I beg to move amendment 72, page 130, line 38, at end insert—
‘(g) making provision for the increased diversity of the financial services sector and promotion of mutual societies, including arrangements to measure the number of members of mutual societies, and the market share for mutual societies as a proportion of the UK financial services sector.’.
This simple amendment suggests that within six months of Royal Assent the Treasury should bring forward proposals to foster diversity in financial services and promote mutual societies. For the avoidance of doubt, Mr Deputy Speaker, I should declare that I am not only a Labour Member of Parliament but a Labour and
Co-operative party MP. Inasmuch as there are interests involved in that, I am proud to support the Government’s stated intention to promote mutuals. I have before me page 9 of the coalition agreement—I am sure that all hon. Members have it emblazoned on the walls of their offices—where it says:
“We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.”
It is perhaps not clear that the Prime Minister, the Chancellor and the Minister remember that they made that commitment. Therefore, in an act of generosity—the Minister will recognise the positive spirit in which we have tabled the amendment—we felt it important to suggest that the Treasury might want to enshrine that coalition pledge in statute and to make arrangements to measure the progress that it is making in promoting the mutual societies model. For example, each year the Treasury could publish the number of members of mutual societies so that we could see whether good progress was being made, and publish the market share of the mutual society sector as a proportion of UK financial services.
The amendment is fairly innocuous, and I hope that it can gain some cross-party support. After all, let us not forget that the mutual sector is all about ensuring that members own and govern their own financial institutions, have a stake in their future, and can set their agenda. That member-owned and member-governed ethos rightly ought to be promoted. Sadly, we have a small mutual sector, but it should be encouraged to grow, and that is the purpose of the amendment.
My hon. Friend is right to say that the Government made that commitment in the coalition agreement. Following their decision not to take seriously the case for Northern Rock to be converted into a mutual, many people, like him, doubt the coalition’s commitment to financial diversity. Is that not a further reason for the Government to take seriously his amendment to put right what they might see as a mistake in the public mind?
I thank my hon. Friend, who is entirely correct. He is an assiduous campaigner for the mutual sector and the mutual model, and he knows more than most about the Government’s failures over the past two years to make headway on this issue, on which they made a promise that remains to be fulfilled. Indeed, he recently wrote an article about how the Queen’s Speech could have been an opportunity to promote the mutual agenda in which he talked about ways in which the sector could be put more at the heart of banking reform. He said that we should consider expanding the credit union and CDFI—community development finance institution—sectors to reconnect banking with its local communities, and that we should look beyond the financial services sector to think about energy co-operatives, employment ownership measures, and co-operative housing tenure.
It is an important time for us to be debating the issue, because, as you will know, Mr Deputy Speaker, this is the international year of the co-operative.
The part of the Bill before us is mainly about transferring powers between the FSA, the FCA and the Prudential Regulatory Authority, and adding new powers, so I am not sure that it sits very well with the hon. Gentleman’s amendment. Will he explain in more detail why legislative measures are required when such objectives can be measured in other ways?
We are trying to ensure that the Government fundamentally address the question. These provisions give the Minister and the Treasury the power to make by order amendments to many of the rules, statutory instruments and suchlike that affect mutual societies. We think that they should have the capability to measure progress on mutuality in order to help to smooth progress towards fulfilling the coalition’s pledge.
Given that we have before us a financial services Bill, our constituents would expect us to be talking about firm and defined measures to make progress on diversifying the financial services sector. Unfortunately, they would be disappointed by the Treasury’s progress on that. The Treasury website has a very scant, short set of paragraphs stating the coalition agreement’s desire to promote mutuals. It says:
“The Treasury is developing policy and delivering legislative changes to…meet this aim.”
That is basically it—a statement but no substance. I want the Minister to tell us what progress is being made in fulfilling that objective. It is not good enough merely to talk about consolidating existing rules or legislation and wrapping that up as though the Law Commission’s recommendations somehow fulfil Government promises. We want to see more action.
Given that there is an appalling sovereign debt crisis in Europe affecting Greece, Spain, and so on, with the possibility of contagion, and given that we learned the lessons about the stability of mutuals following what happened in 2008, does my hon. Friend agree that it is remarkable that the Government are not pressing forward to reduce such risks by increasing diversity and promoting co-operatives?
My hon. Friend is entirely correct. When the Government have an opportunity to return to the market state-owned assets that the Treasury took in the height of the financial crisis, they simply look for a return to the vanilla plc model. They take a business-as-usual approach rather than taking the opportunity to rethink how we might have diversity in the financial service sector and in business operations. Yes, we need some organisations run on a plc model, and we have plenty of those, but why not think about opportunities to promote the non-profit or mutual sector? Northern Rock was a classic case in point. No adequate consideration was given to that option. A member buy-out suggestion would have been entirely feasible, but it was not considered seriously enough.
At this point, I pay tribute to the all-party group on building societies and financial mutuals. It made a series of recommendations a year ago, urging the coalition to adopt
“a comprehensive policy strategy to implement its Coalition Agreement commitment to promote mutuals.”
It stated that the Treasury should be proactive in promoting the interests of financial mutuals within the Government. One of the first conclusions in the summary of its report was:
“HM Treasury appears to have taken a reactive stance to the mutual sector beginning to deal with important issues such as building society capital, but little else of substance.”
