Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill

Part of the debate – in the House of Commons at 1:31 pm on 11th September 2020.

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Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton 1:31 pm, 11th September 2020

It is great to follow my hon. Friend Steve Double; he always speaks with great passion, insight and common sense. I am delighted to be called in this heavily subscribed debate—though it is perhaps slightly less so than it was a few minutes ago. As Anna McMorrin knows, I support the principle behind the Bill and co-operatives and agree that we need to do more on climate change, though I would echo my hon. Friend’s words: we need more consensus. Everyone across the House wants to tackle climate change.

I do not accept the premise that this country is doing badly compared with other countries. It is not true. We are the leading nation among the G20. We can trade facts of course—Opposition Members can throw facts at me about the performance of the Welsh Government; Conservative Members could talk about the UK Government—but the best thing to look at is the international comparison. There is a research document produced every year by an organisation called Germanwatch—hon. Members can google it—called the climate change performance index. It indexes every single country around the world. It does not award the first three places, because it says none of us is doing a good enough job, which I think is absolutely right, but it does list every nation, and the UK is fourth. It is updated every year—the hon. Lady should definitely read it—and the only countries ahead of us are Sweden, Denmark and Morocco. Every other country we can name is doing worse than the UK. We should be proud of that.

Of course, we need to go further faster, but we should not belittle the UK’s efforts. In the past year, the UK became one of the first countries to set that net-zero commitment by 2050 and brought forward the date for banning the sale of petrol and diesel vehicles. There is some very significant work going on. We should have a cross-party conversation. Of course, we should all be pushing the Government to go further and faster, but there have been many achievements.

As the hon. Lady knows, I agree that we should support co-operatives and sustainable investment, but I would question, as have one or two other people, whether the Bill should be limited to just environmental sustainable investment. There are other types of sustainable investment that this kind of Bill could enable. As she knows, and as the Minister knows, such a Bill could enable a big increase in the number of mutual banks in the UK. Such co-operatives are a feature of many economies around the world, and there are lots of reasons to adopt them in the UK.

As many here know, I am co-chair of the all-party group on fair business banking. We spend much of our time trying to resolve disputes between businesses and banks, and principally those disputes arise because of the huge imbalance of power between banks and businesses when things go wrong and because of the lack of competition in the sector: 80% of lending to small and medium-sized enterprises is concentrated in the four big banks. That is not a healthy state of affairs, which the Economic Secretary to the Treasury recognises, and he has done much work to try to expand competition in this sector. The co-operative and mutual movement could provide a huge solution to the problem we have, particularly in terms of SME banking.

As the hon. Member for Cardiff North pointed out, co-operatives and mutuals were pretty much invented in the UK, in the banking sector in the 18th century, yet we seem to have decided that they are not right for the UK. We got rid of our most of our mutuals, most of which were building societies, mostly through demutualisation. Members have made interesting comments about proposed new section 27B, which prevents demutualisation. I support that provision in principle.

The argument has been made that it should be up to members to decide the right structure for their organisation; that is the liberal view. However, financial incentives can get in the way of doing the right thing. We have seen that with the demutualisation of building societies. Bradford and Bingley, Woolwich and Northern Rock have not exactly been huge successes since they demutualised—in fact, quite the opposite; they have been total disasters. They demutualised because there was a financial incentive for people to become members of those organisations, put money into the building societies and then get a payday when they were demutualised. It was called carpetbagging at the time, and we all did it. We got a few quid out of those demutualisations, but it has been a complete disaster. So members do not always act in the interests of the organisation. My hon. Friend Gareth Davies, who made a fantastic speech, said that it should be up to members to decide because they always act in the best interests of the organisation. That is not always the case.

These mutual organisations that used to be a force for good in the UK have largely disappeared, yet they perform an important role in many other economies. We have a resurgence and a new initiative. The Economic Secretary took part in a roundtable that we organised recently with South West Mutual and the other mutuals leading the charge. There are 18 regional mutual banks being set up around the UK, and they could reverse this trend. They are a particularly important factor in levelling up, which the Government want to do.

These mutuals could perform a key role in a devolution settlement, for example. A regional mutual bank would support financial inclusion. We see more and more that some big banks are not particularly interested in some people, who are financially excluded. A regional mutual bank can play a benevolent role within a community, in terms of financial inclusion, SME lending and encouraging the establishment and scaling up of SMEs in their locality. They are full-service banks, so they do everything from taking deposits in current accounts to lending to small businesses. They are deposit-led—they take in deposits and lend money back out to businesses.

