§ The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Chris Patten)
I beg to move,That the draft Credit Unions (Northern Ireland) Order 1985, which was laid before this House on 19th June, be approved.I am sorry that my hon. Friend the Minister of State is not available to carry this order through the House. I know that my hon. Friend has taken a great personal interest in the order, and it was a great disappointment to him that he could not be here this evening. However, the House will understand that Northern Ireland Ministers, as well as Northern Ireland Members of Parliament, often have to be on duty in the Province for pressing reasons, and tonight is such an occasion for my hon. Friend.
As the House will know, credit unions, which are a special kind of co-operative, have flourished in Ireland for 30 years. In Northern Ireland, they have existed since 1960. They now number 98 and have over 100,000 members, and assets of £40 million. The strength and continued growth of the credit union movement in Northern Ireland persuaded the Government to introduce this order which, for the first time, legislates for credit unions in their own right and ends their treatment as a special class of industrial and provident society regulated under the Industrial and Provident Societies Act (Northern Ireland) 1969. The order also takes account of certain necessary changes that were incorporated into the Great Britain Credit Unions Act 1979.
Credit unions encourage people to save and, out of the pooled savings, provide loans at a low rate of interest to those who, by virtue of their savings, are members. They also seek to educate their members to budget and use money wisely. The benefits are substantial to people who do not normally use banking or buildings society facilities or who are on low incomes. The growth of the movement is all the more commendable as it relies almost totally on voluntary effort.
It is usually sensible to be wary about legislating where voluntary effort is prevalent—the enthusiasm and zeal which inspire the voluntary effort can easily be stifled by too rigorous a statutory framework—but in this case there is the counter-danger that too loose a framework could jeopardise members' savings. We have sought in this legislation to avoid both these dangers. Well over 90 per cent. of the order contains the existing familiar law which has worked well. The new provisions which are drawn mainly from the Great Britain legislation—the Credit Unions Act 1979—have been included only after very lengthy consultation.
I shall at this stage clarify one important technical, and more than technical, point that has concerned some right hon. and hon. Gentlemen. Some hon. Members may be wondering why this order is being debated at all, as the Credit Unions Act 1979 provides for the extension of its provisions to Northern Ireland by the negative rather than the affirmative procedure now adopted. As the House knows, the negative resolution procedure is used only if the provisions of an Order in Council correspond precisely to those of an Act.
It was our original intention to proceed in this way and to replicate the 1979 Act in Northern Ireland. However, strong re-representations were made by the credit union movement for separate credit union legislation and, more 491 important, we were pressed to diverge from the 1979 Act where the existing Northern Ireland law was working well in practice and did not require amendment. We were urged to depart from the existing Northern Ireland and Great Britain law to relax the prohibitions on loans to persons who had moved outside the common bond. The acceptance of all these representations accounts for the present order being subject to the full affirmative procedure of this Parliament.
I know and understand the importance which right hon. and hon. Members attach to the negative resolution procedure. I hope that they will understand why we did not use it on this occasion, even though they have a continuing disagreement with the Government over the way that the legislative process affects Northern Ireland. In this instance, as my right hon. Friend the Secretary of State has said—I think most recently in response to the right hon. Member for Lagan Valley (Mr. Molyneaux), who has argued the case vigorously—if the order had been made by the negative resolution procedure, new provisions could have become law without parliamentary debate and adequate discussion. He does not believe, and nor do I, that this would be a justified use of section 32(4) of the Credit Unions Act 1979.
As I have suggested, the order is a recognition of the success and standing of the credit union movement in Northern Ireland. It provides credit unions in the Province with their own legislation. The existing law, under which the unions have prospered, has been restated. Credit unions, like companies and other societies, must operate under a distinctive name, abide by their objects and operate according to the legislation and their own rules in relation to their members and to the public at large, and the changes to these broad requirements are minimal.
The main changes derive from the Great Britain Act of 1979 and introduce a maximum and new minimum membership of 5,000 and 21 respectively. Also included is a new provision in article 26, which will allow credit unions to accept deposits from under-16-year-olds. This provision is particularly welcomed by the credit union movement, as is the increase from 6 per cent. to 8 per cent. in the permitted annual dividend. In addition, credit unions are required by article 37 to have insurance cover against fraud or dishonesty. To supplement the existing supervisory role of the registrar of friendly societies, article 57 gives him power to call for periodic financial statements from credit unions.
