Clause 3

Financial Mutuals Arrangements Bill – in a Public Bill Committee at 9:45 am on 25 April 2007.

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Transfers between mutuals

Question proposed, That the clause stand part of the Bill.

Photo of David Taylor David Taylor Labour, North West Leicestershire

With this it will be convenient to discuss the following: Government amendment No. 9.

Government new clause 3—Transfers to subsidiaries of other mutuals.

Government new clause 4—Transfers to subsidiaries: distribution of funds.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

I pay particular tribute to the hon. Member for Bournemouth, West, not simply because of his leadership on matters of mutual policy, but because of his wide experience in the House, including as an excellent Chairman of the Standing Committee that considered the Finance Bill last year. His knowledge of procedure is second to none, and the fact that he ensured that we voted correctly was appreciated by hon. Members on both sides of the House, myself included.

New clause 3 will give the Treasury the power to modify legislation relating to the transfer of the business of building societies, friendly societies and industrial and provident societies, to make those transfers easier. The modifications will apply where the transfer is from one mutual society to a company that is a subsidiary of another mutual society. The Treasury may also use the power to ensure that members of the transferring mutual society, and new customers after the transfer, are given certain membership rights in the owning mutual society.

The Treasury may also make other changes that relate to the transfer—for example, to prevent a change in ownership of the new subsidiary company for a specified period. Where the power is used to modify primary legislation, or to modify the rules on subsidiaries, it will be subject to the affirmative procedure. But it may also be used to modify secondary legislation—for example, transfer regulations made under section 102 of the Building Societies Act 1986—in which case the negative procedure will apply.

These amendments are intended to lighten the burden on financial mutual societies where they transfer ownership from one type of mutual to another. The wider opportunities for a more diverse range of ownership in the sector will help it to compete both internally and in the wider financial sector. The Treasury will also consult on the appropriate means of restricting further transfers of ownership outside the mutual sector, so that the procedure does not become a back-door means of demutualisation. That is likely to be achieved by placing a time bar on future transfers of ownership.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Again, I very much support the clause. It goes to the heart of the Bill. It has been anomalous that mutual financial organisations can merge with one another only by one of them first losing its mutuality, which rather defeats the whole object of mutuality. It is a key part of the Bill that these arrangements will enable those transfers to take place, without the loss of the important principle of mutuality.

As I indicated earlier, there is one area where I am disappointed and that is the position of mutual insurers. I understand that their omission is due to possible concerns about European Union law relating to companies. I think that only seven companies are affected by that, and it may yet be possible, with the wit and ingenuity that is available to us, to table a further amendment on Report, so that they could be included. If that were possible, I would welcome it, but I do not want to hold up the progress of the Bill in its entirety on that issue.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury 10:00, 25 April 2007

Just to reply to the point made by the hon. Gentleman, we have considered carefully whether mutual insurers could be included in this part of the Bill. As I explained on Second Reading, this is an area that has raised more substantial difficulties for us than other aspects of the original proposed legislation. Mutual insurers are difficult to define as a category. Many of them are friendly societies, which are already covered by the Bill; others are governed by private Acts of Parliament,  and so could not be covered in a public Bill. Changes in that regard would have to be made in those private Acts under the private Bills procedure. The remaining mutual insurers are companies limited by guarantee. We have considered whether the Bill could be extended to companies limited by guarantee that are also insurers. However, as insurance is regulated on a Europe-wide basis, we would have to allow the same procedures to apply whether transfer is through a subsidiary of a body corporate in another member state, which is similar to a company limited by guarantee.

The work that we have done in consultation with the hon. Member for Bournemouth, West and his advisers has continued to throw up a range of problems. For example, it would be difficult to specify in UK legislation what rights members of the transferring mutual society should enjoy in the holding company established in another member state. That is one example of a range of difficult definition issues that we have not been able to solve. So far, that has meant that we have been unable to come forward with proposals in new clause 3 covering mutual insurers.

However, I take on board the hon. Gentleman’s plea that we should keep trying. I am happy to go back today and take a further look at these matters, and to see what more can be done. I will write to members of the Committee in a day or two to inform them whether we can continue those discussions. If it were possible to come back with an amendment in Report, we would do so, although I fear that simply to investigate the matter further and see whether that was possible would take some days. I do not know whether the timetable will give us the space to do so, but we have no principled reason for excluding mutual insurers. If we could table an amendment on Report, we would. We would need some time to do the work to see whether that was possible.

I shall keep in touch with Committee members, but if we are unable to make progress, we will continue to need to discuss the issue beyond the life of this Committee and this Bill. It is not off the table; if we can make progress, we will. It will take some days to look at the matter, but I do not rule out an amendment on Report.

Question put and negatived.

Clause 3 disagreed to.