§ Mr. Chris Smith (Islington, South and Finsbury)
I beg to move,That an humble Address be presented to Her Majesty, praying that the Building Societies (Transfer of Business) Regulations 1988 (S.I., 1988, No. 1153), dated 4th July 1988, a copy of which was laid before this House on 5th July, be annulled.The Building Societies (Transfer of Business) Regulations set out some of the detailed procedure that must be followed and the information provided when a building society wishes to convert to plc status. We remain fundamentally opposed to conversion and we have made our views especially clear in view of the current rush by Abbey National to convert.
A mutual society is owned by its members and is answerable to them. It has no shareholders and it folds all its surpluses back into the running and prosperity of the society. As a result of the regulations, a society has ample powers to compete flexibly and fairly with banks and other financial institutions.
It is worth mentioning that our scepticism about the necessity for conversion of the building societies is shared by a number of Conservative Members. I studied the debates that took place on 4 June 1986 when the Building Societies Bill was considered on Report and Third Reading. The hon. Member for Southend, East (Mr. Taylor) referred to the ability of foreign banks to buy up converted building societies as, "a real threat." The hon. Member for Mid-Staffordshire (Mr. Heddle) spoke about conversion and the loss of mutuality and said:If that sense of mutuality is broken … that link of loyalty, which is inestimable, will be broken.The hon. Member for High Peak (Mr. Hawkins) asked:why do we want to allow companies which are not building societies to buy building societies?"—[Official Report, 4 June 1986; Vol. 98, c. 939–41.]The hon. Member for Uxbridge (Mr. Shersby) also spoke against the idea of conversion. Therefore, it is clear that there is widespread unease about the prospect of building societies, with all the benefits that mutuality brings, converting into plcs and becoming just like any other financial institution.
If, however, conversion is proposed by the board of a society we must be certain that the case for and against is put impartially to the members of that society before they vote. That is what the regulations are all about. We feel that they go some way towards ensuring fairness and partiality, but nowhere near far enough. It sets out the information that is required to be given in detail to the members of the society—borrowers and investors—befpre they vote.
I received a letter dated 8 July from the deputy chairman of the Building Societies Commission. That letter sets out the commission's view with admirable clarity and it is worth quoting. The deputy chairman said:This statement"—the statement presented to members by the board of a society—will have to present all material facts relating to the proposals in clear and unambiguous terms so that the members can base their decisions on how to vote on an objective view of the consequences of conversion for members and employees.486 That is the intention of the Building Societies Commission and also the intention of the regulations. The letter continues:When the Commission approves these statements, it will be concerned to ensure that a fair balance is drawn between a clear presentation of all the material facts and masses of detail which might obscure the central issues.There can be little quarrel with that. That statement is fine as far as it goes, but what would happen if the Building Societies Commission approves the statement that the board proposes to send out to members but, as the result of its issue, there are serious objections from many quarters among the society's membership that it has not presented an entirely fair and balanced case?
What are the real chances of the Building Societies Commission using the powers that are available to it to refuse confirmation of the conversion? They are negligible, because it is impossible for the Building Societies Commission to be both judge and jury in its own scrutiny, which is precisely what the legislation seeks to make it. It is worth pointing out in passing that too little time was allowed between the draft statutory instrument being circulated for comment and the final version being decided upon. The group of Abbey National members—the Abbey Members Against Flotation—who have been waging a valiant campaign as David pitted against the Goliath of the board of Abbey National, made their detailed representations at a meeting with the Building Societies Commission late one week, and the final version of the statutory instrument was published the following week. So there was not enough time to take account of the detailed objections that they had to this instrument——
§ Mr. John Butterfill (Bournemouth, West)
Of the 6,500,000 members of Abbey National, how many are represented by the body to which the hon. Gentleman has referred? How many turned up at their recent meeting?
§ Mr. Smith
Quite a large number turned up at the meeting, which I think took place last weekend. There are several hundred members in the organisation and that number is growing weekly. They began their campaign against flotation only a few months ago; their resources are severely limited: they have been afforded no facilities by Abbey National to contact members; and they have been refused permission to place their leaflets in building society branches to enable them to contact more members. In view of all that, their record is fairly creditable, and their arguments have been put with skill and vigour, in spite of their seemingly small numbers, to which the hon. Gentleman is doubtless attempting to draw attention.