As the credit union movement is much older and stronger in Northern Ireland than in Great Britain, there are naturally a few differences between the legislative codes. One of these involves the common bond which must exist between the members of a credit union. This may be a common place of residence or occupation or some other approved bond. To a large extent it ensures the successful operation of a credit union by establishing mutual trust among the members and reducing the likelihood of bad debt.
In a provision peculiar to Northern Ireland, article 28 permits persons who move outside the common bond to retain their full borrowing rights for one year, thus removing the former provision restricting loans to an amount not in excess of the members share capital. It was with some reluctance that we accepted this relaxation of the former provision, following representations regarding 492 hardship arising particularly from rehousing. The arrangement will be kept under close review and the period of one year can be raised or lowered by subordinate legislation.
Another distinction relates to the maximum limit on a member's share capital. A limit of £3,000 has applied for some time in Northern Ireland, whereas the limit operating in Great Britain is currently £2,000. I see no reason to change the Northern Ireland limit. There are a number of other less important differences between the order and the 1979 Act which relate to such matters as the power to alter the minimum membership requirement in article 13, an additional provision to account separately for the deposits of young people in article 42 and the absence of a restriction on the period for repaying a secured loan.
As with any legislation, it is unlikely that everyone will be totally content with it. Some matters on which the movement has pressed us have not been taken on board on this occasion. For example, we could not accept any relaxation of the provision which prohibits undischarged bankrupts or persons found guilty on indictment of fraud or dishonesty from acting as directors of a credit union. Another matter involved the right of a credit union to levy members. There is no such provision in the Great Britain legislation and we saw no convincing reason for making a change. It has been made clear in writing to each individual Northern Ireland credit union that there is nothing in the legislation to prevent members from voluntarily making donations to their credit union. There must not, however, be any coercion.
We were also pressed to adopt an alternative method for calculating the reserves to be set aside by a credit union, but a detailed analysis covering all Northern Ireland credit unions over the last five years proved the existing arrangements to be by far the most satisfactory.
One or two other matters will no doubt be the subject of continuing consultation with the movement. I am, however, satisfied that the order is flexible enough to accommodate many of these changes if they are shown to be desirable. For example, a few of the large credit unions with full-time staff and computer facilities would like to see increases in the limits on shares and loans, whereas such increases would be a serious embarrassment to smaller credit unions. However, these limits—and such matters as the numbers of members—are matters which can be altered under the order by subordinate legislation.
The order has received a general welcome from the movement and I believe that it provides an equitable foundation from which credit unions in Northern Ireland can continue to grow and prosper, for the good of their members. I commend the order to the House.
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§ Mr. Peter Archer (Warley, West)
I hope that I shall not be accused in any quarter of operating a bi-partisan policy if I say that the Opposition welcome the order and have no quarrel with the Government. It is pleasing to see the success of the credit union movement in recent years. We should be grateful for the vision and dedication of those who have steered credit unions to their present numbers and influence.
The Assembly looked closely at the limited questions which arise in relation to the order and was content with the order in its present form. We see no reason to disagree.
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§ Mr. J. Enoch Powell (South Down)
During the last debate the Minister undertook to convey the observations by the right hon. and learned Member for Warley, West (Mr. Archer) to his right hon. Friend the Secretary of State. I shall reverse the process and refer the Minister to his right hon. Friend the Secretary of State, in particular to what the Secretary of State said about the renewal of the interim period order. He made a speech which might be likened to a bone on which there was not much meat delectable to those to whom it was offered. But there was a bit of marrow. The Secretary of State said:There is … a case for making adjustments to the transferred category"—the category of subjects, legislation on which is dealt with under direct rule by Order in Council—by removing matters such as banking, building societies and financial services, where efficiency points to the desirability of United Kingdom-wide legislation and administration by United Kingdom Departments and where the scope for separate legislation or policy initiative by any future devolved administration would be more apparent than real. I am certainly open to argument on adjustments in that direction."—[Official Report, 26 June 1985; Vol. 81, c. 977–78.]If the right hon. Gentleman is looking for arguments for adjustments in that direction, I bring to his attention the strange legislative story behind the Order in Council. First came the 1969 Act passed by the Northern Ireland Parliament under the heading "Industrial and Provident Societies". That created a legislative framework for credit unions in Northern Ireland. It was the first credit unions legislation in the United Kingdom.
