Sir Mark Hendrick (Preston) (Lab/Co-op) I beg to move, That the
Bill be now read the Third time. The object of my Bill is to help
ensure the best business environment for co-operatives and mutuals,
and that means three things. First, we need a good policy
understanding of the importance of mutual business, and that must
stretch across Government to Ministers and officials. We recognise
that it is always a challenge to get attention from a busy
Department such as the...Request free
trial
(Preston) (Lab/Co-op)
I beg to move, That the Bill be now read the Third time.
The object of my Bill is to help ensure the best business
environment for co-operatives and mutuals, and that means three
things. First, we need a good policy understanding of the
importance of mutual business, and that must stretch across
Government to Ministers and officials. We recognise that it is
always a challenge to get attention from a busy Department such
as the Treasury, but well-informed and motivated Ministers and
officials will give us a fighting chance. Co-operatives and
mutuals are an important feature in a mixed economy when their
different business purposes are recognised and allowed to
flourish. Good policy is the foundation stone for that.
Secondly, on legislative reform, the Bill is part of making
legislation on co-operatives and mutuals fit for purpose for a
modern economy. Co-operative law was first introduced to this
House in the 1860s, and formed the basis for co-op law in many
countries around the world, but it has sadly not been kept up to
date. We want to draw on the best practice in the world, which is
why the idea of protecting assets for their intended purpose is
so important.
Countries that have adopted such provisions have much more robust
co-operative and mutual business sectors. The removal of the
incentive to demutualise means that they can continue to grow in
line with the interests of the members they serve. There is more
to do on legislative reform, as my original Bill identified. We
look forward to working with the Government to ensure that legal
options are no longer a poor relation but match the standard of
the best in the world.
Thirdly, we need regulators to appreciate the role of
co-operatives and mutuals. We can have the best policy and
legislation, but in practical terms, progress can be thwarted if
regulators lag behind. They should no longer see their role as
facilitating demutualisation, as they unfortunately did in the LV
debacle. Instead, the true champions of consumers should be
driving corporate diversity and choice. If there was one lesson
to take from the global financial crisis, it was that we do not
want all businesses following the same mistaken strategy. In that
regard, diversity is strength, and regulation should take
seriously its role in ensuring that co-operatives and mutuals are
not ignored, or worse, homogenised into a single idea of business
driven by shareholder-owned interests.
The Bill is one of a series of such private Members’ Bills over
the last 20 years. I am proud to have played my part in bringing
it to the House in the way that my predecessors did. There have
been five Bills to modernise co-operative and mutual law, all of
which have received Royal Assent. It is welcome that our efforts
and endeavours have had the support of Treasury Ministers and
from both sides of the House. This is one area in which there is
genuine and lasting cross-party consensus. It is no less welcome
that we enjoy today the support of His Majesty’s Government for
this sixth such Bill. It is perhaps less positive that we have
had to take this piecemeal private Member’s Bill approach to
legislation, but I sincerely hope that the promised Law
Commission review puts that right, and that a modern framework
for business is established once and for all.
My Bill is about giving mutuals the option to maintain mutual
capital for the purpose for which it is intended. There is a
fundamental distinction between the rights of members of a mutual
society and members of an investor -owned company. Members of a
company—shareholders — have the right to a pro-rata share of
distributed profits, or dividends, based on their shareholding,
and to a pro-rata share of the underlying value of the company.
The more capital they own, the greater their share of the profits
and of the value of the company.
By contrast, members of a mutual society generally have neither
of those rights because a mutual’s profits are not generally used
as a mechanism for rewarding capital, and members of a mutual do
not have any expectation of or entitlement to a share in the
increased value of their society. As members of a mutual are not
entitled to any share of its increased value, the amount by which
the net asset value of the society exceeds the capital provided
by members—otherwise known as capital surplus on solvent winding
up—has no specific owner. It is effectively a legacy asset held
by the society for future generations, enabling the society to
provide for and invest in its future. That is a core part of the
mutual’s identity. It represents the trading surplus accumulated
by previous generations of members participating in their
society’s business, in which they were always content to have no
personal share. By implication, it is held for the benefit of
future generations. The society was originally set up not to make
capital surplus to reward members, but to provide goods and
services for those who need them. That was its purpose, and it
was the basis upon which previous generations have taken part in
its trade.
Seen through the lens of investor ownership, a capital surplus is
a tempting asset—a windfall of unearned profit that, were mutual
members to be replaced by investor-shareholders, could be shared
out among those shareholders. Capturing that asset is the usual
incentive for a demutualisation, which is when a capital surplus
or legacy asset is divided up between shareholders, when the
mutual agreement between the former members, whereby they engaged
in their society on the basis that they would not personally
profit from its trade, is broken up. In short, it is when a
mutual purpose for the common good is replaced by a profit-driven
purpose for private benefit.
In UK law, there is no generic or principled recognition of the
value to wider society of mutuality or the legacy asset of a
mutual society. As a result, the ability to access legacy assets
actively incentivises demutualisation. Provided that relevant
formal procedures are completed, including securing consent from
a statutory minimum threshold of members, a demutualisation
cannot be stopped. The statutory minimum threshold has been
changed from time to time for different types of mutual society
to make demutualisation less likely, but these measures provide
only partial protection. There is currently no statutory
mechanism for ensuring that surpluses, which the previous
generations never intended should be a private reward for
anybody, remain committed to the wider public purpose.
