May I mention that I have ditched half of my speech to accommodate those who wish to participate in the debate? On
Let me give some background to the debate. The Financial Services Compensation Scheme is a safety net for customers of financial institutions in the UK and it steps in when institutions fail. In the recent economic turmoil, a number of banks have failed, including Bradford & Bingley, Kaupthing Singer & Friedlander, Icesave, Heritable and London Scottish Bank. However, not one private individual with a UK deposit in a failed bank has lost any money. In cases in which the amount insured by the FSCS has been exceeded, the FSCS covers the first £50,000 of an individual's deposit, and £100,000 in the case of a couple. At the time of the Bradford & Bingley failure, the equivalent figures were £35,000 and £70,000. The Government—or the taxpayer—have paid the remainder. That is to be welcomed and has helped UK depositors feel confident that their money is safe. However, the impact on building societies is unfair, which is why I requested this debate.
The compensation payments have been made in the first instance by the UK Government. Part of such payments have been in the form of a loan to the FSCS, which currently amounts to £18.7 billion. The principal of the loans will not become due until September 2011 by which time it is hoped that there will have been substantial recoveries from the assets of the failed banks. However, it is likely that a significant proportion of the £18.7 billion will still be outstanding. Although there may be some rescheduling of the loans, the principal will still need to be repaid and will need to be met by the FSCS levies on the industry.
In the meantime, building societies and banks are being required by the FSCS to service the interest on the loans made by the Government to the FSCS. Those interest payments are capped at £1 billion a year, of which the Building Societies Association estimates that building societies will be required to pay a fifth—up to £200 million a year—in each of the next three years. Building societies consider that a disproportionately high share of the compensation costs associated with failed banks. Societies are annoyed that although, by and large, they behaved prudently during the housing market upswing they are now being forced to pay for organisations that acted much less prudently. As mutual member-owned organisations, any additional costs such as those ultimately work to the detriment of society members—both savers and borrowers.
The cost to societies of up to £200 million per annum in each of the next three years would be equivalent to about 15 per cent. of the sector's annual pre-tax profit—based on the 2007-08 financial year. With the recent reductions in interest rates, the latest estimates are that the £1 billion per annum cap will not be reached this year. The Financial Services Authority's forecast is that the FSCS levy for 2009-10 will be £645 million, of which the BSA estimates that building societies will be required to pay £130 million. The impact on building societies contrasts starkly with the banking sector, in which the levy for FSCS management expenses is typically between 3 and 5 per cent. of pre-tax profits over a similar accounting period. It is particularly galling that in the few cases in which societies have got into difficulty, mergers have been arranged with stronger building societies, without recourse to the public funds. Such funds have been needed to bail out depositors at Bradford & Bingley and the other banks.
The fact that building societies are not profit-maximising organisations is fundamental to their mutual ethos. However, their modest profits, which contribute to their reserves and increase their financial strength, are being hit hard by the FSCS levies. Several building societies have recently announced their financial results for 2008, and all show the significant impact of FSCS levies caused by the bank failures of late 2008. Based on the 10 building societies that have reported annual results for 2008 so far, FSCS provisions have reduced reported pre-tax profit by a staggering 75 per cent. Without the FSCS levy, pre-tax profits for the 10 would have been £135 million. After providing for the levy—not all societies have provided for the levy in the same way—pre-tax profits were reduced to £34 million.
Building societies are a model whose time has come and should be encouraged. However, the FSCS-driven onslaught on building societies comes at a particularly bad time when one looks at the bigger picture. There is a backlash against the reckless, bonus-driven excesses that have characterised some sections of the banking industry over the past 20 years, which ultimately led to the near collapse of the system. A consensus is emerging that there is a need for a return to the old and possibly boring values of risk-averse banking.
There are 55 building societies in the UK, with total assets of £395 billion. They hold about 20 per cent. of the total outstanding mortgages in the UK, with about 2.9 million borrowing members, 20 per cent. of retail savings in the UK and more than 23 million investing members. Building societies employ more than 51,500 full and part-time staff and operate through more than 2,000 branches. On
"We do want to see the reinvention of the traditional savings and mortgage bank in Britain, for loans to be made on prudent, careful terms."