Ten years later, the Credit Unions Act 1979 was passed for Great Britain. The credit unions in Northern Ireland took a close and detailed interest in the preparation and discussion of that legislation, and representatives of the Ulster Unionist party who took part in the debates and served on the Standing Committee not only addressed themselves to the provisions of that legislation but sought as best they could to express the opinions and wishes of the credit unions in Northern Ireland. Indeed, I recall that I was addressing the House on Report on that legislation when the explosion was heard which marked the death of Airey Neave. So the 1979 Great Britain Act was in fact a United Kingdom Act—a fact which was marked by its containing what my hon. Friends and I have got into the habit of calling the theft clause after the first Bill in which it was used—a clause enabling legislation to be dittoed for Northern Ireland by means of an order which was prayable but did not require the affirmative procedure.
Now, in 1985, we have an Order in Council which enacts a complete code largely identical with the 1979 Great Britain Act. Indeed, there are only four differences between the code for Northern Ireland and the 1979 Act. I fully accept that technically, and more than technically, the Government were right to say that to make those four differences it was necessary to pass from the negative to the affirmative procedure. I do not dispute that for a moment, nor the Secretary of State's argument to that effect in his letter to my right hon. Friend the Member for Lagan Valley (Mr. Molyneaux). Nevertheless, it is absurd and wasteful for the sake of two or three improvements which I believe will be required for Great Britain in due course to have a completely separate code for Northern Ireland enacted by Order in Council.
I hope that it will not be tedious if I explain to the House what the four differences are. First, the order permits a 494 maximum shareholding of £3,000 compared with a maximum of £2,000 for Great Britain. I think that Great Britain would be well advised to increase its maximum to that now being laid down for Northern Ireland.
The Minister has already referred to the second difference. The order will enable loans to be made for up to a year to a person entitled as a former shareholder to secure those loans although he has ceased to be a member. That is clearly a convenient provision, in view of the mobility of members of credit unions, if they move from a residential area in which they were included within a credit union and need the assistance of a loan during that period. That is a minor advantage, but I believe that Great Britain will need to follow suit in that respect, too.
I am not quite so sure about the third difference—the provision of a two-year maximum period for unsecured loans in Northern Ireland compared with a period of up to five years in Great Britain for secured loans. The greater flexibility that is available under the Great Britain Act is preferable to the limitation that is being enacted in this order. That is the one respect in which we shall probably not gain from the re-enactment of the 1979 code.
The last of the differences is the requirement that loans to minors shall be listed and accounted for separately. That is a wise provision, since the provisions to cover and guarantee the position of minors are different from those that apply generally to members of credit unions. It is right that there should be separate accounting and reporting.
Those three or four minor improvements do not justify a departure from what we thought was continued in the 1979 Act—the principle of a United Kingdom code for credit unions covering the whole country, even though the Northern Ireland element was still in the form of a negative resolution. So from a different point of view we are led back to the indispensability in the long run for Northern Ireland to be legislated for in the same way as any other part of the United Kingdom.
Northern Ireland has been the pioneer of the credit unions movement in the United Kingdom. Most hon. Members with constituencies in Great Britain will be very much surprised, interested in and envious of the vigorous credit unions that occupy a considerable footage in Northern Ireland newspapers. The doings of the credit unions are even more important than the doings of the darts and snooker leagues and are to be found in a prominent position on the middle pages of the local press—a sure sign of that which attracts the interest of the public in Northern Ireland.
However, I do not think that that was sufficient justification for giving up in this context what we felt we had achieved: United Kingdom legislation on one of the matters within the definition set out by the Secretary of State for Northern Ireland in his speech last week, namely, an area where there is manifest convenience in having legislation that covers the whole of the United Kingdom.
I wish to detain the House further on only one or two matters. The Parliamentary Under-Secretary of State for Northern Ireland has referred to two of them, but I was specially asked by the credit unions in my constituency to take this opportunity to raise them.
