I beg to move, That the Bill be now read the Third time.
The consideration in Committee was not particularly long, but it was comprehensive. The Bill was altered quite substantially, not in its objectives, which remain the same, but in the legal basis of the clauses. The Bill was an extremely complex matter. It meant changing a large number of existing areas of legislation, and the way in which they interacted was complex, hence the comprehensive redrafting of the Bill since Second Reading, and also its change in name to the Building Societies (Funding) and Mutual Societies (Transfers) Bill. That was needed to bring greater clarity to what the Bill was intended to achieve.
I pay tribute to the work of all who were involved in the Committee stage, in particular to the groups of lawyers who worked hard together to come to a conclusion. Without the diligent efforts of the Treasury solicitors, that would not have been possible.
There is one remaining area of the Bill that we were unable to cover in Committee: the position of mutual insurers. It was felt that the Bill as drafted could contravene European Union company law. The remedy that was chosen to enable the Bill to proceed quickly was to remove mutual insurers from the transfer arrangements that apply to all the other mutual societies. That is not a particularly happy situation, and—the Minister confirmed this in Committee—both sides of the House would prefer them to be included, if that is possible.
I understand that the Royal London mutual instructed solicitors to consider how the situation could be remedied. It instructed Herbert Smith, which has come up with some ideas that are now being discussed with the Treasury solicitors. Between them, they may reach a conclusion that would enable mutual insurers to be included in the scope of the Bill. If the Bill is passed today, that can be achieved only by an amendment in another place, which would mean the Bill coming back here again. I would not be unhappy with that procedure, if I was sure that time would be made available to consider the amendments. I understand that there is a possibility that the Government might be prepared to assist in that matter, and no doubt the Minister will confirm or deny that information shortly.
I thank everybody who has been concerned with the Bill.
Will the hon. Gentleman confirm that credit unions, which are mutual in character and crucial to coping with financial exclusion, fall within the scope of the Bill? I was unable to understand that point from reading it, and his confirmation would be exceedingly helpful.
I cannot help the hon. Lady, because credit unions are not in the scope of the Bill. Their activities are peculiar to that particular group of mutuals. They understand that it is not possible to include them, and I gather that they are perfectly happy with the situation.
In conclusion, I am grateful to the Government and the Treasury solicitors for their assistance. I am also grateful to Mutuo, which gave me a great deal of help in the initial drafting of the Bill and subsequent discussions with the Government, and to Members of all parties in this House, who have been extremely supportive. I therefore trust that we can deal with the remaining stages of the Bill in the course of this morning.
As chair of the all-party group on building societies and financial mutuals, I am pleased to see the Third Reading of the Bill, even in its adapted and modified form.
I, too, congratulate Sir John Butterfill on taking up the issue and navigating it through some tricky waters where there were plenty of obstacles, some of which were below the waterline and had not been seen. On Second Reading, I said that we were lucky to have somebody who had already achieved the objective on other occasions with private Members' Bills and who is well versed in the art of navigation. When I said that, I did not realise how important those skills would be, given the problems that have arisen.
I endorse the hon. Gentleman's remarks about the support and co-operation of both the Minister and the Treasury team in ensuring that the Bill, even in its modified form, has arrived where it has today. Its gestation started with the Miles report in 2004, which made what appeared to be a simple recommendation about changing the wholesale funding restraint. The subsequent Select Committee inquiry with the all-party group adopted that particular recommendation and added to it the need for building societies to be able to transfer engagements to another mutual. Again, that appeared to be a simple and logical step to take through legislation. However, when the complexities of financial regulation are merged with the complexities of corporate legislation, all sorts of problems arise, which is why the Bill has had such a difficult passage, albeit that everybody has tried to overcome the legal and financial complexities.
I endorse the hon. Gentleman's comments about insurance companies—again, that point was not foreseen. I hope that the good will and commitment behind the other provisions in the legislation will prevail once again, and that the problem will be overcome by the commitment and expertise of those involved.
On Second Reading, I commented that in my locality, the black country, we are blessed by having a number of the smaller mutuals—the West Bromwich building society would call itself a medium-sized mutual—that represent the historical root of the building society movement. The Tipton and Coseley and the Dudley are small building societies, and they have provided a service to local people in one of the most deprived areas of the country for many years. The Bill will enable them to continue to offer the sort of service that they provided for the community in the past.