Building societies fit that bill. They are, in many ways, an antidote to the banking excesses of the recent past—a small corner of sanity. It thus makes no sense to be kicking them via the FSCS levy. Instead, they need to be nurtured and encouraged.
There are some possible solutions. Having demonstrated that the building societies and their 23 million investing and 2.9 million borrowing members are being treated unfairly under the arrangements for allocating FSCS levies, and that that is not a good idea given the valuable role performed by the societies, what now needs to be done to give building societies a better deal? Building societies are very supportive of the need for a deposit protection scheme. Although it is unlikely—though not impossible—that they will ever need to call upon it, they are happy to pay an appropriate share of the costs of the scheme. The point at issue is what that share should be. Societies consider there to be a strong case in equity for the allocation of the FSCS levies to be modified to reflect better the relative risk profiles of building societies and banks.
There are several ways in which that could be done. For example, the contribution groups for deposit takers could be recast to include sub-pools so that the banks meet in full the first slice of any FSCS levy resulting from a bank failure. By that I mean before building societies and other deposit takers are required to contribute. Similarly, in the event of a building society-generated call on the FSCS, building societies would meet in full the first slice of any FSCS levy, before the banks and credit unions were required to contribute. Secondly, FSCS levies could be capped at a proportion of a deposit taker's pre-tax profits—for example, at 5 per cent. of the rolling average of the most recent three-year pre-tax profits. Thirdly, we could base the FSCS levies wholly on balance sheet quantities, but take account of the size of the total balance sheet rather than simply the retail balance sheet. Any of those things is likely to produce an outcome that is, over time, more fairly reflective of the relative riskiness of bank and building society businesses models.
How might the FSA and FSCS respond? I was encouraged to read the report of the Treasury Committee's questioning of the chairmen and chief executives of the FSA and FSCS on
"I think we are all very conscious of the fact that the compensation scheme has to be funded by the live industry and that does mean that good firms pay for bad firms that have gone, so there is always an element of unfairness about any of the bills that we produce for people...I do think it is time to look again at the way the scheme is funded. One of the things that has come out over the past few months is that of course we have had the money that we have needed to pay the claims as they have fallen due, but the bills are coming at a difficult time and this does raise the question again of whether or not there should be an element of pre-funding for the scheme which I think will now come back onto the agenda."
After hard questioning by my hon. Friend Mr. Mudie on the unfairness of the FSCS levies on building societies, Lord Turner of Ecchinswell assured the Committee that the issue would be looked into. The Committee also had considerable sympathy for the plight of building societies. The Chairman, my right hon. Friend John McFall, said:
"We have had unsung witnesses here who came after the press, namely the Building Societies Association, who did not get themselves into trouble and that has made quite an impression on us."
Finally, I was puzzled that there was absolutely no mention of a review in two letters that I received subsequently from Mr. Jon Pain of the FSA. I shall pursue that with the FSA, but it would be helpful if my hon. Friend the Minister said what he knows of the review that was promised by the FSA and FSCS to the Treasury Committee, and when it is likely to happen.
I congratulate my hon. Friend Mrs. Cryer on her excellent early-day motion and on securing this important debate.
I have the good fortune of having the headquarters of two mutual building societies in Leek in my constituency—Britannia and Leek United. They differ in size, but they are trusted institutions and very much part of the local community in Moorlands. In the late 1990s, they were subject to the challenges of the carpetbaggers, but they resisted because of the loyalty, good sense and commitment of their members, who would not be bribed by cash handouts in return for demutualisation. How right they were. The 10 building societies that went down that route no longer exist as separate entities: they have been swallowed up by larger banking groups such as Barclays and Lloyds.
Leek United and Britannia offer something special to their customers: a safe haven for cash, trustworthy advice, sympathetic handling of mortgage arrears and membership benefits. They also make a huge contribution to the local community through charitable giving, volunteering and financial education. No wonder that, as trust in banks slid in the past year, 1 million new building society accounts were opened. That shows that building societies are perceived by their customers as outperforming banks in every aspect of customer service. That is not surprising, because, as mutuals, building societies do not have shareholders to please and are accountable only to their members. Some 74 per cent. of building society borrowers are extremely satisfied or very satisfied compared with 63 per cent. of borrowers from other institutions; 67 per cent. of building society customers think that their provider offers value for money, compared with only 48 per cent. of bank customers; and 68 per cent. of building society customers agree that their institution treats customers fairly compared with 55 per cent. of bank customers.
