I beg to move, That the Bill be now read a Second time.
I wish to begin by thanking my right hon. Friends the Members for Islwyn (Mr. Touhig) and for Cardiff, South and Penarth (Alun Michael), my hon. Friends the Members for West Bromwich, West (Mr. Bailey), for Edinburgh, North and Leith (Mark Lazarowicz), for Plymouth, Sutton (Linda Gilroy), for Loughborough (Mr. Reed) and for Sheffield, Heeley (Meg Munn), and the hon. Members for Twickenham (Dr. Cable), for Buckingham (John Bercow) and for Bournemouth, West (Sir John Butterfill) for supporting the Bill. I also wish to record my thanks to officials from the Treasury for their technical support, and to Michael Stephenson and colleagues from the Co-operative party.
Let me place today's debate in context—historical, contemporary and future. Much debate in this House over many decades has been about the respective merits or demerits of private enterprise, as opposed to public ownership or public service. Yet there is, of course, a formidable third sector—I hesitate to use the term "third way"—based on ideals of mutuality or co-operation.
The early ideal and the practice of co-operation more than two centuries ago was a product of its time, the backdrop being industrialisation and urbanisation with the gross exploitation of men and women during that period of rapid economic and social change. Living standards were threatened for those on modest incomes. As young Beatrice Potter, later Mrs. Sidney Webb, wrote in her first book about the co-op movement:
"The belief in a co-operative system of industry arose in the untutored mind of Robert Owen and, doubtless, in the minds of other English men, as they watched the doings of the stupendous revolution in industry and commerce which engrossed the energies, stimulated and governed the activity of the middle- and working-class from 1770 onwards."
Robert Owen is, of course, a key figure, but many have traced the origins of co-operation or mutuality to a much earlier history. Indeed, there is even a reference that in 203 AD— [ Interruption. ] Given his chuckle, my hon. Friend David Lepper obviously recalls the reference. In 203 AD, the Romans had mutual insurance societies to provide for death and retirement, so giving an early answer to the Pythonesque question of "What did the Romans ever do for us?"
After a long period of slumber and decline, co-operatives and mutuals are experiencing a renaissance. It could hardly be more timely. With the mainstream banking sector in some disrepute, customers seek a reliable and honest home for their money. With many people looking for ethical alternatives, goods that are fairly traded and produced sustainably make co-ops, both large and small, attractive. Some are also attracted to the idea of what we used to refer to as the "divi", which is not a daily allowance, but an annual one.
Co-ops, mutuals and credit unions are already significant players in the British economy, with total assets in excess of £400 billion and a combined membership of more than 30 million, but now we have the opportunity for a substantial expansion and, in the finance sector, for an alternative both to market structures and to nationalisation.
Renewal is evidenced by three recent significant developments. The Co-operative Retail Society has now combined into one entity, bringing together many separate retail societies and around 2,200 stores. Secondly, the new unified Co-op is taking over more than 800 Somerfield retail stores, which will mean a combined market share of 8 per cent. To serenade the revival, Bob Dylan has allowed "Blowin' in the Wind" to be used as the soundtrack to a new Co-op advertising campaign—I note that the great man is bringing out a new album. Thirdly, the Co-operative bank and the Britannia building society have announced plans for a merger—a new £70 billion "super-mutual" bank.
It is therefore my pleasure to introduce this Bill for its Second reading. The Bill traces its beginnings to a Government consultation of 2007, which reviewed the legislation for credit unions and co-operatives in Great Britain. Responses to that consultation indicated an overall desire to update the legislation for credit unions and co-ops. Although there have been legislative changes in recent years, the bulk of credit union legislation had not been updated for almost 30 years and much of the legislation for co-ops, as embodied in the Industrial and Provident Society Act 1965, was itself a consolidation of 19th-century legislation. The Government's response to the initial consultation was equally emphatic and signalled a desire to legislate.
The consultation identified some 30 or so issues for both credit unions and industrial and provident societies that needed to be addressed in order to bring the legislation in line with international comparators and to meet the commercial realities of the 21st century. The Government plan to take forward the majority of the proposed reforms using a legislative reform order, but there are still some residual issues that can be addressed only through primary legislation, hence this private Member's Bill.
Before I go on to introduce the detailed content of the Bill, I want briefly to highlight the important role that credit unions and co-ops play in today's society and economy. Credit unions and co-operatives, as mutual societies, are inherently different from proprietary companies. They belong to their members and are not answerable to external shareholders. They are therefore able to operate on longer-term planning horizons without pressure for short-term profit or gain. That ethos is even more important in the current economic climate.
Credit unions in Great Britain not only provide for greater choice and diversity in the economy but offer many people on low incomes an opportunity to engage with mainstream financial services. They encourage their members to save in order to become eligible for loans, thereby instilling a savings culture among them—a culture of thrift and caution that must be admired. I witnessed that good work myself on Monday evening, when I was asked to speak about the Bill at the annual general meeting of the Croydon Savers credit union. That credit union has more than 1,000 members and plays a valuable role in my constituency. Perhaps I should declare a potential interest in that, encouraged by the excellent work of my local credit union, I have decided to become a member. I hope in the initial months to be a saver member, but I never take elections for granted and there is always a possibility that the saving-borrowing situation could change in the future.
Credit unions have also been prolific in supporting savings initiatives such as child trust funds and individual savings accounts. They have historically operated in areas of economic and social deprivation, often being the only means of engagement with the financial system for many who have been financially excluded. They offer an affordable alternative to unscrupulous doorstep lenders, some of whom have been known to charge annual percentage rates that exceed 200 per cent., contributing to increasing debt and misery for thousands of families.
Credit unions are the decent alternative to both the high street banks, which often, sadly, offer little to low-income groups, and the foul loan sharks, charging extortionate interest rates, who stalk single mothers in our most deprived communities. Today there are more than 500 credit unions in Great Britain with nearly 700,000 members and assets in excess of £500 million. From its humble beginnings, the credit union sector has grown from strength to strength.
The contribution of co-operative enterprise to the UK economy is well documented. Co-operative enterprise is at the forefront of responsible business practice including fair trade, ethical policies based on customers' concerns and corporate social responsibility, as well as significant community sponsorship. Co-operatives are also leading innovation in many sectors; Braille on packaging is just one example.
The way in which my right hon. Friend is tracing the renaissance of the traditional concept of fairness and mutual benefit is compelling. Does he agree that his Bill does more than merely bring a traditional model up to date? It makes that model an ideal option for the internet age and for the types of modern businesses and communications that are playing an increasing part in our society today.
I agree. I have talked about the co-ops leading on much innovation, and internet business is one example of that and is of great help to many families who have internet access and want to use co-operative and ethical alternatives.
Co-operative enterprises have a distinct community focus, engineering social cohesion and fostering local entrepreneurship. They straddle a wide range of businesses from cottage industries to large enterprises such as the Co-operative Group. Co-operative enterprise continues to grow and there are now more than 8,000 co-operatives registered in Great Britain as industrial and provident societies. As we have seen that is a long and honourable tradition on which we can build.
The recent economic downturn has cast a shadow over much of the financial services sector, yet in all this co-operatives and credit unions continue to persevere and, indeed, to thrive. I want to see a revitalised and self-sustaining co-operative and credit union sector, attracting a new generation of members and offering much needed services to its members. The Bill complements other planned legislative changes that the Government are carrying out. It will allow the sector to expand and place it in a better position to operate in today's competitive economic environment. The Bill will also ensure that important corporate governance improvements can be made to credit union and co-operatives legislation.
There is a distinguished tradition of private Members' Bills for the mutuals sector. Examples abound and include those promoted by my hon. Friend Mr. Thomas, who I see in his place, by my hon. Friend Mr. Todd and, more recently, by the hon. Member for Bournemouth, West, who is one of the sponsors of this Bill.
My hon. Friend the Member for Harrow, West created an enabling power for the Treasury to amend industrial and provident society legislation using secondary legislation in line with any changes to company law. My hon. Friend the Member for South Derbyshire introduced an important power to enable the Treasury to lay secondary legislation to introduce an asset lock for community benefit societies. The asset lock is designed to ensure that on a break-up of an industrial and provident society, assets are not distributed to individuals but are transferred to a society with similar ideals. The hon. Member for Bournemouth, West introduced important changes to building society legislation and facilitated the transfer of a mutual business to another in the mutual family as an alternative to demutualisation. The recent announcement of the proposed merger between the Co-op Group, including its bank, and Britannia building society was made possible by his important legislation.
May I remind my right hon. Friend that that honourable tradition of private Members' legislation goes back even further? In the late '70s, the legislation that set up worker co-operatives was also a private Member's Bill.
That is a useful reminder.
I shall now turn to the provisions of the Bill, although not in too much detail. It is aimed at modernising the legislative framework for credit unions and co-operatives. I am pleased to inform hon. Members that in addition to making provision for credit unions, this Bill makes provision for co-operatives run for the benefit of their members and co-operatives that are run for the benefit of the community—I am advised that these are often referred to as "bencoms". Indeed, Treasury lawyers wanted me to say, "Or bencoms, as they are popularly known." That is a popularity not known on the streets of Croydon, North, but it just goes to show that what is popular in the Treasury in not always popular elsewhere. During Budget week, I should not have said that—strike it from the minutes!