At present, it is not possible for an existing society, or those
setting up a new society, to proscribe demutualisation. That
leaves mutuals vulnerable to those simply aiming to liberate the
legacy asset, share it out among those they choose and convert
the business into an investor-owned company. That has resulted in
much of the UK building society sector being lost, and their
businesses then either failing or transferring to non-UK
ownership. That has been bad for mutuality, and bad for the
economy with the damage it has caused to corporate diversity.
Demutualised former building societies were mostly absorbed into
the banks that failed in the financial crisis.
Legislation is needed to help UK mutuals to preserve their legacy
assets for the purpose for which they were intended: to maintain
and encourage greater corporate diversity and to build a more
resilient economy. Mutuals need to be able to incorporate
appropriate measures into their constitutions that have a
statutory basis, either at the point of establishment or
thereafter, with an appropriate level of member approval. That
will be even more important if the legislative reforms for
co-operative and community benefit societies I have explained are
taken forward. To optimise the successful implementation of new
legislation, properly recognising legacy assets for the benefits
they bring will be an important ingredient for building
confidence.
Many jurisdictions have acted to preserve mutual ownership by
ensuring that the assets may be used only for the purpose they
were intended. That ensures they cannot be distributed to members
or third parties, thus disincentivising demutualisation. Mergers,
dissolutions and transfers of business are still permitted, so
this arrangement does not hamper the evolution of a business in
any way. Ideally, such measures would be universal, but in some
legal traditions that is considered problematic, as it arguably
alters the ownership rights of members retrospectively. It is not
desirable to cut and paste legislation between different
traditions, so solutions are required that respect the political
culture of different legal frameworks. To deal with this, simple
legislation can be introduced in common law jurisdictions that
would give every mutual the right to choose a constitution that
preserves legacy assets for the purpose they were intended. My
Bill does that.
My Bill disincentivises the raiding of legacy assets through
legislation. Voluntary legislation will ensure that legacy assets
are preserved for the purposes for which they were intended. It
will empower mutual members to decide what should happen to
assets on a solvent dissolution, and it will match the best
legislation in many countries around the world.
My Bill would introduce a voluntary power to enable a mutual to
choose a constitutional change so that its legacy assets, or the
capital surplus, would be non-distributable. It would detail
precisely the destination of any capital surplus on a solvent
winding-up and would outline the procedures necessary to include
such provisions in a mutual’s rules. It would make statutory
provision for the relevant rules to be unalterable. It defines
the capital surplus as the amount remaining after deducting a
mutual’s total liabilities from its total assets, including
repayment of members’ capital. It would introduce new provisions
to maintain the destination of the capital surplus and ensure
that where a mutual’s rules make the capital surplus
non-distributable, any resolution to convert into, amalgamate
with or transfer engagements to a company will also include a
provision to transfer the capital surplus, as provided by the
rules in the event of a solvent winding-up.
That is my Bill, Madam Deputy Speaker. I thank the Minister and
his team for their co-operation and help in bringing it
forward.
9.51am
(Aylesbury) (Con)
I congratulate the hon. Member for Preston ( ) on his Bill’s successful
Committee stage and on its reaching Third Reading today. Mutuals
and co-operatives are not an insignificant sector of our economy:
across the UK, the industry comprises more than 7,000
co-operatives, employing some 250,000 people with an annual
turnover close to £40 billion. The sector is not standing still;
it is growing, with more co-operatives forming despite the very
challenging circumstances caused by the covid pandemic.
Perhaps nothing highlights the purpose of the Bill better than
mutual insurers and friendly societies, the origins of which
stretch back to the late 17th century. In 1703, the Amicable
Society, chartered by Queen Anne, was set up to provide support
to widows and children in the event of the policyholder’s death.
Such organisations spread rapidly across the country. As the
industrial revolution took hold in our towns and cities, mutual
insurance and friendly societies acted as a social safety net for
their members in case they were injured in what Blake described
as the dark satanic mills. Thankfully, we have moved very far
from those working conditions, but that does not mean that we no
longer require mutual societies. The development of the sector
continued for much of the 19th and 20th centuries. Many of the
UK’s now well-known insurance companies began as mutual
societies; there were then the various amalgamations, mergers and
takeovers to which the hon. Gentleman referred.
There are 50 financial mutuals currently operating in the UK.
According to the Association of Financial Mutuals, they represent
30 million members and write £20 billion of premiums annually; as
I said, the sector is not at all insignificant. Many farmers in
my constituency have policies with their local NFU Mutual, and
people can remember the days of the man from the Pru—it was
frequently a man—coming round to collect membership subs. Mutuals
take many different forms. The Hughenden valley community shop in
my constituency is a fine example of such an organisation today;
it does a tremendous service to people in the area, and was
particularly welcome during the pandemic.
