Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.Donate to our crowdfunder
(2) The applicable provisions of this Act other than this section are section (Transfers of business: supplementary provisions), section (Regulated terms: compensation for loss of office, etc), section (Regulated terms etc: distributions and share rights), section (Protective provisions for specially formed successors), section (Transfer regulations), pargraph 27A of Schedule 2 and Schedule (Transfer of business: supplementary provisions).
(3) The successor may be a company formed by the society wholly or partly for the purpose of assuming and conducting the society's business in its place or an existing company which is to assume and conduct the society's business in its place; and for the purposes of the transfer the society may, notwithstanding anything in section 16, form, or acquire and hold shares in, a company whose objects extend to the carrying on of activities which a building society has no power to carry on.
(4) In order to transfer its business to its successor a building society must—
(5) In so far as the transfer agreement made between the society and its successor provides for rights to be conferred on members or officers of the society, whether or not in pursuance of regulated terms, the members or officers shall, in relation to those provisions, be treated as if they had been parties to the agreement and the rights shall be enforceable accordingly.
(6) If the Commission confirms the transfer under section (Transfers of business: supplementary provisions) then, on the vesting date, all the property, rights and liabilities of the society making the transfer (whether or not capable of being transferred or assigned), except any shares in its successor, shall by virtue of this subsection and in accordance with transfer regulations be transferred to and vested in the successor.
(7) Where a building society continues to hold shares in its successor after the vesting date, the consideration (if any) for the disposal of the shares together with any other property, rights or liabilities of the society acquired or incurred after that date shall, by virtue of this subsection, be transferred to and vested in its succesor on the date specified for its dissolution under subsection (10) below.
(8) A building society which has obtained confirmation of the transfer of its business shall send to the central office notice of the date which is to be the vesting date and shall do so not later than seven days before that date; and the central office shall record the date and, if a later date is notified under subsection (10) below, that date, in the public file of the society.
(9) Except where notice is given under subsection (10) below, a building society which under this section, transfers its business to its successor shall, by virtue of this subsection, be dissolved on the vesting date; but the transfer effected by subsection (6) above shall be deemed to have been effected immediately before the dissolution.
(10) A building society may, for the purpose of facilitating the disposal of shares in its successor, include in the notice of the vesting date under subsection (8) above notice of a later for the dissolution of the society; and, if it does so, the society shall by virtue of this subsection be dissolved on that date instead of the vesting date but the transfer effected by subsection (7) above shall be deemed to have been effected immediately before the dissolution.
(12) In this section, and the other applicable provisions of this Act—
company" means a company within the meaning of the Companies Act 1985 or the Companies Act (Northern Ireland) 1960 which is a public company limited by shares; and a company is a "specially formed" company if it is formed by a building society (and by no others than its nominees) for the purpose of assuming and conducting its business in its place and is an "existing" company if it is a company carrying on business as a going concern on the date of the transfer agreement.
confirmation", in relation to a transfer, means the confirmation of the Commission required by subsection (4)(d) above;
regulated terms" means any terms of a transfer agreement which are regulated terms under section (Regulated terms: compensation for loss of office, etc), section (Regulated terms etc: distributions and share rights) or section (Transfer regulations),
the requisite protective provisions" means the provisions required to be made by section (Protective provisions for specially formed successors) (2);
the requisite transfer resolutions" has the meaning given by subsection (4)(c) above;
successor", in relation to a building society, has the meaning given by subsection (1) above;
transfer agreement" means the agreement required by subsection (4)(b) above and, in relation to it, "conditionally" means conditional on the approval of the transfer by the requisite transfer resolutions and on confirmation of the transfer;
transfer of business" means the transfer of the business of a building society to its successor under this section and "transfer" has a corresponding meaning;
transfer regulations" means regulations under section (Transfer regulations); and
the vesting date" means the date specified in or determined under the transfer agreement as the vesting date for the purposes of subsection (6) above 2 ' — [Mr. Ian Stewart.]
With this, it will be convenient to discuss the following Government new clauses:
No. 17 — Transfers of business: supplementary provisions.
No. 18 — Regulated terms: compensation for loss of office, etc.
No. 19 — Regulated terms etc: distributions and share rights.
No. 20 — Protective provisions for specially formed successors.
No. 21 — Transfer regulations.
No. 22 — Cancellation of registration.
Government amendments Nos. 113 to 123, 211, 220, 229, 230, 254 and 272.
New clause 16 relates to the conversion of building societies into limited companies. Our principles in approaching the matter have been clear. First, any such decision by the members of a building society must be made with clear support from investing and borrowing members and from a significant proportion of the entire membership. It is an important change in the nature of the business of a building society to move from mutual to incorporated status, and it would be wrong for such a change to be made without the strong support of the society's members.
Secondly, we have been anxious to ensure that the process protects the rights and interests of members in. such a way that it does not, at the same time, encourage members of the public to switch their funds around in the market on a speculative basis hoping to make a quick profit, which has happened in the United States.
Thirdly, we felt that limits should be placed on the compensation payable to outgoing directors so that conversion is not a course of action promoted by management in its own interests. I think that those principles are supported not only by the Building Societies Association, but by both sides of the House.
The details of the clauses have been carefully worked out, but the main question is one of principle. The Bill sets out a regime for all societies, large and small, local and national. It may be that as financial markets develop some societies will want to develop more rapidly than the Bill allows. I see no reason to prevent that, provided they have the overwhelming support of their members. It seems to be the essence of mutuality that members should take the crucial decisions. That is what we are providing in this procedure.
I hope that my hon. Friend will contribute to the debate, but I would just like to finish this passage.
It may also be useful if there is a degree of diversity in the movement as to whether all building societies remain as mutual institutions. However, the possibility of converting into incorporated status would add to the range of types of society or mortgage-providing institutions.
I should like to listen to the debate and, if I am fortunate enough to catch Mr. Speaker's eye at the end, I could then respond to the points raised. At this stage I should like to say that I have taken careful note of the arguments put forward during the passage of the Bill so far, but they have not convinced me that conversion is wrong in principle. I am now more than ever sure that it is an option which should be available, subject to the necessary safeguards and principles that I have described. Therefore, I should like to respond more fully when I have heard the views of my hon. Friend the Member for High Peak (Mr. Hawkins) and other hon. Members.
