§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Graham Allen.]
5.14 pm§ Ms Sally Keeble (Northampton, North)I am pleased to make my maiden speech on the Adjournment concerning an issue that touches closely the lives of many people not just in my constituency but across the country. The future of building societies affects some of the most important aspects of people's lives: their homes and their family finances.
However, I shall begin by paying the traditional tributes to my predecessors. Many new women Members of Parliament have said with pride that they are the first women to represent their constituencies in Parliament. I take even greater pride in saying that I am not the first woman Member of Parliament to represent my constituency: the first Member for Northampton, North was Maureen Colquhoun in 1974. Before her, there was only one Northampton seat, which was represented for some years by Margaret Bondfield—a Labour Member of Parliament and the first woman from any political party to achieve Cabinet rank. There may be many women in Parliament now, but we have not been here for very long. Margaret Bondfield was one of the first female Members of Parliament and, during the election campaign, I met a very elderly man who remembered canvassing for her in the early 1920s.
My immediate predecessor was Tony Marlow. He is a man of very strong views—most of which I disagree with—but I pay tribute to him for two achievements. First, he commanded the loyalty of the people of Northampton, North who returned him faithfully to Parliament for 18 years—an achievement which I would do well to emulate—and, secondly, he gave more grief to his own party than he ever did to mine. If, during my parliamentary career, I can manage to cause as much trouble for the Conservatives as he did, I shall be well pleased. I wish him an enjoyable retirement.
Northampton, North is an entirely urban constituency, comprising residential suburbs overwhelmingly populated by home owners and people in work who want to get on and who expect to pass on a better life to their children. I am very proud to represent them in this place. However, home ownership is not lightly won in my area. Northampton is a town of quite low wages, and the fragility of family finances was a deciding factor in the general election.
A large chunk of my constituency lies in the new town development of Northampton. Many of the people in this eastern part of the town came originally from the council estates of the inner cities in search of jobs and a better life. One of the first people I met in Northampton, North was a man who had moved there from London. He had found a job and bought his new town home. He described graphically what it was like moving from a cramped Lambeth council flat to a brand new three-bedroom house situated in the middle of green fields. However, when bad health and a spell out of work put him behind with his mortgage repayments, he lost his home. Like many others, he said that he had voted Tory since 1979. Like them, he bought the Thatcher dream, and its betrayal was a potent factor in the general election result.
649 As with home ownership, the quality of life enjoyed by many in Northampton, North is hard won. A bank in one part of my constituency reported that it had turned down a third of all applications for bank accounts because people's incomes were too low. Some people find a solution in self-help, and the Weston Favell credit union in my constituency is one of the oldest in the country.
Northampton has had to adjust to changing circumstances in the course of its long history. It was once the seat of a roving Parliament—until it passed a poll tax. It was briefly a university town until the students there behaved so badly that King Henry III ordered that Northampton should never again have a university. However, Nene college in my constituency hopes to change all that, and I support strongly its efforts to achieve university status. Northampton became the famous centre of Britain's boot and shoe industry and, since that industry's decline, it has become a major distribution centre and something of a centre for financial services. Quite a few of my constituents work for Barclaycard, which has a new headquarters just outside my constituency. Inside its boundaries lies part of the headquarters of the Nationwide building society, whose links with the town go back to 1848.
That long history is now in jeopardy, and with it the future of the building society movement. Nationwide is the last of the major national mutual building societies. Five independent and, some would say, maverick candidates are standing for the Nationwide board in this month's elections on a manifesto pledge to get the society to abandon its mutual status, giving a windfall bonus of shares valued at £1,000 to each Nationwide member.
The Building Societies Association has predicted that, if the five succeed in the Nationwide elections, the remaining 70 mutual building societies—many of them are small, locally based organizations—would probably take steps to turn themselves into plcs rather than be precipitated into the chaos of an unplanned conversion, which would be simply a dash for cash.
Nationwide branches throughout the country saw 25,000 people a day apply for new accounts until the society pulled down the shutters last week. The Coventry building society—another mutual organization—has seen four times the normal level of new accounts, with most investors depositing the minimum sum possible. The pressure finally became so intense that, last week, the society increased its minimum deposit. That did nothing to dampen enthusiasm, so today it increased the sum again.
