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

Kevin Hollinrake Excerpts

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

[Anna McMorrin (Cardiff North) (Lab)]

I beg to move, That the Bill be now read a Second time.

May I start by thanking all those present today and extending my gratitude to those who support my Bill and to the Members who are unable to attend because of ongoing shielding responsibilities? I thank the Minister and his officials for the many discussions we have had on this Bill and the consideration they have given it. I also thank my hon. Friend the Member for Harrow West (Gareth Thomas) for his advice and support. I wish to pay special thanks to my brilliant team—Hannah Buckingham, James Metcalfe, Lauren Kinsey, Mike Ash-Edwards and Charlie Roberts—who have been with me all the way, poring over legislation, dealing with briefings and emails, visiting projects and researching and preparing for this Bill.

Legislation that supports positive social and economic transformation has never been more necessary. I firmly believe that my Bill, the green share Bill, as it is known, has so much to offer. It feels like a lifetime ago that, in January, as a Back Bencher, I was lucky enough to have been selected in the ballot for a private Member’s Bill. It was a significant moment: the opportunity to put forward legislation that has the possibility of going the distance, becoming law and effecting change. The turmoil over the past few months has been difficult, and we know that these difficulties will continue as we navigate our way through this covid crisis. There has never been a more important time for this Bill, which supports positive social, environmental and economic change and helps tackle the climate emergency from the ground up. It is a Bill that delivers that necessary transformation.

Like all Members selected in that ballot, I was inundated with emails asking me to put forward important pieces of legislation. I want to thank all those who inundated me with their brilliant suggestions and idea; this provides a reminder of the scale of change we need to see across this country. The time and circumstances right now are calling for us to be bold; we cannot go back to business as usual. We must create a society that provides the jobs and opportunities of tomorrow and that reduces the inequalities and injustices of today. My green share Bill is an opportunity to do just that. It aims to build a more equitable and sustainable economy, rooted in all our communities and with environmental sustainability at its heart. It unlocks much-needed finance and creates a level playing field for co-operatives.

We are living through a climate emergency. Innovative green projects within our local communities must be at the heart of our rebuild and the fight against runaway climate change. Yesterday’s report by Climate Assembly UK that was presented to the House highlighted that the public want greater choice and competition for green energy and sustainable services. As we look to rebuild communities post covid, innovative and sustainable projects that create green jobs and apprenticeships and that generate cheaper and cleaner energy and more sustainable living environments must be a priority for all.

The Bill empowers our communities and investors to do their part in tackling the climate emergency from the bottom up. If we are to help to tackle climate change, we must legislate to enable our communities to rise to that challenge. Top-down approaches from the UK Government alone are not enough, even if they did not fall woefully short of the radical action required. Too often, we have heard the Government make big announcements, but we do not see the delivery of those promises on the ground. Instead of action, we have seen empty rhetoric and missed targets. Instead of climate action, we have seen abject failure and staggering hypocrisy.

People across this country are demanding change. Research last year by Greener UK and the Climate Coalition found that almost 70% of the British public want urgent political climate action and leadership. When I asked constituents in my constituency of Cardiff North what they wanted to see, the answer was healthier, greener and safer communities. This Government are not delivering. When we have a Government who are still willing to funnel billions into fossil fuel projects, how can we trust them to have our best interests at heart? The gulf between action and empty words is widening daily, and with it, the window of opportunity to make any meaningful difference to our planet is shrinking.

Covid-19 presents a significant fork in that road for the UK Government. Do we continue on a path of limited decarbonisation, missed targets and missed opportunities to future-proof environmental legislation, or do we use this opportunity to take a bold approach to rebuilding a more sustainable, resilient world that transitions away from a fossil-fuel driven economy and embraces serious measures to tackling the climate crisis at all levels? We must step up and begin to put the mechanics in place that are needed to deliver on our binding targets, including the Paris climate agreement, our commitment to keep global warming to a maximum of 1.5°C and the UN sustainable development goals that were adopted by the UK in 2015. Action must start now, and the Bill provides an opportunity fundamentally to transform our communities and do just that.

The Bill provides a way for co-operatives to raise private investment. The maximum threshold that can be raised through fixed term withdrawable shares is currently £100,000. Co-operatives UK said that that is the biggest practical limitation on societies seeking institutional investment, because as a result, co-operatives have less money to invest to innovate and grow their businesses. There is a need to facilitate new capital in co-operatives, without compromising their co-operative nature or members losing control. My Bill would remove the threshold that is holding co-operatives back, while enhancing the economic democracy and accountability that lies at the heart of co-operatives. The new green share would protect the economic democracy at the heart of co-operatives operating a one person, one vote system. The Bill would also safeguard co-operatives from individuals or businesses that seek to liberate—or asset-strip—a legacy asset by demutualising a society and taking over its business for private benefit; that threat would be nullified.

