§ Order for Second Reading read.9.33 am
§ Mr. Gareth R. Thomas (Harrow, West)
I beg to move, That the Bill be now read a Second time.
I start by declaring the assistance that I have received from the co-operative party and Cobbetts.
In the northern part of my constituency can be found the excellent Pinner and Grammarians rugby football club, which plays in the Herts and Middlesex fourth division north, level 12, of the Rugby Football Union's structure. It turns out an excellent veterans' team, and it has a distinguished history. One of its former players, Stuart Wilson, went on to captain Scotland and to play for the British Lions. The club has the distinction of being the most junior rugby club to have seen one of its members, the late Cyril Gadney, achieve the honour of being president of the RFU. In the context of today's debate, however, the club's importance lies in the fact that it is an industrial and provident society.
In the south of my constituency, close to the Rayners Lane estate, there is the Tithe Farm social club, which is home to the excellent—but not as well known as it might be—Rayners Lane football club. It is also home to a series of social activities such as darts and snooker leagues. It, too, is an industrial and provident society. According to the Financial Services Authority, at the end of 2000 there were more than 9,000 other industrial and provident societies, with some 10.5 million members between them, funds of more than £14.5 billion and assets worth almost £61.5 billion.
Other examples of industrial and provident societies include the Homes group, a housing association that manages more than 43,000 properties and is the second largest registered social landlord in the country. Within the Homes group is Warden Housing, which, if its tenants vote for stock transfer, is set to redevelop completely the Rayners Lane estate, for which we have been waiting 20 years. Both the Homes group and Warden Housing are industrial and provident societies.
The excellent Lincoln retail co-operative society provides a range of retail and property services to its 133,000 members.
The last example that I shall mention immediately is the Women's Institute market in Dorridge in the west midlands. It has an annual turnover of some £68,000 and 1100 45 active producer members, and it has sold home-made, home-grown and hand-crafted produce in Dorridge every Friday morning since 1974.
A couple of years ago, I made a mental note never to upset the Women's Institute—I cannot remember why—so I should like to place on record the considerable benefit that the 510 Women's Institute markets bring to our country. The House may be interested to know that last year, between them—they are all industrial and provident societies—they sold more than 1 million garden shrubs, 780,000 fruit and vegetable plants, 500,000 kg of fresh produce, 200,000 bunches of freshly picked flowers and 1 million pots of jam, marmalade and pickles. As if that was not enough, alongside the sewing, woodwork, pewterwork, knitting, lace-making, millinery, hand-made cards and pictures and yet more knitting sold last year, there were 10,000 pairs of bootees.
Industrial and provident societies have their roots in the self-help tradition of the Victorian era. Their origin dates in part from when the incorporation of legal bodies first became possible, with joint stock companies in 1844—the beginning, as I am sure that the House will be aware, of company law in this country. Incorporation allows an organisation its own legal personality. It can sue and be sued and own property and enter into contracts, and it enjoys the privilege of limited liability.
As we all know, the company is the commonest form of incorporated body. The number of registered companies runs to many millions, more than 1 million of which are currently trading. The company continues to be a highly effective means of attracting investment and of generating rewards for entrepreneurs and those who are prepared to take risks with their capital, and it will rightly continue to play a vital role in the development of our economy.
While the company was emerging, other legal forms of business ownership were emerging to meet other needs. The co-operative society emerged as a trading vehicle through which people could meet their basic requirements to buy food at a fair price. The building society emerged at the same time, as a vehicle to help those who lacked the means to purchase their own home. Friendly and provident societies also emerged, to offer mutual insurance against sickness or unemployment.
What all those different legal forms had in common was the fact that they were incorporated as independent legal bodies with a separate legal personality, but governed by their own legislation. Company, building society and friendly society law has changed substantially over the past 150 years but, with the exception of certain consolidatory statutes or specific narrow issues, industrial and provident society law has not changed fundamentally since 1862.
The motivation of industrial and provident societies, like their close cousins the building societies and the friendly societies, is mutual self-help rather than the generation of profit for investors. Trading successfully is, of course, necessary if any corporate body is to survive, but producing a profit is not the prime purpose of industrial and provident societies.
There are two types of industrial and provident society, the first of which is the co-operative society. A co-operative conducts its business in the interests of members, who gain from it on the basis of how much they use the service or its trade, rather than purely on the basis 1101 of their investment in it. If people want to register a new co-operative society today, they have to satisfy the Financial Services Authority that the proposed organisation is a bona fide co-operative. Many retail and agricultural organisations and many social clubs are designed as co-operatives.
Indeed, the House may be surprised to learn that the Bill has produced a considerable postbag, including letters from members of industrial and provident societies. Mrs. Doris Humbles from Southbourne in Dorset wrote to me to say what a good idea she thought it was that small clubs should be protected. She went on to describe her club, saying:The Christchurch Conservative Club does a very good lunch at a reasonable price for pensioners and it is difficult to get this kind of service elsewhere.I do not know whether the hon. Member for Christchurch (Mr. Chope) is a member of that Conservative club, but if he is—in the spirit in which these Friday debates are usually conducted—perhaps when I am next campaigning in Hampshire for the Labour party, he would be good enough to vouch for me and let me take advantage of the service provided by that excellent industrial and provident society.
The second category of industrial and provident societies are those that carry on a trade for the benefit of the community, rather than just their own members. Such societies are known as community benefit societies—abbreviated to bencoms. They include the many housing associations that exist, some social clubs and the new football supporters trusts. Industrial and provident societies give legal form—thus structure and clarity—to a range of community organisations and activities, for which charitable structures, public sector structures and the company model are not entirely appropriate.
A key attraction of the industrial and provident society is the element of democracy. Where a number of people are involved or are dependent as customers on the service or trade of the organisation, the one member, one vote principle that the industrial and provident society offers presents a powerful attraction. It is an arrangement by which power or control cannot be bought for money. Where a local community has been involved in creating or protecting an important community facility, the one member, one vote governance route helps to reflect the effort that all those involved have put in and their mutual dependence on one another. Industrial and provident societies that are members of the excellent Village Retail Services Association, which helps to keep rural post office and shopping facilities available to communities, are good examples of that.
A similar form of democracy can be created in a company. Indeed, some co-operatives have even decided to use the company model. I do not knock that approach, but the problem is that nothing can stop shareholders changing or abandoning the original purpose for which the company was set up.
A second key difference between the industrial and provident society and the company model is the approach of the different registration bodies. Under the Industrial and Provident Societies Act 1965, the Financial Services Authority has to approve any changes to the constitution of an industrial and provident society, and it strictly 1102 monitors such changes to ensure that they are in line with the registered purposes of the society. That clearly offers added reassurance to members.
Companies House, by contrast, has no such function. It has a lighter touch, with the result that shareholders or members of a company can change the company's constitution more easily. Companies House does not scrutinise constitutional changes to companies. Such scrutiny is not needed, as there is no equivalent to section 1 of the 1965 Act in company law. Those key differences create important distinctions between the company model and industrial and provident society model, and they provide choice for those looking for the right legal structure to suit their purpose.
A variety of structures give legal expression to the activities and services of organisations rooted in our communities, reflecting the many differences in their motivation, modus operandi, financing, governance and so on. I am not seeking to say that the industrial and provident route represents the best legal structure for every situation—for some scenarios, it would be entirely inappropriate—but our legal structures need to be robust. The industrial and provident society model has not undergone the same reforms as the traditional private sector model over the past 100 years or so, or indeed as the building and friendly society models, which were reformed in 1986 and 1992 respectively.
The Bill contains three key clauses to try to change the current situation. The first clause would ensure that industrial and provident societies could not be dissolved by the vote of a small and unrepresentative group of members. The second clause would enable community benefit societies to include a provision safeguarding their assets in their constitutions. The third clause would enable industrial and provident society rules to be updated by secondary legislation.
Clause 1 deals with the power to convert an industrial and provident society into, or to transfer the entire business to, a company. Such a step can be taken if 75 per cent. of those at a general meeting vote in favour of conversion. No requirement exists for a minimum number of members to be in favour of the resolution, and any attempt to include such a provision in a society's rules would contravene the 1965 Act and would be rejected by the FSA. Conversion to a company is a fundamental change in the nature of an industrial and provident society.
As hon. Members know, a company is a vehicle for generating profits for its shareholders, and the ability to distribute the profits generated from its trade is fundamental to its nature, whereas co-operative societies and bencoms are set up not as vehicles to generate profits for investors but to trade for the benefit of the community. Members of a community benefit society are not permitted to receive any payment by way of a profit distribution. All such profits must be retained in the society and applied to the society's objectives in serving the community. Similarly, on a solvent dissolution, any surplus remaining after all its liabilities have been paid off should pass not to members, but to some other community benefit purpose under the current rules.
A co-operative society also has a fundamentally different purpose from a company. It is set up by its members as a vehicle to pool their transactions and co-operatively to provide goods or services to themselves and/or the wider community. A co-operative is legally 1103 permitted to make a distribution to its members or customers from its surplus profits, but that power of distribution originated to reimburse to its customers the amount by which they had, in effect, overpaid for their purchases. The mechanism is intended to ensure that customers are not exploited by paying too much. That is illustrated by the fact that a distribution of profits is based on purchases, not on the size of the shareholding.
Conversion from an industrial and provident society is therefore an event of considerable significance for all the society's members. It involves changing from one corporate body with a particular purpose to another corporate body with a significantly different purpose. Surely such an event should not occur without a substantial body of support from the society's membership and without a substantial section of its membership participating in that decision.
