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.