Some may ask about potential loopholes in the Bill. I accept that where there is risk, there are always those who are actively exploring ways to undermine financial law. That is why the Bill protects against tax and fraud loopholes by allowing the Treasury, by regulation, to address such concerns and establish a pilot scheme for the framework. In my correspondence with the Economic Secretary to the Treasury over the last six months, he has been enthusiastic about doing so.

Despite their value to customers and the community, mutuals and co-operatives in the UK are hugely underappreciated. Several barriers prevent co-operatives from growing to their full potential and place them at a disadvantage. Allowing my Bill to progress today would represent parliamentary acknowledgement of the value that co-operatives add to whole sectors and communities, and it would signal our intent to amend existing law, under which co-operatives have one arm tied behind their back. This House should champion, celebrate and recognise what co-operatives have done for the country.

I will provide a little bit of context for the Bill. The co-operative model is a truly British success story and a very successful Welsh story, and it was at the heart of economic renewal in the past. Robert Owen, a prominent Welsh textile manufacturer, was one of the founders of the co-operative movement, and he proposed the creation of “villages of co-operation” as a response to the economic crisis in 1815 at the end of the Napoleonic wars. The first co-operative societies were established in Wales in the early 1840s, among them one started by the Chartists in Pontypridd. The strength of the movement in south Wales was in small valley villages such as Troedyrhiw, New Tredegar and Caerau, which reflected how the coal industry developed. In North Wales, they grew in coal and slate communities such as Leeswood and Llanberis. In mid-Wales, they developed in towns such as Newtown and Welshpool.

Co-operation was about much more than trading; it was a way of life for many. It became a central part of the culture of the local community, similar to that of the chapel. People identified with it and were loyal to their co-operative societies, which became an ingrained way of life. As was said of the Blaina Co-operative Society in 1922, it was

“undoubtedly the biggest thing in the valley outside of the coal industry itself”.

What started as a community model for pooling resources and working as a collective to provide low-priced flour, oatmeal, sugar and butter has grown and inspired the growth of co-operatives across the world. There are roughly 1 billion members of co-operatives worldwide, in more than 100 countries. That is something to be proud of.

In Wales, the feeling of co-operation and belonging has endured. The values of co-operation, fairness and social responsibility are still with us in our communities, and we need to harness and protect those values and strengths. A lesson that we can all learn from co-operatives, as the current health and climate crisis demonstrates, is the potential for renewal and transformation—for keeping up, adapting and tackling the challenging conditions that lie before us.

During this coronavirus crisis, we have seen the spirit of co-operation and community coming to the fore to provide resources to those who most need them. More than £4 million of food and other services have been donated by the Co-operative stores to FareShare for distribution to community food bank and for fundraising. Some 5,000 jobs have been created and targeted at those whose employment has fallen foul of the current crisis. That is just a fraction of the good work that co-operatives have done to support communities, businesses and people. As we face up to the scale of the economic damage caused by the virus, our society must look at the co-operative model as a model of sustainable and ethical economic and social regeneration.

This green share Bill is an acknowledgement of the crucial work that co-operatives do and a recognition of the unlimited possibilities that would be available for people and communities from Cardiff to Canterbury from Manchester to Middlesbrough by unleashing them from these archaic restrictions. Co-operatives can be part of the revival again, whether that is coming out of this covid crisis or addressing the catastrophic climate crisis before us, both of which continue to rage in tandem.

Co-operatives are already leading the way in sustainable business and green projects. The current crisis demonstrates the need for this Parliament to look again at the current restrictive rules and instead put in place legislation that allows them to flourish. We must have economic development, job creation and vital infrastructure built from the ground up, so that we can guarantee economic and social success that works for all.

The Government have been inconsistent in their commitments in England, scrapping a policy to power 1 million homes by community energy in 2017. That is in stark contrast to the Labour Government in Wales, who wholeheartedly support community energy projects and the development of clean energy generation. Since 2010, renewable electricity in Wales has trebled.

Housing associations would also benefit from the legislation in this Bill with capital to retrofit and to build new homes, which again is something that the Labour Government in Wales are spearheading. Millions has been announced for the Welsh innovative housing programme, the optimised retrofit programme and improved quality standards. We need to see that same commitment from this UK Government for England.