Regional mutual banks are hugely successful in other parts of the world. The United States has 12,000 of them. The state of Wisconsin, which is about the size of Yorkshire, with 5.9 million people living there, has 129 regional mutual banks. We do not have any. The total amount of assets under management by these banks in the US is £4.7 trillion. In Germany, there are 1,500 similar entities, with £2.4 trillion under management and being lent out to SMEs. In the UK, we only have around £4 billion, principally through credit unions.

As I said to the Minister when he kindly took an intervention, we saw in 2008 one of the problems in an inevitably cyclical economy when push comes to shove. When the banks got into financial trouble and had to have a bail-out from the Government, they wanted to restore the strength of their balance sheet, and almost inevitably, they did that at the expense of lots of SMEs in the UK. Funding was pulled from lots of SMEs, and lots of them went under or could not borrow and keep going. That had a devastating impact on many lives and livelihoods, but it also had a hugely damaging impact on UK plc.

It took us longer to recover from the economic crisis in the UK because of that issue, and the failure of those businesses due to the withdrawal of finance cost us around £40 billion. As I said, during that five-year period, between 2008 and 2013, Japanese mutuals did not reduce finance at all to those SMEs, the German mutuals actually increased the amount of lending to SMEs by 20% and Switzerland’s did so by 30%, whereas in the UK we saw a 25% reduction in lending to SMEs. I can make no more powerful case to the Minister than that for putting the measures in place through this kind of legislation. We should work with the hon. Member for Cardiff North to try to find a way forward for this kind of legislation, which could enable the investments that she and I want to see, whereby the community is investing in renewable energy projects and we are potentially helping to capitalise some of these banks to get them going. I know the Minister has concerns about the regulatory framework and making sure these banks do not cause a systemic risk or endanger investments for deposit holders and the like. Of course we need to work those things through, but there is a powerful case for supporting these regional mutual banks, particularly in terms of SMEs.

I wish to finish by talking about proposed new section 27C, which deals with tax loopholes and which the hon. Lady is right to put in place. Clearly, there is no detail behind that and she is asking the Treasury to come with the detail on how we stop these things being used as tax loopholes. Members can have topics they return to again and again, and the Economic Secretary is probably sick of my returning to the ones on banking, but when you are a hammer everything is a nail. One tax loophole has been exploited in terms of co-operatives in the Netherlands, and this has been done by an organisation called Cerberus. It is a giant private equity house that bought up lots of assets in the UK, in particular by buying £16 billion-worth of assets from Northern Rock. Those were loans where there was a danger of default or loans that were seen as high-risk, where Northern Rock had over-lent or lent too generously prior to the financial crash. Cerberus uses complex vehicles to move all its profits from the UK, Ireland and many other jurisdictions into this little co-operative shell in the Netherlands to avoid paying any corporation tax on its investments. It bought lots of these assets in the UK where other banks did not because its regulatory framework is lighter and because it pays less tax, and so it can afford to pay more for these assets.

Many Members here today will have constituents who are mortgage prisoners. Cerberus owns many of these mortgages but it is not an active lender, and so it locks many of these borrowers into very expensive mortgages. It does not give them the option to switch to a new provider, because it is not an active lender. It becomes the only bidder for some of these books because it will pay more, because it does not pay tax and it has a lower regulatory framework. However, the people caught in the middle are some 200,000 mortgage prisoners, who simply cannot move from one lender to the other. They are often stuck on rates at 5% and above. I believe that 48% of those borrowers are on rates above 3.5%. I doubt that anybody in here with a mortgage is paying at that kind of rate on their mortgage, because most of us are on fixed-rate loans. We have been allowing these books to be sold to overseas entities that do not pay tax—or pay very little tax—and operate within a much less restrictive regulatory framework, and so they have a natural advantage, but it is to the big disadvantage of our UK borrowers.

The FCA has tried to put a solution in place to prevent this situation, but a simple solution would be simply to cap the standard variable rate for mortgages. We did this in energy. I am not a price fixer, by any stretch of the imagination, but it is simply wrong that when most of us are paying rates of 2% and below these people are paying rates of 6%—that is simply unfair. We could resolve this matter in one fell swoop by capping the standard variable rate.

With that I will happily conclude my remarks. I very much support the hon. Lady’s efforts, and the many fine speeches we have heard today will help to move the debate forward. I would be happy to work with her and colleagues across the House in trying to develop thinking on this matter.