Co-operative and Community Benefit Societies Bill [HL] — Second Reading

– in the House of Lords at 8:00 pm on 13th January 2014.

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Moved by Lord Newby

That the Bill be read a second time.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 8:16 pm, 13th January 2014

My Lords, it is a pleasure to open the debate on the Bill. This is a consolidation Bill which brings together and modernises the law relating to co-operatives and community benefit societies, and other societies registered or treated as registered under the Industrial and Provident Societies Act 1965, with amendments to give effect to recommendations of the Law Commission and the Scottish Law Commission.

As a consolidation Bill, the Bill aims to remove ambiguities but does not seek to introduce any new policy or make substantial changes to law. It is still, however, an important step in reducing legal complexity for new and existing societies. In January 2012, the Prime Minister announced that, in support of the co-operative movement, the legislation dealing with co-operatives and other mutual societies would be consolidated into one co-operatives Bill. This Bill represents the Government’s delivery of that commitment.

The industrial and provident society sector forms a major part of the mutuals landscape, with a diverse mix of over 7,000 independent societies in the UK. Given their clear importance to the diversity and strength of the UK economy, the Government are keen to continue their support for the sector. This consolidation Bill is one element of the key reforms we are making to help ensure that industrial and provident societies are well placed to play a central role in the UK economy for years to come.

As part of the Government’s continued efforts to simplify and modernise legislation, the Law Commissions made a number of recommendations for modifications which have been incorporated into the Bill. For example, the language regarding the conditions for registration as a community benefit society has proved problematic. The Bill now clarifies this position and provides that a society may be registered as a community benefit society only if it is shown to the Financial Conduct Authority’s satisfaction that the society’s business is being, or is intended to be, conducted for the benefit of the community.

The Law Commissions also identified areas where some of the language used in the legislation was unnecessarily complicated. For example, there is no reason to distinguish between documents in electronic format and those in other forms. The approach has been harmonised in the Bill, with relevant sections applying to all of a society’s business correspondence and other business documentation in any form. The Bill has been warmly welcomed by sector trade bodies, particularly Co-operatives UK.

In addition to the consolidation Bill, we are taking further steps to modernise industrial and provident society legislation by commencing various sections of the Co-operative and Community Benefit Societies and Credit Unions Act 2010. The Government are also introducing a package of measures in support of co-operative societies through secondary legislation, and the consolidation Bill takes account of these measures. These are due to come into force in August 2014 and are: first, increasing the cap on the amount of withdrawable share capital that an individual can put into a society, which will increase from £20,000 to £100,000; secondly, allowing for troubled societies to enter insolvency rescue proceedings; thirdly, giving the FCA additional powers to investigate societies; and, fourthly, making electronic submission of registration documents simpler.

Following a public consultation earlier last year, all of these measures have been warmly welcomed by sector representatives. Co-operatives UK, the main industry trade body, has welcomed the changes, saying that:

“The appetite and commitment to do business the co-operative way has not waned”,

and that this is,

“a massive vote of confidence in the strength of the co-operative sector and recognises the movement’s ambitions for growth and development”.

This is a useful and overdue Bill.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords)

Will the measures that the Minister has just described come before Parliament, either as affirmative orders or as negative orders?

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I believe that they will. I will confirm that to the noble Lord, but that is my understanding.

As I was saying, this is a useful and overdue Bill, which will allow the Government to continue their support for the mutuals sector, as underpinned in the coalition agreement where it sets out their commitment to foster diversity and promote mutuals. The Bill is a key part of wider legislative reforms aimed at strengthening the sector and encouraging increased investment in the country’s co-operative sector, allowing it to thrive. In short, this Bill is good for the mutuals sector, and I commend it to the House.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 8:21 pm, 13th January 2014

My Lords, I am grateful for an opportunity to speak briefly in the gap. I am afraid that I was away on business in the United States last week and I arrived back at Heathrow only at 10 o’clock last night. By the time I got my mind into gear, I am afraid that the speakers list had closed.

My two simple points refer to the point made by my noble friend in his opening comments. The heavy type on page 3 of the Law Commissions’ report, which is the first recommendation, says that,

“a society may be registered as a community benefit society only if it is shown to the Financial Conduct Authority’s satisfaction that the society’s business is being, or is intended to be, conducted for the benefit of the community”.

I would like to explore with my noble friend some of the practical implications of this. First, who defines “benefit of the community”, where is it defined, who judges whether the definition has been met and who hears appeals against judgments perceived to be unfair? Secondly, does the test precisely match the public benefit test applied by the Charity Commission, which is the key to charitable status? If not, is there not a danger that the unscrupulous will game the system to take advantage of whichever regime is laxer? As far as the charitable sector is concerned, which is under pressure with the Cup Trust and executive pay, further adverse publicity would be surely unwelcome.

My second point concerns the question of “to the FCA’s satisfaction”. Is my noble friend convinced that the FCA will devote sufficient resource to ensuring that the benefit to the community test is met? When I reviewed this as part of my charity review, it was clearly low on its agenda. At paragraph 10.29 of my report I said:

“Only a small proportion of IPS are charities; all of those are community benefit societies. Charitable IPS are exempt from registration with the Charity Commission and, although they are registered with the Financial Services Authority … the FSA undertakes no regulation in respect of any type of IPS. This, then, is essentially an unregulated sector”.

