Clause 1 - The funding limit: funds to be disregarded

Building Societies Act 1986 (Amendment) Bill – in the House of Commons at 11:42 am on 19 April 2024.

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Photo of Julie Elliott Julie Elliott Labour, Sunderland Central 11:42, 19 April 2024

I beg to move amendment 2, page 2, line 9, leave out from “(9B)” to end of line 11 and insert

“may not be made unless a draft of the instrument has been laid before, and approved by a resolution of each House of Parliament.”

This amendment changes the procedure that applies to an SI containing regulations under new subsection (9B) of section 7 of the Building Societies Act 1986 (inserted by the Bill) so that it is subject to the affirmative procedure.

Photo of Julie Elliott Julie Elliott Labour, Sunderland Central

Thank you very much, Madam Deputy Speaker. The variety of Bills is in the strange nature of this place. We are going from the warm and fluffy Bill that we have just discussed, which I am delighted has received its Third Reading, to what is rather a dry Bill —but an important one none the less.

Amendment 2, which stands in my name, changes the procedure that applies to statutory instruments relating to proposed new subsection (9B) to section 7 of the Building Societies Act 1986. They will be subject to the affirmative procedure, rather than to the negative procedure as the Bill currently states. I tabled the amendment after talking to colleagues on both sides of the House. On reflection, it provides for closer scrutiny of the potential changes that could be made via secondary legislation under the Bill. The amendment does not change the immensely positive effect that I believe the Bill will have on the building society sector by bringing it in line with current practices, nor does it change the Bill’s aims, which will, in my view, enormously improve opportunities for people to get on the housing ladder. The result of the Bill will be a better landscape for first-time buyers, and the amendment just improves scrutiny.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I rise very much to support amendment 2 in the name of Julie Elliott. I am grateful to her for effectively taking forward my amendment 1, which we were told was defective because, although it would achieve exactly the same purpose, it does not use the normal wording that Government drafters like.

After some discussion, it was agreed by the hon. Lady and the Minister that it was sensible to use the affirmative procedure in relation to these delegated powers, and that affirmative procedure is now reflected in amendment 2. It could have been reflected in amendment 1, but what is important is the substance of the matter. These are potentially very significant changes that could be made, and if they are to be made, it is important that they are open to proper scrutiny.

As we know, the negative procedure does not really enable proper scrutiny. As an example, Madam Deputy Speaker, you will recall that legislation was brought forward at the end of last year extending the breeds covered by the Dangerous Dogs Act 1991 to include dogs of the XL bully type. I tabled an early-day motion to try to amend that. That early-day motion was on the Order Paper, but it was never accepted or debated, meaning that that change, which affected hundreds of thousands of dogs and their owners, was made without any proper scrutiny in Parliament. That is why it is important to have the affirmative procedure where possible, and I am very grateful to the hon. Lady for having brought forward this amendment, which I support.

Amendment 2 agreed to.

Third Reading

Photo of Julie Elliott Julie Elliott Labour, Sunderland Central 11:46, 19 April 2024

I beg to move, That the Bill be now read the Third time.

It is a pleasure to bring this Bill back for further debate, as it now exists in an amended form. It is a key moment for a Bill that is important to the building society sector, and I must thank all colleagues from both sides of the House who have taken part as the Bill has gone through its various stages—they have been so supportive of the Bill. I am going to keep my remarks short so that if other Members wish to speak, they can do so, and to try to make sure that the Bill’s progress is as smooth as possible.

The Building Societies Act 1986 (Amendment) Bill will help level the playing field between building societies and banks, and will support building societies to be able to lend more money in a safe and secure way. To trade as a building society, the Building Societies Act 1986 requires the company to obtain a minimum of 50% of funding from its members—what is known as the wholesale funding limit. This Bill does not change that, and it does not dilute the unique ownership model of building societies. The fundamental nature of a building society—being run in the interests of its members—is not changed by the Bill; in fact, that is what makes the sector so special.

What the Bill does is disregard the following from the 50% wholesale funding limit: Bank of England liquidity insurance facilities, debt instruments raised to meet the minimum regulatory requirement for own funds and eligible liabilities requirements, and sums received under sale and repurchase agreements with a view to complying with Prudential Regulation Authority rules. This means that in times of national economic crisis, building societies will have more options within their gift for remaining comfortably solvent, and will therefore continue to serve in their members’ interests. The Bill is designed to allow future Governments to respond to the financial landscape of the day. That is why it does not specifically define funds, but instead defers the specification of funds to a later date through secondary legislation passed in this House. All the responses from the sector to the Government’s 2021 consultation on this issue, in advance of the Edinburgh reforms, were positive. Those reforms make the sector more robust.