These bencoms have increased in popularity since their inception in 2002 and many housing associations, social clubs and football and rugby supporters clubs now use the model incorporating an asset lock. Clause 1 provides that all new societies registered under the 1965 Act may be registered as co-operative societies or community benefit societies. Most co-operatives are registered under the 1965 Act. However, while many would agree that co-operatives are indeed industrious, it is a bit of a misnomer to refer to all of them as industrial. There is, of course, the exception of agricultural co-operatives. As for the word "provident" in the Act, some might argue that it makes the societies sound like institutions of a bygone age, although we hope that they will be provident and prudent in future.
By modernising the name to one that is in common usage, we can help the sector to adopt a modern, 21st-century persona. The introduction of a requirement for new societies to register will also ensure that they can be properly supervised by the Financial Services Authority; that would improve corporate governance in the sector. Clause 2 changes the name of the Industrial and Provident Societies Act 1965 and other Industrial and Provident Societies Acts, and goes a long way towards removing the term "industrial and provident societies" from the statute book.
Clause 3 applies the Company Directors Disqualification Act 1986 to officers of industrial and provident societies, just as it applies to officers of companies, building societies and friendly societies. The 1986 Act provides for the disqualification of officers of companies and various bodies when such officers have seriously mismanaged them. Disqualification means being prohibited for a period from being involved in the management of a company or acting as an insolvency practitioner. Under the law as it currently stands, officers of industrial and provident societies who have mismanaged the society cannot be disqualified. Clause 3 will make their disqualification possible. That will ensure that officers of industrial and provident societies are subject to appropriate sanctions similar to those faced by directors of companies. It will give reassurance to their members and serve as a useful incentive for sound management practices.
Clause 4 gives the Treasury powers to apply to industrial and provident societies certain provisions of company law—on dissolution and restoration of industrial and provident societies to the register, which is kept by the FSA; on investigation of companies; and on company names. It will give the Treasury the power to apply company law on the striking-off and dissolution of defunct societies by the FSA. The provisions include appropriate modifications for co-operatives, so that in the event of dissolution their assets can be transferred to a society with similar objects. That will serve to improve the power of the FSA to deal with societies that remain on the register but have no contact with the FSA. I understand that a number of societies neither file returns nor respond to correspondence.
The law as it stands does not provide the FSA with the tools that it needs properly to deal with the problem and existing procedures for removing defunct societies are cumbersome. The provisions in the Bill will lead to a neater, clearer, quicker and more formal tool to cancel the registration of such societies. Clause 4 will also give the Treasury the power to enhance the FSA's power to investigate companies and requisition documents from industrial and provident societies. The FSA is the registrar of industrial and provident societies in the same way that Companies House, an executive agency of the Department for Business, Enterprise and Regulatory Reform, is the registrar of companies.
Under current law, the FSA has certain powers to investigate industrial and provident societies, but such powers are limited, particularly in respect of those societies that are not regulated by the FSA as providing financial or insurance services. In contrast with that, the Secretary of State for Business, Enterprise and Regulatory Reform has more extensive powers to investigate companies. Clause 4 will enable the Treasury to give the FSA powers of investigation in respect of industrial and provident societies equivalent to the powers that the Secretary of State has in respect of companies. That will increase the FSA's ability to check the proper running of those societies and their corporate governance.
Clause 4 will also give the Treasury the power to apply to industrial and provident societies certain company law provisions concerning names. The FSA, as registrar of industrial and provident societies, already has certain powers in respect of names of societies. For example, it may refuse to register a society under a name that it considers undesirable. However, the Secretary of State has more extensive powers in respect of the names of companies than the FSA has for societies. For example, the Secretary of State has powers to direct a company to change its name if that name is similar to another name on the register or if a company provides misleading information in order to register by a particular name. By enabling the Treasury to give similar powers to the FSA, clause 4 will improve the FSA's ability to regulate the names of industrial and provident societies. Great care has been taken to ensure that the proposed modifications are appropriate to industrial and provident societies, and that they do not create extra burdens.
Finally, clause 5 enables provisions corresponding to building society law to be made for credit unions. The power will allow any provisions of building societies legislation that is deemed appropriate to be mirrored for credit unions. There has been a significant expansion in credit union membership in recent years, and the best way of allowing credit union law to keep pace with credit unions' expanding membership and operations is to be able to bring it into line with building society law, which is tailored to deal with issues specific to institutions that accept deposits. Clauses 6, 7 and 8 deal with technical issues such as the making of consequential amendments and regulations under the Bill, the short title, commencement and territorial extent.
Why is the Bill important? It not only offers an opportunity to make much needed reforms to the legislation on co-operatives and credit unions, but modernises the framework and enhances the corporate governance standards for such societies. Renaming and rebranding them will make the legislation easier to, relate to, and will provide greater appeal to a new, younger generation of members. The Bill comes at a time when the work of credit unions has never been more important, and when ever more consumers are attracted to the ethos and ethics of co-operation and the quality of the product and services offered by such societies.
I welcome the Bill introduced by my right hon. Friend Malcolm Wicks. I, too, think that the ideas and practice of co-operation and mutuality have enjoyed a renaissance in recent years. As he has said, they have an even greater significance during this difficult economic period. I supported a number of the private Members' Bills, to which he has referred, to modernise the law with regard to co-operatives and social enterprises, and I am pleased to do so again in this case. It is always good to meet fellow co-operators on a Friday morning to update and improve our legislation in this area.
In my contribution, which will be a little briefer than that of my right hon. Friend, I want to illustrate how the co-operative movement of today is important, as he did. It is important not just as an idea of history, including our personal history—how many of us remember our parents' divi number?—but because the ideals of co-operation and mutuality are relevant today and for the future. The Bill will help greatly in that regard. Although it may appear quite technical, my right hon. Friend has explained extremely well how its provisions will make a real difference.
Co-operatives are based on the values of self-help, self-responsibility, democracy and equality. In the tradition of the movement's founders, co-operative members believe in the ethical values of honesty, openness, and caring for others. Co-operatives invariably have strong and special relationships with the communities to which their members belong, and they strive to be socially responsible in their activities. Many co-operatives show this responsibility by making significant human and financial contributions to those communities, both at home and abroad. A good example is the Co-operative bank. In 1992 it became the first UK high street bank to launch a customer-led ethical policy—a policy that sets out where it will and will not invest members' money. It has carved out a niche as the ethical banker.
Co-operatives, contrary to the image sometimes presented, can also be a moving force in innovation, as the Co-operative bank showed by being the first to offer telephone and internet banking. It is also at the forefront of tackling climate change—almost all the electricity used by the Co-operative bank is sourced from renewable wind and water. It is good to report that in recent times, there has been an increase in people wanting to move to the Co-operative bank because of its ethical nature.
My hon. Friend makes an extremely important point. The reason why the co-operative movement and organisations such as the Co-operative bank are so strong in helping to achieve such outcomes is that they do not just talk about the issues, but put what they say into practice. So my hon. Friend is right to identify the importance of this aspect of the co-operative movement.
Another feature with which we are now all familiar, but which was not always the case, is that the co-operative movement is a leading champion of fair trade. It was the first major retailer to sell Fairtrade products in its stores back in 1994, and it was the first UK supermarket to launch its own brand of fair trade products in 2000. As a co-operator, I am pleased that the co-operative retail movement is still the leading British retailer for Fairtrade products.
I know how co-operatives go out of their way to promote equality. Succeeding within a co-operative business is a win-win situation—it is great for the individual, for the business and for society as a whole. There is no doubt in my mind about what co-operatives offer to communities. Having seen people in my constituency setting up their own social enterprises, it is clear to me that the co-operative model gives them more than they would get from just setting up a company.
There is no doubt in my mind that the co-operative business model offers a great deal to women. To exploit the potential of co-operative and mutual enterprises, women need access to information on the various business models available. Organisations such as Co-operatives UK have unique expertise in this field. As well as being part of the co-operative world and wanting to see it grow and succeed, they know the issues that have held women back from starting and growing businesses. During my time in what was then the Department of Trade and Industry, alongside my right hon. Friend the Member for Croydon, North, I recall that Co-operatives UK did a great deal of work promoting women in business, particularly through that model, and I was proud to have worked on that.
My right hon. Friend mentioned a large retail society, the Co-operative Group, but there are, of course, retail societies around the country that may be somewhat bigger than when they started out but that are regional in nature. I have great admiration for the Lincolnshire Co-operative Society, and I recall some years ago meeting a number of women employees from its range of businesses. The society was one of the top 50 places where women want to work in this country. At that meeting were women from pharmacy, accountancy and bakery, and a funeral service manager. They told me how working in a co-operative helped them with their work-life balance, and how they were encouraged to build on their work experiences for the mutual benefit of themselves and the co-operative.