When the all-party group investigated the relative competitiveness of the banking and building societies sectors, it became quite obvious that the advantage that mutual organisations have in not having to pay out dividends to shareholders enables them to provide better value and cheaper products to local people. In an area such as mine, where incomes are still low—historically house prices were low, but that is changing—the ability of local financial service providers to offer good-quality, low-cost products to people who may have lower incomes is absolutely essential and complements the Government's desire to ensure that areas of this country are not financially excluded.
Building societies have the advantage of having trusted brand names, and because of their historical root in local communities, they are well known and understand the communities that they serve. By passing this legislation and removing the wholesale funding restraint, or at least modifying it so that building societies can borrow more money, we will enable building societies to produce products that are even better tailored and suited to the needs of their local communities. Despite its complexity and its rather arcane nature, the Bill could have a significant part to play in helping people in lower income communities to develop their quality of life and get on the housing ladder.
From the perspective of the all-party group on building societies and financial mutuals, I reiterate my thanks to the hon. Member for Bournemouth, West for taking up the Bill, which could have quite profound long-term consequences. I also thank the Treasury team again for being prepared to embrace it and the principles behind it.
I should like to say a few words in support of the Bill, of which I was one of the original sponsors, and to congratulate Sir John Butterfill on taking it through almost to its completion. I have apologised to him and other members of the Committee for not being here on Second Reading. There are a few comments that I would like to have made then, and would like to make now, but not at inordinate length.
Like several other colleagues in the House, I was a little shocked when I saw the Order Paper this morning. I had been prepared to discuss the Bill at rather greater length than I now propose to do, and had a long disquisition prepared. Indeed, I was going to try to describe to the House an algebraic model of the funding structure of mutuals, which I thought would have supported the debate. However, it is probably no longer necessary, so I shall save it for another occasion. I also had a new clause, which has not been selected by the Speaker, so I do not need to speak to that at any length. More seriously, however, I would like to pass on to the Treasury the substance of that new clause, which can no longer be moved formally, in the form of a thought.
The point that I was endeavouring to make, which has some validity, is that we need a proper system of reporting on the progress of mutual institutions in a factual, statistical way. One of the points that has struck me throughout the debate is that much in the story about mutuality is of a qualitative kind. I have read the excellent report of the all-party group, of which Mr. Bailey is the chair and which is the largest in the House. The group has done sterling work and has made the case for mutuality, but there are no tables in the report. There are a few facts and anecdotes, but there is not a great deal of back-up. If I am asked what share of the British economy is accounted for by mutual transactions, I have no idea. Is it 5 or 10 per cent., or 30 or 50 per cent.? Is it growing or is it contracting?
The specific point that I wished to make about the Bill was that, in order to monitor its progress and implementation, we need a stronger statistical base than the current one, which is very fragmented. Under clause 1, for example, it is necessary to have information on the funding requirements of building societies. In preparing for this debate, I looked through all the basic data to try to find out where that information was. There is a wonderful book compiled by the Building Societies Association called the "Building Societies Yearbook", which is a real labour of love. Among its many tables, there are none that describe the funding ratios for building societies, unless one looks into the balance sheet summaries for each individual society. If we were trying to monitor the progress of the Bill when it became law, particularly the requirements of clause 1, we would not have a readily available source of material, so somebody somewhere should be collating it.
Similarly, the consolidation element provided for under clause 3 requires some idea of the progress that different segments of the mutual movement are achieving. Are they growing or contracting? How many of them are there? The data on that are very poor. For example, the only source of information that I could find on friendly societies was the annual report on them, which is a very good document. At the back it describes in some detail everything from the Liverpool Victoria, which is the biggest friendly society, right down to a wonderful institution that I would love to know more about, the Grand Order of Israel and Shield of David friendly society, whose total funds are zero. There is quite a range of institutions, but if we were trying to monitor the progress of the legislation, and mutuals legislation more generally, it would be helpful to have more background information.
Finally, on that specific point—I shall move on to more general considerations—there are very little data on the industrial and provident societies, which are the most numerous of the mutuals. I have discovered a fine Library paper, drawn up in 2002, giving a breakdown of all the different segments of industrial and provident societies, based on registration information, but I have not seen anything since. The Financial Services Authority, which is the source of the data, does not seem to have published any updates. We therefore just do not have any basis for judging what is happening in the mutual movement, with respect to consolidation and the other issues in clause 3.