Despite the lack of commitment from the Government here, communities and co-operatives continue to press ahead undeterred, because they recognise the value such projects add, but those projects need to be valued and not neglected. Energy co-operatives in the form of renewable or low-carbon energy are now established in all corners of the British Isles.

In March, I visited Awel co-operative wind farm, a joint venture between Awel and Egni in Mynydd y Gwrhyd, south Wales. The wind farm was commissioned in 2017 and has a huge range of local members, including charities, sports clubs and the local arts centre. It really is a community project.

We have Egni Co-op, which was the first solar photovoltaic co-operative in Wales. It is now undertaking the biggest roll-out of rooftop solar in Welsh history. It develops rooftop solar on schools, businesses and community buildings to help reduce their carbon footprint. It has just completed the largest rooftop solar installation in Wales on the Geraint Thomas velodrome in Newport. It has a share offer that has raised £1.3 million so far.

Both projects have the best of co-operative values at their heart, combined with environmental sustainability. They demonstrate a new way of greening our energy network and local economies. Such projects strengthen communities and serve as educational facilities and tourist attractions. They show where community enterprise, private investment and co-operative governance can work together and lead the way.

Both the projects I have visited, alongside others I have spoken to, would really benefit from this green share Bill, but this Bill would also unlock vital finance and help these projects go from strength to strength. Dan McCallum, the director of Awel co-op, strongly supports the Bill. In his words:

“This Bill will really help in terms of unlocking other sources of finance, supporting and strengthening the co-op model. We’ve been amazed at the interest people have shown in renewable energy and co-ops, but any ways of expanding on that and strengthening the model can only be a good thing.”

We face the mammoth task of tackling climate change and transitioning our economy to net zero. It will be particularly challenging to effect climate action at local level, but it is my belief that by allowing co-operatives to expand and bringing the community with them, they can help us rise to that challenge.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

As the hon. Lady knows, I am a co-sponsor of the Bill. I am very supportive of the principle of co-operatives. On climate change, she said a few minutes ago that Wales had done better than the rest of the UK, citing how it has trebled its renewable electricity production since 2010. That is exactly what the whole of the UK has done as well—it has gone from 6.5% to 20%—so it would be good to recognise some of the achievements of the entire UK as well as those of the Welsh Government.

[Anna McMorrin]

The real point I was making is that the regulatory framework and legislation put in place by the Labour Welsh Government have allowed such projects to come to the fore, particularly community energy projects—and in fact onshore wind, which has not been the case in England—but I thank the hon. Gentleman for his comments.

My green share Bill unlocks an exciting market for external investment in co-operatives and mutuals, allowing them to grow, maintaining competitiveness and investing in green sustainable projects.

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[Andrew Lewer]

The hon. Lady will be pleased to hear that I will say several things in support of the principles underlined by her and which other colleagues have touched on.

While the Bill seeks to add to the track record of this Government and previous Governments, there are several issues within it that that cannot be ignored. Some of those worry me, and although I see elements of merit in the Bill, I am hesitant about it for reasons that I will address, dealing with some of the specifics rather than only outlining problems overall for the sector, which may lead to the Minister’s scribbling out too much of his speech.

As I mentioned, co-operatives and community benefit societies add to the diverse make-up of the UK economy and are in many cases successful, with more than 72% of co-ops still flourishing after a difficult first few years, in comparison to 43% of companies overall. Those businesses are therefore a cornerstone of the UK’s economy, particularly its social economy, and have the benefit of helping to push sustainable economic development and investment in green sectors. That should be celebrated and encouraged. Many across the House will share their ambition.

[Kevin Hollinrake]

My hon. Friend outlines some of the benefits of co-operatives. Is he aware that in many countries the banking sector is largely provided through co-operatives, including Germany and the USA, and that those banks provide much more sustainable long-term thinking and patient capital to help small and medium-sized enterprises through financial crises? If the Government decide to lead us down that route in terms of diversifying our banking sector, would he support that?

[Andrew Lewer]

I think that business models that are rooted in their communities and have the wellbeing of those communities at their heart, while enabling individuals to be enterprising within them, are very beneficial, particularly in having the value of local knowledge of what will be a success, rather than simply a balance-sheet approach.

