New Clause 3 — Annual fees

Industrial and Provident Societies Bill – in the House of Commons at 10:00 am on 19th April 2002.

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'Annual fees

The annual fee payable by a club, society or any other organisation for registration under the Industrial and Provident Societies Acts 1965 to 2002 shall be an identical sum to the current annual return fee payable by limited companies.'.—[Mr. Greg Knight.]

Brought up, and read the First time.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

I beg to move, That the clause be read a Second time.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss new clause 4—Financial Services Authority: fees to be charged in respect of industrial and provident societies

'Paragraph 17 of Schedule 1 of the Financial Services and Markets Act 2000 is amended by inserting after sub–paragraph (2)—

"(2A) Any fee charged in respect of functions carried out by the Authority under the Industrial and Provident Societies Acts 1965 to 1978 shall be fixed in a manner which has regard to the financial circumstances of the society or proposed society which is to pay it including their turnover, profitability and scale of operation and in no circumstances will the fee charged where an existing society's turnover was less than £1,000,000 in its last year of account or where a new society is applying for registration exceed the fee chargeable in respect of the equivalent function by the Registrar of Companies.'.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

As the Order Paper reveals, I have registered an interest, although I should tell the House that I am erring on the side of caution as I may not actually have an interest to declare. I have no idea whether Bridlington Conservative club, of which I am a paid-up member, is registered under the Industrial and Provident Societies Acts. From time to time, I also give advice—usually on entertainment matters—to various working men's clubs, some of which may well be registered under the Acts. Moreover, I am joint chairman of the all-party group on non-profit making members' clubs. Those facts may or may not amount to an "interest" in the parliamentary meaning of the word, but I feel it proper that I place them on the record at the outset.

In the history of civilised trading, the concept of limited liability is long established and well known. Those organisations that trade for profit—there is nothing wrong with that—usually form themselves into limited companies, thus enabling their liability to be limited to the value of the shares held, or to the extent of the guarantee given. The annual cost of maintaining such a company on the register, whatever the turnover, is £15, which has to be paid when the company files its annual return.

Other organisations, many of which are non-profit-making members' clubs, may decide to register under the Industrial and Provident Societies Acts. As their name suggests, such clubs are run not for profit but for the benefit of their members. In many areas, they are the heart of their local community. They often encourage, and sometimes sponsor, the participation of members and their children in sporting events, or the development of their musical skills. They are often the backbone of many underprivileged and deprived areas.

For many years, those organisations paid no annual fee to remain registered under the Industrial and Provident Societies Acts, but approximately six years ago an annual fee of £25 was introduced. Hon. Members may find it odd that a fee greater than the filing fee for a fat cat-led limited company was introduced, but it was. Now, however, an outrageous situation is developing. Moves are afoot to charge those organisations approximately £200 a year for the privilege of remaining registered under the Acts. That is unjustified and unfair, coming as it does at a time when the very existence of many clubs is in doubt.

I do not know how many right hon. and hon. Members have read an article in this week's edition of The Stage—the headline of which is "Epidemic of CIU club closures"—which states:

"Working men's clubs—one of the largest sources of work for British light entertainers—are closing at the rate of 85 a year, it has been revealed.

Kevin Smyth, general secretary of the powerful Club & Institute Union, told The Stage that a total of 425 member venues have shut during the last five years. And since its high point in 1974, the CIU has seen its total number of affiliates"— affiliated clubs—

"drop by nearly one third—from 4,000 to 2,700.

The scale of the problem could be even larger because CIU sites account for fewer than half those listed by the 5,500-strong Committee of Registered Clubs Association—whose members also include political or Service clubs such as the Royal British Legion."

So the situation is dire among non-profit-making clubs. Under my new clause, I seek only to give clubs and other organisations registered under the Industrial and Provident Societies Acts parity with profit-making trading companies, and I hope that I will have the support of the whole House.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I very much support what my right hon. Friend Mr. Knight has said in moving new clause 3. Indeed, I also supported it by putting my name to it on the amendment paper. New clause 3 very much supports points that I made on Second Reading. To save me from restating all the interests that I declared then, I formally put on record the fact that I still have those same interests.

