In view of the announcement made a few moments ago by the Leader of the House, it must be doubtful that the Bill can now make progress. It has not yet been to the other House, and it would be extremely unusual to force through a Bill at this stage and to gain the approval of the other place in such a short time—before proroguing on Friday of this week.
In last week's Second Reading debate, I mentioned that the Bill was defective, which is why I tabled the amendments, which would require two years' membership before anyone could share in any windfall payments that accrued to the members of a building society as a result of its conversion to plc or bank status.
I recognise that the amendments are not necessarily the best way of achieving that; indeed, I am sure that the Minister will say that they are defective. The Minister was challenged last week about whether the Bill would be able to make progress. I know that she has been committed to it in good faith from the outset, although there has been some doubt about the Government's commitment. I know that the Minister has done all that she can to ensure that the Bill makes progress. I also know that she shared the disappointment of many when it did not feature in the Queen's Speech last autumn.
The amendments would stop people deliberately joining societies with only one view in mind: to qualify for payments in the way that I have described. That is not what conversion is about.
People are entitled to hold differing views as to whether conversion is good or bad. People know that I very much want mutuality to continue. The assets and the value of a society have been built by generations of its investors and borrowing members, over 100 years or so, and on conversion what has been built up on a mutual basis is handed out to those who happen to have become new members. It is wrong for people to choose to become a member only to qualify for a handout on the society's conversion.
I am sure that the Minister is aware that the amendments are defective. I had hoped that the Government would table an amendment, or that a Labour Front Bencher would see to it, because I know that my hon. Friend the Member for North Warwickshire (Mr. O'Brien) agrees with the principle behind what I am arguing for. However, we all realise that, if we want the Bill to complete its passage, we might have to do some compromising. I now have grave doubts on whether it is feasible or possible for the Bill to be passed, as it has not even gone to the other place, but we shall have to note what the usual channels do and the contents of the business statement. We have no alternative now but to debate the Bill, in the hope that it makes progress.
I echo what the Nationwide building society said in a letter to several hon. Members last week. It supports the two-year concept, but if that cannot be included in the Bill, it would prefer the Bill to pass rather than to fall because of a flaw. That is also the view of the Building Societies Association.
If the Bill is to complete its passage, we must compromise and accept that the amendments will not be passed because of the difficulties that they would encounter—I presume that the other place would argue more about this. There would be no progress if there were great issues of debate on this matter and on the other matter of contention, the five-year issue, which we shall debate later. Those were the two main issues. The Government have also tabled some drafting amendments.
Although I strongly believe that such a move would be in the best interests of the Bill and of the building society movement, if we are told that, without the amendments, the Bill stands a better chance of progressing and receiving Royal Assent before Parliament dissolves, I shall be prepared not to press my amendments to the vote.
I support the hon. Member for Burnley (Mr. Pike). As you will be aware, Sir Geoffrey, I raised this issue on Second Reading and I have a great deal of sympathy for the sentiments that he expressed.
We have all found unedifying the spectacle of carpetbaggers moving small sums round the country, from building society to building society, in the hope of making a quick profit on demutualisation, and I believe that there is broad agreement across the Committee that it would be desirable to do something effective to prevent that happening. I, too, appreciate that there are problems in achieving that object, but it seems wrong that short-term speculators can put their money into a building society, build up a head of steam in speculation about how it might be taken over and bring pressure to bear for a takeover to take place, in the expectation that they will make a pile of cash.
Many of those people have no interest in the community in which, very often, the building society originated. Many have no interest in the building society or in the well-being of other depositors or of borrowers. They are motivated purely by greed, and if it were possible to have a mechanism that prevented such speculation, that would be good.
My hon. Friend the Minister has examined that in some detail and is of the view that there is no way by which speculation can effectively be prevented, except that building societies can make rules as to how depositors may be treated: for example, that they may not immediately acquire rights, and that they may be required to make a larger deposit than usual. However, such rules are unsatisfactory, especially the requirement that investors make a larger deposit, because that would rule out the small depositor, for whom building societies were first set up.
It is extremely important that there remains a savings vehicle that is appropriate to small investors—where small investors do not carry a lot of risk; where no huge costs are involved when they invest their money and save; and where they can receive an excellent and personal service. Raising the threshold is not the answer to that. Nor would the problem be solved if the building society changed its rules, because no society would be protected from an aggressive, hostile bid by a predator offering shares to building society members and thereby overcoming all the other mechanisms that can be put in place to prevent speculation.
I very much share the views of the hon. Member for Burnley and want the Bill to succeed, as does the Building Societies Association. If there were a mechanism by which we could prevent speculators from engaging in their nefarious activities, I should be the first to support it.
I have much sympathy with the views expressed by the hon. Members for Burnley (Mr. Pike) and for Bournemouth, West (Mr. Butterfill). Many of us who spoke on Second Reading are concerned about small depositors, the local nature of building societies and the important place that they have in local communities. When societies move to plc status, we have seen people with no particular interest in the society, which has built up its assets over a number of years, rush in, desperate to get money. It is its long-standing members who have provided those assets.
I have sympathy with the amendments but fear that, as the hon. Member for Burnley said, they do not do exactly what we should all like. I am particularly concerned that if they were passed, some members would be excluded from some of the rights of membership, for example, taking part in annual general meetings, voting for directors, nominating candidates to stand as directors, and so on.
I assure the hon. Lady that that is one reason why I would not wish to press the amendments to a vote; I recognise that they would, as she rightly says, bar people from doing many of the things that we would like them to do.
I think that we all agree that, up against the time scale of a general election, and however much we would like to get this right, we shall barely be able to get the Bill on the statute book. Although I agree with the principles behind the amendments, we are not in a position to get them right today. Therefore, I cannot support the amendments as drafted.
It depends on the price of the shares.
We should be aware that if the Bill survives the discussions between the usual channels and becomes an Act by the end of this Parliament, it will have to have gone through another place as well. If there is merit in the arguments and if those who advise my hon. Friend the Minister, whom we welcome to the Front Bench for the debate, are able to take a more positive way forward, that would be greatly welcomed.