Working for the benefit of those around you forms part of the ethos of that other co-operative institution about which my right hon. Friend spoke, the credit union. I am pleased to tell him that I, too, am a member of a credit union and have so far managed to stay on the saving side. Credit unions are not-for-profit organisations, set up for the benefit of their members. The regular process of saving every month or every week, as is the practice in some credit unions, means that members receive loans related to what they can afford, which promotes good practice.
My right hon. Friend rightly mentioned the low rates of interest, and the help and support that enables people who would otherwise struggle to get loans to manage their financial affairs sensibly. Credit unions are essential local institutions, and although they have not received as much attention as I would like on the financial pages, they are as relevant today as they have ever been.
We need our co-operative and mutual sectors to compete more effectively in the future than they have done up to now. They will be able to fulfil their valuable social role, protect their members' asset and provide socially responsible growth. The principal purpose of the Bill helps them to do that by ending all artificial legislative obstacles, thereby levelling the playing field. It has tremendous significance for the mutual sector and the wider economy.
I pay tribute to my right hon. Friend for his work and to the co-operative movement, particularly the Co-operative party, for its help. Putting co-operatives on an equal footing with proprietary companies in a number of respects must be an essential step, moving us forward in the 21st century. I am pleased to support the Bill, and I thank my right hon. Friend the Member for Croydon, North for bringing it to the House.
I, too, congratulate my right hon. Friend Malcolm Wicks on bringing the Bill before the House. I look forward to supporting him as it goes forward, I hope, to its future stages. Like many hon. Members present, I have an association with previous legislation, and this is almost the last piece in the jigsaw. It is needed to ensure that co-operatives, community benefit societies and credit unions can go from strength to strength to play their role in our economy at a time when that is needed more than ever.
It is more than 20 years since someone asked me to join the Co-operative party. As I was working in the consumer movement at the time, I was particularly attracted by the way in which it put consumers and their interests first. Having joined the Co-op party, I learned so much more about the history, traditions, values and principles of the movement. Co-operatives are based on the values of self-help, responsibility, democracy, equality, equity and solidarity. As they are so much more than a set of values, history, traditions and principles, the role of co-ops and community benefit societies in the 21st century is set to become increasingly important.
In Plymouth we are blessed with many such organisations. For 149 years we have had the Plymouth Co-operative Society, as it was originally called, which is now the Plymouth & South West Co-operative Society. It is currently in discussions to become part of the Co-operative Group. The Wolseley Community Economic Development Trust is probably the largest of its type in the whole of western Europe. The Millfields Community Economic Development Trust is also a major player in our local economy. We are hoping that a successor body to our new deal organisation, the Devonport Regeneration Company, will be able to develop its own community land trust, which is similar to the type of organisations that we are discussing today.
I am grateful to my hon. Friend for giving way and for referring to that visit, which was undertaken with officials from the Treasury, who were looking at the potential benefit of co-operative models and governance to the wider public service and the wider economy. She has rightly mentioned the critical mass. Does she hope that the Bill will help the building in other parts of the country of similar critical mass to that enjoyed in Plymouth, and would she encourage members of the Treasury team dealing with the Bill to look at the wider lessons that came out of that valuable visit?
I very much agree that that needs to be done, for reasons that I shall go on to describe more fully.
On that day we also visited Playtots, one of several nurseries in the city that run along co-operative lines, and the Hope Credit Union, of which I became member No. 100 a few years ago, and which has gained several hundred more members since then. We also visited the Tamar View community centre in the neighbouring constituency of my hon. Friend Alison Seabeck.
My right hon. Friend the Member for Croydon, North discussed the renaissance in the ideals and values of co-operative organisations, and in an intervention my right hon. Friend the Member for Cardiff, South and Penarth remarked on how appropriate they are to the internet age. My right hon. Friend the Member for Croydon, North comprehensively set out how and why that is happening, and I would like to add a few further thoughts. Their ethos, principles and structure tend to circulate money, which, after all, is only the means of exchange within the local and regional community, which, in contrast to globalisation, promotes a virtuous circle of economic activity. We have seen many benefits from globalisation, but we have failed to reinvent some important checks and balances, and co-operative and mutual organisations will allow us to do that in future. Hence the great importance of this Bill.
The activity of plcs is so much more unpredictable and volatile than that of co-operatives. As I often say to my many friends who are concerned about the matter, plcs fund a large part of our insurance and pension industries, so in themselves they are a good thing, but they are less predictable and more volatile than co-operatives, whereas co-operatives allow us to anchor more activity in a local and regional community. Co-operatives work with the grain of what is good about markets. Markets often fail, and worker co-operatives are often used to conduct phoenix rescues of such businesses, which people in my community are particularly well known for implementing. Co-operatives also work to restrain some of the volatility in the open and free markets.
Co-ops, community benefit societies and credit unions can fail and falter themselves, and the Bill contains some important provisions on registration and disqualification of directors in the case of serious mismanagement, which it is important to have on the statute book. Co-operative and community benefit societies have a couple of other important roles that are beneficial to our macro-economy—they may become increasingly important—and to the hard-pressed circumstances that Government funding will find in the future decade and decades, including in our important local government and public services. I wish that I had a pound for every time that someone said to me during my working life, "Linda, I have been running this voluntary service and now the grant has gone. Please don't let them take my grant away." I also wish that I had a pound for every time that someone said to me, "Linda, I have such a good idea. If only somebody would give me some money for it, but I'm told that there is just not enough money to go round." I also wish that I had a pound for every time since I started work 35 years ago with the voluntary organisation Age Concern Scotland that it said, "If only our core funding could be guaranteed."
Effectively, at the moment, there is a cap on social enterprise, but there are many examples of how co-ops and social enterprises have developed trading activities that can release them from that straitjacket. Elected Members here in Parliament and local government should become much more conscious of how we can empower voluntary and community organisations to develop the tools to earn their own core funding, and we should concentrate on providing those tools and making it conditional when a grant is awarded for three, five or even 10 years in some cases, that they should be able to earn by whatever means—it might not even be their core activity; it might be by some trading function—the money that will allow them to become independent and allow those who are elected to fund other organisations. I welcome the Bill and the work of my right hon. Friend the Member for Cardiff, South and Penarth, a copy of whose report I have here, which demonstrates how, in a thoughtful way, we could tackle the tax trap that puts that cap on social enterprise.
By sheer coincidence, late last night someone sent me a think piece on the role of universities in unlocking social enterprise and creating a sustainable and future-facing knowledge city. It is a perspective from Plymouth university, which I want to quote because it has opened my eyes to the extent to which that critical mass operates within my community and the potential that it has elsewhere:
"In 2005, the Annual Survey of Small Businesses UK found that there are 55,000 social enterprises in the UK"— not all of them, of course, are co-op and mutual or community benefit societies, but many of them are—
"with a combined turnover of £27 billion. Social enterprises account for 5% of all businesses with employees, and contribute £8.4 billion per year to the UK economy. The Cabinet Office states that 'whatever form they take, social enterprises prove that social and environmental responsibility can be combined with financial success'...Research demonstrates that social enterprises enjoy a good survival rate in recessions. In economically challenging conditions, enterprises set up on social principles weather the financial storm and in many cases grow stronger. It is also exciting that social enterprises are usually set up by people who are passionate about creating a business and giving back something to the community...The opportunity this brings for universities to work with talented people means engaging with a new tranche of people and learning more about outreach and delivery in place, working with schools, colleges and other learning providers such as Business Link. The South West region is responsible for almost a fifth...of all social enterprises set up in the UK".
I hope that as my university goes forward as the enterprise university, it will have a strong social enterprise dimension, including community benefit and the co-operative organisations with which the Bill deals today.
I hope that the Bill will not only achieve that but give a new lease of life to some important traditional values at a time when people are looking for something on which to base their future—as my right hon. Friend Mr. Prescott said when he was Deputy Prime Minister, traditional values in a modern setting.
The Liberal Democrats support the Bill and it is worth putting on record why. I do not think that we will be alone in that. The Government will support it and a good number of Labour Members here are warm in their support for it. The reason why we support it is obviously that credit unions address the issue of financial exclusion. They deal with people who cannot use banks or who are uncomfortable with using banks. I dare say that more people then ever are uncomfortable with using banks these days. Certainly it is best that such people avoid the loan sharks, which were mentioned by Malcolm Wicks, or the pawnbroker, with all the horrific consequences that they often entail.
The right hon. Gentleman is right to suggest that the time has come for this idea: the time for credit unions is now. He spoke of substantial expansion in this sector—mergers, developments and the introduction of big players such as Britannia. Local authorities now look very positively on credit unions—as something other than a marginal aspect of their work—and the Government look fairly positively on them, too. The thinking is that, perhaps, credit unions should extend their reach beyond the usual groups to which they appeal to people in middle-class and suburban areas who have not thought of them as a viable financial alternative. There is no doubt that credit unions will become an increasingly significant player.
If we accept that credit unions are to become larger, better funded and state supported, however, we must look very hard at governance. There is a dilemma, because although we do not want them to lose their volunteer base, which is their strength, we want them to gain a proper professional approach. The Joseph Rowntree Foundation recently studied credit unions and decided that, in many cases and for no bad reason, they were devoid of a range of skills that would help them enormously in their work: skills in management, in product marketing, and critically, in accountancy.