On Second Reading, a number of hon. Members on both sides of the House expressed concern about the fees. I think that Phil Hope was the first person to raise the issue in that debate, when he said that there was no provision relating to fees in the Bill. Well, thanks to my right hon. Friend, there will now be scope to include the fees, so I hope that the hon. Gentleman will support the new clause, as he suggested on Second Reading that he would support such a provision.

Similarly, Mr. Turner, who is not in his place, spoke eloquently on Second Reading about the burden of fees on small clubs. I hope that what he said, which was widely supported at the time, will also be reflected in support for the new clause among those on the Government Benches because it must surely accord with common sense.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

I should say at the outset that I sympathise with the hon. Gentleman's arguments, but those at the Financial Services Authority say that the charges simply reflect the costs that arise from that section of their organisation. How do we respond to that?

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

The hon. Gentleman makes a fair point, but I submit that we should ask ourselves why the costs to the FSA of regulating clubs should be 10 times as high as the costs to Companies House of regulating companies. There must be something very odd about the FSA's fee structure or about the way in which those at the FSA allocate their costs across their organisation if they can come up with the conclusion that it costs 10 times as much to obtain an annual renewal for a club compared with the annual renewal for a company. That is the point.

Like several other regulatory authorities, the FSA is self-financing; it sets fees to cover its costs. It has enormous scope to limit costs in areas where there is no need for great regulation. Given the very large number of clubs, I am amazed that it should be reasonable to charge each of them up to £200 for the privilege of renewing their membership every year. It would be different if they wanted to change their rules, as that would incur a lot of costs, administration and so on.

If the clubs just want to obtain annual renewals in the same way as companies obtain annual renewals from the Registrar of Companies, the point that my right hon. Friend makes in his new clause is absolutely in accordance with common sense. Unless the House uses such opportunities to take control over those self-financing regulatory authorities, we will cede to them the power to impose burdensome charges on clubs, which they cannot afford to bear.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Does the hon. Gentleman agree that that figure was probably plucked out of thin air?

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am sorry, but I do not understand the hon. Gentleman's reference to a figure plucked out of thin air.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

My hon. Friend is referring to the increased fees.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

It is a fact that there is a threat of increased fees of £200. There is no doubt that that is the reality of the FSA's proposal. If Mr. Hendrick is suggesting that the FSA perhaps reached that conclusion on the back of an envelope and produced a nice round figure, I am unable dispute the point.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire 10:15 am, 19th April 2002

I did not understand the hon. Gentleman's intervention either. I am not sure whether he was seeking to be supportive and helpful to my case in suggesting that the FSA had plucked the figure out of thin air, or whether he was accusing me of having plucked it out of thin air.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

The hon. Gentleman shakes his head and I am delighted that he corrects that last point. On Tuesday this week, I spoke to an FSA employee, who confirmed that the fee is likely to be about £200 a year. My hon. Friend is absolutely right to say that that fee will not be charged for changing the rules, but simply for the annual renewal of registration.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am grateful to my right hon. Friend for making that clear. Mr. Thomas has arranged a meeting with the FSA on Monday next, but my fear is that if we do not take the opportunity presented to us today to control the fees that the FSA can charge, it will deploy the same arguments as those that it has used in correspondence—it will say that it needs to impose those costs to meet its own internal charges.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am sure that many of my hon. Friends are sympathetic to the hon. Gentleman's concerns, but I wonder whether he can clarify a technical point. Off the top of my head, I can think of four types of limited companies: public limited companies, companies limited by guarantee, private limited companies and a different type of private limited company, such as C&A was, that does not have to disclose as much information. However, the new clause seems not to differentiate in that way. Perhaps he can explain how it would operate if it were included in the Bill.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I understand that the fee to register a small company is £15 a year and that the fee to register a new company is £20. My right hon. Friend's new clause would limit the annual renewal fee to £15 for small clubs and industrial and provident societies in the same way as it is limited to £15 for small companies. Obviously, if the fee for the renewal of company registrations were to rise from £15 to £20, the fee that the FSA charges for the renewal of industrial and provident societies' registration could also rise.

On Second Reading, I referred to a letter that I received from the Village Retail Services Association—ViRSA—which is the organisation that deals with small rural communities that wish to revive or resurrect their retail facilities. As is stated in column 1149 of the Hansard report of that debate, I said that Mr. Peter Jones, the director of ViRSA, gave some examples of the cost of the fee structure for those very small organisations.