Building society business models are based on old-fashioned values that are relevant today in our financial crisis. The money deposited by building society customers is used as a basis for lending to other customers. Unlike the banks, which borrow in the wholesale markets to lend to customers, building societies are legally required to obtain a minimum of 50 per cent. of their funding from retail savings. Therefore, their exposure to the wholesale money markets is significantly less than that of banks. Building societies operate far less risky business models and take a prudent approach to lending. That is borne out by their low level of arrears and repossessions, which are in stark contrast to the latest figures published by the banks.
Building societies support the aims of the FSCS. In the current climate, it is important that savers in the UK feel confident about investing in the UK. The FSCS is an insurance policy, and it is right that building societies pay a fair premium. However, I cannot believe that the Treasury intended the FSCS to discriminate against prudent organisations such as Britannia and Leek United. By calculating the levy based on the share of the savings market and excluding, for example, current account balances, the burden is falling disproportionately on building societies and, more particularly, on their members, for it is they who will pay. For 2009-10, the FSCS bill will be around £130 million to the building societies, which is about 9 per cent. of the sector's pre-tax profits for the 2007-08 financial year. The societies' share of the levy for the years beyond 2011 is totally uncertain, but it could well cost as much as £200 million per annum.
That contrasts starkly with the banking sector, in which the FSCS levy for management expenses is typically less than 3 per cent. of pre-tax profits over a similar accounting period, or one third of building societies' exposure. There are two reasons for that. First, the current allocation of FSCS levies relates to the size of each contributor's retail deposit balances. Building societies, which have always raised the great majority of their funds from their traditional retail savings customers, will pay, relative to their total balance sheet, much more than the banks. Secondly, building societies aim to provide the best rates to both borrowers and savers, rather than maximise their profits and pay dividends to external shareholders. That is why so many building societies are at the top of the best-buy tables. Building societies' stated profits, even in good times, are much lower.
Having said that, Britannia has produced some excellent results for the past year—it must be congratulated on its ability to sustain itself in this period of financial turmoil. Leek United is by far the smallest of the two building societies in my constituency. The charge against its 2008 accounts will be a whopping 20 per cent. of its pre-tax profits. It will also be faced with significant charges in future years and a great deal of uncertainty about the size of the levy beyond 2011.
Proportionately, the cost to Britannia is not as great, but the cost to its members will be huge, as it is the members who will bear it. I should declare an interest: I am a proud member of Britannia building society. The 2008 charge to Britannia was £19.8 million. In 2009, it expects the figure to be about £12 million. That money would otherwise have been returned to Britannia's 3 million members, either through better rates or directly through its annual profit sharing scheme, which gives money to members based on the building society's performance in the previous year.
Surely it is grossly unfair that building societies should pay for the failure of dysfunctional banks. No building society has ever called on the FSCS or its predecessor schemes. That is not to say that it will never happen, but it never has, and that should be recognised. The Financial Services Authority should overhaul the UK's deposit protection scheme to ensure that building societies do not bear a disproportionately large share of the £1 billion annual bill. Should not building societies' and banks' payments into the compensation scheme be risk-related, as my hon. Friend said? Methods exist to do that, and they must now be considered urgently. It is not fair that building societies, which have operated such a prudent financial system, should be so penalised.
It would be ironic and devastating if, having seen off the rapacious carpetbaggers of 1999, Leek United should find its position compromised by the FSA's bid to bail out the very building societies that went down the risky, high-profit route of becoming banks. Leek United, helped in the battle by Britannia building society, rightly rejected that route because it decided that that was the best option for its members, and those members overwhelmingly supported it. Let us ensure that building societies are given the confidence to go forward rather than being penalised for being prudent and risk-averse.
I congratulate Mrs. Cryer on securing the debate and thereby doing a great service to building societies in the UK, which are angry—furious—that they are being penalised for other people's mistakes. I have signed her excellent early-day motion. I declare an interest of which she just reminded me— I am grateful to her for triggering my memory—in that I am a member of Dunfermline building society in my constituency. Unfortunately, I will have to leave early, if you will excuse me, Mr. Pope. I have another engagement, but I will read closely the Minister's response in Hansard to ensure that all points have been dealt with.