The Bill provides for those skills, to some extent, by bringing in regulation, because a properly regulated credit union will have to possess those skills or be asked to acquire them. However, the foundation makes the point that, with increasing local authority involvement and state and local authority support, we must be very careful not to denature an organisation so that it becomes something else—just another financial institution. We do not want to diminish the role that people play as individual contributors and depositors.
Some reassurance on that—possibly during the winding-up speeches—would be helpful, as would some reassurance that smaller credit unions, which, perforce, will want to stay small and will stay small, will not be crushed by the burden of regulation. It is important, however, that we do our maximum to encourage probity in those organisations, because probity is crucial to the reputation of credit unions but, in some cases, has not always existed.
There is one point that the right hon. Gentleman did not make, and it is worth considering in the context of the debate. Credit unions often start in working-class areas and provide a method for the community to pull itself up by its own bootstraps, but an unstated and important aspect of their role, which is often missed, is informal financial education. Will the right hon. Gentleman consider whether that, too, should be supported and encouraged by legislation or, indeed, whether legislation can actually do so? That aside, the Bill deserves to progress and may do much good.
I congratulate my right hon. Friend Malcolm Wicks on introducing the Bill, which is an important contribution to the changes taking place in the mutual movement. I congratulate him for several reasons. The Bill is modernising legislation. It will bring industrial and provident societies and credit unions into the 21st century, and that is important at this stage in their development. Crucially, for industrial and provident societies, it will modernise their image: they are finally beginning to get away from their origins in 19th-century philanthropy. The words "provident" and "industrial" in the context of co-operative and credit unions are misnomers, and this change is long overdue.
The hon. Gentleman can take that for granted. Those organisations were built on the strength of 19th-century philanthropy and owe it a great debt, but they also owe it to current and future generations to be relevant to the purposes for which they are required at this point in their development. This legislation will make a positive contribution to that, and I hope to explain why.
The legislation is also important because it will create a level playing field and protect organisations' assets, as companies' assets are protected. It will also protect the membership, which is often dependent on those who run the organisation, and help to modernise it. The Bill affects a not insubstantial part of the economic and social fabric of our country. My right hon. Friend mentioned that it was part of both the third sector—a very large sector—and of the so-called mutual movement. We are dealing specifically with industrial and provident societies, community benefit societies and credit unions, and they have an important role in providing goods and services for their members and communities throughout the country. The Bill will improve the administration of those organisations.
Coincidentally and interestingly, I received through the post this week, as I suspect other Members did, the first "Mutuals Yearbook 2008", produced by an organisation called Mutuo. The yearbook tells me that the mutuals sector has just over 16,000 member organisations and a United Kingdom membership of 23 million, and that, if members linked arm in arm, they could stretch from London to Sydney and all the way back again. With a turnover of £83 billion a year, it is, by any yardstick, a substantial movement, and it consists of a diverse group of co-operatives. I have been involved with worker, housing and community co-operatives, but in the movement's orbit there are also agricultural co-operatives and various other organisations in different parts of the economy.
The retail and consumer co-operative movement is probably the best part of the sector, as it is so prevalent on high streets throughout the country. As my right hon. Friend mentioned, the Co-operative group recently took over the Somerfield group of companies and, as a result, that co-operative is now the fifth largest retailer in the country, providing significant benefits to its members in communities throughout England and Wales.
My hon. Friend has a long and respectable history in housing, so does he share my puzzlement at the fact that co-operative housing has been a relatively small sector of housing provision in the United Kingdom, and does he hope for a renaissance in co-operative housing development?
I thank my hon. Friend for that question, because it gives me the opportunity to describe a conundrum: we often talk about the need not to get tied up in housing tenure, so we should talk not about rented or owner-occupied accommodation but about providing good accommodation. Co-operative housing shifts the focus off tenure and tries to deal with quality and the provision of decent standards in housing. I am amazed that, while Scandinavian countries, Canada and many other western countries have significant co-operative housing movements, the United Kingdom, sadly, does not. As policy makers, we ought to think seriously—although perhaps not in this debate today—about trying to create the conditions in which a housing co-operative movement can flourish.
Let me return to the retail co-operative movement. Bob Dylan's "Blowin' in the Wind" has been part and parcel of the Co-operative's insignia and television adverts, and the group has taken over Somerfield; furthermore, Co-operative Financial Services and Britannia building society have amalgamated. Some suspect that the first super-mutual is being created. We can thank Sir John Butterfill, whose legislation created the conditions under which that could happen. I hope that the Bill will help to create conditions in which the co-operative and credit union movements can go forward.
Credit unions have been growing relatively fast since the original legislation that created the credit union movement came into being in the late 1970s. Currently, there are about 650,000 members of credit unions, with roughly £590 million in assets. We ought to look at the ambition of the movement if we are to grasp the possibilities. In conjunction with the Co-operative bank, credit unions have recently been able to set up current accounts for their members, and many are considering partnerships that will allow them to issue credit cards. Moving into mainstream financial services is the way forward for credit unions, and we must do everything we can to foster that.
At the time of the original legislation in the late 1970s, this country's credit unions, formed mainly through immigrant Irish and West Indian communities, had fewer than 10,000 members and assets of less than £1 million. We can see how much credit unions have advanced in that time, but they have much more to do if they are to be relevant to communities and members throughout the country. I hope that the Bill will allow us to make changes. Credit unions still exist under the framework of the original Act of Parliament, and modernisation is long overdue. I hope that my right hon. Friend's Bill will help to achieve it.
What will the Bill do for co-operatives and credit unions? First, it will allow them to improve their services. Member and customer loyalty is important, and the Bill will help strengthen it. It will help create greater trust. We know, for example, that the public trust building societies much more than banks, and all the evidence says that the public—especially credit union members—also trust credit unions. Retail and other co-operatives undoubtedly have a strong link with their members, and that trust, which is critical, is fostered in the Bill.
The Bill will help the organisations to respond to community and membership needs, which is also critical. Co-operatives, community benefit societies and credit unions serve particular markets—often markets ignored by the private sector. We have talked about the need of low-income consumers for basic financial services; often, they cannot go to a bank or any other conventional high-street organisation, and credit unions are critical in helping them get such services.
The Bill will help modernise the movement and make it more relevant. It will also help the organisations to innovate. As was mentioned, the 2007 Treasury consultation is pertinent. The members and customers of co-operatives, credit unions and community benefit societies were consulted about what they needed to improve their organisations. Not everything will appear in the Bill, although it does a great deal; other things could be enacted through secondary legislation in the House, and many are critical for the future of credit unions.
I mention, in passing, the issue of the reform of the common bond, on which there has been debate. Sadly, my own Edmonton credit union is no longer with us, but I remember our many debates about how we could form a common bond that would make it possible for it to expand its services. We are beginning to see the need for that type of reform. Payment of interest on accounts happens within other conventional financial services organisations, and it ought to happen in credit unions. The membership of corporate bodies might seem a simple issue, but it could make an enormous difference to the well-being and progress of credit unions up and down the country.
Many of those changes and the changes in the Bill have been promoted by the credit union movement and co-operatives, and the Bill addresses issues for which there is a need for primary legislation. It has the strong support of members and of the organisations concerned, which is why I am pleased that we are here today supporting it. I understand that Government Front Benchers and one of the Opposition parties support it; I wait to hear the position of the other one. I am sad that so few Members are in the Chamber today, but I hope that everyone here supports the Bill.
I turn briefly to the changes to be introduced by the Bill. I am sorry if I am repeating what has already been said, but it is important that we clarify why the Bill is being brought forward. Industrial provident societies will now be registered as co-operative societies or community benefit societies. I would like to be reassured that the newly named co-operative societies will comprise only bona fide societies that have in their rules the Rochdale principles, on which co-operation is based, if they are to qualify to be called co-operative societies. I am not clear whether that is the case, but it is an important consideration. When the Bill is in Committee, I hope that the Minister will give a reassurance that those principles will be a core component of any organisation that calls itself a co-operative society.
It seems plausible and logical that to be a community benefit society, a society must be for the "benefit of the community". That is an important consideration. Not all so-called industrial and provident societies that are supposed to be for community benefit turn out to have a benefit for the community. The upgrade is important and will reassure the public that something called a community benefit society will truly be one.
I mentioned earlier that the Bill would update the language we use, making it relevant to people today and giving them a much more accurate view of what these organisations do. Similarly, clause 2 would change the name of the Industrial and Provident Societies Act 1965 to the Co-operative and Community Benefit Societies and Credit Unions Act 1965. That may sound like a very simple change, but during the passage of previous legislation—other Members here have were present at that time—we have called for a change of this nature to update the name and, without putting it too dramatically, in effect to sweep away industrial and provident societies by renaming them. I congratulate my right hon. Friend the Member for Croydon, North on that—although I have to say that referring to co-operative and community benefit societies and credit unions Acts would be quite a mouthful for those 600,000 credit union members when discussing them at their meetings.