The Parliamentary Under-Secretary of State dealt satisfactorily with one of the matters about which representations have been made to me. He confirmed that provided no pressure was brought to bear upon members 495 of credit unions, there is no reason why the boards of management should not invite members to make contributions and thereby add to their capital reserve fund.
On the capital reserve fund, there is still a difference between my opinion and that of the credit unions in Northern Ireland on the one hand and, on the other, the opinion held by the Government throughout the passage of the 1979 Act. That difference is still represented in this Order in Council—namely, that 20 per cent. of the net surplus to be carried in certain circumstances to reserve is less efficacious than the alternative proposal of 7 per cent. of gross income. The Under-Secretary of State said that statistical investigations had been undertaken into the background of the choice between these two alternatives. Figures have been put to me which appear to lead to the opposite conclusion. With the permission of the Under-Secretary of State I should like to bring them to his attention by correspondence so that the matter can be pursued.
There is a third matter, which I can deal with as follows. There are certain investments, which would otherwise be within the scope of credit unions, which are in practice outside the reach of many of them because the minimum investment which can be made in those directions is too high for the limited resources of the relatively small credit unions. Instances of such investments are the loans which are floated by certain local authorities, where it is not uncommon, I believe, for there to be a £10,000 or even a £20,000 minimum, which would be disproportionately large in the investment pattern of some of the smaller credit unions.
The question has been raised with me whether it is possible under existing legislation or whether it would be possible to contemplate amending legislation whereby unions could join to make joint investments in that type of facility. I believe that the difficulty at the moment is that the part of the investment attributable to each credit union might not be able to be separately identified and accounted for in accordance with the credit union rules. Perhaps the Minister would be good enough to look into that matter.
I hope that the Minister and the House will accept the fact that these matters have been raised and that this order has received scrutiny elsewhere as evidence of the keen interest which credit unions attract in Northern Ireland and of the gratitude which they feel they owe to the House for providing an almost entirely satisfactory legislative framework within which they can conduct their voluntary activities.
§ Mr. A. Cecil Walker (Belfast, North)
I welcome the order, which is necessary to put credit unions on a legitimate and legal footing which will have the approval of everyone in the movement. I support the concept of credit unions, which provide a means of saving and a much better way of buying articles than hire purchase or other high interest schemes.
In the past, some credit unions were run on an ad hoc basis and, as a result, there were failures and bitterness all round. In some cases, there was a paramilitary involvement and funds were used for purposes other than those which were originally intended. I am glad that the 496 order is explicit about factors which should ensure sound credit unions that are properly managed and accountable for their financial and other affairs.
Article 4, relating to registration with 21 members, is a good start. It will give the secretary confidence that he has support in the union. As for article 6, I agree that it is imperative that an acceptable name be registered and that the registrar is consulted in that process. It is important that, in areas where there could be pressure from undesirable groups, unions are regarded as creditable. I am not too happy about the name changing of a bona fide union under article 7. There are too many examples of names being changed to suit financial circumstances. Article 7(1)(b)—the approval in writing of the registrar"—is to be welcomed.
On article 9, I am not too happy about rules that might impose fines of up to £100 on members who have contravened so-called rules, especially when they are not set out in the order. Credit union membership is supposed to be a community involvement comprising families in a neighbourhood. I should much prefer such conditions to be left out of rules of membership. If someone transgresses, the committee of members could deal with the matter acccording to its seriousness and take whatever action was necessary to protect the interests of the union.
On article 10, I agree that it is sound practice that rules cannot be changed unless agreed by two thirds of the membership. As for article 15, it is prudent that a person under 18 should not be a member of the board of directors or of any committee, or a trustee, manager or treasurer of the union. We can get youths as activists and go-getters in any organisation, but wise heads and experience in financial matters are needed in the control of unions.
Under article 16, it is desirable that members should realise that debts incurred will be recoverable through the share capital, which makes for further caution in financial commitments. I am not too happy concerning article 18(3) where a nomination is made to a nominee under the age of 16 years, thatthe credit union may pay that sum to either parent, or to a guardian, of the nominee or to any other person of full age who will undertake to hold it on trust for the nominee to apply it for his benefit and whom the credit union may think a fit and proper person for the purpose, and the receipt of that parent, guardian or other person shall be a sufficient discharge to the credit union for all money so paid.The union would be abrogating its responsibilities in following such a course. It must give much more thought to this proposed action. In order to protect such moneys from possible misuse, it would be desirable to place these moneys in trust in an authorised bank where they could earn interest for the nominee until he or she becomes of age.