It needs to be a test that is not just a nod-through. It needs to be a test that is reapplied from time to time; it should not be the case that, once a society is through the hoops, it is in the pen for ever.

I appreciate that these are detailed comments made in very short order. I have not been able to give my noble friend any advance warning, and I apologise for that. I would be happy if he wanted to write to me, but these are potentially very important issues, which deserve a public response and airing.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords) 8:24 pm, 13th January 2014

My Lords, before I commence, I wonder if the Minister has some information from the Box that he might share with me in response to my question.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am extremely pleased to be able to reassure the noble Lord that the four measures that I referred to will be brought before Parliament shortly. One will be brought forward in an affirmative resolution and the other three in a negative resolution.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords)

I thank the Minister for that response, which will make my brief speech even shorter.

At somewhat short notice we were asked if we would take this consolidation Bill and it fell to me as the sort of second tier on our team—because we have only two now—to look at it. I thought, “What is a consolidation Bill?”, so I looked it up and it seemed that the first role of the Opposition was to have a reasonable confidence that it was a consolidation Bill. The test is in the Companion at 8.205 and there are five reasons, (a) through (e), and it is fair to say that the Bill seems to fall among (a), (b) and (c).

The first thing I did was to get a copy of the Bill. I was just about to start reading it when I got another document, the table of origins, which convinced me that I should not read it. Almost fortuitously, the Printed Paper Office offered me a copy of the Law Commission report, and I have read that. I take the point that these Bills have to be looked at very carefully to ensure they pass the test for a consolidation Bill but, reading the Law Commission’s report a little bit carefully, its recommendations seem to fall within the overall requirement.

Certainly, when one goes on to read how this Bill will now proceed, to the Joint Committee on Consolidation Bills, where there will be detailed scrutiny of the origins of the parts of the Bill and the Government, through their witnesses, will have to assure the committee that it meets the test, we can be comfortable that this is a proper consolidation Bill and serves a useful purpose.

The thing about consolidation Bills is that no parliamentarian—except when you are in government, I suppose—can be other than joyful about their arrival. I cannot think of parliamentary language to describe much of our legislation but, having sat through so many variations of financial services Bills—FiSMA and so on—in the sure and certain knowledge that no reasonable human being using the source document could possibly understand it, consolidation Bills are a joy to the eye.

However, one has to ask: why this one? The Government’s response to the consultation offers the rather nice words that it will,

“consolidate existing IPS legislation in one place, and is an important step in reducing legal complexity for new and existing societies”.

I agree that it is an important step but I ask the Minister: why this Bill and not many others? Do the Government have a plan for a programme of consolidation Bills? I particularly hark back to the travail that he and I and others have been through with the various financial services Bills. I have to say that the Treasury did a splendid job of producing Keeling schedules and such things to help us but even with all that help it was an uphill battle. Will the Government bring forward further consolidation Bills?

The next area I was going to venture into concerns the merits of the other actions that stand alongside the consolidation Bill and are set out in the consultation document. Because of the Minister’s assurance that they will come in front of Parliament as either negative or affirmative instruments, I will not waste the time of the House on those issues now and not ask the Minister questions he would have to promise to write to me about.

Accordingly, we broadly support the concept of a consolidation Bill. We wish it well and I wish the members of the Joint Committee who have to go through all this paperwork all the luck in the world.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 8:30 pm, 13th January 2014

My Lords, I am grateful to noble Lords who have spoken in this pleasingly short debate at this time of the evening.

The noble Lord, Lord Hodgson, asked me some very technical points and I will of course write to him as he suggested. He asked about the extent to which the FCA will prioritise looking at IPSs. The FCA is committed to maintaining the registration requirements of being a bona fide co-operative or community benefit society. One of the measures that the Government will bring forward will give the FCA additional powers to investigate these societies for irregular activities, as well as disqualifying directors where appropriate. There has been a long-held view that the FSA has devoted very little attention to this sector, but there is a logic in the regulators putting in more effort to make sure that, as the sector grows both in size and prominence, it is well regulated. However, I will certainly pass on his view that this is a sector which the FCA certainly cannot afford to ignore.

The noble Lord, Lord Tunnicliffe, very kindly welcomed the Bill. One advantage of consolidation Bills is that if you do attempt to read them, the first parts—until it gets into the schedules—are often a much better read than what preceded them. This is a consolidation Bill albeit with the Law Commission’s drafting amendments to clarify various ambiguities. Why, he asks, are we consolidating in this area rather than in a lot of others? We have been very keen as a Government to simplify and develop the law in this area. It has been a bit of a patchwork quilt. There has been a long tradition that mutuals legislation is introduced as private Member’s legislation, and more than with other types of legislation, little pockets of provision have developed over the decades. As the sector grew, however, it needed legislation that was commensurate to its new status.

There will be other consolidation Bills in due course. The challenge is, as much as anything else, around resources. Sadly, this Government are no less keen than their predecessor to produce a large volume of legislation; and sadly, from the parliamentary counsel’s point of view, there are limited resources. The other challenge, as always, is to consolidate at a time when there are often new changes which are sometimes difficult to provide for legislatively. However, the whole process of consolidation is an important one in terms of keeping the law up to date and useable. The Government are committed to maintaining that approach.

I am grateful to noble Lords who have spoken. We believe that this is a useful piece of tidying-up legislation, and I commend the Bill to the House.

Bill read a second time and committed to the Joint Committee on Consolidation Bills.

House adjourned at 8.34 pm.