In the heart of my constituency sits a modest but important building, the Dunfermline building society headquarters. Dunfermline building society has been a strong constant in west Fife and Scottish society for almost 150 years. While others have boomed and many have gone bust, it has stayed steady and strong. It is now the largest Scottish building society, with assets topping £3.3 billion and a network of 34 branches and 37 agencies. It is playing a crucial role in the expanding social housing sector in Scotland and recently announced an additional £30 million in funding for 500 affordable homes across Scotland during the next three years. In its strong support for social housing, Dunfermline building society has made a huge contribution to something important not just to the Government, but to all politicians in the House during these difficult times for the construction industry. I hope that the Government recognise that building societies contribute hugely to such important Government objectives and help the Government to achieve their aims.
Other institutions have chosen to travel a riskier route over the past decade or so. They have made substantial profits during that time, but those have profits have proven unsustainable. Meanwhile, societies such as the Dunfermline building society have steered a much steadier course involving lower profits and have turned out to be much stronger institutions in the long term as a result.
My mother and father are in their 70s. They are safe drivers who have hardly had an accident during their whole time as drivers and who, in recent years, have had no accidents at all. They secured a special deal through their insurance company that involves lower premiums. They are not required to pay as much as Jimmy Smith who lives next door, drives at breakneck speed at every opportunity and crashes regularly. They are rewarded for safe and responsible driving. That policy is not available only to my parents, by the way—it is not a special deal that I secured for them—but is available to lots of people throughout the country who are responsible drivers. Driving discounts arise through no-claims bonuses, but some are due also to age. Organisations such as Saga offer cheaper insurance for older drivers, who are regarded as safer.
The Government and the state seem to offer a different scheme. Those who are irresponsible—those who have the car crashes of the financial sector—have others to pick up the tab for them. That is fundamentally unfair and does not reflect fair and decent regulation. We require urgent change so that people are not penalised for responsible behaviour. We have encouraged people to save, and now they are being penalised for doing so. That is extremely unfair.
When the Financial Services Compensation Scheme was at a lower level, the building societies accepted the fee that they were required to pay. They might have felt that it was disproportionate and unfair, but still they accepted it, perhaps because they could afford it. However, now that the fee has increased dramatically, those anomalies are being magnified—they have mushroomed tenfold. That must be addressed. Even though the arrangement might have been accepted in the past, that does not mean that it is acceptable now that the fee is much higher.
As a proportion of their profits, building societies are required to pay almost three times as much as the riskier banks. I am genuinely puzzled why that is the case. Why have we not got a better balance between value and risk? Surely we have learned something over the past year to 18 months. What is important is not just value and profits, but the associated risk. We should be encouraging the behaviour that encourages fine saving and safe saving, so that we do not end up having to pick up the tab for those who behave inappropriately. Does the Minister believe that we require an urgent change? Will there be a review to ensure that those who have chosen safer and more secure routes are not penalised for it?
Dunfermline building society is part of my community. It is well respected throughout west Fife and Scotland and it is a safe institution. There is an important point to be made in the wider perspective. When even the safe bodies that have not chosen the rocky road of high profits are under threat, the whole fabric of society begins to unravel and people have even less confidence in Government institutions and the advice provided by Government, Ministers and politicians. We must take an extra step to ensure that institutions such as the Dunfermline building society are rewarded, not penalised, for being trusted.
I am here to support my friend and constituency next-door neighbour Mrs. Cryer, who tabled the early-day motion that has attracted huge support from colleagues across the House. There is a problem, as everyone who has spoken has identified, and we are all looking to the Minister to give us a solution this morning.
The Marsden building society is located in the heart of my constituency, just as the Dunfermline building society is in the heart of the Dunfermline constituency, but the Marsden's reach extends across Lancashire. It has been a highly regarded and profitable building society for about 150 years; it was established in 1860 and has about 40,000 members. It does not pay dividends to shareholders, any profits are ploughed back into the organisation and it offers good rates to borrowers and depositors alike. It is a good, highly regarded organisation that supports the community and has a strong regional identity. Earlier this morning I visited its website, which tells its 40,000 members:
That is true—and what a contrast to the banks, which have let everyone down.