§ Mr. Smith
I was not present at the meeting, so I cannot confirm or deny that number. If it is correct, it was still a creditable turnout, which may well have been much larger than the turnout at meetings of Conservative associations around the country.
I come now to the crucial issue of how tough these provisions are. I am forced to the conclusion that they are not tough or strict enough. We must remember that the board of the society will put the case to its members. It will send out the information and, having decided to recommend conversion, it will tend to put the case in a partisan way. Let us consider the mailing that Abbey National recently sent out to all its members—at their 487 expense, because the funds for it came from the funds of the society. The cost was considerable. The brochure that Abbey National sent out asked one or two questions that had been raised by members who were anxious about the process of flotation. The answers are thin to say the least. For example, to the questionWhat would be the basis for allocating the shares in the PLC?the response is:An acceptable scheme will have to be worked out".A few lines further on the brochure states:we would recognise Members' rights in an appropriate way.What on earth is that supposed to mean? What sort of guidance can that statement give members about the board's intentions?
Further on in the document, the arguments for converting to plc status seem to be thatNone of the business we do today is safe from competition. Our ability to compete on equal terms with our large financial institutions is still restricted.No mention there of the decisions that have already been taken by the Halifax and the Nationwide Anglia building societies—that their powers are ample to enable them to compete effectively. They have a flexible enough regime to be able to prosper without conversion.
However, the Abbey National says:we must recognise the highly competitive reality of today and build for a prosperous future.It is like listening to speeches from Ministers at Conservative party conferences. There is no solid content to the document. Apart from having a patronising tone, it is verbose, repetitive and gives almost no concrete reasons about why conversion to plc status is a suitable and sensible option for Abbey National members.
The document is also very one-sided. The chief executive of the Abbey National seems to be rather proud of that. In an article that he wrote in The Independent of 18 July he said:They have been receiving"—that is, Abbey National members—the first of several mailings that will set out the arguments that have convinced the Abbey National board that conversion into a plc offers the best opportunities for the future.That was the chief executive's statement about the intention and content of the first of a number of mailings that Abbey National members will receive. Where is the two-sided balance? The chief executive says that the board will set out the argument that conversion offers the best opportunities for the future. In other words, the mailings will be entirely in favour of the recommendations that the board wants to put to members.
That leads me to the first of my four principal demands of the Government, which seek to improve and toughen the regulations over the next few months. My first demand is that the necessity for impartiality and balance should apply not just to the final transfer statement that is made to members when they are on the point of voting but to all documents sent out to members during the flotation campaign. If an argument were needed for that, the Abbey National has just supplied us with it. If there is no requirement for balance from day one of the campaign, members will be deluged with mountains of propaganda from the board telling them—at their own expense—how wonderful the idea of conversion is, long before they 488 receive the supposedly balanced statement. It is important that there should be balance throughout the process rather than just at the end of it.
My second demand is that there should be an independent auditors' validation of all the financial information provided to members, not only those aspects of information that are covered by the provisions of paragraph 14(a) of part I of the schedule to the regulations. The provisions of that paragraph mean that paragraph 8 of part I, which refers toThe future financia1 prospects of the successor company", is omitted from the auditors' required assessment. We see no reason for that omission.
§ Mr. Butterfill
Is it not true that, in addition to the requirements of the transfer statement, there will be a requirement to obtain the approval of the Bank of England to achieve the objectives of the flotation? Will not the information required by the Bank of England be considerably more onerous than is likely to be required by almost any other document?
§ Mr. Smith
That is correct. However, we are discussing the information that is available to members of the society. I should have thought that it was unarguable that the members of the society should be assured that the information that they receive has been properly validated. That is what we request.
Thirdly, we would want to see a truly independent assessment of all the aspects and consequences of conversion, financial and non-financial, to be sent out to all members. If possible, it should be drawn up by the Building Societies Commission after consultation with groups of members opposed to flotation. It should be sent out alongside the statement made by the board. It should not be left just to the board to mount its case. If we need an argument for that, the Abbey National literature stands testament to it, as does the Abbey National's board's refusal to allow the use of facilities in its branches, at public meetings it intends to hold around the country and within its own mailing. It has denied any such facilities to any group of members of Abbey National opposed to flotation.