I do not want to labour that point, because time is short.
For cross-party purposes, may I say that we will support the hon. Gentleman’s excellent amendment? It is important to push forward credit unions, in particular, as an alternative to high street lenders, which are currently not lending to many people. The Treasury needs to take a more proactive approach to building up existing credit unions as well as creating new ones.
The credit union sector deserves far more support and encouragement than it receives, and previous Governments of all parties have failed to do enough to promote it. The demutualisation agenda of the 1980s and early 1990s significantly reduced the size of the building society sector, and compared with other developed countries mutual providers have a very small market share, particularly in the financial services sector.
We used to hear about the share-owning democracy, but there have been tidal shifts in people’s desire to take risks and own shares. Does my hon. Friend agree that we have a moment in time at which we can change direction and have more diverse ownership among the population and a new culture of business? The Government are missing a trick.
Now is the time to think about the culture change that we want to see in the financial services sector. Yes, there are some good plc structures, but we have an insufficiency of good mutuals, building societies and so on. There should be new entrants of that type, and current ones should grow to provide some proper competition to the big banks.
My hon. Friend is being characteristically generous. One big concern examined in some detail in the all-party group report that he mentioned was about the future of friendly societies. Does he agree that the debate provides the Financial Secretary with a good opportunity to set out how the Treasury is responding to concerns about the effect that a particular interpretation of case law by the Financial Services Authority is having on the future of friendly societies? Their proportion of the insurance market is at risk of going into reverse because of how the FSA has approached the matter, and the amendment may well help to achieve a culture change in the FSA and get its lawyers to adopt a slightly more helpful mindset.
It is important that we have some metrics by which to measure the Financial Secretary’s performance on his coalition promise. After all, it is there in black and white—the Government said they would bring forward not just proposals but detailed proposals for promoting the mutual sector. This is his moment. We want him to explain to us what those measures will be. I am sure he does not believe in putting such promises in an agreement straight after an election and then letting them drift as though they did not need to be attended to. Many people want to see greater diversity in the financial services sector, and it is important that he is held to account.
Looking at the amendment, I wonder whether it illustrates the tensions in the contemporary labour movement. On one hand, this should be a time of celebration for all those who believe in mutuality, co-operatives and voluntary self-help, because Members of all parties are signed up to the idea. There is a Conservative co-operative movement, and many of us are very serious about it. On the other hand, Labour insists on top-down control and state direction. It wants to enshrine in legislation measurement, management and the direction of Ministers’ performance.
Is it not time that, rather than insisting on the production of numbers and pretending that the Financial Secretary can direct people to help one another voluntarily and mutually, we eliminated barriers to entry, accepted spontaneous order and encouraged people to build up the bonds of friendship and mutual co-operation? Ministers cannot direct or legislate for those bonds.
Perhaps the hon. Gentleman could describe how the amendment would in some way create a barrier to entry to the financial services market.
I was not suggesting that it would create a barrier to entry. I was suggesting that it would put in place measurement and management. That may well appeal to some people, but if we want spontaneous order, mutual societies and bonds of friendship, we cannot get them by state direction. There is very little point in measuring the Financial Secretary’s performance when we want spontaneous order and the bonds of mutuality. I do not support the amendment, but like many other Government Members, I certainly support the thrust of the Government’s policy.
I shall remind the House of a quotation from the coalition agreement. That is the benchmark for the action that the Government have pledged to take, so the House and others can judge them on it. It states:
“We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.”
I applaud the aim of greater diversity and competition, but missing from that statement is the aim of greater confidence and trust in financial services. My hon. Friend’s amendment captures the aims of diversity, the promotion of mutuals and greater growth in mutuals.
Crucially, it would also require an action plan from the Government within six months. We have not had one after two years. It would also require regular public reports and stock-takes of progress. I say to Steve Baker that those reports would be about not the Minister’s progress but the growth of mutuals, the diversity of the industry and the growth of competition in the sector—all the aims that the Government set for reform.
Mutuals bring something quite special—a concern about values, not just valuation. That is the root of the consistently greater levels of confidence and trust demonstrated by those who deal with and borrow from building societies and mutuals compared with those who deal with their corporate competitors. Mutuals display a prudence born of concern for and knowledge of their members. If we look back over the past several years, we see that building societies and mutuals have not run the reckless risks that banks and other financial services have. They have not lost their core business purpose and their sense of what they are there to do and who they are there to serve, as many banks and other financial service companies have. Mutuals did not need a public bail-out and did not cost the UK taxpayer billions of pounds to make up for their mistakes like others in the banking and financial services sector did.
With that caution, however, there is also innovation. Some of the small, local building societies that are active in many of our constituencies across the country have seen their market share increase since the global financial crash. They have been ready to lend to local people—the people they know and serve best in housing markets they know best—in a way that many large, commercial multinationals cannot. They have innovated by linking with local house builders—companies with which they have an established relationship and of which they have a knowledge that cannot be matched by many of their big competitors.