I do not know the last time that someone was knighted for their services to building societies, but we have the grotesque example of Sir Fred Goodwin, who still has his knighthood for services to banking. I am not going to be diverted down that road, Mr. Pope—I see you looking at me in that admonishing way of yours. As long as we have knighthoods and damehoods, I should like to see one go to someone who promotes the mutuals and building societies that play fair.
I would be delighted to do that, but I am against any name-changing titles, whether they are knighthoods, damehoods or anything else, but let me move off that point, interesting though it is.
I had a word with Neil Shoesmith, the chief executive of the Marsden building society, to tell him that my friend from Keighley had secured the debate, and the first thing that he said was that the Marsden accepts, without question, its responsibilities under the Financial Services Compensation Scheme. I would expect him to say that, because all the building societies realise that the burden should be shared fairly; however, it is not being shared fairly. As other Members have said, the liability for the levy favours organisations that are funded by the wholesale markets rather than by retail deposits. The Marsden, like most building societies, is almost 100 per cent. funded by retail deposits and the levy is equivalent to about 15 per cent. of its pre-tax profits, whereas a bank with high wholesale funding pays about 5 per cent., as we have heard. That is wholly disproportionate.
Despite those additional burdens, the Marsden has come through the crisis profitably, with strong capital and low-risk residential mortgage books, but that is not to say that building societies do not fail sometimes. The Skipton and Scarborough building societies recently merged; that is how building societies respond when they get into difficulties. They have not gone cap in hand to the public purse, expecting a bail-out as the banks have. We are now in a grotesque situation in which risk-averse building societies are funding, through the perverse levy, the losses of banks and other organisations that have failed because of their imprudent lending. That is the reality. The levy erodes building societies' ability to offer the best rates to savers and borrowers.
In a nutshell, prudent, profitable organisations such as the Marsden, with low-risk assets, are having to pay disproportionately for the excesses of those with high-risk assets and low capital. I do not know what we need to do get out of that situation. We have heard that the Treasury Committee is to conduct a review, and that Lord Turner is to look into the issue. Whatever happens, we need an early review of the scheme because of the corrosive impact that it is having on the Marsden and other building societies across the country.
I, too, congratulate my hon. Friend Mrs. Cryer on securing the debate, which is of equal interest to me because the headquarters of the Nationwide building society is in my constituency. I know that she has also been assiduous in taking this matter up in private meetings at the very highest levels of Government, and I congratulate her on that. Although I do not sign early-day motions, because I am a parliamentary private secretary, I support hers completely. [Interruption.] Mr. Browne needs to speak to the Chief Whip, who reaffirmed last week, in a private meeting, that that is absolutely so.
The Nationwide employs many people from my constituency and the surrounding constituencies, many of whom have written to me about the levy because they are concerned about the effect it will have on the Nationwide in Swindon and the great part that it plays in the community and the knock-on effect on that community. It is one of those businesses that makes a major contribution to our local and national economy, being the largest building society, and the initiatives that it takes on locally and nationally are ones that the Government would support, because it helps Swindon residents and the wider society. We are asking the Government to support it and all the other building societies that hon. Members have discussed today.
I was seven years old when I opened my first building society account. My parents took me to the Halifax because they banked there and they felt that it was a safe place to put their money. It was once the biggest mutual and was the watchword for safety, but then it demutualised. I kept my account into my adulthood, as I am sure many other hon. Members did. I voted against demutualisation, and I think that those who thought demutualisation the wrong thing to do have been proved right. Both my right hon. Friend Mr. Field and I knew that something was wrong with the Halifax in 2006, when the Christmas hamper firm Farepak collapsed and HBOS grabbed £30 million of savers' money to add to its £4.8 billion profit. We said then that something fundamental had changed in that institution that would lead to its downfall. Even so, we called on the bankers, in early-day motion 117 of the 2006-07 Session, to repay that £30 million, and we warned that the collapse of Farepak would be a greater portent of what was happening to that demutualised society.
Although many financial institutions, such as HBOS, have not been prudent in recent years, the Nationwide has been. It has remained mutual and it has protected savers. I have a lot of time for the Co-operative party's campaign to remutualise Northern Rock and Bradford & Bingley, as mutual ownership has long been shown to be a good solution for ensuring a stable, long-term future for Nationwide and other building societies. However, instead of being rewarded for that, they are being punished, as my hon. Friends have said.