In the insurance market, mutualisation is no longer the norm in
the UK. Many of the well-known mutual assurance societies of old
have been demutualised. The Prudential, Aviva—previously Norwich
Union—and Scottish Widows were all mutual insurance societies,
but are now fully commercial entities or subsidiaries of larger
financial institutions. While I in no way criticise the work of
those commercial entities, fully commercial organisations with
shareholders have different priorities from mutual organisations,
as the hon. Gentleman pointed out. There is absolutely room for
both in our economy.
Mutuals now represent just 7.9% of the insurance market in the
UK, according to the International Cooperative and Mutual
Insurance Federation. That is far below the market influence that
such organisations have on the continent: the market share is 58%
in France, 60% in the Netherlands and 46% in Germany. There is
scope for mutuals to grow again in the UK, and I welcome any
comments from my hon. Friend the Minister about how we can
increase competition in the insurance market to ensure that
mutuals can compete with their commercial rivals
On the specifics of the Bill, although I appreciate that it does
not represent the full proposals that the hon. Gentleman wished
to bring before the House, he should be congratulated on and
pleased with what he has achieved in securing Government support
for this important piece of legislation. As my hon. Friend the
Minister said in Committee, we should not let the perfect be the
enemy of the good.
The changes proposed by the Bill will allow the Treasury to bring
forward regulations to allow members of the society to choose to
adopt legal restrictions, with the effect, as has been outlined,
that the assets would be limited to specific purposes in line
with the objectives of the mutual society. That will bring in a
new degree of parity. At present, of course, the restrictions for
mutual organisations are voluntary and based on the vote of the
membership. As many hon. Members have noted in the Bill’s
previous stages, that raises the possibility that restrictions
could easily be removed in future, which would ultimately make it
easier to demutualise.
The Bill will permit those mutuals that wish to remain mutuals a
greater degree of certainty in protecting their legacy assets in
future. It will also remove some of the financial incentives of
demutualisation. Notwithstanding those potential advantages, I am
particularly pleased that it is an opt-in system, because it is
not for the state to dictate how such societies should operate;
that should always be for their members. We should enable the
possibility, rather than obliging any organisation to behave in a
specific way. I commend the hon. Gentleman for bringing forward
the Bill and I hope to see it on the statute book shortly,
following its successful passage in the other place.
9.56am
(Stoke-on-Trent Central) (Con)
I, too, commend the hon. Member for Preston ( ) on his strong advocacy for
co-operatives and mutuals, and on the progress that he has made
with the legislation. I am delighted that the Bill has been
supported by hon. Members on both sides of the House at all
stages.
Mutuals and co-operative societies are distinctive organisations
in that they are owned by and run for the benefit of their
members. Whether employees, suppliers or the community and
consumers that it serves, those who are actively involved in the
business control decisions, rather than outside investors. Mutual
ownership therefore helps to ensure that decisions are focused on
the long-term sustainability of the business. Profits are not
distributed among members but returned to the community, so such
organisations provide a legal structure designed for social
enterprise.
Indeed, co-operatives spring from local communities. They are
bottom-up, grassroots organisations that are set up to provide
goods and services for those who need them. Clearly, mutuals play
a hugely important role in our local areas for education,
engagement, charity and, fundamentally, the financial services
that they offer. They provide a way for communities to come
together to solve problems.
I have always been a strong advocate for the social enterprise
movement in this country. Social businesses, including those that
are community owned, are responsible for job creation in areas of
deprivation—jobs that last and provide the crucial spirit of
enterprise and innovation that our left-behind areas need. That
makes the growth of co-operatives in the UK an integral part of
the levelling-up agenda.
In 2021, co-operatives were five times less likely to permanently
close than other UK businesses, and they were significantly more
likely to tackle other important projects, such as
decarbonisation, technology and the current cost of living
challenges. Co-operatives have been incredibly resilient in the
face of the pandemic, with the sector growing by an impressive
£1.1 billion in 2020, despite the economic challenges resulting
from national lockdowns.
On Second Reading, it was good to hear hon. Members acknowledging
the start of the co-operative movement, so it would be remiss of
me not to mention its history in Stoke-on-Trent. One of the
earliest co-op traders was a potter called James Colclough, who
opened Stoke-on-Trent’s first co-operative store, and the Birsle
Co-operative Society was founded in north Stoke-on-Trent in 1901.
It became one of the most successful mutual commercial
enterprises that Stoke-on-Trent has known.
Originally, there were 200 members who each subscribed four
shillings and promised to make those four shillings into £1 as
soon as convenient. In the first balance sheet issued by the
society in 1901, the amount of share capital plus interest was
£175. By 1932, the amount of share, loan and bank capital of the
Burslem and District Industrial Co-operative Society was £1,209,
and it had 50,000 members and 112 shops.
This Bill is important to ensure that co-operatives and mutuals
continue in the modern era. The increase in legal certainty that
wealth built up over time will not be squandered by future
members for short-term personal gain will encourage confidence,
reassuring investors. This legislation is needed to help UK
mutuals preserve their legacy for the purpose for which they were
intended, which is making sure that additional available capital
surplus can then be re-invested in economically, environmentally
and socially productive enterprises. We should not allow capital
to be blown at the whim of speculators and investors. It is
important to lock capital in the places where it belongs for the
benefit of the people it was invested for.