Fourthly, the information to be provided to members should be in plain layman's language. Many of the provisions of transfer will inevitably be complex. It is important that members have an understandable set of provisions upon which they can make a judgment.
Those are all improvements that should be made to the regulations. We shall not divide the House, because the regulations go a substantial way towards ensuring the balance we seek. However, supplementary provisions could be brought forward in due course to ensure that the improvements that we believe are necessary are made.
The Lex column at the back of the Financial Times is always worth reading. It is a column of considerable percipience. I shall watch with interest to see what it has to say tomorrow about today's news that the balance of payments deficit for June has gone over the £1 billion mark. It is yet further confirmation of the trend in the economy about which we have been warning Conservative Members and the Chancellor of the Exchequer for some considerable time.
On 21 July the Lex column said:The clearing banks have demonstrably failed to prove that their access to the capital markets has improved their 489 performance, and the mutual Scottish Life companies often provide a much better service than their joint stock competitors.That is absolutely right. In terms of money management and service to their customers, the mutual societies within the insurance world perform much better on the whole than those that have attained plc status. The Lex column continues:mutual status provides a kind of financial discipline on management which is sorely missing elsewhere.Lex was absolutely right. There is virtually nothing to be gained and much to be lost when mutual status disappears. At the very least we must ensure that the case for or against flotation is not presented in a loaded manner but is properly, fully and fairly put. We need tougher regulations to ensure that that happens. Building society members must not be dragooned into voting the way the board wants.
§ Mr. John Butterfill (Bournemouth, West)
I am puzzled that the hon. Member for Islington, South and Finsbury (Mr. Smith) should assert that mutual status is so entirely desirable. One of the great criticisms that have been levelled at the building society movement, although it has done great work, is that it is effectively accountable to no one and that the boards of building societies have, in many cases, become self-perpetuating oligarchies simply because the representation of their members is so difficult to achieve in any effective way. The boards have effectively been able to do what they wish. Any proposal to make building society boards more accountable must, therefore, have some advantage. I am by no means totally persuaded that it would be in the best interests of this country as a whole if all our building societies went down the route of flotation.
On the other hand, it is right that different companies and their respective boards should take different views on that. What the Halifax board may decide may be quite different from what the Abbey National board decides, and that is an entirely healthy situation. There should be room for difference of opinion as to which is the best way to proceed to maintain one's competitiveness in a market in which all sorts of players who were not even envisaged a few years ago are now playing. Large American banks and Japanese organisations, such as Sumitomo and Continental, mortgage and bond-issuing houses, are now in a market that was traditionally filled by the building societies. It is right that we should be giving the building societies at least the power to respond in the way that their boards think fit.
I am also convinced that we should do that only if adequate controls exist. The controls contained in the regulations before us tonight are more than adequate. The hon. Member for Islington, South and Finsbury mentioned the requirements of the schedule in terms of the information to be given to members. Paragraph 1, which relates to the consequences of the transfer, states that the consequences are required to be givenfor members holding shares in the society;for borrowing members of the society; and, because the consequences will be different for them, for the employees.
I understand that the Building Societies Commission has made it clear that any statement produced will need to be a fair and balanced statement, giving the case from all sides. I believe that I am correct in saying that Michael Bridgeman has written a letter to the Abbey National 490 requiring that. I am led to suspect, therefore, that the concerns expressed by the Opposition this evening stem more from their reluctance to see new private sector companies being created than from anything else. There is more than a suspicion in the case of the Abbey National that AMAF—Abbey Members Against Flotation—may be substantially organised by the Labour party.
§ Mr. Chris Smith
The hon. Gentleman must not be allowed to get away with that. I have had considerable contact over a number of weeks with key members of AMAF. Many of them would be outraged by such a suggestion as the hon. Gentleman has just made. I live in hope that they may in due course see the light and come to support the Labour party, but the hon. Gentleman's statement is completely incorrect.
