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

Tom Randall Excerpts

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

[Ruth Edwards]

I completely agree with my hon. Friend. In fact, protecting the integrity of the co-operative model is one of the issues that I have with this Bill.

Returning to my opening remarks about the strength of green investments, I have made the case in the past that such investments should lead the way in helping us to recover from this pandemic. There is no point in building back to what we had before. Studies have shown the strength and resilience of these sorts of investments following from times of crisis and uncertainty, such as after the 2008 financial crisis.

The Bill outlines that the capital gained from green bonds is to be invested in a way that can maintain and enhance a biodiverse natural environment with healthy functioning ecosystems that support social, economic and ecological resilience. This entails the invested capital being centred around the green economy and climate action, including in new and emerging technologies, renewable energy, transport, housing and waste management. I remind the House that those are areas of considerable Government attention and investment in recent spending rounds, contrary to some of the opinions that we have heard today from those on the Opposition Benches. There are too many achievements to list today, but I am going to name a few relevant examples.

We have reduced emissions faster than any other G7 nation, while also leading the G7 countries in economic growth and providing £3 billion for contracts to help develop less established renewable technologies by 2022 to 2023. We have put funding into hydrogen fuel research and established the Hydrogen Advisory Council. The Chancellor recently announced a £2 billion green homes grant, which is going live this month, to support the retrofitting of houses across the country, benefiting communities and reducing fuel poverty. For electric vehicle markets, a round of private capital was raised in 2018, backed by the Treasury, bringing the private sector on board and directing significant and meaningful investment to the electric vehicle supply chain. Many of these plans will bring the added bonus of generating sustainable, high-quality jobs for the green economy. Our landmark reforms in agriculture, the first of their kind in 30 years, will promote sustainable and productive livelihoods for UK farmers.

Data show that co-operatives do great work in many areas of the country. The Government are doing a lot to remedy geographical imbalances in our economy, and I join them in supporting the UK-wide levelling up agenda. Although we seek to support the continued growth of co-operatives, we should remain mindful of the core and foundation principles by which co-operatives operate. I acknowledge the intention of the Bill to protect the mutual status of co-operatives while allowing access to new routes of capital, with environmental parameters as to how that capital is used; however, the autonomy and democracy contained within a co-operative is one of its core strengths and appeals, and I feel that much more detail is required to explain how, in practice, many of the Bill’s ideals will function without undermining those values. To me, there remain questions of compatibility between the ability of members to vote and the demands of investors parting with their money.

First, I believe that co-operatives would need to state in the clearest of terms how they intend to use the capital to attract the right mission-minded investors in the first place. That is especially important when considering that the Government have already increased the capital limit that can be raised from members from £20,000 to £100,000, as several hon. Members mentioned earlier. If we are talking about an ambition to attract investments greater than £100,000, investors will almost certainly demand a high level of detail in advance. In practice, it could be difficult for co-operatives to reach a democratic consensus on that detail. I worry that the uncertainty might be off-putting for some types of investors, and indeed the amount of money that the Bill intends to attract.

I also wonder about the autonomy of a co-operative after receiving such substantial levels of investment. One reason for the £100,000 limit on individual membership capital is so that no single member can command undue influence as a result of their financial contribution. I think it is naive to believe that investors will have no demands or will not lobby the membership to vote in certain directions, and would be satisfied paying into a co-operative—even a community benefit society—that they were otherwise not previously a member of, even with the other benefits that membership brings. That last point is especially true when shareholders only entitlement is, to quote the Bill,

“the general level of compensation”

otherwise afforded to members.

I also fail to see how investors will be enticed by the ability to redeem their shares for only the nominal value of the investment, as set out in the Bill. If individual retail investors or existing co-operative members seek to buy green shares, there is the potential that the risk of the instruments could be underestimated or understated. It appears from the Bill that there is no ability to withdraw their capital, counter to the usual way membership capital is treated in a co-operative.

That sort of risk, even generated from a well-intended scheme, resonates strongly with me because in Nottinghamshire we have recently had a huge eye-opener to how schemes set up with the greatest of intentions can go horribly wrong if the right risk management and governance is not put in place. I am referring to the, now failed, Robin Hood Energy company, which was set up by Nottingham City Council as a not-for-profit company to deliver affordable energy in a sustainable way to people living in fuel poverty.

That is a highly commendable aim, but the company’s structure meant that it did not have to pay dividends to shareholders, and it could use its savings to universally reduce the cost of energy to its customers. It promised average annual savings of £237— all very good aims, but throughout its operation the firm was reported to have admitted that the scheme did not provide value for money, and that dozens of cheaper tariffs existed elsewhere in the private sector.

[Tom Randall (Gedling) (Con)]

My hon. Friend is completely right to highlight the failure of Robin Hood Energy. She might be aware that it did not just have customers in Nottingham and Nottinghamshire; it had customers beyond that. I believe it was quite popular in Islington, particular in northern Islington, including with the local Member of Parliament. Does she agree that it was wholly unfair that the working-class taxpayers of St Ann’s, Sneinton or the Meadows in the city of Nottingham should subsidise the fuel bills of leafy Islingtonians?

