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

Simon Baynes Excerpts

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

[Simon Baynes (Clwyd South) (Con)]

I, too, would like to acknowledge the hard work of the hon. Member for Cardiff North (Anna McMorrin) in securing this debate and bringing the Bill to the House. The excellent work of co-operatives and community benefit societies is felt very deeply in my constituency of Clwyd South and elsewhere in Wales and the UK. As the hon. Member mentioned, many people are very grateful for the help and support they have provided, particularly during the covid-19 pandemic. Often, they have been in a position to fill in the gaps in provision, which has been so important over the past few months.

I, too, pay tribute to Wales as the birthplace of the co-operative movement. I grew up just south of my constituency in Montgomeryshire, and Newtown, the centre of that county, is where Robert Owen was born in 1771. He is a much admired figure, although

in my opinion he should be better known to the outside world, as I am sure the hon. Member would agree. His progression through life was very interesting, in the sense that it was on a truly United Kingdom basis. He grew up in Newtown; then he went to work in England, where he ran a mill in Manchester; and then went to help his father-in-law run his mills at New Lanark, which became probably the most famous aspect of his work. He was therefore represented in three of the four countries that make up the United Kingdom. I also agree with the hon. Member, however, that there is something in the culture and society of Wales that has a great affinity with the co-operative movement.

I welcome the intention of the Bill to introduce another mechanism by which to promote environmentally sustainable investment. I, too, agree that the bottom-up approach is extremely important in such environmental investment. I have seen that very much in my constituency—for instance, in Corwen, which has an interesting hydroelectric scheme that was developed by the community. That was one of the reasons why earlier this year I supported the Local Electricity Bill, a private Member’s Bill that would make it easier for such projects to feed their electricity into the national grid.

I strongly support such a localised projects, and the Dee valley in my constituency is full of innovative environmental schemes. Heat pumps are an important part of that, and diversification through environmental projects is extremely important for the farming community, which often finds itself struggling in current circumstances. The co-operative movement is an important part of how the farming community operates, so building environmental projects from the ground up through the co-operative movement makes good sense.

I welcome the UK Government’s record in this area and the progress that they continue to make in improving the environment for everyone’s benefit. We have heard various statistics quoted this morning from both sides of the House, but we should be in no doubt that this Government and, to be fair, previous Governments have made considerable progress. For instance, carbon emissions fell by 42% between 1990 and 2017. There is plenty more to do, but we are on the right trajectory. I am pleased that the Government have renewed their commitment to environmental projects—for instance, by committing to plant 40 million more trees, restore peatland to capture carbon and create the community-led nature recovery network to create and enhance local habitats and by tripling the funding that helps to preserve the globally significant biodiversity in the UK overseas territories and their waters. These are just a few of the many examples of this Government’s commitment to the environment.

As was touched on earlier, the Government have also sought to find the right conduits to promote the environment through the financial world. In July 2019, the Government published their “Green Finance Strategy”, which details action in three areas: greening financial services, accelerating investment into the UK’s clean growth and working to position the UK at the vanguard of the global green finance market. Progress has been made in environmentally sustainable investment, and it continues to be made. Like others, I pay tribute to the enormous contribution made by mutuals and co-operatives to our diverse UK economy, including in Clwyd South and across Wales and the UK. The importance of the sector is shown by the fact that the all-party group for mutuals found that mutuals generate more than £130 billion of income each year.

It is perhaps worth reminding ourselves of the precise wording of the Bill:

“A Bill to enable co-operative and community benefit societies to raise external share capital for the purpose of making environmentally sustainable investment; to make associated provisions about restricting conversion to company status and the distribution of capital on winding-up; and for connected purposes.”

It is entirely admirable to consider ways to increase our ability to invest in co-operatives. Those are admirable aims, and I am pleased to hear about the close co-operation and consultation that has taken place between the hon. Member for Cardiff North and the Government, as that is crucial.

All Government Members greatly respect the Bill’s aims and intentions. However, my professional background has given me experience of factors that might militate against the Bill’s good intentions. For 25 years, I worked in the financial and business world and on solutions to help companies raise funds for a wide ranges of purposes, including environmental improvements. For the past 15 years, I have been on the other side of the fence, having set up two charities and served as a trustee in non-profit making enterprises, during which time I worked with co-operatives and community benefit societies.