The ability to convert has existed under the legislation since the 19th century, and the provisions that require a 75 per cent. majority of those voting at a meeting of members also has a long history. If a majority of members of a society want to convert, neither I nor anyone else should stand in their way, but the membership's view must be fundamentally clear. A 75 per cent. vote in favour of a conversion resolution by those who turn up at a meeting might involve a mere handful of people turning up to a badly advertised meeting and agreeing a change that might irreversibly alter the nature of a corporation with hundreds of thousands of members.
The building society movement has wrestled with that issue for a number of years, and a significant number of societies have demutualised and paid a windfall gain to their members. There has been only one failed attempt at a hostile dissolution of a co-operative society. In 1997, Andrew Regan, through Lanica, attempted to demutualise the co-operative Wholesale Society. Notwithstanding the fact that the attempt failed, the threat of demutualisation remains real to many co-operative societies.
Although successful and efficient management of the society's business, together with the cultivation of an active, engaged membership, is the best way to maintain support for a society's mutual status, it is surely right that legislation should ensure that no conversion to a company can take place without a substantial body of the membership participating in that vote.
Since the Lanica affair, a number of societies have adopted rules to introduce a high quorum for resolutions to convert a society into a company. There has not been a legal challenge to such rules yet, but there is concern that it could be made by a predator with a deep pocket, and there is a danger that it might succeed. Doubts about that should not be left to the courts and the lawyers to determine. Surely it is a matter for Parliament to address, and the Bill offers the House the opportunity to do exactly that.
Such a provision has already been introduced for building societies. The Building Societies Act 1986, and the 1997 statutory instrument that updates it, requires 50 per cent. of the membership to participate in any such vote for it to be effective. Another parallel is the takeover code, which sets a 50 per cent. threshold as the key to resolving the success or otherwise of a vote in a public takeover of one company by another. The Bill proposes a similar provision for industrial and provident societies. It does not change the requirement that 75 per cent. of the 1104 vote of members attending a meeting is necessary; it simply adds the requirement that 50 per cent. of eligible members would need to vote for that conversion to occur.
The Bill also recognises that the registers of society members are not necessarily up to date and it requires them to take reasonable steps to establish those persons who are entitled to vote under its rules. It also requires 50 per cent. of such people to take part in any vote before the chairman of the relevant meeting can declare the resolution duly passed.
Clause 1 recognises implicitly that co-operatives are designed to serve and to be controlled by their members. For that reason it must be right that they can convert their co-operative society into a different business structure if a large majority is secured in favour of it. Those societies that are registered to operate for the benefit of the community have a different purpose, however. Their function is to benefit people other than their members. Nevertheless, the members of bencoms, often those who serve on the board of a society, could vote to dissolve a society and convert it into a company or to convert it into a co-operative. It is surely inappropriate for a society that has been set up to benefit the community either to re-register as a co-operative, which operates in the interests of its members, or to convert to a company, which operates in the interests of individual shareholders.
The assets in a community benefit society are, as I said, held for the benefit of the community. An important feature of a bencom is that unlike the comparable company model, the commitment to community benefit is subject to a review by the registering authority, so any attempts to change the constitution to water down such a commitment would not be approved by the Financial Services Authority. Those assets may have been built up over many years with generations of people from different families in a community working to develop them. The Bill proposes that those incorporating a new society should be able to elect that no such power to convert should be included in their rules. Subject to obtaining the support of a 75 per cent. majority of those voting at a meeting where not less than 50 per cent. of those qualified to vote participate in the vote, the Bill further provides that an existing society should also have the power to incorporate such a provision in its constitution.
Bencoms and charities have parallel roles. Charities cannot convert into co-operatives or a company. Charitable assets are effectively dedicated permanently to that charitable purpose. The clearest parallel is that they operate for the benefit of communities.
Clause 2 would allow community benefit societies to choose to have similar protection in law as charities and to be free from the possibility that one group of activists in the organisation could attempt to use the organisation's assets for their own benefit rather than for their original established purpose, which is for the benefit of the community.
Ironically, such societies are not supposed to make distributions out of profits or surplus to members, and, on a solvent winding-up, assets should not be distributed to members. However, the ability to convert or transfer engagements to a company under section 52 of the 1965 Act allows such restrictions to be avoided once the society is converted into a company and the shareholders could amend the rules that permit the distribution of assets to themselves. There is clearly a loophole in the legislation, which the Bill attempts to address.
1105 Clause 2 specifically permits the constitution of a bencom to include provisions to prohibit the distribution of assets to members and to prohibit the distribution of any of its assets except on its dissolution. Even when it is dissolved, the clause imposes significant restrictions on the way in which the assets are distributed. It also prohibits the transfer of engagements or the conversion to a company and prevents the avoidance of the provisions by a change of rules.
Hon. Members may be concerned about the flexibility of such arrangements. Clause 2 is perhaps deceptive, but it does allow for considerable flexibility. If the bencom were to dissolve, its assets could be transferred to another community benefit society with similar provisions in its rules, or to a charity. Furthermore, it does not prevent the sale of assets—or, indeed, the entire business in appropriate circumstances—by the bencom and the subsequent distribution of the cash surplus to another community benefit society or to a charity.
Clause 2 also allows a bencom to convert to a company or another body if that company contains similar provisions in its constitution to protect the assets for the benefit of the community. If a bencom needs, for some reason, to convert to a different legal entity, such conversion is permitted. What is not permitted is the liberation of those assets from their original purpose—the commitment to community benefit. Those provisions will apply only if a society adopts them in its constitution by resolution of its members and approval of the FSA is secured in the usual way.
The final operative clause, clause 3, attempts to provide a mechanism to allow Parliament to consider sensible reforms to the corporate governance of industrial and provident societies when those same reforms have been introduced for companies after parliamentary debate. The reality is that there have been very limited opportunities, both under the Conservative party and the Labour party, to update the rules and regulations by which industrial and provident societies operate.
There are precedents for such a measure. Some change to industrial and provident society rules is possible under the Deregulation and Contracting Out Act 1994, even though the original discussions focused on deregulation of company law. One of the joys of preparing for today's debate was that I got to read the Second Reading debate and the Committee stage of that Act, and I could find no mention of industrial and provident societies. Nevertheless, two sensible amendments to the rules of industrial and provident societies have been made under its provisions.
As well as being limited to the purpose of assimilating industrial and provident society law and company law, the power to modify is further limited because it does not extend to those sections of the 1965 Act that are essential to the very nature of such societies. For example, the provisions that set out which societies can be registered and those that deal with amalgamation, transfer of engagements and conversions are specifically excluded from the power in clause 3.
Sensible reforms that are in place for companies but not for industrial and provident societies include a rule proscribing loans by the organisation to one of their directors. Another basic sensible rule in place under the 1106 Companies Act 1985 is that substantial property sales or transactions with directors require shareholder approval. There is no similar requirement for the directors or chief executives of an industrial and provident society. Indeed, the 1985 Act sensibly sets out what transactions can and cannot happen between company directors and their companies. The power of a court, on application by the Department of Trade and Industry, to disqualify directors who are unfit to hold office does not apply to society directors. Clause 3 offers a sensible solution to those defects.
Company legislation also prohibits provisions in the constitution of companies that prevent claims against directors for breaches of statutory or common law. Societies still have such provisions in their constitutions. Clause 3 holds out the possibility that such changes to industrial and provident society rules could occur if Parliament were so minded.
Such a change would provide additional protection for the societies' consumers and members, and is surely a sensible, relatively minor amendment for which secondary legislation would be an appropriate mechanism. Parliament has already considered the substance of the issues during the various debates on companies law reform and it has discussed many of the changes in debates on the reform of building and friendly societies.
Other sensible reforms that may be instigated under this procedure include changes to the ultra vires law for companies and to the accounting and auditing requirements for societies, for insolvency rescue procedures and for receivership procedures, all of which are now significantly out of step with companies. That combination of problems reduces confidence in the industrial and provident society model. In the case of insolvency, it makes rescue of a society much more difficult. I remind the House that a further safeguard in the Bill is the use of the affirmative resolution procedure for any changes made under clause 3.
My interest in co-ops and mutuals is not new. I have highlighted the potential of social enterprises and new mutuals in Adjournment debates and under the ten-minute Bill procedure. I hope that the co-op and mutual sector will continue to develop and expand, offering, where appropriate, sensible, level-headed alternatives to exclusively private sector options and other approaches and structures.
§ Mr. David Drew (Stroud)
As a fellow co-operator, I think that my hon. Friend is making an excellent case. Does he agree that the Curry commission, which will report on food and farming shortly, is likely to recommend that we bolster co-operatives in agriculture to bring us into line with Europe, and that the introduction of the Bill is particularly opportune because it could provide that bolster?
§ Mr. Thomas
I do agree. Interestingly, the National Farmers Union, which I consulted about the Bill, supports it. It took some delight in giving me the example of the United Pig Marketing co-operative, which I am told is the largest pig marketing co-operative. Its members benefit from savings of 25 per cent. off breeding stock, 15 per cent. off compound feeding stuffs, 30 per cent. off the cost of power supply and, for those Members who are 1107 interested, 33 per cent. off the cost of artificial insemination. I am sure that all hon. Members have an interest in reducing the long-term costs of the great British breakfast, and United Pig Marketing and, I am sure, other agriculture co-operatives will help to do that.
If the mutual sector is to develop, further sensible protection and reform of the rules will be needed. The Bill does not solve all the problems of the industrial and provident society model, but it does, I hope, provide an opportunity to make significant progress. One of the genuine joys of preparing for the Bill has been to understand and be impressed by the sheer range and diversity of organisations—and the considerable commitment of their members—which are rooted in our communities and use the industrial and provident society model.
