'(1) If, on any modification of the statutory provisions in force in Great Britain relating to companies, it appears to the Treasury to be expedient to modify the relevant statutory provisions for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of the relevant statutory provisions as they think appropriate for that purpose.
(2) The "relevant statutory provisions" are the provisions of the Industrial and Provident Societies Acts 1965 to 1978 as for the time being in force except the following provisions of the 1965 Act
(3) The power conferred by subsection (1) of this section includes power to modify the relevant statutory provisions so as to—
(4) An order under this section may—
(5) The power to make an order under this section shall be exercisable by statutory instrument and no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.
(6) In this section—
modification" includes any additions and, as regards modifications of the statutory provisions relating to companies, any modification whether effected by any future Act or by an instrument made after the passing of this Act under an Act whenever passed; and
statutory provisions" except in the expression "relevant statutory provisions" includes the provisions of any instrument made under an Act.'.— [Mr. Gareth R. Thomas.]
§ Brought up, and read the First time.9.33 am
§ Mr. Speaker
With this it will be convenient to discuss amendment No. 4, in clause 3, page 3, line 35, leave out clause 3.
§ Mr. Thomas
I am grateful that so many Members have chosen to be present this morning hopefully to complete the House of Commons stages of the Bill—I emphasise the word "hopefully".
The new clause and amendment No. 4 would replace clause 3 as it emerged from Committee. If the House will bear with me, I shall explain the effect of the new clause, and then set out the reasons for tabling it. New clause 1 narrows the power to amend industrial and provident society law by statutory instrument to assimilate it into company law to circumstances in which changes have already been made to company law. However, it broadens the range of sections that can he changed in that way while, as in the version presented on Second Reading, protecting those provisions that are central to the nature and identity of an industrial and provident society and which distinguish such societies from companies.
Subsection (1) of new clause 1 makes only one change to the text of the current clause 3(1). It limits the circumstances in which the Treasury would be empowered to use the statutory instrument procedure to amend industrial and provident society law to assimilate it into company law to times when there has been modification of company law. It does that by removing the wordsat any time, whether or not",
which appear in clause 3 before the reference to modifications of company law. The equivalent line in new clause 1 gives power only on any modification of company law.
That change makes the original version of clause 3(2) as it came out of Committee unnecessary, as it promoted the possibility of any historical modifications of company law being read across into industrial and provident society law almost immediately if the Government were so minded.
Subsection (2) of the new clause performs the role of the current clause 3(3), as amended in Committee, in that it deals with the provisions that can be amended by statutory instrument under subsection (1) of new clause 1. In that subsection, what can be modified by statutory instrument is described as "the relevant statutory provisions". Subsection (2) of the new clause defines those relevant statutory provisions by referring to the Industrial and Provident Societies Acts 1965 to 1978, and excluding those sections that define the nature of an 815 industrial and provident society or that are essential to the nature of such societies. It differs from the version approved in Committee, which provided a list of those sections that could be amended rather than allowing amendment to any section other than the ones listed.
I would not want the House to run away with the idea that whole new areas of change are possible as a result of this slight change in approach. That would be a misplaced concern, as I shall show later.
A choice of sections to be excluded from the power by subsection (2) of the new clause was made on the following basis. Section 1 of the Industrial and Provident Societies Act 1965 defines the essential nature of industrial and provident societies as either co-operatives or community benefit organizations—bencoms as they are commonly known. They are excluded from change by subsection (2)(a).
Subsection 10(1), sections 16 to 18 and section 56 of the 1965 Act provide powers needed by the Financial Services Authority, as the regulator with which societies are registered, to vet rule amendments, to refuse, cancel or suspend registration of a society or its rules, to deal with petitions for winding up, and to ensure that the requirement that the society must be a co-operative or a bencom is adhered to. As a result, they are excluded from this power by subsection (2)(b), (c) and (g).
The other excluded sections provide specific and well-tried procedures for mutuals, building societies and friendly societies, and now for industrial and provident societies. Sections 23 to 27 of the 1965 Act deal with people nominating others to receive on their death property up to a limited value that they hold in a society, such as shares or loan stock. Sections 50 to 54, subsection 55(b) and sections 58 and 59 deal with reorganisations or dissolutions of societies by transfer of engagements, amalgamation or conversion to a company using procedures that are cheaper and easier than those otherwise available. They are excluded by subsection (2)(d), (e), (f), (h) and (i).
