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

Part of the debate – in the House of Lords at 8:21 pm on 13th January 2014.

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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.