I have consulted the various parent bodies of industrial and provident societies, and I am grateful for the time and support of the National Housing Federation, the Rugby Football Union, the co-operative Union, the National Farmers Union, the Village Retail Services Association, the Community Transport Association, the Committee of Registered Clubs, the Women's Institute country markets, the Abbeyfield Society and the Association of British Credit Unions.
Surely the continuing strength of industrial and provident societies is the defining proof, if there is any doubt, that there is such a thing as society. The Bill seeks to strengthen our industrial and provident societies, and I hope that the House will give it a Second Reading.
§ 10.4 am
§ Chris Grayling (Epsom and Ewell)
I congratulate the hon. Member for Harrow, West (Mr. Thomas) on introducing the Bill. It is somewhat ironic, and probably against the expectations of many outside the House, that a Bill on this subject should be promoted by the Member for Harrow, West and immediately supported by the Member for Epsom and Ewell because the traditional image of industrial and provident societies is very different from the reality. The hon. Gentleman has rightly highlighted, by making clear the range of organisations from which he has secured support for the Bill, how diverse those societies are and in how many parts of our society, and indeed how many of our constituencies, they have a presence.
My constituency has industrial and provident society representation, most particularly in the form of the successful and hospitable Epsom Conservative club, which is in a prime location and has assets that could be exploited by a carpetbagger—a danger that the hon. Gentleman has rightly pointed out. I pay credit to the Bill because it will protect such societies, as well as other organisations throughout our society, and I encourage the House to give it a Second Reading, subject to caveats and provisos that will need to be dealt with in Committee to ensure that the final legislation is a proper and fit response to the needs of the sector.
The hon. Gentleman introduces his Bill in a turbulent time for mutual organisations which began with changes in the building society sector, which I appreciate is not covered by the Bill. What happened in that sector, and more recently in the mutual sector of the financial services industry, has set a precedent that could now be followed by those looking to exploit the value and assets of mutual and provident societies of all kinds.
1108 That process began with conscious business decisions in the 1980s by organisations such as Abbey National to move from a mutual status to being fully commercial listed companies. They took those decisions for straightforward commercial and strategic reasons. Many organisations have followed suit in the past 10 or 15 years. No legislation should seek to prevent that from happening in future.
At the same time, we saw in that sector the emergence of carpetbagging. Groups of people who had joined the boards of building societies, including Nationwide, Britannia and others, proposed at annual general meetings a ballot of the entire membership on the proposal to sell the society's assets and generate a windfall for members of the public. In some cases, the organisations' members may want to pursue that route, but they must proceed with the utmost caution because nothing comes without a price, and such organisations often secure a short-term payment at the expense of the long-term growth of their financial portfolio. Such decisions must be made in the full knowledge of the implications of the action.
More recently, we have seen different types of organisations, such as clubs, begin to dispose of their assets. The highest profile example was the RAC's decision to sell its assets, generating a substantial windfall for members. The same route has been taken by smaller clubs, such as the St. Stephen's Constitutional club, just up the road from this place. All that highlights the fact that industrial and provident societies and other mutual organisations have assets that can be exploited by those who seek to make a quick return.
The hon. Gentleman mentioned the attack on the co-operative Wholesale Society by Andrew Regan a few years ago. That was clearly an attempt to extract commercial and financial value. That may be in the interests of members on some occasions, but in that case there was great hostility within the movement, and the proposal was rejected. That underlines the need for societies of the kind covered by the Bill to be given the same level of protection as building societies from anyone who seeks to exploit their assets.
The principle of mutuality epitomised by the societies has been an important part of our business and social life in this country since Victorian times. It began with the friendly societies, which were the first kind of organisation to bring financial services to the poorer areas of the country, and indeed in many areas they still do so. With the loss from some areas, both rural and inner-city, of financial services institutions such as local banks, we are seeing a resurgence of mutuality.
The friendly societies were followed by the building societies, which encouraged home ownership through mutuality, and the co-operative societies, not only the co-op itself, the visible presence in our high street, but several smaller co-operative organisations that served individual neighbourhoods. In a previous guise, I did quite a bit of local history work in the north-west of England; the role that co-operative societies played in the development of society in Liverpool, Manchester and elsewhere is evident.
As I said, it is not just in areas such as the north-west that those organisations play an important role. In my constituency there are two branches of the co-op which make a significant social contribution, as well as a business contribution, to the area. One branch is in 1109 Stoneleigh, a 1930s suburban area with a sizeable shopping centre which, typically of many smaller retail centres on the fringes of major cities such as London, has lost ground in recent years to a few principal shopping centres in my area such as Kingston and out-of-town supermarkets. We must not allow those smaller centres to disappear. In my constituency, the co-op is a linchpin of Stoneleigh broadway and probably does more than any other shop to ensure that that shopping centre thrives and continues to attract people. It is therefore fundamentally important that it should remain and flourish.
Such outlets are particularly important to the elderly. I received a letter from an elderly lady in my constituency who said:As a long standing member of the co-op, I am happy to write to amp; ask you to vote for Gareth Thomas's Bill on Friday 25th January 2002.I hope I am not the only person making this request from our area.You are well aware that Stoneleigh has a large percentage of retired and elderly people among its residents, not all have transport or are able to use public transport easily, the co-op shop on Stoneleigh Broadway is our only supermarket, we no longer have butchers or general stores to buy edible goods from, the co-op to most people is a Godsend.The co-operative Society does not flourish in the South as it does in the North, but it does such good work monitoring the quality of the food and items it sells.I echo that. The two branches in my constituency do an excellent job of serving the community.
The branch at Tattenham Corner, at the top of Epsom Downs, is a community centre in its own right. The beat police officer in the area uses it almost as a stopping-off point or a local branch office while on the beat. The shop owners have given tremendous support, both to him and community activities in the area. It is a central point in an area that does not otherwise have shops nearby for the elderly. It therefore makes sense to give those organisations the same protection as building societies, so it is important that the Bill goes into Committee and receives the depth of study that it deserves.
When the Bill was introduced, naturally I thought that it applied to friendly societies and organisations such as the co-op, but I have been surprised by the breadth of organisations covered by it. They include not just retail societies and wholesale and productive societies but, as the hon. Member for Stroud (Mr. Drew) said, agricultural societies, as well as fishing societies, clubs, general service societies and, importantly, housing societies. There is no doubt that registered social landlords play an increasingly important role in our society. Many of them would be covered by the Bill; my points about giving protection to co-operative societies apply equally to RSLs categorised as industrial and mutual building societies.
In the past decade, there has been a significant transition from predominantly council-owned and controlled housing to much greater control of our social housing stock by RSLs. That is a very positive step indeed, which began under the Conservative Government. In general, RSLs make an important contribution to that housing sector; they upgrade stock effectively and manage it better than most local authorities. On the whole, tenants receive a more responsive service from RSLs. In my constituency, the Rosebery Housing Association does an 1110 excellent job of managing its staff. Such organisations should receive encouragement and should able to develop to the benefit of all their tenants.
More and more local authorities are taking the decision to dispose of stock, and pass council houses into the control of RSLs. Epsom and Ewell borough council in my constituency has done so; Reigate and Banstead borough council is in the process of doing so; Merton borough council, on which I remain a councillor for a few weeks, is looking at transferring its stock into the hands of an RSL. Ironically, in my area, that transition is making a difference; the biggest council housing estates in my constituency, for odd historical reasons, were divided between three different boroughs, which has caused great confusion for the residents and made it harder to maintain the area properly. I hope that, at the end of the process, we shall have a single RSL able to control the whole area, develop it properly and provide a much better service to the people who live there.
I do not want housing societies of the kind encompassed by the Bill, including RSLs, to be vulnerable to carpetbaggers. RSLs have a major asset base; indeed, it is substantial. There are circumstances in which, conceivably, they could be exploited by people wishing to realise some of the value of their asset base. RSLs play an essential social role, which should be protected; if nothing else, the extra protection that the Bill gives them is extremely important. Organisations with a significant asset base that come into the ambit of the Bill are particularly vulnerable, and protection is particularly appropriate for them.
It is easy to target an organisation with significant assets; it is easy to sell them and raise money; often, it is easy to make a case to members of the organisation that they can get a quick windfall from what is being proposed. We should not prevent that from happening, as the hon. Member for Harrow, West rightly said, but it should happen only with overwhelming support from the membership. The hon. Gentleman's selection of 75 per cent., to match the building societies' figure, is right. Everyone will never be brought on board, but 75 per cent. is an overwhelming vote, and can be said to represent the views of a society if it takes the decision to change its status, the nature of its asset base and so on. Reading about the Bill, it is surprising that it has taken four years from the launch of the Treasury's consultation paper for anything to happen. When something did happen, it took a Back Bencher to introduce the measure; I am sure that that is a disappointment for the hon. Gentleman.
I should like to discuss a couple of areas about which the Committee will need to think carefully, if the Bill completes its Second Reading, as I hope it will. I have a problem with the hon. Gentleman's comments about provisions for the future use of assets and, in effect, the ability to set in stone the way in which they will be used. I understand the nature of his concern, but we have to be cautious about constraining future developments by organisations in a society that can change rapidly. I hope that, in Committee, that aspect of the Bill will be given careful consideration to try to ensure that there is a balance; organisations should be allowed to determine their core purpose, but should not be forced it into an environment where, if they need to change in future, they do not have the legal option to do so. The hon. Gentleman, and Members who serve on the Committee with him, need to be extremely careful about that.