It is not only the smallest of our local building societies that has demonstrated innovation in recent years; the largest of our national building societies—the Nationwide—was one of the founder lenders in the Government’s NewBuy scheme to support first-time buyers who do not have the capital that family members sometimes provide to help people meet the deposit requirements of many lenders. There are problems and flaws with the scheme, but I want it to work, and I welcome the fact that Nationwide was one of the founder lenders to get that innovation up and running.
Building societies and mutuals are the unsung success of our British financial services—they are unsung by a Government who promised to do the opposite.
Is not one of the unsung successes of the building society movement that it has sought to maintain an effective and broad-based branch network in the communities from which they grew, which sadly is not necessarily something that can be attributed to the major banks? There were wholesale bank branch closures in the last generation, and they are beginning again.
My hon. Friend, who knows far more about this matter than me and many in the House, is absolutely right. At a time when a loss of trust and confidence in financial services is evident across the board, that local presence and face-to-face relationship counts for a great deal.
“making provision that appears to the Treasury to be necessary or expedient in consequence of the provisions of this Act.”
What will the amendment enable the Government to do by order that is not already possible under that measure?
I am disappointed in the hon. Gentleman, because he, too, has a strong track record on this matter, and that sort of nit-picking misses the point of the amendment. The point of the amendment is to hold the coalition parties in the Government to their coalition pledge, which he is unable to do. It is a way of making public two years of failure and saying, “Within six months, you must do better.”
“Treasury may by order amend the legislation”.
If the Treasury does not want to do so, it does not have to do so. The amendment does not hold the Government to account. No wonder you are failing as an Opposition; your amendments are badly drafted.
I have not seen the hon. Gentleman’s amendments to make the measure not permissive, but a requirement of the Government—Mr Speaker must not have selected it. Clearly, anything in statute would be a significant step forward, as the shadow Minister, my hon. Friend the Member for Nottingham East, has argued. Those on both sides of the House who have an interest could use a permissive measure in future.
No, but by measuring height, one makes a statement that height matters. The amendment makes a statement that the coalition pledge on mutuals, and on greater diversity and competition in financial services, matters. That is the purpose of the amendment and the debate. I hope that my hon. Friend presses it to a Division because it will expose the Government’s complacency in making promises and failing to live up to them.
The amendment requires the Government to measure the number of mutuals and their share of the market. In so doing, it brings the Government to account. If there is no point to that, and if we want only what Steve Baker called “spontaneous order”, we would not have the Office for Budget Responsibility, and we might as well forget measuring and management. The amendment seeks to bring the Government to account, and should therefore be supported.
There is a saying that what is measured matters, and if it matters, measure it. In many ways, that is the core of the argument being made by Opposition Members.
Sixteen per cent. of those who aspire to own their own home and who borrow to buy do so from building societies. Roughly one in six of us borrows our mortgage from a building society. That significant market share is gradually growing. That is why I have argued that building societies are the unsung success of British financial services. They are certainly unsung by a Government who promised to be their champion.
In my view, building societies are the quiet strength of British financial services, but it is time that that strength was properly supported by Government policy and action. Mutuals look at the coalition agreement and point to the words on the paper, but they cannot point to the action that followed. The amendment is designed to force the hand of the Minister, the Treasury and the Government. I am surprised that it finds any objection on the Government Benches, because it simply seeks to hold the Government to the promise they made
I have found this debate both curious and inconsequential in many respects. There has been a great deal of talk about the technicalities of achieving the objective, but not, as far as I can judge, a great deal about the reasons why mutual societies are so important. However, I share the view expressed by John Healey that the coalition agreement, of which I am not an uncritical observer, clearly stated that there should, in effect, be support for mutuals.
I declare an interest, because my family founded the Abbey National building society and the National Provident in the 1830s and later in the 19th century. The Abbey National is now Santander, and we need only look at what is happening in Spain to hope that there is some ring-fencing for its customers in the United Kingdom. The reason why mutuals are so important is the same reason why John Lewis is so important. It is the reason why the co-operative movement, which was founded in Rochdale—I do not apologise for also pointing out that that was where John Bright was born—is important. The Rochdale co-operative movement was the means whereby people could buy houses that they could not otherwise afford.
I have always been very much in favour of the right to buy, because having a property stake is important for individual responsibility. The great thing about the mutuals—and it still pertains, because they still exist, but need to be enhanced, improved, developed and encouraged—is that they enable people to come together in a proper and balanced relationship, with a sense of individual responsibility and, by co-operating together, to benefit each other and society as a whole in relation to the most fundamental aspects of property and insurance, without excessive profits, or indeed any real profits, for the people who put it together. That does not mean that I am against capitalism. Indeed, those who promoted mutual societies were invariably capitalists, and I count my own family in that number. William Cash founded the National Provident with the Lucas family, and the Cadburys were much involved in similar objectives. A raft of Quakers and other Dissenters were integral to the development of this incredibly important movement, which changed the face of society in the 19th century. We could do with that now.
Some five years ago, I wrote a letter to The Times, criticising aspects of the manner in which the banking system had given way to greed and self-indulgence. The Minister knows my views on the subject of the transfer of jurisdiction from the City to Brussels, including the point that legislation is no substitute for self-help. My hon. Friend Steve Baker understands that better than anyone else. Indeed, Samuel Smiles, who wrote the famous book on self-help, was devoted to all these objectives because he knew that individual responsibility, operating within the framework of co-operatives and mutuals, would and should provide the kind of society that is worth living in. I put it as high as that, because to me this is a moral objective. We do not talk enough about morality. Law is no substitute for morality.