A couple of hundred pounds is probably more affordable for a club with a large turnover than for a small village shop co-operative, where every penny counts. So the new FSA fee structure will affect not only clubs, but a lot of smaller industrial and provident societies with very small turnovers. The FSA has expensive premises in one of the most expensive capitals in the world and has extremely well paid staff.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

The hon. Gentleman refers to the FSA, but surely it will argue that, because industrial and provident societies are more complex than companies and because there are not as many such societies as companies, we cannot make a direct comparison between the fees charged for the two groups. How do we respond to that criticism?

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am not sure that the FSA has made that criticism. There are large numbers of industrial and provident societies, but that does not mean that they should face their current cost structure. For example, there is no reason why the FSA should not set up a subsidiary in a part of the country where the costs of staff and premises are much lower. It could have a regulatory regime that is funded at a level of expenditure that is more consistent with those whom it seeks to regulate.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

Will the hon. Gentleman extend his thesis a little further and recognise that, although London is a relatively high-cost area, the FSA is also profligate? That forms most of the problem. If the FSA were to set itself up in the west midlands—in Birmingham or Wolverhampton—it would find that people work efficiently, effectively and economically. It would not be as profligate as it is in London. He may agree that there is a total disconnection between what happens in London where the high rollers pay whatever they want for whatever they want and other areas of the country where reality has to break out from time to time.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I agree with the hon. Gentleman, but I would not limit the areas to the ones that he specified. I would certainly include Christchurch, Ferndown and Verwood and other parts of Dorset. Ministers have referred to costs elsewhere, but the costs of employing people in Dorset are significantly lower than the costs of employing people in London. The wages and salaries that secretaries command in Christchurch, which is just under 100 miles from London, are significantly lower than the salaries that can be commanded in London. However, there is no reason to suppose that the efficiency of secretaries in Christchurch is any less than that of those in the City of London. In fact, I suspect that it is much higher, partly because they enjoy a much better quality of life.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Does my hon. Friend agree that, just as there is great variety in the type of societies that are the subject of the Bill, there is much greater variety in the type of company? Small companies that perform local community functions can be set up as limited companies and the range extends through to medium-sized companies and huge corporations. Complexity is not an issue. There is much greater variation between types of company than there can possibly be between the societies that are the subject of the Bill.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

My hon. Friend makes an excellent point. We are talking about the simple process of registration. It costs the same to register a child irrespective of the complications of the parentage, and it should cost the same to register a company or an industrial and provident society. It is a straightforward issue of equity and getting control over the costs of the regulatory authorities.

The FSA has deployed the argument that, under the previous regime, the Registrar of Friendly Societies received a cross-subsidy from the Treasury. If that is so, one of the consequences of the new clause is that it would allow the FSA to put a good case to the Treasury if it had one. However, I am sceptical about the need for the FSA to be subsidised beyond the income that it would receive if it charged a fee for registration in line with the fee for the renewal of company registration. That is why I am an enthusiastic supporter of the new clause moved by my right hon. Friend Mr. Knight. Although the gap may be tenfold at the moment, if things carry on as they are, the annual registration fee for friendly societies may be £500 or £1,000 in two or three years' time when people are trying to expand that sector. That would be a crippling burden on this important part of the community.

I hope that the Paymaster General and, more importantly, the House will accept the new clause. It would provide reassurance to all the small clubs and societies that feel insecure because of the threat of increased burdens and costs of regulation.

Photo of Adrian Bailey Adrian Bailey Labour/Co-operative, West Bromwich West

I wish to speak to new clause 4, which is in my name and that of my hon. Friend Mr. Purchase. However, consistent with the declaration that I made on Second Reading, I must make it clear that I have a long association with the co-operative movement. It employed me for many years before I came into the House. I am also proud to declare that I am a member of the Labour and Co-operative group.

New clause 4 is a probing amendment that is designed to consider the arguments and raise the issue with my hon. Friend the Paymaster General, so that we can clarify ministerial thinking. I shall not press the new clause to a vote.

We have much sympathy with the comments made by Mr. Knight and Mr. Chope. The issues that they raised are seriously regarded in the co-operative movement and are a source of great concern to those who wish to set up new co-operative or community-based organisations. The difference between a company and a co-operative in the fees charged by the FSA for registration is undoubtedly a serious disincentive. The issue needs to be considered and the hon. Gentlemen were right to raise it in their discussion of new clause 3. However, I do not think that they have considered the full implications of their new clause.