1111 In his original speech on the issue to the House 12 months ago, the hon. Gentleman referred to the benefits that some mutual organisations have secured from debt finance. That may be true in some cases, but the hon. Gentleman should not forget that equity finance can often be much cheaper than debt finance and provides a much more solid, long-term foundation for organisations, which is one reason why building societies have chosen to move away from mutuality. That needs to be borne in mind when framing specific provisions for the sector.
In that speech, the hon. Gentleman mentioned regulation and argued that it has sometimes forced organisations away from their core business to the detriment of their customers; he mentioned the water industry in particular. I do not necessarily share his analysis on that issue, but he made an important point about appropriate regulation. Whatever happens in terms of the status, legal rights and provisions that are associated with these organisations, the one caveat should always be that one should not compromise on regulation where it is appropriate. I am not a great regulator. I do not believe in regulation for its own sake, but minimum standards need to be met, especially in financial services, housing and so on. I would not want any change to be made in respect of regulation on organisations that enjoy such status, as opposed to their counterparts that do not. We must be careful to ensure that that does not happen.
As I said, I am impressed by the range of organisations that support the Bill. Clearly, there is a need to address the issue. Clubs, leisure and housing organisations and the traditional organisations in the sector—the friendly societies and co-operatives—all have realisable assets and could be vulnerable to carpetbaggers. I have no doubt that their members should be free to dispose of those assets if they choose to do so. They should also be free to move beyond mutuality and to change their purpose and the nature of their operation in order to meet changing circumstances in society. We should be careful to bear that in mind when we consider the Bill, but at the same time, it is right and proper that these organisations should make such changes only with the support of a substantial majority of their members, and that they should do so with the same sort of safeguards that protect their counterparts in the building society sector.
Given the impressive backing that the hon. Gentleman has secured for the Bill, and as it represents a sensible step for the sector, I am happy to offer to him my support for its Second Reading. I hope that detailed work in Committee will shape a measure that the Government will help on to the statute book and that will deliver significant improvement for the sector.
§ Paul Goggins (Wythenshawe and Sale, East)
As one of the Bill's sponsors, I am very grateful to have an early opportunity to contribute to the debate. I warmly congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) not only on introducing the Bill, but on his campaigning in Westminster and in the country for the changes that he proposes. I remember that he received a very warm Mancunian welcome back in November when he came to speak to the UK co-operative Council at its meeting in Manchester.
My hon. Friend has spoken clearly and powerfully about the need to Modernise the law in order to make it easier to ensure that legislation governing industrial and 1112 provident societies remains in line with company law generally. He has also spoken wisely about the need to align industrial and provident societies to the rules that now apply to building societies in respect of turnout and majority when votes are taken on proposed constitutional changes—especially proposals to demutualise.
I noted from the Library research paper on the Bill that the UK currently has 9,000 industrial and provident societies with assets worth £56 billion. It is essential that those assets and the people who own them are given adequate protection by the law. We saw what happened in the 1990s, when in only four years, nine building societies demutualised, completely removing two thirds of all the assets in the sector. My hon. Friend may not have convinced the hon. Member for Epsom and Ewell (Chris Grayling), but I think that he spoke persuasively about the need to give people who plan, develop and invest in new community benefit societies the power to put in place rules to ensure that those who establish such enterprises can do so without fear that the community assets that they create will be stripped away.
As we have heard, mutuals and co-operatives are not a new idea. Indeed, E. P. Thompson reckoned that in 1815, one in 10 people in this country belonged to a friendly society. In his book, "The Making of the English Working Class", he put his finger on the essential strength of such organisations when he said:The fact that each brother had funds deposited in the society made for stability in membership and watchful participation in self-governance.The Rochdale pioneers took that principle a stage further 150 years ago by creating the co-operative movement, including several organisations that remain with us today. The movement helped to create new aspirations and the confidence to demand the sort of social and economic reforms that gave people real security and freedom from want. Indeed, those aspirations and the political pressure that built up ultimately gave birth to the post-war welfare state, with the goals of decent housing and education, a universal health service and social insurance to provide protection for people when they are ill or in old age.
We all know how that Beveridge vision was undermined in the 1970s. First, it was undermined by economic changes and the mass unemployment that they caused. Apart from the poverty and exclusion that was created, millions of people lost all sense of being contributors to the welfare society. Secondly, the Beveridge vision was undermined by those who believed that market forces, consumer choice and the accumulation of personal wealth were the answer to all our needs—values that were exactly the opposite of those held by the people who created the friendly societies and the co-operative movement.
I would be the first to argue that the welfare state involved many good things such as access to health and education and the opportunity to escape poverty, but it also brought with it the expectation that all our problems can be solved from above. People might have argued for more money or different policies, but Governments were expected to find and deliver all the answers. Today, much of the political and media debate still reflects that mentality of wanting top-down answers. One of the most amazing experiences for me in my political lifetime was seeing among those who had suffered most in the 1970s and 1980s—those who had been excluded and were 1113 without work or hope of work—the first signs of the rediscovery of the spirit of mutuality, solidarity and co-operation that we are debating.
I remember visiting the Meadowell estate on Tyneside at the end of the 1980s, when I was director of Church Action on Poverty. I met a group of women who had formed a credit union and established the Cedarwood centre with a co-op shop and shared community facilities. No one gave those achievements to them, but with a little help and encouragement from some local churches, they had started to organise in order to meet their needs. I have seen that many times since, not least in my constituency, where three small community credit unions have now formed into one credit union for the whole of Wythenshawe. It has an office in the town-centre co-op store, where it is easily accessible to people throughout the community.
§ Phil Hope (Corby)
My hon. Friend mentioned the importance of community involvement and participation, especially among people who are socially excluded. Will he comment on the recent initiatives taken by the Government through the new deal for communities to establish new forms of local partnership between communities and statutory organisations to regenerate local communities? They use the same principles which date back so far and which we are now rediscovering as we try to tackle deep-rooted poverty and exclusion.
§ Paul Goggins
My hon. Friend reads my mind, as I intend to make a few comments along those lines. The most important thing is to recognise that poverty is not only about cash, although lack of money is clearly at its heart, but about powerlessness. It is always welcome when the Government seek to involve people in decision making and ensure that they have a greater stake and more power; indeed, it should be part of the strategy for defeating poverty.
It is impressive when we see in our communities organisations that have grown from the bottom up linking with Government initiatives and the serious investment of cash that that can often bring. In my constituency, Family Action Benchill was a small, church-based community project that is now at the heart of sure start in Benchill. Indeed, the credit union has been able to benefit from single regeneration funding, helping to create the new premises in the co-op store, to provide training for staff and so on.
Too often in the past, regeneration has been too short term and too professionally led. To be successful, it must build up people's capacity to fend and organise for themselves, and to develop what is now called social capital—something that is really quite simple. It is a mix of resources and talent that exists in any community and can underpin its sustainability and stability.
On Wednesday, my hon. Friend the Member for Corby (Phil Hope) and I attended a meeting of the all-party group on poverty, at which the Deputy Prime Minister talked about financial redistribution and the need to give people more power to make decisions that affect their communities. That is welcome.
The Bill is important, and its significance will go beyond its specific provisions and contribute to many of the key debates of our generation about the need to reduce 1114 the gap between rich and poor, to reduce crime, to renew civil society and to Modernise our public services. I believe that our schools and hospitals have improved in the past five years and that they will continue to do so in future. However, if we keep in mind only the traditional, top-down model of change, services will not improve as quickly or as fully as they otherwise could, and our constituents will not feel the difference. Local people must be engaged, and their ideas and energies must contribute to the process of reform.
Organisations that benefit the community play a crucial part in change. The Bill will give community leaders the confidence to build up substantial and significant organisations without fearing that their value will be snatched away. We all know the gaps in our communities that such societies and organisations could fill. They include financial services, shopping, social activity, housing, health and social care and transport. All those needs can be fulfilled not only by initiatives that are top down and large scale but by those that are small scale and bottom up.
In the end, such organisations have the potential to improve the provision of services to our constituents and to renew civil society and people's engagement in decision making. When people have assets to protect that they own together, they are more likely to be involved in policy and decision making.
§ Mr. Michael Weir (Angus)
I congratulate the hon. Member for Harrow, West (Mr. Thomas) on introducing the Bill, which is important because it strengthens the mutual sector, which has been under attack for the past 15 years. It may be considered surprising that the Bill is supported by the Scottish National party and the Conservative party as well as the Labour party, but the mutual and co-operative movement combines the best aspects of collectivism and self-help, so in fact the cross-party support is not surprising.
The co-operative movement and the mutual sector have a long history in Scotland. Life assurance was a big sector there, and small co-operatives grew to be large companies. Since the Building Societies Act 1986, the mutual principle in building societies and life assurance has been under continual attack. In the late 1980s, mutuality was regarded as old fashioned and Victorian—as something that should be done away with in the bright new world of entrepreneurialism.
Many traditional life assurance companies in Scotland have disappeared or been swallowed up by public limited companies. Standard Life, which has recently survived a brutal and expensive fight to retain its mutual status, is the last major mutual life assurer in Scotland. All the others, such as Scottish Amicable, have gone. I had a pension policy with that company, but I now find that I have a pension with the Prudential. I did not intend that.
Although the Bill does not cover life assurance, it strengthens the mutual sector. We need to get away from the position whereby mutuals and co-operatives are perceived as a means of making money through demutualisation and asset sales. Before becoming a Member of Parliament, I was a solicitor for many years. In the late 1980s, I regularly received phone calls or letters from finance advisers, tipping me off about the building societies that would next be ripe for 1115 demutualisation, and telling me which insurance companies to take out a policy with to generate a windfall. That atmosphere destroyed much mutuality.
