Financial Services Bill

William Cash Excerpts

Tuesday 22nd May 2012 Commons Chamber

[John Healey]

There is a saying that what is measured matters, and if it matters, measure it. In many ways, that is the core of the argument being made by Opposition Members.

Sixteen per cent. of those who aspire to own their own home and who borrow to buy do so from building societies. Roughly one in six of us borrows our mortgage from a building society. That significant market share is gradually growing. That is why I have argued that building societies are the unsung success of British financial services. They are certainly unsung by a Government who promised to be their champion.

In my view, building societies are the quiet strength of British financial services, but it is time that that strength was properly supported by Government policy and action. Mutuals look at the coalition agreement and point to the words on the paper, but they cannot point to the action that followed. The amendment is designed to force the hand of the Minister, the Treasury and the Government. I am surprised that it finds any objection on the Government Benches, because it simply seeks to hold the Government to the promise they made

[Mr William Cash (Stone) (Con)]

I have found this debate both curious and inconsequential in many respects. There has been a great deal of talk about the technicalities of achieving the objective, but not, as far as I can judge, a great deal about the reasons why mutual societies are so important. However, I share the view expressed by the right hon. Member for Wentworth and Dearne (John Healey) that the coalition agreement, of which I am not an uncritical observer, clearly stated that there should, in effect, be support for mutuals.

I declare an interest, because my family founded the Abbey National building society and the National Provident in the 1830s and later in the 19th century. The Abbey National is now Santander, and we need only look at what is happening in Spain to hope that there is some ring-fencing for its customers in the United Kingdom. The reason why mutuals are so important is the same reason why John Lewis is so important. It is the reason why the co-operative movement, which was founded in Rochdale—I do not apologise for also pointing out that that was where John Bright was born—is important. The Rochdale co-operative movement was the means whereby people could buy houses that they could not otherwise afford.

I have always been very much in favour of the right to buy, because having a property stake is important for individual responsibility. The great thing about the mutuals—and it still pertains, because they still exist, but need to be enhanced, improved, developed and encouraged—is that they enable people to come together in a proper and balanced relationship, with a sense of individual responsibility and, by co-operating together, to benefit each other and society as a whole in relation to the most fundamental aspects of property and insurance, without excessive profits, or indeed any real profits, for the people who put it together. That does not mean that I am against capitalism. Indeed, those who promoted mutual societies were invariably capitalists, and I count my own family in that number. William Cash founded the National Provident with the Lucas family, and the Cadburys were much involved in similar objectives. A raft of Quakers and other Dissenters were integral to the development of this incredibly important movement, which changed the face of society in the 19th century. We could do with that now.

Some five years ago, I wrote a letter to The Times, criticising aspects of the manner in which the banking system had given way to greed and self-indulgence. The Minister knows my views on the subject of the transfer of jurisdiction from the City to Brussels, including the point that legislation is no substitute for self-help. My hon. Friend the Member for Wycombe (Steve Baker) understands that better than anyone else. Indeed, Samuel Smiles, who wrote the famous book on self-help, was devoted to all these objectives because he knew that individual responsibility, operating within the framework of co-operatives and mutuals, would and should provide the kind of society that is worth living in. I put it as high as that, because to me this is a moral objective. We do not talk enough about morality. Law is no substitute for morality.

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[Mr Thomas]

Will the hon. Gentleman accept that one lesson regarding the regulation of building societies, friendly societies and other financial mutuals arising from the inquiry by the all-party group on building societies and financial mutuals, to which my hon. Friend the Member for Nottingham East (Chris Leslie) referred, was that regulators did not put enough time and effort into understanding the mutuals market and that this simple amendment will help to prevent a repeat of that scenario?

[Mr Cash]

It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.

I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.

Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.

[Chris Leslie]

Hear, hear!

[Mr Cash]

The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.

[Mr Love]

It is a great pleasure to follow the hon. Member for Stone (Mr Cash), whose strictures I shall try to address. First, however, I want to appeal to the Minister, who, I know, is personally sympathetic to mutuals: this will be a modest contribution that tries to reflect his own coalition manifesto commitment to foster diversity and promote mutuals. In answer to the hon. Member for Wycombe (Steve Baker), I say that the amendment seeks to do that by trying to measure the strength and complexity of the mutual movement using the regulator.

No one has said why we would want to foster diversity and promote mutuals. I want to address that question, because it goes to the crux of what the hon. Member for Stone talked about. First, members benefit greatly from membership of mutuals. The tables of the best savings rates or lowest mortgage rates are populated by mutuals, which provide basic but risk-averse financial services—exactly what the ordinary consumer is looking for. Of course, the reason they can provide such services is that they do not have any shareholders and, therefore, no demands for dividends each year, allowing them to deliver their services efficiently.