Investment in emerging green markets and technologies, in line with Government green investment strategies, can be beneficial and should be encouraged, but they are not without their own risks, and that is one of my worries. Investors must be aware that there are risks associated with green shares, as there are with any shares. My worry—and that, I believe, of some of my colleagues—is that the well-intentioned ethical ambitions attached to this instrument may expose them to risks that they may not have foreseen. I am concerned that the Bill exposes the co-operative sector to the unintended risks of being exploited as investment vehicles, rather than purpose-driven organisations. There is a balance to be struck there.

As with many of these societies and co-operatives, people have saved up for years to invest their savings in capital, and I want to ensure that they do not underestimate the associated risks of green shares proposed by the Bill. Just because it has the word “green” attached to it does not mean that it is a guaranteed way of making money or is a sensible investment. Although it is probably a slightly politically incorrect cross-reference in the context of this debate, I am reminded of the car industry. People often muse, “If only I’d invested massively in the car industry in 1900, I’d have made a fortune.” Actually, nearly all the car companies that were founded in 1900 led to a loss for their founders, because only a few of them prevailed. Although the overall concept of investing in the automotive industry in 1900 was good, it actually led to a lot of people losing a lot of money.

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[Kevin Hollinrake]

My hon. Friend is putting forward a good case for credit unions. Is he aware that credit unions in the UK have collective assets of around £4 billion, compared with mutual banks and co-operatives in the United States that have £4.7 trillion—a thousand times as much? We need to invest more in credit unions and co-operatives and make it easier for them to establish and grow in the UK. Does my hon. Friend agree with that sentiment?

[Paul Howell]

I absolutely agree, and it is important to create an environment in which that can grow and that that extension is done in a way that retains the safety and confidence of the investors.

The Economic Secretary to the Treasury concluded his speech by saying:

“This might include helping people who aren’t insured secure the protection they need. Or it could involve helping people buy goods on hire purchase at more affordable rates.”

I understand that environmentally sustainable investments are defined by their support for the creation of an innovative, productive and low-carbon economy, and the maintenance and enhancement of a biodiverse natural environment with healthy functioning ecosystems and ecological resilience. As with any innovation, these can be more risky investments. I believe they can also include what are referred to as “impact investments”, where the primary purpose is the impact as opposed to the return, or even the security of the capital. For investors, credit unions, and many other small investors, capital is not something they want to be placed at risk.

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

I congratulate the hon. Member for Cardiff North (Anna McMorrin) both on securing this private Member’s Bill and on highlighting the important issue to the House. I acknowledge the many significant contributions so far: from my hon. Friends the Members for Northampton South (Andrew Lewer), for Berwickshire, Roxburgh and Selkirk (John Lamont), the hon. Member for Croydon Central (Sarah Jones), my hon. Friends the Members for Clwyd South (Simon Baynes), for Grantham and Stamford (Gareth Davies), for Christchurch (Sir Christopher Chope), for Rushcliffe (Ruth Edwards), for Bolton West (Chris Green), for Sedgefield (Paul Howell), for Darlington (Peter Gibson) and for Gedling (Tom Randall). All of them have interrogated the Bill very carefully and thoughtfully with some interesting exchanges along the way.

I wish to put it on record that I fully agree with the ambitions of the hon. Lady’s Bill to support the growth and development of the co-operative and mutual sector and to tackle climate change; I have enjoyed our dialogue during the preparation of the Bill to get to this point. They are two key drivers of my tenure as Economic Secretary. I also wish to put it on record that the Government have taken significant steps to support the co-operative and mutual sector to reach its potential, and I will continue to champion mutuals of all kinds. Just last week, I was pleased to attend a roundtable on the topic of regional mutual banks chaired by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) who has also made contributions again today. I will be taking some of those thoughts from that discussion forward.

Treasury officials who work with me also hosted an innovative mutuals workshop with representatives from across the sector last year to drive practical changes to help co-operatives. In 2014, as has been mentioned, we passed the Co-operative and Community Benefit Societies Act to reduce legal complexity and, at the same time, we increased the amount of capital a member could invest in a society from £20,000 to £100,000.

[Kevin Hollinrake]

The Minister refers to the roundtable we held on mutual banks. One of the astounding figures in that roundtable was the SME lending by mutual banks in other countries throughout the financial crisis. In Japan, there was no reduction in lending to SMEs. In Germany, there was a 20% increase. In Switzerland, there was a 30% increase over that five-year period. In the UK, there was a 25% decrease in lending to SMEs. Does that not show the power of mutual banks as a solution to SME lending?

[John Glen]

It does show the considerable potential, but we must be clear about the different legal traditions and frameworks that exist in those different jurisdictions. Right now, we are looking at where we can examine ways of moving forward constructively from the basis that we have in this country.

