HC Deb 16 April 1975 vol 890 cc623-36

10.30 a.m.

The Financial Secretary to the Treasury (Dr. John Gilbert)

I beg to move, That the Chairman do now report to the House that the Committee recommend that the industrial and Provident Societies Bill [Lords] ought to be read a Second time. The purpose of this short Bill is to amend in a small but important respect the Industrial and Provident Societies Act 1965. That Act, which was a consolidating Act, provides for the registration of co-operative societies and also certain voluntary societies, such as housing associations, which have benevolent or charitable objects. Members of these societies are by definition shareholders in them and the trading societies, that is to say, the co-operatives, look to their members to subscribe by way of shares some part of the capital they need for trading purposes. However, the Act, for reasons that I will briefly mention, at present imposes a limit on the amount that any individual member can hold in a society. This limit is £1,000.

The object of the limit on shareholding broadly speaking is to prevent the accumulation of large individual shareholdings in a society and the consequent domination of a society by any one member or a minority of members by virtue of their financial interest in it. Such domination would militate against the co-operative nature of a society. It is not one of the objects of the limit to inhibit the proper development or capitalisation of the business of co-operative societies.

The existing limit was fixed in 1961 and was retained in 1965 when the Acts then in force were consolidated. Between 1903 and 1952 the limit had been £200 and between 1952 and 1961 it had been £500. As a result of the fall in the value of money the limit has become unduly restrictive and has prevented the expansion of member-owned capital in societies, particularly agricultural co-operatives.

The Bill proposes to increase the limit on shareholdings to £5,000 and to make certain ancillary provisions. This proposed limit is, as the Committee will readily appreciate, not an attempt to substitute the present monetary equivalent of the existing limit when first enacted. For this purpose an increase to rather less than half the £5,000 would have been sufficient. The Bill goes further and provides societies with the opportunity of substantially increasing their member-owned capital within a limit that is realistic and is consistent with the maintenance of societies' co-operative character.

The two main fields in which cooperative societies at present operate are those of retail trading and agricultural marketing. Although the provisions of the Bill will be welcomed in both fields, it is true that the increase proposed by the Bill is of substantially less interest to the retail societies, the "Co-ops" that trade in the High Street, than to the agricultural societies. Share capital in the former is subscribed in relatively small amounts and is highly fragmented. It is unlikely that their members in any great number will wish to make full use of the limit now proposed, or have made full use of the existing limit in the past. Although retail societies will no doubt be interested in the opportunities the new limit provides, its immediate impact upon them in financial terms may be relatively small.

It is, however, otherwise with agricultural societies. Apart from the large societies whose business is mainly in agricultural requisites, their membership is usually quite small—fewer than 100 in many organisations—and the present limit of £1,000 is having a serious restraining influence on the ability of some such societies to expand their activities. This is not only for the reason that the present limit prevents the attraction of share capital which members would or could subscribe in excess of the limit, but also because the quantum of borrowing from banks and others is in practice dependent in some measure on the amount of share capital subscribed.

Of course, members of such societies will not in every case be able to increase their shareholding to the proposed new maximum limit once the Bill is enacted. But, by providing the opportunity for such societies to strengthen their member-owned capital and increase trade from a stronger capital base, the increase would enable them to give a more effective service to their members and ultimately to consumers.

The increase to £5,000 has been requested by the Central Council for Agricultural and Horticultural Co-operation, which acts on the Government's behalf under powers prescribed in the Agriculture Act 1967, as well as by other agricultural co-operative interests. Its desirability was endorsed in December 1974 in a report by the Central Council Working Party on Investment Capital in Agricultural Co-operation, whose recommendations are currently being studied. Its adoption would give a valuable practical and psychological boost that would be warmly welcomed in the agricultural and horticultural sectors.

With the Committee's indulgence I will now briefly—and I emphasise "briefly"—outline the provisions of the Bill. As I have already mentioned, the principal object of the Bill is to increase from £1,000 to £5,000 the limit on shareholding of members of registered societies who are individuals—as distinct from other registered societies. This is done in Clause 1(1).

