With this it will be convenient to discuss amendment 2, in title, line 3, leave out from “shares;” to end.
I should make it clear at the outset that the Bill is an extremely valuable and useful one. The House is grateful to my hon. Friend Jonathan Evans for promoting it here. The Bill started in the other place, where there was a comparatively short debate on Second Reading and no Committee stage. I believe that, because time was short, the Government Minister said to the Bill’s promoter, Lord Naseby, “If you agree to certain amendments, we will support the Bill. If you do not, we will not support it.” Lord Naseby, being a very wise former Deputy Speaker of the Commons, agreed to the amendments and came to a sensible compromise. The Bill came to the House of Commons and was debated in Committee, which was skilfully navigated by my hon. Friend, because he managed to persuade the Chair to have one debate on all the clauses. There was no reference whatever to clause 2 during the debate.
The reason I tabled amendment 1 as a probing amendment is that there is potentially a conflict in the Bill. The Bill seeks to help mutuals to raise further money, funds and solvency. On the other hand, it says that however much anyone invests in a mutual, they will get only a single vote. I will describe this in more detail in a second, but the European Union Commission has proposed a statute for European mutuals. Under that proposed European law, members of a mutual would have more than one vote, and decisions would be made by a majority vote. The potential conflict is this: how do we encourage people to invest in mutuals but at the same time tell them that, however much they put in, they will get only a single vote?
Mutuals are an important part of what is known more broadly as the social economy, which staggeringly accounts for 10% of all European undertakings—the amount undertaken by mutuals in the UK is less than the amount undertaken by mutuals in other EU member states. Mutuals have been described as voluntary groups of persons whose purpose is primarily to meet the needs of their members rather than to achieve a return on investment. All hon. Members will recall mutuals in their constituencies that go back to the 18th or 19th centuries—they would have been set up in workplaces or neighbourhoods to provide sickness help, funeral cover and various reliefs of that kind, some of which were overtaken by the Beveridge report and the welfare state. There has always been a sense of each person making a contribution and getting something out.
Mutuals were put into difficulty because of the so-called solvency II directive, which called for increased solvency margins, but there are differences between different financial services providers. Smaller and medium-sized mutuals are often focused on one risk or cover one homogenous group. As a consequence, they have more difficulties in acquiring risk capital compliance with the solvency II rules. That has significant consequences for them and can result in their dissolution. As I understand it, the Bill seeks to deal with that conundrum in the solvency rules.
The basic principles behind the solvency II directive, which was adopted in 2009 and came into force in 2013, are that insurance institutions in Europe should be based on a better risk assessment, better spreading of risks and better financial foundations so as to improve the stability of the market and reinforce consumer protection—all sensible stuff. The main innovation introduced by the directive is that in establishing an improved foundation for the insurance sector, the directive concerns more than only the capital solvency requirements as they existed at the time, and it also lays down rules on the whole organisation of insurance takings in Europe. Within the European Union, it also concerns the taking up and pursuit of self-employment activities—the direct insurance and reinsurance, the supervision of insurance and reinsurance groups and the reorganisation and winding up of direct insurance undertakings.
For the avoidance of doubt, I should call attention to my interests in this respect. I am the chairman of a regulated insurance company, but it is not a mutual company. I was on the board of a mutual company but not since I have been a Member of Parliament.
My right hon. Friend mentions solvency II, but it is important to remember that that is an effort by Europe to catch up with a regime that has already been in operation in the United Kingdom for 10 years or so. The issue that he has outlined in relation to better risk assessment is something that our regulators required companies to do a decade or more ago. Europe is catching up in that regard.
I have no doubt that Europe is seeking to catch up with the United Kingdom in many instances, but in reality the Bill is trying to square the circle of how mutuals manage to cope with increasing solvency requirements, whether imposed by domestic legislation or by EU directives. One of the interesting factors of mutuals is that at present they cannot and do not cross national boundaries. If a mutual wants to trade in more than one EU member state, it can do so at present only by setting up a joint stock company to manage the variations in the regulations and laws between the different member countries.