Clause 3 would make credit unions and industrial and provident societies subject to the Company Directors Disqualification Act 1986. One of the most curious anomalies in this area has been that until the time of that Act, these organisations could not disqualify someone who had mismanaged the organisation of which they were part. It seems unbelievable that people could continue to be at the centre of organisations when it was clear that they had totally mismanaged them. The Bill also covers disqualification for criminal conduct—a very welcome clarification that would provide a strengthened role for the membership of these organisations to ensure that they are administered properly.
The benefits of the Bill would be threefold. First, it would in many ways provide a level playing field with other organisations with which these organisations compete in the marketplace. That is very important. Secondly, it would give protection against unfit directors, or trustees as they are called in these organisations, thereby strengthening the membership's role in ensuring that their trustees act in the best interests of their organisation. Thirdly, it would provide transparency, clarity and consistency for members, again strengthening their role, which is vital in terms of their being democratic organisations.
The next part of the Bill would bring certain provisions of company law into operation for industrial and provident societies and credit unions. As a result, some of the secondary legislation that applies to companies would now apply to these organisations, so that they would be able to carry out investigations. That is absolutely vital. A member should be able to go to the registrar and call for action on something, and it should be able to be done; that has not been the case so far. The ability to take action on company names is an important power. Often, names will exist not to provide transparency but to hide the purpose of the organisation. There would be the power to dissolve societies and to remove them from the register—although I think that that would satisfy the Financial Services Authority, which wants to get rid of these organisations, more than their memberships. Those would be welcome changes, updating the legislation to bring it into the 21st century and bringing it up to the standards of legislation covering other companies and organisations.
Clause 5 would align credit union legislation with the existing provisions of building society law. That is very important. As I said, credit union legislation has not been comprehensively updated since the original Act way back in the late '70s. That Act was very proscriptive: it covered almost everything that credit unions could do and limited their room for innovation. The ability to introduce changes that are taking place in building society law would ensure that these organisations do not continue to be left behind. For all those credit union members out there who may be worried about this, the first thing we should say is that none of this would affect the defining characteristics of credit unions. Credit unions would still be financial organisations based in the community and run by their members on democratic principles—important principles that separate credit unions from other financial organisations. Those defining characteristics would be protected in the Bill. Nevertheless, it would facilitate, through secondary legislation, the updating of credit union law to bring it into line with that on building societies, creating a level playing field. These organisations do not want any preferential treatment, but they do not want to be disadvantaged in the marketplace, and the Bill would help to ensure that that does not happen.
What would the Bill do overall to improve the situation for both these types of organisation? Its most important effect would be to increase protection for the ordinary member. For an ordinary member with a deposit in a credit union—I have been one in the past—it would increase the protection they are afforded. For an ordinary retail co-operative member, it would provide reassurance that if something was going wrong, action could be taken. It would modernise the language and the law to bring them into the 21st century. It would—I repeat this point, but it is really important to grasp it—create a level playing field. It would remove unreasonable barriers and burdens that have been placed on industrial and provident societies and credit unions. Much of that would be done through secondary legislation, but the Bill would enable that secondary legislation to occur. On the basis of the provisions in the Bill, including its enabling provisions to make further changes, I commend it to the House.
It is a pleasure to follow Mr. Love, who speaks on these issues with great passion and eloquence. I thought that he almost argued his case for being a member of the Committee that scrutinises the Bill in referring to the amendments that he envisaged might be tabled to ensure that the Rochdale principles were enshrined in it. I saw Malcolm Wicks nodding at the prospect of somebody else joining the Bill Committee. If the hon. Gentleman thinks that he might escape joining that Committee by joining the Finance Bill Committee, that might indeed be his only way of salvaging his position.
The hon. Gentleman mentioned the Rochdale principles, as did my hon.—and Co-operative—Friend Mr. Love. I welcome that, but I hope that they will note that those principles grew out of the work of Dr. William King and his newspaper, "The Co-operator", which was published in Brighton from the late 1820s onwards, and that the Brighton co-operative movement predates that of Rochdale, while contributing to the principles that I hope all Members present wish to support.
It is always interesting to hear about the historical roots of the co-operative movement, and clearly the hon. Gentleman's comments will go down well in the Brighton Argus. I am afraid that he was trumped by the right hon. Member for Croydon, North and his reference to the Roman mutual societies. No one is in a position to outdo the Romans' pioneering work in establishing mutuals.
The hon. Member for Edmonton was disappointed so few people were in the Chamber to support the Bill. I think that the Prime Minister is looking to change that with the reforms that he is proposing. His official spokesman said yesterday that he thought they might bring more Members to the House, which would clearly be of benefit on Friday mornings.
The hon. Gentleman asked whether we would support the Bill. He acknowledged that the Liberal Democrats were going to do so, and I see that Dr. Cable is a sponsor. I am pleased to say that we, too, will support it. It is very important, as it will modernise the legal framework of co-operatives and protect the interests of the members of co-operatives and industrial provident societies through the provisions that have been expanded on at great length.
The Bill is a link in the chain of private Members' Bills that have been introduced over a number of years to update the legislative framework for industrial and provident societies. I had the pleasure of leading for the Opposition on the Bill that my hon. Friend Sir John Butterfill introduced to update the framework for financial mutuals. As a note of caution for the right hon. Member for Croydon, North, I point out that when that Bill received its Second Reading in March 2007 it was greeted with acclamation on both sides of the House, but when it reached its final stages in October 2007 its main purpose was not quite as popular as it had been just a few months earlier. Its main purpose at the time of its Second Reading was to increase the ability of building societies to borrow from wholesale financial markets. The run on Northern Rock rather put an end to that particular purpose, but of course that Bill has now been used to facilitate the merger of different financial mutuals, which is an important purpose. I have to say to the right hon. Gentleman that I have not spotted any provision in this Bill that might lead to a similar ebbing away of popularity over the course of the next few months, but perhaps if there is any, the Minister might be able to point it out to us.
I shall make some general remarks about the importance of the mutual sector before turning to the details of the Bill's proposals. We should not underestimate the vital contribution that co-operatives make to the economy. One in three of the population are members of at least one mutual, and among Members of Parliament that rises to the staggering proportion of seven in 10. That strikes me as a very high proportion and shows that it is not just on the Labour Benches that there is interest in, and membership of, the co-operative and mutual sector. I myself am a member of a credit union, the Portsmouth Savers credit union, and my wife is a member of the Co-operative Retail Society. The largest supermarket in the part of my constituency in which I live is run by the Co-op, as indeed are many of the convenience stores. Co-ops are sometimes characterised as being something of the north—I say that as someone who was born and brought up in Durham, and whose mother still remembers her dividend number—but the co-operative and mutual societies movement spreads across the whole country. Every community is touched in some way by its work.
There are more than 16,000 mutual organisations, ranging from building societies to NHS foundation trusts—a new approach in which the model of mutualities has been used. Football supporters' clubs are also in the mutuals sector, and mutuals as a whole employ almost 1 million people and serve a membership of 23 million. Not only are mutual societies popular, they have an important contribution to make to the economy as a whole. They have annual revenues of £85 billion and a portfolio of assets of £477 billion, so they play an important role in the economy. As a number of hon. Members have commented, the increased scepticism about some of the more conventional models of ownership has led to a renaissance of interest in mutuals. Of course, the large mutuals compete alongside the very best in the private sector. The hon. Member for Edmonton and others mentioned the acquisition by the Co-op of Somerfield, and in the retail sector we also see the continuing success of John Lewis, which is a partnership and an employee-owned co-operative.
Despite the changes in society, mutuals remain an important part of its fabric. Why is that? Because the very best mutuals harness the power of mutuality to ensure their survival. Good mutuals offer excellent products and services focused on the needs of their customers, as well as strong accountability to their members. Mutuals continually need to justify their existence, and what better way for them to do that than reminding members that they are the owners, and that it is to the owners that the management are accountable? If an organisation's owners are its customers, accountability comes through not just the formal mechanism of meetings but the buying decisions that the members make.
Mutuals are going through a renaissance as mutuality is applied to new areas. The growth of credit unions, on which a number of Members have focused, is a good example. Increasingly, policy makers see benefits arising from models of mutuality, because in many different ways they fill a gap between the public and private sectors. To use an old Blairite phrase, they are the third way, offering the best of each. They are democratically accountable and have a public service ethos, with the characteristics of the public sector, but with dynamism and customer focus, which are often the characteristics of the private sector. They have provided a vital bridge between the public and private sectors, bringing the advantages of democratic accountability and consumer focus.
We are starting to see, for instance through changes in the health service, how mutuals can be used in the provision of services to our communities. In a way, it is an echo of the pre-1945 model of health care. Prior to the introduction of the national health service, a lot of health care was provided by mutuals. Now, as primary care trusts are splitting off some of their provision from their commissioning role, mutuals are again seen as a way of providing a governance framework for the provision of services.