In his opening speech, the hon. Member for Harrow, West showed the huge breadth of organisations that are involved in the co-operative and industrial and provident sector. It is important to remember that it is expanding. In Scotland, many people and communities are coming together to set up new co-operatives and mutual societies. I am sure that that also applies to the rest of the United Kingdom. In many deprived areas, food co-operatives are increasing as a counterbalance to huge supermarkets such as Tesco and Sainsbury's. Existing co-operative societies play an important role. There are still co-operative stores or supermarkets in many small or deprived communities where Tesco and Sainsbury's will not go. Such stores are important and must be supported.
In Scotland, there is increasing interest in community land buy-outs among people who have traditionally worked for the estate and almost been bought and sold with it. The co-operative and mutual model can be important in ensuring that people who want to buy land and estates for community ownership and a stake in their future can do that. However, as many speakers have hinted, that will work only when there is clarity and certainty that when people invest in co-ops and set up organisations, they can control their assets to ensure that they are not attacked by carpetbaggers, and that their hard work is not sold from under them.
The Bill may not tackle all the problems, but it is an important step forward, and I offer it unreserved support.
§ Phil Hope (Corby)
As a long-standing supporter of the co-operative movement, I am pleased to have the opportunity to support the Bill. I join my colleagues in congratulating my hon. Friend the Member for Harrow, West (Mr. Thomas) on promoting the measure. His presentation was clear, persuasive and educative for those of us who are learning about the movement, and it was rooted in a proud track record of campaigning.
I welcome the cross-party support. The hon. Member for Epsom and Ewell (Chris Grayling) is worried about preventing carpetbaggers from taking over his Conservative club. Some Labour Members might believe that that has happened already. We hope that we can deal with his problem at the next general election.
The Bill is an important contribution to the Government's co-operative agenda, which is championed by many co-operators in Parliament. Like many other hon. Members who support the Bill, I have been a co-operator all my life. I am a member of the co-operative group of Members of Parliament and I was elected as a Labour and co-operative MP. It therefore gives me genuine pleasure to be here today.
My hon. Friend the Member for Wythenshawe and Sale, East (Paul Goggins) talked about tackling poverty through local community endeavour. I believe that we are all beginning to realise the necessity for that. Money is crucial, but we must involve local people in their communities, and devolve power so that the people who are most directly affected make the decisions.
The Bill could be described as a technical measure. It includes technical provisions to protect specific forms of societies that benefit the community. However, it is much 1116 more significant; it is about waking the sleeping giant and acknowledging the vital role of the co-operative movement, industrial and provident societies and so many other community organisations. The Bill will lead to genuine changes to benefit our communities.
§ Mr. Kevan Jones (North Durham)
In my constituency, new credit unions are being set up—the Derwentside credit union, for example. They tackle the genuine poverty and misery that loan sharks cause. Does my hon. Friend agree that although the Bill is technical, it will help the people in most need in poor communities and on council estates throughout the country?
§ Phil Hope
I shall talk specifically about credit unions later, because—particularly in the poorest communities—the impact of debt on people's lives, and their vulnerability to loan sharks, can be devastating. The growth of credit unions in this country over the last 10 years has been spectacular. They provide a real way of providing people with access to finance and the ability to save, which they have not had in the past because of the behaviour of the financial institutions that have overlooked, ignored or rejected them.
The whole co-operative movement supports the Bill, because the values of the movement go hand in hand with the values of the Labour party. I want to remind hon. Members of the party's constitution, which states:By the strength of our common endeavour we achieve more than we achieve alone, so as to create for each of us the means to realise our true potential, and for all of us a community in which power, wealth and opportunity are in the hands of the many not the few.That is what the industrial and provident society movement, the co-operative movement and the credit union movement are all about: social justice. The Bill will strengthen the institutions that provide the means for creating that social justice. Those values are reflected in the support that the Government and the Prime Minister have given to the co-operative movement, not least in establishing the co-operative Commission to consider how to ensure that the movement prospers in this century.
The Bill, which has been so eloquently introduced today by my hon. Friend the Member for Harrow, West, incorporates a number of the recommendations made by the co-operative Commission, and it has been widely welcomed both by co-operators and by members of the commission. It will strengthen an already strong and growing movement. Recent figures show that Britain's retail co-operatives have revenues of about £8.5 billion a year and employ 120,000 people.
In banking and insurance, co-operators employ another 15,000 people, and hold assets in excess of £23 billion. More than 500 farm co-ops play a valuable role in supporting agriculture. There are also about 1,500 worker co-operatives, and about 1,500 community co-operatives, credit unions and housing co-operatives. The source for those details of the strength of the co-operative movement comes from an excellent publication, "New Mutualism", published two years ago.
The new mutual movement is growing daily, with massive support from co-operators in the House. Indeed, the hon. Member for Epsom and Ewell expressed his surprise that the assets of the industrial and provident society movement totalled £56.5 billion. He was right to point out how diverse the movement is, comprising not only retail societies, agricultural and fishing societies, but all the clubs as well.
1117 My hon. Friend the Member for Harrow, West mentioned a rugby club in the north of his constituency. I do not know whether he plays for that club, but if he does, it has real problems. I have seen him play for the all-party rugby team, and all I can say is that he is spectacular on the wing—mind you, we never gave him the ball.
The Bill will provide support for small clubs such as that one, and for similar societies, in our constituencies throughout the country,
§ Mr. Dennis Turner (Wolverhampton, south-east)
There are 200 members, drawn from both the House of Commons and the House of Lords, of the all-party parliamentary group on all-party members' clubs. They represent something like 6 million members throughout the country in about 5,000 clubs. Those people have a vested interest in our debate. Conservative clubs, Labour clubs, Liberal clubs and ex-servicemen's clubs are all part of this great movement. I ask my hon. Friend to reflect on that large number of people in those institutions who are looking to us to make a positive decision on behalf of their organisations today.
§ Phil Hope
My hon. Friend has identified a central purpose of our being here today. The Bill is far more than a technical matter. There are thousands of clubs, with a great many volunteers. In my constituency, 2,000 children go out to play football regularly at the weekend, in small leagues and clubs, with coaches and parents all getting involved. That represents society working with children and young people, and providing them with opportunities. Each of those clubs will have the opportunity, through the Bill, to be strengthened and to find a stronger role to play in the community.
We must do all we can to recognise the role that they play, and to reinforce that role through technical measures, such as strengthening their constitutional support, and through funding—the sure start programme has been mentioned today. So much is going on to provide new community enrichment and enhancement, and we should never overlook the hours of contribution made to the community by volunteers in those clubs and societies. That is what makes our community the wonderful place that it is today.
Such clubs encounter some grief, however, when they try to sign up to become industrial and provident societies with the Financial Services Authority, and it costs a bit. The Bill does not tackle the issue of charges, but we should put down a marker about the level of charges for clubs that register in that way. It creates a barrier, and we are trying to remove barriers for small clubs and societies.
§ Phil Hope
That is absolutely right. A review of charitable law is being undertaken by the performance and innovation unit at the moment, although I am not certain how wide-ranging it is, or when the report will appear. Perhaps the Minister will be able to tell us that. We must 1118 try to remove the bureaucracy, barriers and regulations that prevent organisations from forming themselves into such institutions and gaining protection so that they can carry out their good works in the community. The more we can do to reduce that burden of bureaucracy—such as paying expensive solicitors' fees or going through a process that takes months, registering with the Charity Commission, or registering with the FSA—the better it will be. Part of our role is to ensure that that regulation is kept to a minimum. I am sure that we have cross-party support on the importance of removing those burdens.
Having said that the co-operative movement is so strong, I must add that it has, of course, been a mixed story over the last century. It has had to adapt to survive and remain strong. The battle between mutually owned building societies and their demutualised rivals is a case in point. We have seen how building societies have to maintain a first-class service to customers and high quality communication with their members, if they are to resist damaging takeovers, which are often led by carpetbaggers seeking to make a quick buck.
Those carpetbaggers abuse the democracy at the heart of the co-operative movement by offering the promise of share windfalls. It was not pointed out during the bad years when these battles were at their height that the long-term effect would be to remove from members the democratic right to control the capital of the co-operative—and, indeed, its policies—based on values of self-help, fairness and social responsibility.
It is encouraging that when a mutual society has performed well and put its case strongly, members have chosen to reject the short-termism of the carpetbaggers. The largest building society, Nationwide, provides one example of a demutualisation attempt being resisted; the defeat at Standard Life gives us another. I hope that we have now turned the corner in relation to that matter, not only because of the regulation that we are trying to introduce today but because of the positive way in which the building societies are now putting across those values. They were values that we took for granted; we thought that we did not need to repeat them because we all knew what they were. This is our opportunity to ensure that everyone knows what they are, and that such moves are resisted as much as possible in future.
We must protect the democratic principle so that people have the right to decide the future of their societies, which is the point of clause 1. All the Bill seeks to do is to bring protection for co-ops in line with that for the building society sector by ensuring that a decision to convert to registered company status is made by more than half a society's members. My hon. Friend the Member for Harrow, West made the crucial point that a minority or small group must not be able to turn up, vote and overturn a society's status. Clause 1 would prevent that.
Why use 75 per cent. and 25 per cent. as the figures? There is no generally accepted mathematical basis for saying, "This is a legitimate democratic process and that is not." However, the co-operators who support the Bill believe that clause 1 strikes the right balance between protecting co-operatives from carpetbaggers and preserving members' rights to make democratic informed choices. That is a difficult balance to strike, but the Bill gets it right.