So far the debate on the new clauses has proceeded amicably, with agreement between the two sides of the House, but I tear that at this point the two sides will differ.
I understand that the Minister has carefully considered what safeguards can be built into the process of conversion from a mutual organisation to a plc, and I appreciate that he has resisted pressures to, for example, decrease the percentage of members who would necessarily have to vote for such a conversion. One must be grateful for small mercies. It is a small mercy, because for a variety of reasons we do not see the necessity for building societies to convert from mutual organisations into plcs. I know that the Minister is aware of some of the reasons that have been presented by the Opposition, but I hope that even at this late stage he will reconsider his decision.
Several points need to be made in connection with the process of conversion. First, during the progress of the Bill the Minister has considered in great detail what sort of legislation is necessary for building societies and just how he can ensure that the legislation is correct and will not cause undue difficulties. However, he has not attended sufficiently to the fact that changes in the nature of the building societies are being proposed and will take effect shortly after other aspects of the financial markets will have undergone major changes. If nothing else, conversion to plcs ought to be postponed until one sees what the effects of the so-called big bang, due to take place at the end of October, will be. Therefore, I would recommend even more caution than the Minister has proposed.
Secondly, the proposal to allow the conversion to company status, taken together with the proposal to allow for contested mergers, can speed up the concentration of the number of building societies. Indeed, even without the provisions in the Bill, mergers are taking place, leading, for example, the chief executive of the Abbey National building society, Mr. Peter Birch, to say recently that he expected that over a period of 10 years there would be only five mega-building societies and possibly a number of smaller building societies.
I wonder whether the hon. Lady is aware that it is not only conversion that is the threat. New clause 16(3), which was not in the original Bill discussed in Committee, says that the successor company may be an existing company. In other words, an existing company, such as a foreign bank, may take over a building society even though it has not converted to plc status.
I thank the hon. Gentleman for making that point. I was about to move on to the problems that I consider are caused by takeovers. The two provisions in the Bill that I have mentioned can speed up the process that the hon. Gentleman has in mind, although, as he rightly says, it can happen without conversion to company status. That is a matter of concern.
I am concerned because I believe that over a period of time, though obviously not immediately after the Bill takes effect — probably in April next year — we will find ourselves with a small number of large financial institutions. Because of the possibility of the takeover of existing building societies by foreign banks—we know that some foreign banks, such as Citicorp and Standard Chartered have already shown their interest in this matter — we shall have a small number of financial institutions, large in size, but without any particular commitment to the provision of finance for housing. They will obviously continue to offer mortgages, because I think that the mortgage market will continue to grow for the rest of this century, but they will have no prime commitment to housing.
It is true that other organisations also offer mortgages. For many years we have had the benefit of a range of institutions primarily concerned with financing housing. As we know, the Bill allows building societies to provide other financial services. The building societies have enormous assets—£100 billion. This is an important source of finance to be concentrated on the provision of housing, either through mortgages, or through the provision of something which we in the Labour party strongly favour—housing provided through part equity and part rent. This enables young couples especially to purchase their first house more easily than by raising the deposit for a mortgage or by facing the prospect of a 100 per cent. mortgage.
The hon. Lady has obviously studied the matter more thoroughly than I have, but my understanding is that under subsection (3) it would be possible for Citibank to buy the Halifax building society in its present form. There seems to be a real threat, which must be considered carefully.
I think the hon. Gentleman is unaware that that point was made earlier and that I accepted it. I am trying to develop the argument that conversion to plc status will also facilitate the process. That is why I have argued against that point of view. I have argued the possibility that large financial institutions may not have the commitment to housing that building societies have.
The point has been made that building societies need the possibility of such conversion to provide themselves with adequate capital funds, despite the fact that the Building Societies Association, in its bulletin of October 1985, stressed that owing to the mutual nature of the building societies they were readily able to raise funds, and had successfully done so, on the wholesale market. The argument that conversion to plc status is necessary to provide building societies with adequate funds is one that we need not take too seriously.
I cannot understand the Government's prejudice against the continued existence of mutual organisations. It is a perfectly proper, respectable and successful alternative to company status. Why not encourage its continued existence? It is true that criticisms can be made of the nature of the mutuality of building societies. Perhaps that was not the case in years gone by when building societies were smaller. Nevertheless, building societies have been able to concern themselves to a greater extent with social objectives, with concerns and needs, of which housing is a fundamental aspect. Conversion of building societies to plc status and being swallowed up by banks which are concerned, not with the social need of housing but with all kinds of financial provision, and so on, is a step backwards, and not a step forwards.
For the reasons that I have outlined briefly — the argument was put both on Second Reading and in Committee — the Opposition are firmly convinced that the provisions in the new clauses are wrong. Therefore, we shall reject and vote against them.
I shall not approach the subject as analytically and with the same economic expertise as the hon. Member for Thurrock (Dr. McDonald), but I agree with much of what she said. I think that on a point of detail the hon. Lady was wrong to advise the House that the Standard Chartered bank was a foreign bank. I am reliably informed by my hon. Friend the Member for Ludlow (Mr. Cockeram) that the Standard Chartered bank is British, is proud to be British and hopefully will remain British. I agree with some of the hon. Lady's sentiments. I approach the matter from the point of view of sentiment.
Although the Bill, in broad terms, will enable building societies to extend into a much broader field, way beyond the definition of mutuality — with which I have no quarrel whatsoever—I am concerned that new clause 16 could, in certain circumstances, enable our much-loved building societies, which many of us associate with our towns, counties and regions, to become multinationals. It might be fine for certain large building societies to become part of the First National Bank of Chicago, but it would not necessarily be right for the Staffordshire building society to do so, because it might become a nameless and faceless subsidiary of a nameless and faceless multinational which breaks the link between the borrower and the lender. I believe that the link between the borrower and the lender is a fundamental, vital and almost unquantifiable benefit of the building society movement as we know it today.
Perhaps I can illustrate the point by narrating a story that was told to me by the chairman of one of the major building societies at the recent annual conference of the Building Societies Association held in Bournemouth. He reminded me of a lady who went into her local branch of his building society wanting to withdraw £1,000 from her savings account. She had only about £1,000 in her account. She said to the counter clerk, "Do not worry, young man. I only want that money to buy clothes and books for my daughter who is going to university in September. I promise you that I shall put the money back as soon as I can." The lady had a direct relationship with, and a direct loyalty and obligation to, her building society. If she had been the customer of a bank, she would not have cared a tuppenny damn about putting back the money. There is not the same loyalty between a bank and its customers as there is between a building society and its customers. If that sense of mutality is broken, which the new clause will enable financial institutions to do, that link of loyalty, which is inestimable, will be broken.