Mutuals are not just a focus of Government policy, but a matter in which the Conservative party is particularly interested. That is why we set up the Conservative co-operative movement—to explore new and creative ways in which communities can deliver public services. I shall give an example from overseas. One thing that we are keen to explore is liberalising the supply side of education by enabling co-operatives to be a vehicle for the governance of establishing new schools. They could play a key role, as parent-run co-operatives provide both accountability and consumer focus. They could retain the public sector ethos yet be dynamic, because they would be freed from unnecessary bureaucracy. That model is used in Spain, where there are more than 600 co-operative schools, and in Sweden where there are nearly 100. There is one co-operative-run school in the UK, in Redditch. We believe that such models can be applied to the provision of public services in future.
What has stood out in the debate is that whether it is new models of public service delivery through mutuals or the way in which co-operatives continue to thrive in providing financial or retail services or as football supporters' trusts, mutuals have thrived despite an arcane legal framework. We welcome the fact that there have been successive moves over recent years to modernise that arrangement and provide co-operatives with the framework that they need to continue to develop in the 21st century. Indeed, that is the purpose of the Bill.
However, we need to be mindful about whether we are creating the impression that mutuals are in every way perfect. As the hon. Member for Edmonton and others pointed out, they are not successful all the time. Sometimes there are problems. That is why mutuals need effective regulation and an effective legislative framework. That is why we need to think for a moment about some of the provisions in the Bill and how they may interact.
Before I do that, however, I want to draw one distinction. In my opening remarks I lumped all mutuals together as a class, but there is quite an important legislative distinction, which comes through in the Industrial and Provident Societies Act 1965 and is repeated in the Bill. The Bill relates to industrial and provident societies, whose remit is set out in the 1965 Act, which makes it clear that a co-operative society
"does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person."
There is therefore a clear distinction between what industrial and provident societies are able to do and what other mutuals are able to do. Clearly there is a fairly extensive legislative framework for other mutuals, such as building societies, credit unions, which are touched on in the Bill, and mutual insurers, which are regulated much more closely than industrial and provident societies are, by the Financial Services Authority. Of course the FSA regulates industrial and provident societies by operating the register, but it regulates only those industrial and provident societies that are registered under the 1965 Act.
In Northern Ireland there is a comparable Act—the Industrial and Provident Societies Act (Northern Ireland) 1969—and the role of the registrar is played by the Department of Enterprise, Trade and Investment. The importance of getting the regulatory regime right for industrial and provident societies is emphasised by some recent events in Northern Ireland and the fate of one particular industrial and provident society, the Presbyterian Mutual Society.
The Presbyterian Mutual Society was registered under the 1969 Act and was strongly supported by members of the Presbyterian Church. Sadly, the society is now in administration, because of a run on it by creditors and members. We should bear in mind the fact that the definition used for Northern Ireland in the 1969 Act is exactly the same as the definition used in the 1965 Act, which applies to industrial and provident societies set up in Great Britain. However, it appears that the Presbyterian Mutual Society was, under the nose of its regulator, the Department of Enterprise, Trade and Investment, acting as a bank. That was not picked up, either by the society's own regulator or by the FSA, in its role as a regulator of financial services.
Because the Presbyterian Mutual Society is outside the regulatory remit of the Financial Services and Markets Act 2000, it is not covered by the Financial Services Compensation Scheme, so its members are dependant upon the outcome of the administration to recover their investments. That will cause a great deal of hardship and uncertainty for its members. According to the investigation carried out by the FSA, the Presbyterian Mutual Society should have sought authorisation from the FSA, but it did not do so. As a consequence, the Presbyterian Mutual Society's members lack the normal protection that members and customers of a financial mutual would have.
The Treasury and the Department of Enterprise, Trade and Investment have announced an investigation of the regulation of Northern Irish industrial and provident societies. However, does the Minister agree that we need to ensure that the investigation looks at why neither the Department of Enterprise, Trade and Investment, as the registrar of industrial and provident societies in Northern Ireland, nor the FSA, the UK's financial regulator, picked up on the fact that the Presbyterian Mutual Society was acting in breach of law?
We owe it to the members of the Presbyterian Mutual Society to consider the issue carefully. I would also like to ask the Minister whether he is confident that the procedures used by the FSA, in its role as registrar of industrial and provident societies, and by the Department of Enterprise, Trade and Investment in Northern Ireland, were sufficiently robust to enable them to spot industrial and provident societies operating in breach of the rules. Is there adequate oversight of the sector to ensure that what has happened to the Presbyterian Mutual Society cannot happen again?
What has happened is, along with the problems with the Dunfermline building society, a timely reminder that mutuals are a hugely important part of the economy. They are trusted by so many people, but they need proper supervision, regulation and legislation. That is an important reason why we support the Bill—because it takes forward those opportunities so much further and provides reassurance to members of industrial and provident societies.
The Bill flows from the consultation that the Government initiated in 2007 on the legislation covering industrial and provident societies and credit unions. The purpose of that review was to identify areas where inflexible regulation hinders operational effectiveness and acts as a barrier to societies being used in the 21st century, and to ensure that their members have the same safeguards that shareholders of companies would have. Bringing the rules that govern industrial and provident societies into line with those that affect companies is an important aspect of the Bill. That is also true of bringing the legislation for credit unions into line with the measures that are already set out for building societies.
The issues covered in the Bill range from corporate governance and accounting standards through to competitiveness. However, as the review indicated, not all the things identified as barriers to operational effectiveness required primary legislation. Some of the issues, such as lowering the minimum age for membership of a society and auditing and capital requirements, can be addressed either through the forthcoming legislative reform order, which has received widespread support from across the mutual sector, or through secondary legislation. The remit of the Bill is important, but it is also quite narrow. The Bill should therefore be seen as only part of the modernisation of the legislative framework for financial and non-financial mutuals.
The Bill will require new industrial and provident societies to register as either co-operatives or community benefit societies, as well as renaming the various industrial and provident societies Acts. The Bill will also apply the Company Directors Disqualification Act 1986 to industrial and provident societies and their management, which is important. Where someone involved in the management of an industrial and provident society has let down its members, we should ensure that they cannot have a management role in a similar society in the future. That provision strengthens the protection for members of industrial and provident societies and gives people much more confidence in the governance of such societies.
Much of the Bill is about enabling the Treasury to bring forward various powers. The Bill gives it the power to apply company law provisions to industrial and provident societies in respect of the investigation of companies, company names and dissolution and restoration in respect of the register. The hon. Member for Edmonton asked whether the FSA was seeking to purge such societies from its register. It is important that someone seeking to find out whether a society is valid and active should be able to consult an up-to-date register. My concern is how, if there are too many societies in the register, including dormant societies, people will be able to be reassured that a society is a valid organisation that is not being used for wrongful purposes. As I said earlier, the Bill also gives the Treasury powers to make provisions for credit unions correspond to any provisions applying to building societies.
I have yet to find a word of criticism for the Bill. [ Interruption. ] The right hon. Member for Croydon, North is encouraging me to sit down. I will do so shortly. The Bill has been greeted with popular support, which is positive. It is rare that a measure comes to the House about which there is not a word of criticism from some quarter or some corner of life.
The proposal to change the name of industrial and provident societies is certainly necessary. One of the comments in the feedback was that the title "industrial and provident society" was outdated and could even have a negative impact on the sector by appearing old fashioned and out of touch. We want these societies to be seen not as industrial or providential relics of the past but as institutions that are ripe for the 21st century. Going back to a point made by Linda Gilroy, the great phrase from the former Deputy Prime Minister about "traditional values in a modern setting" could also apply to the renaming of these societies. It is funny how all these phrases from the past are proving so helpful in discussing the Bill today.
The synchronisation of the laws governing companies with the laws governing industrial and provident societies is an important provision. Respondents to the consultation felt that there was no reason for mutuals to be treated any differently from other companies. That applies particularly to the disqualification procedures. There were calls for the legislation to go slightly further, and a suggestion that the winding up of mutuals that had become dormant should be simplified, so as to accelerate the process and to make it more akin to the process relating to companies. A response to that suggestion, however, highlighted the need to be mindful of the nature of mutuals, because the objectives of the societies and the requirement for fair treatment of their members mean that the winding up of a dormant mutual must be much more sophisticated than the winding up of a dormant company.
The Bill also makes provision for credit unions, and the consultation summarised the need for a degree of compromise in that area. The trade bodies were unanimous in favouring further consultation on whether there should be a power to assimilate the law for building societies and companies into the law for credit unions. That would mean that credit union law could be kept up to date with the latest developments in related fields by order rather than by primary legislation, which might not be available. Respondents did not want credit union law to fall behind, but were keen to ensure that changes that were made as a result of the Bill were consistent with the nature of credit unions and made only after consultation. It is important to ensure that we do not simply railroad the changes for building societies through wholesale in relation to credit unions as well. As the sector develops and strengthens, we need to ensure that the changes are made in consultation with the sector. We should not lose sight of the unique features of the credit unions; we must ensure that the law preserves them.