§ Mr. Butterfill
I am sorry that the hon. Gentleman takes exception to what I said. Perhaps I can try to justify my suspicions. The hon. Gentleman must correct me if anything that I say is incorrect. I believe that the chairman of AMAF is a Mr. Alec Leaver, who is a prominent member of the Labour party and a former trade union official. I believe that one of the most active members of AMAF is Mr. Peter Lowndes, who I believe is a research assistant to the hon. Members for Redcar (Ms. Mowlam) and for Fife, Central (Mr. McLeish). Another leading light in AMAF is a Mr. Hugh Raven who I believe is a research assistant to the hon. Member for Islington, South and Finsbury.
§ Mr. Smith
The hon. Gentleman is totally factually incorrect. Mr. Hugh Raven is indeed my research assistant, but he is not a member of AMAF. He has had a number of discussions with AMAF in preparation for this debate, and others, as I have had with Abbey National board members. He is certainly not a member of it, and to describe him as a leading activist is incorrect. I must ask the hon. Gentleman to withdraw that remark.
§ Mr. Butterfill
I am grateful to the hon. Gentleman for that assurance. I accept what he says. I understand, however, that Mr. Hugh Raven has been taking part in the meetings of AMAF. I am sure that the hon. Gentleman will tell me if he has not been present at those meetings. As I understand it, Mr. Peter Lowndes is a member of the AMAF committee. Mr. Lowndes is the research assistant to the hon. Members for Redcar and for Fife, Central. I shall give way to the hon. Member for Islington, South and Finsbury if he wishes to deny that.
§ Mr. Butterfill
I thought that I had established that three of them were, including the chairman and at least one member of the committee, and that two of them were closely associated with leading Labour Members. It is that, combined with the fact that AMAF was able to muster only 60 people at its meeting—that must be set against 5.5 million investing members and 1 million borrowing members—that leads me to have some scepticism about AMAFs right to speak for Abbey National members. It leads me to support the view of the Abbey National board that AMAF's suggestion that the AMAF statement 491 should be sent out along with the transfer statement to all Abbey National members would be to give AMAF a prominence which would not be entirely deserved or reflected by its membership or supporters.
Be that as it may, that which is proposed in the regulations is entirely reasonable. It will give more than adequate safeguards to any potential investor. It will certainly give more than adequate information to the existing members of any building society. Therefore, I commend the regulations to the House.
§ The Economic Secretary to the Treasury (Mr. Peter Lilley)
The questions whether a building society should convert into a public limited company and, if so, how the process should be regulated are important ones. It is right that the House should discuss them before departing for the summer. I welcome the opportunity to contribute to the debate.
The Building Societies Act 1986 gives building societies the option to convert from mutually owned institutions into plcs if they and their members believe that it is in their interests to do so. I am sure that it is right that the option to convert should be available. It is right also that the decision on conversion should be made by society members and no one else.
The Government's position on any particular proposal to convert is a simple one—we are neutral. The Government wish neither to encourage nor to discourage conversion. The Government want the choice to convert to be made on a level playing field according to fair rules. The Act empowers the Building Societies Commission, with the consent of the Treasury, to set out such rules in the form of transfer regulations, and that is what we are considering.
The regulations have been made after wide and extensive discussions with all concerned, including, as the hon. Member for Islington, South and Finsbury (Mr. Smith) mentioned, the members of the organisation entitled Abbey Members Against Flotation. I understand that that group was given the opportunity to comment on the draft regulations soon after it was formed, and it has acknowledged that its comments were taken into account. The consultation process has been continuing since the first paper was issued in 1987, with draft regulations being issued in December 1987. Therefore, the views of all concerned expressed during that long consultation process have been taken into account in the final regulations laid before the House.
The regulations cover three major areas and a number of minor areas. First, they provide for the continuity of agreements, documents, rights and liabilities from the society to its successor company. They thereby ensure that, for example, mortgage contracts are unaffected by conversion. The successor company simply steps into the society's shoes. Secondly, the regulations deal with the priority liquidation rights of former members of a society that converts. Thirdly, and most important, the regulations set out the matters to be included in the transfer statement that must be sent to members of the society considering conversion. The purpose of that statement is to give members a clear and balanced presentation of all the material facts that they will need to 492 know before making up their minds on which way to vote. It cannot be circulated until it has been approved by the Building Societies Commission.