The remainder of Clause 1 is concerned with enabling societies to take immediate advantage of this increase. As the Committee will know, registered societies have their own rules, which in effect provide for their objects and the manner of their carrying on business. These rules will provide for a limit on the shareholding of each individual member and this limit will normally be the amount provided as a limit by the Act. To take advantage of the increase under the Bill, it would therefore be necessary for a society to amend its rules, a process which requires among other things the calling of a general meeting and some consequent delay.

It is therefore proposed under Clause 1(2) to allow the committee of any registered society whose rules already permit members to hold up to the current £1,000 maximum shareholding to pass a resolution permitting members to hold shares in that society up to any increased limit specified in the resolution that falls within the new statutory maximum. The power thus conferred can be used as an interim measure only, and once used it cannot be exercised again in respect of any one increase in the statutory limit. Any resolution so passed is effective only until the next occasion on which the society amends its rules.

Clause 2 provides for future increases of the shareholding limit to be made by regulations subject to the negative procedure. The regulations will be made by the Chief Registrar of Friendly Societies, who is responsible for the administration of the Industrial and Provident Societies Acts, and will require the consent of the Treasury. Under subsection (2) of the clause the regulations can also include provisions relating to the rules of societies similar to those contained in Clause 1(2), which I have just mentioned.

The Government think that this is a perfectly proper case for leaving to subordinate legislation. It involves no point of principle, but merely the adjustment of the quantum of a limit specified in the Bill, the aim of which will, of course, have to be borne in mind in the making of any regulations.

The need for the provisions is amply illustrated by the history of the Bill. The demand, at least from the agricultural sector, for an increase in the present limit goes back some years to 1970, if not earlier, and the Conservative Administration in 1972 accepted the need for an increase in the limit and undertook to bring in a Bill as soon as parliamentary time was available. We, too, have accepted the need for an increase, but the Bill has had to yield its place to more pressing legislation and it is only now that time has been found for it. It is partly to avoid such delays in the future and partly to save parliamentary time that we are proposing this provision.

The remaining Clause 3 contains formal or consequential matters that require no comment. My hon. Friend the Minister of State will be happy to deal with any questions that fall within his area of responsibility. I commend the Bill to the Committee.

10.40 a.m.

Mr. Peter Hordern

We on this side of the Committee have no fundamental objections to the Bill. In fact, I can scarcely remember any piece of legislation to which there could be less objection. This was a measure which the Opposition were about to introduce if they had remained in government. It is a question of increasing the limit on the capital which any member of a co-operative is allowed to have.

I thought that the Financial Secretary's brief sounded just as good in Committee today as his colleague's did in the House of Lords. I do not believe the Government have made any new points, either on this or on previous occasions when Bills of this kind have been introduced. I think I should start by asking the Financial Secretary how long it will be before yet another measure of this kind has to be brought before the House.

The proposal is that we should increase from £1,000 to £5,000 the amount of capital which any member of a co-operative society is allowed to have. As the Financial Secretary said, the correct limit would be £2,500 compared with 1961. But, with the rate of inflation proceeding as it is, we shall have to wait only another four or five years before that limit will be reached. It would have been sensible to amend the Bill so that, within a reasonable limit, it would be possible to increase the limit of £5,000 as well.

However, the Bill gives us a good opportunity to explore the position of cooperatives in the economy, because, as the Financial Secretary said, we have recently had the report of the Working Party on Investment Capital in Agricultural Co-operation. I appreciate that the Bill refers to co-operatives apart from agricultural ones; it particularly refers to housing associations. But the most pressing matter is the position of agricultural co-operatives and what the Government propose to do about the report and the recommendations made therein.

Before coming to the position of the agricultural co-operatives—and I am glad that the Minister of State for Agriculture, Fisheries and Food is here to help us—it would be as well to spend a moment or two dealing with the position of co-operatives within the economy today. In order to be registered under the industrial and provident societies legislation co-operatives must be non-profit-making concerns. The difficulty is that they must have a measure of subscribed capital adequate for them to deal with the demand for capital needed to conduct their business and the problem of attracting sufficient capital when the objective of the co-operative is not to earn a profit on their activities.