The FSA's argument has been well rehearsed. It is a self-financing organisation and, if the fees charged to industrial and provident societies were reduced, it would have to compensate for the loss of that financial stream by increasing levies on other forms of companies. It is also maintained that, because of the complexity and the need to monitor continually the rules for industrial, co-operative and provident societies, the individual societies that have registered require a higher level of scrutiny and supervision from the FSA than is required of individual companies. That, of course, results in greater expense.

However, if new clause 3 were accepted, there would be an enormous and unintended windfall for some of the larger co-operative and mutual organisations. For example, the Co-operative Group, which controls the Co-operative Insurance Society and the Co-operative Bank, would receive an enormous windfall if its registration fees were reduced. The FSA would have to make up that enormous financial deficit from other sources.

If we looked at the range of other major co-operative retailing organisations and housing co-operatives, much the same would be true. That is basically the reason for this new clause. It is designed, first, to provide a mechanism by which organisations considering setting up a business along co-operative lines would not be deterred by the initial level of registration fees. It is also designed to ensure, however, that there is a level playing field between those larger co-operative organisations and companies and, to provide fairness to the FSA, to ensure that financial difficulties would not be incurred as a result of potential changes in income stream. I stress that I shall not press this new clause to a vote.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 10:30 am, 19th April 2002

Although I do not have a direct interest to declare, I am a vice-chairman of the all-party group on building societies and financial mutuals, and I have a long history of supporting mutual activity in this country. Unless we include measures such as the new clause, we are in danger of putting obstacles in the way of mutuality, which the Government would not intend and which would compound the already difficult position in which mutuality finds itself in the United Kingdom.

In many ways, it is curious that, although this country was the cradle from which mutuality sprang, it has been less successful here than it has, for example, across the Atlantic in Canada and in the United States. It may be that Governments there have created a more benign environment in which mutuality can flourish. That is what this Government—perhaps of all Governments—should be doing in relation to this new clause and this Bill. It seems absolutely extraordinary that we should suggest that mutual societies of this nature should pay fees that are substantially higher than those paid by companies that are largely set up to make profits.

One of the things that we need to do in this country is to encourage people to work together in their communities for their mutual benefit. That is precisely what these societies do. Similarly, in relation to savings organisations, it is important that we encourage mutual savings organisations to flourish. Building societies used to perform that function as the principal providers of mutual savings. I regret, however, that the activities of the carpetbaggers and other very greedy people have meant that the building societies movement in this country has been significantly diminished. The friendly societies have not taken off as we would like, and mutual savings organisations of all types have found it difficult to set themselves up. The Government should be assisting them and providing financial support for this type of activity. If the Government are serious about dealing with the problems of financial exclusion, which I believe that they are—at least, they have that intention—it is essential that they should do that.

First, I do not believe that it is necessary for the FSA to provide for the level of charges that has been mooted simply to have an annual renewal of registration. We return to the argument that, if the Department of Trade and Industry can do it for £15, why cannot the FSA? It may be that the DTI is subsidising the costs of companies, in which case we must ask why that should be the case, and whether it is right that companies should be subsidised by the DTI. If the DTI is not subsidising those companies, however, we must ask what is the difference with the FSA. It is up to the FSA to make a case and to say, "We need this level of charge." If they genuinely need such a level of charge, it must be right for the Government to consider a Treasury subvention to support it. Given that the Government must believe that this is a correct thing to do, it must equally be right for the Government to consider the possibility of subvention to support this type of activity. I very much support the new clause.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I have always been associated with the co-operative cause, but, for the avoidance of doubt, may I once again declare an interest in that the co-operative movement supports my constituency party financially each year.

Having said that, it is once again a pleasure to follow Mr. Butterfill, whose measured tones bring a much-needed insight to these debates. I fear that I cannot be as calm, as collected and as incisive. I believe that we are dealing with an unintended consequence—the people who have drafted the regulations for the FSA and industrial and provident societies have been unaware of the effect that their drafting would have on an important part of the social economy as a whole.