The main requirement is that the statement shall give an explanation of the consequences, both positive and negative, of conversion for the members, borrowers and employees of the society. It will have to cover, for example, the treatment of investment and mortgage accounts and employment prospects. The society's financial record and present position will have to be set out, together with particulars of the proposed business plans of the successor company and forecasts of its future financial prospects. Those will be certified by a qualified auditor.
The hon. Member for Islington, South and Finsbury (Mr. Smith) mentioned item 8 of part I of the schedule, concerning future financial prospects, and asked that it, too, be audited. It is not really appropriate to audit a forecast, but the commission will ensure that the requirements of regulation 3(2)—specifying all necessary assumptions, who made them, and who will stand by them —are incorporated in the transfer document. That meets the spirit of the hon. Gentleman's point.
I shall not enumerate all the items listed in the schedule which it is required that the transfer document contains, as they are clearly specified therein. The schedule to the regulations is intended to be comprehensive, but, in addition, the commission has the power to require other matters not specified in the schedule to be included in a transfer statement if the commission thinks that that would be appropriate in a particular case.
The hon. Member for Islington, South and Finsbury has taken up the idea that, in addition to being required to circulate all that information, societies should be obliged to circulate the views of members opposed to flotation. I do not believe that that proposal is either necessary or practical. The regulations and the commission together provide powerful safeguards against a society tempted to put only partial and one-sided information to its members. It is not reasonable to require a society to circulate all its members with the views of every opponent, at any length and regardless of cost.
However, it is worth noting that the Building Societies Act 1986 requires that if a group of 50 members propose a resolution at the AGM, the society must circulate not only that resolution but a copy of a short statement of up to 100 words to all members qualified to vote, provided that the resolution and statement are not frivolous and would not damage confidence in the society. Therefore, a small group of members can have their views circulated to thousands or even millions of their fellow members. A group of 100 members can also requisition a special meeting of the society if they think fit.
The hon. Member for Islington, South and Finsbury called for transfer documents to be certified as fair and accurate by an independent person, or for a parallel document to be produced and certified as fair and accurate by an independent person. As I have already said, the transfer document must itself be approved by the Building Societies Commission before it can be sent to members. Therefore, it will be subject to scrutiny by an independent body to ensure that it is fair and accurate. The commission is the only body empowered to undertake that function, and it is a very suitable one for the commission. Moreover, the financial information contained in the statement must be certified by a qualified auditor.
493 The hon. Member for Islington, South and Finsbury also wanted similar vetting and objectivity requirements applied to all statements made by the society prior to the issue of the transfer document. I do not think that that would be reasonable or sensible. The management of a building society has been selected by members of the society and entrusted to manage and lead it. It is only reasonable that the management should be given a free hand to give a lead without every statement being censored while its critics and opponents are free from such restriction in general discussion that may last for months before the transfer documents are ready.
Under the Building Societies Act 1986, the manage-ment, rightly, has a considerable hurdle to jump before conversion can be carried through. Not a simple majority but a 75 per cent. majority of investing members of the society is required to support conversion. A minimum of 20 per cent., a substantial number in many instances, must take part in the vote, and 50 per cent. of voting borrowers must also support the conversion. I do not feel that it would be reasonable to require the management, prior to that, to maintain an almost monk-like silence unless every word has been vetted.
In any event, once resolutions have been passed the transfer still cannot go ahead until the commission has confirmed it, and it cannot do that if it considers that the vote does not represent the views of the members. In that case, it will hold a hearing at which objectors will have an opportunity to say if they do not believe that the vote was carried out fairly, or if any material information was withheld or misrepresented in the transfer statement. If the commission is persuaded that material information was withheld, it will not grant the conversion before taking remedial action.