As the Building Societies Association argues, it is particularly galling that, in the few cases where building societies have got into difficulties, mergers have been arranged by stronger building societies without recourse to public funds—a phrase my hon. Friend the Member for Keighley used and one that we should repeat. I therefore congratulate the Nationwide on taking on board two smaller societies—the Derbyshire and the Cheshire—to safeguard those building societies and the whole sector.
Conversations with the chief executive of Nationwide, Graham Beale, who would be an admirable candidate for a knighthood, have shown that both he and the board felt strongly that it was their duty to take on the societies that had been exposed to some toxic debts and that they should do so at no expense to the taxpayer. However, as a mutual, all the Nationwide's profits are ploughed back into the organisation and any losses have to be absorbed by the organisation. The Nationwide has no shareholders to cream off the dividends so it keeps a much smaller amount in reserve, most of which is in its retail balances. Even in good times, building societies' stated profits will always be lower, so they will still suffer from the system that the Financial Services Compensation Scheme has created.
The Nationwide is being forced to pick up the bill for the failure of banks, and rather than being supported at a time of stress, it is being leant on. That gives the building society sector less room for manoeuvre and leaves it with less money to lend to its customers at a time when the Government are asking them to lend more. Nationwide favours a pre-funded scheme based on risk. I would like the Minister to consider such a scheme and give us his opinion on it. Last year, the Treasury Committee said that it favoured such a scheme, which would provide greater consumer confidence and encourage institutions to act prudently. Last June, the Governor of the Bank of England also said:
"A degree of pre-funding is one of those ideas that is bound to be unpopular before the fund is called upon, but seems decidedly wise after the event as it lessens the burden on the banking system in a time of stress".
A risk-based levy could be introduced whereby banks meet the first slice of any FSCS levy resulting from a bank collapse, with building societies contributing only after the banks have paid their dues.
The hon. Lady has plenty of time in which to take interventions. Does she think that the same principle should apply to credit unions and that they should bear their losses first? At the moment, when a credit union collapses, the cost of compensation or of meeting customer balances is spread between banks, building societies and credit unions. Does she think that credit unions should stand alone too?
Credit unions in this country do a fantastic job, particularly for the small savers in my constituency who suffered from the collapse of Farepak. We should consider all those points, but I will not go as far as saying yes to the hon. Gentleman's question because I know that some credit unions are small organisations and that they are not nearly as large as the building societies that we are discussing. We need to look at credit unions as a separate case.
Finally, I ask the Government to consider increasing the compensation limit to £100,000. That is something that the building societies have also asked for. Doing so would help them to compete with European and American banks and would protect 99 per cent. of building society deposit balances. As hon. Members have said, no building society has ever made a call on the FSCS levy, and Nationwide and all the building societies that we have heard about today are paying for institutions that have behaved far less prudently than they have. I hope that the Minister will listen to our pleas and will stop this iniquitous levy on our local building societies, which are local and national heroes.
Thank you, Mr. Pope, for giving me the opportunity to speak in the first of the winding-up speeches on this extremely important subject. I congratulate Mrs. Cryer on securing the debate. She has not yet been recognised for her services to the building society sector by Her Majesty the Queen, but no doubt that time will arrive in due course. The hon. Lady has given us a welcome opportunity to discuss a vital topic, and it has been taken up by a number of hon. Members who have direct constituency experience of the benefits that building societies bring to their communities and, indeed, in most cases specifically to them as individual depositors and savers.
My party supports an insurance scheme because it is an extremely sensible safety net. The initial scare led to depositors queuing in an orderly British fashion outside Northern Rock to withdraw their deposits. One feels that in many countries people would have been breaking down the doors, but in this country people stood for hours and hours in queues. However, so far no one has actually lost their money in the banking crisis or storm that has hit our financial sector. That is very important because if the view took hold among the population that if banks or building societies were going down, people would lose their deposits and, in some cases, their life savings, panic would set in. People would want to withdraw their money and keep it under their mattress or put it into what they regarded as a safe harbour. That would obviously have profound implications for the banking and financial sectors, and indeed for the economy as a whole.