My father and I, for more than 70 years, have been members of working men's clubs. In my opinion, working men's clubs have always been pleased to pay their way, and have always met the costs of their organisation in an honourable fashion. A burden is being imposed on clubs and on small societies and community groups. I am proud to be associated with several community groups that have registered their organisations in a proper and legal way—companies limited by guarantee and so on—and they will find themselves burdened with an excessive cost of filing each year for re-registration.

This is not necessarily the appropriate Bill in which to introduce this new clause. However, this is an opportunity to say to the Minister, loudly and clearly, that something has to be done to right this wrong—for that is what it is. Whether it is an unintended consequence or not, those who drafted the legislation are disconnected from the everyday experience of ordinary people helping our society and our communities at the micro-level. Those people help to build up the feeling of solidarity in society, and they must not be treated in this way.

I accept that this new clause will not find favour with the Minister at this time, but she must ensure that the protestations that we have heard today are taken forward and dealt with appropriately and effectively. We must receive an undertaking today that that will be done.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

I have considerable sympathy for the comments made by Mr. Knight and by my hon. Friends the Members for West Bromwich, West (Mr. Bailey) and for Wolverhampton, North-East (Mr. Purchase), and for the broad thrust of the comments made by the hon. Members for Bournemouth, West (Mr. Butterfill) and for Christchurch (Mr. Chope).

As has been indicated, this issue was raised on Second Reading, and my hon. Friends the Members for Corby (Phil Hope) and for Stroud (Mr. Drew) also highlighted their concern. The hon. Member for Christchurch was good enough to give me the opportunity during his speech on Second Reading to place on record my concern about these fees. During the consultation that I have undertaken in preparation for this Bill, and during discussions prior to this stage of deliberations on it, a number of sponsoring bodies of industrial and provident societies made representations to me about the level of fees. The WI Country Markets, the Village Retail Services Association, to which the hon. Member for Christchurch referred, the committee of registered clubs, which a number of my hon. Friends flagged up, and the Rugby Football Union are worried about the high cost of the registrations charges. I share the general view that the Financial Services Authority needs to act speedily to reduce the fees that it intends to charge from 1 July. As the hon. Member for Christchurch said, I have organised to see the FSA on Monday, partly as a result of discussions with him and the sponsoring bodies. I invite all hon. Members who are concerned to speak to me later. They are more than welcome to attend the meeting.

Although the reference to companies in the new clauses is illuminating in that it allows us to highlight the substantial difference between the charges for the registration of companies and of industrial and provident societies, it is slightly confusing. There is no monitoring regime for companies like that traditionally carried out for industrial and provident societies by the registrar of friendly societies. One reason for the monitoring is that industrial and provident societies hold community or even possibly public assets. The comparison with companies is inappropriate because the regulator has a more active role in approving changes and in monitoring the work and operation of the industrial and provident societies.

It is worth explaining to my hon. Friend the Member for West Bromwich, West and the right hon. Member for East Yorkshire that prior to the FSA taking over responsibility for regulation, fees for the registration of new rules or amendments to the constitution of industrial and provident societies were higher than the comparable charges for companies.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

The hon. Gentleman is right that the fees were higher, but those organisations paid an annual fee of £25. Most right hon. and hon. Members would regard that as a reasonable amount. To go from £25 to £200 in one leap is surely most unreasonable.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

I strongly share the right hon. Gentleman's view. He is right to make that point and I have profound sympathy with it. I think that we both want the same outcome. Unlike him, however, I do not think that the Bill is the appropriate vehicle for that change, which is why I have set up the meeting with the FSA to press the case.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

The hon. Gentleman says that the Bill is not the right mechanism to resolve the problem. May I draw his attention to the long title of the Bill of which he is the promoter? It refers to

"the Industrial and Provident Societies Act 1965 to be amended so as to bring it into conformity with certain aspects of the law relating to companies".

That is precisely what my new clause would do.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

I understand the right hon. Gentleman's point. The fact that the Speaker has allowed the new clause to be discussed suggests that it is relevant. However, a system of financing is in place for the FSA, and it is in that context that it is appropriate to consider the sums that are charged for the registration of industrial and provident societies.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 10:45 am, 19th April 2002

Does the hon. Gentleman accept that the FSA is circumscribed by the legislation that established it? The worry is that unless we use the Bill to change the way in which the charges are made and give the Government a basis on which they can vary the charges, they may find that although they are sympathetic to the case, they have no mechanism to make that change short of introducing primary legislation.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

I do not accept that legislation constrains the FSA from changing its fees. That is why it is appropriate for us to address the problem by holding direct discussions with it.