In the UK, the sector is relatively small compared with some
European economies. Less than 1% of businesses in the UK are
co-operatives. Germany’s co-operative economy is four times
larger than the UK’s, and France’s is six times larger. Clearly
there is some work to be done here, but this Bill provides an
opportunity to rediscover and promote the co-operative model. I
do not know if Members have seen the film “Bank of Dave”, but it
is the very inspirational story of a gentleman from Burnley who
set up a bank for the benefit of the community. I have been
campaigning for this sort of thing in Stoke-on-Trent, because I
think that a financial model enabling people to lend to each
other, but also for them and community charities to benefit from
the profits, is one we should all be looking at.
I just want to thank the hon. Member for Preston for giving us
the opportunity to discuss these issues today. There is clearly a
significant appetite for reforms of the mutuals sector, and I
look forward to hearing about its success following his Bill.
10.02am
(Buckingham) (Con)
It is a pleasure to follow my hon. Friend the Member for
Stoke-on-Trent Central (). I join her in congratulating the hon. Member for
Preston ( ) on bringing forward this
important Bill, piloting it through its stages so far and,
indeed, securing the important cross-party support that he has
secured for this Bill. Co-operatives play a vibrant part in our
economy, as others have said. They bring greater choice to
consumers and greater choice to people who need the goods and
services that they put together. I hope I maintain the spirit of
cross-party support for the Bill when I say that the co-operative
movement is part of a vibrant free market economy in the United
Kingdom, and we should celebrate that.
As my hon. Friend the Member for Aylesbury (), my constituency neighbour,
commented, the more we can drive the ability for co-operatives to
compete with their commercial counterparts, the stronger our
economy overall can become. I particularly endorse the point he
made about the importance of this being an opt-in Bill. It is not
the state dictating or this House setting out a “how it must be”
clause for co-operatives, friendly societies and so on to
operate; it is something about which those organisations must
make an active choice for themselves.
To go to the heart of the Bill—this is why I believe it to be an
important Bill that, as the hon. Member for Preston said, brings
the legislation up to date and moves the sector forward from its
legislative origins all those decades, if not centuries, ago—the
very hub or core of the co-operative movement is about people
doing something because they want to create a better society, a
legacy and, indeed, something lasting. When organisations fail or
are forced into some form of closure we can see that that legacy
can be lost all to easily if there is no protection around the
assets. That is why I believe it to be so important, and as my
hon. Friend the Member for Aylesbury indicated, this is no small
undertaking. The helpful House of Commons Library paper on this
details how 7,200 co-operatives were employing 250,000 people
across this country. That is no small thing; that is a
significant part of our economy, stretching across 14 million
members. My hon. Friend mentioned the Hughenden valley community
shop in his remarks, and that is a wonderful example from
Buckinghamshire. A simple search of the Co-operatives UK website
indicates just how far reaching co-operatives, mutuals, and
friendly societies are in my constituency.
The Buckinghamshire Community Energy company works across the
whole county. It is registered in my hon. Friend’s constituency
at Stoke Mandeville, but it enables schools, public buildings,
and businesses across the county of Buckinghamshire to cut their
carbon emissions. The wonderful Brill Village Community Herd, and
the 335 square miles of the Buckinghamshire constituency that I
am fortunate enough to represent, is without question the most
beautiful part of the United Kingdom. Indeed, Brill common, which
the Brill Village Community Herd serves, is among the top most
picturesque parts on top of that. The work it does is so
important to maintain not just the village of Brill, but the
picturesque countryside, nature, and biodiversity of
Buckinghamshire.
The Buckingham Rugby Union football club exists on this model—an
important community asset. I was lucky enough to speak at its
President’s Lunch the other week. Buckingham has had a poor
season so far and they have not yet won a match. They were
playing a team from the constituency of my right hon. Friend the
Member for Stratford-on-Avon (), but unfortunately there
were no careless mistakes in the match, which led to Buckingham
losing again. Nevertheless, it is an important asset. We have the
Cuddington Allotment Society, the Kimble Allotment Society, Long
Crendon Community Social Club, the North Marston community shop,
Ickford village association shop—so many organisations, including
Westbury community shop and café, Wing Allotment 1972 Society,
the Royal British Legion, Winslow Rugby Union Football club, and
Twyford village stores.
(Warwick and Leamington)
(Lab)
I am learning a great deal about the hon. Gentleman’s
constituency that I was not previously aware of, so I think him
for that. I recognise what he is discussing because I, too, have
such cases in my constituency. I wanted to ask about the building
societies that we still have, and the diversity of our financial
services sector. If we had retained more of the mutual building
societies in the ‘70s, for example, would we still have had the
same financial crash in 2008?
On the point about high street banks, it is noticeable across the
Buckinghamshire constituency that in 335 square miles there is
only one high street premises left standing, which is the
Nationwide in the town of Princes Risborough. I do not share the
hon. Gentleman’s projection that we would not have had the 2008
crash had we not seen the demise of so many building societies,
as many other factors were at play there. Indeed, a note
highlighting one of those factors was left by the former Labour
Chief Secretary to the Treasury for the incoming Government in
2010. [Interruption.] If he would like another bite, I would be
delighted.