The Bill also seeks to modernise the sector. It amends the 1986 Act to explicitly allow the option of real-time virtual member participation, bringing the sector in line with the requirements that the Companies Act 2006 places on businesses. It also enables the Treasury to introduce more flexibility for societies in relation to common sales and the execution of documents, in line with companies law.

The Bill is important because it would achieve a great deal in a very succinct manner, allowing the sector to operate on a more level playing field with banks. This is positive for a number of reasons, but especially in view of the sector’s support for first-time buyers. More than half building society lending goes to first-time buyers, and since 2020 building societies just in my region, the north-east and Cumbria, have lent them some £3.4 billion.

This Bill follows a number of previous private Members’ Bills—including that of my hon. Friend Sir Mark Hendrick, which received Royal Assent last year—that continue to modernise the sector. I will not restate all the facts that I presented on Second Reading, powerful as they are, but it is important to acknowledge that, while the housing sector has recovered significantly since the record low mortgage approvals during the covid pandemic and has recovered from the acute economic shock caused by the last Conservative Administration, mortgage approvals are currently still below the level that that we saw before the pandemic. That is why I think that a Bill such as this, which gives more choice to the building society sector to operate in the interests of its members, is a good thing.

As I have said, the sector has a strong record in supporting first-time buyers, and given that every £10 million of lending could support an additional 20,000 mortgages, I am proud to be introducing a Bill with the potential not just to support the housing sector and the wider economy, but to allow building societies to help more people on their journey to home ownership. I have spoken to many constituents in Sunderland who are struggling to get on to the housing ladder—young couples and families who just want the chance to have a place that is theirs and in which they can feel comfortable, away from a volatile and often unfair rental market. The Government’s failure to reform the sector is a debate to be had elsewhere on another day, but I expect this Bill to do more to support a sector that often goes above and beyond to support its members, and to help people get on to the housing ladder and secure a future for themselves. Its passing would be a landmark moment for the sector, and I look forward to seeing the positive effects that it would bring.

Photo of Peter Gibson Peter Gibson Conservative, Darlington 11:52, 19 April 2024

I congratulate Julie Elliott on presenting the Bill and bringing it this far. Having presented a private Member’s Bill myself, I know all about the joy, and the ups and downs, of the process.

Building societies are financial institutions with the principal purpose of providing residential mortgages, and are funded substantially by their members. I have seen at first hand how their membership system brings people together, and gives many a shared sense of interest and purpose. Darlington—this will come as no surprise—is home to Darlington Building Society, which has been serving the people of Darlington and the surrounding area since 1856. Its commitment to our community is second to none; indeed, only last night at the Tees Business Awards event it walked away with the Community Champion award, which recognises its contribution to our community. While many high streets are seeing the loss of financial institutions, just a few months ago the Minister himself opened a new branch of Darlington Building Society in High Row.

Darlington is also the birthplace of the railways—bear with me here—and some years ago Darlington Building Society commissioned a children’s book by Peter Barron, the former editor of The Northern Echo, to tell the story of Darly the engine. As we approach the 200th anniversary of the railways—a very big year for us—the building society, in collaboration with the west end composer Stuart Brayson and Darlington Operatic Society, is turning the story of Darly into a musical, which will premier in September next year. I am proud to represent a town with such a strong track record of supporting our community.

The Bill is about putting building societies such as Darlington Building Society on a more level playing field with banks, in relation to their capital raising and corporate governance requirements, so that they can compete more effectively in the financial services sector and better support their members. It will help to deliver key asks from the sector itself. I welcome the provisions in the Bill, which largely mirror proposals that the Government consulted on during 2022, and I welcome that both the Government and the building society sector are supporting it. Indeed, Andrew Craddock, chief executive officer of Darlington Building Society, has also voiced his support stating:

“Darlington Building Society supports the proposed reforms to the Building Societies Act. The modernisation will cut archaic red tape by removing outdated corporate governance requirements, which building societies face but banks don’t.”

As a vital part of our financial framework, and with a deep-rooted interest in communities in Darlington, I believe the Bill will help building societies to survive and thrive. It is right that we do all we can to ensure that businesses flourish, so the cutting of red tape is welcome, as is the removing of outdated, bureaucratic governance systems that are not faced by big banks.

To conclude, I welcome the Bill as a way of ensuring that building societies are embraced and enabled to do business with fewer hurdles and red tape. It sorts out certain questions about funding, and it levels the playing field. I am pleased to support the Bill, and trust that the House will give it its full support.