What worries me about the clause is that it is not only another lending institution, another savings institution, or another bank that will be enabled to take over a building society. As I understand it, any company—national, international or multinational—could do so. Therein lies a real cause for concern.
In my constituency of Mid-Staffordshire, the much-loved and very British 200-year-old company of Wedgwood is under threat of takeover by the London International Group, formerly known as the London Rubber Company. No doubt it is well known and much respected for producing certain rubber goods to meet the everyday requirements of some people, but what expertise and qualifications does that American-owned company have for taking over a ceramics company that manufactures tableware that hon. Members in this and another place use every day? The company has no real understanding of the highly specialised, top-market sector of the industry.
What about job security? What undertaking would the company give to the shareholders and employees of Wedgwood if other parts of that conglomerate play-pen based in the United States or elsewhere were to fall prey to the international economic recession? What job and economic security would the shareholders of that company have? Let us suppose that the London International Group, formerly known as the London Rubber Company, took over the Goldhawk building society, the Staffordshire building society or the Abbey National building society. Let us assume that there was a down-turn in the market for rubber gloves in Ohio or elsewhere and the company was forced into liquidation. In what position would that leave the borrowers of mortgages from the Goldhawk building society, the Staffordshire building society or the Abbey National building society?
Let us take the example of a constituent of mine who falls, through no fault of his or her own, into arrears. He or she does not have the same relationship with the local manager, because the local manager does not have the same relationship with head office, because head office is not situated in Stafford, Birkenhead or Burgess Hill. It is probably somewhere in Baltimore or Boston, and so there is not the same link, loyalty or understanding between lender and borrower as was highlighted in the case of the lady who wanted to borrow £1,000 to provide books and clothes for her undergraduate daughter.
I am concerned about the new clause. I did not serve on the Committee, and so I did not have an opportunity to express these views. However, I expressed them to members of the BSA at the annual conference of the Metropolitan Association of Building Societies. I hope that my hon. Friend the Economic Secretary will consider those points and will withdraw the new clause to allow further debate within the building society movement and to allow wider debate, as the hon. Member for Thurrock said, after the big bang. Incidentally, that big bang may well turn out to be a little whimper. The new clause could then be reintroduced, in the light of experience, in the other place.
I agree with what my hon. Friend the Member for Thurrock (Dr. McDonald) and the hon. Member for Mid-Staffordshire (Mr. Heddle) have said. The hon. Gentleman was absolutely right about the building societies. People invest their savings in building societies rather than in banks partly because, as the hon. Gentleman said, there is a mutuality of trust and understanding between the society and its customer. That mutuality is never felt between a bank, even a small bank, and its customer. The investor in the building society knows that his money is not only safe but will be used to provide a mortgage to give someone a home. The investor can feel quite proud of his investment.
I imagine that the new clause was initiated by the Treasury rather than by the BSA or individual building societies. I do not know who asked for it, but it can only be the Treasury that wants to convert building societies into plcs. Apart from the Treasury, I do not know of anyone who wants the new clause. But perhaps we are worrying unduly. After all, the new clause requires that 20 per cent. of the building society's subscribers must vote and that 75 per cent. of them must agree before the society can be converted into a limited company. It takes some doing to persuade 20 per cent. of borrowers to vote. Big societies have run major campaigns but have not managed to get even 10 per cent. to vote.
I do not know about that, but I agree with the hon. Member for Mid-Staffordshire that those who vote will do so out of loyalty to their society, and so will not want it to be turned into a limited company.
Moreover, the new clause gives the Treasury power, by negative resolution of the House, to alter that 20 per cent. figure. If building societies could not get 20 per cent. of their members to vote, or anything like that number, would the Treasury reduce the figure to 10 per cent. or 5 per cent.? If so, there is a grave danger of that mutuality disappearing. We want building societies to be brought into the modern world. That is what the Bill is about. We want to transform the 1871 Act into a 1986 Act in order to allow building societies to compete in the modern world, but we also want to preserve the peculiarly British nature of building societies and to retain that mutuality. I fear that the new clause, which has been introduced solely at the whim of the Government, could destroy that mutuality.
I merely wish to ask my hon. Friend the Economic Secretary two questions which I would have asked during his speech if he had given way. First, why do we want to allow companies which are not building societies to buy building societies, including those which have not converted? It would be interesting to know the reasons for that. Secondly, there is a technical problem with new clause 19. Subsection (4) specifies the bribes that may be paid to people voting for or against converting a building society into a plc. I have been over this issue with people in the BSA and in building societies, and none of us can make head nor tail of it.
Half the time the new clause appears to say that bribes can be paid only to people who have less than £100 in the building society, and thus to people who do not qualify to vote. I refer to subsection (2)(b), which is qualified by subsection (4). In other parts, the new clause seems to suggest that payments could be made to people with more than £100 in the building society. Clearly it is important that building societies should know exactly what the new clause means. I should be grateful if my hon. Friend the Economic Secretary would explain it to me now. If he has as much difficulty as the rest of us in understanding its drafting, perhaps he will drop a line to me and to the BSA.
I did not like the idea of a building society converting to plc status when it was discussed in Committee. I think that the provision has been reintroduced because several Conservative Back Benchers did not like the idea either. Treasury Ministers felt that they had to assuage in some way their Back Benchers' feelings. Indeed, the hon. Member for Mid-Staffordshire (Mr. Heddle) has outlined some of the concerns.
I found the Economic Secretary's reasoning rather faulty — and I am being generous to him. He had already made up his mind. Yet he came to the House and told us that he did not have much to say today, but that he would listen, as though he might be converted at the end of the debate. Judging by his actions and statements, and by the way that he dealt with the subject today, it is obvious that his mind is made up.
Like my right hon. Friend the Member for Halton (Mr. Oakes), I just wonder what has generated this great desire for conversion. That word conversion makes people think immediately of some religious connotation, as though conversion would be a bracing experience for everybody. But it will be nothing of the kind. We are really talking about immersion, whereby the whole character of the building society movement will be changed. I suspect that the building society movement will be led away from its original purpose, which was to finance house purchase and home improvements. There is a danger that following the helter skelter towards conversion, as the Treasury puts it, we shall end up with more banks than the economy requires.