There is general agreement that something might be done, although there is not yet agreement on what should or could be done. We should be aware that the amendments are being discussed in the context of the possible raid on the Co-operative Wholesale Society and the co-operative retail societies. The issues that have been developed and the pressures of the people who want to carry out what might appear to be a smash-and-grab operation are worthy of discussion. It should not be a party political issue, and I am glad that this debate has not been conducted in those terms. It may be a good start to the prospective general election campaign.
We should realise that of the societies that are converting, some will survive as banks and general retailers of financial services, and possibly as wholesalers as well, and some will be taken over. People know that. We must avoid pressures that would not allow people the choice of keeping the mutual building societies going. That is what is behind these amendments and other possible amendments.
Twenty years ago, the insurance companies came under pressure for many of them to drop their mutual status. Fortunately, some did not drop their mutual status. Companies such as Equitable Life and Norwich Union, which is now converting, and others over the past 20 years have helped to protect the customers of insurance services and to give them a broader choice. They were willing to look to the long-term interest and to go in for long-term investments, rather than always going in for short-term performance.
Without criticising those that have been receiving attention in the business pages and sometimes the front page of newspapers because of enormous bonuses, I think that the building society movement and the mutual insurance companies in the United Kingdom, including those in Scotland, have done a great deal of good. They have enabled ordinary people to do ordinary things, and they have achieved extraordinary results in terms of building up wealth and home ownership. I believe that their future will not be exactly the same as the present. It is more likely to take in the other end of the life cycle. Many of the elderly, who may be asset rich but housing poor, deserve ways of turning a capital asset into an income and a secure home in good condition, but that is not a subject to be pursued in the debate on the amendments.
Many societies have converted, and more will. We should recognise that the people whom I perhaps exaggeratedly described as smash-and-grab merchants are taking from the pockets and purses of the long-term savers and investors. There will always be a degree of rough justice, because many people who have saved with the building societies—for every borrower, there are between six and 10 genuine savers and investors—have had current accounts, and have been excluded anyway by the terms of conversion. They are willing to accept that, but those who have been long-term investors may not want to share what would become theirs on a conversion with people who have come in for the sole purpose of putting in a relatively small sum, to get a pretty large return from it.
There could be large sums swilling around the financial system. It is destabilising if a building society suddenly gets a great rush of money that it cannot use, and it is destabilising if those who joined become organised and start applying pressure through votes at members' meetings to change the nature of the society, when most of the existing members do not want that.
It has been suggested that one reason why we should not tolerate the amendments is that they would prevent people from voting at annual general meetings. Does my hon. Friend agree that that might not be a bad thing, if people were attending only to vote for demutualisation, to line their pockets?
I remember one of our colleagues saying after the elections in what was then Southern Rhodesia that one cannot always predict the result of a vote. We should be careful about saying that people should be allowed to vote only if they vote the way that we want. Developments that have taken place in this country over the past few centuries have resulted in people being allowed to make their own mistakes. I hope that in building society votes and in general elections, they will not do so.
In summary, we face a dilemma. It is generally agreed that the principle behind the amendments is sensible—although we do not know whether they will achieve precisely the desired objectives. On the presumption that the Bill could become an Act in the next two or three days, I ask my hon. Friend the Minister to consider whether there is some way of fulfilling the purpose of the amendments. If there is not, I suspect that we shall have to do what many in the building society movement have done and say that this Bill is better than none at all.
I support wholeheartedly the comments of the hon. Member for Eltham (Mr. Bottomley). I apologise for not being here to move the amendment, but I did not expect that the business statement would be so short and that our investment in timetabling next week would disappear. It was a little like "The War of the Worlds", when people climbed the platform of the spacecraft and found that the invader from Mars was dead and that everything had vanished. I was similarly amazed today.
If we were considering the legislation in the normal manner, I would press the amendments to a vote and seek a statement of principle. It is an important principle, and an important defence of the mutual principle for building societies. However, we are not in a normal situation. I wish I knew exactly what situation we were in—perhaps the Minister will tell us. I hope that we are not wasting time this afternoon finalising legislation that cannot pass through the House of Lords because of the way in which the Government have junked their timetable, in their desperate desire to suppress my proposed hairdressing Bill that was due to be considered next week. Obviously, the Government dared not meet the challenge posed by my Bill and the defeat that they would almost certainly suffer, so they have scuttled business and cut and run.
If the Minister cannot assure us that the legislation will pass through the House of Lords—it has not yet passed through the House of Commons—we are legislating in a messy manner. We do not know whether our actions will have any effect. We must discuss the Bill because it provides a chance to make necessary changes within the building society movement. It is a comprehensive measure, so we should try to make it as good as possible. I resent being told, "Drop this," or "Don't vote on that," or "Let this go," simply in order to ensure that the Bill is passed. It will be a long time before an incoming Government can consider the legislation again. We should not be in that situation in a dying Parliament. That is my dilemma, and I hope that you are as upset as I am, Sir Geoffrey.
I now move to the substance of the amendments, which are quite simple and straightforward. They seek to erect a defence of the mutual principle. Too many people have learnt their ethics from the privatisation procedures in this country and there has developed a species of what I would call the monetary ram raider. Such people rush to put money in building society accounts on the advice of columnists in the financial pages of newspapers, who urge, "Put your money in the Snurple building society, because it is going to demutualise and you will have a big gain." That causes a rush of new members and of new money. It also creates a brute voting force in favour of demutualisation, which may not be in the interests—I think that it is certainly not in the interests—of the long-term members of the society. The new members wish to get a quick result because, as I said last week, their ethics are the same as those of Wilfred Pickles and the Halifax building society: "Give us the money, Barney." It does not matter about principle or the abdication of 100 years of toil, sweat and endeavour.
The amendments seek to erect a barrier against such activities. It is right that building societies should have that barrier, because they are driven to all sorts of expediencies in an effort to maintain continuity and to control the rush of new members. Some have said that people may open new accounts only if they invest a minimum of £1,000. Other societies have tried to devise their own rules governing the voting rights of new members. The amendments take care of both issues: the time scale beyond which people may vote on the affairs of the building society, and beyond which they may benefit from the redistributions that they may have joined the building society specifically to receive.