Clause 47 enables the transfer of functions and it states:
“The Treasury may by order”— which is permissive—
“amend the legislation relating to mutual societies for any of the relevant purposes.”
It then sets out a whole list of functions, in a technical and somewhat boring manner, but there is no sense of the purpose that lies behind that, or the intentions and objectives, let alone any of the virtuous advantages that would come from increasing the degree and range of mutuals throughout the country, so that we could get away from the idea that the only way in which insurance or property ownership can be achieved is through technical, legal change. That will not change things. I would like to know from the Minister how all this ties in and how it is intended that the integrity objective—set out on page 17 of this enormously long Bill—will produce the results that are claimed for it in relation to the transfer of functions relating to mutuals.
In my judgment, mutuals do not need to be given the regulation, tight analysis and legal requirements set out for the purposes of restraining greed and self-indulgence by people who have no idea about markets and their virtues. Markets are virtuous. However, as I wrote during the Lloyd’s crisis, bad markets are bad for business. That is true. If the mutual system is really good, and is accompanied by protection for shareholders—I refer back to my Protection for Shareholders Bill which I have proposed over and over again since the 1980s; I sent a copy to the Prime Minister just the other day—they then have a stake and are able to restrain bad practice. That is how to do it, not by piling on more and more legislation, whether it is domestic and done under the aegis of the law of this land, or under the jurisdiction of Brussels. It does not make much difference, because law is no substitute for proper behaviour.
The problem of the last 40 or 50 years is that more and more legislation has been passed, as I said in my letter to The Times, which has narrowed the competence of those who are subject to it and increased its complexity to the point where there are literally acres of pages of legislation, most of which is completely impossible to understand for anybody except that unique bunch of people who happen to make a great deal of money from it in the City. I am not criticising them for taking advantage of that—law has always required interpretation —but I am certainly criticising successive Governments, including the Government who preceded this one, for piling on more and more complicated legislation, which requires the attention of an amendment of the kind before us tonight.
The amendment is permissive, but then the provision itself is permissive. Legislating to provide for amendment of other legislation in relation to mutuals will not necessarily be in any way improved by interpretation in the courts of the words
“the integrity objective is: protecting and enhancing the integrity of the UK financial system…The integrity of the UK financial system includes…its soundness, stability and resilience…its not being affected by behaviour that amounts to market abuse…the orderly operation of the financial markets, and…the transparency of the price formation process”.
This is legal jargon that will be interpreted by the courts. Will it make any difference, though, if mutuals are not fostered, developed and encouraged in line with what the coalition agreement originally stated? Will it produce the intended result—that people spontaneously and with moral purpose determine the new kind of society we move into?
Will the hon. Gentleman accept that one lesson regarding the regulation of building societies, friendly societies and other financial mutuals arising from the inquiry by the all-party group on building societies and financial mutuals, to which my hon. Friend Chris Leslie referred, was that regulators did not put enough time and effort into understanding the mutuals market and that this simple amendment will help to prevent a repeat of that scenario?
It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.
I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.
Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.
The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.
It is a great pleasure to follow Mr Cash, whose strictures I shall try to address. First, however, I want to appeal to the Minister, who, I know, is personally sympathetic to mutuals: this will be a modest contribution that tries to reflect his own coalition manifesto commitment to foster diversity and promote mutuals. In answer to Steve Baker, I say that the amendment seeks to do that by trying to measure the strength and complexity of the mutual movement using the regulator.
No one has said why we would want to foster diversity and promote mutuals. I want to address that question, because it goes to the crux of what the hon. Member for Stone talked about. First, members benefit greatly from membership of mutuals. The tables of the best savings rates or lowest mortgage rates are populated by mutuals, which provide basic but risk-averse financial services—exactly what the ordinary consumer is looking for. Of course, the reason they can provide such services is that they do not have any shareholders and, therefore, no demands for dividends each year, allowing them to deliver their services efficiently.
Perhaps even more importantly, mutuals provide a consumer benefit by offering a competitive spur in the marketplace. The hon. Member for Stone says he believes in capitalism. I believe in a market system, and competition is a very good spur, and that is exactly what the mutual movement provides. The reduction in the number of building societies has meant that they have not been able to provide a stronger spur, which provides another reason for the amendment.
Mutuals provide choice in financial services. Does someone want a mutual member benefit or to contribute to shareholder value? People will make that choice in all sorts of ways, for all sorts of reasons, but it is important in a marketplace to have choice. We are confident that people will choose mutuals, because all the studies and polling of consumers of financial service show that mutuals are more popular and, perhaps more importantly, more trusted than their plc rivals. That is a very important consideration.
Why move the amendment now, other than to reflect the coalition agreement? Currently, the marketplace is dominated by the plc model, which is unhealthy. We all know what happened in the lead-up to 2007 and 2008: heightened risk, and the search for yield followed by the credit crunch. I am not suggesting that the Government are not taking steps, including in this Bill and forthcoming legislation this Session, to address some of these problems. I am saying that there developed a monoculture—group-think—in which everybody thought exactly the same. We need to avoid that. This modest amendment will help us to do so.