My hon. Friend the Member for North Durham (Mr. Jones) referred to credit unions. Although the co-operative movement has been successful in the financial sector— 1119 the growth of credit unions is an example of that—people have still suffered. Credit unions are protected by the Credit Unions Act 1979, which in effect prevents their demutualisation, and they are an important means of tackling financial exclusion.
I know from my constituency experience that some people cannot borrow money at an acceptable rate or even hold a bank account. If they cannot get access to a bank account but live in the cash economy, gaining access to credit is so much harder. People excluded from the financial services that we all take for granted usually have only one option—a loan shark. They find themselves in huge debt and unable to pay, then the situation goes from bad to worse until they cannot cope with the burden.
Many Members will have met, as I have, constituents who have fallen into the trap and the exploitation that goes with it, but there is an alternative—the credit union. The number of members has grown to about 220,000 from about 70,000 only a decade ago, and there are 450 members of the Association of British Credit Unions, which is a huge step forward. As well as having an attractive savings option—people can get up to 8 per cent. in a good credit union—members receive low-interest loans, which is why they do not have to rely on the loan sharks.
A successful credit union operates in my constituency of Corby. It is run by volunteers based at Corby's volunteer bureau and it has 400 members, 80 of whom are under 16. As young people enter adulthood, do they understand finance and budgets and how to open a bank account? They do not. It is important that we provide youngsters, particularly those in school, with that information, and joining a credit union is a safe and reliable way to find out how to manage money.
I am sure that hon. Members will join me in welcoming the growth of credit unions and congratulating all those throughout the country, including Corby credit union, on their success. As my hon. Friend the Member for Harrow, West said, the Bill has the full backing of the Association of British Credit Unions. Indeed, the range of support that he has managed to drum up is particularly impressive, and it is important for what we want to achieve.
Other Members have referred to housing, and I want to mention housing co-operatives. This week many Members will have read The Guardian obituary of Harold Campbell, written by Lord Graham. It is an excellent tribute to a co-operator who played an important role in the co-operative Wholesale Society and the co-operative Development Agency. Most significantly, he was a champion of housing co-operatives and the role of tenants in housing management.
The Bill is important because it would support and raise the profile of new ways of working—the new mutualism—not least in the housing sector. About 5 per cent. of tenants live in co-operatively managed homes and more live in homes managed by housing associations, which have grown considerably in recent years, co-operative housing ownership gives tenants more responsibility for their living conditions and helps them to acquire a greater sense of control over their own lives, homes and neighbourhoods.
Tackling the problems of the most run-down estates and providing more control and ownership to the people who live there, which are core elements of regeneration, will be important in the next four years of this Parliament 1120 The co-operative movement and the housing co-operative movement have a vital role to play in that, so legislation such as this, which would provide greater security for community assets, is essential if we are to pursue that approach.
We have not mentioned the health sector, but there is a model in my constituency, as general practitioners have formed a co-operative to share medical services and work together. Every sector—housing, finance and health—is open to such development and all the advantages it brings.
I must mention charitable law, which the performance and innovation unit is reviewing. There are parallels between the legal protections for charities and for industrial and provident societies, and there are models that we can use. I hope that the PIU report recognises the value of those protections for the wider voluntary sector, and that the model in the Bill, but not necessarily the charitable model, has wider application.
I again congratulate my hon. Friend the Member for Harrow, West on introducing this welcome Bill. He is a committed co-operator and we all pay tribute to his work as an MP and chair of the co-operative party. I am enjoying the debate. We are learning a lot, and I wish his Bill every success.
§ Dr. Vincent Cable (Twickenham)
I want to add to the weight of all-party consensus on this useful and important Bill, which would strengthen mutuality and the co-operative principle. I have become involved in the past few years through the Save Our Building Societies campaign, and my colleagues on the Liberal Democrat Benches would strongly endorse the thrust of the Bill. As we were reminded by the helpful intervention of the hon. Member for Wolverhampton, south-east (Mr. Turner), we are dealing with not only ideologically driven bodies, but practical grass-roots organisations. I am a member of my local British Legion club, which falls within the industrial and provident societies structure, as do political clubs and allotments.
I was intrigued by the reference to the Rugby Football Union, as my constituency hosts it. Whenever I get involved in disputes with the RFU, as I do because my constituents are often inconvenienced by it, I am always told that it is running a business. When I next speak to the RFU, I shall remind it that it is covered by the common bond and that it should perhaps take more account of my constituents' interests.
I must take up an important point made by the hon. Member for Epsom and Ewell (Chris Grayling). I congratulate the hon. Member for Harrow, West (Mr. Thomas) on taking the issue up for his private Member's Bill, but there is a question about why such important legislative change has to be dealt with in this way. Our approach to legislation for companies and for the mutual sector is not balanced. The last major companies legislation review was in the mid-1980s, but a new one is under way and no doubt flagship legislation will be introduced when it comes to fruition. However, it has been much more difficult to change mutuals legislation.
Building societies are the most important sector. The Government have helpfully introduced secondary legislation, but the all-party building societies group and the Treasury Committee, of which I was a member, recommended stronger primary legislation, for which time 1121 has never been found. A lot of encouragement is being given to credit unions, but if they are to take off, as they have in Ireland and the United States, major legislation is needed.
Friendly societies were reformed accidentally. When the Financial Services Bill was going through Parliament, they urged me to table amendments to Modernise their rules in the way that this Bill does. Initially, my amendments were rejected, but I am pleased to say that Treasury Ministers got the point and made the necessary changes—which, although it was an afterthought, gave the friendly societies a fillip. It is, however, unfortunate that a private Member's Bill should be seen as the only means of achieving Modernisation of this kind.
There is something of a paradox here, in that although we pay lip service to—or, in some cases, genuinely believe in—the importance of mutuality, it has become a bit like motherhood and apple pie. The brutal reality is that the key parts of the mutual movement have been in serious decline for a long time. Members have mentioned building societies, whose share of the market has fallen from about 75 per cent. to 25 per cent. in the last six or seven years. Much of the mutual insurance sector has disappeared very quickly, and only a few companies remain. Equitable Life has not exactly covered itself in glory, and the co-operative movement has been in decline for some time, quite apart from the Lanica takeover. The friendly societies are but a relic of what used to be a major lending movement.
We can, however, view the situation in a slightly more positive way. Mutual organisations of a different kind are bubbling up all over the place, although they are often not recognised. I did not know until recently that the after-school kids' clubs that have sprouted all over the country were mutual organisations. The Workers Educational Association, a very creative force, operates through mutuality, as does the University of the Third Age. Like that of the hon. Member for Corby (Phil Hope), my constituency contains doctors' co-ops, which have sprung up to provide after-hours care. Mutuality can be found even in high-tech business: the Linux computer software outfit is a mutual. We are talking not just about additional structures, but about Modern organisations.
Why do we see this paradox, whereby some of the traditional mutuals are seemingly in decline while others are bubbling up and growing? Provident societies, and mutuals in general, have a problem, in that while there are strong arguments for mutuality, it has its weaknesses, because unless the system of legislation and regulation is pitched just right negative forces will take over.
Let me summarise the positive aspects. First, mutual organisations—including industrial and provident societies—provide diversity. It would be undesirable if profit-seeking plcs or private companies formed the only basis of organisation; the banking sector gave us an effective reminder of that. The only real opposition to banking charges for cashpoint machines came from the co-op bank and the Nationwide building society. Those are also the only two organisations that have argued for ethical standards in banking, thus resisting a trend in the rest of the sector. That positive development would not have occurred without mutuality.
1122 Secondly, the mutuals provide a sense of social cohesion and community. Such things are enormously important. In many instances, moreover, this is simply the sensible way in which to organise. People organising a social club or allotment are not in the profit-making business. They merely want a formal, businesslike structure enabling them to organise but also to co-operate. That structure is not driven by ideology; it just happens to be the most sensible option.
Such organisations, however, have some fundamental weaknesses. Their main weakness is that they often become inward looking and complacent. When I was involved in the democratic side of the co-op movement in the late 1960s and early 1970s, it was blindingly obvious to many people that they were being hit by supermarket competition; but because so many in the movement did not want change or amalgamation, the movement withered.
Often, in mutual organisations, the sense of drive comes from enthusiastic professional managers who want to grow—but in fact they grow away from their roots, or, because they are enthusiastic and entrepreneurial, they want a share of the profits and therefore move away from the mutuality principle. There is an inbuilt tension in such organisations, which is why the regulations must be pitched absolutely right.
Clauses 1 and 2 in particular provide the right combination of answers. I see clause 1 as a guarantee against carpetbagging, and clause 2 as a guarantee against asset stripping. The two are related, but separate measures are needed.
Clause 1 deals with carpetbagging very neatly by bringing the law into line with that governing building societies, but, I ask the hon. Member for Harrow, West, does it go far enough? Those of us who have been involved with building societies are apprehensive, feeling that, even following the Government's two regulatory changes, they do not have enough protection at present. We fear that there may be fresh assaults on the remaining building societies.
I wonder whether this is, in fact, the best model. The Nationwide building society, rather cleverly, has introduced the principle that if building societies convert, the money should go to a charity. That not only protects societies, but preserves the spirit of mutuality—that you are not in it for the money. Would the Nationwide model be applicable under clause 1?
As for clause 2, the hon. Gentleman is right to draw attention to the problem of asset stripping. There are many examples, but I will give just one. I was brought up in York, and as a kid I was an avid supporter of York City football club. I used to follow the team around the country. Some Members may recall the famous semi-final against Newcastle. York City is now in danger of extinction, however—possibly within weeks.
