Clause 2 - Community benefit societies

Part of Industrial and Provident Societies Bill – in a Public Bill Committee at 11:00 am on 13th February 2002.

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Photo of Ruth Kelly Ruth Kelly Economic Secretary, HM Treasury 11:00 am, 13th February 2002

As my hon. Friend rightly said, the amendments go right to the heart of clause 2. I am in continuing dialogue with him about aspects of the clause. The amendment would remove the provision to allow societies to adopt rules irrevocably, committing their assets to the benefit of the community. I can see potential benefits to the sector from clause 2, although at this stage I do not think that the arguments are clear cut. Such a change in the law should be considered

carefully. Locking-in a society's assets in perpetuity should not have unintended effects such as reducing the flexibility of the sector to consolidate and grow.

We need to consider some technical points. For example, provisions that would limit the use of a company's assets and that could not subsequently be altered would be highly unusual—perhaps even technically impossible in company law. Without such provisions, the clauses in the Bill to allow the transfer of assets from societies to companies do not seem appropriate. It may be possible to design powers to enable companies to make such unalterable commitments. However, that approach would be more far-reaching in scope than the current version of the clause. We need to examine the implications more carefully.

We also need to consider the framework provided in other sectors of the economy, such as the charity sector, where rules govern the use of assets. Clause 2(1)(b), which would allow industrial and provident societies to lock in their assets for the benefit of the community irrevocably, would produce consequences. We should be clear about whether that rule would benefit all societies, given the wide range of societies that operate for the benefit of the community. If so, should there be provision to overturn the rule in exceptional circumstances? For example, there may be occasions, such as on the dissolution of a society, when the redistribution of its assets might be impeded and less efficient if no suitable eligible society had adopted a similar lock-in rule. If it is appropriate for those asset lock-in rules to be reversed in special circumstances, we need to consider which body might be best placed to intervene, what powers it would require and in what circumstances it should exercise such powers. Those issues need further consideration.

If we accept the amendments, we will be left with little change to the present situation. In practice, limitations are already placed on the ability of community benefit societies to distribute assets outside of purposes that benefit the community. While I am sympathetic to the amendments in that they try to remove problematic provisions in the clause, I am not convinced that they leave us a useful basis for legislation.