The Economic Secretary has never fully dealt with how he thinks that the building society movement will benefit from this proposed change. He has not really answered the points that have been made, not only today but in Committee, about whether, in the long run, this will strengthen the building society movement or, as many of us believe, will weaken and divert the building society movement from its purpose.
Like my right hon. Friend the Member for Halton, I have a non-pecuniary interest as an honorary vice-president of the Building Societies Association, but that does not mean that I cannot say what I think, and I think that the United Kingdom does not need any more clearing banks. The Economic Secretary has somewhat fogged the issue of principle by the way that he has tried to impose his ideas on conversion of building societies to company status, and even by the way in which the consultative paper came up out of the blue. People were told that it will be a great thing if the Government allow building societies to become companies, when, for many years, they have been functioning satisfactorily as mutualities.
Like my right hon. Friend the Member for Halton, I agree that there is a need for improvement, but there is great danger that if the Government have their way in the new clause this will reduce the potential that is available to the ordinary man or woman to acquire housing finance either for home purchase or improvement. I fully support the points made by my hon. Friend the Member for Thurrock (Dr. McDonald).
It is important that the Labour party adds its voice to the doubts that have been expressed by Conservative Members. Given that the Minister heard so many hostile speeches. and that so many critical doubts were raised on this matter, I would find it surprising if he persevered with this new clause, for which there is no great need. He said that he was open to argument and would listen to it, but as he has not listened to the serious doubts raised in Committee, he will not be listening to the arguments now. He will not be accommodating himself to the views of the House and his party but will be steamrolling the clause through with the backing of the Government's majority. That is wrong.
It is important that the Labour party emphasises its opposition to the nature of this proposal. If the Minister perseveres with it, we shall vote against the new clause. I hope that he will make some accommodation to the doubts that have been expressed. We are talking about a substantial change in the nature of building societies for which no good reason has been given.
I do not see pressure from the building societies for this. I know that some would like to spread out into the financial services sector, but they wish to do so always on the basis of the organisation and principle from which they sprang, the good, sound and extremely important basis of mutual principles. That differentiates them from other predatory financial institutions which are much more the embodiment of organised greed.
Why are the Government allowing this important principle to be undermined? The Minister has given no adequate reason for taking an axe to the whole trunk of the building society movement. That movement involves people who have a habit of thinking in terms of their building society and feeling some participation in it, even if they do not attend meetings and take but little interest. That is important to maintain because it conditions the thinking of the people who run the building societies. We should not like to see their transformation into just another predatory financial institution, working for their own interests and those of organised greed.
In Committee, we argued about whether building societies were Socialism in action or capitalism in action at the level of the ordinary man. The mutual principle means that they are at the level of ordinary man, and we want to keep them there and keep their unique nature. That is a strong reason for voting against the new clause.
I am disturbed by what I have heard in the debate. I did not serve on the Committee and I came into the Chamber to listen to the debate and speak later. However, I now have some questions to ask my hon. Friend the Economic Secretary to which I would like a reply.
Can my hon. Friend give reasons for the policy contained in this new clause? Is it a fact that building societies, on conversion, can he taken over not only by banks and other companies in the United Kingdom but by banks in other countries? If that is so, would we not possibly face, in some years' time, the situation in which the major building societies were owned by a number of dominant banking groups, and the ownership of the societies, taken together with the business that such companies already transact in the market, might produce an even more dominant position?
I am concerned about the possibility that our building societies might be owned by consortia of American or Community banks. The unique feel that the building societies have for most people might then be diminished. What are the reasons for that policy? I was not aware of its inclusion in the Bill when it was originally published, and so I am rather surprised to find ourselves debating it now.
I should also like my hon. Friend to comment on the approval that needs to be given for such transfer by the members. As I understand it, the conversion requires a 20 per cent. vote of which 15 per cent. must be in the affirmative. In many cases, borrowing members of building societies will take the lead from the chairman of that society and from others who recommend a particular course of action. Many of them will cast their votes in accordance with advice, while others will take advice from their professional advisers, whether banks, solicitors, accountants or whoever may advise them. Is my hon. Friend satisfied that, in the event of such a major step being contemplated by a society, the ordinary members of the building societies who not only support them with their savings but depend upon them for their mortgages will be fully informed and able to play an active role in making decisions of this magnitude?
I begin by saying in self-defence to the hon. Member for Glasgow, Maryhill (Mr. Craigen) that it seemed to me proper to introduce the new clause briefly so that the House could have an opportunity to debate it properly before I attempted to respond to the questions. I am not sure whether he would have been any happier if I had tried to respond to the questions before hon. Members had had a chance to put them. However, my attempt at courtesy to the House has been misunderstood, so I hope that it will accept that that is what I had in mind.
My hon. Friend the Member for Uxbridge (Mr. Shersby) said that he had recently come into the Chamber and was disturbed by what he had heard. He has every right to be disturbed because the case has been overstated. I recognise the anxieties that have been expressed on both sides of the House, as I recognised them in Committee. The Government have been mindful of the controversial nature of conversion, not only back to the original introduction of the Bill, when we published the discussion document about these proposals, but back to the earlier Green Paper and the earlier stages of the discussion, We need to measure the likely developments of the building society movement against the actual impact of the proposals that are included in the new clauses.
I thought that the right hon. Member for Halton (Mr. Oakes) was fair minded when he said that in practice these would be difficult criteria to meet. One has to accept that the whole debate should be in the context of the fact that these proposals are not meant to be an easy option. They are not proposals that can be lightly nodded through by a few members without the general support of the membership of the societies.
However, I must put the right hon. Gentleman right about one point. The hon. Member for Glasgow, Maryhill (Mr. Craigen) raised the same point. They said that nobody wants these proposals, that they have been cooked up by the Treasury and that the Government do not have many supporters for them. These proposals were first put forward by the Building Societies Association, of which the right hon. Member for Halton is a distinguished vice-president, in its 1983 discussion paper. In its brief for the Report stage of the Bill, the Building Societies Association says:
The Association considers that it is necessary to have a procedure by which a building society can convert to another corporate form with the agreement of its members, although it doubts whether many societies will wish to consider this option.