Like most football clubs, York City relies on the support of a few business people who have put in a lot of money. In York, as in other cities, most of those business people treated their involvement as a mutual arrangement, and honoured the spirit of mutuality. One did not, however. He spotted a loophole in the law enabling him to sell off the club and the ground, and make millions. There is not enough of a safeguard in the legislation to 1123 stop that. I think it is a problem relating to industrial and provident societies, in fact, which is why the hon. Gentleman's proposals are so important.
§ Mr. Gareth R. Thomas
I am delighted that I seem to have provoked a rapprochement between the hon. Gentleman and the Rugby Football Union.
I have met representatives of the Building Societies Association, which, although not a parent body sponsoring industrial and provident societies, supports the Bill. It, like the hon. Gentleman, stressed the fact that the recommendations in the Treasury Select Committee report on demutualisation, produced back in 1999, still had not been given legislative time in the House. I am sympathetic to the proposed changes, but private Members' Bills must be seen to be modest. I have not sought to change the world; I have merely tried to make positive changes for industrial and provident societies. I realise that there are defects in other parts of the mutual movement, which I hope will be dealt with in the future.
§ Dr. Cable
I thank the hon. Gentleman for that helpful intervention. I certainly was not criticising his Bill; I was simply suggesting how we might look forward.
May I return to the subject of asset stripping? There is a legal problem, reflected in, for instance, inheritance legislation. There are dangers in locking up assets for long periods so that they become unproductive. It has been recognised in regard to mutuals, certainly in the case of credit unions, that entrenchment preventing asset stripping should exist in law, and I think that there are precedents for clause 2. There are precedents elsewhere for clause 2.
We can certainly draw encouragement from precedents created in continental Europe. The co-operative movement is far more successful in France and Germany than it is here. The movement has a far larger market share of the European retail sector, precisely because European legislation governing co-operation provides the protection against asset stripping that the hon. Gentleman is trying to build into the law here. Such moves are to be commended. I add my support to this important and useful Bill.
§ Mike Gapes (Ilford, South)
I do not intend to make a long speech, but this is an extremely important Bill. I have been a Labour and co-operative Member of Parliament for almost 10 years and a co-operator for 30 years. I have seen worrying attacks on the principles of co-operation as a result of demutualisation, but I have seen the beginnings of a new debate.
That debate was mentioned in passing by my hon. Friend the Member for Corby (Phil Hope) when he quoted a sentence from the new Labour party constitution. The words are on the membership card in my pocket too, but I will not pull it out and read what it says. The Labour party constitution now specifically and explicitly emphasises the importance of co-operation. That was not part of the old clause IV, but it is on the cards that Labour party members now carry with them. However, co-operation is not just supported by members of the Labour party, and I welcome the fact that Members from other parties have spoken in support of the Bill.
There is a growing recognition and desire in society generally to move away from the selfish "me" values that so damaged our country from the late 1970s onwards. If 1124 we are looking for new approaches to what could be called a Modern social democracy, we need to take account of practices in other parts of the world and learn from best practice in this country.
This Bill is about a complex and diverse range of organisations that have one common feature: they belong to their members. They do not belong to shareholders and they are not owned by an individual or a few individuals. They belong to their members, who have a right to have their assets protected. However, many attempts have been made—the internet makes this easier—to foster carpetbagging and asset-stripping operations.
Andrew Regan was mentioned earlier and I do not wish to refer to matters that might be sub judice. However, there are such people and they may not even be from this country. We have heard reports that Australians and people from other parts of the world have trawled around to find others to join them in carpetbagging and asset-stripping operations against mutual organisations.
Some of the reports involve high-profile cases and we have seen the effective way in which the Nationwide building society has fought to defend the mutual principle. Those of us who are members of the all-party group on building societies and financial mutuals have been pleased to give our support to the work that the Nationwide has done. I declare an interest: my mortgage is with the Nationwide and it gives me a good rate, much better than the one I would get from the demutualised societies.
We all know that the Nationwide has the resources, the calibre of management, the staff and the financial and technological base to be able to mount an effective defence against the attempts made by those who wish to demutualise it. However, some of the 9,000 smaller organisations that are in the industrial and provident society sector do not have such resources. They may be run entirely by volunteers and be entirely dependent on a few individuals. The vast majority of their membership may be happy because the organisations function well and have built up assets over time, but they may have no conception—or the expertise to help them—of how to resist when a malicious, determined, self-seeking, unrepresentative, carpetbagging and extreme capitalist comes into their midst to try to destroy the mutual organisation for his own interests.
We must provide a framework to assist such organisations. We need to find a way, through legislation, of shifting the balance in the interests of the ordinary members of those organisations. That is what the Bill is about. It is long overdue and very welcome.
Mention has been made of the variety of co-operative and mutual organisations. They can be found in my constituency and almost all Members could provide examples. In the medical sector, doctors' co-operatives provide out-of-hours services attached to accident and emergency departments. The doctors involved have other roles as members of the British Medical Association or in primary care trusts, but, at certain levels, they work within a co-operative framework. In time, that movement will grow. Similarly, people working in the employment industry have set up co-operatives for people with particular skills. They work together to provide work for their members in other sectors of the economy. That movement will also grow.
The more traditional co-operatives in my constituency include the co-operative Funeral Service, co-operative chemists and the one remaining co-operative store. I say 1125 "one" but, when I was first active in politics in Ilford many years ago, there were several co-operative stores. However, that has changed in London. Several Members have mentioned the attack that the big retail companies, such as Sainsbury's, Asda and Tesco, mounted to gain a greater market share.
At one time, the public perception was that the co-operatives were found only in the retail sector. However, Co-operative Retail Services in London got into terrible financial problems that went on for many years and there was a resistance to change. Only now under the new structure involving the co-operative Wholesale Society and the new co-operative Group does the organisation have an invigorated and, I hope, more effective retail side, co-operation and mutuality, however, are about much more than that. Many aspects have been mentioned already and I shall not repeat them.
§ Richard Younger-Ross (Teignbridge)
The hon. Gentleman is making some good and interesting points. He talks about empowerment—disadvantaged people being able to take control of their lives—and about co-operative stores, one of the weaknesses of which was that they competed head to head with the supermarkets. Will not the Bill help co-operatives in the agriculture sector to start at the lower end, so that people get a fair deal and can protect themselves from what some people would call the abuse of power by the supermarkets?
§ Mike Gapes
I do not wish to get into a big discussion about the retail sector, and I suspect that you, Mr. Deputy Speaker, would not allow me to do so, but I agree that it is essential that an organisation is democratic and accountable. If an organisation is not democratic because of neglect or because that suits the people who control it, problems arise. That is when organisations become vulnerable to takeovers by unrepresentative groups.
The same applies to other organisations in society. I believe that this Bill is about democracy, accountability and revitalisation of democracy. If people want to bring about change, they will have to gain the wholehearted consent of the overwhelming majority of the members. That principle is valid not just here but in a general sense.
In my misspent teenage years and early 20s, I was involved in the student movement. At meetings that purported to represent 10,000 students, the quorum could have fit into four telephone boxes. Totally unrepresentative decisions were made with no contact whatever with the vast majority. They did not even know about the decisions taken in their name.
I hope that we have gone beyond that in that area and in trade union operations, because we must ensure that unrepresentative decisions cannot be taken by small groups of people with a dedicated, almost entryist agenda, such as the Trotskyists and fascists who joined political parties to pursue their own agendas. We must protect the mutual sector and all the organisations that are encompassed by the Bill by enacting the safeguards that my hon. Friend the Member for Harrow, West (Mr. Thomas) has ably introduced.
I congratulate my hon. Friend on the way in which he introduced the Bill. As one of the sponsors, I have already expressed support for it. I hope that the House can unite behind its very sensible proposals and get it on to the statute book as soon as possible.
§ Mrs. Louise Ellman (Liverpool, Riverside)
I, too, congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on introducing the Bill, which emphasises the importance and value of mutuality and at the same time proposes practical measures to protect mutuality and co-operation from the asset strippers and carpetbaggers.
I remind the hon. Member for Epsom and Ewell (Chris Grayling), and other hon. Members that the Government have taken measures to support co-operation and credit unions. They have ensured that the remit of the regional development agencies includes specific reference to the need to support co-operative enterprises. In promoting and supporting the co-operative Commission, they ensure that co-operation is seen as an essential part of our economy and society. The commission has made recommendations of great practical value, some of which are being put forward today.
Hon. Members have already indicated the wide scope of the co-operative movement: it is involved in retailing, banking—both conventional and community—insurance, housing, production, farming, leisure and many other aspects of life. It is also an international movement. The International co-operative Alliance plays an essential role in bringing together co-operatives and mutual societies across the world, making it clear that co-operation and mutuality have value in all ranges of economies: in poor economies, in developing countries and equally in highly developed countries such as the United Kingdom which are struggling to redefine the value of community.
There is something special about co-operation and mutuality, and that is what makes the Bill so important, co-operation and mutuality are about the economy and being efficient but they are also about ethics and quality: quality of life and valuing individuals.
In 1844, the Rochdale Society of Equitable Pioneers set up its Rochdale store to provide a service to the community. At the centre of that service was an identification of the importance of providing unadulterated, good-quality food and a service that gave value to the customer, did not cheat and promoted high quality and high ethics.