It is a matter of basic principle. I hope that the Minister will come to the Dispatch Box and tell us that, because of our courtesy, charm and consideration, she will not force further debate and will accept the principle behind the amendments before the legislation goes to another place.
Discussions on the progress of the Bill may well be taking place as we speak. There will be a further business statement later in the day. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) need not be too despondent. There is reason for hope yet. We, the Opposition, are actively supporting the Bill. I retain the hope that it will become law.
I declare an interest before speaking to the amendments. I have an account with one of the converting building societies. I would not be surprised if it were the one not too far from the hon. Member for Eltham (Mr. Bottomley). It is, in fact, the Woolwich.
As my hon. Friend the Member for Burnley (Mr. Pike) said, there are strong arguments for a two-year rule. During consideration of what became the Building Societies Act 1986, the Government were strongly in favour of a two-year rule. Why have the Government changed their mind on that ground given the strong arguments that were advanced by Lord Brabazon of Tara in another place in July 1986? He said:
It is important that the conversion provisions work to prevent speculative flows between societies on rumours of an impending conversion. I gather that is what happened in America in certain situations, and that is what we seek to avoid happening in this sort of situation.
It is clearly important that
there should be some legislation in relation to transfers of societies. He explained:
Otherwise, for example, a society could tempt investors into it in order to vote in favour of a conversion with the promise of an immediate cash bonus; or just such speculative flows as I just mentioned might be started if it seemed a society might transfer to an existing company."—[Official Report, House of Lords, 10 July 1986; Vol. 478, c. 539.]
Those were the reasons why the Government, at that stage, were strongly in favour of a two-year provision whereby those who were members of building societies would not receive benefits unless they had been members for two years.
The Labour party has said that it sees strong arguments for that. We have, however, discussed the issue of the two-year provision at some length with various mutuals. On balance, the Building Societies Association and other mutuals, although they would prefer a two-year clause, are concerned that nothing should be done to jeopardise the Bill. In the present circumstances it is important that we should press on with the Bill.
I have been persuaded that the BSA wants to see the Bill through Parliament as a priority. It regards the measure as essential. It has asked that Labour takes no steps that might jeopardise the Bill by way of introducing a substantial amendment. I have listened carefully to those representations and have decided to accept them.
We want to see the Bill become law as soon as possible. It is right, however, that Parliament should be able to express its views, especially on a two-year clause. Before I ask the Minister some questions about such a provision, I acknowledge that my hon. Friend the Member for Burnley (Mr. Pike) has agreed to withdraw the amendment. At the same time, my hon. Friend the Member for Grimsby has strong concerns. It is right, therefore, briefly to mention technical deficiencies.
I am concerned that the amendment would not achieve the end that my hon. Friend the Member for Burnley seeks. The intention appears to be to ensure that only those who have been members for two years on completion would benefit. That is not precisely the effect of the amendment. It is unsatisfactory, therefore, from a drafting point of view. The amendment states, in effect, that someone can be a member of a society only if he has been a member for two years. Presumably the aim is to deny benefit, but the amendment appears to deny membership itself. Furthermore, the phrase "two years' standing" is rather vague. It presumably means two years from opening an account, but it does not say that. On drafting grounds alone, the amendment is questionable.
It is odd to me—I have been here only a short time—to hear hon. Friends on the Front Bench talking about drafting. I should have thought that as we are the Opposition, we would be concerned about the principle. I have listened with great care to my hon. Friend the Member for North Warwickshire (Mr. O'Brien) saying that we must not accept any substantive change because we would otherwise lose the Bill. I ask him to think seriously about what he is saying. Is he saying that even though there may be substantial difficulties with the legislation, we would prefer it to go ahead?
We are saying that the Bill is essential to safeguard the future of mutuals. It may be desirable to have a two-year provision; that is a point that hon. Members are quite properly discussing and I intend to return to the principle in a moment. We have, however, to bear reality in mind in view of the announcement made today.
My hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) will know that as a result of that announcement, there is enormous pressure on the timetable. As we want the Bill to go through, maximum agreement is needed between Opposition Front-Bench Members and Ministers. I hope that the Bill also has the support of the House as a whole. Getting the Bill through is our objective, which has an effect on the way in which we are dealing with the two-year provision and later amendments.
We are in a negotiating situation. In those circumstances, it seems rather misguided to give away our hand before we are told the Government's position. The Minister may accept the two-year principle; there is still time for her to do that. Whatever deficiencies the best drafting brains in the House of Commons—I refer to the Clerks and not to me—have left in the amendment, the principle is important. If we accepted the amendment this afternoon, the Bill would not be delayed seriously unless the Government chose to make an issue of it and to dredge up their troops, thus wasting the time of the House. We should not think that we have a weak hand.
My hon. Friend's views will be taken on board by those of us who are dealing with the Bill. We want the Bill to go through, however, and the sooner the better for the sake of the mutuals and building societies as a whole.
I now turn to the issue of principle. In 1986, the Government supported a two-year rule. It was the bad drafting of the 1986 Act, however, with which we are now dealing, that meant that during the Halifax merger with the Leeds, the decision was made that the normal two-year qualifying rule could be circumvented if the distribution was made in shares and structured in a certain way.
It is clear that in 1986, Ministers intended that a two-year rule should be effective, but legal judgments in the early conversions and takeovers widened the interpretation of the statute to allow changes of status based on offering pay-outs to members on a scale and in a manner that were not intended in the 1986 legislation. That has encouraged mere speculators—so-called carpetbaggers—to open many accounts.
The building societies' response has been to raise the threshold for new accounts, but that has prejudiced, as has been mentioned by the hon. Member for Bournemouth, West (Mr. Butterfill), the interests of many low-income people who want to open an account for a non-speculative, bona fide reason. Do the Government consider that speculation desirable? Will they now explain why they have changed their mind and oppose a two-year clause? Do they intend to allow the queues of speculators and the high thresholds to remain? Do they consider that building societies' assets that were built up over generations belong to the members who have an interest in the long-term future of those building societies? At the moment, they are often expended to those who have little claim to building societies' assets. Do the Government find that satisfactory?