That is probably a fair and balanced assessment of what is likely to happen. The Government's proposals——
In a moment, when I have finished my sentence.
The Government's proposals have been designed to strike exactly this balance between not making this process impossible and at the same time imposing quite significant requirements. In her opening remarks the hon. Lady was good enough to say that she accepted the fact that I had been under some pressure to make the requirements less stringent but that I had resisted that pressure.
The Minister referred to the BSA report. I think I am correct in saying that in mentioning the 1983 report the Minister was referring to the extremely ambitious Spalding report, which was much modified in later reports by the BSA as to how it viewed the future. The Spalding report was over-ambitious and was very much watered down in later BSA reports. Therefore, it is not fair to take the BSA's Spalding report as a guide. To my knowledge, it has been primarily the Abbey National building society that has favoured conversion status. Belatedly, possibly feeling that it must follow in the footsteps of the Abbey National building society, the Halifax building society has come round that point of view.
I do not want to spend too long on the history of this matter. However, I have been told that it was dreamt up by the Treasury. I have pointed out that it has a longer history and that originally this idea was initiated by the Building Societies Association. I accept the hon. Lady's point that in its latest form the association is not quite so enthusiastic about the idea as it was originally, but that does not mean that the BSA believes that this route should not be open at all. I find myself very much in agreement with the Building Societies Association about this.
I do not think that our proposals are likely to lead to any great rush to conversion. Indeed, I should not have wanted them to be formulated in the way in which they are formulated if that had been the likely consequence. However, I agree with the right hon. Member for Halton and with the Building Societies Association in its note to hon. Members that this is not an option that many societies will want to consider.
In some quarters I have been strongly criticised for making the requirements far too difficult. In other quarters I have been criticised for apparently making it possible for a mad rush to take place by the whole of the building society movement towards conversion. My view is that the truth, as is so often the case, lies in between the two, and that the proposals that we have put forward are realistic. They are not permissive, in the sense that they make it easy for members of building societies to take the decision to convert. At the same time, they are not unattainable.
The hon. Member for Thurrock (Dr. McDonald) suggested that I might have some prejudice against mutual status. That is certainly not the case. The hon. Member for Maryhill asked how these proposals would strengthen the building society movement. I have the same respect for the building society movement as he has. I appreciate the qualities of loyalty and the traditions that have given the building society movement its strength. I do not wish to dismantle all that. Certainly I do not want an Act that I have taken through this House to be on the statute book which would lead to such a consequence. There are many provisions in the Bill which strengthen the concept of mutuality. I do not intend to rehearse them now, but they give members a greater opportunity to take part in the affairs of building societies. They also give members better opportunities to vote on issues than they have ever had under the existing legislation. Therefore, I do not think that I can fairly be accused of doing anything to dismantle the mutual principle. Indeed, I hope that we have given it a new strength and a new lease of life.
I still do not follow the argument on the central point of why the mutuality principle should be weakened in any way. We are sending this pristine maiden, the building societies, out into the financial jungle where dangers abound and rapists throng. Why, in any sense, loosen the lock on the chastity belt?
I think that I ought to resist following too far the imagery that the hon. Gentleman has conjured up, particularly in view of the nature of the bidder for Wedgwood, and various other matters that have been brought into the debate.
However, let me reflect for a moment on the point that the hon. Gentleman has raised, because it is important. We have had to face a problem in trying to legislate for the building society movement. I am sure that it is necessary at this stage to have a single legislative framework for building societies. Building societies can be very large, national institutions, or they can be small local or regional societies. Their needs are diverging.
If the option of conversion under certain circumstances had not been available, it would probably have been necessary to draft a Bill that went wider as to the business that can be conducted by building societies as mutual institutions in order to take account of the realities of the situation and of the way in which the financial markets are developing. The building societies must continue to compete in that market. It is no good saying, on grounds of sentimentality, or whatever it may be, that all building societies have been lovely in the form in which they have existed for more than 100 years and that we want them to stay that way, regardless of whether they will be able to attract the necessary funds for future mortgage lending if they stay exactly as they have been for all that time.
We came to the conclusion that it would be right to allow a degree of flexibility within the Bill so that further stages of relaxation and gradual evolution could be permitted over the years and that it would also be right to allow the small and very limited number of societies that might feel they are too much constrained by the legislation —perhaps because they need further capital to compete on the scale on which they are conducting their business — to convert themselves into limited companies and therefore to be able to step outside the framework of building society legislation. That enables us to maintain one regime for all societies. It is a better solution than either constricting societies too much or widening the provisions of the Bill in such a way that many other societies that do not want to convert might then lose their identity and change their nature very much more rapidly than any right hon. or hon. Member would like them to do.
What my hon. Friend has just said does not put my mind at rest. I have listened very carefully to what he said. He says that he respects, but does not believe that he can be persuaded by, the views expressed by hon. Members and me on this aspect, because the Building Societies Association says that if this new clause is carried tonight it will relate only to one or two societies. I do not believe that to be a particularly valid argument. It was Adam who is reputed to have said to Eve, "You know, my dear, we are living in changing times." What may be true today may not be true this time next month. The permission that the House might give to the building societies industry if it passes this new clause this evening is not simply, as I understand it. to allow building societies to change from being mutual societies to public liability companies. That I can live with. I can understand why building societies might wish to do that for the reasons that my hon. Friend has just given. It will enable them to raise capital and meet much more easily the requirements of those who want to buy houses. I stand corrected if my hon. Friend can persuade me, but I believe that the clause goes much further. It will enable building societies, having become plcs, then to become subsidiaries of multinational conglomerates whose prime function may have nothing whatever to do with the provision of——
I am grateful for that, Mr. Speaker. I was trying to establish whether my hon. Friend had understood the fears and concerns that I expressed earlier. I am seeking clarification and comfort from my hon. Friend on behalf of borrowers and lenders of the Staffordshire building society in my constituency. It just so happens that my constituency chairman is also chairman of the Staffordshire building society. It might find, having been taken over by the London Rubber Company—which also wishes to take over Wedgwood in my constituency —that it is forced into liquidation because the market for rubber gloves in America——
My question to my hon. Friend is: what protection will lenders and borrowers of building societies in the United Kingdom have in the event of the clause going through because it will enable building societies, having been converted to plcs, to become subsidiaries of multinational companies, leaving that borrowers' and lenders' link inextricably ruined?