Another matter that has caused concern is the possibility of takeovers once a society has converted. The Act does not set out all the details of the new company's articles of association; however, they must incorporate protective provisions that prevent any one person from holding more than 15 per cent. of the shares for the first five years of the successor company. Those provisions are intended to give societies a reasonable breathing space after conversion without the threat of a change in control, so that they can adapt to their new environment of company and banking legislation. Those are important conditions. We consider it right that the institutions involved should have a limited period of stability after conversion, free from the threat of takeovers, and that they should adopt such measures as are necessary to maintain their independence during that period.
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
Can the Minister tell us whether the important, if now somewhat neglected, aspect of mutual status—the right of members to put resolutions to the meetings—will be preserved in the company status that will result if building societies take advantage of the opportunities that the regulations provide? Will members find themselves in the position in which I found myself as a shareholder in Beecham? I was unable to participate in the annual general meeting to protest at Beecham's contributions to the Conservative party because under the company's rules the backing of 2 per cent. of shareholders was required in order to put a resolution. That would probably require the presence of more than 100,000 people.
§ Mr. Lilley
The successor society will be a company under the Companies Act. Members of that company will therefore have the rights of any members of such a company, plus any rights granted by the articles of association that will be presented to them in the transfer period.
§ Mr. Chris Smith
Will the Minister confirm that after conversion a building society would be answerable to its shareholders and only to its shareholders? That would not necessarily include, as membership does at the moment, all borrowers and investors.
§ Mr. Lilley
That is the very essence of conversion. Any borrower or investor would be able to buy shares and become a voting member, or in the process of conversion he might acquire or be given such shares. That is a factor that members will have to take into account when they decide whether it is right for them to convert. If they like the total package, they will support it. If they do not like it, they will not support it. That is up to them, and we believe that it should be left up to them.
This is not a party political matter. It is for the members of each society to reach a decision in the context of a fair set of rules and regulations that ensure that all material considerations are made clear to them during the discussions. It would be regrettable if it were to become a party political matter. I am glad that the hon. Member for Islington, South and Finsbury has not sought to politicise it to any great degree. By promising not to oppose the regulations the hon. Gentleman has recognised that they pave the way for fair consideration of decisions that should be made by members of each society, not by hon. Members.
§ Mr. Butterfill
Does my hon. Friend agree that in order to protect the interests of society members they will be given priority rights in the event of a liquidation after conversion?
§ Mr. Lilley
That is correct. That is laid down in the Act, and the regulations specify how liquidation rights are to be calculated and secured. Society members will retain those rights after conversion. I hope that the House will not annul the regulations.
§ Mr. Malcolm Bruce (Gordon)
I listened with care and interest to the Minister's speech. His latter remarks will be welcomed by all hon. Members, but a few points need to be elaborated.
The Economic Secretary said that mortgage contracts will be unaffected by transfer. I accept that that is correct, but I am sure that he agrees that the future conduct and performance of a building society, once it has become a corporate entity, could affect the rate of interest that the building society, or the incorporated bank as it would then be, might subsequently charge. When voting, society members should take that fact into account.
The Economic Secretary also said that managements have been entrusted with the duty of leading building societies and that it should be accepted that managements have leadership qualities. Again that is not in dispute, but to run a building society as a mutual body is quite different from running it as a bank. A few commentators have said that that could make the switch very difficult. The management of a building society, which is very competent 495 at running a mutual society, could unwittingly lead its members into taking commercial risks for the commercial consequences of which they are not prepared because they lack the necessary expertise. Managers of building societies are not bankers, yet the transfer will convert them into bankers without necessarily providing them with the necessary wisdom and experience to be bankers. That fact must also be borne in mind by all society members when voting for or against conversion.
I do not wish to enter into the debate about whether a particular society—for example, the Abbey National—will serve its existing members and its own future interests better by conversion. I would be very disappointed if that was the course of action that all building societies might wish to follow like gadarene swine. I hope that the Economic Secretary will accept the need for diversity of choice. Putting it bluntly, if we simply converted all building societies into joint stock banks, we would reduce rather than increase the diversity of choice. I hope that as the regulations progress that will be borne in mind.
I anticipate that the Government may take the view that the market and the customers' wishes will automatically determine that. But experience shows that that is not necessarily so. There are fashions in market trends and economic developments change. It would be unfortunate, particularly as building societies vary enormously in size, capability, experience and geographical base—I hope it would not happen—if building societies sought to abandon their commitment to a particular locality. There is merit in a building society having a regional base which it knows and understands, and that is not necessarily a disadvantage.