I would be interested to learn from the Minister—I am pleased to see her in her place on the Treasury Bench—what approach the Government think they should take to legislation that would make it easier for mutuals to operate across Europe and, especially if the UK is in the lead in certain aspects of mutual activity, how we could take better advantage of that. The EU internal market rules apply generally to the operators insurance sector, but it is predominantly attuned to for-profit companies, and it is widely acknowledged that the rules do not always recognise the specific position of other company forms such as mutuals.
Within the framework of completing the internal market, with a view to allowing the free movement of people, goods, services and capital with equal terms of competition between different sectors and legal forms in the same markets, way back in 1992, the European Commission proposed regulations for a European mutuals statute, together with statutes for co-operatives and associations, in order to improve the legal embedding of the social economy in the European Community. Each draft regulation was supplemented by a directive on the involvement of employees. In the opinion of the Commission, mutuals, like other organisations within the social economy, should have been able to take advantage of the single market in exactly the same way as other companies, without having to discard their specific characteristics. It was considered that a European statute would help mutuals overcome the legal and administrative difficulties hampering their cross-border and transnational activities and co-operation in the internal market.
Returning to my amendments, the draft regulations were revised in 1993 and a statute proposed for European mutuals, including provisions for members of a mutual to have more than one vote and for decisions to be taken by a majority vote. I would be interested to hear from my hon. Friend the Member for Cardiff North and the Minister how they see this circle being squared—there is the perfectly understandable desire to get more money into mutual societies so that they can meet the solvency requirements, but how can that be done if those who invest substantial amounts get only a single vote? Given the history and record of mutual societies in this country, would it not be more sensible to use European-wide legislation that would enable UK mutuals to work and win business elsewhere in Europe, without companies having to go through the rigmarole of setting up joint stock companies to act as a bridge between other mutual societies in other member states?
I am much aware of that. My right hon. Friend and I have spoken about this matter and I know that that is his motivation.
I do not know whether this will help my right hon. Friend’s career—he and I are both leaving the House, so perhaps it does not matter—but we are good Europeans. We have always understood that it is in our country’s interests to engage positively with Europe, so I am pleased by his references to the European landscape. Most of my colleagues are aware that, having served in the House in the 1990s, I then spent a decade in the European Parliament as an MEP and for some of that time I was leader of the Conservatives in the European Parliament. The two aspects he has drawn to the House’s attention—the potential European mutuals statute and the debate about the European solvency rules—are matters that I have spent pretty much a decade of my life arguing about.
Given that my right hon. Friend drew attention to the European mutuals statute and quoted the original 1992 provisions and the 1993 revision, it might be worth pointing out that the important word, which he mentioned, was “draft”. The draft was produced, but there was then a long period of decided inactivity. In fact, those of us elected to the European Parliament first in 1999 had to engage in a major effort to get the issue of the European mutuals statute on to the European agenda. Given that, although my right hon. Friend referred to the restriction on voting rights in clause 2—which, he rightly said, might be inconsistent with a report produced more than 20 years ago—it is important to see that report in its context.
That report was produced in the context of the European mutuals landscape, which is rather different from the landscape in the United Kingdom. As I will set out—if, as I hope, we reach Third Reading—the history of the mutual sector in the 1980s saw a significant number of companies demutualised, for a range of reasons. That experience did not happen in Europe; therefore, our mutual sector today is something in the order of a third to a half of what it is in Europe. That report reflected much more the European experience, rather than taking into account the difficulties that arose for us in the United Kingdom, where so many companies demutualised in the 1980s.
Throughout the history of the mutual sector, companies and societies have had to raise regulatory capital through the retention of undistributed profits. That restraint has from time to time constrained the ability of those in the sector to invest in the growth of their businesses, as and when market opportunities arose. Mutual businesses accordingly responded to those constraints by building up large capital reserves. That is why in the 1980s, and also the early 1990s, many mutual companies had what might have been regarded as significantly more capital than they required to be able to run their businesses. That was an incentive for the invention of carpetbagging—the whole business of demutualising companies in ’80s and ’90s, so that depositors and policyholders could get their hands on that capital. The mutual sector also fell victim to boards that were keen to significantly grow their businesses and then required the freedom to raise capital through company share issues—which, as my right hon. Friend rightly outlined, is the situation for those who are unable to go through the mutual mechanism.