I should like to leave the Minister with that thought. Quite apart from whether something could be formalised in legislation, it would helpful if the Government could think of a way of presenting regular reports on the progress of the mutual movement, to which he as the relevant Minister—he has described himself as the Minister for mutuals—has dedicated himself, so that we can assess its progress.
I should like to say a few words that I would have said on Second Reading about my personal interest in the subject and why I agreed to become a sponsor of the Bill.
I fully accept and understand your ruling, Madam Deputy Speaker. I am not entirely sure what the distinction is, because in summarising our review of the Bill in Committee we are, in a sense, going over some of the basic arguments. I am happy to proceed from them, but—
In that case there is no particular reason for me to continue discussing my point, so I shall say a little about the three major components of the Bill as amended. As I understand it, the key component is clause 1, which enables some relaxation of societies' funding requirements and updates the Building Societies Act 1997, following the publication of the David Miles inquiry.
There are two issues connected with that, which probably need to be spelled out a little. The first is the greater freedom for building societies to grow and to draw on wholesale markets. In following some of the discussion, I was a little troubled by the potential implications, although I do support the move. The argument seemed to be that it was important that building societies should expand as rapidly as possible into mortgage lending. The model cited was Northern Rock, which is the one demutualised society that has been able to expand, because it no longer has a funding limit, which is the essence of clause 1.
What worries me slightly is the assumption that rapid expansion into mortgage lending is intrinsically desirable. I suspect that we are reaching the point at which former societies such as Northern Rock are in danger of experiencing serious difficulties as a result of being over-extended in the housing market. It may be that very rapid expansion is not desirable. For example, Northern Rock may well find itself with a great deal of bad debt and having to pressure many of its borrowers into repossession. I therefore have slight doubts about the desirability of unlimited growth.
Does my hon. Friend agree that there is a slight problem, with which the Minister may be able to deal in his reply, as clause 1 now includes a one-way ratchet—the percentage may only be moved in one direction by the Treasury—but in the light of experience, a different policy may be needed at a later date?
That is right. To be fair, the Bill is not prescriptive. In fact, it gives the Treasury power to intervene if circumstances change. The position at the moment is that building societies do not use anything like their funding requirements. I had a look at the ratios: the highest is currently about 35 per cent., but some of them are down virtually to zero. The issue that my hon. Friend raises is logically valid, but I do not think that it is a pressing one in practice. I fully support the purpose of clause 1, but I would enter a slight caveat about the dangers of simply encouraging building societies to borrow from wholesale markets to expand their mortgage business.
I am not quite sure that I agree with the hon. Gentlemen. First, I do not think that there is a one-way ratchet. The Bill gives the Treasury the power to make orders, and presumably those orders could go in either direction. Secondly, the Bill enables the Treasury to move quickly if circumstances demand. Again, that does not imply that there is going to be a sudden rush to increase access to the wholesale markets. It will simply enable the Treasury, using its considerable discretion, to make the rules and, through the Financial Services Authority, ensure that there is compliance.
I was not in any sense trying to criticise the Bill, which I support as a sponsor, because it is not prescriptive. Indeed, it builds in the flexibilities that the hon. Gentleman described. I was simply trying to address the building societies over his head, as it were, and suggest that a rush into wholesale markets to expand mortgage lending may not be wise.
I do not want to labour the point, because I accept what my hon. Friend said about the Bill's practical effect not being as pressing as one might think at this point. However, there is a one-way ratchet in new subsection (6C), in which the Treasury's power to make an order
"may not be amended so as to reduce the percentage in the order" and
"may not be revoked, unless it is replaced by another such order specifying the same or a greater percentage."
That is a one-way ratchet, and there is a policy question to be considered.
Yes, I take my hon. Friend's point, except that in practice that does not require building societies to increase their funding requirement. It gives the power to do so should they wish—that is the whole purpose of the legislation.
Finally, under this broad heading, the other piece of reasoning behind the key provision—clause 1—is that following the Miles report, the Bill will enable building societies to become more active in the fixed interest lending market. The assumption behind the Miles report is that there will be a transition over time to more long-term fixed interest lending, which would be facilitated by the greater use of wholesale markets. That is entirely sensible and it is a good reason for the hon. Member for Bournemouth, West to introduce the Bill.