The amendment will also address the danger of the one-size-fits-all attitude displayed in recent years by the regulator, who did not deal effectively with life funds for friendly societies and mutual insurers. At the heart of the ongoing dispute is the failure to understand the essential difference between a mutual and a plc. The amendment would go some way to address that. The regulator now admits that the Financial Services Compensation Scheme, which was introduced some years ago, got it wrong by basing what each organisation had to pay on deposits, discriminating directly against building societies. There was no understanding or empathy in the regulator to address the issue. The Minister will say to me, “But the FSA has now updated its regulatory role. It’s opened a department to deal with these specific matters.” That is all to be welcomed; however, I hope that the Government will welcome this amendment, which represents a small step towards creating greater understanding and trust in the regulator’s dealings on these matters.
There is nothing sinister about this amendment. Yes, we couch it in terms of the manifesto commitment, but it is really about recognising that we need diversity in the marketplace, to avoid monocultures developing, to give choice to consumers and to create a competitive spur. If we can do all that, this amendment will provide some modest support in ensuring the continuation of the mutual movement in our country—a movement, it has to be said, that is small by international standards. Mutual insurers, along with what we would call building societies and credit unions, are much more prevalent in other marketplaces—including in the Netherlands, Germany, France and even the United States—than they are here. This modest amendment would go some way to addressing that and ensuring that the consumer—the member—got a fair deal in the marketplace.
I think there are two issues in this debate. First, everybody agrees that mutuals are good. They are good in a number of ways, one of which is that “boring” is good in finance. We need more boring finance —we need things that will not double one day, fall by a half the next, and go bust by next Wednesday. We have had too much “interesting” stuff in finance; we need some more boring stuff. Building societies have always been relatively stable—nothing much has changed; things are gradual, with perhaps a few mergers. Some building societies have suffered as part of the financial problem, and in other countries some credit unions have suffered. I should declare what is perhaps a non-declarable interest, namely my membership of Citysave, Birmingham city council’s credit union.
I think there is a major role for such bodies—Mr Cash highlighted the issue of people having a stake in society. That is a very good thing, as is the fact that mutuals look to serve their depositors—often they will be depositors and borrowers. To that extent, I welcome the fact that the Opposition have raised this issue for discussion. The difficulty is that the amendment—it is a permissive amendment; it allows, for instance, the number of members of mutuals to be counted—is the sort of thing that would be done anyway. A mutual could be sent an e-mail saying, “How many members have you got?” It really does not require a statutory instrument to—[ Interruption. ] Chris Leslie says from the Opposition Front Bench that the number of members of credit unions is not being tracked. However, the amendment does not require it to be tracked, as he knows.
The hon. Gentleman makes the point that this is a permissive amendment, but it is actually an amendment to a permissive clause, which anticipates that there may, for various reasons, be all sorts of changes. However, in transferring the functions relating to disparate types of mutuals and so on, surely it is right to suggest that someone should have regard to ensuring that mutuals as a sector are promoted and that somebody should measure what is happening. If those in the coalition are committed, why do they not want to be able to know or show what is happening?
The amendment does not compel anything to happen; it merely makes it possible, if the Government wish, to change the law if necessary—which it almost certainly is not—to measure the number of members of credit unions. The Opposition may be right that the figure is not being measured, although that would surprise me, as the industry bodies will almost certainly have total numbers of members. If we contacted the Council of Mortgage Lenders, for instance, and asked how many members the building societies in the council had, it would probably give us the answer. Getting the answer should not be that difficult; however, as the amendment does not compel the Government to do anything, it will have no effect if accepted.
I return to the point that we have to welcome the fact that the issue of mutuals is being kept on the agenda. I would be interested if any Opposition Member wanted to liaise with me over the coming months to see whether we could find the answers that the amendment makes it possible to find—which are probably possible to find anyway, if the Government wish to find them. Indeed, I would have thought that the Government would not be that averse to knowing what the market share was.
This is a very confusing speech. The hon. Gentleman is in an honoured position, speaking on behalf of the Liberal Democrats. They helped to write the coalition agreement, so he has a responsibility to say what progress is being made on the detailed proposals to promote mutuality. Do the Liberal Democrats agree with that objective, and, if so, what are they doing to achieve it?
I think it is a good idea to encourage mutuality. There is no question about that. As for asking me, randomly, to answer such detailed questions on what the Government are doing, I must admit that I am not a Minister. This is, admittedly, a debate about mutualism, however, and I am quite happy to do a certain amount of research to see whether I can find the answers that the amendment would allow the Government to find—if they wished to do so by changing legislation, which almost certainly is not necessary.
That brings us to the nub of the problem with such an amendment. It would have almost no effect, because if the Government wanted to find out how many members the building societies had, they would simply ask the building societies, without going through the process of tabling a statutory instrument, whether through the permissive approach or whatever it may be.
On that basis, although we should welcome the fact that the issue of mutuals is being kept on the agenda, it would be better done by an amendment that had some effect.
I had not originally intended to speak to this amendment, as time is tight and we need to make progress. I have also dealt with some of the points in interventions.
