The amendments deal with the principle of what is known as the five-year rule, imposed by the Building Societies Act 1986 to afford some measure of protection to converting societies.
Before 1986, the activities in which building societies could engage were severely limited. The 1986 Act was the first realistic attempt by the House to allow societies to engage in a greater number of activities. It was envisaged by that Act that, for some societies, the desire to offer an ever greater range of services might ultimately lead to their deciding to demutualise and become banks.
It was also recognised by the 1986 Act, however, that although a greater range of activities would be permitted under the Act, their number was still severely restricted. So it would not be possible for converting societies to have knowledge and experience of all the activities that banks could undertake. It was therefore felt that converting societies might be more vulnerable to predatory takeovers by the big banks, which might want to prevent competition by taking over the societies immediately they had converted. It was felt by Members on both sides of the House, therefore, that some protection should be given for a period of five years.
I suggest that, although certain things have changed since 1986—the world has moved on and many societies have become much more sophisticated, engaging in a wider range of activities than hitherto—the position has not changed completely. Societies still cannot engage in very many activities, and even under the Bill some activities will continue to be prohibited to those who call themselves building societies. It is appropriate, therefore, that some transitional protection remains.
It has been suggested that it would be wrong for converting societies to be protected yet be able to be predators. I have some sympathy with that view because we should retain diversity of lending. If we are not careful, mortgage lending in the United Kingdom may be dominated by a handful of major institutions—predominantly banks. That is a grave danger, because it would restrain competition and choice for the consumer and, ultimately, act against the national interest and the interests of depositors and borrowers. I am anxious, therefore, that we have as diverse a range of lending organisations as possible.
There should be three types of lending and deposit-taking institutions. The first tranche would consist of the big banks, which are very large, are established and are secure in their present activities. The second tranche would consist of several converted societies, competing with the banks. Few hon. Members would disagree that some banks need fresh competition, because for a long time they have had things far too much their own way. A little healthy competition would not go amiss and would improve their service. The converted societies would compete with the banks in their range of activities but retain some of the essential elements of service to the community that they had initially as mutual societies.
A third tranche would consist of the remaining mutual societies that it would be in the public interest to retain to a large extent. That is the purpose of the amendments tabled in my name and those of the hon. Member for Normanton (Mr. O'Brien) and others. There is widespread agreement in the Committee, at least on the Back Benches, that transitional protection is required for converting societies.
I accept that it would be wrong if the converting societies were enabled to be untrammelled predators on the mutual building societies. Indeed, my amendments seek to protect not only mutual building societies but all mutual institutions.
Mutuality is a very important concept. It is an almost uniquely British one. It is extremely valuable, and the Committee would be foolish if it were to enact legislation that would diminish it. I therefore propose effective protection for friendly societies and mutual insurance companies. All mutual financial institutions would be protected because, if a converting society bid for a mutual, it would lose the protection that it enjoyed under the five-year rule.
I know that the banks would say, "That is unfair because converting societies can bid and they receive some protection from predation, but we don't." I am not sure that I agree that the banks need such protection. They are big, grown-up boys and have been playing the game for a long time. They do not need the protection that the converting societies need and deserve.
Banks will say that converting societies could do all sorts of other things without losing protection. They could buy mortgage books—I am sure that many of the large banks would like to get rid of some of their duff mortgage books, following unwise lending—or chains of estate agents. All sorts of financial institutions were unwise in their acquisition of chains of estate agents and would dearly like to unload them on some of the converting societies. With respect, however, we want not that type of competition but competition in the key areas of banking and customer service, which the converting societies will seek to offer. Therefore I put it to my hon. Friend the Economic Secretary that there is a case for retaining a much greater measure of protection than she proposes under the Bill.
My hon. Friend the Economic Secretary says that we are giving those societies protection; in fact, we are giving them nothing. The Bill removes the protection that they enjoy under the 1986 Act without giving any reasons for doing so, other than the fact that times have changed. No other reason is given for the draconian removal of almost all the protection that the House—members of the Conservative party and of the Opposition—considered appropriate in 1986.
I ask my hon. Friend the Economic Secretary to think again because it would be tragic if, in pursuing such a course, we diminished the number of organisations that offer a service to the public.