Photo of Ben Everitt Ben Everitt Conservative, Milton Keynes North 11:56, 19 April 2024

Every day is a school day, and I am delighted to learn about Darly the engine. I am equally excited about the forthcoming musical, and it is a pleasure to follow my hon. Friend Peter Gibson. I thank Julie Elliott for her efforts in getting the Bill through its initial stages. It is a Bill we can all get behind because it benefits our constituents, and I am pleased to give it my backing. At the back end of 2021, the Government ran a consultation on amendments that could improve the Building Societies Act 1986. The responses were pretty positive, and I am glad that the Bill reflects many of them.

Building societies play an unique role in the UK economy, serving around 25 million people and going back nearly a quarter of a century, particularly in Darlington. In my constituency, I was pleased to visit a branch of Nationwide Building Society late last year, to receive assurances that it was going to stay open—I am happy to place that on the record in this place—but more to see the impact that it has in the community. It is more than just banking services. People go in there for a chat, or more than a chat. Older members of our community are going in there and having lessons on online banking, how to use an iPad, and receiving advice on countering fraud, either online or on the phone. There is a real place in our communities for building societies.

As member-owned financial institutions, building societies are known for delivering excellent services, particularly on mortgage lending, often to a high level of customer satisfaction. For that reason, anything we can do in Parliament to ensure they remain competitive in the financial sector must be a good thing for both our economy and for local communities. The Bill will rightly put building societies on a more even keel with banks. In a broad sense, the Bill is about levelling the playing field in the financial sector, helping building societies to increase their lending capacity. That can be hugely helpful to first-time buyers, and more people on the housing ladder is something that Members across the House can get behind. In Milton Keynes, getting people on the property ladder is a real priority: it is incredibly frustrating that the average cost of a new-build house in Milton Keynes is about £475,000, while the average cost of any house sold in Milton Keynes last year was about £335,000. Access to finance and anything we can do to support that is a key part of any solution.

On the role that building societies play in mortgage-lending services, according to the Building Societies Association, they are responsible for a third of first-time buyer mortgage completions. It stands to reason that if we can increase the fundraising capacity for building societies, we can get even more people on the housing ladder. As clause 1 describes, the proposed changes can get us there.

The Bill is another good example of cross-party collaboration, with colleagues across the House recognising its clear benefits. From both personal experience and engagement with our constituents, Members can attest to the pivotal role that building societies play in our communities, Strengthening building societies is bound to have a positive economic consequence across the board. I look forward to seeing the Bill progress into law.

Photo of Lisa Cameron Lisa Cameron Conservative, East Kilbride, Strathaven and Lesmahagow 12:00, 19 April 2024

I place on record my thanks to Julie Elliott for bringing a pragmatic and important Bill to the House, and I give it my full support today. As always, she works assiduously in making lives better for people across the United Kingdom and in her constituency, and she works in an extremely positive manner across parties to achieve her aims, and I thank her for that, too.

As others have mentioned, building societies are extremely important to the fabric of the financial institutions in our constituencies. I make regular visits to the Nationwide Building Society branch in East Kilbride, as I did just a few months ago. Like my hon. Friend Ben Everitt, I was reassured to find out that my local branch had no plans to close and was thriving in the community. Many people were coming in to speak and to chat, as well as for socialisation and reassurance regarding finance and debt and how to engage with the new digital banking sector. The reach-out into the community is second to none.

I was impressed by that, particularly as I have had terrible news from East Kilbride just this week that the Royal Bank of Scotland is closing its branch there. That follows on from the bad news just last month that the Bank of Scotland is closing in Strathaven and Lesmahagow, leaving those communities without essential banking, particularly as those branches are the last banks in those local communities. It is distressing for the residents. I am pleased to be able to raise their concerns today and to praise Nationwide for the work it is doing and its assurance that it wants to be at the heart of our community for the foreseeable future.

I declare a personal interest, as my first mortgage was with that building society. I did not know an awful lot about finance or mortgages at the time, but Nationwide took the time to go through the different options with me, and I felt reassured by the manager. Having that face-to-face contact is so important. For first-time buyers who are not sure about the steps to take in getting their first mortgage—it is such a pivotal part of our life journey—these institutions play such an important role in our local communities.

I also place on record my thanks for the work that Nationwide is doing on mental health. I am part of the Money and Mental Health Policy Institute, chaired by Martin Lewis. We know that there is a huge link between mental health and finance. Debt, in particular, correlates with people’s mental health spiralling downwards, and we need to make sure we address those issues through all our banking institutions.

As has already been said, this is an important Bill, which places building societies on par with banks for corporate governance and solvency, and will keep them competitive and at the heart of our communities for the future.