Perhaps even more importantly, mutuals provide a consumer benefit by offering a competitive spur in the marketplace. The hon. Member for Stone says he believes in capitalism. I believe in a market system, and competition is a very good spur, and that is exactly what the mutual movement provides. The reduction in the number of building societies has meant that they have not been able to provide a stronger spur, which provides another reason for the amendment.

Mutuals provide choice in financial services. Does someone want a mutual member benefit or to contribute to shareholder value? People will make that choice in all sorts of ways, for all sorts of reasons, but it is important in a marketplace to have choice. We are confident that people will choose mutuals, because all the studies and polling of consumers of financial service show that mutuals are more popular and, perhaps more importantly, more trusted than their plc rivals. That is a very important consideration.

Why move the amendment now, other than to reflect the coalition agreement? Currently, the marketplace is dominated by the plc model, which is unhealthy. We all know what happened in the lead-up to 2007 and 2008: heightened risk, and the search for yield followed by the credit crunch. I am not suggesting that the Government are not taking steps, including in this Bill and forthcoming legislation this Session, to address some of these problems. I am saying that there developed a monoculture—group-think—in which everybody thought exactly the same. We need to avoid that. This modest amendment will help us to do so.

The amendment will also address the danger of the one-size-fits-all attitude displayed in recent years by the regulator, who did not deal effectively with life funds for friendly societies and mutual insurers. At the heart of the ongoing dispute is the failure to understand the essential difference between a mutual and a plc. The amendment would go some way to address that. The regulator now admits that the Financial Services Compensation Scheme, which was introduced some years ago, got it wrong by basing what each organisation had to pay on deposits, discriminating directly against building societies. There was no understanding or empathy in the regulator to address the issue. The Minister will say to me, “But the FSA has now updated its regulatory role. It’s opened a department to deal with these specific matters.” That is all to be welcomed; however, I hope that the Government will welcome this amendment, which represents a small step towards creating greater understanding and trust in the regulator’s dealings on these matters.

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[Mark Durkan]

I had not originally intended to speak to this amendment, as time is tight and we need to make progress. I have also dealt with some of the points in interventions.

The Government say that they are committed. This Bill gives them an opportunity to go a bit further on that commitment. That is what the amendment offers them. The Government have said that they want to encourage mutualisation. I have heard Ministers talk about the damage done by the rampant trend towards demutualisation in the past—they have blamed that on others, as well as perhaps accepting some blame on behalf of a previous Government. However, clause 47 is a permissive clause, and there is good cause for saying that if the Treasury amends legislation dealing with mutuals—let us remember that we are talking about industrial and provident societies, building societies, credit unions and friendly societies—and if it transfers functions to the FCA, the PRA or both, given that the clause provides that functions can be transferred between different bodies, the Treasury should, in making those arrangements and exercising those powers, have regard to ensuring that someone can measure the size of the mutual sector overall and show progress where that is relevant. That is what the amendment would provide for. Such information will be relevant for Parliament’s interests and purposes—I am sure that future Treasury Committees will want to know what is happening and who is responsible for measuring such things, rather than relying on the market players. The information will also be hugely important for consumers, because if, as the hon. Member for Stone (Mr Cash) said, we are to encourage more people to have confidence in this option, then the more people we can show are using it successfully, the better.

When the hon. Gentleman suggested that the mutual sector would, by its nature and character, not need detailed regulation and legislation, it occurred to me that he was going off in a different direction. Given the experience that some of us had with the Presbyterian Mutual Society and others, I can say that mutuals do need to be regulated by their nature, so that people can be sure that they are living up to the good name that they properly have. Consumers embrace mutuals on the basis of that confidence. They need to be able to rely on the fact that legislators have put in place a regulatory system to ensure that what they are getting is what they think they are getting.

[Mr Cash]

I would not want the hon. Gentleman to misunderstand what I meant. It is not that I do not think that there should be a degree of regulation. Rather, I am concerned about over-regulation to the point where the purposes of mutuals, as with so many other sectors of society, are sucked out by a vast amount of oppressive legislation, which is so bureaucratic and impossible for people to understand that they cannot see the wood for the trees. The whole objective of the mutual arrangement is that it is very much a personal relationship in a society to enable people to benefit one another.

[Mark Durkan]

I thank the hon. Gentleman for that clarification. That brings us to the point that we go through all this complicated legislation, with all this complicated jargon, to try to give consumers confidence that a regulatory regime is policing these matters for them, so that they know that the people they are entrusting with their money—their savings and so on—are performing to a due and proper standard. I would not want the House to create a situation where people felt that mutuals were, by their nature, less safe and less regulated, because non-mutuals would use that on a predatory basis in their marketing.