Conditions for Transfer of a Society's Business

Part of Orders of the Day — Building Societies Bill – in the House of Commons at 5:45 pm on 17 March 1997.

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Photo of Austin Mitchell Austin Mitchell , Great Grimsby 5:45, 17 March 1997

I am the chair, brother.

New clause 1 is before us, Mr. Morris, and we know what is happening. We must accept that the Bill is word perfect in a way that no other Bill has been. That reflects the pressure that is upon us.

The new clause represents an attempt to introduce a greater check on the process of demutualisation. I am speaking of the transfer of mutual societies into other businesses, such as public limited companies. The process has been overhyped, with the result that the mutual principle has been grievously wounded. That is a principle that we must keep alive. It is important that we have variety and pluralism. Mutuality should be maintained as a system of corporate government because it holds out great benefits. It brings important services to both borrowers and lenders, such as better rates of interest to those who lend money to a society. The advantages of demutualisation, as I have said, have been overhyped by an organisation that was desperate to take that course.

Shareholders have been asked to believe that the money that they have been given in the form of bonus shares comes from nowhere. That is not so. The money comes from the capitalisation of the efforts and investments of previous generations. Shareholders are being asked to believe that demutualisation will revitalise the society but it will not. Instead, it will enable the society to continue in much the same fashion.

There has been no sudden or dramatic change in any of the societies that have been demutualised. Instead, they have spread into new services and new areas of business, which means meeting new risks. New status equals new risk. That could be the basis of an advertising slogan throughout the country. The process is taking societies away from their core business, which they know well, and encouraging delusions of grandeur, which are easily encouraged in building societies on the part of top brass, including directors.

Effectively, the shareholders have been conned. The real dynamic is the desire of the top brass, including the directors, to enrich themselves by increasing their salaries and returns within the new companies. To do that, they are putting over a story that is enormously exaggerated and distorted.

It is a story that can fool the shareholders. At the Halifax conversion meeting, the light of greed was glittering in shareholders' eyes. They were being given £1,000—in some cases more—for nothing. It seemed that the money was being plucked from the air. I seek a breathing space through the new clause so that the alternative view might be put more effectively.

In some respects, new clause 2, tabled by my hon. Friend the Member for Birkenhead (Mr. Field), is even better than new clause 1. My hon. Friend asks that there be actuarial advice on financial gains and losses, and in this instance it is easy to deceive shareholders.

When the Halifax conversion took place I received great wodges of documents and financial statements from the society advancing the case for demutualisation. The process was presented as the opening of a glittering future. There was little to represent the alternative argument. There was no opportunity to provide a costed and calculated reply underlining the disadvantages of demutualisation while at the same time stressing the strengths of mutuality. It was not possible to present that argument to the shareholders with the same power and effectiveness as was enabled by illustrated lectures and overhead projection to support the case of demutualisation. The alternative argument should be advanced on an alternative footing.

Investors are being conned by glittering financial prospects in a series of unsubstantiated claims and statements by the top brass in building societies, including directors—those who will be the principal beneficiaries from the process of demutualisation. We should be suspicious. Even better, information should be provided to support the other side of the argument. Let us impose a delay so that we ensure that financial calculations are properly undertaken. I do not want the mutual principle to be weakened and cut any further by the Gadarene rush of investors in large building societies such as the Halifax. That process of weakening and undermining encourages others to go the same way and get the same rewards.

My hon. Friend the Member for North Warwickshire (Mr. O'Brien) will not want to reply at length to this debate. I hope, however, that he will use a tactic different from the one he used earlier. I hope that my hon. Friend will sit and growl, and look as though he supports the new clause, gives it his good will and thinks that it is damned good—it is a damned good new clause. If he does that, we may frighten the Minister into giving us a concession.

The Minister may then say, "It is a bit late to introduce the proposal in a new clause and it is not as well worded as it would have been if the Government's draftsmen had written it, but I shall see whether we can use regulation to approach the same point and to make the process of demutualisation more difficult." If my hon. Friend the Member for North Warwickshire growls a bit, we may be able to frighten the Minister into that concession. I hope that my hon. Friend will do that.