Building Societies Act 1986 (Amendment) Bill

Lord Kennedy of Southwark Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

Moved by

[Lord Kennedy of Southwark]

That the Bill be now read a second time.

[Lord Kennedy of Southwark (Lab)]

My Lords, I am delighted to present this Bill to your Lordships’ House for its Second Reading today. I should declare to the House that I am a director of the London Mutual Credit Union, and while it is not a building society, it is a full member of the Building Societies Association, as it offers mortgages, and the BSA is very much in support of this Bill.

I thank all noble Lords who have signed up to speak in this debate and look forward to each of the contributions that will follow shortly. I am particularly delighted that my good and noble friend Lord Naseby will be speaking. We have worked together many times to support the co-operative and mutual sectors on legislative measures, and I am pleased to have his support again today.

In the last Session, I was able to get the Co-operatives, Mutuals and Friendly Societies Act 2023 on to the statute book following the success of my honourable friend in the other place, the Member for Preston, Sir Mark Hendrick, in steering it through the House of Commons. That Act of Parliament is permissive legislation that enabled mutual organisations to have the ability to opt into a restriction on the use of their assets. The co-operative and mutual sectors enjoy cross-party support, which is one of the strengths of the movement. This Bill has benefited from that cross-party and industry support. I am grateful to my honourable friend in the other place, the Member for Sunderland Central, Julie Elliott MP, for taking this Bill through the House of Commons. She did so with great skill, and we are all grateful to her.

Building societies were originally established to allow people to pool their savings and to buy a home. The world’s first building society was Ketley’s Building Society, founded in 1775 by Richard Ketley, the landlord of the Golden Cross, in Snow Hill, Birmingham. Since then, these important mutuals have played their part in enabling people to own their home. Owning the roof over your head is something that most people in the UK aspire to, and building societies have enabled generations of people to buy their own home.

I am grateful to the Library of the House of Lords and the Building Societies Association for their excellent briefing notes, and to officials at His Majesty’s Treasury for producing the Explanatory Notes explaining the purpose of the Bill in such clear detail. The Bill builds on the Building Societies Act 1986, which is a good piece of legislation that has worked well. The Bill allows for targeted, specific improvements to update and modernise the existing legislation. It comprises four clauses, which I will explain briefly.

Clause 1 amends Section 7 of the Building Societies Act 1986 and enables the Treasury to make secondary legislation, using the affirmative resolution procedure, to allow certain funds to be disapplied from counting towards the 50% retail funding limit. The funds to be exempted from the building societies wholesale funding calculation are set out in the Bill. These are Bank of England liquidity insurance facilities; debt instruments raised to meet minimum requirements for own funds and eligible liabilities; and sums received by the society under a sale and repurchase agreement entered by the society with a view to complying with a specified PRA rule.

Further, Clause 1 would allow the Treasury, through secondary legislation, to specify named funds, descriptions of funds and PRA rules relevant to the sums received under sale and repurchase agreements. Taken together, the clause allows for the exclusion of certain types of funding from the funding calculation, which requires building societies to obtain at least 50% of their funding from member deposits, thereby allowing them to acquire more funds without fear of breaching the funding limit.

Clause 2 allows for building society member meetings to be attended virtually, allows those members to speak and vote, and allows for proportionate measures to confirm the identity of those members attending and participating in the meeting.

Clause 3 extends the powers in Section 104 of the 1986 Act, again using the affirmative resolution procedure, with reference to common seals and the execution of documents, enabling provisions to be updated and processes to be modernised and allowing building societies to take advantage of them.

Clause 4 sets out that the Bill extends to the whole of the United Kingdom and comes into force two months after it becomes law—so it is small in size but not in its proposed effect. It will enable more funds to be made available to members, help more people own their own home, modernise processes and allow for greater participation of members and the more efficient execution of documents. All these changes need primary legislation, which is why we have this Bill today. Other measures will be introduced using secondary legislation outside of this Bill, which will help the sector further.

I was delighted, as I said earlier, when my good friend the honourable Member for Sunderland Central in the other place asked me to take this Bill through this House. In my 14 years of membership of this House, I have sat here as a Labour and Co-op Member of the House of Lords. I have been a member of the Co-operative Party for nearly 40 years. It has had an agreement with the Labour Party since 1918 to seek public office only jointly. The Co-operative Party has always sought to champion the positive role that co-ops, mutuals and friendly societies can play in our economy, in our society and in a variety of different spheres to improve people’s lives and give them the power to have a greater say in the things that matter to them. I am also delighted that Members from all parties support the Bill, and that it has the support of the Government. It is a really important measure which deserves support. I beg to move.