I would like to move on and examine some of the other elements where the Treasury has made contributions to assist this broad agenda. Where we have identified barriers holding mutuals back, we have acted to remove them. This year, we worked with Her Majesty’s Revenue and Customs to ensure that companies converting to co-operatives are treated on a level playing field. At the Budget, the Government announced that the tax burden on housing co-operatives would be reduced. Most recently, the Treasury has worked closely with the Department for Business, Energy and Industrial Strategy to ensure that co-operatives can benefit from the Government’s covid-19 business support offer, including through the Corporate Insolvency and Governance Act 2020.

I am conscious that the interest of the hon. Member for Cardiff North is not just about the development of the co-operative sector. In our discussions, her passion for taking action to address climate change and her considerable experience in Wales prior to coming to this place have been abundantly clear to me. The Government share that ambition. As the House will be aware, we legislated to reduce emissions to net zero by 2050, becoming the first major economy to do so. In the Budget earlier this year, the Chancellor also announced a series of real, tangible measures to support green growth and tackle climate change. They were wide-ranging and included: committing to the carbon capture and storage infrastructure fund; fulfilling the manifesto commitment to tree planting and peatland restoration through a £640 million Nature for Climate fund; delivering on our commitment to increase the proportion of green gas in the grid by consulting on introducing a Great Britain-wide green gas levy to support biomethane production, alongside other measures to decarbonise heat; doubling the size of our energy innovation programme; and, at the summer economic update in July, the Government announced a further ambitious £3.05 billion package for housing decarbonisation designed to cut carbon, save people money and create jobs.

In my own area of responsibility at the Treasury, green finance is a priority. We published our green finance strategy in July last year. It sets out very clear objectives to align private sector financial flows with clean environmentally sustainable and resilient growth, and to strengthen the competitiveness of the UK financial sector. The tone of the debate and the content of colleagues’ speeches today has shown that there has to be an almost limitless ambition in terms of the dimensions of interventions. A number of contributions focused on the issue of green bonds and mobilising green finance. That means accelerating investments to support clean growth and our environmental ambitions. I think I would want to say that the issuance of green bonds will be an important part of the pathway to delivering the transition to net zero by 2050. It is something that the Treasury keeps under active and ongoing review as we approach fiscal events in the future.

I would like to turn now to the reasons the Government cannot support this Bill, despite sharing the ambitions of the hon. Member for Cardiff North. For the benefit of the House, it may be worth restating that societies can currently issue shares to raise capital and may also issue debt in much the same way as companies, as the Opposition Front-Bench spokesman, the right hon. Member for Wolverhampton South East (Mr McFadden) correctly set out. The current arrangement allows for a considerable amount of flexibility for co-operatives seeking to raise capital, while safeguarding their status as genuinely mutual member-owned and controlled entities.

The Government believe that the UK should have a strong and robust regulatory system which provides strong protection for consumers. Investment in mutuals, like any other investment, is not risk-free—a point that has been made by several hon. Members. Although it is for investors to make their own choices about risk—as has been pointed out, investments can go up and down—it is crucial that the Government ensure that appropriate protections are in place, particularly where a new type of investment instrument or product is being created.

The recent public and regulatory attention, following the failure of London Capital and Finance, to retail investments such as those that are often referred to as mini bonds highlights that care is needed when developing investment products for retail investors. From the beginning of this year, the Financial Conduct Authority took action to limit the promotion of a certain type of mini bond to certain retail investors, citing concerns about the high risk that capital invested would not be repaid and the illiquid nature of the investment. The FCA is now consulting on making those temporary rules permanent and extending them to some similar securities.

Unfortunately, we believe that the type of share proposed in the Bill may unintentionally—I do accept that it would be unintentional—create a capital instrument with characteristics similar to those of a mini bond, without ensuring that adequate protections for consumers were in place. Some of the significant issues with mini bonds arose as a result of their illiquid nature—the fact that they cannot easily be transferred—limiting investors’ ability to access their funds. Although the share proposed in the Bill is transferable, we believe that, in practice, it is likely that it would be highly illiquid. Mutual shares can ordinarily only be transferred at par value, which in turn limits the potential for the emergence of any secondary market for the shares, because the incentive to purchase existing shares is limited. In the case of the share proposed in the Bill, the opportunities for retail investors to recover their funds before the term attached to the share has expired, should they need to do so, may be extremely limited. That limitation could pose risks to retail investors with relatively low net worth who may need to access their capital.