Perhaps the hon. Gentleman could be more precise about the point
I was seeking to make, which was whether we would have been more
financially resilient in the financial services sector, and the
public’s money more secure, had we had a greater diversity and
spread of those sorts of institutions in our economy, as perhaps
they have in France.
I am grateful to the hon. Gentleman for his clarification. I
believe that for a successful economy, there does need to be that
diversity and spread of different models and different
institutions—fully commercial enterprises, co-operatives,
friendly societies and mutuals. As a committed free marketeer,
which I accept the hon. Gentleman perhaps is not, those are the
building blocks for a successful economy, and I certainly would
not seek to diminish the role of building societies and mutuals
in securing that diverse, successful and buoyant economy. We can
certainly find some common ground there.
Having highlighted the wealth of friendly societies, mutuals and
co-operatives across my constituency and their value to the
United Kingdom economy, let me say that this Bill is a welcome
bringing up to date of the legislation. I look forward to hearing
my hon. Friend the Minister confirm the Government’s full support
for the Bill as it passes Third Reading and goes to the other
place. I hope to see it receive Royal Assent before too much
longer.
10.10am
(Dewsbury) (Con)
I congratulate the hon. Member for Preston ( ) on bringing this Bill before
the House, and also congratulate my hon. Friend the Member for
Buckingham () on listing pretty much every
business in his constituency during his speech, which is quite
the feat.
This is a really important Bill, and I want to cover some of the
key points that make it so important, some of which have already
been mentioned by other hon. Members and hon. Friends. It
proposes a way for co-operatives, friendly societies and mutual
insurers to grow and develop their organisations while
maintaining their commitment to member ownership and control.
That is important, as it will enable co-operatives to compete on
a more even playing field with their corporate counterparts and
increase their impact across all sectors.
The current legislation that governs the raising of capital by
co-operatives is, as we know, somewhat inflexible. The Bill would
enable co-operatives to raise more money by issuing equity shares
that are repayable at the option of the society, rather than
being withdrawable at the option of the members. By introducing
repayable shares, the Bill would enable co-operatives to raise
amounts in excess of the current £100,000 holding limit for
withdrawable shares. It would also provide legal certainty as to
whether co-operatives can choose to repay non-withdrawable
shares. Those changes have the potential to lead to large,
capital-driven co-operative societies raising millions of pounds
or more each year in equity, which could then be used to invest
in important initiatives, tackling issues such as
decarbonisation, technology, and the current cost of living
crisis. The Bill would enable co-operatives to secure increased
investment while retaining their democratic structures and
ensuring they work in the interests of their members, something
that I know is of great importance to the hon. Member for
Preston.
We need to talk about co-operatives and about the British
co-operative movement, starting with its history. In 1844, on the
other side of the Pennines, the Rochdale Pioneers founded the
modern co-operative movement to provide an affordable alternative
to poor-quality and adulterated food and provisions, using any
surplus to benefit the community. That was the start of the
modern co-operative movement; as my hon. Friends the Members for
Aylesbury () and for Buckingham mentioned,
the movement has grown substantially since then, with 7,200
co-operatives employing 250,000 people, 14 million members, and a
combined turnover of just under £40 billion. That is how big the
modern co-operative movement has grown.
When we talk about the co-operative movement, people mainly
associate it with retail. I have many retailers in my
constituency, in Dewsbury, Mirfield, Kirkburton and Denby Dale.
We have a large Co-op in Mirfield; we have a smaller one around
the corner from me in Dewsbury, on Leeds Road, as well as one in
Skelmanthorpe and one in Shepley. Those Co-ops are an important
community asset for the larger towns and the small villages in my
constituency. One thing I do have a quandary about is that in
2015, the Co-operative Group decided that it would carry on
financial contributions to the Labour party, so that always puts
me in a difficult position when I go into a Co-op retailer.
Having said that, the lure of French grain vodka and the pork and
chorizo pies far outweighs that concern, so I am happy to go in
there, hold my nose and buy those items.
I take issue with my hon. Friend the Member for Aylesbury, who
mentioned the man from the Pru. Many years ago, I was the man
from the Co-op. Co-op Insurance Services provided an essential
route to plan for funeral costs for people who were less wealthy,
in a fairly similar fashion to the man from the Pru—but I have to
say, I prefer the man from the Co-op, as I was at the time. The
Co-op had penny policies. We would go around as financial
services reps and collect pennies from people in their houses,
which would provide for their funeral costs in the future. That
has obviously expanded now, but people were literally giving me a
year’s worth in advance—I would get 52 pence. If they were
particularly well off, they would give me 10 pence a week on a
four-weekly basis, which was £52 for the year.
That was really essential, and it shows that the co-op movement
was providing funeral services for people and offering affordable
burial costs, which, as we know, are really expensive. Co-op
Insurance is now a multibillion-pound business that provides
pensions, investments and essential services. There are various
parts of the Co-op, such as banks, funeral services, which I have
already mentioned, and travel services. This demonstrates the
importance of the co-operative movement—despite, obviously, its
association with the Labour party.
In conclusion, I commend the hon. Member for Preston for
introducing this very important Bill, and I wish him the best of
luck with it.