Photo of Darren Jones Darren Jones Shadow Chief Secretary to the Treasury 12:04, 19 April 2024

I congratulate my hon. Friend Julie Elliott. As we all know, it is sheer luck to come top of the private Member’s Bill ballot, but drafting a Bill that generates strong cross-party support and becomes law is the result of tremendous hard work. This is a classic private Member’s Bill that, as she suggested, might look technical in nature but will make a huge difference to those people affected. The Bill is also true to Labour and Co-operative values, and we in the Labour party are delighted to support it.

My hon. Friend has worked painstakingly over many months to draft and develop the Bill, engaging with Treasury civil servants and Ministers. She has also worked closely with Labour’s sister party, the Co-operative party, and the wider mutual sector, including the Building Societies Association and Nationwide. We have heard excellent contributions in the debate that have highlighted the importance of the sector and the positive impact that the Bill will have for communities and families, not least in the context of bank branch closures across the country.

Building societies and mutuals have a long and proud tradition of supporting working people in accessing affordable finance. Today, the sector continues to play a crucial role in promoting financial responsibility and resilience among its members. Building societies also enable families to get on the housing ladder. As we have heard, they direct a significant proportion of their lending to first-time buyers, and the Bill could unlock significant additional lending capacity from building societies, supporting more working people to become homeowners, not least in my constituency of Bristol North West, where so many people are struggling to buy their first home.

Since the Bill first came before the House, my hon. Friend Tulip Siddiq has launched the Labour party’s financial services review. That landmark review outlines Labour’s plan to work hand in hand with businesses and the financial services sector to drive economic prosperity. It also reaffirms what the first priority will be of a Labour Government: to provide a secure platform for growth, which builds on the strengths of our economy and gives citizens across the UK financial stability. To deliver on those priorities, a key aspect of the review is Labour’s commitment that the next Labour Government will aim to double the size of the co-operative and mutual financial services sector under. The Bill is an important step towards achieving that aim, as it will help to level the playing field for banks and building societies.

While Labour strongly welcomes the measures in the Bill, we believe that further legislation is necessary to deliver on our ambitions and ensure benefits for communities across the country. That is why our review set out measures that will help to underpin rapid mutual financial services growth, including new requirements on regulators and policymakers to: consider properly the needs of mutuals and actively reduce barriers to their growth; support credit unions in offering more products; and strengthen the small and medium-sized enterprises bank referral scheme, in order to support businesses in securing financial resources from co-operatives and mutuals.

Labour’s ambition, working together with the Co-operative party and the wider co-operative and mutual sector, is clear: to support the sector, so that the vital contribution that it makes to our economy can go further and drive much needed growth in the future. Labour recognises that the Bill is an important step forward, and we are delighted to give it our full support. May I once again congratulate my hon. Friend the Member for Sunderland Central on her excellent work?

Photo of Gareth Davies Gareth Davies The Exchequer Secretary 12:08, 19 April 2024

Let me first congratulate Julie Elliott on reaching the Third Reading of her important Bill, which will help to ensure the future growth and success of the building society sector. She is a strong advocate for the sector, and has introduced a Bill that will help it to grow and compete with retail banks, so that it can continue to provide vital diversity to the UK financial services sector.

I also congratulate my hon. Friends the Members for East Kilbride, Strathaven and Lesmahagow (Dr Cameron), and for Milton Keynes North (Ben Everitt), and especially my hon. Friend Peter Gibson, who I was delighted to join back in November to open the Darlington Building Society in the middle of town. I saw from him and the employees just how impactful they are in his community, and I am sure that they will go from strength to strength.

Photo of Peter Gibson Peter Gibson Conservative, Darlington

While the Minister is on his feet, I wonder whether he could outline to the House the gift he received from Robin Blair, our veteran fruiterer and vegetable trader in our historic market hall, who joined him on that opening day.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

I was not expecting an intervention on that of all subjects, but I did enjoy the satsumas that were provided by the very nice gentleman, who I understand is an institution in the town of Darlington.

As I was saying, building societies are important to all our communities, not least mine in Grantham and Bourne. In Grantham I have the Nationwide Building Society, the Nottingham Building Society and the Melton Mowbray Building Society, a new branch of which is opening in Bourne in April.

Today I wish to outline a few things: first, the Government’s support for the mutuals sector; secondly, the importance of mutuals to our overall financial services sector; and, finally, how this Bill will further support the future growth and success of mutuals. The Government want to promote the growth of mutuals, which make a vital contribution to the UK economy. As outlined in the mutuals prospectus, there are over 9,000 mutuals operating throughout the country, with a combined annual turnover of some £88 billion in 2022, which equates to 3.5% of UK GDP. However, beyond their vital financial contribution to the UK economy, mutuals play an important role in supporting people across the country. Their unique ownership model means that these businesses are rooted in their local communities, and working to make society better.