Subsections (3) to (6) are much the same as subsections (4) to (7) of the version of clause 3 that emerged from Committee. The limits of the power conferred to new statutory instruments are set out in subsections (3) and (4). Subsection (5) provides for the use of the affirmative procedure for any statutory instruments made under that power. Subsection (6) defines the key terms "modification" and "statutory provisions". Some minor alterations to the wording of subsections (1) and (2) have been made to accommodate the changes made to the previous version of the clause.
I have introduced the new clause, because, as I acknowledged in my response on Second Reading and in Committee, concerns were raised by hon. Members on both sides of the House about the breadth of the previous two versions of the clause, despite the provision for the use of the affirmative procedure and my willingness to include a defined list of sections that might be amended. Since Committee, I have also benefited from further advice and assistance on the technical issues and on some drafting problems that emerged.
Several points were highlighted. I was advised that the interpretation of the word "modification" in the earlier version of clause 3 was open to dispute. It was suggested 816 that, when linked to a list of sections that might be modified, it might be possible to achieve only minor changes; for example, if the Treasury were minded to use statutory instruments in future, they would not deal with capacity issues for societies, or with problems in the ability of their committee or officers to contract for them or to apply rescue regimes for insolvent societies. Such avenues are available to companies and would represent a sensible modernisation of the industrial and provident society legal form.
In essence, the list agreed in Committee was too narrow. The latest advice is that it would not allow us to introduce additional concepts in industrial and provident society law, such as the possibility of using statutory instruments to deal with capacity problems. It would allow us only to modify existing concepts in the law. Members will recall that that gives rise to particular problems, as industrial and provident society law has not been substantially amended for an extremely long time—unlike the law for companies, with which many hon. Members will be familiar, and for friendly and building societies.
That situation is inadequate, as several of the sensible amendments that could be made to assimilate industrial and provident society law with company law would involve the introduction of additional concepts to I and P law, which have been incorporated in company law during the past 20 to 30 years. For example, company law was changed in 1989 so that third parties lending money have sensible protection if the company acts ultra vires.
In Committee, I used a rugby club as an example. A rugby club that is a company and uses company legal form borrows money to modernise its social facilities—perhaps for that glorious time when Wales again beat England in the Six Nations, which will happen fairly soon—[Laughter.] I cannot understand why that remark provokes such mirth. The provision of such social facilities may not be covered by the club's constitution, but if it is a company, the bank's investment is protected. On the other hand, if the club used the industrial and provident society legal form, the bank's investment might not be protected. The bank could lose its investment even though it had done nothing wrong.
I am advised that, technically, the reform in respect of capacity introduces an additional concept in industrial and provident society law. The current clause 3 would prevent that sensible reform, which is already standard for most other legal forms—certainly for companies and for friendly and building societies. The new provision could be implemented by statutory instrument, if the House and the Government are so minded, should an opportunity arise at a later stage when company law is amended.
§ Mr. Gareth R. Thomas
I am advised that these relatively minor amendments will help us to achieve a sensible modernisation of the industrial and provident society legal form, Some aspects of the I and P legal form differ from the company model. None of the changes is 817 especially radical; they have been included in company law and friendly society and building society law for a long time. Sensible reform has not been possible in a number of areas thus far, so the sum of those parts means that when people have to decide which legal form is most appropriate for their community business they are put off using the industrial and provident society legal form. The new clause offers the possibility of achieving modernisation further down the line through those sensible changes, if the House is so minded.
New clause 1 overcomes the problems that I outlined because it gives a wider definition of the relevant statutory provisions. In the light of that, I hope that the House will support the change. By way of reassurance, I remind the House that during the debate on clause 3 in Committee, we discussed what could not be changed under industrial and provident society law. I highlighted aspects that could not be changed under clause 3 and, rightly, they cannot be changed by new clause 1 either. Hon. Members will see that certain key provisions of industrial and provident society law cannot be changed under new clause 1 without primary legislation. To the ultra-critical eye, those provisions might seem relatively narrow; they are listed in subsection (2)(a) to (i) and represent the fundamental differences between companies and industrial and provident societies.
It is worth reminding the House that under new clause 1 the power to amend those parts of industrial and provident society law that can be amended arises only as and when company law is amended in the future. In practice, therefore, only those parts of I and P law that are also covered by company law would be capable of amendment. In Committee, I referred to several sections of the Industrial and Provident Societies Act 1965 that could not be changed. For those Members who want to follow that discussion, it can be found at column 14 of the report of Standing Committee G on 13 February.
I referred to sections 11, 21, 14 and 44 of the Act. None of those sections could have been amended by clause 3 as it emerged from Committee, and it will not be possible for any of them to be amended if the House is minded to accept new clause 1. It remains the case that under new clause 1, the aspects of those sections that have no parallel in company law would be incapable of change.
