building Society is doing great work to support them. I am really keen to support the Bill, as the hon. Lady knows, largely because of that particular rural need.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

I should declare that I am a member of three building societies, and until recently I had a mortgage with Nationwide. I agree with my hon. Friend about the importance of building societies in rural communities. I think of local examples such as Suffolk Building Society, but elsewhere around the country there is Newbury Building Society and similar. That connection to the community really matters. It is important to get on with this primary legislation, but we also need to get the negative secondary regulations through as quickly as possible so that we can boost mortgage borrowing for families who are keen to get on to the housing ladder.

[George Freeman]

I completely agree—my right hon. Friend makes an excellent point, and we will come to that in due course. She is absolutely right.

I want to focus on building societies in rural areas. The flight of the banks, in particular from rural areas but also from a lot of high street banking and the role they have traditionally carried out—this is partly why the Bill is so important—highlights the importance of cash in the rural economy. Many of my local small businesses are really struggling with how to bank cash properly. We also have a problem in our part of the world with ATMs now being subject to JCB theft—ATMs being ripped out of the wall. So, there is a cash problem and building societies have a really important role.

As well as reflecting the very best of old Labour, this is also, if I may say so, the very best of civic conservatism. This is Edward Burke’s little platoons. This is the weft and the warp of local connected responsible civic community-based capitalism; the sort of capitalism that small platoon civic conservatism has long championed. I would argue that all parties in Government over the past 40 years have slightly forgotten that that needs to be championed. We have seen the rise and the domination of big capital, big banks and big disconnected capitalism. I am here today as a card-carrying supporter of the mutuality model and civic capitalism. I think both main parties have that in common in their different traditions and history.

On rural banking and finance, in Mid Norfolk we have five towns and 114 villages. We are not quite halfway between Cambridge and Norwich. Traditionally, it has been something of a rural backwater. It is an agricultural community, with many retirees and pensioners moving to quiet rural Norfolk. It is a real challenge to ensure that our villages remain vibrant and our towns remain thriving. The model of development over the past 40 years has been over-focused on commuter housing. People drive their cars to Norwich and Cambridge during the day, and that sucks the life out of many of our villages.

The rise of online commerce and digital retail has also taken quite a lot of the life out of many of our towns, and our high streets are struggling to remain vibrant. The Government’s moves to reduce business rates has helped, but the pandemic and the cost of energy crisis, coming off the back of the Ukraine war, has hit rural areas disproportionately hard. That is a theme I will be picking up in the coming months in this House in the run-up to the Budget. Everyone has been hit by the cost of energy increase of course, but in rural areas there is a double triple whammy. Every member of staff in a company has to drive. Most of my relatively low-paid working families have one, two or three cars. They are not a luxury; they need them to be able to get to work. All our public services are hit—our bus services and our county council services—all across rural areas. We are paying a double whammy because of an over-dependency on transport and heating. That huge rural impact is hitting remote backwater rural areas very hard, particularly in my part of Norfolk.

In that context, it is urgent that we encourage the revival of the rural economy. I have long believed and campaigned locally that, with a slightly different approach to planning and development in our area, we could trigger something of a rural renaissance, with many small businesses popping up off the back of the Cambridge phenomenon and the Norwich Research Park. Small businesses often start off by working from home or looking for converted farm units; they are not in the city centre, but distributed. If we can get more businesses back into villages and small towns, we will have more people of working age in communities during the day. That will reduce congestion and commuting.

The model of a vibrant rural economy is key to so many of the priorities of successive Governments. We will never get to net zero if we keep shovelling people into cars and making them commute long distances in congested traffic jams. The more we can get people to work from home or nearer to home, travelling when they need to during the day and not in peak hours, the better. That vision of rural renaissance is key, but it will never happen if young people cannot afford to buy a house near to where they work, if thriving businesses on the high street are unable to cash-up, save and deposit cash safely, and if pensioners are unable to save, take out their deposits and interact with banking in the way they have for the past 50 or 60 years. We need to ensure that we build an economy for the people who live there.

That is what my campaign, The Norfolk Way, is all about. It is a project to promote that vision of rural growth. The Bill touches on much of that. One has only to see the flight of the mainstream banks out of such areas—I know that colleagues in other constituencies see that—and the desperation that people feel, whether they are first-time buyers or pensioners.

[James Daly (Bury North) (Con)]

My hon. Friend is making an excellent speech, but we should not see building societies as a panacea; they are closing branches in my area as well. How do we encourage building societies to keep branches open when they are closing throughout the country?

[George Freeman]

My hon. Friend makes an excellent point. I do not want to suggest that they are a total panacea; I am lauding and applauding Nationwide in Dereham because it is doing great work, but we need to make sure that the Bill is part of a broader approach. I hope that Treasury Ministers, thinking about the run-up to the Budget and looking ahead, will think about how we can encourage more choice, more competition and more presence from both building societies and banks. We need choice and competition in rural areas and other areas that are not well served as well as in areas that are.

