Capital Needs of Co-operatives

John Glen Excerpts

Wednesday 25th April 2018 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Sir David—for the first time, I believe. I congratulate the hon. Member for Harrow West (Gareth Thomas) on securing this debate today. I am grateful to him for giving advance notice of the topics that he has brought before the House, which has given me an opportunity to consult my officials. Although I do not anticipate that we will get to final conclusions that will fully satisfy him today, I am very happy to have a meaningful dialogue with him in the Treasury with officials and Mutuo, the think-tank that he mentioned. I acknowledge his long-standing commitment to co-ops as chair of the Co-operative party and chair of the all-party group for mutuals. I take what he has said very seriously.

We have heard today how much the mutuals sector is valued in this country, and we share that enthusiasm in Government. I am aware that the hon. Gentleman, alongside other voices in the sector, proposes the introduction of a new financial instrument that co-operatives could use to raise capital. I also recognise that co-operatives need to be able to raise capital quickly and efficiently, and I appreciate the need for flexibility in capital planning.

The hon. Gentleman knows, as a distinguished former Minister himself, that any new policy needs to be thought through and to receive due consultation, not as a wilful delay but to ensure that it is right. I will ask my officials to explore the proposal further, including through discussion with representatives of the sector. I will gratefully receive any further information that he can provide me with.

The hon. Member for Strangford (Jim Shannon) raised the issue of allowing co-operatives to invest in social housing, and I thank him for that suggestion. Again, I do not have an answer now, but I will be happy to discuss that with officials and to liaise with him over the outcome. The hon. Member for Leeds North West (Alex Sobel) asked about the £100,000 cap on share capital and its potentially being lifted. In 2014 the cap was lifted from £20,000 to £100,000. We will keep that under review, but I acknowledge what he said and we will continue to examine that.

I turn to the mutuals’ deferred shares, which the hon. Member for Harrow West mentioned. The Government recognise the benefits of mutual insurers to consumers and the economy. That is why they supported the passage of the Mutuals’ Deferred Shares Bill, which was originally introduced as a private Member’s Bill in 2015. The Treasury consulted on the technical details of MDS in late 2016. We received representations from a variety of mutual insurers, consultants, and industry groups. It emerged from the consultation and follow-on work that the industry sought to issue MDS that, first, qualified as top-tier capital under relevant prudential regulation, and, secondly, had no ill effect on the tailored taxation regime that applies to mutual insurers. Since the consultation, my officials have been working closely with HMRC and the regulators to investigate whether it is possible to structure MDS to satisfy both requirements. Throughout that process, officials have sought the views of industry and its representatives via correspondence and roundtable meetings.

It has become clear that, if a mutual insurer issues equity that qualifies as top-tier capital, it will breach at least one of the principles of mutuality, found in case law, affecting mutual insurers’ tax treatment. Amending primary legislation to ensure that that did not occur would not be straightforward, and could have many unintended and undesirable consequences. For instance, any proposed exemption could give rise to legal risks in the form of state aid. I am happy to get into the detail of that in conversation with the hon. Member for Harrow West. I am considering the available options, but clearly there is no simple solution. I was drawn to ask officials why this matter did not become apparent during the passage of the Bill. Probably it was because the Bill was passed quickly in the early part of 2015, and the issue did not arise.

I now want to exhaustively examine the issues raised. The hon. Gentleman suggested that the Marcora law would assist worker buy-out of failing firms. I thank him for making me aware of that policy, which sounds worthy of further consideration. Job losses caused by firm failure can have a devastating impact on communities, particularly when those employers account for a high concentration and number of employees in a single community. I would be interested in learning more from the Italian example about how converting to a co-operative structure can avoid job losses while saving taxpayers money.

I would also be keen to see evidence on the implications for productivity. Clearly, a short-term fix that does not address some of the fundamental challenges that exist in a business is something that one would wish to examine. Again, I will ask my officials—they will be very busy—to discuss that with representatives of the co-operative sector in order to understand whether that model could be used in the UK, if not in that precise form then in one derived from the concept.

We must not forget that the Government have shown a demonstrable commitment to supporting the sector, because we are acutely aware of its significance. There are nearly 7,000 co-operatives in Britain today that, together, contribute more than £36 billion to the UK economy. Recognising the value of co-operatives, in February we introduced a measure to bring audit requirements for small properties in line with those for small companies. Properties have a key role to play in social investment. Last year, the Government expanded the social investment tax relief scheme, which provides a tax break to encourage investment in social enterprises for certain co-operative investors. That expansion will allow social enterprises to receive investment of up to £1.5 million under the tax relief, which is a substantial increase from the previous limit.

The Government see the great value in the mutual sector and the contribution it makes to not only our economy, but our communities. That is why we have taken steps to support all mutual structures, from co-operatives to credit unions. Today’s discussion has been fruitful, and I will look to have further such conversations. I thank the hon. Member for Harrow West for his long-standing commitment to co-operatives, and the constructive way in which he has brought this matter to my attention. As a Minister, I am very conscious that one’s time in office can be very short. If there is anything I can do to move this agenda forward, I give him my commitment that I will do so.

Question put and agreed to.