Investment in mutuals is not risk-free. Many investors in mini bonds were motivated by the opportunity to support a brand or product that they had some relationship with, so they may not have fully considered the risks posed to their capital. That issue should be considered carefully in this case, because it is likely that individual socially minded investors may see investment in a green co-operative as an ethical use of their funds and may underestimate the associated risk.

That issue may be compounded by two further considerations. First, although the FCA is the registering authority for co-operatives, where they are not undertaking regulated activity they are not supervised by the FCA in the manner in which financial services firms are. We believe, therefore, that there is a significant risk of mistaking registration with the FCA to suggest a level of scrutiny that does not exist, and that may cause investors to underestimate the risk. Furthermore, as the investments are unlikely to be covered by the Financial Services Compensation Scheme, there would be no compensation available to consumers if the issuing co-operative were unable to repay the original investment. That has been a particularly contentious area with mini bonds.

More broadly, the Treasury’s review of the current regulatory arrangements for the issuance and marketing of non-transferable debt securities, such as some mini bonds, is ongoing. It is right that we consider carefully the outcome of that review before consideration is given to the creation of any capital instrument with similar characteristics. We do not want to have to do another review when we have not concluded this one yet. I hope I have made it clear to the House that the Government have significant concerns about the potential consumer detriment that may unintentionally arise as a result of the type of share proposed in this Bill.

[Kevin Hollinrake]

Does the Minister agree that the issue with mini bonds, and particularly with London Capital and Finance, was the misunderstanding around what was regulated? In that case, the product itself was not regulated, but the marketing of it was. That was very confusing for consumers, many of whom thought they were buying regulated products when they were not. Would it not be more straightforward to simplify and widen the regulatory framework to bring those kinds of products into it?

[John Glen]

My hon. Friend shows his usual grasp of these matters. He is right to say that the lack of clarity about the promotions regime and the regulation of the underlying instruments poses some real challenges. Alongside Dame Elizabeth Gloster’s review, which will report in November, we are looking carefully at the right joined-up response to deal with the risks that we have seen in the recent unfortunate situation arising from these mini-bonds.

Alongside protecting consumers, it is right that the Government consider the impact of any proposed changes to the shares issued by co-operatives on the sector. We have seen clear examples in other policy areas of legal forms being used to deliver investor benefits other than for the purpose they were intended, such as tax-advantaged venture capital schemes in energy generation. The FCA noted in response to its 2015 consultation that it had taken the decision not to register a number of energy societies as co-operatives. Those decisions were taken on a case-by-case basis, when it was determined that the conditions for registration as a co-operative were not met. In those cases, the relevant condition for registration was that the society must be a bona fide co-operative society.

Key to what makes mutuals distinct from other legal forms is their purpose-driven nature—one that the hon. Member for Cardiff North set out clearly in her opening speech and to which others have referred. I am concerned that the type of share proposed in the Bill may incentivise investors to inappropriately use the co-operative legal form as a vehicle to attract investment rather than to act for the benefit of its members or community, as co-operatives are intended to. Let me be clear: we are not opposed to community energy schemes, or for that matter any other business seeking to incorporate in the mutual model. However, it is right for the Government to be cautious in proceeding without the possibility for appropriate consultation and consideration, because we have seen real examples of where the model has been used in the wrong way, to considerable consumer detriment.

Finally, I note that there does not appear to be a clear consensus from the co-operative sector in support of the Bill as it stands. I will set out the position plainly as I understand it. In a briefing to MPs, the trade body Co-operatives UK noted that the Bill would be “impractical and counterproductive” and

“would restrict rather than expand the scope for societies to take on mission-aligned investment for environmental and social purposes.”

Co-operatives UK’s preferred approach, as the hon. Lady acknowledged, is to make amendments in Committee to remove the links to environmentally sustainable investment from most of the Bill. However, I believe that would fundamentally contradict the hon. Member’s intentions in drawing the scope of the Bill and is therefore not a viable way forward.