It is for those reasons that the Government are committed to supporting the growth and success of the mutual sector. For example, last summer the Government amended the Credit Unions Act 1979 so that credit unions in Great Britain can offer a greater range of products and services. Moreover, as the hon. Member for Sunderland Central said, last year the Government supported the private Member’s Bill introduced by Sir Mark Hendrick, which achieved Royal Assent in June 2023. The Co-operatives, Mutuals and Friendly Societies Act 2023 will allow the Treasury to pursue further secondary legislation to give co-operatives, mutual insurers and friendly societies greater flexibility in deciding what to do with their surplus capital and the restrictions on their assets. The Government continue to develop a modern and supportive business environment for mutuals. As part of that, we have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.

Building societies are perhaps one of the best-known types of mutuals. There are 42 building societies operating throughout the country, providing mortgage and savings products to around 26 million members. They play an essential role in supporting their members in building savings habits and buying their own home, as Darren Jones outlined. That cause is supported by Members from across the House, but particularly by the hon. Member for Sunderland Central, who has consistently championed the importance of supporting first-time buyers—not just in her constituency, but across the country.

Building societies are especially well represented in communities outside the south-east. For example, the Melton Mowbray Building Society provides vital support in all areas neighbouring my constituency, and I note that the Newcastle Building Society has a significant presence in the constituency of hon. Member for Sunderland Central. It builds on a 160-year history, and its amazing commitment to its members in the communities in which it operates remains strong. It has partnered with the citizens advice fund to provide expert advice to members, answering questions on a variety of important issues. She also has the Yorkshire Building Society in her constituency, which has done great work on financial literacy through its Money Minds programme.

It is clear that building societies contribute to the wellbeing of communities throughout our country, including in the constituency of the hon. Member for Sunderland Central. The Government are fully supportive of this private Member’s Bill, which will help the sector to compete more effectively with retail banks, so that building societies can continue to work.

This Bill is about enabling building societies to grow and compete with retail banks. We are achieving that by updating the legislation in three short ways. First, the Bill excludes three specified sources of funding from the 50% wholesale funding limit for building societies. This will provide them with greater flexibility in raising additional wholesale funding, while still operating within the mutual model. The detail of the funds will be further specified by the Treasury through secondary legislation in due course. Furthermore, the amendment in the name of the hon. Member for Sunderland Central means that the statutory instruments will be subject to the affirmative procedure, allowing for greater parliamentary scrutiny; that comes on the back of very constructive work from across the House. The amendment does not change the policy outcome of the Bill in any way, but simply amends the parliamentary procedure that will be followed when subsequent regulations are made.

Secondly, the Bill allows for the option of real-time virtual participation at building society meetings. This will improve meeting accessibility and promote wider membership engagement, should the members of any building society choose to permit virtual participation under their rules.

Finally, the Bill will provide His Majesty’s Treasury with the power to further align constitutional provisions. Specifically, it will align provisions in part 2 of the Building Societies Act 1986 on common seals and the execution of documents with modifications made to company law. This will remove outdated and burdensome legislative requirements, and update the 1986 Act, in line with modernisations made to company law.

In conclusion, the Government fully support the hon. Lady’s Bill. We recognise the importance of the building society sector, which supports people and communities across the country. I extend my thanks to the hon. Lady for introducing the Bill and for progressing it to Third Reading. She can be assured that the Government share the vision set out in the Bill for supporting the future growth and prosperity of the building society sector.

Photo of Julie Elliott Julie Elliott Labour, Sunderland Central 12:16, 19 April 2024

With the leave of the House, I would like to thank all Members who contributed at various stages of the Bill. On Second Reading, I had not expected the political history lesson we had from Members on both sides of the Chamber, but it was quite entertaining. It is an honour to have a debate on a Bill on which everybody agrees; everybody can see the very tangible benefits it will have for all our constituents.

It has taken a lot of work from a lot of people to get to this point. I thank not only colleagues who have taken part at every stage, but Treasury officials, who have been extremely helpful; the Clerks, whose advice, support and guidance is, as always in this place, invaluable; the Whips; the Building Societies Association; and our sister party, the Co-operative party. They have all contributed, and helped with advice and support, as I have taken the Bill through the House. I commend it to the House.

Question put and agreed to.

Bill accordingly read the Third time and passed.