--- Later in debate ---

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I thank all noble Lords who have spoken in this debate. My noble friend Lord Naseby’s support for the Bill, and his support of the mutuals financial sector over many years, have been very welcome. He is highly respected in the sector. It has been a pleasure to work with him on these issues over many years.

The noble Lord, Lord Holmes of Richmond, in his support for the Bill, highlighted the updating that enables virtual meetings to take place. He made an important point about when secondary legislation would be brought into force. He used the words “scale”, “growth” and “competition”. I very much agree with the noble Lord on those points. We are in complete agreement. I am grateful to the noble Baroness, Lady Kramer, for her support of the Bill and for setting out MREL and explaining it much more clearly than I could have done. I thank her very much for that. It is much appreciated.

My noble friend Lord Livermore again gave the support of His Majesty’s Opposition for the Bill. I am grateful to him. He said how important the Bill was to enable additional lending capacity to enter the market, allowing people to borrow funds and buy their own homes. My noble friend referred to me being the Opposition Chief Whip. I view myself as a very friendly, happy and co-operative Chief Whip—particularly when people are agreeing with me.

I thank the Minister and the Government for their support. I agree with the Minister very much about the importance of the mutual sector and those organisations that are rooted in their communities. We clearly must keep pressing the Government to get the regulations sorted out. Maybe there is scope for a few Oral Questions. Maybe it will get me off leasehold. Anyway, we will come back to that at a later date.

Finally, I refer to the points that the noble Baroness, Lady Kramer, made about any well-intentioned amendments. We can always make things better, but can I plead with noble Lords here? However well-intentioned they are, any amendments will ensure that the Bill fails. It is really important that we do not have any well-intentioned amendments turning up. This Bill does what it says on the tin. The industry supports it, the Government support it—we all support it. We now need to get it through the House with the minimum of fuss.

Bill read a second time and committed to a Committee of the Whole House.

Co-operatives, Mutuals and Friendly Societies Bill

Lord Kennedy of Southwark Excerpts

3rd reading
Friday 16th June 2023 Lords Chamber

Moved by

[Lord Kennedy of Southwark]

That the Bill do now pass.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, in these few brief remarks, I pay tribute to the Bill’s sponsor in the other place, Sir Mark Hendrick, the Member for Preston. I also pay tribute to Peter Hunt, Mark Willetts and all the team at Mutuo, an organisation that has done fantastic work in the co-operative sector over recent years and had many bits of legislation passed. They have done a wonderful job, and we thank them very much for all their work.

The Bill is passive: it requires no co-op, mutual or friendly society to do anything whatever, but it enables them to take action, if they want, to protect their organisations and prevent unwanted attempts to demutualise. So it is a welcome piece of legislation. I thank the Government and the Opposition for their support, and the noble Lord, Lord Naseby, for his support on these matters over many years. I also thank the Treasury and Treasury officials for their support. I beg to move.

[Lord Naseby (Con)]

My Lords, this is a vital Bill for the mutual movement of the United Kingdom. It prevents any predator trying to take away the capital put in by individual members of the society, and it is absolutely vital that this goes through. I recognise that another element sitting on the statute book that complements the Bill is the Mutuals’ Deferred Shares Act 2015, which I had the honour of taking through this House some time ago. I say to my noble friend on the Front Bench that we in this country now have a huge opportunity to benefit in the same way that Canada and Holland have from the mutual movement. It is ready to move forward, and we now look to His Majesty’s Government to implement the Bill and take the mutual movement forward. I particularly thank the noble Lord on the Front Bench on the other side of the House for all that he has done to take it this far.

Financial Services and Markets Bill

Lord Kennedy of Southwark Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Harlech (Con)]

My Lords, I beg to move that further consideration on Report be now adjourned until 8.31 pm.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I do not think that the debate on our regret amendment is time-limited.

Co-operatives, Mutuals and Friendly Societies Bill

Lord Kennedy of Southwark Excerpts

2nd reading
Friday 24th March 2023 Lords Chamber

Moved by

[Lord Kennedy of Southwark]

That the Bill be now read a second time.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I am delighted to present this Bill to your Lordships’ House today for its Second Reading. I thank all noble Lords who have signed up to speak and look forward to each of the contributions that will follow shortly.