The same would also be desirable for mentally handicapped persons, as outlined in article 20, particularly as, under article 21, the union is protecting itself against any wrong decision in such circumstances. I am pleased that conditions are laid down in article 33 that unions may only invest surplus funds in a prescribed manner. In the past, some unions were attracted by high interest rates only to be conned out of large sums of money by so-called investment brokers and consultants.
I welcome the condition in article 37 that an insurance bond is necessary to protect the union against fraud and dishonesty. This is highly desirable, particularly when 497 some members may not be resolute or financially experienced enough to be able to reject such schemes designed to relieve them of their capital.
I am pleased that it is now necessary to keep proper books and records and to maintain a satisfactory system of control. The various paragraphs relating to this procedure, from accounts and balance sheets to the obligation to appoint qualified auditors, are to be welcomed. The rights of such auditors in the pursuance of their duties should ensure that credit unions will now have the confidence of all who use them.
§ Mr. Chris Patten
I very much agree with the tribute which the right hon. and learned Member for Warley, West (Mr. Archer) paid to the credit unions and to those who have steered them to their present success. It was a tribute which was endorsed by the hon. Member for Belfast, North (Mr. Walker) in his interesting speech on the credit unions — imbued, as ever with the hon. Gentleman's contributions to debate, with his own considerable experience. The right hon. Member for South Down (Mr. Powell) set out the legislative history of this order. I am not sure that I can add usefully to what I said about the reasons for proceeding as we have chosen to proceed, but I shall certainly see that the lessons which the right hon. Gentleman draws from this history are conveyed to my right hon. Friends.
The right hon. Gentleman raise three substantive points about the order itself. I should like to confirm, as I said in my speech earlier, that the order does not prohibit purely voluntary donations. However, this fact does not permit a credit union to require its members to contribute additional funds or to raise a levy on members, either directly or by devaluation, which is what it would amount to, of their shares. The ethos of the movement would, in the opinion of my hon. Friend the Minister of State and in my opinion too, for what it is worth, be undermined by such actions, since a member has the right to receive a pound back for each pound share that he holds.
The right hon. Gentleman referred again to a point that I made in my earlier remarks. The order requires every credit union to establish and maintain a general reserve consisting of at least 10 per cent. of its total assets. The general reserve is in effect the solvency cushion represented by the difference between a credit union's assets and its liabilities. It should therefore be established as quickly as possible and obviously it should be maintained at a realistic level.
We have carried out a complete survey of all Northern Ireland credit union accounts. It was done for the last five 498 years and it clearly showed that the 20 per cent. of surplus method of calculating reserves laid down in the order is by far the most beneficial method of calculating reserves. Where the 7 per cent. gross income method put forward by the league, and suggested by the right hon. Member for South Down would in theory have produced greater reserves, the difference in most cases was minimal, and in some cases the credit unions had not the financial facilities to set aside such reserves.
These latter cases are those that the Department studies more closely. It endeavours to find out the reason for the position and then goes on to advise on the remedial action that should be taken to improve it. However, I appreciate that the right hon. Gentleman and the league have done a deal of work on the matter and I should be happy, on behalf of my hon. Friend, to exchange figures with the right hon. Gentleman so that we can enlighten each other.
Finally, the right hon. Gentleman referred to the question whether or not credit unions should be allowed to pool their investments through a central agency. He talked about it, understandably, in terms of joint investments. I confirm that there is absolutely nothing in the order to prevent this, provided that there is no risk to members' money, that the funds of any individual credit union are at all times identifiable and accessible and that the investments are in accordance with those prescribed in regulations. If there are further doubts about that point, or about others, we will be happy to pursue them in correspondence.
I am pleased to have had the opportunity, because of matters entirely beyond my control, to take part in this brief debate, albeit at an hour when most of us would, in normal circumstances, be thinking of getting up.
§ Question put and agreed to.
That the draft Credit Unions (Northern Ireland) Order 1985, which was laid before this House on 19th June, be approved.