There has been widespread support for the proposals in the Bill. It has been welcomed, and we are happy to support it. As I have said, it is not the final word on reform; the legislative reform order will take that further. I would like to raise a couple of points with the Minister. There is some pressure for the implementation of previous changes to carried out. The Industrial and Provident Societies Act 2002 introduced a power which allowed society law to be updated if company law had changed. A number of areas in the Companies Act 2006 have been changed, and societies would like to take advantage of them, but the power under the 2002 Act that would enable them to do so has still to be implemented. Further work needs to be carried out in that area.
The Electronic Communications Act 2000 is also relevant. A number of co-operatives have pointed out that many credit reference agencies use online sources for credit checks these days, but very little information on the societies is available online at the moment. We need to look at that area carefully. If we are to enable co-operatives, industrial and provident societies and other forms of mutual society to compete on a level playing field with private companies, we need to ensure that credit reference agencies can treat them in the same way when getting hold of their information. We need to see what more can be done to ease that process.
This is an important Bill. It is not controversial, and it will give members of industrial and provident societies the legislative framework that they need in order to feel protected, and that will enable them to continue to do their vital work in the 21st century without being seen as relics of an industrial past.
I am conscious of the fact that there are other important Bills on the Order Paper today, and that many of the points I was going to make have been made by previous speakers, so I shall try to keep my remarks brief. I should preface my comments by saying that I am a Labour and Co-operative Member of Parliament. Prior to my current employment, I spent 18 years as a Co-operative party organiser, and I am now chair of the all-party parliamentary group on building societies and financial mutuals. My experience in those roles will inform the remarks I make.
I wish to join others in congratulating my right hon. Friend Malcolm Wicks on introducing the Bill. My professional background makes me highly sympathetic to it. Its title—the Co-operative and Community Benefit Societies and Credit Unions Bill—is a demonstration of the fact that a family of corporate models is developing to meet the changing needs of our economy and the changing social habits and values of the public. Different models have different aims, but they share two essential features: they are democratically owned and run by consumers, employees, producers or local communities, and the money earned—the profit—is reinvested, for social, educational or environmental purposes and for the local community. There is an emerging consensus among the public at large that this kind of business is the way forward. The old, traditional perception that our economy should be run by shareholder-driven proprietary companies or monolithic public corporations is disappearing. A new model is emerging that is more sensitive to the needs of local communities and that accurately reflects the public's values and aspirations.
From my experience as a Co-operative party organiser, I can remember the 1980s and 1990s, when the co-operative movement struggled to meet the challenge of the aggressive retail multiples, and lost market share as a result. That was partly a result of its outdated corporate legislative base. The public perception of the co-operative movement at that time was of an outdated retail provider that was not responding adequately to changes in retailing habits. The new co-operatives were often unfairly characterised as the province of sandal-wearing, muesli-munching, long-haired, hirsute members providing for a tiny niche market. I might add that my appearance is totally coincidental in this context. Generally, the movement did not reflect the values and public perceptions of the time. The building societies were also under sustained attack. Privatisation was in the air, and they too were often perceived as anachronistic and not delivering the services that the modern public wanted.
What a transformation there has been in the years since! The excesses of the current banking crisis have clearly demonstrated that mutually owned businesses are far more highly regarded than those that are shareholder-owned or shareholder-driven. The co-operative movement has come of age in many ways. It has reinvented and reformed itself as an ethical provider, going back to its community roots. Its turnover is £27.4 billion and it has assets worth just under £10 billion. It consists of 4,700-plus democratic businesses with about 10 million members. It is a very significant proportion of the economy.
There are 55 building societies, which have 23 million members and assets worth £360 billion—huge organisations of enormous significance and, notwithstanding one or two unfortunate examples such as the Dunfermline, with a record of durability that the proprietary sector simply cannot match. Yesterday, I attended the 160th anniversary of the West Bromwich building society, which is not untypical of these organisations and their history. Perhaps they were seen as anachronistic 20 years ago, but now they are not.
A YouGov survey showed that 90 per cent. of people trusted customer-owned businesses; 84 per cent. trusted employee-owned businesses; just 32 per cent. trusted Government-owned business; and only 20 per cent. trusted shareholder proprietary companies.
I thank my hon. Friend for her intervention. I agree that a clear demonstration of the point has been the flow of investment from the proprietary banking sector to the building society sector as a result of events following the sub-prime market crisis.
It makes sense for the Government to promote legislation that strengthens the sector, so let me briefly highlight a couple of proposals that I particularly support. First, I support the change of name. Speaking as a Co-op historian, I am very sorry to see the demise of the term "industrial and provident society", which is redolent of those sepia-tinted photographs of moustachioed, waistcoated Victorian gentlemen that I see so often in the Victorian boardrooms of the former co-operative movement, but it does not accord with the wishes and preferences of the modern consumer, which it is important to reflect. Like others, I find it absolutely unacceptable that directors could ruin other businesses or act improperly and that the same actions would be okay for a co-operative.
Lastly, it is important for the continuation of the development of the credit union movement that credit union and building society legislation is brought into line. It is symptomatic of how it is now regarded that people are looking to this sector as a way of strengthening post office services by aligning them with credit union outlets.
I emphasise those issues because they demonstrate the evolution in the perception of this form of corporate organisation and how important it will be in future. I thank my right hon. Friend the Member for Croydon, North for introducing this Bill to accelerate these much-needed processes.
I thank my right hon. Friend Malcolm Wicks for his eloquent and erudite introduction to the Bill. He set out the issues clearly and concisely, and his Bill certainly has Government support.
I thank hon. Members who spoke in the debate, because they all made important and valuable contributions. My hon. Friend Meg Munn spoke about the ethical values embedded in co-operation and the valuable work of co-operators in the community. She highlighted the activities of co-operative banking and its role in reducing greenhouse gas emissions and promoting women in business, both of which initiatives I strongly applaud.
My hon. Friend Linda Gilroy referred to the 149-year history of the Plymouth & South West Co-operative Society and the Wolseley Community Economic Development Trust and others. I recognise, as do the Government, the important role that co-operation and community development has played in Plymouth. She rightly pointed out the strength of this sector in the south-west and mentioned the role of social enterprises in our economy and their resilience in difficult economic times—something that we all recognise.
Speaking for the Liberal Democrats, Dr. Pugh gave his party's support to the Bill. He mentioned the risk of denaturing the sector, which I know it is aware of and am sure it will avoid. He also mentioned the sector's important role in providing informal financial education. He will be aware that financial education is very high on the Government's agenda. He will also know that, in tandem with the Financial Services Authority, we recently launched pathfinders in north-west and north-east England under the "Money made clear" brand to help promote greater financial literacy in education. We hope that they will be rolled out as quickly as possible, following the announcement in this week's Budget.
My hon. Friend Mr. Love supported the change in the name of the industrial and provident society Acts and, in particular, the creation of the level playing field that the Bill seeks to achieve. He pointed to the growth of credit unions and spoke about the level of ambition of the sector. I certainly agree with him in wanting to do more.
My hon. Friend Mr. Bailey talked about his 18-year career as a Co-operative party organiser. I well know from the fact that he is a constituency near-neighbour of mine that he has been a long-standing champion of this sector. He quoted statistics about the people's trust in mutuals and co-operation, which demonstrated a very important point. I am pleased that, although the historian in him might have had reservations about the changing of the name from industrial and provident societies, he nevertheless supports it, as the practical politician and experienced organiser in him probably recognises it is the right thing to do.
As has been noted, the Bill builds on a tradition of previous private Members' Bills proposed by my hon. Friend Mr. Thomas, my hon. Friend Mr. Todd and Sir John Butterfill, which sought to update legislation. The Bill contains measures for which the co-operative and credit union sector specifically asked. It will help to modernise the legislative framework for co-operatives and credit unions and put in place appropriate mechanisms to enhance their corporate governance. It will, I am sure, help the sector to continue to flourish, which we all want to see.
Co-operatives and credit unions make an important contribution to the UK's economic and social well-being. Many people's perception of a co-operative will be defined by the local Co-op retail stores that they know and shop at. My hon. Friend the Member for Plymouth, Sutton spoke about their pioneering promotion of Fairtrade products—again, the Government strongly support that. I might add they regularly have some quite stunning wine offers.
Again, my hon. Friend makes a good point about how the ethical underpinnings of the co-operative movement drive the desire to introduce products that are fair trade and that benefit people in developing countries.
I want to stress, however, that co-operative retailing is only one small part of a bigger story in respect of the mutual sector. Co-operatives now operate in many different sectors of the economy. They are involved in a wide variety of businesses, such as banking, insurance, agriculture and food, livestock and grain marketing, the manufacture of surgical equipment, health food wholesale and distribution, telecoms, and even natural sciences research and development.
Several Members cited figures, and the figures I have show that in the UK alone more than 8,000 co-operatives are registered as industrial and provident societies, with about 19 million members and total assets of almost £120 billion. There are also more than 500 credit unions in Great Britain, with almost 700,000 members and total assets of more than £500 million. As my right hon. Friend the Member for Croydon, North said when talking about the Croydon Savers credit union, for those on low incomes credit unions continue to offer a viable alternative to the unscrupulous doorstep lenders, who often charge interest in excess of 200 per cent. APR. We must do all we can to ensure that credit unions thrive and play an even more important role in the economy. I agree with my right hon. Friend's comment that credit unions are the "decent alternative".