10.17am
(Ealing North) (Lab/Co-op)
I begin by warmly congratulating my hon. Friend the Member for
Preston ( ) on his important Bill, which
receives its Third Reading today. My hon. Friend has worked
tirelessly to build cross-party support for the Bill, the success
of which has been evident today. I also congratulate him on
securing Government backing for this legislation, and for that
support I extend my thanks to the Minister.
As we have heard during debates on the Bill, including today,
Members across the House see the huge value of co-operatives,
mutuals and friendly societies. There are now over 7,000
co-operatives operating in the UK, with a combined turnover of
almost £40 billion, and almost 235,000 people earn their
livelihoods directly through co-operatives trading in a range of
different sectors.
Co-operatives have proven resilient in the face of hardship.
Despite the covid-19 pandemic and the economic challenges
resulting from the national lockdowns, the co-operative and
mutual sector grew by an impressive £1.1 billion in 2020. The
resilience of co-operatives is also evident in the higher levels
of productivity that can result from employee ownership. In the
United States, for instance, the National Centre for Employee
Ownership tracked the performance of more than 57,000 firms and
reached the conclusion that employee ownership can greatly
improve a business’s productivity and its chance of success.
However, despite the fantastic contribution that co-operatives
and mutual societies make to society and the economy, outdated
legislation has prevented the sector from reaching its full
potential in the UK.
Given their unique structure, co-operatives, mutuals and friendly
societies are often excluded from traditional investment methods.
Today, less than 1% of businesses in the UK are co-operatives. By
comparison, as another hon. Member mentioned, Germany’s
co-operative economy is four times the size of that of the UK. In
Emilia-Romagna, Italy, co-operative enterprises generate close to
40% of GDP, and the province has the lowest socioeconomic
inequality of any region in Europe.
Sadly, as we know, the sector is under threat from
demutualisation. There was celebration across the co-operative
movement last year when members voted to reject the controversial
takeover of the insurer Liverpool Victoria by the private equity
firm Bain Capital. I want to take this opportunity to recognise
the work of my hon. Friend the Member for Harrow West () and other in this House in
protecting the mutual status of that historic firm.
My hon. Friend just cited statistics about Germany and Italy, but
does he agree that one of the interesting things is the culture
of mutuals and co-operatives? Their thinking on financial
investment and return is much longer term, and that is surely to
the benefit of investors.
My hon. Friend is absolutely right to point out some of the wider
benefits of employee ownership and involvement, including
longer-term thinking, greater investment and greater
productivity. It is a real showcase for the value of
co-operatives, friendlies and mutual societies, which Members
from across the House have come together today to recognise.
Demutualisation remains a real and present threat to the sector.
The provisions in the Bill are crucial as they will help to
ensure that mutual capital is maintained for the purpose for
which it is intended. Beyond this Bill, we believe that further
support, such as giving co-operatives more freedom to issue
perpetual capital to fund investment, would help to secure the
future of the sector. We recognise that today is a significant,
important step forward, and we are very pleased to give this Bill
our full support.
10.21am
The Economic Secretary to the Treasury ()
It is always a pleasure to follow the hon. Member for Ealing
North (). Today of all days, our
thoughts are with the Ukrainian people. To that end, I also
extend my thanks to the financial sector, which, through the
provision of basic bank accounts, has ensured that more than
70,000 people and families who have come and made their home here
are able to receive income, send money and pay for goods.
I congratulate the hon. Member for Preston ( ) as his Bill reaches this
important milestone. Its aims are as laudable as his
long-standing advocacy for the sector. I also thank my team of
officials, on his and the House’s behalf, for their work on
taking this important reform forward—Joshua Grey, Logan Cuthbert,
Lucy Alawi-Yates, Emma Kavanagh, Alanna Barber and Harriet
Hill.
We are all aware—this has frequently arisen in discussions about
this Bill—of the UK’s special place in the history of the mutual
movement. We heard that again this morning from many hon. Members
of this House, including my hon. Friend the Member for Aylesbury
(). My hon. Friend the Member for
Stoke- on-Trent Central () raised the Burslem and District Industrial
Co-operative Society. My hon. Friend the Member for Buckingham
() reminded us of the importance
of the co-operative movement in the free market movement, and
mentioned the Buckinghamshire Community Energy co-operative and
the Brill village community herd. We cast new eyes on my hon.
Friend the Member for Dewsbury () as we look at him as the
man from the Co-op, come to collect, not spend his penny.
We have heard of how communities came together over a century
ago, pooling their resources to meet their shared needs and face
their common challenges. The hon. Member for Preston, of course,
appreciates the unique history and impact of mutuals, not least
because of the constituency he represents. The north of England
is widely recognised as one of the birthplaces of the modern
co-operative movement. It was in 1844 that a group of 28 artisans
working side by side in the Rochdale cotton mills first came
together. Their objective was to consolidate their scant
resources so that they could assure access to better quality food
and goods that their community had been excluded from.
The Rochdale co-operative movement was based on principles of
openness and democratic control—one member, one vote. In that
way, the 28 Rochdale pioneers shared in the profits that their
custom generated, and triumphed over the poverty that had been
blighting skilled workers at the time.