I wonder whether my hon. Friend will permit me to intervene in his speech. I was trying to be accommodating to the House in responding to the point made by the hon. Member for Great Grimsby (Mr. Mitchell). I said at the beginning that I would try to respond to the points raised in the debate. Most, in fact all, of the points raised by my hon. Friend the Member for Mid-Staffordshire (Mr. Heddle) have already been made in the debate and, therefore, I shall deal with them. However, I must continue my speech in order to do so.
I was talking about the general question. Although I have not satisfied the hon. Member for Great Grimsby, it is important that building societies should be enabled to respond to changing circumstances. The option of conversion should be open to them provided that the necessary safeguards exist.
I now come to the next general point which was raised in the debate and which my hon. Friend the Member for Mid-Staffordshire has now underlined, and that is the terms on which building societies could convert to companies and the safeguards and requirements for support from members to enable them to do so.
As my hon. Friend the Member for Uxbridge (Mr. Shersby) reminded the House, it is necessary in order to pass the resolution for conversion that 75 per cent. of those investing members of a society who vote should vote in favour of it. That is a prime requirement. It is also a prime requirement that more than 50 per cent. of borrowing members should also support such a resolution. That is an innovation in this legislation. Borrowing members have never before had significant rights in building societies, certainly not statutory rights which must apply to all societies. We have carefully introduced this because we think that it is important when considering the possibility of changing the nature of a society from mutual status to incorporation that the borrowers should be happy with what is proposed. In many ways they are much more locked into the society than investing members. That provision has been generally welcomed.
In addition to that, we have a requirement that at least 20 per cent. of the members should vote and take part. The reason for that is that we do not believe that a significant change of the kind that is involved in moving from mutual status to a company should be taken without the active participation of a considerable proportion of members. There has been a lot of dispute about the 20 per cent. As the hon. Member for Thurrock reminded the House, there has been considerable pressure from certain quarters to reduce that figure because it has been described as an impossible hurdle. One should not necessarily go on the basis of experience. I hope that under the provisions of the Bill when enacted building societies will be encouraged to communicate much more frequently with their members. The relationship between the societies and their members will be strengthened by the very fact that societies will be able to offer more services and it will therefore be in their own commercial interests to communicate with members. That is one of the fundamental purposes of the Bill.
The climate in which building societies encourage members to take a greater interest in their affairs means that the threshold of 20 per cent. should be at a level which is higher than that which has been generally achieved in certain merger resolutions in the past. The cultural change which will follow from the implementation of the Act w ill move in that direction and therefore it is right that the hurdle should be at a level that is not prohibitive but certainly demanding.
Will my hon. Friend explain the apparent inconsistency in his argument? On the one hand he is putting forward the argument that this fundamental change is desirable and on the other hand he is going on to explain how difficult it will be to bring about that so-called desirable change. If he believes that this is so desirable, surely he should be making it easier. If, on the other hand, he is seeking to make it difficult, why is he introducing it at all?
With great respect, my hon. Friend is putting words into my mouth. I never said that the change itself was desirable. I said it was desirable that there should be an option for that change to take place if members of a particular society wished it to happen. That is a different matter. The level of approval should not be prohibitive and I do not believe that the level of 20 per cent. is prohibitive. Equally, the possibility should not be excluded, and in that I agree with the Building Societies Association.
I must deal briefly with the question of takeover by public companies. That matter has caused a good deal of concern on both sides of the House.
What sort of criteria does the Minister have in mind for a future Government, in co-operation with the commission, varying that 20 per cent. to possibly a much lower figure by negative resolution of either House, which would seriously undermine what we are talking about today?
I can speak only for myself. We have no expectation of altering that figure. I have been under some pressure to say that we would do so and to list the terms and conditions which would encourage us to do so. I do not want anyone, inside or outside the House, to get the impression that that figure is just a cockshy which we expect to change in a few months' time. It is not that at all. We believe that that is the right figure. If in the fullness of time the figure appeared to be wrong, it could be changed, but I do not think that the only factor to take into account would be the percentages achieved in particular cases. In addition to that, we would have to take into consideration the development of the building society movement and whether we wanted to change and make easier this particular form of conversion. As I say, in the foreseeable future we have no intention of doing that.
Some rather worrying comments have been made by a number of hon. Members about takeovers. They have said that there might be takeovers by unsuitable bodies such as large foreign banks. I draw their attention to the practical provisions that are set out in the clauses and the demanding nature of the figures which are included in them. If there were to be a takeover by a limited company, 50 per cent. of members of a society would be required to vote in favour and not 75 per cent. of members with a threshold of 20 per cent. If I am told that 20 per cent. is unobtainable by those in some quarters, 50 per cent. would be a much more difficult hurdle to surmount. As an alternative, a takeover would have to be approved by the holders of 90 per cent. of the shares of a society, which again is an extremely high figure. It is the same figure as is required to trigger the special resolution procedure for the acquisition of an outstanding minority in the Companies Act in a takeover. As there are so many more shareholders in a building society than in a limited company, the percentage is very much more difficult to meet.
As the Government share the anxieties that have been expressed by some hon. Members and those of the building society movement that predators could move in on them, we have provided that takeovers may take place only in extreme circumstances where the overwhelming body of the members of a society want it to happen, and in practical terms I cannot see any likely prospect of that happening for a long time. Meanwhile, there will be a 15 per cent. minimum on any shareholding for the first five years of a building society's existence as a public company.
Taken together, I think that the proposals strike the right balance. The fact that the Government have been criticised from opposite directions for the measures that we are bringing forward reassures me that we have taken into account all the conflicting views which have been expressed on this difficult and contentious issue. Accordingly, I commend the clause to the House.
I listened carefully to the Minister's reply and he revealed even more greatly his uncertainties about the measure that he is proposing. It has been rightly said by a Conservative Member that, on the one hand, the Minister is committed to allowing this process of change to take place while, on the other, he is uncertain about its usefulness and rightness and is trying to put as many obstacles in its way as possible. I hope that the House will put a proper obstacle in the way of conversion to plc status because the Opposition intend to vote against all the new clauses that will allow that process to take place.