In all this, the common thread of mutuality is that the business is owned by the members and run for the benefit of their members—the savers and borrowers of a credit union, or the farmers in an agricultural co-operative. These businesses have no external shareholders whose interests may be different from those of members. Often, this can give them the freedom to operate on long-term horizons without pressure for short-term gain or profit—something that other business models may not be able to do so easily. Having these different corporate forms enhances choice and competition, to the benefit of all consumers. To stress that mutuals operate for the benefit of members is not to say that only their members benefit from their activities; after all, we all know that not all Co-op shoppers are members. We should also recognise the wider community functions that mutuals often play—for example, the Co-op Group sponsoring the "Pride of Britain" awards and, as my right hon. Friend pointed out, the role of the sector in promoting social cohesion and entrepreneurship.
For all these reasons, it has been a long-standing aim of this Government to see a thriving and self-sustaining mutual sector. We have done a great deal in recent years to help the sector grow and fulfil its potential. We have done that partly through funding. For example, the Government have set up an £80 million growth fund for credit unions and community development financial institutions. A further £18.75 million was announced in this week's Budget, to bring the total to almost £100 million. This fund is providing community-based lenders with additional capital to on-lend to those on low incomes in areas of high financial exclusion and the revenue support to cover the costs of the service. More than 160,000 credit union members have benefited from these loans since the start of the fund in July 2006.
The Government have also taken steps to ensure that the sector has an up-to-date regulatory framework within which to operate. We are taking forward important legislative reforms for credit unions and co-operatives, using a legislative reform order. We propose that the LRO will go through Parliament under the affirmative resolution procedure, so Members will have a further opportunity to debate this subject.
Before concluding, I want to respond to the comments of Mr. Hoban, who spoke on behalf of the official Opposition. He also spoke about the importance of the mutual sector and gave the examples of NHS foundation trusts and football supporters' clubs in addition to the usual areas we talk about in respect of this sector. He mentioned on at least two occasions the renaissance of interest in mutuals, and he is right about that. He also talked about the benefits of democratic accountability and consumer focus, and I am pleased to hear that the Conservative party believes that they are important. I also agree that co-operative models can be applied to the delivery of public services. That is an important area where the Government have already taken action, but I believe that more can be done.
The hon. Gentleman mentioned the Presbyterian Mutual Society. As he is aware, the Department of Enterprise, Trade and Investment in Northern Ireland is the registrar. However, there is nothing in the Industrial and Provident Societies Act (Northern Ireland) 1969 about prudential regulation or hands-on supervision. The onus has been on a society to seek authorisation, in this case from the Financial Services Authority, if it was planning to carry on business within the scope of that authority. However, as the legislation does not say anything about prudential supervision, we might need to review it. As he will be aware, in the 2008 pre-Budget report, we announced a review of the framework for credit unions and industrial and provident societies in Northern Ireland, working closely with the Northern Ireland Executive. I hope to be able to publish the findings of that review very shortly.
Does the Minister not think, however, that there is an obligation on the Government here in London and on the devolved Assembly in Northern Ireland to understand why the Presbyterian Mutual Society seemed to disappear beneath the radar of the FSA as regulator of financial services and the DETI in Northern Ireland as the registrar for industrial and provident societies in Northern Ireland?
I certainly agree that it is important that we learn the lessons from what has happened with the Presbyterian Mutual Society. These will be considered as part of the review, and, as I have said, I hope to publish its findings shortly.
At present we are still looking at a draft of the review. As the hon. Gentleman will be aware, it has a wider remit because it is looking at credit unions and industrial and provident societies and the framework of regulation, but we will certainly take on board the points he makes.
The hon. Gentleman also mentioned the powers in the Industrial and Provident Societies Act 2002, and electronic and electronic communications and the need not to hinder the sector in that regard. Those are issues that, if appropriate, we can consider in Committee.
I am pleased to confirm that the Government fully agree with the objectives of the Bill and we support my right hon. Friend the Member for Croydon, North in introducing it. He talked about the work of credit unions never being more important than it is now, and the ethos of co-operation in today's climate is certainly strong and growing. I look forward to the smooth passage of this Bill and to debating the detailed provisions further in Committee.
This has been a very well-informed and thoughtful debate and, from my point of view, an entirely agreeable one. There has been a remarkable outbreak of consensus, not least with the Conservative spokesman, Mr. Hoban, following a prompt earlier, almost becoming Prescottian in his advocacy of traditional values in a modern setting. May I say to the hon. Gentleman that when I urged him to sit down earlier, I was not being rude? I urged him to do so because he was at the point in his speech where he said that he could find nothing to disagree with, and as I could see that he had a few more pages to go, I thought that they might involve disagreement. However, he continued in his very positive way. Indeed, he was so agreeable that I am tempted this evening, notwithstanding the mentions of Presbyterianism, to open a bottle of Wine Society liquid. Some hon. Members will know that the full title of the Wine Society is the International Exhibition Co-operative Wine Society Ltd. I have never thought of myself as a champagne socialist, but on this brief occasion I am happy to become a chianti co-operator.
I should, of course, have referred to my membership of the Wine Society earlier. The Wine Society demonstrates some of the benefits of mutuality, in that it offers very good quality wine at a lower price because it is not seeking to make a profit from its members. That is a very good example of the practical benefits that many members of the Wine Society enjoy.
Absolutely, Mr. Deputy Speaker. Harold Wilson once said that the Labour party perhaps learnt more from Methodism than from Marxism, and temperance is something that all of my colleagues in the Chamber today have learnt—certainly in theory.
I shall not respond to every point that has been made today. We heard some very good speeches from my hon. Friends the Members for Sheffield, Heeley (Meg Munn), for Plymouth, Sutton (Linda Gilroy), for West Bromwich, West (Mr. Bailey)—he treated us to some good history—and for Edmonton (Mr. Love), and a very important intervention from my right hon. Friend Alun Michael.
My hon. Friend the Member for Edmonton talked about the importance of the Rochdale pioneers—those on the Conservative Benches of course know the details of those pioneers—and the short answer to his question whether those principles will be reflected in the Bill is yes. Clause 1 states:
"A society may be registered as a co-operative society only if it is shown to the satisfaction of the Authority that the society is a bona fide co-operative society."
No doubt we will be able to look at some of those issues in some more detail—I hope not in great detail—in Committee. The question that he raised was important.
Dr. Pugh, who speaks for the Liberal Democrats, made a thoughtful speech. He urged us not to be complacent on some of these issues, and I can see the point that he is making: there will always be a tension between the virtues of smallness—small can be beautiful when it comes to credit unions—and, because many are seeking to expand, enabling modernisation and, in some respects, expansion.
How do we hold on to the virtues of the self-help nature of the credit union? I have mentioned that I attended the annual general meeting of the Croydon Savers credit union, where I saw for myself the 40 to 60 people in that room discussing for an hour and a half or so the nitty-gritty details of a very local, 1,000-member credit union. We need to hang on to those principles. Indeed, despite the fervour of many of us in favour of mutuality and co-operation, we should remember that we must put those principles into practice.
When one looks back at the demutualisation of part of the building society movement, one finds that it has had catastrophic effects. How many of those demutualised building societies are now independent banking entities? They have been taken over and nationalised. That demutualisation was able to take place—people agreed to take a few hundred pounds to vote for it—because some of those mutuals had lost contact with their members; they were mutual in theory but not in practice. The hon. Gentleman's thoughtful speech reminds us that we must not be complacent and get too carried away with mere rhetoric.
I am very grateful for support from the Liberal Democrats and, indeed, from the hon. Member for Fareham, who made a very good speech. He rather reminded us that sometimes great support for a private Member's Bill can evaporate. He referred to the private Member's Bill promoted by his colleague, Sir John Butterfill, and that was an important warning. I shall ensure that, with my colleagues in the Treasury, we will scrutinise my Bill most thoroughly to ensure that the Croydon credit union cannot make a late takeover bid for Lehman Brothers. I think that that was the gist of the hon. Gentleman's warning.
The hon. Gentleman also reminded us, from his vantage point in Fareham, that although we often associate the history and much of the strength of the co-op movement with the north, there is a strong southern tradition too. He may note that under my Bill, through an Order in Council, it might be possible for the legislation to apply to the Channel Islands. As someone who is married to a Channel Islander, I know that both Guernsey and Jersey have a thriving co-operative sector. If my geography is right, both are somewhat south of Fareham.
We have had a useful debate, with support across the Chamber. A spirit of consensus has broken out, and we are all co-operators now. That may have something to do with the fact that while those of us on the left in politics are proud of the origins of the co-operative movement as part of a wider labour movement, there is a sense in which many of the virtues of mutuality, thrift, self-help and responsibility strike chords on the other side of the Chamber. That is perhaps the reason for the wide support for the Bill. I look forward to further exchanges in Committee, should that be the will of the House.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Public Bill Committee (