The Government say that they are committed. This Bill gives them an opportunity to go a bit further on that commitment. That is what the amendment offers them. The Government have said that they want to encourage mutualisation. I have heard Ministers talk about the damage done by the rampant trend towards demutualisation in the past—they have blamed that on others, as well as perhaps accepting some blame on behalf of a previous Government. However, clause 47 is a permissive clause, and there is good cause for saying that if the Treasury amends legislation dealing with mutuals—let us remember that we are talking about industrial and provident societies, building societies, credit unions and friendly societies—and if it transfers functions to the FCA, the PRA or both, given that the clause provides that functions can be transferred between different bodies, the Treasury should, in making those arrangements and exercising those powers, have regard to ensuring that someone can measure the size of the mutual sector overall and show progress where that is relevant. That is what the amendment would provide for. Such information will be relevant for Parliament’s interests and purposes—I am sure that future Treasury Committees will want to know what is happening and who is responsible for measuring such things, rather than relying on the market players. The information will also be hugely important for consumers, because if, as Mr Cash said, we are to encourage more people to have confidence in this option, then the more people we can show are using it successfully, the better.
When the hon. Gentleman suggested that the mutual sector would, by its nature and character, not need detailed regulation and legislation, it occurred to me that he was going off in a different direction. Given the experience that some of us had with the Presbyterian Mutual Society and others, I can say that mutuals do need to be regulated by their nature, so that people can be sure that they are living up to the good name that they properly have. Consumers embrace mutuals on the basis of that confidence. They need to be able to rely on the fact that legislators have put in place a regulatory system to ensure that what they are getting is what they think they are getting.
I would not want the hon. Gentleman to misunderstand what I meant. It is not that I do not think that there should be a degree of regulation. Rather, I am concerned about over-regulation to the point where the purposes of mutuals, as with so many other sectors of society, are sucked out by a vast amount of oppressive legislation, which is so bureaucratic and impossible for people to understand that they cannot see the wood for the trees. The whole objective of the mutual arrangement is that it is very much a personal relationship in a society to enable people to benefit one another.
I thank the hon. Gentleman for that clarification. That brings us to the point that we go through all this complicated legislation, with all this complicated jargon, to try to give consumers confidence that a regulatory regime is policing these matters for them, so that they know that the people they are entrusting with their money—their savings and so on—are performing to a due and proper standard. I would not want the House to create a situation where people felt that mutuals were, by their nature, less safe and less regulated, because non-mutuals would use that on a predatory basis in their marketing.
Let us come back again to the amendment. I noted, on the internet, a report from the Building Societies Association indicating that in 2011 the market share of the mutual building societies increased by 16%, which contrasts with growth of 3% and a figure of 7.7% in the whole market. So the coalition Government are obviously delivering on their promise to have a larger mutuals sector, and the information has already been measured.
The information may well be measured by that group of building societies. In terms of industrial and provident societies and others, surely it makes sense that the Treasury will want to make provision on who measures the different sectors or who measures them in aggregate terms as the mutual sector—this amendment would allow that. We must remember that, as the hon. Gentleman says, the amendment is entirely permissive, and it would be set in a clause that is permissive. The clause is meant to demonstrate the coalition’s commitment to mutuals.
May I apologise for the fact that I missed the beginning of this debate? Chris Leslie spoke for the Opposition, and he knows that I chaired the mutuals inquiry to which he refers. Is the problem not the one outlined by Mr Love: the amendment is modest? I do not think our inquiry was seeking that modest a response from the Government. We are looking for something that matches up to the commitment made in the coalition agreement, and what is being proposed is very much short of that.
I thank the hon. Gentleman for that intervention, as it shows exactly why people should be worried. If the best argument that Government Members can make is that this amendment is modest and merely permissive, people should be worried that the Government are opposing and rejecting such a straightforward, common-sense amendment.
I shall be brief, Mr Deputy Speaker. The coalition Government say that they want to encourage diversity in the market and increase the proportion and number of mutuals, yet they refuse to agree with measuring the number of mutuals or their market share. Anybody who is serious about any policy should want to measure it in order to manage it and show that it has been successful; otherwise they come across as completely hollow. Given that we have the Office for Budget Responsibility and so on measuring important things such as outputs and economic performance, I cannot understand why we cannot include mutuals as part of that portfolio.
I understand the hon. Gentleman’s strength of opinion, but is he not aware that these data are readily available? We need only go to a market research firm or to researchers in the City to find that the data are readily available.
Just for clarification, I looked up the BSA figure for the market share of mutuals, and it indicated that the market share was increasing. The BSA is not a friend of mine in the City, and the information is already being measured and reported on.
My point is that second-hand information is available in all sorts of marketplaces, but the Government make a great virtue of the OBR, and of other reliable and robust statistical sources, in order to measure the effectiveness of the outcomes of their policies.
This is about having the reliable and consistent measurement of data in order to measure the effectiveness of policies, rather than having to rely on looking at the website of whatever trade association we are talking about. That is the essence of this amendment and it is why I support it.
Mr Cash mentioned the Rochdale pioneers, and I am glad that he did so. At that time, the idea of co-operation, co-operatives and mutuals was forged very much in the fire of unbridled capitalism and an economic Darwinism that I know some hon. Members would like to see return in the so-called “spontaneous order” of things. In that unbridled free market, the weaker members of society were being crushed, and a collective, mutual ownership emerged, through mutual societies and co-operatives, that enabled normal people to share risks, benefits and ownership, and to reinvest surpluses in their mutual. That is why those organisations grew, and I am very proud consistently to a have supported them.