This is part of our shared UK history, and there are even earlier
examples of self-help co-operative organisations lifting
communities above their common challenges. The Fenwick Weavers’
Society was the result of a collective decision by a group of
weavers in Fenwick, Ayrshire, to form a society. The group’s 1761
foundation charter sits in the National Library of Scotland. Its
formation was a response to a period of rapid flux for the
textile industry in the mid-18th century, and its members came
together to set a fair price for their work and guarantee a
sustainable future for their trade.
Today the nation, communities and people face different
challenges, having come through a global pandemic while a war in
Europe rages on and inflation, although coming down, continues to
make everyone poorer. That is why our Prime Minister has set this
Government five clear challenges, the first of which is to halve
inflation in order to give respite to businesses, ease the cost
of living for households and give people financial security. The
second is to grow the economy, and in doing so to create
better-paid jobs and spread opportunities across the length and
breadth of the country. That is doubtless at the heart of the
co-operative movement. Fourth, fifth and sixth are to cut our
national debt, to cut NHS waiting lists, and to pass new laws to
stop small boats so that ordinary workers in this country get the
fair deal that they deserve.
As Members will know, the first seed of the original mutual
movement lives on in our modern mutuals sector, which consists of
diverse, commonly owned and democratically controlled enterprises
that exist to provide vital services to their members—a genuinely
diverse part of our wonderful United Kingdom financial services
sector. According to one recent analysis, the UK mutual insurance
sector served 32.3 million policyholders and collectively
employed 26,400 people in 2021. Another form of mutual
organisation that continues to thrive and deliver value to
society is the co- operative, which, as we have heard today,
operates across all industries and in many constituencies
including my own, in sectors from farming to retail to housing.
Owned and controlled by members close to them—whether they are
workers, shoppers, suppliers or co-residents—co-operatives give
people a stake in how they are run. Analysis by the trade body
Co-operatives UK found that this sector was worth nearly £40
million to the UK economy in 2021.
Because of their ownership model, mutuals are uniquely invested
in doing right by their members rather than in gaining short-term
profit at all costs. That makes them key partners in many of the
Government’s policy priorities, such as the financial inclusion
agenda that is so important to me. It is no coincidence that
financial mutuals lead the way in many of the low-cost product
offerings, such as affordable healthcare solutions or investment
products at price points that—if not quite a penny a
week—encourage the financial participation of a broader swathe of
society.
Modern mutual banks, invested in the success of their local
economies, are able to leverage locally based decision making to
ensure that their services reflect the needs of the communities
they serve. They are a real asset in our mission to level up and
spread economic activity across the regions. I would like to see
more mutual organisations of every type, and I am very open to
proposals such as those in the Bill, which the Government are
proud to support. I am very open to ways in which we can tailor
our regulatory structure to promote the growth and, indeed, the
new formation of mutuals across our financial sector. This is a
real form of diversity.
Mutuals are a big deal in the here and now. In many cases they
rest on the legacy left behind by others—the successive
generations of memberships who paid into the pot, as the hon.
Member for Preston reminded us. They did so on the presumption
that that surplus would be held in common, without personal
entitlement, to support their peers in times of need, for the
betterment of society and for future generations. That is why I
have always been receptive to the view expressed by Members on
both sides of the House that these funds should remain in mutual
hands for the purposes originally intended.
I support actions to secure our mutuals heritage, which is why
the Government are pleased to support the hon. Member’s Bill. The
Bill applies to co-operatives, friendly societies and bodies
corporate that carry on the business of mutual insurance, and it
aims to equip those mutual entities with a stronger option in
law, an asset lock, to restrict the use of surplus funds for
their chosen purposes. By permitting a stronger lock in law for
those entities that wish to adopt it—and I am sure many will—the
Government aim to provide the sector with an additional
deterrence against demutualisation.
Will my hon. Friend say a little more about the significance and
importance of the opt-in, as opposed to compulsion?
My hon. Friend, as well as being a doughty champion for the
co-operative movement in general, is right to emphasise the
voluntary element. It is right that those membership
organisations that wish to use the lock have the architecture
within the Bill to do so, but it is not the business of
Government to interfere with the strategy, desire or, in some
cases, need of those in the mutual sector to consolidate or raise
capital through other means by taking all those options off the
table with a mandatory asset lock.
That approach is typical of this Government. My hon. Friend will
understand, as an experienced man of business, that our principle
is to allow people to regulate and conduct their affairs in the
way they feel best serves their needs. As he knows, we have heard
very clearly that the mutual sector likes this architecture and
will benefit from it. In that context, it is right for the
Government to support the Bill.
(Broadland) (Con)
As my hon. Friend says, it is important that the Government are
in favour of the mutual movement, yet last year Liverpool
Victoria was at risk of being taken over by private equity. Does
he think we have the right balance between the free market being
at liberty to appoint capital as it thinks best and the
Government’s objective of supporting the mutual movement and
allowing it to grow?
My hon. Friend raises a point we have discussed a number of times
during the Bill’s progress. It is a poster case for the need to
provide some sort of protection. Without getting into the details
of that case, Liverpool Victoria clearly continues as a mutual to
this day, after deciding not to accept those offers. It is
probably right that people were able to make those offers, but it
is equally right that members were able to determine the outcome
for themselves.