The opportunity for rural renaissance was hit hard by the pandemic, as well as by the Ukraine war, with its impact on energy prices, Putin turning off the gas taps and the cost of living crisis that we have all experienced. It is in that context that the Bill represents a chink of light and has been hugely supported locally. I am delighted to have helped the hon. Member for Sunderland Central bring it to the House.

I want to say something about the banks, because over the 13 years for which I have been privileged to be the Member of Parliament for Mid Norfolk the closure of banks—a cause on which I remember fondly working with the former Prime Minister, my right hon. Friend the Member for South West Norfolk (Elizabeth Truss), in 2009—has gradually hit much of rural Norfolk. Everyone understands that we cannot have a hugely staffed bank branch in every village, but there is a contract at the heart of the state between citizens, Governments and operations such as banks that work under regulations. Banks are there to provide a service, too, and if they are not going to provide that service we need to look at who will.

[Sir Oliver Heald]

Given the number of people going into banks to do their business these days, it is not unreasonable that there should be some restructuring. I think the idea of banking hubs where all the main banks club together to ensure that there is a proper facility in a town or substantial village is a good idea. Does my hon. Friend think that it is important that they should take in cash and takings from small businesses, because they do not all do that?

[George Freeman]

I do. My right hon. and learned Friend amplifies exactly the point I was making. He is right that sparsely populated or rural areas will often require different solutions, in the same way as small rural schools require us to network and support them through multi-academy trusts. Similarly, we need to be imaginative in how we support cash access and banking and saving in rural areas. That touches on a deep problem that I have witnessed over many years: Whitehall tends to see these problems through an urban lens, and we need to think a bit about how rural areas often need a slightly different approach. I hope that the Bill and the cross-party support for it will help to encourage the Treasury to think about how we can do more to make this a moment to encourage greater choice and competition out in the market.

It is particularly sad that the banks have stepped back from the service I described over the two or three decades in which many of them have focused rather more on big, international and complex financial trading—the derivatives that led to quite a lot of problems we had back in the great crash. It is particularly sad in Norfolk given that it is where one of our great banks, Barclays, actually started, with the Gurney and Barclay families. The first bank had its roots in King’s Lynn docks. As people were required to pay duties, they required credit finance. I encourage anyone who has not been to King’s Lynn to go there, as it has a beautifully regenerated and refurbished Georgian dockyard, where they can see the plaque commemorating the first credit facility that became the great Barclays bank. It is particularly sad to see a bank such as Barclays step back from the place in which it started. Everyone has history, roots and heritage, and I am not such a romantic that I expect Barclays to put a bank in every Norfolk village, but I do think there is a responsibility on all these companies to make sure that the people they are there to serve are getting the service they need.

I wish, in particular, to highlight the importance of access to cash on high streets for small businesses, as it is becoming a serious problem. I know that the Minister understands it, and I am grateful for his acknowledgement of it. Across East Anglia, and I am sure this is happening elsewhere, we are seeing an increasing frequency of ATM raids, where JCBs are driven into banks and ATMs are taken out. However, that is the thin end of a bigger wedge, and many businesses in Dereham, Attleborough, Wymondham, Watton and Hingham are beginning to struggle with what to do with cash on a Monday morning, and many local people are struggling to find a bank they can access.

I know that many people wish to speak this morning, so I will not detain you or the House for too long, Madam Deputy Speaker, but I want to touch on mutuality, which my right hon. and learned Friend the Member for North East Hertfordshire (Sir Oliver Heald) addressed earlier. We need to talk about, celebrate, champion and promote it more in this House. Some 300 years ago, we were writing the rule book for modern capitalism, defining the joint stock limited company and setting out the legal framework in English constitutional law, in common law, that drove the industrial revolution. We created limited liability companies, which allowed people to invest, raise money and back projects, and that was a key part of what this country did.

In an age of globalised capitalism and high technology, we have a challenge to make sure that capital does not become disconnected from the people who are providing the money, the savers, and the people who need the money to build businesses. For capitalism to work, we need a connection between money, the people who are saving it and the people who are borrowing it. The last crash in the City was a clear example of what happens when a disconnection is allowed to get to crisis proportions, whereby people do not know where the money that they have deposited is going and people who buy a complex derivative bond do not know what it is built on or what is underpinning it. We then have a serious problem. I am not suggesting that we go back to an agrarian revolution of trading wheat for a lift on a cart into Dereham, but I think there is a real issue in our economy in respect of connected capitalism.

Conservative Members in particular, as card-carrying advocates for the market, need to continue to champion and make clear the fact that markets work when they have values, connection and people at the heart of them. When markets are completely disconnected, they have no sense of the requirements of the people putting the capital in or taking it out, they do not value that connection and regulators do not understand the importance of the bond of responsibility between people who are trading with each other.