As my right hon. Friend said, more recently, major changes in the capital solvency rules—not only in relation to insurance, but in relation to building societies—have driven a need to ensure that mutual companies can raise regulatory capital much more easily. It is worth making the point that we have a range of iconic mutual companies in this country—companies that are currently going through the solvency II process, but which are fully and adequately reserved and would be among the leading companies in terms of solvency ratios. It is therefore certainly not the case that we need to get this measure through in order to put the mutual sector in a position to comply with solvency II. However, the experience of solvency II has shown us that there may be occasions when—whether for reasons of growth or, alternatively, where additional capital may need to be raised in circumstances that had not been anticipated—the mutual sector is at a disadvantage in responding to those challenges compared with the shareholder/proprietorship companies.
In the building society sector, there is a new instrument, called the core capital deferred shares structure, which has achieved regulatory recognition. I pay tribute to Nationwide’s work in promoting that concept. I also pay tribute to Members on both sides of the House of the House who have helped to ensure that regulators understand the need to respond dynamically to the pressure. However, although core capital deferred shares have been approved as an instrument in the context of the building society sector, they do not have the same effect in relation to mutual insurers and friendly societies, which is why the Bill was needed.
As I have said, the main purpose of the Bill is to create a new class of shares, which are not shares within the meaning of the Companies Act 2006. If the position were otherwise, the mutual status of mutual insurers and friendly societies would be compromised. The purpose of the Bill is to enable mutual insurers and friendly societies to issue shares in a way that satisfies the core regulatory capital requirements of the regulatory supervisors, whether they are in the United Kingdom or in Europe.
Clause 2 provides safeguards against demutualisation. My right hon. Friend the Member for Banbury seems to believe that it would somehow be more difficult to secure the investment if a requisite number of votes were not attached to it. Those of us who have spent a significant amount of time in the mutual sector—as I said earlier, I served on the board of NFU Mutual for a decade, but I also chair the all-party parliamentary group for mutuals—will recognise that if a member investing in such a way had disproportionate influence, we might see expected and, indeed, unsatisfactory outcomes in relation to the capacity of the investor to demutualise companies, which is against the whole thrust and purpose of the Bill. I believe that the investor who seeks to put up capital to assist a mutual company will be much more interested in what the return may be than in the individual number of votes that may be available for the purposes that accompany such voting power.
Clause 2 provides for the making of regulations to meet the tests that financial services regulators will require before they are prepared to recognise capital raised in this way for solvency capital purposes. I believe that removing the clause would defeat our objective in the Bill, and I know that that was not my right hon. Friend’s intention. The power to make the regulations is exercisable by statutory instrument, and is subject to the affirmative procedure. It will still be possible to ensure that the clause is applied in a reasonable and effective manner, and when the regulations appear, Parliament will have an opportunity to do that.
I hope that my right hon. Friend has found my explanation helpful, and that, in the light of what I have said, he will feel able to withdraw his amendment.
I think that, on this fine morning, I too should declare an interest, although there is no requirement for me to do so. I am a Labour and Co-operative Member, and have received support from the Co-operative party. More generally, the House is aware of my historical support for the mutual sector. Unlike other Members, I come to the Bill at a late stage in its progress, and I commend, in particular, Jonathan Evans and Lord Naseby for their diligence.
As the hon. Member for Cardiff North explained, after the global banking crisis had swept across the world like a tsunami and the tide had eventually ebbed, one of the critical risks that were revealed was the issue of the ability of organisations—in this instance, mutual insurers and friendly societies—to withstand, and have the capacity to absorb, difficult circumstances that might make a call on their capital. So the need to resolve this has been a priority for these institutions, although I feel that regulators and others have perhaps not put this as high up the agenda as it should have been, hence the point made by the hon. Member for Cardiff North about the building society sector getting its house in order in terms of the core capital deferred shares, but now we also require a similar set of instruments for the insurance sector.
It is important to put on the record the work done not just by the Building Societies Association but the Association of Financial Mutuals and many others who have helped create a potential solution here. It is not absolutely necessary for the sector, which is able to cope with the new regulatory requirements, but it would certainly make it easier and provide much more of a level playing field, given the ability of the PLC shareholder sector to obtain capital in a far simpler way.