From that experience, I learned—I accept that the Bill does not state that this should always be the case—that one size does not fit all with community investment. I have spent many hours, particularly in the past 15 years, working with community groups and considering ways to create a structure for them to gain membership and financial support. Co-operatives are an important part of that, but other structures also suit the circumstances, and we must bear that in mind.

That practical hands-on experience makes me concerned that the Bill may undermine the integrity of co-operatives and expose them to exploitation as investment vehicles, rather than socially beneficial institutions. I fully accept that the hon. Lady seeks to place safeguards in the Bill, but if external finance is brought in, there is a fundamental question of what the consequences will be on the co-operative. Like previous speakers, I have concerns that the green shares proposed in the Bill might unintentionally create a capital instrument with similar characteristics to a mini-bond.

I am pleased that the Treasury has conducted a review of the currently regulatory arrangements for the issuance and marketing of non-transferable debt securities such as these mini-bonds, and I am pleased that process is ongoing. It is important to consider the outcome of that review before consideration is given to the creation of any capital instrument similar to a mini-bond.

A further consideration—again, this has been touched on previously—is that investors may underestimate the risks that green shares expose them to, because of the ethical ambitions that are rightly attached to the instrument. Ethical investment ambitions are entirely laudable, but they have various aspects that can militate against them. The first is the long lead-in period for investment return, and the second is their sensitivity to changes in the regulatory environment, as we saw with the electricity feed-in tariffs a few years ago.

The hon. Lady may well be right that this is the right vehicle in which to place that ambition for green investments, but from my experience of working in the financial world, I know they are often quite difficult investments. My hon. Friend the Member for Northampton South (Andrew Lewer) mentioned how people who invested in the car industry in 1900 would have lost their money, and one of the key things in the investment world is the difficulty of being the pioneer. Often, not the pioneer but those who come later get the return. I am concerned that the vehicle created would be almost a hybrid co-operative, given the external investment, and whatever we say about the good intentions of a co-operative, at the end of the day investments made through it need to have a return of some description, otherwise it will be a loss-making enterprise.

[Anna McMorrin]

The hon. Member is making some excellent points that need to be examined as the Bill progresses, but this form of legislation is in place in other countries, so we can take the evidence of what has worked, for example, in Australia.

[Simon Baynes]

I thank the hon. Lady for her comments. I cannot claim to be an expert on the legislation in all the different countries around the world, but I would assume that it operates in different contexts. I am just trying to make a general point, from my own experience of investment options, that they can sometimes be a very complicated way of putting money into the green environment. That is the simple point I make.

The other point I would like to touch on is the exit from the co-operatives. To go back to the precise wording of the Bill, it is also

“to make associated provisions about restricting conversion to company status and the distribution of capital on winding-up”.

I totally understand where the hon. Member for Cardiff North is coming from on demutualisation, and we have all seen examples of demutualisation in the past that have perhaps not turned out as well as everybody expected, but one of the problems in the financial world—at the end of the day, if people are to invest in green shares, it is in a sense a financial investment—is that we have to leave an escape route for people. If something goes wrong—as we saw in the Co-op itself when it had huge financial problems in its lending arm which, I believe, has now been hived off—removing the ability to exit those problems is a very big ask. While the intentions are very admirable, that is not necessarily wise for the long-term health of the co-operative institution.

In the 2020 Budget, the Chancellor announced that the Government would bring forward legislation to allow credit unions—obviously, a form of financial mutual—to offer a wider range of products and services. That will support credit unions to continue to grow sustainably over the longer term and will allow them to continue to play a pivotal role in financial inclusion. This also needs to be taken into consideration in the preparation of this Bill.

I agree with the hon. Member for Cardiff North that locally based financial support is crucial. I became increasingly frustrated during the covid-19 crisis by the performance of the high street banks and the fact that they have vacated the local market for the provision of finance. I am sure that many Members on both sides of the House felt the same way. We have built up a series of contacts in those banks so that we can take our constituents’ concerns to them and say, “Please can you unblock this problem?” The fact that the big high street banks no longer know their customers on the ground in the regions is a major issue. The intention behind the Bill, and indeed behind the credit union proposals, is to fill the gap in the market for locally based co-operative vehicles—rather like those in Germany—that provide finance to local businesses.

I strongly commend the hon. Member for Cardiff North for her excellent speech and for introducing this Bill, but I hope that I have highlighted effectively some of the difficulties that it presents, despite the fact that it was created with the very best of intentions.