There is another reason why the new clause is inappropriate other than the need to introduce a stronger regime for monitoring industrial and provident societies than we have for companies. We need to recognise what my hon. Friend the Member for West Bromwich, West said about how industrial and provident societies vary enormously in size, turnover and assets. It is appropriate for some industrial and provident societies, such as the larger co-operative retail organisations, to pay higher charges because it often requires more work to monitor them than it does to monitor the smaller organisations, such as social clubs.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

Surely the annual return that is sent to the FSA to continue an existing registration does not require monitoring. All that is needed is a tick in the box and continuation of the registration.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

I have considerable sympathy for the concern about the huge hike in the cost of the annual return. Nevertheless, the direct comparison with companies is unfortunate. Perhaps a more flexible wording of the new clause would have been more appropriate, and I accept that my hon. Friend the Member for West Bromwich, West attempted to introduce that greater flexibility in new clause 4. We need to remember that because industrial and provident societies hold assets for the community, the regulator has to take a greater interest in them, so a more appropriate regulatory structure needs to be in place. That inevitably costs more than the regulatory regime for companies.

I accept that there is no justification for the huge hike in the charge, but I encourage hon. Members who are tempted to accept the new clauses to understand that the best way forward is to deal with the FSA face to face in order to make it clear that hon. Members on both sides of the House have huge concerns about the issue.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I congratulate all hon. Members who have participated in this important debate on putting before the House some of the clear issues that relate to the fees charged. Although I will explain why the Government do not think that the Bill is the appropriate way to address the problem, we do not want to undermine the important points made about some sections of industrial and provident society legislation.

The Government are well aware of the concern that has been expressed by some in the movement about the fee structure that is being developed by the FSA in relation to its duties under the relevant industrial and provident societies Acts. This debate takes forward many of those issues.

I stress that the final level of the fees that will apply over the coming year has not been finalised, and the FSA's consultation with the movement has only just drawn to a close. I note what my hon. Friend Mr. Thomas said about his meeting with the FSA on Monday. The figures proposed in the FSA's consultation document are illustrative, as is often the case with such documents, and we have heard other figures quoted publicly in connection with the matter.

The FSA ensures that registrations conform to the legislation and that any changes to societies' rules, registered offices and so on are appropriate. In discharging its obligations as the regulator, the FSA has to take account of the tremendous variations across the movement. Hon. Members have demonstrated the range of societies and clubs that can fall within this category. In the event of mergers or windings up, the FSA must ensure that the relevant legislation has been respected. It also ensures that societies submit regular accounting returns.

The transfer of functions from the Registry of Friendly Societies to the FSA occurred in December 2001. It worked to the benefit of societies in that it permitted access both to a pool of experienced former registry staff already working in the FSA on building society and friendly society regulations and to a broader range of expertise. It is important to balance the mix between obligations on regulators, access to expertise and costs to societies.

I do not believe that it is appropriate to make a straight comparison between the fees payable by societies and those due from companies. Although I accept that valuable points were made in the submission, it is not comparing like with like. Registration obligations on the Companies House registrar are less onerous than the equivalent obligations on the FSA. It is inappropriate to link fee levels for societies with those of companies, as the new clause proposes.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Of course it is right that mutual societies dealing with the funds of their members should be properly regulated, but does the Paymaster General agree that it is equally right that companies that can hide behind the benefits of limited liability, leaving behind creditors littered all over the place, require an even greater degree of regulation?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

It is somewhat unusual to hear a Conservative Member, even one as knowledgeable as the hon. Gentleman, pressing the Government on the need for greater regulation of companies, but I shall take his point in good faith and resist any further jibes. I promise never to quote his suggestion. [Interruption.] No, perhaps I will not make that promise.

The hon. Gentleman is concerned about appropriate regulation and safeguards. The basis of the current debate about the mutuals—how to devise appropriate legislation to deal with protection—applies equally to companies.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In a moment, when I have finished this point.