I remind my hon. Friend the Minister that, on behalf of a number of building societies, I asked whether he would explain the meaning of subsection (4) of new clause 19. When can bribes be paid to people to vote for conversion? Can a bribe be paid only to those with less than £100 in a society? Can it be paid only to those who have been in the society for more than two years? Before we vote on the new clause, we should understand what lies behind it.
When the hon. Member for Thurrock (Dr. McDonald) said that the new clause had been bounced in by the Treasury, I did not think that she was referring to conversion, which has been mentioned at times with support by the BSA. Who asked whether a company should be allowed to buy a building society which is mutual? The issue did not come before those who considered the Bill in Committee. That is the answer to those who say that it is a pity they were not members of the Committee. We are faced with a new clause on Report. In Committee, we understood that companies did not have the ability to buy building societies that had not converted. The position in Committee was that once conversion had taken place there could be a takeover. That was because the society had plc status. The position now is that a company can take over a building society, even if it has not converted.
I apologise to my hon. Friend for not responding to his question on new clause 19. I had intended to do so, but I was somewhat diverted by those of my hon. Friends who intervened in my reply. I shall write to the building societies, the BSA and to my hon. Friend on that issue. His other question was fully explained in the consultation document that we put forward in December.
|Division No. 204]||[7.10 pm|
|Abse, Leo||John, Brynmor|
|Adams, Allen (Paisley N)||Jones, Barry (Alyn & Deeside)|
|Alton, David||Kaufman, Rt Hon Gerald|
|Anderson, Donald||Kirkwood, Archy|
|Archer, Rt Hon Peter||Leighton, Ronald|
|Atkinson, N. (Tottenham)||Lewis, Ron (Carlisle)|
|Bagier, Gordon A. T.||Lewis, Terence (Worsley)|
|Banks, Tony (Newham NW)||Litherland, Robert|
|Barron, Kevin||Livsey, Richard|
|Beckett, Mrs Margaret||Lloyd, Tony (Stretford)|
|Benn, Rt Hon Tony||McCartney, Hugh|
|Bennett, A. (Dent'n & Red'sh)||McDonald, Dr Oonagh|
|Bermingham, Gerald||Maclennan, Robert|
|Boyes, Roland||McNamara, Kevin|
|Brown, Gordon (D'f'mline E)||McWilliam, John|
|Brown, Hugh D. (Provan)||Madden, Max|
|Bruce, Malcolm||Marek, Dr John|
|Buchan, Norman||Marshall, David (Shettleston)|
|Caborn, Richard||Martin, Michael|
|Callaghan, Jim (Heyw'd & M)||Mason, Rt Hon Roy|
|Campbell, Ian||Maynard, Miss Joan|
|Campbell-Savours, Dale||Meadowcroft, Michael|
|Canavan, Dennis||Michie, William|
|Carlile, Alexander (Montg'y)||Mitchell, Austin (G't Grimsby)|
|Clay, Robert||Morris, Rt Hon J. (Aberavon)|
|Clelland, David Gordon||Oakes, Rt Hon Gordon|
|Clwyd, Mrs Ann||O'Brien, William|
|Conlan, Bernard||Orme, Rt Hon Stanley|
|Cook, Frank (Stockton North)||Park, George|
|Cook, Robin F. (Livingston)||Patchett, Terry|
|Corbett, Robin||Pendry, Tom|
|Corbyn, Jeremy||Penhaligon, David|
|Craigen, J. M.||Pike, Peter|
|Dalyell, Tam||Radice, Giles|
|Davies, Ronald (Caerphilly)||Randall, Stuart|
|Davis, Terry (B'ham, H'ge H'l)||Redmond, Martin|
|Deakins, Eric||Rees, Rt Hon M. (Leeds S)|
|Dewar, Donald||Richardson, Ms Jo|
|Dixon, Donald||Roberts, Ernest (Hackney N)|
|Dormand, Jack||Robinson, G. (Coventry NW)|
|Douglas, Dick||Rogers, Allan|
|Dubs, Alfred||Ross, Stephen (Isle of Wight)|
|Dunwoody, Hon Mrs G.||Shields, Mrs Elizabeth|
|Eadie, Alex||Short, Ms Clare (Ladywood)|
|Eastham, Ken||Skinner, Dennis|
|Evans, John (St. Helens N)||Smith, Rt Hon J. (M'ds E)|
|Ewing, Harry||Snape, Peter|
|Fatchett, Derek||Spearing, Nigel|
|Faulds, Andrew||Steel, Rt Hon David|
|Field, Frank (Birkenhead)||Stewart, Rt Hon D. (W Isles)|
|Fields, T. (L'pool Broad Gn)||Stott, Roger|
|Fisher, Mark||Strang, Gavin|
|Flannery, Martin||Thomas, Dafydd (Merioneth)|
|Foot, Rt Hon Michael||Thompson, J. (Wansbeck)|
|Foster, Derek||Thorne, Stan (Preston)|
|Foulkes, George||Tinn, James|
|Freud, Clement||Wainwright, R.|
|George, Bruce||Wallace, James|
|Gilbert, Rt Hon Dr John||Warden, Gareth (Gower)|
|Godman, Dr Norman||Weetch, Ken|
|Hamilton, W. W. (Fife Central)||Welsh, Michael|
|Hancock, Michael||Wigley, Dafydd|
|Harrison, Rt Hon Walter||Wilson, Gordon|
|Haynes, Frank||Wrigglesworth, Ian|
|Hogg, N. (C'nauld & Kilsyth)||Young, David (Bolton SE)|
|Holland, Stuart (Vauxhall)|
|Home Robertson, John||Tellers for the Ayes:|