To some extent, if building societies are likely to convert to a banking mechanism—and I understand the pressures on them to do that—it would be nice to think that some of them might convert to local banks with a particular local knowledge and regional expertise. That would ensure that the changes and the dynamism that is operating within the market led to increased choice, diversity and variety. I hope that the Government and their supporters genuinely wish that to happen but accept that simply saying that the members should be allowed to make their own decisions will not necessarily produce the desired result.
There is no doubt that the current or previous operation of the Building Societies Act has been unduly restrictive and has prevented building societies from moving into related areas. In previous years, it has led to nonsense whereby people who thought that they were mutual members of a building society because they were savers found that they were precluded from acquiring a mortgage or changing their mortgage because of the restrictions that were imposed on building societies. I have been in that situation, and I quite understand that members of building societies do not regard that as an impressive example of the flexibility and function of a building society.
I do not wish to oppose the regulations, and I accept the qualifications that the Economic Secretary has made. I simply wish to make the marker that, as we move into increasing diversity and flexibility, with which building societies are allowed to respond to the developments within banking, I hope that we do not lose sight of the fact 496 that there is benefit in mutuality and in having local and regional knowledge. The best result of the regulations will be if some opt to take advantage of the regulations and move in different directions so that we continue to have a diversified system of mortgages and banking which is national and regional and offers a genuine choice rather than a bland, across-the-board picture which makes choosing between one society or bank and another a lottery that makes no difference.
Real choice matters. The regulations do not preclude choice; they extend choice. But we should be aware of the dangers of opening up too quickly and leading too many building societies down a similar path and so restricting diversity.
§ Mr. Chris Smith
I should like to comment briefly on two points which have arisen during the debate, and first to take up the argument made by the hon. Member for Bournemouth, West (Mr. Butterfill). In an uncharacteristic display of incompetence, he departed from the Minister's injunction that this was not a party political matter and sought to characterise it as a party political matter.
The hon. Gentleman based his entire argument—that the regulations provide more than adequate safeguards —on a rather cack-handed attempt to besmirch one organisation, for which I hold no brief, that has engaged in a campaign against the flotation of Abbey National. His was an inaccurate and rather unfair attempt to rest an argument on flimsy foundations.
§ Mr. William Cash (Stafford)
The hon. Gentleman may not be aware that my family founded the Abbey National building society. I believe that the object of the regulations would be much approved by its founders, as they were criticised in the 1870s because they were supposed to be taking away from smaller societies the opportunity to look after their investors. Does the hon. Gentleman agree that, as we approach 1992, it is important that building societies should compete and that they should be able to provide the kind of service which is relevant to the late 19th and 20th centuries?
§ Mr. Smith
I should have known that an hon. Member with the hon. Gentleman's name was part of a family which founded a major financial institution. The hon. Gentleman is correct. We trawled over this subject at considerable length a few weeks ago when we considered a statutory instrument. I said clearly that there is a need for building societies to compete in the modern financial world and that that instrument gave building societies the opportunity and flexibility that they require to do that. There is no need to convert to achieve what the hon. Gentleman wants.
The Economic Secretary said that it would not be reasonable or sensible to place a duty of impartiality on the board of a building society when sending out literature before the final transfer document. It is Abbey National's stated intention to put out several pieces of literature before the final transfer document. We believe that it is sensible and reasonable to put a duty of impartiality on it. The Economic Secretary said that, if we did that, the board would be censored but its critics would not. We should remember, however, that the board sends out literature at the members' expense. It is members, through the society, 497 who fund such literature, whereas any opposing literature is paid for entirely out of the pockets of the members involved. That is a crucial difference.
§ Mr. Smith
No. I am drawing to a conclusion.
I hope that the Economic Secretary's mind is not closed on this matter and that he will consider it during the summer recess. It is an important matter, and I hope that, although we shall allow the regulations to go through without a Division, we shall be able to consider closely any possible and necessary improvements to the procedures for conversion.
§ Question put and negatived.