Financial Services Bill

Geraint Davies Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Chris Leslie]

We are trying to ensure that the Government fundamentally address the question. These provisions give the Minister and the Treasury the power to make by order amendments to many of the rules, statutory instruments and suchlike that affect mutual societies. We think that they should have the capability to measure progress on mutuality in order to help to smooth progress towards fulfilling the coalition’s pledge.

Given that we have before us a financial services Bill, our constituents would expect us to be talking about firm and defined measures to make progress on diversifying the financial services sector. Unfortunately, they would be disappointed by the Treasury’s progress on that. The Treasury website has a very scant, short set of paragraphs stating the coalition agreement’s desire to promote mutuals. It says:

“The Treasury is developing policy and delivering legislative changes to…meet this aim.”

That is basically it—a statement but no substance. I want the Minister to tell us what progress is being made in fulfilling that objective. It is not good enough merely to talk about consolidating existing rules or legislation and wrapping that up as though the Law Commission’s recommendations somehow fulfil Government promises. We want to see more action.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Given that there is an appalling sovereign debt crisis in Europe affecting Greece, Spain, and so on, with the possibility of contagion, and given that we learned the lessons about the stability of mutuals following what happened in 2008, does my hon. Friend agree that it is remarkable that the Government are not pressing forward to reduce such risks by increasing diversity and promoting co-operatives?

[Chris Leslie]

My hon. Friend is entirely correct. When the Government have an opportunity to return to the market state-owned assets that the Treasury took in the height of the financial crisis, they simply look for a return to the vanilla plc model. They take a business-as-usual approach rather than taking the opportunity to rethink how we might have diversity in the financial service sector and in business operations. Yes, we need some organisations run on a plc model, and we have plenty of those, but why not think about opportunities to promote the non-profit or mutual sector? Northern Rock was a classic case in point. No adequate consideration was given to that option. A member buy-out suggestion would have been entirely feasible, but it was not considered seriously enough.

At this point, I pay tribute to the all-party group on building societies and financial mutuals. It made a series of recommendations a year ago, urging the coalition to adopt

“a comprehensive policy strategy to implement its Coalition Agreement commitment to promote mutuals.”

It stated that the Treasury should be proactive in promoting the interests of financial mutuals within the Government. One of the first conclusions in the summary of its report was:

“HM Treasury appears to have taken a reactive stance to the mutual sector beginning to deal with important issues such as building society capital, but little else of substance.”

I do not want to labour that point, because time is short.

[Chris Leslie]

The credit union sector deserves far more support and encouragement than it receives, and previous Governments of all parties have failed to do enough to promote it. The demutualisation agenda of the 1980s and early 1990s significantly reduced the size of the building society sector, and compared with other developed countries mutual providers have a very small market share, particularly in the financial services sector.

[Geraint Davies]

We used to hear about the share-owning democracy, but there have been tidal shifts in people’s desire to take risks and own shares. Does my hon. Friend agree that we have a moment in time at which we can change direction and have more diverse ownership among the population and a new culture of business? The Government are missing a trick.

[Chris Leslie]

Now is the time to think about the culture change that we want to see in the financial services sector. Yes, there are some good plc structures, but we have an insufficiency of good mutuals, building societies and so on. There should be new entrants of that type, and current ones should grow to provide some proper competition to the big banks.

--- Later in debate ---

[Geraint Davies]

The amendment requires the Government to measure the number of mutuals and their share of the market. In so doing, it brings the Government to account. If there is no point to that, and if we want only what the hon. Member for Wycombe (Steve Baker) called “spontaneous order”, we would not have the Office for Budget Responsibility, and we might as well forget measuring and management. The amendment seeks to bring the Government to account, and should therefore be supported.

[John Healey]

There is a saying that what is measured matters, and if it matters, measure it. In many ways, that is the core of the argument being made by Opposition Members.

Sixteen per cent. of those who aspire to own their own home and who borrow to buy do so from building societies. Roughly one in six of us borrows our mortgage from a building society. That significant market share is gradually growing. That is why I have argued that building societies are the unsung success of British financial services. They are certainly unsung by a Government who promised to be their champion.

In my view, building societies are the quiet strength of British financial services, but it is time that that strength was properly supported by Government policy and action. Mutuals look at the coalition agreement and point to the words on the paper, but they cannot point to the action that followed. The amendment is designed to force the hand of the Minister, the Treasury and the Government. I am surprised that it finds any objection on the Government Benches, because it simply seeks to hold the Government to the promise they made

--- Later in debate ---

[Mark Durkan]

I thank the hon. Gentleman for that intervention, as it shows exactly why people should be worried. If the best argument that Government Members can make is that this amendment is modest and merely permissive, people should be worried that the Government are opposing and rejecting such a straightforward, common-sense amendment.

[Geraint Davies]

I shall be brief, Mr Deputy Speaker. The coalition Government say that they want to encourage diversity in the market and increase the proportion and number of mutuals, yet they refuse to agree with measuring the number of mutuals or their market share. Anybody who is serious about any policy should want to measure it in order to manage it and show that it has been successful; otherwise they come across as completely hollow. Given that we have the Office for Budget Responsibility and so on measuring important things such as outputs and economic performance, I cannot understand why we cannot include mutuals as part of that portfolio.

[David Rutley]

I understand the hon. Gentleman’s strength of opinion, but is he not aware that these data are readily available? We need only go to a market research firm or to researchers in the City to find that the data are readily available.

[Geraint Davies]

But as I have just said, if that is the case why do we need the OBR? We could go on the internet, like the hon. Member for Birmingham, Yardley (John Hemming) did, and then say, “I’ve got a figure from a reliable mate in the City.” This is completely absurd—

[John Hemming]

rose—

[Geraint Davies]

Here comes another absurd intervention.