One of the questions that arises is: why has there been a slight falling away of mutuals over the past few decades? Partly it has been because the Conservatives pushed demutualisation to get quick profits for their friends, who are involved in the capitalist system to make quick profits. Then, in 2008, we have this tsunami and suddenly people wake up in the debris of this chaos realising that some of the surviving organisations are mutuals, and they rightly ask why that is. The answer, of course, is that the focus of mutuals—their raison d’être—is not about just reaching out to maximise profitability and taking irresponsible risks; it is about delivering services for their members, who have equal shares. As a result, the time of mutuals is back.
This is a time of enormous global financial turmoil. We all know about the risks from the sovereign debt of Greece, Spain and elsewhere, and the knock-on impacts of that. We also face a great deal of risk from German banks and other financial institutions that do not have the inherent solidity and risk management of the co-operative system. If the Government are serious about this, now is the time to move forward. The coalition Government have said that they will move forward, but they cannot even be bothered to measure the market share and the number of mutuals. So how seriously can we take them? The answer, self-evidently, is: not seriously at all. The top management consultancy McKinsey has the mantra, “If you can’t measure it, you can’t manage it.” That company knows that that is self-evidently the case, but we are saying here, “We don’t really want to manage it. We won’t measure it. It does not really matter.” That is what is coming across, and it is a great shame that it is.
Labour Members are saying, “Let’s paint a picture of how things are changing. Let’s try to use that to make progress and to actively encourage credit unions, housing co-operatives and so on.” Such organisations tend, by their very nature, to be locally owned, with local benefits for local people. That contrasts with the situation described by the hon. Member for Stone, whereby a member of the Royal Bank of Scotland may find that Santander has suddenly sent them part of their bill, and they wonder why that is and whether there is a risk from the Spanish contagion, linked into the Greek risk. Somebody was mentioning that sort of situation to me the other day, and of course it arises because of the global nature of these organisations.
People want the security and assurance of knowing that they can go to local co-operatives and be offered loans if they save, whereas they would be excluded from high street banks, which would say, “You’re too poor. We can’t give you an overdraft”, but if people were in a credit union they could get one. A lot of this is about risk management and stability, but it is also about ethics. We know that mutuals—the Co-op in particular—are trying to promote fair trade, sustainability and so on. If we are serious about encouraging risk management, and a better and fairer future for all our communities with mutuals, we should be serious about pushing forward the top line of this amendment—that to manage it, we should measure it. I very much hope that the Minister will accept this modest amendment.
We have had a wide-ranging debate on mutuality, and it has acted as a peg for discussion. As is clear from this evening’s contributions, we all recognise the strength of the mutual sector, its importance in providing choice and diversity, and the benefits it brings. A couple of times, however, Opposition Members seemed to elevate mutuals into semi-religious institutions. Let us be realistic about some of the issues that mutuals faced during the crisis. Some mutuals had to be bailed out by others, and the first use by the previous Government of the special resolution regime was on the Dunfermline building society. A number of mutuals strayed from their core business model, which had consequences.
One hon. Member—I think it was Mr Thomas, who is no longer in his place—referred to mutuals supporting their branch network. I recall that one of the first Adjournment debates I replied to as a Minister was as a consequence of Nationwide closing a number of branches in south-east London. All mutuals face commercial pressures, which needs to be acknowledged.
What the Minister says is true, but does he accept that there is a differential outcome and that, on balance, because of the lower-risk structure, the mutuals do better than conventional capitalist banks?
It depends on risk management and the business model that mutuals follow. There is a different set of constraints around building societies, which helps to ensure their stability, but that does not mean that they are immune from some of the mistakes that have caused failure in the past.
The clear intention of the Bill—we discussed this at length in Committee—is to ensure that regulation does not discriminate against mutuality, or indeed any other type of ownership, simply because it diverges from the norm of public or private ownership. I believe that the Bill delivers that result. For example, in clause 22, new section 138K requires the Prudential Regulatory Authority and Financial Conduct Authority to analyse the impact of the proposed rules on mutual societies. This will help to build up a base of impartial evidence to allow the regulators to continue to assess whether mutuals are being treated appropriately within the regulatory system. It is important that regulators think through very carefully the impact that their rules will have, particularly on mutuals.
My hon. Friend will recall coming to our all-party group on insurance and financial services, when we asked him some questions on these issues. In fact, the regulator thinks that the Financial Services Authority has changed its processes in order to recognise the specific position of mutuals. What it is that the Government have changed, other than their even-handed approach?
The new duty in the Bill goes beyond what the FSA currently does. It imposes a requirement separately to identify the impact of regulation on mutuals. Let me continue my remarks and set out some of the other things we have done to promote mutuality. As I was saying, the regulatory principle of proportionality also bites in this regard. If the regulators are taking action that impacts on one type of firm more than another, it should be done on the basis that the action is necessary and proportionate.