Again, I would sound a slight cautionary note not just about whether that will happen but about whether, indeed, it is desirable. I have vivid memories of the mid-1970s, when I first bought a house in London, and of coming down from Glasgow and being offered a fixed interest long-term loan by Richmond council at what, at the time, was the almost ridiculously cheap rate of 14 per cent. That was a negative rate of interest, as we were in the middle of a financial crisis, and I was tempted, as it was much lower than what the building societies were offering, but I would have crippled my family if I had taken it. Past experience of long-term fixed interest lending suggests that we need to be careful before encouraging people to go down that road. However, despite those two caveats, the basic provisions of clause 1 are important. The way in which they have been modified by the Treasury is helpful, and I fully support them.
Just a sentence each on the two other basic provisions in the Bill. Clause 2 creates a level playing field for different kinds of claims on a building society should it unfortunately be forced into insolvency. That is an important corrective, but it was emphasised several times on Report that on no occasion since the second world war has a building society failed, so we are dealing with a hypothetical circumstance that is unlikely to arise. It is a necessary provision none the less.
My final point about the Bill was not discussed very much in any of our earlier proceedings, but it is important and in the long term it will probably be the most significant aspect, as it concerns the scope that it provides for the consolidation of different types of mutuals to merge with one another in a way that is not possible at present. Under current legislation, mutuals either have to demutualise to expand and diversify, or find an identical type of mutual institution. The Bill will permit much more diversity of operation. If a friendly society wishes to go in with a building society, or if a football supporters club wishes to link up with a friendly society, that is now possible. That is an important provision in the legislation which, in the long term, will probably have far more far-reaching repercussions than clause 1.
I shall keep my remarks brief, Madam Deputy Speaker, conscious not only of your guidance to Dr. Cable but of the fact that the Second Reading of the Bill introduced by my parliamentary neighbour, Sarah McCarthy-Fry, is coming up next.
First, may I commend my hon. Friend Sir John Butterfill on steering his Bill successfully through the rocky waters of financial mutuals to Third Reading? This is his fourth Bill to reach that stage, and I suspect that it will reach the statute book in due course. It is the product of a collaborative—co-operative, even—relationship with the Treasury, and I spoke to Mutuo last week about the support that it received from the Treasury in discussing some of those issues. I welcome the Treasury's support in ensuring that the Bill reached this stage. I read the report of Committee proceedings in Hansard, as I was unable to participate on Wednesday. Sensible changes have been made to the Bill, and I welcome the way in which clause 1 in particular has been amended to clarify both the procedure whereby applications can be made for increases in the amount of funding from wholesale markets and the process for granting approval. That is an important freedom for building societies that will enable them to respond more appropriately to the growing demands from consumers for good-value mortgage products.
I wish to comment favourably on another change to the Bill. Opposition Members, particularly Front-Bench spokesmen, are often quick to criticise Government Ministers for evading further parliamentary scrutiny of legislation, so it would be churlish not to congratulate the Treasury on introducing the affirmative procedure in the Bill and ensuring that there will be debate on the regulations when they are drawn up. It is important, given the complexity of the issues that this—albeit short—Bill has raised, that there be further debate. I take on board my hon. Friend's comments about the fact that the amendments made in Committee exclude for the time being the mutual insurance company sector. While there are relatively few companies in that sector, they are important players, and I hope that time will be found, if a satisfactory conclusion can be reached, so that universal provision is put in place to ensure that mutuals in different categories can merge without losing their mutual status. It is in the interests of every financial mutual that that relationship exist across all such mutuals.
I hope that the amendments to the Bill enable mutual societies to continue to flourish. Mr. Bailey referred to the West Bromwich building society. Having met its chairman and chief executive, I know the important role that that society plays in the community, and I hope that the Bill enables it and other financial mutuals to continue to go from strength to strength. Finally, may I once again congratulate my hon. Friend the Member for Bournemouth, West on his success and the way in which he has steered the Bill to this stage.
I echo the comments by Members on both sides of the House in congratulating Sir John Butterfill on his achievement and saying how pleased and relieved we are to have reached this stage this morning. I echo especially the comments of my hon. Friend Mr. Bailey, the chair of the all-party group, as the Bill has benefited from all-party support and co-operation in reaching this stage.