To conclude, let me reiterate my sincere gratitude to the hon. Member for Cardiff North for bringing forward this Bill. There has been a constructive discussion today, and it is important to highlight the value of the co-operative and mutual sector, both to the House and the public. I thank her for the way that she has engaged with me and my officials in recent months. Her passion to support the sector and tackle climate change has been clear throughout. As I have indicated to her previously, I will be happy to continue to work with her and representatives from the sector, of which there are a number across the House, to understand what more can be done. I will continue to champion the work of the co-operative sector more generally and address some of the themes of today’s debate, which have been very valid and worth while.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is great to follow my hon. Friend the Member for St Austell and Newquay (Steve Double); he always speaks with great passion, insight and common sense. I am delighted to be called in this heavily subscribed debate—though it is perhaps slightly less so than it was a few minutes ago. As the hon. Member for Cardiff North (Anna McMorrin) knows, I support the principle behind the Bill and co-operatives and agree that we need to do more on climate change, though I would echo my hon. Friend’s words: we need more consensus. Everyone across the House wants to tackle climate change.

I do not accept the premise that this country is doing badly compared with other countries. It is not true. We are the leading nation among the G20. We can trade facts of course—Opposition Members can throw facts at me about the performance of the Welsh Government; Conservative Members could talk about the UK Government—but the best thing to look at is the international comparison. There is a research document produced every year by an organisation called Germanwatch—hon. Members can google it—called the climate change performance index. It indexes every single country around the world. It does not award the first three places, because it says none of us is doing a good enough job, which I think is absolutely right, but it does list every nation, and the UK is fourth. It is updated every year—the hon. Lady should definitely read it—and the only countries ahead of us are Sweden, Denmark and Morocco. Every other country we can name is doing worse than the UK. We should be proud of that.

Of course, we need to go further faster, but we should not belittle the UK’s efforts. In the past year, the UK became one of the first countries to set that net-zero commitment by 2050 and brought forward the date for banning the sale of petrol and diesel vehicles. There is some very significant work going on. We should have a cross-party conversation. Of course, we should all be pushing the Government to go further and faster, but there have been many achievements.

As the hon. Lady knows, I agree that we should support co-operatives and sustainable investment, but I would question, as have one or two other people, whether the Bill should be limited to just environmental sustainable investment. There are other types of sustainable investment that this kind of Bill could enable. As she knows, and as the Minister knows, such a Bill could enable a big increase in the number of mutual banks in the UK. Such co-operatives are a feature of many economies around the world, and there are lots of reasons to adopt them in the UK.

As many here know, I am co-chair of the all-party group on fair business banking. We spend much of our time trying to resolve disputes between businesses and banks, and principally those disputes arise because of the huge imbalance of power between banks and businesses when things go wrong and because of the lack of competition in the sector: 80% of lending to small and medium-sized enterprises is concentrated in the four big banks. That is not a healthy state of affairs, which the Economic Secretary to the Treasury recognises, and he has done much work to try to expand competition in this sector. The co-operative and mutual movement could provide a huge solution to the problem we have, particularly in terms of SME banking.

As the hon. Member for Cardiff North pointed out, co-operatives and mutuals were pretty much invented in the UK, in the banking sector in the 18th century, yet we seem to have decided that they are not right for the UK. We got rid of our most of our mutuals, most of which were building societies, mostly through demutualisation. Members have made interesting comments about proposed new section 27B, which prevents demutualisation. I support that provision in principle.

The argument has been made that it should be up to members to decide the right structure for their organisation; that is the liberal view. However, financial incentives can get in the way of doing the right thing. We have seen that with the demutualisation of building societies. Bradford and Bingley, Woolwich and Northern Rock have not exactly been huge successes since they demutualised—in fact, quite the opposite; they have been total disasters. They demutualised because there was a financial incentive for people to become members of those organisations, put money into the building societies and then get a payday when they were demutualised. It was called carpetbagging at the time, and we all did it. We got a few quid out of those demutualisations, but it has been a complete disaster. So members do not always act in the interests of the organisation. My hon. Friend the Member for Grantham and Stamford (Gareth Davies), who made a fantastic speech, said that it should be up to members to decide because they always act in the best interests of the organisation. That is not always the case.

These mutual organisations that used to be a force for good in the UK have largely disappeared, yet they perform an important role in many other economies. We have a resurgence and a new initiative. The Economic Secretary took part in a roundtable that we organised recently with South West Mutual and the other mutuals leading the charge. There are 18 regional mutual banks being set up around the UK, and they could reverse this trend. They are a particularly important factor in levelling up, which the Government want to do.

These mutuals could perform a key role in a devolution settlement, for example. A regional mutual bank would support financial inclusion. We see more and more that some big banks are not particularly interested in some people, who are financially excluded. A regional mutual bank can play a benevolent role within a community, in terms of financial inclusion, SME lending and encouraging the establishment and scaling up of SMEs in their locality. They are full-service banks, so they do everything from taking deposits in current accounts to lending to small businesses. They are deposit-led—they take in deposits and lend money back out to businesses.