There has been a great deal of discussion about reviewing company law and how to modernise it, and I understand that a report is due soon. We have to strike a balance between appropriate safeguards and allowing these organisations, which have different structures and fulfil different obligations, to develop and expand. The Bill is about mutuality, the industrial and provident societies and how to assist their growth and development.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

Although my hon. Friend says that a direct comparison cannot be drawn, does she accept that there is considerable evidence, especially from the worker co-operative sector, that some small organisations are choosing to register as companies rather than industrial societies because of the differential, and will she bear that in mind when considering the matter in the future?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

That is indeed an issue of which we must be aware, as we must be aware of the differences between companies that choose to be incorporated and unincorporated and of the different structures that are available to companies, societies and clubs in providing safeguards for their members or shareholders while allowing the development of their organisations.

New clause 3 raises the broader question of what type of registration procedures are appropriate for industrial and provident societies. Through changing the relevant Acts, the FSA could be required to undertake fewer checks and verifications during the registration process. However, that may not be in the best long-term interests of the movement, especially as recognition of and confidence in the society organisational form needs to be enhanced, not reduced.

I thank my hon. Friend Mr. Bailey for the way in which he presented his arguments. I hope that the House will be seen to have paid proper attention to the issues, although we may not necessarily agree that the Bill is the appropriate way to advance them.

New clause 4 would link the level of fees charged for carrying out regulatory functions to the size or profitability of the society's operations. New clauses 3 and 4 demonstrate the complexity of the sector, in that it was necessary to try to find an approach that would not cause problems elsewhere. I appreciate and am sympathetic to their underlying rationale, but we must take other factors into account.

The FSA has been developing the fee structure, following consultation with interested parties, including all sponsoring bodies, trade associations and principal legal advisers to the sector. Three separate consultation papers have been issued and workshops have been held to hear the movement's views. The FSA has considered various options. One was to base the fee structure on size. However, the size profile of societies is heavily biased, as many hon. Members have pointed out, towards smaller societies, so the burden on the larger societies would be unreasonable. For example, the FSA estimated that if a larger society were to pay an annual fee of £10,000, the fee payable by other societies would reduce by about £1. That is unacceptable.

In addition, there is no consistent relationship between the size of a society's operations and the amount of work that it generates for the FSA. That is linked to the points made by hon. Members about complexity, accountability and the desirability of structures in industrial and provident societies. If the FSA charged on the basis of transactions, that would lead to exceptionally high costs for individual transactions such as rule changes. That would discourage good governance and we should not inadvertently, for motivations that I quite understand, include something in the Bill that would do that.

A link between size and fee levels for societies could also create unintended effects. For example, it could lead to charitable housing associations and registered social landlords, which are among the largest societies, effectively subsidising the cost of smaller societies such as private members-only clubs or societies set up to benefit members. That would clearly cause problems in the different structures. It would be perverse and go against the idea of a more equitable distribution of costs.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 11:00 am, 19th April 2002

Does the hon. Lady accept that under the proposed fee structure, small organisations that do not change their rules each year will be subsidising and cross-subsidising those that choose to change them because they did not get them right in the first place? How can that be equitable?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am trying to explain to the House the complexities of the issues involved, the diversity of the sector, and the importance of striking the right balance and considering the necessary scope of work. The number of industrial and provident societies has been broadly stable between 1996 and 2000, but the amount of their assets has increased, from approximately £41 billion in 1996, to £61 billion in 2000.

I have been doing my best to show the House that the sector is very broad and that there is not just one simple answer. As hon. Members have said, there is a difficult balance to strike. Therefore, the FSA needs to assess all the issues; all hon. Members who have spoken this morning believe that fees need to be part of that assessment and the eventual balance reached.

I understand that the FSA, along with many in the movement, prefers an approach based on a flat-rate fee, as the hon. Member for Christchurch said. That will inevitably affect some societies unfavourably, but equally it must be appreciated that some societies will gain from such a move. We need to find out which is the most equitable solution and ensure that it is delivered.

We also have to consider those societies that are active in updating and developing their governance structure. That is precisely what the Bill is about. For example, I understand that the proposed periodic fee would cover all registration transactions undertaken by a society in a year. A society could, for example, adopt a completely new set of rules and have them registered for free by the FSA. The former registry would have charged £800.