I have been a supporter of co-operatives in all their forms for more than 40 years. I am one of a small group of Labour and Co-operative MPs and Peers sitting in Parliament. The Co-operative Party, of which I am a member, has since 1918 had an agreement with the Labour Party that it seeks representation on public bodies only jointly with it. The Co-operative Party today is proud to have 28 MPs, 16 Peers, 11 Members of the Scottish Parliament, 16 Members of the Senedd in Wales, five metro mayors and nearly 1,000 councillors elected in England, Scotland and Wales. I am a member of the Co-operative Group and, as detailed in my entry on the register, a director of the London Mutual Credit Union, one of the biggest credit unions in the United Kingdom. I first joined the old Royal Arsenal Co-operative Society 43 years ago—I know I do not look old enough—following a meeting with my noble friend Lady Thornton, who at that time was working for it; we have been friends ever since.

This is a small, two-clause Bill. It is another step along the road of reforming and developing the legislative framework to support the sector. I place on record my special thanks to the Member for Preston in the other place, Sir Mark Hendrick MP, for steering this Bill through the other place so skilfully, and also to Peter Hunt and Mark Willetts, the team at Mutuo, for the work they undertook in devising the Bill. I also thank officials at the Treasury for their work in getting us to the place today where the Government are happy to support the Bill. I am still struggling to get such a positive response to my other Private Member’s Bill on residential leasehold, but we struggle on with that one.

The Bill is all about protection. It is about creating the mechanism to enable mutual organisations to opt in to a restriction on the use of their assets. This is permissive, not mandatory. If a mutual organisation does not want to use the powers in the Bill, it does not have to. It allows the Treasury to make regulations that in turn will allow various mutuals, if they so wish, to opt in to a restriction on the use of their assets. Equally, those that do not elect to opt in are free to carry on as they do now. That is a very important point for the House to note, and one of the reasons why the Bill is structured the way it is. The Bill is necessary, as it enables a pathway to protect and preserve members’ accumulated assets from those who would like to mount a raid on them for profit and gain for themselves. In many cases, these assets are considerable and have been accumulated over many years and generations.

As part of our mixed economy, co-operatives, mutuals and friendly societies have their role to play, and the environment they operate in should be as supportive as possible, allowing them to remain true to their founding principles and flourish. This Bill will help them do that with the knowledge that there is a mechanism that they can take up to provide a layer of protection to maintain mutual capital for the purpose intended, if they themselves decide they need this protection.

There are important differences between companies and mutuals, which the Bill is trying to protect. Noble Lords will be aware that members of a company have the right to a share of the distributed profits, based on their shareholding, and to a share of the underlying value of the company. The more capital you own, the greater your share of the profits and the value of the company. Members of a mutual society, by contrast, generally have neither of those rights because, in mutuals, profits are generally not used as a mechanism for rewarding capital and members of a mutual do not have any expectation of or entitlement to a share in the increased value of the society.

As members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of a society exceeds the capital provided by members has no specific owner. It is in effect a legacy asset, held by the society for future generations, that enables it to provide for and invest in the future. It is a core part of a mutual’s identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations.

Seen through the lens of investor ownership, a capital surplus is a tempting asset for a windfall profit, which—if mutual members were replaced by investor shareholders —could be shared out among the shareholders. Capturing the asset is the usual incentive for demutualisation, which is when a capital surplus or legacy asset is divided up between the shareholders. When the mutual agreement between the former members, whereby they engaged with the society on the basis that they would not personally profit from its trade, is broken up, in short, any mutual purpose for a common good is replaced by a profit-driven purpose for private benefit.

The measures in place today provide only partial protection against demutualisation. There is currently no statutory mechanism for ensuring that surpluses, which previous generations never intended to be for private reward for anybody, remain committed to that wider public purpose. At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. This leaves mutuals vulnerable to those aiming simply to liberate the legacy asset, share it out among those they choose and convert the business into an investor-owned company.

This has resulted in much of the UK’s building society sector being lost, and the businesses then either failing or being transferred into non-UK ownership. We all remember the names of those building societies that have long since disappeared, such as the Abbey National and the Bradford & Bingley. This has been bad for mutuality and bad for the economy, with damage being done to corporate diversity. Demutualised former building societies were mostly absorbed into the banks that failed in the banking crisis. Legislation is needed to help UK mutuals to preserve their legacy assets for the purpose for which they were intended, to maintain and encourage greater corporate diversity and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions with a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval.