In other cases, the Government have accepted qualified membership, for example in terms of calling emergency general meetings and, in clause 37, for obtaining particular information. Why was that justified, yet the Government have changed their mind and now say that qualified membership under a two-year rule is no longer right in respect of benefits?
Speculation is still an enormously serious issue. The head of corporate relations at the Birmingham Midshires building society wrote to me recently as follows:
We opened some 80,000 speculator accounts in 1996 and, year-to-date since January, we are opening three times normal levels per week compared to the pre-speculation days of 20 months ago. In addition, to counter those who think it has peaked, it is worth noting that around £145 billion of savers' cash has been locked up with the converters for the past two years or so. This will now become unlocked, creating a new wave of speculators given that distribution plans have now been unveiled by the converting societies.
There is clearly an issue for the Minister to address.
Is the hon. Gentleman aware that some building societies, such as the Portman, have found it possible to deal with speculators not by raising the minimum deposits on their account, but by welcoming anyone who wishes to open an account on the basis that the society is firmly committed to mutuality and no speculation will yield any benefit to the speculator?
I am aware that a number of building societies are using sometimes ingenious ways of addressing the issue, but the hon. Gentleman makes the point that it is clearly a matter of concern to many building societies, including the Portman. We need to know the Government's view.
The only real explanation for the absence of the two-year clause that the Minister has offered so far is that building societies themselves can devise a scheme to ensure that investors obtain no benefit from conversion. That is possible in theory. However, a conversion or takeover scheme that is influenced by a hostile predator might mean that the society would be unable to enforce such a restriction. A society is not in a position to deter speculative inflows by its own two-year clause, as those contemplating a speculative bet would simply reason that the building society would be unable to uphold the rule when confronted by a hostile bid.
The Minister also deployed the argument that those expecting a bonus in future should be on the same footing as those who have received a bonus in the past. If defective legislation were passed, as it was in the 1986 Act, and if Parliament's will and intention in the 1986 Act are frustrated because of inadequate drafting, are the Government saying that there should be no attempt to alter the Bill because someone has benefited by frustrating Parliament's will in the past?
Neither of the arguments deployed so far seems to hold a great deal of weight. However, in her reply to the debate the Minister may supply us with other arguments that address the issue. Obviously, we are anxious for the Bill to become law and we do not want to frustrate its course, but we also want to be sure, as hon. Members have a duty and a responsibility to do, that we discuss the issues fully and ultimately make good law.
I have considerable sympathy with what the hon. Member for Great Grimsby (Mr. Mitchell) had to say about the amendment. First, I agree that it is not a satisfactory way in which to legislate. The Bill comprises 47 clauses and nine schedules, all of which are being taken on the Floor of the House and will not receive the detailed consideration that they deserve and would have received in Standing Committee. I understand that the Bill was subject to very wide consultation with interests outside the House, which is obviously welcome, but it is not some substitute for parliamentary consideration. It is right that we should put forward the views of our constituents—many of whom will be members of building societies—on the Bill's detailed provisions. I do not really understand why the hon. Member for North Warwickshire (Mr. O'Brien), who spoke from the Opposition Front Bench, is in such a hurry to get the Bill through.
It seems that the Bill is designed to protect mutual building societies, which is good. It is clearly in the public's interest that many such societies should continue because they will offer a better deal to depositors and lenders than commercial banks will ever be able to offer.
My hon. Friend is suggesting that the Bill is designed to protect mutual building societies, but sadly, as we have just heard, it fails to do precisely that. It allows them to do rather more than they have been previously permitted to do under the Building Societies Acts 1962 and 1986, but it does not protect them in any realistic way apart from making them a little more financially viable and a more attractive target.
That was what I meant when I used the word "protect". It is because such building societies will have greater commercial freedom that they may be less tempted to go down the public limited company route. I recognise my hon. Friend's point. Against that we must balance the apparent proposal to drop the two-year rule that Parliament clearly wanted to impose in 1986—even though it turns out that, as the legislation was defective, the rule did not work properly. What is the balance of arguments concerning such matters and mutuality?
What worries me is very simple. It is understandable that, when a substantial financial carrot is placed in front of people, they should take it and consume it immediately. I am, however, concerned about the long term. Will people who want to borrow money for house purchase get a better deal in the long term if mutual building societies wither and die? Surely it is very much in the interest of the consumer that there should be as diverse provision as possible. I hope that the Bill will encourage societies to retain their mutual status. The question is: what is the benefit of that compared with the damage that may be done if we do not keep the two-year rule?
I have considerable sympathy with many of the points that have been raised. I know that all hon. Members present have a real concern about mutual building societies, which I share.
The hon. Member for Burnley (Mr. Pike) mentioned two points in opening the debate on this amendment. He was concerned about the Bill's further progress. I can confirm that the issue of what happens after we have finished our proceedings today is being discussed at this moment. I sincerely hope that the decisions that are reached elsewhere will result in the Bill becoming law because the mutual building societies want that. His second procedural point was whether it was conceivable that such a Bill could go through very quickly. All stages of the Friendly Societies Act 1992 went through on the nod. There is therefore a precedent—one that we are not trying to emulate since we shall be giving good consideration to the Bill—of such a Bill going through very quickly due to announcements such as the one made today.
My hon. Friend the Member for Eltham (Mr. Bottomley) and the hon. Member for North Warwickshire (Mr. O'Brien) both said that they were members of a building society. I am not sure whether I am or not. When my right hon. Friend the Prime Minister gave me my present job, I was told that one of its requirements was that I am not allowed to touch anything financial whatever. Such affairs are dealt with by a power of attorney. I pay the bill, but have no knowledge about what is happening—and will not have until I no longer hold the job. The important point is that many people, including hon. Members, are involved in a building society in some way. The northern savings ethic means that many people who live in the midlands and the north are involved in building societies.
I represent a southern seat—one cannot get much further south than Bournemouth—so I must contradict my hon. Friend. Saving is equally prevalent in the south, and there are more building society branches in Bournemouth than almost anywhere else. We are also honoured to have the headquarters of the Portman building society in the area.
I had no intention of excluding Bournemouth from the proceedings, and I am grateful to my hon. Friend for those points.
