Co-operatives, Mutuals and Friendly Societies Bill

Richard Fuller Excerpts

Friday 28th October 2022 Commons Chamber

[Richard Fuller (North East Bedfordshire) (Con)]

Thank you, Madam Deputy Speaker, for calling me so early in the debate.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on the Bill, and thank him for his patience as his discussions evolve through the myriad manoeuvres within the Treasury. I add my thanks to Peter Hunt, the chief executive of Mutuo, for the benefit of his extensive knowledge of this sector. I also thank Treasury officials. Much has been said in recent months about Treasury orthodoxy, not always in a polite way. I should just like to point out that there are two aspects of Treasury orthodoxy. There is policy; that is a matter for politicians and Ministers, and of course we can have disagreements about it. But there is another Treasury orthodoxy, which is the way in which the civil servants in the Treasury work. In my brief time with them, I observed a level of dedication, hard work and responsiveness, and a spirit of public service, for which my constituents and the people of this country should be truly grateful. I thank them for that.

I know that you, Madam Deputy Speaker, as I do, would like to talk about my paper from 30 years ago about anomie and the way in which Max Weber has had such an important influence on organisational theory. We could talk at length about methodological individualism and the boundaries between an atomistic view of society and the limitations that places on effective co-operative action.

What it says, essentially, is that people come together in different ways to achieve shared objectives—as charities, as corporations, as Governments, as international organisations, as trade unions, as partnerships and, yes, as co-operatives, mutuals and friendly societies. Each of those organisational forms has its role in enabling us as individuals to fulfil our lives, achieve our objectives and, hopefully, create a better world for future organisations.

It is therefore an important responsibility of Government to maintain a structure of legislation that enables each of those organisational structures to thrive and prosper. Such organisations are the essential “little platoons” of the Burkean view of Conservative ideals and of the co-operative ideals of the Labour party. I congratulate the hon. Member for Preston on putting forward his Bill in such a way that I believe the Treasury Bench will be supportive; I look forward to hearing from my hon. Friend the Minister that that is his intention.

The hon. Member for Preston will be aware that several other issues need updating in the Friendly Societies Act 1992 and other associated legislation. The proposal in his Bill is a defensive one to protect organisations from the vagaries of time and the interests of passing individuals who may temporarily have power over the original principals of the organisations from when they were set up. He is absolutely right to point a way forward on that.

In the hon. Gentleman’s speech, however, he also talked about the positive way in which legislation can be changed to enable friendly societies, mutuals and co-operatives to play a bigger role in society—particularly, as my hon. Friend the Member for Bosworth (Dr Evans) said, in attracting new capital. It is for those purposes that I encourage the Minister to be clear today in his intention to ask the Law Commission to conduct that broader investigation in due course—but as urgently as possible—so that the Bill can be seen as the first step in a much more important set of steps to confirm the role of such organisations in our society.

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[The Economic Secretary to the Treasury (Andrew Griffith)]

It is always a pleasure to follow the hon. Member for Hampstead and Kilburn (Tulip Siddiq). May I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who has joined us on the Front Bench this morning?

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on reaching Second Reading with his Bill and on the committed and passionate advocacy that he and his team have shown on behalf of the mutuals sector. It takes a team effort to get things done, as my colleagues could sometimes benefit from remembering, and this is no exception. I pay tribute to my predecessor, my hon. Friend the Member for North East Bedfordshire (Richard Fuller), for his hard work over the summer, with officials, to bring us to this important moment. I also thank the hon. Member for Cardiff North (Anna McMorrin), who started the ball rolling; it is delightful that she was able to join us today. As the hon. Member for Hampstead and Kilburn says, this is a cross-party endeavour, and it is all the stronger for it.

The fantastic speeches from Members across the House have brought to life the tapestry of co-operatives and mutuals and their contribution to society across the United Kingdom. We heard about the Darlington Building Society’s five-year sponsorship of the Darlington rail heritage quarter. We were reminded of Robert Owen and the origin of the Welsh co-operative movement. My hon. Friend the Member for Heywood and Middleton (Chris Clarkson) took us back to the birthplace of the co-operative movement. My hon. Friend the Member for Hastings and Rye (Sally-Ann Hart) spoke about the contribution of White Rock Neighbourhood Ventures, which is helping to build her society. My hon. Friend the Member for Devizes (Danny Kruger) made a typically thoughtful contribution; he not only auditioned for the support of the wider co-operative movement, but rooted co-operative and community values firmly in the tradition of Disraeli.

