Credit Unions

Stephen Timms Excerpts

Wednesday 23rd November 2011 Westminster Hall

[Stephen Timms (East Ham) (Lab)]

I am delighted to see you in the Chair, Mr Streeter. I congratulate the hon. Member for East Hampshire (Damian Hinds) on securing the debate, on his work chairing the all-party group on credit unions, and on his thoughtful and well informed observations at the start of the debate. His constituency and mine have similar names, although they are rather different places. We both, however, have constituents who owe a great deal to their local credit unions. I will touch on that during my remarks.

We have had friendly societies for a long time, since the early 18th century, when the chaos of the period brought the need for the greater security that mutual action was able to provide. The idea of working co-operatively to ensure that people are provided for in times of want and have a secure haven for their money, drawing on the resources of the community, continues to be very important.

The previous Government made a number of widely supported changes to enable the development of new dynamism and opportunity to the credit union and mutual sector. We recognised that the way the law treated credit unions in a number of respects was holding them back. That was the reason why, in 2002, the previous Government brought credit unions under the regulatory aegis of the Financial Services Authority. The hon. Member for Isle of Wight (Mr Turner) gave a good example in his intervention of that arrangement working very well. The hon. Member for East Hampshire was also right to sound a cautionary note about some of the risks for credit unions in the current re-regulation process.

The previous Government then took steps to enable credit unions to modernise while retaining what has always made them unique, starting with permitting them to communicate electronically in 2007, which was previously not allowed. We also committed to looking at how to reform the legislation on their membership, and that was the background, in 2008, to what became the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011, which will modernise the common bond and which has been widely welcomed during the debate. I note, however, the cautionary observations made by the hon. Member for Foyle (Mark Durkan) about the possible effects in Northern Ireland.

It is clearly right that as communities have changed, so the restrictions that the common bond places on credit unions should change, too. Allowing businesses, housing associations and social enterprises to become partners with credit unions reflects the reality of communities today and the opportunities in them.

It was not just the previous Labour Government who introduced changes to the sector. Both the former Member for Bournemouth West, Sir John Butterfill, and my right hon. Friend the Member for Croydon North (Malcolm Wicks) tabled private Members’ Bills, which helped the sector by reflecting the extent of consensus and support. Like others, I hope that the Minister will make some favourable observations about the prospects for the imminent implementation of the legislative reform order.

Partly—perhaps largely—as a result of support given to the sector by Government, there has been significant growth in the size and scale of the credit union movement, particularly over the past decade, in terms of numbers and of the amount saved, as my hon. Friend the Member for Islwyn (Chris Evans) rightly pointed out. I pay tribute to the work of the Association of British Credit Unions in supporting the sector and its consistent and effective effort on behalf of credit unions. Recent unaudited data from the association note that credit unions grew by nearly 15% in just the first six months of 2009, which reflects what was happening elsewhere, I guess, in the financial services industry.

In Westminster Hall last week, I set out the case of my constituent who was about to start her university course and was unfairly denied a bank account after she became a victim of fraud when her card was stolen. She was only able to take up her university place because the local credit union, NewCred, of which I too am a member, as are other Members, was willing to offer her an account. Because she had run into problems with her bank account, a reference was made to CIFAS—the credit industry fraud avoidance system—which meant that she could not get an account from any bank at all. NewCred was the only institution able to offer her an account, and had it not been for that she would not have been able to take up her place at university, because she would not have been able to receive her student loan cheque or have an account for it to be paid into.

Like other Members, I hope that the Minister will be able to confirm the continuation of his Department’s funding for credit unions. That has been a valuable source of support over recent years; the hon. Member for East Hampshire mentioned the figure of £73 million, which has been spoken of in this context. I also hope that the Government will support credit union access through the Post Office, to which my right hon. Friend the Member for Oxford East (Mr Smith) drew attention during an intervention.

I echo the appeal made by my hon. Friend the Member for Islwyn for the creation of a central finance facility. He has talked about the cost of setting it up, but as he said, such a facility is widely used elsewhere and it is estimated that consumers will have significant savings in credit costs if such an arrangement can be put in place. It might also provide a mechanism to release more than £1 billion in the Post Office card account float, which could be lent to social fund customers, as well as providing, as my hon. Friend said, the potential to significantly increase the size of credit unions. Is the Minister able to say something about that?

One major disappointment is the missed opportunity—many of us felt this—in relation to Northern Rock. My right hon. Friend the Member for Croydon North raised the issue of the extension and expansion of the mutual financial sector in his question to the Prime Minister earlier today. We have not really received an explanation of why the option of a member-led remutualisation, which was proposed by the Co-operative party, was not accepted. There are some big questions to be asked about the sale of Northern Rock. When will the Minister and his hon. Friends publish the advice of United Kingdom Financial Investments Ltd and Deutsche Bank, so that we can see exactly why a mutual Northern Rock was ruled out? I know that the Treasury said that remutualisation would have meant gifting value currently held by the Exchequer to members of the new mutual, but we have not been told whether the Treasury is gifting £250 million of Northern Rock’s existing equity to Virgin, or what the difference in principle is between those two exchanges. A mutual Northern Rock would have been very attractive.

Members have rightly touched on other aspects of financial inclusion and exclusion. My hon. Friend the Member for Walthamstow (Stella Creasy) has made great strides in advancing the argument for a cap on interest rates in the UK, and there are pros and cons to that proposal. Before the election, as I recall, the Conservative party pledged that there would be a cap on excessive store card interest rates, to protect the public and help prevent people from falling into problem debt. I was present at an event at the Barbican where the former Parliamentary Private Secretary to the Chancellor, the hon. Member for Chelsea and Fulham (Greg Hands), said that the cap would be the firm policy of the Conservative party, and it subsequently appeared in a policy document. Will the Minister let us know what the plans for that measure now are?

I welcome the strong support expressed for the credit union sector in the debate. The growth of the sector has been greatly helped by Government support in the past decade or more. I, with others, hope that the Minister will be able to confirm today that support will be maintained, and that the sector will have the potential to expand further in the period ahead.