The debate has two components. First, there is a technical aspect and, secondly, there is the general concern behind the amendments. I will explain the technical aspects and then deal with the other matters. I understand the concerns that have been raised, especially about speculation, and the belief that the restoration of the two-year rule could deter speculation.
The amendments would restrict all the long-established rights of membership, as well as the new rights that the Bill will introduce, to those who had been savers and borrowers for two years or more. One effect of that would be to rule out share distributions to anyone who is not a two-year saver, effectively reviving the two-year rule. However, the amendments would go further and, potentially, would damage the building societies' constitutions. All savers are full members with an equal right to a say in the running of their society by voting. The amendment would introduce a category of savers who have no membership rights, but elsewhere in the Bill we try to ensure that members will not be disfranchised. All of us have, no doubt, received letters from constituents who have deposit accounts that they thought made them full members of the society. The amendments would increase that anomaly substantially.
The link between saving and membership is crucial for mutual societies. Therefore, narrowing the membership would vest control in a privileged subset of longer-established savers and would deny millions of people an equal say, even if only for a set period. Those people, for right and genuine reasons, are members of their society.
It may help if I give some specific examples. The amendments, as they are drawn, would result in the eligibility to nominate a director being vested in individuals who have been with the society for more than four years. At the moment, people have to have been members for two years. The amendments would also mean that an individual would have to be a member for four years to propose and circulate resolutions at an annual general meeting. That provision would also apply to a special general meeting on members' requisition. The amendments would deny rights to members who, for right and proper reasons, are members of their society.
Is my hon. Friend saying that there are already two classes of saver, in the case of certain resolutions, such as electing directors and calling special general meetings? If there is already a distinction, why cannot we build on it?
The distinction is that, in many instances, it is up to the society itself to choose, and I believe that it should be up to a society to make as many decisions as possible relating to its own business. One such decision is a society choosing to convert to a bank, as it sees that its future would be better as a plc than as a mutual society. How the society effects that change—especially as far as distribution is concerned—is not something that government should dictate.
I remind my hon. Friend of a point that time constraints prevented her from answering during the Second Reading debate. We all accept what she has outlined, but how could a mutual society protect itself against a hostile takeover in which shares were used as the consideration? Until she can answer that question, many of us will not be satisfied.
I remind my hon. Friend that the only people who can put a resolution to members for a takeover or a conversion are the directors, and they can prevent or propose such a change in status. If he waits a moment, I will return to that point. It is very important to address the other aspect of the debate, which is the spirit behind the amendments. I am sure that we all agree that we do not like speculation and we do not feel that speculators should somehow be able to force a society to take a decision that is not in its best interests.
We have all read stories in the newspapers, which are correct, in which societies have said that they are suffering from speculation. One aspect of the matter is that people reading an article stating that a society might convert has resulted in speculation. In any event, under normal circumstances a considerable number of new accounts will be opened annually both by savers and by borrowers. About 10 per cent. of all new savings accounts are turned over in an average year. If that is the average, it means that, over a four-year period, something like a third of all savers with a society would be new savers. That is not as a result of speculation, but of natural turnover. Therefore, considerable changes are taking place as part of the normal business of societies.
Undoubtedly, there will be an influx of new accounts once the converting societies have converted. The hon. Member for Great Grimsby (Mr. Mitchell) said on Second Reading—with complete honesty—that once he received whatever his windfall might be from his converting society, he would take his money and open an account with a mutual down the road. Good for him—that is his choice, and I suspect that it will be the choice of a considerable number of members of those societies. That will result in an increased number of accounts being opened with mutual societies.
I do not wish to promote further the names of the societies being punished and rewarded in this fashion, but I shall be taking my money from the Halifax—as soon as I get the distribution—to the Bradford and Bingley because it is to stay a mutual. I shall be doing that to support the mutual principle. The amendment deals with money that is washing around and undermining the mutual principle by being put into a society to grab a quick profit.
My point was that there has been a considerable increase in the number of people opening accounts with mutual societies because their sentiments coincide exactly with those of the hon. Gentleman. The articles referred to earlier show that the mutual sector is performing well for its members, in terms of both savings and mortgages. The key point is that not all the new accounts that are being opened are speculators' accounts: a significant number are genuine accounts opened by genuine people for genuine reasons. I do not want those people to be disfranchised because of a small group of speculators. We need to deal with that small group.
There has been much concern, especially about disabled people but also about the wider issue of underlying beneficiaries who have been disfranchised as a consequence of the current conversion process. The private Member's Bill promoted by my hon. Friend the Member for Gloucester (Mr. French) has rectified that problem, and I do not want to accept amendments, or even the sentiment behind amendments, which would result in the exclusion of many more people, because exclusion of a particular group has been a real problem.
It would be extremely difficult if we changed the two-year rule so that no member of less than two years' standing could receive anything if a society converted. At the moment many people receive something, so if we intervened the Government of the day would be inundated with requests for a change back to the situation that existed when the Halifax, the Woolwich, the Alliance and Leicester and the Northern Rock converted.
The two-year rule exists as a result of court cases brought by the societies. Whatever our views might be on that, to change back would build up a huge pressure for the future.
I must take issue with my hon. Friend on that point. If we were to make the amendment, which I support, future investors would know full well when they made their investment that they would not be entitled to windfall profits from a takeover or demutualisation unless they had been members for two years. They would understand that, and they would of course be entitled to receive interest on their money in the normal way. If they understand that clearly when they make their investment, I do not see what the problem is.
It has been noticeable in the past 18 months or two years that people simply do not understand what their status is with a mutual building society and what the various accounts are. I agree that more people have that knowledge today than 18 months or two years ago, but that is certainly not true of everyone: indeed, I would suggest that more than half do not know. If my hon. Friend saw my mailbag he would realise that there is huge concern among many people who feel that the system has done them down and want the Government to change the rules.
I believe that we can withstand that pressure at the moment, because although there have been anomalies—my hon. Friend the Member for Gloucester sorted out another anomaly in an earlier Bill—the consequence, not far down the road, of making the changes in the substance behind the opening remarks of the hon. Member for Burnley would be that a greater number of people would feel discriminated against by the change in the rules and would blame the Government. Whoever the Government of the day might be, the pressure to change the law back would, I suspect, not be resistible.