As I have continually tried to stress, it is necessary to strike a balance here. The FSA has worked hard and will have to continue to work hard to build a consensus around its proposals. I believe that at this stage it is not appropriate to legislate in the rigid fashion suggested by the new clause.

As I have said, I am sympathetic and I understand clearly the points made by my hon. Friends. I have tried to show the complexity of the area. I am sure that there will be ongoing discussions between the clubs and the FSA. Those discussions, I sincerely hope, will reach a solution.

Photo of Mr Dennis Turner Mr Dennis Turner Labour/Co-operative, Wolverhampton South East

I welcome the Minister's remarks. She understands the dilemma that clubs are facing. The immense frustration felt has been echoed around the Chamber. My hon. Friend has met the FSA, and is meeting it again on Monday. Would she be prepared, if it is felt necessary, to meet the Working Mens Club and Institute Union to discuss some of the anomalies that we talked about this morning, in the hope of getting justice for the clubs of this country?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Normally this subject area would fall within the remit of the Economic Secretary. However, both the Economic Secretary and I are always pleased to receive representations and see delegations. I am sure that, if my hon. Friend thought it appropriate, either one of us would do our best, as we try to do for all Members, to accommodate those representations.

I hope that I have given the House an explanation of why the Government do not support the new clauses. I hope that they will not be added to the Bill, but also that the House is sufficiently reassured that the Government have taken note not only of the representations, but of this debate.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

We have had a very interesting debate, and I am grateful for the support expressed for my new clause by hon. Members on both sides of the House. I am particularly grateful for the comments of my hon. Friends the Members for Christchurch (Mr. Chope) and for Bournemouth, West (Mr. Butterfill), who made a very powerful case for the new clause.

This really comes down to the fact that, once a year and for a fee of £15, Companies House, in respect of each limited company registered with it, examines the company accounts and the annual return form that a director or secretary of the company has to submit. The FSA says that, in future, it will charge £200 to examine similar forms and accounts submitted by clubs and other organisations that, under the Industrial and Provident Societies Acts, come within its remit. Clearly, there is something wrong with the FSA's system, because in each case accounts are prepared. The FSA does not have to put together those accounts; organisations submit them in a recognised form. I do not, therefore, feel that the size of the proposed fees can be justified.

Mr. Bailey made, if I may say so, a rather strange speech, appearing to speak against his new clause. Either the Whips did a little arm-twisting earlier today, or his heart was not in the arguments in the first place.

Mr. Thomas reminded us that this issue was raised on Second Reading. He said that swift action is needed, but pinned his hopes on a meeting he has pending with the FSA. If what the FSA is telling the Working Men's Club and Institute Union—the CIU—is anything to go by, I would advise the hon. Gentleman not to raise his hopes too high. A member of the FSA has advised the union that if clubs do not like the fee, they can deregister—an outrageous piece of advice, given that deregistering means that clubs would lose their limited liability. If a club that had deregistered got into trouble, the working people running it would find that their homes, cars and other assets could be seized. Deregistering is not an option for clubs.

When Mr. Purchase rose, my optimism increased. He is an important Member of Parliament and Parliamentary Private Secretary to the President of the Council and Leader of the House of Commons, so when he said that he supported the measure I thought that meant that the Government were on side—there spoke the PPS to the Leader of the House. Then along came the Paymaster General to pour cold water on everything that her hon. Friend had said.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I do have some independence of mind, which does not always accord with Government policy.

Photo of Greg Knight Greg Knight Conservative, East Yorkshire

I applaud the hon. Gentleman's independence on this matter: may we see much more of it.

I strongly advise the Paymaster General not to enter any working men's club in Bristol in the near future, because if its members have read her speech I doubt that she will receive a warm welcome. The hon. Member for Wolverhampton, North-East says that something has to be done, and he is right. I am extremely disappointed that, although she expresses sympathy, the Paymaster General has declined to give a commitment to consider the issue. To be fair, she said that she would be happy to meet a delegation from the CIU or some other source, but she gave no commitment to the House that she would examine the matter with a view to righting the clear wrong.

Something has to be done, and my new clause is a vehicle to do it. I hope that the House will approve it.

Question put, That the clause be read a Second time:—

The House divided: Ayes 10, Noes 74.

Division number 212 Industrial and Provident Societies Bill — New Clause 3 — Annual fees

Aye: 10 MPs

No: 74 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.