[John Hemming]

Just for clarification, I looked up the BSA figure for the market share of mutuals, and it indicated that the market share was increasing. The BSA is not a friend of mine in the City, and the information is already being measured and reported on.

[Geraint Davies]

My point is that second-hand information is available in all sorts of marketplaces, but the Government make a great virtue of the OBR, and of other reliable and robust statistical sources, in order to measure the effectiveness of the outcomes of their policies.

[John Hemming]

rose—

[Geraint Davies]

I hope that this intervention is not just another repetition of the same thing.

[John Hemming]

It is difficult to see where the OBR comes into all this; it is not being handed the task of measuring things.

[Geraint Davies]

This is about having the reliable and consistent measurement of data in order to measure the effectiveness of policies, rather than having to rely on looking at the website of whatever trade association we are talking about. That is the essence of this amendment and it is why I support it.

The hon. Member for Stone (Mr Cash) mentioned the Rochdale pioneers, and I am glad that he did so. At that time, the idea of co-operation, co-operatives and mutuals was forged very much in the fire of unbridled capitalism and an economic Darwinism that I know some hon. Members would like to see return in the so-called “spontaneous order” of things. In that unbridled free market, the weaker members of society were being crushed, and a collective, mutual ownership emerged, through mutual societies and co-operatives, that enabled normal people to share risks, benefits and ownership, and to reinvest surpluses in their mutual. That is why those organisations grew, and I am very proud consistently to a have supported them.

One of the questions that arises is: why has there been a slight falling away of mutuals over the past few decades? Partly it has been because the Conservatives pushed demutualisation to get quick profits for their friends, who are involved in the capitalist system to make quick profits. Then, in 2008, we have this tsunami and suddenly people wake up in the debris of this chaos realising that some of the surviving organisations are mutuals, and they rightly ask why that is. The answer, of course, is that the focus of mutuals—their raison d’être—is not about just reaching out to maximise profitability and taking irresponsible risks; it is about delivering services for their members, who have equal shares. As a result, the time of mutuals is back.

This is a time of enormous global financial turmoil. We all know about the risks from the sovereign debt of Greece, Spain and elsewhere, and the knock-on impacts of that. We also face a great deal of risk from German banks and other financial institutions that do not have the inherent solidity and risk management of the co-operative system. If the Government are serious about this, now is the time to move forward. The coalition Government have said that they will move forward, but they cannot even be bothered to measure the market share and the number of mutuals. So how seriously can we take them? The answer, self-evidently, is: not seriously at all. The top management consultancy McKinsey has the mantra, “If you can’t measure it, you can’t manage it.” That company knows that that is self-evidently the case, but we are saying here, “We don’t really want to manage it. We won’t measure it. It does not really matter.” That is what is coming across, and it is a great shame that it is.

Labour Members are saying, “Let’s paint a picture of how things are changing. Let’s try to use that to make progress and to actively encourage credit unions, housing co-operatives and so on.” Such organisations tend, by their very nature, to be locally owned, with local benefits for local people. That contrasts with the situation described by the hon. Member for Stone, whereby a member of the Royal Bank of Scotland may find that Santander has suddenly sent them part of their bill, and they wonder why that is and whether there is a risk from the Spanish contagion, linked into the Greek risk. Somebody was mentioning that sort of situation to me the other day, and of course it arises because of the global nature of these organisations.

People want the security and assurance of knowing that they can go to local co-operatives and be offered loans if they save, whereas they would be excluded from high street banks, which would say, “You’re too poor. We can’t give you an overdraft”, but if people were in a credit union they could get one. A lot of this is about risk management and stability, but it is also about ethics. We know that mutuals—the Co-op in particular—are trying to promote fair trade, sustainability and so on. If we are serious about encouraging risk management, and a better and fairer future for all our communities with mutuals, we should be serious about pushing forward the top line of this amendment—that to manage it, we should measure it. I very much hope that the Minister will accept this modest amendment.

[Mr Hoban]

We have had a wide-ranging debate on mutuality, and it has acted as a peg for discussion. As is clear from this evening’s contributions, we all recognise the strength of the mutual sector, its importance in providing choice and diversity, and the benefits it brings. A couple of times, however, Opposition Members seemed to elevate mutuals into semi-religious institutions. Let us be realistic about some of the issues that mutuals faced during the crisis. Some mutuals had to be bailed out by others, and the first use by the previous Government of the special resolution regime was on the Dunfermline building society. A number of mutuals strayed from their core business model, which had consequences.

One hon. Member—I think it was the hon. Member for Harrow West (Mr Thomas), who is no longer in his place—referred to mutuals supporting their branch network. I recall that one of the first Adjournment debates I replied to as a Minister was as a consequence of Nationwide closing a number of branches in south-east London. All mutuals face commercial pressures, which needs to be acknowledged.

[Geraint Davies]

What the Minister says is true, but does he accept that there is a differential outcome and that, on balance, because of the lower-risk structure, the mutuals do better than conventional capitalist banks?

[Mr Hoban]

It depends on risk management and the business model that mutuals follow. There is a different set of constraints around building societies, which helps to ensure their stability, but that does not mean that they are immune from some of the mistakes that have caused failure in the past.

The clear intention of the Bill—we discussed this at length in Committee—is to ensure that regulation does not discriminate against mutuality, or indeed any other type of ownership, simply because it diverges from the norm of public or private ownership. I believe that the Bill delivers that result. For example, in clause 22, new section 138K requires the Prudential Regulatory Authority and Financial Conduct Authority to analyse the impact of the proposed rules on mutual societies. This will help to build up a base of impartial evidence to allow the regulators to continue to assess whether mutuals are being treated appropriately within the regulatory system. It is important that regulators think through very carefully the impact that their rules will have, particularly on mutuals.