The Bill's amendments to building societies legislation regarding the wholesale funding limit and changes to the position of members in the event of insolvency, as well as amendments updating other mutuals legislation to make it easier for one type of mutual society to transfer to the ownership of a different type of mutual society as a subsidiary company, will strengthen the ability of building societies to compete in modern financial markets. They will make the playing field more level and continue to allow mutuals and building societies both to serve their communities—often their local communities—and in some cases to compete on the international, global stage, and to continue to innovate in doing so. Those are the characteristics that make mutuals work so effectively in our financial services arena.
Following the comments of Mr. Hoban, my hon. Friend the Member for West Bromwich, West will know that the West Bromwich building society has built on the leadership that mutuals and friendly societies have shown on the child trust fund. Dr. Cable may be interested to know that the vast majority of child trust funds are being provided by mutuals, and I could provide him with the exact statistic if he so wished. The West Bromwich building society is now also delivering a sharia-compliant child trust fund to meet the needs of British Muslims, in my hon. Friend's constituency and in the other constituencies that it serves. That is an example of a mutual innovating in the best interests of the whole community, but in a way that is particularly attuned to the needs of its local community. To allow that kind of innovation and local leadership to continue, the Government were very happy to support the Bill.
As the hon. Member for Fareham and others said, the Bill would not have got to this stage without the leadership of the hon. Member for Bournemouth, West, who has a fine legislative pedigree in the House. We are confident that the Bill will be a fourth strike for him. Nor would the Bill have progressed without the support of his advisers, especially Mutuo, which has also been helpful in discussions with the Treasury. I also pay tribute to the Treasury officials who, with the hon. Member for Bournemouth, West, have gone into great detail to make the Bill work.
After a thorough, wide-ranging Second Reading, the Bill went through a detailed and intensive Committee stage to ensure that its principles and intentions could be made to work within the complex and detailed technical arena of mutuals and co-operative legislation. I hope that the hon. Member for Bournemouth, West agrees that the amendments agreed in Committee deliver his intentions for the Bill. As the hon. Member for Fareham also pointed out, the changes also preserve the House's ability to debate through the affirmative procedure details of the orders that the Bill enables the Treasury to introduce in due course. Those will follow further consultation on the details of raising the funding limit in particular, and on other changes.
I will not go through all the details of the amendments introduced in Committee; suffice it to say that they were debated thoroughly in Committee, and consensus was reached on the right way forward. I will, however, deal with some points arising from this debate, and with a specific one that arises from discussions with the hon. Member for Bournemouth, West in Committee and subsequently.
In an intervention, the hon. Member for Twickenham asked whether the legislation would apply to credit unions. As he surmised, the answer is no: credit unions are not within the scope of the Bill. Under the Credit Unions Act 1979, credit unions are forbidden to transfer into companies or have subsidiaries. We are separately reviewing the credit unions legislation, and formal consultation will follow an announcement of our intention to consult in the autumn. I have some concerns about the amendments on reporting that he might have introduced on Report, but did not do so, because regulation in the sector is for the Financial Services Authority, and an important part of the flow of information to the regulator is that which is commercially sensitive and cannot be revealed. However, on his broader point that it would be advantageous both to the sector and the House for a detailed statement to be laid before us on the position and role of mutuals, credit unions and building societies in our economy and society, I can see the advantages of bringing that data together in one place. As we prepare our consultation, I will consider whether we could try to co-ordinate the provision of that information. I will report back on that matter.
David Howarth also made an intervention, which might better have been made in Committee, but that is by the by. The Liberal Democrats have attended for most of these debates, but have had a slight tendency to want to have the Second Reading in the Committee stage, and the Committee stage debate on Report and then on Third Reading. I hope that they are catching up— [Interruption.] I do not want to labour that point—
For the benefit of the House, however, I shall answer the point about the ratchet. As the hon. Member for Twickenham pointed out, there is not a requirement for building societies to fund up to the limit to be set in the order—it is an upper limit, which we will set after consultation. But we do not want to be in a position where a building society has funded up to that limit, and then the Government suddenly reduce that limit, as that could be deeply destabilising to the liquidity and balance sheet of a building society, which, up to that point, had been operating within the law and the regulations. While the Financial Services Authority, within its powers under the Financial Services and Markets Act 2000, can reduce the limit for a particular institution for supervisory or regulatory reasons, the House sets the overall framework for legislation and regulation. It would be a mistake to introduce a power to do something across the sector that would be so destabilising. In drafting the Bill, a deliberate decision was made to avoid the Government putting building societies in that situation.