I support the two-year rule. Is it not a fact that when the Halifax building society decided to become a public limited company, it took on new investors and borrowers on the understanding that they would be associate members? They were notified at the very beginning that they would not qualify for the share-out, whenever it came, because of the two-year rule. The parliamentary all-party group on building societies has been advised by the chief executive of the Halifax building society that no one who has not been a member for two years will receive any bonus. It would appear that it works and it could work if the spirit were there for it to do so.
The hon. Gentleman has given us a good example of how a building society, when left to its own devices, can use existing law to ensure that it gets an equitable result for its members. I am concerned to leave building societies the ability to do just that—to make their own decisions as they see fit—and for their members to have the opportunity to vote accordingly.
The object of the amendment is to try to help with speculation and carpet bagging—things with which none of us has any sympathy. At present and under the Bill, only the board of a society can put a conversion or takeover proposal to members for approval. The board also has a fiduciary duty to consider the long-term interests of present and future members of the society. No outside company faced with a board's rejection can put a proposal direct to members, as happens with a public limited company.
Forcing conversion, or takeover, on a board that opposed it would take a long time. If an initiative came from outside a society, the sequence of events would work as follows. A predator would have to make an offer, which was either confidential or non-confidential, to the building society board, which would consider it. We will presume that it decided that the offer was not in the interests of the society or its members. Under the terms of the Bill, the society would disclose that a non-confidential offer was made and say by whom in time for the next annual general meeting.
The board is not required to pass on any other information and may take the opportunity to set out why it considers that the proposed takeover is not in the best interests of the society. The bidder could, for example, use the media to make the terms of its offer known to members. It would be a predator and as such would need to persuade enough members to requisition a special general meeting to consider a resolution calling on the board to pursue the proposal. The resolution could not force the directors to put a transfer proposal to a vote. If the members were persistent, they could also seek to nominate a new board of directors who were in favour of the takeover—the new directors would have to meet the fitness and properness requirements of the Building Societies Commission. They could be elected only at an annual general meeting and would need the support of the majority of the other members who voted to achieve that. Directors retire and offer themselves for re-election on a three-yearly basis. As one can see from that list, therefore, it would be a long-winded process for a predator—the initiative coming from outside the society—to try to shift a board of directors to make it put such a proposal to the rest of the society's members. It is difficult to say how long the process would take, but on any reasoned assessment, it would take more than two years.
The alternative involves the initiative coming from members. In some respects, this matter has caused the most concern. It is perceived as the Trojan horse of speculators who have joined the society and who want to persuade the society's board of directors to get it to convert. The sequence of events would be as follows. First, there would need to be sufficient members to requisition a special general meeting. The members could not table a transfer resolution. The motion at the special general meeting could do no more than recommend that the board considers options for conversion or takeover. The board would have ample opportunity to tell the wider membership precisely what it thought of such activists. The board's consideration would have to be undertaken with regard to its fiduciary duties to members, including potential future members. It could easily conclude that conversion was unwise or that an offer was inadequate. If members did not accept that, they would have to replace the board and negotiate the last two hurdles that I described earlier. Again, it is a long process.
It beggars belief that a board would sit back and do nothing. While all this was happening, the board would be telling members about the advantages of remaining mutual. Some mutual building societies, I am glad to say, are doing just that in advance, to ensure that their members are well aware that mutual status has considerable benefits for them.
Does my hon. Friend accept that some mergers and takeovers that have nominally taken place on an agreed basis have in fact been the result of considerable pressure by one society on another? Does she not realise that these things are a little more subtle than she suggests?
Yes, I am aware of that. That is one reason why the Bill is in its current form. It ensures that building societies, while remaining mutual, can offer more services and so become more competitive in the mutual sector, thereby making them stronger. That will help them to flourish. Secondly, it makes changes relating to other aspects so that converted building societies, about which the mutuals are concerned, cannot become predators on the mutual sector in the way that many people have feared. Undoubtedly, the ability to compete is one key to ensuring that the mutual sector flourishes, as we all want.
The hon. Member for North Warwickshire (Mr. O'Brien) asked whether speculation was advisable; the answer is no. Why have the Government changed their mind since 1986? The world has changed since 1986, and I have explained what is behind our thinking; we cannot turn back the clock on the two-year rule. He asked whether societies belonged to members; of course they do. He suggested that there might be many more speculators after societies have converted. I honestly do not think that there will be more speculators; there will be more account openers looking for a mutual home for their savings. Many mutual societies are making that attractive and targeting that sector to ensure that such people become members.
We have achieved a compromise that ensures that both societies and their members are treated fairly. On technical grounds, I ask the Committee to reject the amendments. However, I also ask it to reject the spirit behind them, not because I believe that it is wrong but because the proposed changes could bring with them much more hardship to many more people and not deal with speculation, about which we are all concerned and which we do not want to continue.
I confess disappointment with the Minister's reply. That it was so long suggests the depth of her difficulties. So long a reply at this stage of a Bill that, we are told, has to be rushed through, shows a defensive attitude. She never took up the basic issue of whether we want such a defence against speculation. Is it right or wrong? She went through a series of quibbles and excuses for not doing anything but as a Minister in control of drafting and, she told us, in control of the procedures of the House, she has the power to do something if she wants.
It is disappointing that she has not accepted the view of both Government and Opposition Members. I am disappointed with the positions of both Front-Bench teams but especially with her position because she has the power to enact the principle of the amendments. We have been reduced to Back Benchers, who are deeply interested in the building society movement and especially in the principle of mutuality, being against Front Benchers.
The Minister told us that the Bill will become law. I am a little doubtful about whether she can guarantee that, but that means that it is all the more important that we should perfect it and make it the best Bill that we can in the time available. It would be simple to introduce the provision, perhaps better written or better defined to get rid of all the quibbles that she raised. It would be a better Bill. If there is time, we should do it.