Let me highlight a number of ways in which the Government are promoting mutuality outside of this Bill. In January this year, the relevant provisions of our Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 came into effect, allowing credit unions to grow faster and compete better by offering interest on deposits and admitting corporate bodies like local charities and firms as members.
My colleagues in the Department for Work and Pensions recently commissioned and published a report on enhancing the sustainability of the credit union sector. It looked at some of the initiatives undertaken by the previous Government, how they have helped the credit union sector and how best to take that work forward. Important recommendations were made to the Government that will help to enhance the sustainability of credit unions and ensure that if there is further public sector investment in them it will be used to expand their base and ensure that they are sustainable.
The capital requirements directive, CRD4, includes a capital instrument that is available for use by mutuals and building societies. That was not on the agenda when we came into office two years ago. It is a consequence of the work that this Government have done with their European partners to ensure that that instrument can enable building societies to issue capital instruments so that they can expand and deal with some of the challenges they face. A number of Members of the European Parliament, as well as the Government, have been working to ensure that within CRD4 a particular capital instrument is available for the Co-op, which, because of the nature of its ownership, falls outside the instrument that is available to building societies.
The Prime Minister announced earlier this year that we intend to bring forward a Bill to consolidate most legislation governing co-operatives and mutuals. The industry greeted the announcement of this Bill warmly, and I believe it is important to bring forward this consolidation. Ed Mayo, the secretary-general of Co-operatives UK, stressed the importance of bringing together a series of nearly 20 Bills or Acts of Parliament, which will make it easier and cheaper to establish co-operatives and remove some of the ambiguity in the sector. Co-operatives UK is looking forward to working with the Government to bring forward this consolidation Bill.
The Minister has already admitted that credit union deregulation goes back many years. I was frustrated by the lack of progress under the previous Government; it has taken us a long time to get here. As for a consolidation Bill, I asked the Secretary of State for Business, Innovation and Skills why it was not included in the Queen’s Speech, given that it is a relatively modest and non-controversial measure—yet the Government could not give enough priority to it. Is there not some concern—
Order. The hon. Gentleman spoke earlier and interventions are meant to be short, not to be another speech.
Consolidating something like 18 pieces of legislation is not a simple task. It needs to be done properly and well, and we would need to do it in conjunction with the co-operative movement, as well as with the Law Commission. Other pieces of legislation need to be implemented before the introduction of the consolidation Bill. It represents an important step forward, which is why it has been welcomed by people like Ed Mayo as a way of making it easier to set up mutuals in the future.
In the Government’s response to the recommendations of the Independent Commission on Banking, we committed to assess whether the Building Societies Act 1986 should be updated in line with the reforms to the wider banking sector. We want to work with building societies to identify the barriers to their growth. We will shortly publish a paper, alongside the White Paper on ICB implementation, as a consequence of that work, to identify where the Building Societies Act 1986 needs to be amended to enable building societies to take advantage of the opportunities that are out there.
I believe that this Government have demonstrated a clear commitment to promote mutuality and to diversify the mutual sector. Our commitment takes its shape in many forms—whether it be the new capital instrument, the protection given to members of Northern Ireland’s credit unions, legislation to help to take forward and grow credit unions, or the increased public investment in credit unions that should flow from changes to the model on which they operate. That demonstrates the practical concrete steps that the Government are taking to strengthen the mutual sector.
The information requested by the amendment is clearly widely available, if my hon. Friend John Hemming can Google it in a minute, and it will be maintained and kept. I do not think that this requirement to provide information, placing additional burdens on the regulator and the sector, is necessary. Actions speak louder than words and they speak louder than data. What this Government have clearly done is bring forward a series of measures to strengthen the mutual sector, which will be to the benefit of all our constituents.
“Actions speak louder than words”: that is the conclusion that the Minister reached when rebutting this modest amendment. Some Opposition Members said that it was too modest, and not strong enough. You cannot win when you are in opposition. Sometimes Opposition Members propose amendments and are told that they go much too far, but it seems that this amendment did not go far enough.
The aim of the amendment was simply to hold the Government to account in respect of their own promise in the coalition agreement to produce detailed proposals to promote mutuality. The Minister tried his very best. My hon. Friends could probably hear the sound of the barrel being scraped as he listed all the papers, reviews and consultations—half of which, by the way, had their genesis under the last Labour Government, or were thanks to the European Commission.
The Government’s commitment to mutuality is conspicuous by its absence. They have an embarrassing dearth of commitment to the mutual sector. The Minister must do far better than this. As my hon. Friends have said, it is no wonder that the Government do not want to measure the progress that is being made in any modest way. I think it is time that we held them to account.
Members in all parts of the Chamber care about the mutual sector. I greatly respect the work that is being done by the all-party group, and the commitment of others who believe that it is important for us to take the steps that are necessary to support the mutual and co-operative sector. All that we were trying to do was obtain from the Government some sense of how they were doing in relation to the coalition agreement, but the best that we have been able to secure is a scraped-together consolidation Bill that does some administrative tidying up. It is not good enough, and I therefore wish to press amendment 72 to a Division.
Question accordingly negatived.
More than three hours having elapsed since the commencement of proceedings on consideration, the debate was interrupted (Programme Order,
The Deputy Speaker put forthwith the Question necessary for the disposal of the business to be concluded at that time (