Co-operatives, Mutuals and Friendly Societies Bill

Lindsay Hoyle Excerpts

Friday 28th October 2022 Commons Chamber

[Peter Gibson (Darlington) (Con)]

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on moving the Second Reading of his Bill. Having had the pleasure of introducing my own private Member’s Bill in the last Session, I know only too well what a privilege it is to be drawn in the ballot.

I thank the hon. Gentleman for taking the opportunity to raise the important issue of co-operatives, mutuals and friendly societies, which colleagues across the House have raised on several occasions. My hon. Friend the Member for Wycombe (Mr Baker) led a Westminster Hall debate on the issue last December, emphasising the opportunity to generate wealth through co-operatives and mutuals and the role that they can play in our levelling-up agenda. I know that the chair of the all-party parliamentary group for mutuals, the hon. Member for Harrow West (Gareth Thomas), has endorsed the principles of the Bill; I commend the APPG’s work to champion co-operatives, mutuals and friendly societies.

“Mutuals” is an umbrella term for organisations whose members have democratic control of their business and that are owned by and run for the benefit of members, with profits reinvested in the organisation or among the membership. They include co-operatives, mutuals and friendly societies, but for ease of reference I will use the umbrella term “mutuals.”

Mutuals are fantastic business vehicles and are at the forefront of good behaviour when it comes to investing in people, developing skills and creating opportunities. Moreover, a range of co-operative models are increasingly being used as tools for community-led economic development, with people collaborating and pooling resources to improve their economic and social circumstances. Alongside that, educating and developing members is one of the fundamental principles of the co-operative model and is critical to making it effective. Mutuals are positioned as a potential tool to leverage the community support that we need to ensure that levelling up is a success in communities such as Darlington, and no doubt in the constituency of the hon. Member for Preston.

As I understand it, the UK has a comparatively smaller mutual sector than some other European economies. In its 2021 report, Co-operatives UK showed that there were more than 7,200 co-ops in the UK, employing approximately 250,000 people and with a combined turnover of £39.7 billion. In 2017, an estimated 11% of the UK’s insurance market was provided by mutuals, compared with 52% in France and 47% in Germany. I also understand that the sector has been largely resilient to the problems caused by the covid-19 pandemic, and I welcome the 1.2% growth in the number of co-ops in 2020-2021.

The sector faces a number of challenges. Unlike companies and banks, mutuals are largely dependent on bank borrowing and on their own revenues, as they are unable to sell shares without losing member control. The ability of the UK’s mutual sector to expand is therefore limited by its access to external finance. As the Ownership Commission noted in 2012:

“Legal limitations prevent many mutuals from raising…capital sums from their members.”

The commission made three recommendations: that new capital instruments should be introduced to allow mutuals to raise external capital, that mutuals should be able to issue bonds to members, and that they should be able to count deferred shares as tier 1 capital if trading as a bank or building society. I would be grateful if the Minister outlined the Government’s current thinking on those recommendations.

Many colleagues across the House will have received correspondence from constituents who are concerned about the proposed demutualisation of the financial services firm Liverpool Victoria. In December 2020, LV announced that US equity firm Bain Capital was in talks to acquire the business. The sale would have included the demutualisation of LV, with the mutual becoming a public limited company owned by shareholders rather than by members. I understand that LV’s chief executive argued that such a move was necessary to ensure the continuation of the business. However, in December last year the sale failed to gain the required support of 75% of LV members, with only 69% voting in favour. The potential need to demutualise LV exposes the difficulties that mutuals face when they need to raise capital. To protect those jobs, what action have the Government taken to ensure that LV can continue operating?

As I understand it, the Bill proposes legislative changes for share capital and non-distributable capital surplus. It would give mutuals the option of adopting a statutory provision guaranteeing that their residual capital surpluses are not distributable among members. The term “capital surpluses” means residual equity minus members’ shareholdings and share interest. The provisions would not interfere with mutuals’ ability to pay profits to members or to pay interest on share capital. I understand that the Bill would also enable mutuals to issue equity shares that are repayable at the option of the mutual, rather than being withdrawable at the option of shareholders. At present, mutuals looking to raise equity are hampered by legal uncertainty as to whether they can repay non-withdrawable shares at their option.

In preparing for this debate, I have been interested to read about comparable legislation abroad. Australia’s Treasury Laws Amendment (Mutual Reforms) Act 2019 introduced new mutual capital instruments. I understand that, previously, mutual companies did not have the power to issue such shares. Under the 2019 Act, share owners in Australia are limited to one vote per member regardless of how many MCIs the owner holds. The Act also introduced a clarification that the issuing of MCIs does not amount to demutualisation by the organisation for tax purposes, I would be interested to hear the Minister’s thoughts on that Act and its relevance to any legislation that might be appropriate for the UK’s mutuals sector.