I also want to commend Sir Tony Baldry for at least taking the opportunity to put the spotlight on clause 2 and the question about the number of votes. Having listened to his comments, however, I would not want to see that part of the Bill taken out. The hon. Member for Cardiff North was very persuasive in pointing out that the particular character of mutual insurers and friendly societies is that their members together have control and ownership of the organisation, and history shows, through demutualisation efforts in the past, that we need to safeguard the ownership and the integrity of those organisations in this way. Therefore, I am persuaded that the single vote, regardless of the amount of the investment, through the deferred shares is the right way to proceed.
This is a sensible set of measures. It is important that we have them on the statute book. However, we are at a late stage in this Parliament and I ask the Minister to clarify the Government’s intentions for bringing forward the regulations and making sure we can get these changes through, because this is a piece of primary legislation that then enables regulations to be made by affirmative order, hopefully in quick succession. I therefore ask the Minister to give us a sense of the time scale for when that may happen, because, with the level of scrutiny we have had on this, there is quite a lot of consensus on the matter and we need to ensure that the financial services and insurance sectors have this diversity. The gradual disappearance of mutuals in this area will be to the detriment not just of the sector and competition, but consumers as well. Therefore, we have to modernise and sustain the mutual sector. The Bill provides worthwhile provisions for doing that and has the support of the Opposition.
I would like to put on record my great pleasure at the extent of cross-party consensus on the importance of this Bill to support the mutuals sector. I thank my right hon. Friend and constituency neighbour Sir Tony Baldry, who raised some important points. I hope he will be persuaded to withdraw his amendments, as there are clear reasons for doing so.
One of the Government objectives for the Bill is to preserve the mutual status of firms in the sector. Government amendments give firms the option to provide membership rights to deferred shareholders, if they so wish. However, if deferred shareholders do become members of the firm, they will not be entitled to additional voting rights, regardless of the value of their deferred shareholding. This clause serves to protect the principle of mutuality. My hon. Friend Jonathan Evans set out very clearly why that is vital to ensure the success of this sector, which the Government have been so keen to support.
The proposals in the Bill have been carefully drafted to provide mutual organisations with a means to raise external capital in a way that preserves the mutual status of firms. This is no easy task, and the merits of attracting external capital into the mutual sector have been debated at length by mutuals, and some mutual organisations have taken steps to reform and issue mutual capital instruments. For example, in recent years building societies have commonly issued permanent interest-bearing shares that pay the holder a fixed rate of interest. The shares cannot be sold back to the society, although they can be bought and sold on the stock exchange, which means that the price can vary. Changes in banking regulation mean that those instruments will no longer be classed as core tier 1 capital, so the building society sector has designed a replacement mutual capital instrument, known as core capital deferred shares, which will enjoy the same tax treatment as ordinary shares.
Lord Naseby’s Bill originally permitted the Treasury to make regulations allowing friendly societies and mutual insurers to issue deferred shares, and to permit co-operative and community benefit societies to issue redeemable shares. The Government have, however, expressed caution about the merit of the redeemable share instrument for co-operative and community benefit societies, which already have a means of issuing redeemable shares, The Government do not therefore see a clear industry need or demand for such an instrument.
The Government take the view that it is too early to provide for co-operative and community benefit societies to raise further capital by means of redeemable shares, as there is no need at this stage. That position was agreed in Committee in the other House and was supported by Lord Naseby. The Bill as it stands today reflects that agreement. I strongly submit to my right hon. and hon. Friends that the deferred share capital instrument for mutual insurers and friendly societies is a good way forward, and that friendly societies and mutual insurers have demonstrated a clear need and demand for this instrument.
My right hon. Friend raised the matter of legislation that would allow mutuals to operate across Europe. The Government certainly want to promote the continued liberalisation of the European single market, and I would welcome comments from the industry regarding barriers to mutuals trading across Europe, as it has not previously raised the issue. In conclusion, I hope that my right hon. Friend will be minded to withdraw the amendment.
I beg to move, That the Bill be now read the Third time.
I should like to thank Members on both sides of the House, as well as the minor parties, for their universal support for the Bill. My right hon. Friend Sir Tony Baldry has made it clear that we have seen Bills move more swiftly than this through their parliamentary stages, but I would not want anyone to think that this Bill has not received a significant amount of attention. It has had a gestation process of about three years, and support from Members on both sides has enabled the Government to bring forward a Bill that has universal support.