During this weekend, the chaos of the Nationwide board elections descended into farce when the leader of the five mavericks said that he still wanted to see Nationwide members get their windfall, but as a reward for keeping the society's mutual status. That a large, major financial institution, which holds mortgages on 1 million homes, should have its future decided on such whimsy is appalling.
It is easy, of course, to criticise people for opting for the quick buck, and it is also wrong. The attraction of receiving a lump sum is very real, especially when in some instances it is the first time that such a payment has been received by an individual. The long-term cost of those windfall payments, however, will be substantial.
First, there is the loss of the cheaper mortgages that building societies have provided. Secondly, there is a loss of access to home ownership for people on lower incomes 650 who buy smaller houses than others. Building societies were created to help such people, and traditionally they have catered for them. Even now, building societies provide almost twice as many mortgages as do banks for people in the lowest income groups. Less tangibly, there is the loss of a savings culture, and in its place the encouragement of a credit culture, which has already seen people get themselves into unmanageable levels of debt.
The arguments about long-term benefits over short-term profits are difficult ones to advance in the immediate post-Tory era. The arguments in favour of the mutual building societies are rational but not immediately as attractive as £1,000 cash in hand.
Some people have raised the possibility of introducing further legislation to deal with the problems to which I have referred. The sad fact, however, is that the largest of the mutual building societies have already converted, and the fate of the others could be decided within a month. We need to ensure that, if the door is to close on an era of mutual building societies, people will still have real choice in financial services and that those on lower incomes can still have the benefits of services that are provided in the interest of the customer—of the borrower and saver—and not merely those of the shareholder.
The Government are committed to long-term planning and we are pledged to enable individuals to have their own savings accounts. I ask my hon. Friend the Paymaster General to do three things. The first is to set out Government policy towards the mutual building society and, in particular, Government attitudes towards the long-term benefits that they offer. Strong support and encouragement should be given for those who believe in the benefits of mutual building societies.
Secondly, I ask that the Government look in the longer term at the effects that conversion has had on the customer—on home ownership and savings, especially for people in lower income groups. Thirdly, I ask my hon. Friend the Paymaster General to say whether the Government, in carrying out their pledges on individual savings accounts, will consider ways of encouraging schemes that embody the mutual principles.
Financial services should be run in the interests of borrowers and savers and not for shareholders. Services should be accessible to those with low incomes, with saving schemes that demand only small initial deposits and provide checking facilities that enable people to manage their money more effectively. There should be real choice and diversity, with different types of services with different interest rates and benefits. I am not talking merely of bank accounts provided in different places.
It took 200 years for building societies to build up £290 billion of assets, assets which are held by millions of building society members. It could take only another year to fritter away that legacy.
Shortly before the general election, my hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford), who is now the Under-Secretary of State for the Environment, Transport and the Regions, came to Northampton, North to examine the problem of repossessed homes. He saw rows of homes that had been boarded up and were for sale because people had run into financial problems. Behind each boarded-up front door was a tale of real hardship—broken families and disappointed hopes and dreams.
651 People who have survived the 18 years of Tory boom and bust are looking to the Government for a more certain and stable future that will enable them to plan their finances and to feel that their homes really are as safe as houses. The Government would do the people of my constituency and others beyond a great service by ensuring that the benefits provided by our mutual building societies remain for future generations.
§ Ms Julia Drown (South Swindon)I congratulate my hon. Friend the Member for Northampton, North (Ms Keeble) on an excellent maiden speech and on raising an important issue which will have an effect on millions of people in future. I thank her for allowing me to take part in the debate. The main part of the headquarters of the Nationwide building society is in my constituency. The society employs more than 2,000 people in Swindon. I speak for those and for home owners and savers who rely on the Nationwide and other building societies. Those people will be affected if the mutual status of building societies is threatened.
There is little doubt that the future of building societies has reached an important crossroads. My hon. Friend has referred to the campaign to try to convert the Nationwide building society into a bank. The pressure for short-term results from short—term thinkers who hope to cash in on windfall handouts has thrown the spotlight on building societies and raises serious questions for their future. As the last building society with a strong national presence—it is the fourth largest mortgage lender—the future of building societies is linked very much to the future of Nationwide.