As the Committee will know, the object of a co-operative is to make a return—if that expression can be excused—on the sale of goods or on the purchase of goods for the benefit of members of the cooperative. That is a well-known and well-tried process which has been of great benefit to the economy, and particularly to agriculture, over many years.

But the difficulty is to attract sufficient outside capital to form a capital base upon which the co-operatives can borrow. It is difficult enough to expect existing members of co-operatives to put up more capital when the service on that capital does not necessarily give an economic return. It is necessary to raise the limit upon which each member can claim a holding from £1,000 to £5,000. It will not be easy to get even £5,000 from existing members.

However, the problem does not arise only because the co-operatives need to raise more money to run their businesses. With the cost of goods today, the banks are naturally much more concerned about the level of equity base upon which cooperatives work. It has for long been the practice of successive Governments to help, in particular agricultural co-operatives, by various loans and devices, but there has never been a credit institution of the kind that exists in other countries.

The Crédit Agricole is the credit institution for agriculture in France. I understand that it is the fourth largest bank in the world. But, as far as I know, there is no such institution in this country or anything which is comparable. so there will be a need—as the Working Party on Investment Capital in Agricultural Co-operation suggested—to devise some means by which these co-operatives can raise more capital and keep it in a more permanent form.

Here there is a particular difficulty in what one can only describe as the revolving funds of the co-operatives. This is a device which has been accepted in the United States and European countries which allow members of co-operatives to retain profits within the group and use them as a form of statutory reserve. There is no provision for statutory reserves to be accumulated within co-operatives unless they are taxable. So any co-operative which makes a profit which belongs to its members cannot be retained within the co-operative without the payment of income tax and, furthermore, of corporation tax.

The particular difficulty for co-operatives is that any farmer who wishes to come out of a co-operative can demand to be paid at once for his share of the agricultural co-operative. It is not always easy for the co-operative to provide the necessary funds for him to be able to withdraw his share account. So there is a need for reserve capital in any case. Quite apart from that need, the difficulty is that the profits are taxable, but they are not taxable in other countries.

I think that what is required is some form of revolving credit which becomes taxable only when it reaches the hands of the members of the co-operative. For example, on the sale of the shares, when that money returns to the hands of the owner of the shareholding, it should be taxable. But to tax the funds as they are reserved seems to be wrong. This concerns one of the main points in the recommendations of the Working Party on Investment Capital in Agricultural Co-operation. It would be interesting to know the view of the Government on this mattter. As I understand it, these revolving credits are not taxable in other countries and they should not be shown. There is a good comparison and a good precedent, too, for the existence of what might be called a reserve fund or revolving credit in Lloyds insurance. Members of Lloyds in any one year are not taxable on their profits if they are put to reserve. This seems a comparable arrangement and one which I should have thought would be helpful to co-operatives and agricultural co-operatives in particular.

With the rate of inflation proceeding as fast as it is. it will not be long before we shall again have to raise the limit of £5,000 mentioned in the Bill. Much more serious is the ability of co-operatives to deal with the increasing level of inflation and in the increasing costs of all the goods and services which they have to buy. It is necessary for them to increase their investment within the co-operatives and it must be made easier for them to do so.

I trust, therefore, that the Minister of State will be kind enough to tell us the Government's views of the working party report, and what they propose to do about the pressing need for the extra capital which the co-operatives now require.

10.49 a.m.

Mr. Ioan Evans

I welcome the Bill, which I believe will also be welcomed by the co-operative movement. If, as the hon. Member for Horsham and Crawley (Mr. Hordern) has said, there was no provision for future inflation, it would have been a weakness in the Bill. However, the Explanatory Memorandum states that Clause 2 empowers the Chief Registrar, with the consent of the Treasury, to increase the limit on the shareholding of an individual member from time to time by order and in connection therewith to make provisions similar to those in Clause 1. So this, in fact, is dealt with—

Mr. Hordern

Unless I read the Bill wrongly, it does not allow him to do so above the limit of £5,000. He is able to increase the sum, but not above that limit.

