Conditions for Transfer of a Society's Business
Orders of the Day — Building Societies Bill
'.—After subsection (4) of section 97 of the 1986 Act (transfer of business to commercial company) there shall be inserted the following subsection—
(4A) The Commission shall not confirm the transfer and its terms unless it is satisfied—
Mr Michael Morris (Northampton South)
With this, it will be convenient to discuss the following: new clause 2—Demutualisation: proceeds for charitable purposes—
'—After subsection (4) of section 97 of the 1986 Act (transfer of business to commercial company) there shall be inserted the following subsection:
Amendment No. 9, in schedule 5, schedule 5, page 70, line 42, at end insert—
'5CC. It shall be the duty of a building society receiving a transfer proposal to appoint independent financial advisers representative of the interests of the members of the society, to obtain from those
advisers an assessment of the capital value of the society, and to communicate that assessment promptly to the members of the society.'.
Mr Austin Mitchell (Great Grimsby)
Given the heavy, serious and prolonged consideration that we are giving to such an important Bill, it is a pleasure to introduce the new clause. I do so while making the usual protest about the pressures that have been put on us to speed the Bill through its parliamentary passage. These pressures are effectively turning the House of Commons from the Mother of Parliaments into an abortion clinic. We are being asked, potentially, to kill infant Bills so that the mother Bill may live.
Another pressure is being brought to bear on the Committee. The Whips are saying, "Keep it short because we want to get the business statement." Younger Members such as myself have hopes of high office in the incoming Administration, and against that background it is important that Members's names are being taken. I shall, of course, comply with this pressure. At the same time, I congratulate the Minister. I hope that she gets her Bill. She has shown great perseverance, effort and charm in plucking this brand from the Prime Minister's funeral pyre. That is effectively what the hon. Lady is doing. Given the haste with which the Bill is proceeding through Parliament I have only to say, "Sister, this Bill had better be good", as we say in the new Labour party.
Mr Austin Mitchell (Great Grimsby)
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.
Mr Frank Field (Birkenhead)
It was not so long ago that a right hon. Member was reported to have said that there was no such thing as society. If one reads carefully the article in which the then Prime Minister was quoted, one discovers that she said that there was no such thing as society unless there were strong families. I suggest that one can also have no such thing as society unless there are strong feelings of mutual aid in a community. Over the past 20 or 30 years, we have seen a ripping out of what amounts to valuable social capital.
When housing was in both the public and the private sector, one was able to speak for one's family. If someone wanted to look after his mother or father, that was a good reason for being rehoused near them. Such reasons are now ignored and other reasons have been put in their place. That helps to destroy the sense of society and community, and the operation of mutual aid.
The Bill deals with the social capital that has been built up in mutual aid societies and which is being ripped out because certain individuals wish to make a small financial gain. I refer to many individuals because, as I should have declared at the beginning, I am a member of a number of building societies. If we take the Economic Secretary's advice, we should join many more to protect their status. I am also a member of Abbey National. I see no difference in the service that that bank now offers compared with the service offered when it was a building society. What we do see is that in all the groups that demutualise, the directors get very generous share options.
It is to protect the social capital that has been built up through generations of members not demanding their pound of meat, but leaving some of it there for the benefit of future generations that I have tabled new clause 2 and amendment No. 9. In new clause 2, I suggest that if a society demutualises, it should be required to put aside 15 per cent. of the value of the company that results in a charitable trust to further the aims of the former mutual society.
Under amendment No. 9, when societies contemplated demutualising, the members would have appointed for them financial advisers to tell them whether they thought it was as good a deal as the directors said it was, given that the directors would benefit through large share options.
The Minister may make points about whether the new clause and the amendment are sound; I will defer to her on that. If we withdraw the new clause, will the Government give us an undertaking that they will seek to put the provisions on the statute book by way of a statutory instrument? I hope very much that that is possible.
All our debate today—it has been a fine debate—has reflected the idea that we do not get a community by being able to spell the word or by tabling resolutions in the House of Commons, but by working at it. As the previous Prime Minister said, if we do not have strong families, we are unlikely to have a society. Similarly, if we do not have strong mutual aid organisations, we shall not have strong communities and strong societies. That is the spirit in which I speak to the new clause. I may have been less brief than my hon. Friend the Member for Great Grimsby, but I am older and without his ambitions.
Mr Douglas French (Gloucester)
The hon. Member for Birkenhead (Mr. Field) will have noticed that the Northern Rock building society, in formulating its conversion proposals, has made provision for the setting up of a charitable foundation, the purposes of which will be to meet exactly the good causes that are described in new clause 2. It is open to societies at the moment to meet the spirit of the new clause, although they are not obliged to do so.
Mr Frank Field (Birkenhead)
Everyone in the House applauds Northern Rock. New clause 2 would put its action beyond any dispute in the courts. Much as I admire Northern Rock's proposal, I wonder whether some of its members may move against it in the courts because it has not given the membership all the money that is due. New clause 2 would ensure that Northern Rock's proposal is not only sound for it, but has to become the model of behaviour for all other societies that are converting.
Mr Douglas French (Gloucester)
The hon. Gentleman will also have noticed that a formula not dissimilar to his is likely to be embraced by the Alliance and Leicester building society. Of the societies currently converting, the one that stands out as refusing to meet the spirit of new clause 2 is the Halifax building society.
Mrs Angela Knight (Erewash)
The hon. Member for Great Grimsby (Mr. Mitchell) is nothing if not consistent; he has made similar remarks throughout our discussion of the Bill. New clause 1 would require a delay of not less than six months between the date of the first notification of the proposed transfer to the members and the date on which they were asked to vote on it. The process takes longer than six months already. If we imposed a statutory period of delay in what is essentially a commercial, market-sensitive operation, there would be difficulties.
Members opposed to the principle of a transfer already have opportunities to make their views known. Many of those opportunities have been strengthened through the accountability package in the Bill. If the commission has evidence that material information in relation to proposals that are being put to the vote has not been given to members, it will take that into account when deciding whether to confirm the transfer.
The hon. Member for Birkenhead (Mr. Field), in amendment No. 9, would require a society that received a takeover offer, whether confidential or not, to get a valuation of the offer and to pass it to its members. That would cause immense difficulties because proposals made to a society are often confidential. Under the amendment, the society would have to publish the details of the valuation of a confidential offer. That would cause considerable instability for a society. I assure the hon. Gentleman that the regulations operated by the Building Societies Commission ensure that all details in the transfer document, which the society will ultimately give to its members, are full and correct in every respect. The issue of the valuation of an offer that is out in the open is, therefore, covered in that way.
New clause 2 would ensure that a converting society put a proportion to one side for a charity. We all congratulate Northern Rock on making that decision and I am sure that Northern Rock's members are in favour of it. If we made such a charitable option compulsory, we would be moving away from what we understand to be the necessary requirements for a charity. Although I agree with the sentiments behind the new clause and I would urge other converting societies to follow suit, I have strong reservations about making a voluntary requirement into a compulsory one.
Mr Austin Mitchell (Great Grimsby)
I was disappointed with the Minister's reply. Although it is easy to pick holes in the amendments as we do not have the support of skilled civil servants and draftsmen, I wanted the Minister to express her support for the principle involved—that of making demutualisation more difficult, slowing it down and providing information of a quality, volume and weight comparable with the deluge of that put out by the directors. I am sorry that the hon. Lady did not accept that principle. I understand that she is becoming nervous about the fate of her Bill just as I am getting nervous about my future in seven weeks' time. Because of both those paroxysms of nerves, I beg to ask leave to withdraw the motion.