For more than 300 years, friendly societies and mutual companies have been an important part of the corporate landscape of our country. From the time of the industrial revolution, the needs of working people for greater security against unemployment, sickness and funeral costs have led to the creation of many such societies, all of which were committed to the principles of mutuality, customer focus and trust. Some, such as Royal London, the NFU Mutual—on whose board I served for a decade—and LV, have become major landmarks of the financial services industry.
I want to refer briefly to the Tredegar Medical Aid Society, which brought working miners together 120 years ago and mutually provided medical insurance care. The society was the first to make provision for its members to get two weeks of sickness benefit, when needed. In 1911, a parliamentary commission from this place visited Tredegar in the south Wales valleys—my home town—to examine the scheme, which led to the universal introduction of sickness benefit in the UK. In 1947, Aneurin Bevan, who served on the society’s board with my grandfather, a working coal miner, told Parliament that the Tredegar Medical Aid Society was the model for the NHS and therefore he was not nationalising health care but “Tredegar-ising” it.
The important contribution that mutuals have made over the years to innovation and corporate diversity has, as we have heard, been significantly undermined in recent decades by the inability of mutuals to raise regulatory capital, other than by retaining past profits—the danger was always losing their mutuality. I will not repeat the points made during the debate on the amendment tabled by my right hon. Friend Sir Tony Baldry, because we see the way in which the mutuals sector, through this difficulty, shrank to being a fraction of the size of the sector in Europe. I believe we are all agreed that that was undesirable. The problem led to all political parties recognising that something urgent needed to be done to allow mutuals to raise additional capital, if required, without losing their mutual status. That is what this Bill is all about.
Before closing, I wish, with your indulgence, Mr Speaker, to pay one or two tributes. Lord Naseby, a former Deputy Speaker of this House, has been part of the journey throughout the three-year period to which I referred. He and I have worked closely on this, as he is my vice-chairman on the all-party group on mutuals. I also wish to pay tribute to Peter Hunt and Mutuo for all the work they have done, and to mention some people within this House.
The Minister has consistently offered Government support for the Bill. Chris Leslie and I have discussed the position of mutuals and what we can collectively do to enhance their position within the corporate landscape of our country. Whatever political differences there may have been between us on a range of other things, it would be difficult to find much on this agenda on which he and I do not share either the same objective or the same means to get to that objective. I am very grateful to him for all the support he has given.
I wish to mention two other people, the first of whom is Mr Bailey, my predecessor as chairman of the all-party group. He worked consistently and hard to try to get Members on both sides of the House—the hon. Member for Nottingham East knows that each of us struggled with our own side—especially the Front-Bench teams, to understand what we understood needed to be done. There cannot be many people in this House who have worked as hard as the hon. Member for West Bromwich West in that regard.
Finally, I wish to thank my hon. Friend Mr Chope. He and I represent the two plane wings of the Conservative party. As long as each of our wings is intact, the Conservative party will fly with power, not least in the forthcoming election. He has proved to be of immense assistance to me, not only on my previous private Member’s Bill, the Off-patent Drugs Bill, which may return to the House in due course, but on the procedure in dealing with the measure before us. As we are drawing near to three weeks until the end of my service in the House, I want to thank him very much for the help he has given me.
I have one final comment to make. I first stood for Parliament more than 40 years ago, against Michael Foot, in my home town. At the beginning of that campaign, Michael Foot gave me a copy of his biography of Aneurin Bevan. I thought it immensely generous of somebody who was, in a sense, one of the iconic figures of British politics to give a gift such as that to somebody who was barely 22 years of age at the time. The reason he gave it to me was not just an act of generosity. He drew attention to page 63 of that biography, in which he talks about Bevan’s involvement with the Tredegar Medical Aid Society and the working miners who formed it, one of whom was my grandfather. There is no better way of drawing an end to my service in this House than by doing something to ensure that the mutual principle in our country to which my grandfather contributed in some way is carried forward through this Bill.
My hon. Friend Jonathan Evans is owed a debt of thanks from the House for navigating the Bill through the Commons and it is clear that he has strong family reasons for doing so.
