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

Paul Howell Excerpts

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

[Paul Howell (Sedgefield) (Con)]

It is a pleasure to speak in this debate on the Bill put forward by the hon. Member for Cardiff North (Anna McMorrin). As an accountant by profession, having spent my previous career in manufacturing businesses in and around Sedgefield, I am still in awe of the detailed discussion that has been brought to this debate, particularly by my hon. Friends the Members for Grantham and Stamford (Gareth Davies) and for Clwyd South (Simon Baynes), and I shall pick up later on one of the points made by the latter.

Before looking to speak on this Bill, I had to clarify for myself what a “co-operative and community benefit society” is and what an “environmentally sustainable investment” is. A co-operative society is run for the mutual benefit of members who use its services. This is based on the common economic, social and cultural needs, or interests, of the members. A community benefit society is run primarily for the benefit of the community at large, rather than just for the members of the society, which means it must have an overarching community purpose that reaches beyond its membership. One type of co-operative is a credit union, and I am concerned about the unintended impact of this measure on the users of these credit unions.

A credit union is a co-operative bank that is owned and managed by its members, all of whom have accounts in the bank. Like banks, credit unions accept deposits and make loans, but, as member-owned institutions, credit unions focus on providing a safe place to save and borrow, at reasonable rates. I have visited a number of them, including the NE First Credit Union service point at the leisure centre at Newton Aycliffe, in the north-east, and I strongly encourage people to use its services before buying on any high-interest hire purchase scheme, as that normally results in substantially higher costs being paid. Such services are a real alternative to the exploitative payday loans and high-interest rent-to-own payment systems most commonly used for household good such as fridges and washing machines.

With a rent-to-own scheme people get the product straightaway, and then make weekly, fortnightly or monthly payments, plus interest; insurance or warranty policies are often included in with the item. The interest to be paid on rent-to-own agreements will now be limited to no more than the cost of the product. Therefore, someone who buys a fridge from an RTO company for £250 will pay no more than £500 in total, and interest and other RTO charges will be benchmarked against mainstream retailers and the cost of living. That still means, however, that someone’s fridge that costs £250 will cost them another £250 in interest. With a credit union, the interest is more likely to be around £50. We want opportunities for credit unions to develop, but they must be safe havens with little risk, because the people who save with them are likely to have little alternate capital.

[Chris Green]

I learned recently from a local credit union that although many people know they are there to borrow money from, if more people recognised that they could also deposit money there safely and securely, that would provide far more opportunity for people to borrow products.

[Paul Howell]

I agree with my hon. Friend. Credit unions are also the place where people first start saving, and they are regularly a first step for people getting out of high-finance debt traps. Security is paramount, because people must have confidence that when they put their money in, it will not be at any risk. It would be particularly concerning for those investing if the laudable aims of ethical ambitions resulted in those ambitions overriding the security of the investment.

In the 2020 Budget, the Chancellor announced that the Government would bring forward legislation to allow credit unions to offer a wider range of products and services. That will support credit unions to continue to grow sustainably in the longer term and to play a pivotal role in financial inclusion. In a speech to the Association of British Credit Unions in March this year, the Economic Secretary to the Treasury said:

“I am delighted to confirm that this week’s Budget included the announcement that the Government is to bring forward legislation to amend the Credit Unions Act. This will permit credit unions to offer a wider range of products and services than ever before…helping you better meet the needs of existing members.”

[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.

[Gareth Davies]

I take issue with one point made by my hon. Friend. In my view, impact investment is in addition to financial return. It goes further than financial return and achieves something additional, whether environmental or social. Therefore, it can be beneficial to investors, which is why such investments are growing in the billions in our country. I just caution my hon. Friend on his description of the riskiness of impact investing, because more often than not they are not more risky; they are just different to receiving only a financial return.

[Paul Howell]

I bow to my hon. Friend’s greater knowledge. My concern, from my reading and my understanding of this, was that the impact could sometimes be addressed in such a focused manner that it put the capital at risk, and in this particular circumstance that concern needs to be evaluated.

[Gareth Davies]

My hon. Friend is not wrong; it is simply that every investment carries risk. Investments can go up as well as down, as I know personally. Again, I merely caution him that the impact of sustainable, green or social investments does not always mean downside risk. It can mean upside potential as much as it means downside risk.

[Paul Howell]

I endorse the fact that investments can go up and can go down. My concern here is more about the degree of innovation as opposed to the impact itself: the more we are at the innovative end or at the cutting edge of any procedure, the more risk there is, and particularly for credit unions I am not sure that such risk is the right thing.

The point is that it would be beyond disappointing should a Bill promoting environmentally sustainable investment resulted in the creation of a hidden inappropriate risk profile for the small saver in a credit union. Such savers could be misled into believing, just because their investment was environmentally sustainable—however positive that is—that it was not more risky than normal, and they might therefore prefer it. I am concerned that that could happen.

Credit unions are an incredibly important facility supporting members of our society, and it is critical that nothing is done that would undermine their credibility. I hope this could be fully explored should the Bill make further progress, and I commend the hon. Member for Cardiff North for bringing it forward.