I thank the hon. Member for the ghastly tie for giving way. While I basically support the principle of his amendment, my hon. Friend the Minister pointed out that in practice, it would be two years or more before ram raiders could get through. If we are talking about protection for two years, the practical point may be as important as the principle. We need to get a balance between fairness to small savers—and for that matter to not so small savers—and ensure that large numbers of small savers cannot join to try to do what most existing mutual members do not want. I am not sure that we have found a way forward. The Minister's comments are relevant, though the principle is also important.
The signals were clear. The Minister rightly said that there is normally a churning, a turnover, of people taking money in and out of building societies. However, when there is a flood of new applications, it is possible to discern what is going on and realise that the flood is part of a speculative bubble that has to be pricked. If the will is there, it is possible to define a basic principle and to make it operate practically. The Minister was making excuses for not doing it rather than mounting a defence against the principle that I advanced.
If there were a two-year rule, it would be an incentive for people to keep money in societies for longer, rather than for churning it in the way that the Minister described. I wish that she had accepted the principle and said, "While the hon. Members for Burnley and for Great Grimsby are most accommodating and amiable, they are not the best draftsmen in the House. It is inadequate, but my draftsmen will produce a tailor-made amendment to achieve what they want and which can go in even at this late stage." It could have been done. The building societies, Back Benchers and opinion outside want it, but we cannot have it because of the rush.
That puts me and my hon. Friend the Member for Burnley (Mr. Pike) in a dilemma because, being new Labour, we are honest, moderate chaps and we do not want to make a disturbance or put difficulties in anyone's way; we are amiable—that is the essence of our breed. We want to be accommodating, but there is an issue of principle.
We have been placed under duress by our Front Bench. If my hon. Friend the Member for North Warwickshire (Mr. O'Brien) had taken a firmer line he could have coerced concessions from the Government, which would have put the Minister in an embarrassing situation, so that she might well have had to give way to us. That is what we should have done: if someone is negotiating, he plays his hand strongly, he is not diffident and does not say, "That won't work; we can't do that." Instead, we should say, "Go for it and you'll often get it." I hope that that can become the slogan of new Labour in power, but it has not worked in this case. If we had coerced the Minister, we might have got more than we did. I am sorry, but I feel that that puts us under duress.
The proposed provision is right in principle; Back Benchers and building societies want it, but we cannot have it because the Prime Minister has opted for felo de se as a system of Government. Owing to the Prime Minister's suicidal inclinations and the junking of so much of the legislative timetable because of his terror and his inability to face up to the defeat that my hairdressing Bill next week would inflict on the Government, we are now being asked to rush through the Building Societies Bill in an unacceptable way. I regret that. The Bill would be better if it contained the two-year provision. It would have been better if we had insisted on that—I am sorry that we did not, and there is still time to do so. Under such duress I would have no alternative but to give in.
Would the Minister clarify the position a little? She has given many practical reasons why it would be difficult to accept the amendments to introduce the two-year rule. Will she tell us the view of the Building Societies Association when she discussed the matter with it? Although that society is anxious for the Bill to become an Act, it is concerned about the two-year rule and I wonder if she could give us some information.
I want to firm up a point that I made in an intervention about the Halifax building society and its acceptance of the principle of the two-year rule. As the Minister said, that is an indication of how the principle should be left as a matter for the building societies. We are discussing legislation and we have an opportunity to firm up the principle set by those in the business—building societies, the Building Societies Association—and Members of Parliament. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) has outlined the case without forcing a Division, which is commendable of both him and my hon. Friend the Member for Burnley (Mr. Pike).
We should not waste this opportunity to try to build something into the legislation that will give the assurance that we seek and underline the principle as set out by those in the business. Before we reject outright the amendments, we should look for a compromise whereby we can underline the principle. If one were to question hon. Members who have listened to and participated in the debate, more of them would say that the Bill should include provisions to firm up the two-year rule than would reject that proposal. Therefore, the Minister should reconsider the matter to see whether a compromise can be reached that will satisfy all parties.
I wish to pick up on one point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill): the difference between the Halifax building society and most of the others. If the Halifax decided that it did not want to recommend conversion or use its ability to change its procedures to stop the two-year rule, there would be few businesses big enough to make a hostile bid for it. In practice, we would have to rely on the directors putting forward a proposal. That would not be the case with middle-sized and smaller societies.
It would be interesting to hear from my hon. Friend the Minister or from a future Parliament whether we need to help to protect diversity. Existing building society members should have their interests protected: there are many more building society lenders and investors than either borrowers or speculators. Can we have a diversity of financial institutions? We would not have had anything like the same level of home ownership, individual wealth accumulation or ability to move house if the mutual principle, the forefathers of the building society movement and the co-operative societies in insurance, retail and wholesaling had not existed. The question of how to protect the opportunity for diversity is important.
I am in something of a dilemma. The hon. Member for Great Grimsby (Mr. Mitchell) accused me of speaking for too long when I tried to answer everyone's points; I have now been asked to speak again, so I am not sure what to do. I found the hon. Gentleman's contribution entertaining, not least because he professed himself to be new Labour. Here we are on the first day of a different order—my right hon. Friend the Prime Minister having made his statement—and all of a sudden, Labour Back Benchers do not want to be led by their Front Benchers. I am not sure which of the two—the hon. Member for Great Grimsby, the Back Bencher, or the hon. Member for North Warwickshire (Mr. O'Brien), the Front Bencher—had something vibrate in his pocket indicating a message from Mandelson Towers, but there is clearly a big difference opening up between them.
The hon. Member for Christchurch (Mrs. Maddock) asked me about the views of the Building Societies Association. I can assure her that I have had many negotiations, not just with the Building Societies Association, but with individual building societies. It is obviously important that their views are known on this subject and on a wide variety of other matters relating to the Bill. The Bill exists because the mutual sector wanted it, not because the Government have decided to introduce it.
If the hon. Lady would hold her horses, I was coming to that point. The latest communication from the Building Societies Association states that
the Association's overriding priority is for the Bill to be enacted as soon as possible The Association is more than content for the Bill to go forward unamended (other than in respect of amendments making technical and drafting corrections)"—
the three amendments to clause 10. Describing amendments Nos. 1 and 2 to clause 2, the association states:
These amendments appear to be defective.