It is worth observing that half the UK insurance market was mutual as recently as 1995, but since then, in just over 20 years, it has shrunk to just over 7.5%. Mutual insurers have 50% of the market share in Holland and 45% in Germany and I think that in this country the insurers demutualised in large part because they needed to raise additional capital and improve the services they thought they were offering to their customers.
During the debate on the amendments, my hon. Friend the Member for Cardiff North made a telling point. What is important to investors in mutuals, as for those investing in any other financial instrument, is the return on their investment. Sometimes, the process of demutualisation has not been helpful to policyholders because in many instances since that process they have seen falling returns.
Let me give one example, Scottish Widows—I think we all love the lady in the Scottish Widows advert. Scottish Widows converted to a plc in 2000 and paid out, some of us will recall, a £6,000 windfall to each policyholder. Before demutualisation, in 1998, it paid out £107,000 for a 25-year with-profits policy based on premiums of £50 a month. Someone who invested £50 a month for more than 25 years got £107,000 at the end of that policy period. Statistics posted in 2011 show that that has plummeted since demutualisation to £28,000.71, which is more than 34% less than the average mutual was paying out. As regards returns for investors, this is not just a piece of regulatory tinkering but is very important.
My hon. Friend the Member for Cardiff North mentioned Michael Foot. I, like my hon. Friend, am soon to leave the House. When I joined the House, there were three former pupils of Leighton Park—Michael Foot was one and I was another. So interested was he in my political career that in the 1983 general election he came to Banbury with a view to trying to see that I did not get elected. In the 1983 general election, Banbury was the seat that Labour would have needed to win to get an overall majority. Michael Foot had a run of bad luck, because he came to Banbury street market and went up to the first person, surrounded by television cameras and wanting a quote. He did not know that the man running the fruit and veg stall ran the bingo in the local Conservative club in his spare time. Michael Foot said to Denis, “Denis, what you think of life?” Denis said, “Not very much, but this, Mr Foot, I do know: No. 10, Maggie’s den.”
I have my own Michael Foot story. I will come to it in a minute, but first I wish to support the Bill, which will make a vital change to support the integrity of mutual financial services and the insurance sector.
The Bill will provide a more level playing field for the sector, so that it can cope with difficult circumstances that might call on capital in the future. The creation of the deferred share facility is very important and does not jeopardise the fundamental values of these institutions, which are so vital to preserve the integrity of organisations that are owned and controlled for the benefit of their members. That is an important principle. It would be a great shame if that alternative model disappeared and we were dominated by the monoculture of the plc shareholder structure. This important Bill could bring the extra capital that we need into the sector, while safeguarding against demutualisation and risks to the sector.
I had not realised that the hon. Gentleman stood against Michael Foot at the outset of his career. When I was a mere stripling—I know that hon. Members think that I still am—my father wrote to Michael Foot because he knew that I was interested in parliamentary procedure for my first degree. By return of post, to complete strangers, Michael Foot sent his own signed copy of “Erskine May”. The generosity of a great parliamentarian and bibliophile was overwhelming. I regarded that as one of the key spurs that made me get involved in politics, and here we are today. Some people may regret that, but I regard it as a mark of the man.
The hon. Member for Cardiff North mentioned the beginning of his career, and he has had an important political career in this place. The House will be worse for his departure, but whatever may happen in the future, I wish him well. This Bill will be useful testimony to his support for the sector. I urge the Minister to tell us when the starting gun will be fired on the regulations, because the Bill facilitates a great change, but that does not necessarily mean that it will actually happen.
I had not intended to speak in this short debate, but having listened with embarrassment to the kind words of my hon. Friend Jonathan Evans, the least I can do is thank him very much for his service to the House and to the Conservative party. I hope that his wisdom and experience will continue to be used by and available to our great party. As he says, our party is at its best when it embraces all strands of Conservative thinking.
My hon. Friend is still the chairman of the party in Wales, and I hope that in that capacity and as a member of the board of the Conservative party, he will continue to have a significant influence on the party’s affairs and ensure that our leadership is always mindful of the fact that we are a broad church. We have a large umbrella over us, and if we try to reduce the scope of that umbrella, the likelihood is that alternative parties will try to get into the space that is vacated. That mistake has been made in Germany by the Christian Democrats. They have in a sense given space for the Alternative für Deutschland to enter the fray, and I hope that something similar does not happen in this country and that we continue to maintain a broad church in our party.