I support my hon. Friend the Member for Northampton, North in urging my hon. Friend the Paymaster General to give a lead to the many members of building societies, so that they might value what they have in mutual building societies and hope to retain them. That links in very much with Labour's plans. Labour was elected because it gave a strong message that a Labour Government would look after the country's interests in the long term, for long-term stability and prosperity. The basis for that lies with sensible competition in the marketplace, not with people running round for short-term fast bucks.
The threat to building societies is a significant one. In 1995, it was estimated that two thirds of mortgages and over one half of savings were with building societies. It is estimated that, by the end of 1997, if no action is taken to remove the pressure on building societies to convert, those figures will have fallen to one quarter and one fifth respectively. That is likely to lead to poorer value for both savers and borrowers.
Unlike banks, which need to maximise profits to pay dividends to shareholders, building societies can keep the interest margin between savings and lending relatively narrow, to the benefit of their customers. Any profit that is made can be repaid to their customers, and in that way they provide home owners and savers with long-term benefits. The interest rate margin—the difference between the cost at which an institution borrows and lends money—gives an idea of the profits that it makes. Nationwide's margin is currently 1.8 per cent., and that 652 of the building societies that have already converted to banks is 2.1 per cent. to 2.8 per cent. That shows the value of supporting building societies to ensure diversity and strong competition in the marketplace.
Even the threat of conversion has a detrimental effect on the genuine small saver. It creates a huge increase in activity: thousands of people open speculative accounts with as little as £100. Many societies have to react by increasing that minimum opening amount, thus reducing opportunities for the smaller savers of the future. The result is destabilisation across the financial sector, with money circulating between institutions for entirely inappropriate reasons. That has a knock-on effect on the levels of service that genuine customers receive.
I urge the Minister to take a lead so as to prevent hostile takeovers and hostile conversions into banks. As building societies are accountable to their members, in the short term the trust lies in their hands. As Members of Parliament and as Ministers, we can plan for the longer term, and we can make those individual members aware of the decisions before them. Many people do not realise what an important role building societies play. They ensure that home owners and savers get a good deal.
Building societies and mutuality are a good thing for today and for the longer term. I hope that the Minister will do all he can to ensure that the future of mutual building societies is made secure.
§ The Paymaster General (Mr. Geoffrey Robinson)I congratulate my hon. Friend the Member for Northampton, North (Ms Keeble) on an outstanding maiden speech. Her seriousness of approach and the tone and subject of her speech stand in marked contradistinction to those of her predecessor, whose sartorial colour exceeded his sense and whose verbal noise at times exceeded his wisdom. She has already shown herself to be a different proposition, and we are reassured that she intends to train her guns on the Opposition and not on her own troops. We remember how effective her campaign for Guy's hospital was, and hope that she will continue in that constructive vein.
I also welcome to the debate my hon. Friend the Member for South Swindon (Ms Drown), in whose constituency the headquarters of Nationwide building society are situated. As she rightly said, Nationwide is the subject of considerable speculation. I read in one of the Sunday newspapers about some eccentric proposals from Mr. Michael Harden.
Before I reply to the questions put by my hon. Friend the Member for Northampton, North, I must say to both my hon. Friends that, under present legislation, it is up to the members of the society to decide their own future, and there is no immediate or realistic prospect of changing that. I hope that those members who are listening or who read the proceedings of this most appropriately initiated Adjournment debate will take careful note of what my hon. Friends have said about how societies should conduct their affairs. But for the moment it is down to the members and likely to remain so.
My hon. Friend the Member for Northampton, North asked three questions. She asked me to consider the long-term effects of conversions on customers, on home ownership and on savings, especially for people on lower incomes. We shall certainly examine that, but she should 653 be reassured that the experience to date has not been discouraging. Abbey National, which was the first mutual society to convert, has largely maintained its customer profile. If one thinks about it, it would be strange if it did not, because that is where its expertise lies and where its customer base is, and unless, for some unknown and perverse reason, it is intent on cutting off its nose to spite its face, it is where the base of its business will continue to lie. Therefore, the experience to date is good.
I am also pleased to say that the Halifax and Woolwich, which are in the process of converting, have said that they intend to follow that example and will not depart from the principles and practice of business that have served them so well in the past. We shall certainly keep the matter under review, but the evidence to date is encouraging.