Mr. Ioan Evans

That point will no doubt be taken up by the Minister of State. 'The co-operative movement, while welcoming the Bill, will not look to it as being the main means of raising capital because it has a very large membership. The London Co-operative Society has over 1 million members. It can raise its capital from the members because of its numerical strength. I believe that agricultural and housing co-operatives will welcome the Bill. Agricultural co-operatives have small memberships. There may be only 100 members, and prior to the Bill's proposals they would be limited to £100,000 capital. That amount may now be increased to £500,000.

Housing co-operatives have developed to a large extent in Scandinavia, and I suggest that such co-operatives could make an immediate contribution to help to solve the housing problem here. It seems strange that the co-operative movement was first formed in this country and now it has spread throughout every country in the world. Some countries have developed other forms of co-operative, particularly agricultural and housing co-operatives, to a far greater extent than we have.

I welcome the Bill, and I hope that it will have a quick passage. It is long overdue. It is non-controversial because, as hon. Members have said, it was promised by the previous Conservative Government, and I hope to see it on the statute book shortly.

10.51 a.m.

Mr. John Cope

I, too, welcome the Bill. If the purpose of the restriction is to prevent any member of a co-operative having an undue influence, which appears to be the case, it seems to me that instead of having a financial limit of a certain number of pounds, £5,000 or whatever, it would be better to have a percentage limit.

I suggest that it would be better to provide that no member of a society should have more than 2 per cent. of the share capital or whatever percentage was thought desirable. It would not then be necessary to have the subordinate legislation provided for in the Bill. The provision could go on ad infinitum regardless of the rate of inflation or other changes in circumstances which surrounded cooperatives, particularly agricultural cooperatives.

10.53 a.m.

The Minister of State for Agriculture, Fisheries and Food (Mr. E. S. Bishop)

I shall briefly reply to some of the matters raised on the agricultural aspect.

The hon. Member for Horsham and Crawley (Mr. Hordern) made several interesting comments regarding the agricultural side of the measure. In supporting my hon. Friend the Financial Secretary, I can say that we welcome the Bill. We were anxious to make progress earlier, but due to the problems of the legislative time-table it has not been possible.

The hon. Member for Horsham and Crawley, will be aware that his hon. Friend the Member for Devon, West (Mr. Mills) was Parliamentary Secretary to the Ministry in the Conservative Government of 1972 when my right hon. and hon. Friends tried to move an amendment to the Agriculture (Miscellaneous Provisions) Bill (Lords) to increase the amount of capital. The hon. Member recommended that no action be taken at that time until a more comprehensive measure came before the House. It was pointed out that the measure would affect other bodies, such as housing co-operatives.

We therefore welcome the measure, and I know that it is welcomed by the industry. In 1970 the Central Council for Agricultural and Horticultural Co-operation, which acts on the Government's be-behalf under the powers of the Agriculture Act 1967, requested the raising of the limit.

The hon. Gentleman asked about the advisability of the limit of £5,000 and the possibility that it might soon be regarded as insufficient in view of the rate of inflation. I remind the hon. Member that as recently as last December the Central Council recommended that the figure should be sufficient. As my hon. Friend said, the figure more than takes account of inflation up to the present time.

There are approximately 1,000 agricultural co-operatives of various kinds. They range from those which are mainly requisite co-operatives, marketing cooperatives, service co-operatives and the unincorporated production groups. They have a considerable turnover, possibly over £700 million. The question of the capital limit has been taken care of by the fact that the industry itself has been satisfied with the figure in the current situation.

The working party report, to which the hon. Member referred, covers a wide range of recommendations, including revolving funds and other fiscal matters, the establishment of links with credit institutions, and the setting up of Government controlled funds that are available to co-operatives for loans and grants. The working party report also referred to the need for the Bill. This has been made apparent to me as I have travelled round the country visiting agricultural co-operatives and those concerned with them.