Mutuality is a proud tradition at the heart of the old labour movement, but it is also a proud tradition in civic conservativism—it is Burke’s little platoons. In a spirit of cross-party philosophising on this Friday morning, perhaps I can put some wind in the sails of the movement for mutuality. I would love to see more mutuality in different sectors, such as in finance, banking and housing, where, clearly, the building societies have been a great reform—I would argue that the housing associations have also been a great Conservative reform in housing.

There are many examples of where we could blow on to the embers of mutuality and encourage more of it in different areas, particularly in some of our social care sectors and health provision. It should not be a stark choice between private profit and public state. There is a whole third sector of mutuality— membership organisations that can deliver public goods, with cost reimbursement and important disciplines of financial control that are not necessarily either public sector, with all the efficiency challenges that go with it, or private sector, with all the incentives for high profit. There is a whole raft of organisations out there that we could be deploying better—in health and care, but also in criminal justice and a whole range of areas where the state has struggled in the past few decades to achieve its stated objectives.

[James Daly]

My hon. Friend is making an outstanding speech, and we could philosophise all day, which I am tempted to do very badly. Mutuality in the modern day requires a profit element. For all building society branches to remain open, the business has to produce a profit. Mutuality in the sense of Ketley’s Building Society in 1775 is a different concept completely. We therefore should always come back to the point he makes that, for mutuality to succeed, it must be based on a civic, conservative and capitalist model. It cannot work in any other way.

[George Freeman]

My hon. Friend makes an excellent point and encourages me to wrap up my philosophising. He is right—I am not at all anti-profit; it is about what is done with the profit. One of the geniuses of mutuality is that the profit is recycled back in to pursue the interests of those who put in the capital in the first place.

[Sir Oliver Heald]

I am grateful to my hon. Friend for giving way again—I must not keep trespassing on the House’s time, because I have a Bill coming up later. Does he agree that if we look at pension funds and the possibilities of extending that sort of approach into social care, there would be a lot in the idea of mutuality? Also, on the point about profit, if those funds were invested in national goods, such as important national infrastructure and things of that sort, we could all benefit, but of course it has a financial aspect to it as well.

[George Freeman]

Again, my right hon. and learned Friend makes the point even more eloquently than I was trying to do, and he is right. I make this point in all seriousness: in so many areas, such as infrastructure, as he says, I dream of a world in which people can put their own savings into mutual vehicles. I would love people to be able to invest in the Cambridge-Norwich railway development corporation to fund the regeneration of neglected stations, or to create and fund investment vehicles. There is a whole wealth of instruments, vehicles and bodies rooted in that fertile period of 18th and 19th-century English capitalism, and Scottish capitalism, too—the enlightenment in Edinburgh was a big part of it. We could draw on those models better in pursuit of many of our public sector objectives.

As I wrap up, I will return to the more mundane and practical issues. This is an important Bill for updating the law and giving building societies a chance to get back to where they were in the early ’90s. They were responsible for something like 60% of the market; they have dropped down to 20%. We want to help building societies compete and get back to providing their core service to help those who want to save in building societies, not banks, and first-time buyers who, particularly in my part of the world in Norfolk, do not have high salaries and are looking for a safe and reliable local building society that could hopefully help them acquire a local house built for them, rather than for commuters moving into Norfolk. We need to think about the people who are driving public services and the rural economy. For first-time buyers, this is an important measure.

As the hon. Member for Sunderland Central said in introducing the Bill, increasing lending capacity is in itself a huge step forward. I think the figure is £10 billion of extra lending capacity, which will allow the provision of another 20,000 mortgages. That is hugely important, particularly for first-time buyers. I conclude by genuinely congratulating and thanking the hon. Lady for bringing the Bill forward, the Government for working with her and us on it, and all those who have helped. The Bill strikes a small but important blow and sends a key signal that building societies are back. We want to support and help them as part of a broader commitment to civic, small, local-platoon connected capital that can help people in communities up and down this country to save and withdraw money in the way they need, which will support the local economies on which the national economy is built.

Building Societies Act 1986 (Amendment) Bill

George Freeman Excerpts

Committee stage
Wednesday 7th February 2024 Public Bill Committees

[George Freeman (Mid Norfolk) (Con)]

I congratulate the hon. Lady on everything she has done to bring the Bill to this point. All of us here, and many listening, will be aware of the appalling situation when the Northern Rock building society, a once great pillar of northern building, became something very different. Can she give any assurances that the Bill is designed to support the best of building societies, which are properly rooted in good, connected capital, rather than what we saw then?

[Julie Elliott]

I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.

The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.

The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.

Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.

The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.

Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with company law. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.

Finally, clause 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.

The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.