Will the Minister confirm my understanding that although the limit may be raised from time to time, by order, and an individual society may at some time reach that new higher limit, there is no reason why the building society should not of its own volition reduce that amount of borrowing if it feels, particularly after consultation with the FSA, that it is too much? It is not an inevitable ratchet whereby borrowing at that higher level must continue.
The hon. Gentleman once again reveals his detailed knowledge of the subject and why the Bill has been framed properly. He is right. We expect only a few building societies to move towards the limits that have been discussed, but we are creating a freedom that will allow that to happen. It is for individual societies, within those limits and on a day-to-day basis, to choose how to fund themselves. The important point is that legislation at the moment is restrictive and many building societies fear that it hampers their ability to compete and to raise appropriate funds in the wholesale market. That is what we are addressing.
As I know from the depth of my postbag and from the many letters that I have signed in the past month—once again, a tribute to the hon. Gentleman's experience in organising legislation of this type—there is widespread support from building societies and their supporters for the Bill and for allowing that freedom. I have been able to confirm our support for it in writing many times in recent weeks.
The hon. Gentleman raised one point that we have not been able to address satisfactorily. I explained in Committee that it is difficult precisely to define mutual insurers for the purposes of the Bill. Those that are friendly societies are covered by it, but those that have their own statutory basis cannot be covered in a public Bill. The remaining mutual insurers are companies limited by guarantee. We have considered whether the Bill could be extended to cover companies limited by guarantee that are also insurers, but because insurance is regulated on a Europe-wide basis, we would have to allow the same procedures to apply where the transfer is to a subsidiary of the body corporate in another member state which is similar to a company limited by a guarantee. As we discussed in Committee, that causes us a great deal of difficulty in properly specifying UK legislation which would work in that European context. For that reason, and despite our efforts, we were not able to include mutual insurers in new clause 3 in Committee. I told the hon. Gentleman that we would endeavour to see whether we could make further progress.
I hope that you will allow me to make a final point about what might become part of the Bill in due course, Madam Deputy Speaker.
We are continuing to work with our advisers from Mutuo. I wrote to the hon. Gentleman yesterday, saying that we were happy to work further on the definitions of mutual insurers, but that it would take us days or weeks to know whether we could make progress on that. In conversation with the hon. Gentleman yesterday, on receipt of his letter, I reassured him that even though the Bill was programmed for Third Reading today, that work would continue and that if, in the time available, we could find a solution that would enable mutual insurance companies to be included in the transfer arrangements, we would consider with the appropriate authorities whether it would be possible to table appropriate amendments when the Bill is in the other place. I cannot, however, make a commitment that that will happen, because it has proved difficult to include them up to now, although I understand that in recent days the possibility of making progress has opened up. If we can, we will facilitate amendments in the other place, but we will not allow anything to occur that would destabilise the Bill or slow up its passage to the statute book.
We want, as the hon. Gentleman does, the Bill to be on the statute book at the earliest opportunity. With that caveat, we will continue to work to see whether a solution can be found. If it cannot, we will continue to see whether other opportunities arise, perhaps when he has another chance to bring a private Member's Bill before the House.
What the Minister suggests is sensible. It will involve making time available in this place for us to consider a Lords amendment, but I understand that that may be possible. I also fully understand that it may not be possible to find a solution. However, I am grateful to him for his efforts and I pay particular tribute to his contribution in getting the Bill to where it is today.
The hon. Gentleman is generous. It has been a collective co-operative effort from hon. Members on both sides of the House. His leadership in particular has made it happen. We are on the verge, with consensual agreement, of taking an important further step forward for the building society and mutual sector in our economy and society. As I said, once the Bill reaches the statute book, with the Government's full support, it will strengthen further the position of building societies and mutuals. They play a crucial role in innovating, serving their local communities and competing nationally and internationally in what is a fiercely competitive global financial services market. I am happy and proud to commend the Bill to the House.
Question put and agreed to .
Bill accordingly read the Third time, and passed.