Capital Needs of Co-operatives

Jim Shannon Excerpts

Wednesday 25th April 2018 Westminster Hall

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I beg to move,

That this House has considered capital needs of co-operatives.

It is a privilege to serve under your chairmanship, Sir David. It is a particular delight to be able to talk co-operatives with the Treasury Minister twice in two days. For those of us who want the co-operative and mutual sector of our economy to double in size, fixing the difficulties that co-operatives have in accessing the capital they need to expand is critical. Co-operatives UK, the co-operative movement’s trade body, has done an excellent job in recent years of championing community shares as one way for local co-operatives to raise significant but comparatively small amounts of capital to grow. Lottery money is currently being used by Co-ops UK’s community share unit to support community shares offers, but more could be done if the Government renewed their previous interest in this area. It would be good for Ministers to explore what else they can do to encourage the further expansion of community shares.

More recently, Co-ops UK, working with retail co-op societies, has begun to explore whether fixed-term withdrawable share capital could be developed, allowing more established societies to raise patient and engaged equity finance from members and non-member investors, up to a £100,000 maximum individual shareholding limit. The Financial Conduct Authority does not always get a good press, but it has been very supportive of that work, and I hope the Minister will encourage the FCA and Co-ops UK to continue to champion that new potential source of capital for many co-operatives. The chief executive of Co-ops UK, Ed Mayo, deserves praise for his skill in getting this work so far down the road.

Other parts of the co-operatives and mutuals sector of our economy—notably building societies, friendly societies and mutual insurers—have been subject to legislative changes permitting them to raise much larger amounts of additional capital. These reforms are yet to apply to the co-operative world.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for allowing me to intervene—I sought his permission to do so beforehand. Does he agree that co-operatives should be allowed to invest in social housing? It is the very essence of what a co-operative seeks to do. Benefits are involved. I gently suggest that the Minister should consider revisiting the ability of co-ops to invest capital funds directly in social housing.

[Gareth Thomas]

The hon. Gentleman makes an extremely good point. If he can use his not inconsiderable influence on the Minister to support what I will say, we might be able to accelerate the addressing of some of the problems co-ops face in investing in social housing. Unless co-operatives can raise additional capital, they cannot expand or develop to their true potential. At worst, they are at risk of demutualisation, as I will set out. Co-operatives do not issue shares in the same way as investor-owned companies—to do so would mean demutualising—so bigger co-operatives can face considerable difficulties raising additional capital at the level they need. Their growth inevitably is limited and their ability to compete on equal terms is reduced.

In short, legislation is needed to fix this problem—legislation that protects that unique governance model of co-operatives, but allows them to issue permanent investment shares. Such shares could allow consumer co-ops to grow by acquisition and by developing new business offers for their customer members. Football supporter-owned clubs could fund the development of new stadium facilities, grow their businesses, serve their communities and consolidate their income streams. Co-operative-owned energy generators could attract long-term investment to build even more energy infrastructure of the sort we need in this country. A lack of capital limits a co-operative’s growth and ability to develop new services. The growth rate of that co-operative is constrained by its relative inability to add significant capital through retained earnings.