As I hope my hon. Friend recognises, the tapestry of the
Government’s financial regulation role and the needs of a vibrant
and competitive market occupies all my waking hours. It is a
difficult task to calibrate, but we are greatly assisted by the
presence on these Benches of so many colleagues with so much
experience to offer. It is always a joy to receive
representations on behalf of the myriad parts of the sector, all
of which we are trying to help grow and deliver jobs across the
economy. As I never fail to remind the House, two thirds of jobs
in the financial services sector are outside London and the
south-east. The sector touches communities across the country, as
we have heard again today.
By permitting a stronger lock in law for those entities that wish
to adopt it, the Government are aiming to provide the sector with
an additional deterrent against demutualisation. It will empower
mutuals to continue the legacy left by previous generations of
members to deliver in service of their members and wider society.
However, the Government are not seeking just to play defence on
the mutual model; we want to advance the interests of the sector
and to grow diversity so that we have a rich financial services
sector that has all sorts of forms of ownership within it.
As the House will be aware, we are taking action to support
credit unions, which are another type of member-owned,
democratically controlled financial institution. This Bill does
not apply to credit unions, but through the Financial Services
and Markets Bill we are seeking to promote that sector. As the
latest Prudential Regulation Authority data shows, there are 249
credit unions in Great Britain, representing more than 1.4
million adult and child members. There are exactly 650
constituencies; would it not be wonderful if every one of them
had a thriving credit union? That is a vision for us to hold in
mind.
As the Financial Services and Markets Bill makes its way through
the other House, we are making a number of important amendments
to the Credit Unions Act 1979 to allow credit unions to offer a
wider range of products and services. Where they decide it is in
their interests to do so, they will be able to offer hire
purchase agreements and conditional sale agreements, and to
distribute insurance products to their members. Those are all
ways in which they can increase their utility to their members,
and improve their own scale and financials, which is one of the
challenges that they have had. We will also allow them the option
to lend to and borrow from other credit unions on a short-term
basis, which will sometimes allow them to manage their liquidity
better. Again, that will improve the strength and resilience of
the sector. That delivers on interests that were raised with the
Government by the sector.
The Financial Services and Markets Bill also gives the Government
a new power to allow credit unions to offer further products and
services in the future through secondary legislation. The message
is that the door is ajar. If we hear representations from the
sector about more ways in which this Government can be on its
side, it should keep pushing, because we will have the ability
through secondary legislation to do that.
Additionally, the Government are taking forward a programme of
work to ensure that building societies, mutual savings providers
and mortgage lenders have a modern and fit-for-purpose
legislative framework that promotes opportunities for growth. We
have concluded our consultation on the Building Societies Act
1986. As was announced in the Edinburgh reforms package, the
Government will in due course bring forward legislation to amend
that Act. That will give building societies further flexibility
in raising wholesale funds and help to modernise corporate
governance requirements, enabling building societies to compete
on a more level playing field with retail banks and, again, to
promote competition and diversity of provision within the
financial services sector.
We are not stopping there. The Government are committed to the
health and prosperity of the mutuals sector, and we recognise the
valuable contribution mutuals make. It is a matter of record that
I believe we need to go further to cement a modern and supportive
business environment in which mutuals can thrive. That is why we
continue to have active discussions with the Law Commission on
options to proceed with reviews of both the Co-operative and
Community Benefit Societies Act 2014 and the Friendly Societies
Act 1992, with a view to launching those reviews in the next
financial year. Work is ongoing to define the terms and scope of
the reviews, which includes close engagement with the sector, and
I expect to be in a position to provide an update with more
detail very soon, particularly as I know that many Members here
today have a keen interest in that work. Clearly, that is
something we wish to see move forward and I am sure it will. As
such, I can confirm that a core aim of the reviews will be to
focus on dysfunctions in the law that result in those
organisations being unnecessarily impeded or facing additional
time, expenditure or opportunity cost.
In conclusion, the prospects for mutuals are bright. I am
delighted that we have been able to make progress on this
important Bill today. I commend the cross-party spirit in which
the hon. Member for Preston and the Opposition have worked
closely with the Government and officials. I am very happy to
commend support for this Bill.
10.39am
With the leave of the House, I wish to thank all my friends and
colleagues in the House for their support of my Bill. I also
thank the variety of Treasury Ministers who, due to a number of
reshuffles, have been able to work with me on the Bill from last
year to now, including the hon. Member for North East
Bedfordshire () and the current Economic
Secretary to the Treasury. My thanks go out to all the Treasury
civil servants who are present in the Chamber today. I wish to
thank Peter Hunt and Mark Willetts at Mutuo for their help and
advice in drafting the Bill, and also the Co-operative party,
which has supported me throughout the whole of my political
career, stretching back to the 1980s when I was in local
government, the 1990s when I was in the European Parliament, and
since 2000 when I entered this House.
Finally, I wish to thank in advance my noble Friend for agreeing to
take my Bill through the other place.
Question put and agreed to.
Bill accordingly read the Third time and passed
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