That probably gives at least half the answer. The other half of the answer is that building societies are in two minds over the issue because they believe that changing the two-year rule could be beneficial, but they also accept that there would be a problem if it were changed because they recognise that their sector is a moving one. They recognise that the future is not likely to be the same as the past, which is true of every part of life. They recognise that there would be significant difficulties should such a change be made.
There is therefore no easy answer to this question. If we make changes—either exactly as set out in the amendments or in the spirit of the amendments—a future conversion by or takeover of a society where that society was willing for those events to take place could lead to several million people finding themselves unable to receive anything as a consequence of those events. We can easily imagine the huge problems that would arise from that.
A further aspect is that it must be for societies to choose their future, as it is for any other industry or financial institution. It is not for Government to dictate; it is for Government to enable societies to make the future that they want for themselves. The thrust behind the legislation is to move from the existing prescriptive legal framework to one that is permissive—not to dictate, but to enable societies to achieve the future they want.
My hon. Friend the Member for Eltham (Mr. Bottomley) mentioned the Halifax procedures. He is correct in saying that, in its conversion, the Halifax has taken longer than any of the other converting societies, not least because it has undertaken two takeovers en route. The result is that no one in the position that we have just discussed will find themselves disadvantaged because they are short-time members. The question behind his comments was that the Halifax is a big society, but what happens to smaller societies? A big society, like any big company, can weather storms and, indeed, changes rather better than smaller organisations. My answer is that, in mutual societies, the only people who can put a proposal to members are the board. Therefore, unlike companies with other structures, mutual societies have the ability of the board to make decisions on what is or is not put to members.
Although I have not mentioned specifically the points made by the hon. Member for Normanton (Mr. O'Brien), I believe that I have answered them and the other points raised. I repeat that it would cause more problems to the future of the movement to make the changes proposed in the amendments or to make changes in accordance with the sentiments behind the amendments than to leave the arrangements as they stand.
I thank the Minister for her comments at the start of her first speech in the debate. I welcome her indication that she is hopeful about the outcome of negotiations to enable the Bill to make progress. I am not quite as confident as she is—that does not mean that I disbelieve what she says, but she is more optimistic than I am. Both she and I and all those who support the concept of mutuality will be disappointed if the Bill fails to go through. However, I hope that she is right and I am wrong and that the Bill completes all its stages before the end of the week.
I should have declared an interest in that I am a member of the Halifax. I shall receive the smallest amount possible, both as a shareholder and as a borrower. I did not, however, choose to be a member of the Halifax—I was a member of the Leeds, but was forced to become a member of the Halifax as a result of the takeover.
Exactly. We choose which institution to be customers of, but sometimes choices are made for us that we would not make ourselves.
The Minister was correct in saying that the reason why the Halifax has taken longer to convert than other societies is the takeovers, especially that of the Leeds. It was first announced in November 1994—which is therefore the first of the three qualifying dates to be a borrower or an investor—and the first stage was the takeover of the Leeds. That was followed by the massive task of marrying the two sets of records; there were overlapping memberships and several other problems to be ironed out before the records were in a fit state to enable the society to proceed to the next stage of the conversion process. That is why the two-year rule would not have had an effect in that instance.
The Minister seems to be in an optimistic mood—I do not know why, because the Conservatives will do badly in the general election. She was also optimistic in respect of predator bids. An example of that—
I accept that.
The National and Provincial had stated its commitment to mutuality and had gone through an elaborate exercise of sending to all its members literature emphasising that commitment. The literature outlined how a member who received one thing from the society could go for another and described bonuses and other bits and pieces. The society put in a great deal of work on the promotion and publicised it widely.
Suddenly, out of the blue, the Abbey National announced publicly that it was making a bid for the National and Provincial. The National and Provincial rejected that bid and after a meeting invited other bids, but, ultimately, the Abbey National took it over. All that happened relatively speedily. There was certainly a considerable change of heart on the part of the directors—they had been solidly committed to the concept of mutuality, but they quickly changed their minds. Similarly, no one would have believed a few years ago that the Halifax would convert. This point is also the subject of later amendments. Directors' views can change and a predator can take over an unwilling society simply by convincing the board. They are the people who decide whether to present proposals to the membership who, in turn, vote on them.
I was slightly disappointed with the Minister's remarks about the principle behind the amendments, although I accept her arguments about the technical nature of the provision. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) and I looked at the Bill and tabled an amendment that allowed the issue to be debated because it needed to be debated. We hoped that either the Government or Labour Front Benchers would table an amendment that did the job more effectively and so might be acceptable for inclusion in the Bill, but that was not to be. I accept the Minister's opinion that the amendments are defective, that in some ways they go beyond what we intended and that they are open to misinterpretation.
Nevertheless, the Minister spent some time addressing the principle of the amendments and I was disappointed by her arguments because they did not really hang together. She said that many people would protest about the change, but each society that has converted has used different rules and regulations. Although people have complained about the disabled or second-named people who have not qualified, no one has written to me saying that it is wrong that the Northern Rock paid a single sum to all its members, as did the Alliance and Leicester, but that the Woolwich and the Halifax are handing out varying amounts. I do know that members of each of those societies felt strongly that things were done in the wrong way. People will always feel aggrieved if some rule goes against them or if they think that they would have done better under another rule—that is only human nature. I for one would have done better if the Halifax had offered a flat rate sum instead of a sliding scale: as it is, I shall receive only the minimum.
I agree with my hon. Friends the Members for Great Grimsby and for Crewe and Nantwich (Mrs. Dunwoody) that these issues should be debated. Even at this stage I hope that some thought will be given to the principle behind the amendments. All hon. Members, apart from the Minister, who have spoken in the debate have clearly believed that a two-year rule would be fairer. As the hon. Member for Bournemouth, West (Mr. Butterfill) said, people joining a society would know that, if they did not have two years of membership and conversion suddenly came up, they would not qualify. They would therefore join in the full knowledge of their situation.
I hope that Ministers and my Front-Bench colleagues will get together and find a way of recognising the view of the overwhelming majority. These amendments may not be the best way of doing that, so let us find another way that offers the necessary protection and stops the carpetbaggers and speculators. They should not be able to join the gravy train and get their hand-outs.
I beg to ask leave to withdraw the amendment.