|Howells, Geraint||Mr. Allen McKay and|
|Hoyle, Douglas||Mr. James Hamilton.|
|Hughes, Roy (Newport East)|
|Ancram, Michael||Hicks, Robert|
|Ashby, David||Hind, Kenneth|
|Aspinwall, Jack||Hogg, Hon Douglas (Gr'th'm)|
|Atkins, Robert (South Ribble)||Holland, Sir Philip (Gedling)|
|Atkinson, David (B'm'th E)||Howard, Michael|
|Baker, Rt Hon K. (Mole Vall'y)||Howarth, Gerald (Cannock)|
|Batiste, Spencer||Howell, Ralph (Norfolk, N)|
|Beaumont-Dark, Anthony||Hubbard-Miles, Peter|
|Best, Keith||Hunt, David (Wirral W)|
|Bevan, David Gilroy||Hunt, John (Ravensbourne)|
|Biffen, Rt Hon John||Irving, Charles|
|Blaker, Rt Hon Sir Peter||Jenkin, Rt Hon Patrick|
|Boscawen, Hon Robert||Johnson Smith, Sir Geoffrey|
|Bottomley, Peter||Jones, Gwilym (Cardiff N)|
|Bottomley, Mrs Virginia||Jones, Robert (Herts W)|
|Bowden, Gerald (Dulwich)||Kellett-Bowman, Mrs Elaine|
|Brandon-Bravo, Martin||Kershaw, Sir Anthony|
|Bright, Graham||Key, Robert|
|Brinton, Tim||King, Roger (B'ham N'field)|
|Brown, M. (Bhgg & Cl'thpes)||Knight, Greg (Derby N)|
|Bruinvels, Peter||Knowles, Michael|
|Bryan, Sir Paul||Knox, David|
|Buck, Sir Antony||Latham, Michael|
|Budgen, Nick||Lawler, Geoffrey|
|Carlisle, Rt Hon M. (W'ton S)||Lee, John (Pendle)|
|Cash, William||Leigh, Edward (Gainsbor'gh)|
|Channon, Rt Hon Paul||Lester, Jim|
|Chope, Christopher||Lewis, Sir Kenneth (Stamf'd)|
|Clark, Hon A. (Plym'th S'n)||Lightbown, David|
|Clark, Sir W. (Croydon S)||Lilley, Peter|
|Clegg, Sir Walter||Lloyd, Peter (Fareham)|
|Conway, Derek||Lord, Michael|
|Coombs, Simon||Lyell, Nicholas|
|Cope, John||McCrindle, Robert|
|Couchman, James||MacGregor, Rt Hon John|
|Cranborne, Viscount||MacKay, Andrew (Berkshire)|
|Currie, Mrs Edwina||Maclean, David John|
|Dorrell, Stephen||McLoughlin, Patrick|
|Douglas-Hamilton, Lord J.||McNair-Wilson, M. (N'bury)|
|Dunn, Robert||McQuarrie, Albert|
|Durant, Tony||Major, John|
|Dykes, Hugh||Malins, Humfrey|
|Eggar, Tim||Malone, Gerald|
|Eyre, Sir Reginald||Marlow, Antony|
|Favell, Anthony||Mates, Michael|
|Fletcher, Alexander||Mather, Carol|
|Fookes, Miss Janet||Maxwell-Hyslop, Robin|
|Forsyth, Michael (Stirling)||Mayhew, Sir Patrick|
|Forth, Eric||Mellor, David|
|Fowler, Rt Hon Norman||Merchant, Piers|
|Fox, Marcus||Meyer, Sir Anthony|
|Franks, Cecil||Miller, Hal (B'grove)|
|Fraser, Peter (Angus East)||Mitchell, David (Hants NW)|
|Freeman, Roger||Moore, Rt Hon John|
|Fry, Peter||Morrison, Hon P. (Chester)|
|Gale, Roger||Moynihan, Hon C.|
|Garel-Jones, Tristan||Neale, Gerrard|
|Gower, Sir Raymond||Newton, Tony|
|Greenway, Harry||Norris, Steven|
|Gregory, Conal||Page, Richard (Herts SW)|
|Griffiths, Sir Eldon||Patten, Christopher (Bath)|
|Griffiths, Peter (Portsm'th N)||Pawsey, James|
|Ground, Patrick||Peacock, Mrs Elizabeth|
|Grylls, Michael||Pollock, Alexander|
|Gummer, Rt Hon John S||Porter, Barry|
|Hamilton, Neil (Tatton)||Portillo, Michael|
|Hanley, Jeremy||Powell, William (Corby)|
|Hannam, John||Powley, John|
|Hargreaves, Kenneth||Prentice, Rt Hon Reg|
|Harris, David||Price, Sir David|
|Haselhurst, Alan||Proctor, K. Harvey|
|Hawkins, C. (High Peak)||Raison, Rt Hon Timothy|
|Hawksley, Warren||Rathbone, Tim|
|Hayes, J.||Renton, Tim|
|Hayward, Robert||Rhodes James, Robert|
|Heathcoat-Amory, David||Rhys Williams, Sir Brandon|
|Heddle, John||Ridsdale, Sir Julian|
|Henderson, Barry||Rifkind, Rt Hon Malcolm|
|Hickmet, Richard||Roberts, Wyn (Conwy)|
|Robinson, Mark (N'port W)||Thornton, Malcolm|
|Ryder, Richard||Thurnham, Peter|
|Sackville, Hon Thomas||Townend, John (Bridlington)|
|Sainsbury, Hon Timothy||Tracey, Richard|
|Sayeed, Jonathan||Trippier, David|
|Shaw, Sir Michael (Scarb')||Twinn, Dr Ian|
|Shelton, William (Streatham)||van Straubenzee, Sir W.|
|Shepherd, Colin (Hereford)||Wakeham, Rt Hon John|
|Shersby, Michael||Wall, Sir Patrick|
|Silvester, Fred||Waller, Gary|
|Sims, Roger||Wardle, C. (Bexhiil)|
|Skeet, Sir Trevor||Watson, John|
|Smith, Tim (Beaconsfield)||Watts, John|
|Spencer, Derek||Wells, Bowen (Hertford)|
|Spicer, Jim (Dorset W)||Wells, Sir John (Maidstone)|
|Stanbrook, Ivor||Wheeler, John|
|Steen, Anthony||Whitfield, John|
|Stern, Michael||Winterton, Nicholas|
|Stevens, Lewis (Nuneaton)||Wolfson, Mark|
|Stewart, Andrew (Sherwood)||Wood, Timothy|
|Stewart, Ian (Hertf'dshire N)||Woodcock, Michael|
|Stradling Thomas, Sir John||Yeo, Tim|
|Sumberg, David||Young, Sir George (Acton)|
|Taylor, Teddy (S'end E)|
|Temple-Morris, Peter||Tellers for the Noes:|
|Thomas, Rt Hon Peter||Mr. Archie Hamilton and|
|Thompson, Donald (Calder V)||Mr. Mark Lennox-Boyd.|
|Thompson, Patrick (N'ich N)|