As hon. Members will know, the report deals very thoroughly with these issues and of course we welcome that. The report makes a number of recommendations. The Government depend upon the advice of the Central Council for Agri- cultural and Horticultural Co-operation. We are in touch with the organisation regarding the need for any further changes.

With regard to capital, the hon. Gentleman should be aware of the advantages to agricultural co-operatives. The Agricultural and Horticultural Co-operation Scheme 1971 sets out the grants, which range up to about 75 per cent., and help considerably.

The hon. Member mentioned taxation. I would remind him that the position of the agricultural co-operatives under taxation legislation is governed by Section 340 of the Income and Corporation Taxes Act 1970. There are also special, more favourable tax arrangements applying under Schedule D of the 1970 Act. Therefore, there are advantages not only in the grant and loan situation, but on the taxation side, and that helps to deal with the financial problems.

Some of my observations will have dealt with the comments of my hon. Friend the Member for Aberdare (Mr. Evans) and those of the hon. Member for Gloucestershire, South (Mr. Cope). I assure the Committee that the Government have a very high regard for the work of the co-operatives in helping to produce the output of our agricultural and horticultural industry. We are anxious to do everything we can to assist the co-operative movement.

Mr. Hordern

When does the Minister expect to get the report from the advisory council now considering the report of the working party? He will appreciate that the recommendations in the report of the working party affect the work of co-operatives considerably, particularly as regards the formation of capital. The working party's views with particular importance for the co-operatives concern income tax on members and corporation tax on co-operatives. When does the Minister expect to hear from the advisory council about these matters and when will he be able to report to the House?

Mr. Bishop

The answer is in the very near future. Ministers are in touch with the council and those concerned with the 16 recommendations of the report.

10.58 a.m.

Dr. Gilbert

May I briefly thank my hon. Friend for the support that he has given me this morning? I should also like to thank the Committee for the general welcome which it has given to the Bill.

There was an area of uncertainty in the minds of my hon. Friend the Member for Aberdare (Mr. Evans) and the hon. Member for Horsham and Crawley (Mr. Hordern) about the powers of the Registrar under the Bill. Clause 2(2) provides: An order under this section may make any such provision in connection with altering the limit for the time being applicable under the said section 6(1)"— that is, Section 6(1) of the 1965 Act— as is made by section 1 above". In other words, it is clear from Clause 2(2) that the Registrar has power to go above the £5,000 limit.

The hon. Member for Horsham and Crawley asked when we expected that power to be exercised again. As he will realise, we have in the Bill gone way beyond what was necessary to compensate for the fall in money values. Future changes may be determined by considerations other than inflation, such as the need for capital in the industry and other economic factors. Any such increase must be made with the consent of the Treasury, as Clause 2(1) makes clear, and will be debatable in the House.

Goodhew, Mr. Victor (Chairman.) Hordern, Mr.
Bagier, Mr. Hughes, Mr. Mark
Bishop, Mr. Luard, Mr.
Budgen, Mr. Maynard, Miss
Cope, Mr. Pendry, Mr.
Evans, Mr. Ioan Stradling Thomas, Mr. John
Gilbert, Dr. Young, Sir G.

The hon. Member for Gloucestershire, South (Mr. Cope) raised a point about having a percentage limit rather than a flat limit. I understand that it is the wish of the societies that they should have a flat limit rather than a percentage limit. I am sure that the hon. Gentleman will recognise that there could be serious administrative difficulties if several members of the society were right on the percentage limit and then some other member withdrew capital for a perfectly legitimate reason. The society would then have to go to the other members on the limit and ask them to reduce their capital. That could be extremely inconvenient, quite apart from the administrative problems involved. Therefore, the hon. Gentleman's suggestion has been considered, but I think the type of limit we have in the Bill and which has been in all previous similar legislation is for the greatest convenience of the societies.

Question put and agreed to.

Ordered, That the Chairman do now report to the House that the Committee recommend that the Industrial and Provident Societies Bill [Lords] ought to be read a Second time.

Committee rose at one minute past Eleven o'clock.