What does the Bill do? It disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purpose for which they were intended. It empowers mutual members to decide what should happen to the assets on a solvent dissolution. It would match the best legislation existing in many other countries around the world. The Bill introduces a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets, the capital surplus, will be non-distributable, details precisely the destination of any capital surpluses on a solvent winding up, outlines the procedure necessary to include such provisions in a mutual’s rules and inserts a statutory provision for the relevant rules to be unalterable. It defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. It introduces new provisions to maintain the destination of the capital surplus and ensures that where mutual rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company should also include a provision to transfer the capital surplus as provided by the rules in the event of a solvent winding up. That is quite a lot in a two-clause Bill.

In conclusion, I will address the issue of why corporate diversity matters. Diversity of ownership or types of business creates models of corresponding diversity in the forms of corporate governance, risk appetite and management incentive, structures, policies and practices, and corporate behaviours and outcomes. It also offers wider choice for consumers through enhanced competition that derives in part from the juxtaposition of different business models. For the wider market to benefit, each of the corporate models needs to enjoy the necessary critical mass defined as the degree of market share necessary to enable each model to operate successfully and thus provide real competitive pressure on the other players within the market.

Finally, I thank the Delegated Powers and Regulatory Reform Committee for its report, which specifically refers to this Bill. Responding to the points raised, I emphasise that this is a short, skeleton Bill. It is specific in nature and seeks to deal with a real, identifiable problem. The expertise to draw up the regulations lies in the Treasury. It is a Bill which is permissive. A mutual entity is not compelled to do anything on the Bill becoming law, and any mutual entity that does not wish to adopt or use the powers does not have to. Furthermore, the regulations must be brought back to this House and the other place for consideration and affirmative resolutions must be passed. There are proper procedures in place for proper consideration, and the regulations will be considered by the Secondary Legislation Scrutiny Committee before any such debate takes place in this House. I look forward to the contributions from other noble Lords in the debate and I beg to move.

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[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I very much thank all noble Lords who have spoken. I agree with every comment that has been made, which is very unusual in this House, so that is wonderful.

I thank the noble Lord, Lord Bourne of Aberystwyth, for the reference that he made to the campaign against the demutualisation of Liverpool Victoria. That is a recent example of the threat that mutuals face when people see their large assets. It was a great campaign that will be an eye-opener and a wake-up call for everyone, showing that something needs to be done to protect those assets. I thank him for his support, and I generally agree with all the comments that he made.

My noble friend Lord Mann spoke about sports facilities, the benefits they bring to the community and how the assets of those facilities could benefit from a change in their ownership structures. That was a really important point. He highlighted that, with legislation, lots of playing fields and sports centres and grounds could be protected for future generations. Small ones in particular are often under threat.

As my friend the noble Lord, Lord Naseby, said, we have worked together many times on these sorts of issues, and I thank him again for his support, which is really good to hear. His many years of support for the mutual sector are welcome and needed, and we thank him very much for them.

My noble friend Lady Taylor of Bolton also made reference to the Liverpool Victoria situation and highlighted the need for further protection. I agree with what she said about the special place that the Co-op has, in our memories and even today; I am a regular shopper down the Co-op, and it is a wonderful organisation, as are all the mutual organisations in our country, so it is always worth supporting that.

It was great to see the support from the Opposition for the Bill. My noble friend Lady Anderson of Stoke-on-Trent and I have been friends for many years, from long before either of us was in either House of Parliament. She used to serve in the other place. I was so pleased when she joined this House at the end of last year, and I am even more pleased and proud that she is speaking from the Opposition Front Bench. It is great to see her here.

I thank the Minister for her support for the Bill today, and I thank the officials from the Treasury for all the work that they have done. It is good to hear that there is further work going on behind the scenes in the department to look at other legislation. I was pleased that she mentioned the London Mutual Credit Union. I am proud to be a director there. It is a wonderful institution, the biggest credit union in London, and we are actually in the mortgage market now. It is a fantastic organisation. If she ever wants to visit, I would be delighted to show her around and show her all the work that we do there.

Bill read a second time and committed to a Committee of the Whole House.