My hon. Friend asked me to examine individual savings accounts. Our manifesto referred to ways of encouraging saving schemes that embody the mutual principles. My hon. Friend said that we should ensure that individual savings accounts are accessible to low-income earners in particular. That is of the essence when one thinks of the mutual principles, and is very much at the heart of our thinking. The whole idea is to encourage saving among those who do not have most to save and who are not most naturally inclined to do so. That is an essential element of the proposals for individual savings accounts, which I am sure we shall introduce in the not-too-distant future.
My hon. Friend's third question was whether we would commit ourselves to—or review our attitude towards—the long-term benefits that building societies offer. We are only too well aware of the advantages that societies provide. They no longer dominate the mortgage and savings markets as they once did, but they provide a crucial element of competition. Week after week, societies continue to feature strongly among the best buys in the personal finance sections of the press for borrowers and savers. That is why, when we were in opposition, we participated fully in the all-party agreement to get the Building Societies Act 1997 on the statute book. We cannot prevent conversions, but we can push in a certain direction, and that legislation enables building societies to have greater operational flexibility while remaining mutual. By encouraging best practice, we can meet the objectives that my hon. Friends are anxious we should achieve.
§ Ms DrownThe Minister referred to the way in which converted building societies retain their value for their customers. In the press this weekend, I noted some surveys of staff who were employed in building societies that had converted to banks. The staff thought that the culture had changed and that the customer is no longer the pivotal focus of the institutions' concerns. That is quite worrying. We support building societies because we feel that the customer should be retained as the focus of the institution.
§ Mr. RobinsonI am grateful to my hon. Friend for drawing my attention to those surveys. I am sure that, in turn, we can draw her remarks to the attention of the managements of the mutual societies that are in the process of conversion and of Abbey National, which has already converted. The purpose of the debate is to air those issues and to stress how important it is for the inherent advantages and principles of mutual societies to be continued even after conversion.
654 Building societies of the future will be the safe homes for savings and the trusted providers of mortgages that they have always been. However, the 1997 Act will enable them to indulge in a wider range of financial and other services. There are certain restrictions, such as derivatives, but, given the Barings experience, it is probably just as well to keep out of that. Even with those restrictions, societies could do a great deal more while remaining mutual and retaining the benefits that mutual status implies. Arrangements in the 1997 Act should ensure that the essential focus does not change. Institutions will be concerned predominantly with residential mortgage lending, which, in the future as in the past, will be funded in part by the savings of their members. They will remain committed to the home loans market at all times.
One of the other principal objectives of the legislation that was introduced earlier in the year, when we were in opposition, was to ensure that building societies did not drift in and out as economic conditions changed, as other banks do, but would remain committed to residential mortgage lending, financed, at least in part, by the savings of their members.
I hope that both my hon. Friends will be pleased to hear that the Act has done nothing to remove the substantial hurdles that must be overcome by those who choose to leave the sector. The five-year protection from takeover will disappear if building societies, having converted from mutual status, mount hostile takeovers of companies that wish to remain mutual societies. Although neither of my hon. Friends raised that point, it is very much in the mind of Nationwide, whose headquarters are in Swindon and which has a subsidiary headquarters in Northampton.
As every building society will say, building societies are in business for the good of their members. As mutuals, they can have no other aim. Over the years, they have prided themselves on providing high levels of service, innovative products and attractive and competitive rates. Many have grown from small local organisations serving a few hundred people to regional and, in some cases, national operations with millions of members. It is not possible to do that without meeting a real public need, and meeting it in an effective and efficient way.
There is no reason why societies should not continue to build on their past success. The markets in which they operate are as vital as they ever were, and the legislation that the House passed only a few months ago means that they can respond to new challenges with a freedom and flexibility that they have never enjoyed before.
I hope that, following the debate, societies that wish to remain mutual will consider their future to have been enhanced. I congratulate my hon. Friend the Member for Northampton, North on raising the matter, and also congratulate my hon. Friend the Member for South Swindon on her speech. The immediate future of building societies must, however, be in their own hands. The House has given them a new and unprecedented opportunity, and I am sure that we all wish them well.
§ Question put and agreed to.
§ Adjourned accordingly at eighteen minutes to Six o'clock.