Let me say a little about the Government’s intentions for the Bill. I can confirm that we will support it because we believe in, understand and recognise the contribution that the mutual model makes to society and financial inclusion, which is important to hon. Members on both sides of the House, and the diversity that it provides for the financial services sector. We have a fantastic financial services sector in this country, and mutuals are an important part of that and we wish to see them continue. The scale is often not fully understood, but Royal London is the largest mutual life insurance, pensions and investment company in the UK, and has assets under management of £164 billion—8.8 million policies in force. Therefore, as well as contributing to their communities up and down the United Kingdom, mutuals are also a very important part of our financial sector.

We heard, too, from my hon. Friend the Member for North Devon (Selaine Saxby) about Parracombe, from my hon. Friend the Member for Bosworth (Dr Evans) about the contribution being made by the Hinkley and Rugby Building Society, and from my hon. Friend the Member for Warrington South (Andy Carter). This shows the real contribution that these organisations make.

Let me make some progress on the Bill itself. The Government see this private Member’s Bill as a valuable attempt to build on progress, and further support the mutual model by granting His Majesty’s Treasury the power to make changes to what co-operatives, mutual insurers and friendly societies are able to do under legislation.

The House will note that the final Bill is more focused compared with the original long title. Allow me to briefly set out what we aim to achieve through the Bill. The Bill will allow co-operatives, mutual insurers and friendly societies further flexibility in determining for themselves the best strategies for their business relating to surplus capital. More specifically, this allows the Treasury to create regulations to provide these mutuals with the option to restrict the distribution of surplus capital—defined as equity minus members’ shareholdings and share interest—to their members on solvent dissolution of the mutual, or on the sale or conversion of the mutual to a company. The Bill does that by providing the power to create regulations to allow co-operatives, mutual insurers, and friendly societies to choose to adopt legal restrictions on the use of their assets. The intention is that, where the members choose to adopt these restrictions, the use of the assets would be limited to specific purposes in line with the purpose of the mutual society.

The Government anticipate that this will provide additional safeguards against demutualisation for those societies that choose to adopt the so-called “asset lock”. The Government understand that many here today were motivated by the proposed sale and demutualisation of LV= in 2021. Although, ultimately, that sale did not go through, because the vote in favour of selling was not backed by a sufficient proportion of members, we understand that it is right to interrogate the demutualisation process and consider the case for reform.

Voluntary asset locks—to prevent the distribution of legacy assets on the dissolution, sale, or conversion of a mutual—are already successfully adopted and freely entered into by co-operatives, mutual insurers, and friendly societies. The aim of these voluntary asset locks is to limit the financial incentives that many believe sit behind demutalisation processes. For example, many mutual entities have adopted “charitable assignment clauses” into their rules. This determines that any capital surplus on the dissolution, conversion, or sale has to go to a nominated charitable cause and not to the members at that moment in time. Within this, it is an established practice for mutuals to adopt high voting thresholds when members are deciding on decisions that affect the future strategic direction of the mutual.

We think these aims are laudable, but what the Government want to do is to build on the safeguards already in place to preserve the mutual movement. By placing an ironclad guarantee in legislation, we aim to support mutuals to make these locks harder to unpick in the future so that a mutual’s funds continue to be used for their social purpose and the social contract with its members and future members continues to be honoured, where the members choose to implement it.

By bringing forward this legislation, we are granting these efforts with a statutory footing should a mutual and its members decide that this is the best route for them. The optionality of the statutory asset lock is key, for it leaves the decision on the future of a mutual in the hands of mutuals and their members. Throughout, we have been guided by the core value of what it is to be mutual—with the interests of their members and communities at the heart of what they do.

If possible, I would like to go further: in alignment with the spirit in which the hon. Member for Preston has introduced this Bill, we are exploring the options for delivering reviews of key legislation underpinning the sector, including engagement with the Law Commission to help us to finalise our approach. I cannot go further than that today, as my hon. Friend the Member for North East Bedfordshire pressed me to, but that is something we are looking at and will move forward with.

[Richard Fuller]

I am very grateful to my hon. Friend for the opportunity to press him again. As he makes these considerations, will he commit from the Dispatch Box that, at Committee stage, he will come forward with the framework of the recommendations and, if he is minded to pursue this with the Law Commission, what issues it might cover?