Regional mutual banks are hugely successful in other parts of the world. The United States has 12,000 of them. The state of Wisconsin, which is about the size of Yorkshire, with 5.9 million people living there, has 129 regional mutual banks. We do not have any. The total amount of assets under management by these banks in the US is £4.7 trillion. In Germany, there are 1,500 similar entities, with £2.4 trillion under management and being lent out to SMEs. In the UK, we only have around £4 billion, principally through credit unions.

As I said to the Minister when he kindly took an intervention, we saw in 2008 one of the problems in an inevitably cyclical economy when push comes to shove. When the banks got into financial trouble and had to have a bail-out from the Government, they wanted to restore the strength of their balance sheet, and almost inevitably, they did that at the expense of lots of SMEs in the UK. Funding was pulled from lots of SMEs, and lots of them went under or could not borrow and keep going. That had a devastating impact on many lives and livelihoods, but it also had a hugely damaging impact on UK plc.

It took us longer to recover from the economic crisis in the UK because of that issue, and the failure of those businesses due to the withdrawal of finance cost us around £40 billion. As I said, during that five-year period, between 2008 and 2013, Japanese mutuals did not reduce finance at all to those SMEs, the German mutuals actually increased the amount of lending to SMEs by 20% and Switzerland’s did so by 30%, whereas in the UK we saw a 25% reduction in lending to SMEs. I can make no more powerful case to the Minister than that for putting the measures in place through this kind of legislation. We should work with the hon. Member for Cardiff North to try to find a way forward for this kind of legislation, which could enable the investments that she and I want to see, whereby the community is investing in renewable energy projects and we are potentially helping to capitalise some of these banks to get them going. I know the Minister has concerns about the regulatory framework and making sure these banks do not cause a systemic risk or endanger investments for deposit holders and the like. Of course we need to work those things through, but there is a powerful case for supporting these regional mutual banks, particularly in terms of SMEs.

I wish to finish by talking about proposed new section 27C, which deals with tax loopholes and which the hon. Lady is right to put in place. Clearly, there is no detail behind that and she is asking the Treasury to come with the detail on how we stop these things being used as tax loopholes. Members can have topics they return to again and again, and the Economic Secretary is probably sick of my returning to the ones on banking, but when you are a hammer everything is a nail. One tax loophole has been exploited in terms of co-operatives in the Netherlands, and this has been done by an organisation called Cerberus. It is a giant private equity house that bought up lots of assets in the UK, in particular by buying £16 billion-worth of assets from Northern Rock. Those were loans where there was a danger of default or loans that were seen as high-risk, where Northern Rock had over-lent or lent too generously prior to the financial crash. Cerberus uses complex vehicles to move all its profits from the UK, Ireland and many other jurisdictions into this little co-operative shell in the Netherlands to avoid paying any corporation tax on its investments. It bought lots of these assets in the UK where other banks did not because its regulatory framework is lighter and because it pays less tax, and so it can afford to pay more for these assets.

Many Members here today will have constituents who are mortgage prisoners. Cerberus owns many of these mortgages but it is not an active lender, and so it locks many of these borrowers into very expensive mortgages. It does not give them the option to switch to a new provider, because it is not an active lender. It becomes the only bidder for some of these books because it will pay more, because it does not pay tax and it has a lower regulatory framework. However, the people caught in the middle are some 200,000 mortgage prisoners, who simply cannot move from one lender to the other. They are often stuck on rates at 5% and above. I believe that 48% of those borrowers are on rates above 3.5%. I doubt that anybody in here with a mortgage is paying at that kind of rate on their mortgage, because most of us are on fixed-rate loans. We have been allowing these books to be sold to overseas entities that do not pay tax—or pay very little tax—and operate within a much less restrictive regulatory framework, and so they have a natural advantage, but it is to the big disadvantage of our UK borrowers.

The FCA has tried to put a solution in place to prevent this situation, but a simple solution would be simply to cap the standard variable rate for mortgages. We did this in energy. I am not a price fixer, by any stretch of the imagination, but it is simply wrong that when most of us are paying rates of 2% and below these people are paying rates of 6%—that is simply unfair. We could resolve this matter in one fell swoop by capping the standard variable rate.

With that I will happily conclude my remarks. I very much support the hon. Lady’s efforts, and the many fine speeches we have heard today will help to move the debate forward. I would be happy to work with her and colleagues across the House in trying to develop thinking on this matter.