It would be remiss of me not to mention a fantastic example of a mutual in Darlington and to praise the work it does in and around Darlington. Darlington Building Society was established in 1856 and now has nine branches across the north-east, County Durham and North Yorkshire. It describes its mission as being

“to develop our staff, technology, customers, brand and place ourselves at the heart of the communities we serve.”

This is a mission it undoubtedly achieves.

In September, a new play area, funded with a £15,000 donation from the Darlington Building Society, was unveiled at a Teesside school run by the North East Autism Society, which also freed up its staff to volunteer on my project to build a playground in Skerne Park in Darlington. I am also delighted that Darlington Building Society has announced a five-year deal to sponsor a new exhibition hall that will become a key feature of the Darlington rail heritage quarter, a £35 million project to create a national visitor destination as we fast approach the 200th anniversary of the Stockton and Darlington railway in 2025, marking the birth of the modern railway and a moment in history that changed the world. To quote Andrew Craddock, chief executive of Darlington Building Society:

“At Darlington Building Society, we are passionate about helping the members we have today, but we are also committed to encouraging the members of tomorrow to get into the saving habit. That’s why financial education is such an important part of what we do. As well as going into local schools, The Exhibition Hall will give us fresh opportunities to stage educational workshops in an engaging environment that is steeped in history.”

I warmly welcome this commitment to preserving and showcasing our local rail heritage in Darlington.

Darlington Building Society also has a long-term commitment to donate 5% of its profits to good causes, as well as freeing up staff time to volunteer in the community. In 2022 the building society has so far donated a total of £172,000 to local charities and community organisations. In September alone, Darlington Building Society donated £36,050.

If you will indulge me, Mr Speaker, that donation included: £8,000 to help combat food poverty this Christmas by providing 200 families with food hampers; £5,000 for Rubies GLOW project, which provides a safe space for girls to meet, receive support and develop self-confidence; £5,000 for Red Balloons, which helps to promote positive mental health through exercise and free guided walks; £7,200 for Wheels 2 Work, which is helping more than 40 people get into and stay in employment by providing mopeds and scooters; £2,400 for Studio Burn Fitness; £4,200 for Trinity Youth; £2,000 for Beyond Limits; £1,000 for Angel Trust; £500 for the North Yorkshire scout council; £250 for the Cockerton community business group; and £300 for Darlington Railway Athletic football club.

I would also like to draw the House’s attention to Darlington Credit Union, a community financial co-operative founded in 2009, following the merger of four smaller credit unions. Since then, it has grown to serve the whole of the north-east. It performs a vital community function, by being a source of affordable loans, which help people to avoid loan sharks. Darlington Credit Union faced an uncertain future in the wake of the pandemic, but Darlington Building Society, another of our mutuals, came to the rescue by providing crucial financial support and ongoing expert guidance on a voluntary basis. That really is a testament to how embedded in the community Darlington Building Society is. That is just the tip of the iceberg when it comes to the community work that Darlington Building Society engages in, and were I to list all of its achievements, I fear I would be on my feet all day. It is a fantastic example of the good that mutuals can do in our communities, and I want to put on the record my praise for its work in Darlington.

Returning to the Bill, I want to be clear that I fully support its principles. As I have outlined, mutuals have a hugely important role to play in our communities, in terms of education, engagement, charity and, fundamentally, the financial services they offer. It is also hugely important that we ensure that there is diversity in the financial services sector and that mutuals are able to raise the capital they need more easily without the need for demutualisation. I also note that both Co-operatives UK and Mutuo, an advocacy organisation for mutuals, also support the principles and aims of the Bill. There is clearly a significant appetite for reforms for the mutuals sector. I also note that Co-operatives UK has suggested that these reforms would have a significant economic benefit if they were to be introduced. I trust that the Minister has taken full note of that and will engage with the mutuals sector further on the matter.

I am pleased to be able to support this Bill, and I am grateful to the hon. Member for Preston for giving us the opportunity to debate these issues today. I know that he will continue to engage closely with Ministers as he continues to guide this Bill through its legislative journey, and I trust that the Minister will have listened closely to the contributions from across the House today. I look forward to his response.

[Mr Speaker]

We hear about the benefits of Darlington Building Society—it sounds as good as Chorley!