[Ruth Edwards]

I certainly agree with my hon. Friend on that point, but they are subsidising those bills no more because, as he knows, the company has collapsed and is having to be rescued by British Gas. It has collapsed in financial ruin, and the result has been a huge economic and human toll, with tens of millions of taxpayers’ pounds lost—the current estimate is about £38 million—and 230 people will lose their jobs.

--- Later in debate ---

[Tom Randall (Gedling) (Con)]

I am grateful for the opportunity to speak in this debate. I appreciate the contributions of colleagues, who have spoken with great erudition and insight into these issues, and I congratulate the hon. Member for Cardiff North (Anna McMorrin) on bringing this Bill before the House and on her passionate remarks in favour of it.

This is a bold Bill and, I believe, a well-intentioned one, but it is not entirely original. Similar legislation has been passed in other jurisdictions, including Australia. The Treasury Laws Amendment (Mutual Reforms) Bill 2019 was passed by the Australian Parliament last year. In the debate in the House of Representatives, Dr Andrew Leigh, the Member of Parliament for Fenner, said:

“Mutuals build trust and reciprocity. They are an essential part of an inclusive society helping to foster empathy for our fellow human beings. Cooperatives and mutuals, as member-owned enterprises… are voluntary associations of people, democratically run for their members, for the pursuit of a common social, cultural or economic goal.”

If I might be forgiven for quoting not only a Labour Member but an Australian Labour Member with approval, I think that is a noble aim that we can all support. We see that very much in our local communities. There are many examples of local co-operatives in our society, and particularly on the high street, where we see Co-op shops, of which there are many in Gedling. I particularly enjoy my local Co-op, and I am grateful to the staff there for their friendly service. Every Co-op that I have ever visited has always offered a range of high-quality food in a well laid-out store. That is perhaps one of the most visible example of co-ops; we have heard many other good examples in the debate.

[Ben Everitt]

I wonder whether my hon. Friend is aware that the birth of the futures market—one of the most important financial parts of our economy—was the inadvertent result of a co-op of French nuns putting together the sale of a harvest that had not yet been sown.

[Tom Randall]

I was unaware of the enterprise of French nuns, but I am in awe of what they can achieve. I am grateful for that fascinating intervention.

The Bill has laudable aims, allowing co-operatives and community benefit societies to gain powers to raise finance by issuing redeemable green shares to external investors and investing the capital raised in an environmentally friendly, sustainable manner. I also appreciate the intention for there to be safeguards in the Bill to prevent the issuing of shares leading to the undermining of a society’s conversion into a commercial company, though I heard the criticisms of that made eloquently earlier.

It is perhaps worth noting, as my hon. Friend the Member for Rushcliffe (Ruth Edwards) alluded to in her speech, that sometimes when things go wrong, they do so quite badly. As my hon. Friends the Members for Northampton South (Andrew Lewer) and for Clwyd South (Simon Baynes) said, sometimes investments do go down as well as up, and it is possible to lose money in a new scheme.

The hon. Member for Cardiff North spoke a lot about community energy. As my hon. Friend the Member for Rushcliffe outlined, in Nottinghamshire we are scarred by the failure of Robin Hood Energy, which recently collapsed with the loss of over 200 jobs. The setting up of Robin Hood Energy was laudable: it was designed to create a wholly owned subsidiary of Nottingham City Council to create a not-for-profit subsidiary to tackle fuel poverty in Nottingham and provide a real alternative to the big six energy suppliers. As I said in an intervention, it had customers way beyond the city of Nottingham, and it did provide energy, but it has now failed at a cost of tens of millions of pounds to an inner-city local authority.

The rather damning report by Grant Thornton into the reasons for the failure of Robin Hood Energy centred around many of the governance arrangements. It said that the arrangements put in place by Nottingham city council for setting up and operating an energy company—a highly ambitious project in a complex, competitive and highly regulated market—were not strong enough, particularly given the nature of the company and the markets. It has been pointed out that there was insufficient appreciation within the council of the huge risks involved in owning and investing in an energy company such as Robin Hood Energy. There was insufficient understanding within the council of Robin Hood Energy’s financial position due to delays in the provision of information by the company, the quality and accuracy of that information and a general lack of expertise at the non-executive board level.

It perhaps would be unfair to judge the entire co-operative movement on the inept leadership of Labour-controlled Nottingham City Council, but it does help to raise the kind of concerns that might arise over the operation of these companies. My hon. and right hon. Friends have outlined those concerns in more detail. I look forward to seeing how the legislation and the ideas develop.

[Sally-Ann Hart (Hastings and Rye) (Con)]

Given the nature, aims and objectives of co-operatives and community benefit societies, does my hon. Friend agree that our concern is that the Bill will undermine the integrity of these organisations and expose them to exploitation as investment vehicles, rather than socially beneficial institutions?

[Tom Randall]

I entirely agree with that concern. Certainly, as things become more complex, bigger and more ambitious, one risks losing sight of what one originally set out to be and create. That is a valid concern, which we should think carefully about when considering the matter.

I am grateful to have listened to the erudite and insightful arguments critiquing the Bill and its shortcomings. I do not feel that I can support the Bill, unfortunately, but I look forward to seeing how the arguments and the beliefs that underpin it develop in the time to come.