I congratulate my hon. Friend on successfully steering the Bill through the House. I helped in every way that I could to try to ensure that his balloted Bill—the Off-patient Drugs Bill—got on to the statute book, but it was blocked in a rather unfortunate manner by the Government. Having originally not been open with him about whether they were for it or against it, we forced them to come clean in the end and say that they were against it in principle, which they could have said many months earlier. That is typical of the problems that we have with Friday business, but I am sure that, as my hon. Friend said, that Bill of his will reach the statute book in due course.
I congratulate my hon. Friend Jonathan Evans on his speech, and on all his work in this area. I have certainly enjoyed working with him during his last few months in the House. He is well known as a strong supporter of the mutual movement, and has spent many years as the chairman of the all-party parliamentary group for mutuals, promoting the sector.
I thank my hon. Friend for piloting this Bill on an important and valuable issue, and for securing a prompt date for Third Reading. The Bill started in the other House, where it also had cross-party support. I congratulate my noble Friend Lord Naseby on his work to promote the merits of the Bill. The Government support the key aim of the Bill, which is to provide friendly societies and mutual insurers with the means of raising external capital in a way that does not impinge on their mutual status. I am grateful to my right hon. Friend Sir Tony Baldry for withdrawing his amendments, and would like to record my personal gratitude to him, as my constituency neighbour, and wish him a happy retirement from this place.
Access to capital and credit is the lifeblood of any company. It poses a specific issue for mutuals, as they are designed to serve their members, and were not designed with capital investors in mind. Unlike other firms, mutuals cannot issue shares, which deprives them of access to the equity markets. This means that, in broad terms, mutuals access their regulatory capital from retained earnings and by issuing subordinated debt. This long-term approach is often seen as a strength of the sector, but mutuals have long made the case that the restrictions on accessing external capital can act as a brake on their ability to adapt and respond to new market conditions. The sector has also argued that it limits firms’ ability to secure maximum investment, to develop new and innovative products, and to grow through acquisition.
The Bill has been carefully drafted to enable friendly societies and mutual insurers to access external capital in a way that does not impact on their mutual status. This enabling Bill would allow friendly societies and mutual insurers to issue a new class of deferred share. The Bill has two substantive clauses. Clause 1 allows Her Majesty’s Treasury to make regulations that would permit friendly societies and mutual insurers to issue new deferred shares. The Treasury will work with the regulators and all interested parties to determine the details and the process for issuing the deferred shares, and to ensure that these instruments are marketed to the appropriate investors.
My answer to Chris Leslie—I apologise for not having an answer for him earlier—is that we will consult the Prudential Regulation Authority and regulators as soon as possible after Royal Assent to ensure that the procedures are right. We will progress with this as soon as the legislative timetable permits.
Clause 1 also sets out the key features of deferred shares, and explains that prior consent of the appropriate authority—either the Prudential Regulation Authority or the Financial Conduct Authority—must be obtained before a friendly society or mutual insurer can issue deferred shares. Clause 2 sets out the conditions that will preserve the mutual status of firms that wish to issue deferred shares. Mutuals will be able to provide membership rights to deferred shareholders, but no friendly society or mutual insurer will grant more than one vote per deferred shareholder, and no deferred shareholder will receive more votes than an ordinary member by virtue of being a deferred shareholder. That will respect and preserve the “one member, one vote” principle of mutual organisations. In addition, the regulations enabled by the Bill will restrict the voting rights of certain members who hold deferred shares, so that they cannot vote in any decisions to transfer, merge or dissolve the mutual. That serves further to protect mutuality. Clause 3 sets out the definitions of terms used in the Bill, and clause 4 contains the title of the Bill, and confirms that the Bill extends to the whole United Kingdom and will come into force when the Treasury makes the regulations provided for in clause 1. The Government can confirm that the Bill raises no human rights issues.
The Government fully support the Bill, which is of course consistent with the commitment in the coalition’s programme to promoting mutuals and fostering diversity in financial services. This short Bill could provide a huge opportunity for the mutual sector. I hope that all Members will be able to support it.
Question put and agreed to.
Bill accordingly read the Third time and passed, without amendment.