It is not just in the interest of the individual depositor or even the individual institution to have some sort of safety net to protect people, although obviously the primary beneficiaries, at least in the immediate term, are depositors who have confidence in the British financial sector. Of course, if we did not have a scheme of this type, people would still expect to be bailed out if their bank or building society failed, so in a way the insurer of last resort would be the state. That is increasingly what is happening, but the banks and building societies themselves have a responsibility to insure as far as possible against risk in their sector, and they should not assume that the state will always be there to pick up the pieces. If the state needs to do that on behalf of all of us, using the money we all give to the state as taxpayers, it should be the last resort rather than the norm. My party shares the wide consensus that an insurance scheme broadly of that type is a desirable and sensible way to proceed.
Engaging in the key point of the debate, I also agree that the share the mutualised building societies are being asked to contribute is unreasonable. The relevant calculation—a point made by my hon. Friend Willie Rennie and others—is surely not the overall share of the market for mutualised building societies compared with that for banks. Surely, the relevant consideration is the risk to funds of depositors in the building society sector compared with the risk to those in the banking sector. One does not need to calculate that risk in a particularly sophisticated way—although no doubt there is benefit in doing so—because the evidence is there for us all to see.
Many of the Members who have contributed to the debate have already made the point that so far no mutualised building society has had to draw on that insurance-based scheme. To use the example mentioned by my hon. Friend, the situation is like that of the extremely cautious driver who makes sure that their car is insured. Of course, they are legally obliged to do so, but their low premium reflects the low likelihood that they will ever have to draw on the insurance. That is surely the relevant and sensible model for us to follow. Its logical conclusion is that because building societies are much lower risk, they should pay a much smaller proportion to cover against risk than higher-risk institutions. It would be an extraordinary irony if building societies were threatened because of the size of the levy on them to cover the risks taken by the banks that got us into these difficulties in the first place.
While we have the opportunity, and because it is relevant to our deliberations, I want to widen the debate slightly and consider how we got into a situation where building societies feel that they are being put under unreasonable pressure and banks are much more likely to draw on the insurance-based scheme. I agreed with many of the comments that Charlotte Atkins made, but I do not necessarily take the view she seemed to imply that shareholder institutions inevitably deliver a lower level of customer service than organisations that do not have shareholders. I believe that shareholding capitalism has an important, dynamic part to play in our economy, and it would be wrong for us to conclude that shareholder capitalism per se has failed.
Clearly, many capitalist organisations with shareholders—in this case, banks and financial institutions—have failed. In part, that was caused by a failure of regulation and of leadership at the highest levels of the banks, and by pure greed. People put short-term profitability before the long-term interests of their institution.
I remember the unseemly clamour when many of the building societies demutualised. When the people who had previously been running the mutualised building societies went into work after demutualisation to do what, on the face of it, appeared to be exactly the same job as they had done before, they thought it only right that they should be paid an amount that was three or four times more because they were now running a swashbuckling financial institution—yet they were sitting in the same office doing what appeared to be much the same job.
That was also the case when many of the utilities were nationalised. Civil servants who appeared to be perfectly competently running utilities suddenly thought that they were right at the cutting edge of modern capitalism and paid themselves far greater salaries to do what appeared to be much the same job as they had done before.
Is the hon. Gentleman aware that at the time of the demutualisation of Bradford & Bingley and the Halifax, which are both adjacent to my constituency, I and many of my colleagues wrote to the two organisations and begged them not to demutualise? Now we feel like saying, "We told you so."
I am sure that the hon. Lady did that. One of the things that I thought was interesting about the phenomenon was that when members got the letters through their door, many seemed to take the view that it was an opportunity to get a free cheque for £200, £300 or £400, with no downside at all. I do not think that the members who voted for demutualisation can completely absolve themselves of blame; there was a vote, and they chose to exercise it. The situation was presented to people—at least they chose to see it that way—as though the question was, "Do you want to be given several hundred pounds with no downside?" It is not surprising that many members of the building society, when the choice was presented to them in those terms, thought, "Why not take the money?" They would still have a mortgage with the same organisation, which would have the same name, and they would go into the same office to talk to the same people in the same uniforms, but they would have enough money to pay for a holiday in southern Europe, or whatever.