In the same part of the debate in Committee, we also touched on the Treasury consultation document that was published back in May 1998, which consulted the industrial and provident society sector about a series of possible changes to industrial and provident society law. It heralded the possibility of change to registration procedures. That would require primary legislation. It could not be changed by the previous version of clause 3; it cannot be changed by new clause 1. As I said in Committee, that Treasury consultation document also talked about the possibility of changing the statutory definition of eligible societies that was contained in the 1965 Act. That would have required primary legislation, so it would not have been covered by clause 3 as it emerged from Committee. It still requires primary legislation, so new clause 1 cannot change that situation either.
In short, I recognise that the new clause, by reverting to a wider definition of the relevant statutory provisions that can be amended by statutory instrument, appears to widen the powers of the Executive. I know that there is widespread concern in the House when the possibilities 818 of such powers are touted. As a widening of powers in the definition of relevant statutory provisions seems sensible to achieve what we set out to do, I consider it appropriate to narrow the circumstances so that those powers can be used only after company law has been amended. I believe that that is a balanced approach, and it is used in friendly society and building society law. Section 104 of the Building Societies Act 1986 and section 102 of the Friendly Societies Act 1992 have similar provisions. As those two forms of mutual have that facility in place already, I hope that the House will be minded to recognise that a similar provision is appropriate for the industrial and provident society sector too.
I understand that change to company law is on the agenda, so further progress to modernise the industrial and provident society legal form is possible soon. The Enterprise Bill proposes modifications to corporate insolvency law and director disqualification provisions, which could sensibly be read across into industrial and provident society rules.
More important, perhaps, I understand that the company law review is complete and that legislation to put into effect some of its recommendations could come before the House during this Parliament. In those circumstances, I hope that the House will feel that the new version of clause 3—new clause 1—provides an acceptable compromise between the need for assimilation of industrial and provident society and company law in many areas, such as insolvency, capacity, audit exemptions—which my hon. Friend the Member for Edmonton (Mr. Love) flagged up in Committee—and other aspects of corporate governance and, of course, legitimate concern in the House not to give excessive powers to the Executive.
I therefore commend the new clause to the House.
§ The Paymaster General (Dawn Primarolo)
I shall briefly express the Government's support for new clause 1 and amendment No. 4. I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on his excellent, detailed explanation of the provisions. The Government are keen that industrial and provident societies should benefit from a measure that would make it possible to update their legislation in line with company law. The Building Societies Act 1986 and the Friendly Societies Act 1992 contained similar powers and we welcome the opportunity to create the means of levelling the playing field among these different types of mutual organisation in this regard.
My hon. Friend was very careful, particularly in his last few sentences, in delicately explaining to the House that the scope of the proposed power, as originally drafted, for industrial and provident societies would have been much broader than that for friendly and building societies. In particular, it would have allowed the Treasury to amend industrial and provident society legislation at any time, independently of any modification of company law provisions. The version of clause 3 that was substituted in Committee is broader still.
Some hon. Members might be surprised to hear a Treasury Minister explaining to the House that such a power is considerably wider than would normally he conferred on any Minister or Department. Obviously, the movement realised that it could perhaps benefit more 819 speedily from modifications to legislation under such an enabling clause. Although we support that sentiment in principle, we need to ensure that subsequent secondary legislation is enacted with the appropriate checks and balances that Parliament would normally expect for such delegated powers.
My hon. Friend's amendments will bring the powers to update industrial and provident society law into line with those applicable to other mutual societies. I believe that they are appropriate amendments, which will level the playing field for industrial and provident societies and create a mechanism whereby we can ensure that the societies do not fall behind any important developments in the framework of company law that are also relevant to the societies.
I thank my hon. Friend for being ever vigilant on the power of the Executive and congratulate him on his presentation thus far of this important Bill. I have no hesitation in supporting the amendments on the Government's behalf.
§ Mr. Thomas
I am grateful to the Paymaster General for those comments. As I said in Committee, I can see no logical reason to oppose giving the Treasury additional powers, given the quality of its performance since May 1997. However, I have been advised that such an ambitious provision might offend against the constitution
§ Mr. Thomas
In reality, it is not such a trifle. It is important that we seek to achieve modernisation of industrial and provident society law in the appropriate constitutional way. As I said, there is the possibility of company law reform. Fairly soon, the prospect of change to company law through the Enterprise Bill holds out genuine prospects for further change to industrial and provident society law. I am delighted that the Government feel able to support new clause 1 and I again commend it formally to the House.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.