More recently, in the 1990s, it was the co-operative bank under the leadership of its then chief executive Lord Terry Thomas which pioneered ethical banking, which has now been taken up across the banking sector. It was first in the field and led the way. In the same way, it pioneered the recognition of the importance to business of environmental concerns. It sponsored and supported the first environmental business centre, which opened in Manchester in the mid 1990s, showing that business too had a responsibility to the environment and that that responsibility could be met in giving economic benefits to banking and to business, as well as to the community. Throughout, co-operation and mutuality have shown not only that they were efficient and had economic benefits but that they were about ethics, showing initiative and taking the lead.
co-operatives are important at a local level. They often take the initiative, develop pioneering projects and take the lead in a way that no other organisation is willing to do. In that respect, I pay particular tribute to the work of 1127 the Eldonians in Vauxhall, Liverpool They began in 1978 as a community response to local authority plans to clear tenement blocks and disperse tenants far away from where they identified their community to be. The Eldonian housing co-operative was set up. It comprised local people who came together with a common need, and designed and built new homes on what was then the derelict Tate and Lyle site in Liverpool.
The Eldonian co-operative has never stopped innovating, showing the way and meeting the needs of its local community. It moved from building and designing houses to building a village hall, a residential home for the frail elderly, a day nursery and a sports centre. It takes the lead in economic regeneration in its area and elsewhere. It pioneered a neighbourhood community warden scheme supported by Merseyside police and the Home Office: a pilot scheme to show how neighbourhood wardens working in co-operation with the police and community could enhance the security of local people.
The example of the Eldonians in Liverpool shows the value of co-operation and of local people coming together, identifying a need and working to meet that need. They use the large-scale resources that are available through European funding, single regeneration budgets and objective 1 funding. They also put small amounts of money together with initiative and determination to improve the lot of the local community. That is an example that could be emulated throughout the country. I know that the Eldonians have inspired other groups, as they have inspired people in Liverpool.
A number of hon. Friends have drawn attention to the increasing popularity of mutuality and the increasing importance attached to the significance of community and of collective action. I believe that much of what has been dubbed "the third way" in recent years has simply been a recognition, long lost, of the importance of collective action, community and individual self-help, all working together.
For the co-operative movement and mutuality to reach their full potential for the benefit of the whole community in the future, it is important to have support at all levels. There needs to be support through enterprise from the regional development agencies and local initiatives. We need to ensure that new funding made available by the Government, such as the Phoenix fund, is used to support the development of local co-operatives. For co-operation to develop, it needs support organisations. The Lancashire co-operative Development Agency was set up by Lancashire county council more than 17 years ago. That excellent organisation, set up because a local authority believed in co-operation as it believed in enterprise and economic development, has supported a wide range of co-operative organisations, bringing employment and benefit to hundreds of people in the Lancashire area and more in the north-west as a whole.
For co-operation to flourish, it also needs the support of the Government. The Government have already given much of that support in encouraging co-operation, backing changes in regulations on credit unions and looking at financial regulations. They can give more support by supporting the Bill today so that co-operation and mutuality move forward as an ever-growing third sector in our economy, meeting the needs of local communities, supporting initiative, and showing the true value of collective action.
§ Mr. David Drew (Stroud)
I am delighted to be called to speak and to follow my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman). My hon. Friend gave a very clear exposition of the benefits of co-operation, mutuality and community benefit, which all of us, in a way, were elected to this place to represent. However, some of us see it more formally, and here I declare my interest, as a proud Member of the co-operative party. It is pleasing to know that we are the biggest representative group in the history of the co-operative party. I see many colleagues smiling, so I think I am among friends.
I do not want to reiterate the arguments that have already been made. The case for the Bill is strong, although no doubt we will tease out the details in Committee. I was pleased to receive a letter from my hon. Friend the Economic Secretary saying that in principle the Government support the Bill. They have some problems with clause 2, but I hope that those can be dealt with in Committee. I hope that the Bill will be given godspeed and go on to the statute book.
I want to discuss the need to encourage co-operatives in the rural economy, particularly in agricultural production. In my intervention on my hon. Friend the Member for Harrow, West (Mr. Thomas), I highlighted the fact that this is a particularly opportune moment at which to discuss the matter. The Curry commission, which will report next week or the week after, will deal with the problems of the agricultural economy post-foot and mouth. My right hon. Friend the Prime Minister asked the commission to look very carefully at how to revitalise, if not completely restore confidence in, the agricultural sector.
I have no reason to believe that the leaks we have heard are right or wrong, although I suspect that they are more right than wrong. It seems that the commission will recommend looking carefully at encouraging co-operation in this important sector. Critics will point out that one of the main co-operatives that previously existed, Milk Marque, was not helped by the Government. However, we need to study the history so that we do not always look at the bad side of the co-operative sector. If we can learn from that experience, we can take forward what needs to happen. I make no apology for concentrating on that aspect.
The Bill brings together two important features which we ignore at our peril. First, there is a crying need for co-operation among farmers so that they can take on other elements upstream in the food chain—the processors and retailers. I do not use the phrase "take on" in a confrontational way; I am merely referring to the way in which business, by co-operating at an appropriate level, can be more effective through synergy, and to the fact that people can do more collectively than individually. In response to my intervention, my hon. Friend the Member for Harrow, West gave the example of the pig sector, which already has many large co-operatives.
Secondly, we must realise that we are competing not only within this country but within Europe and other large agricultural economies, such as those in Australasia, where co-operatives are an important fact of life. If we do not take that into account we miss an opportunity, and risk finding out in the future that they are much more effective than we are. I am not usually a great pro-European—I see that my hon. Friend the Member for 1129 Luton, North (Mr. Hopkins) has just come into the Chamber—but we can learn things from the European Union and from mainland Europe, such as how co-operation has allowed other countries to keep the agricultural sector more intact and how we can develop that in the appropriate way. The Bill gives us the opportunity to do that.
I work with many farmers in my constituency, and it is sometimes hard to recognise the benefits of co-operation. However, where such a system is in operation, farmers are its greatest defenders. Machinery co-operatives allow farmers to buy and share machinery. They also share veterinary costs and their most likely venture is to share marketing costs. Once all those things are established, farmers become great defenders of them. It is sometimes hard work to instil that interest, but once it is there it grows and it could enhance the agriculture sector, which is in desperate need of an uplift.
co-operation in the rural economy is not limited to farming. Many of us are proud to have farmers markets operating in our constituencies. I have an important one—one of the initial ones—in Stroud. It certainly set the trend. It is pleasing that, even though the organisation is not registered as an industrial and provident society, it works as a co-operative and mutual organisation. There are many other examples. Cirencester was set up after Stroud, and works successfully. All the evidence that has been put to me shows that people want to develop it further. The Bill allows us not only to ensure that such organisations continue but to encourage many other organisations.
co-operative organisations are active in the arts and in work with people who have particular difficulties such as disabilities. I use as an example the Arts Factory, set up 1990 in Ferndale in the Rhondda Valley. People are co-operating in the arts and using that to develop their skills and market their produce effectively. Another organisation called ADAPT in the Tynedale area of Northumberland works with people with disabilities, enabling them to work on a co-operative basis—employment that otherwise would not be available to them. The co-operative support to provide transport, advisers and so on is a good example of co-operation at its most effective. Other hon. Members, especially my hon. Friend and fellow co-operator the Member for Corby (Phil Hope), have mentioned credit unions, which are a vital part of our social fabric.
The Bill shows what we need to do to regenerate rural areas. My hon. Friend the Member for Harrow, West mentioned the Village Retail Services Association—ViRSA—which is a voluntary shop movement. That is not unimportant. One of the ways in which we can bring facilities that have closed back into use is through the voluntary shop movement. Such shops are often combined with a post office. At Port Appin near Oban a community co-operative has re-established a shop.
The shop is the centre of the village. Once villages lose their shop, they can begin to decline. I shall not get into the argument that has recently raged in certain regional newspapers about what is a vibrant village. I support the notion that the Countryside Agency should look at such things, but if my postbag and my local press are anything to go by, I am not sure whether the way in which it has 1130 approached the matter and labelled some communities has been helpful. We have upset an awful lot of villages by referring to them as less than vibrant.
If the Bill can help bring shops back into use and get communities behind them, and if the co-operative way is the best way of doing that, it is a jolly good thing that the Bill has come at this time. I am sure that my hon. Friend the Economic Secretary, who is back on the Front Bench, will understand that the Government have a key role to play not just by standing aside and watching the legislation go through but by actively encouraging it and ensuring that we get the best and strongest Bill possible. I hope that I will be able to help that process so that the Bill can lift the co-operative and mutual sector.
§ Mr. Adrian Bailey (West Bromwich, West)
First, I had better make it clear that I am a co-operator of long standing. Like others in the House today, I must declare that I am a member of the Labour and co-operative group of Members of Parliament. Before I entered the House, I was an employee of the co-operative movement for 18 years, during which I had an opportunity to meet representatives of many of the traditional co-operative societies, the mutual organisations and the huge range of new and emerging co-operatives.
In the debate so far, it has been interesting to note that each new speaker has mentioned a new sort of co-operative. I have worked within the movement all this time, and still I hear about new forms of co-operative endeavour of which I was hitherto unaware. That is a reflection of the way in which society now looks on that form of endeavour as a means of fulfilling social objectives which it would not have considered appropriate a few years ago.
I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on introducing the Bill. I know that it has been long demanded by the traditional co-operative and mutual movement, but it is also recognised by the new emerging forms of co-operative and mutual organisation as relevant to their aspirations. Above all, the Bill recognises that different types of businesses require different structures. It does not pretend that the same thing is relevant for all sorts of economic organisations.
It is clear that certain sorts of traditional shareholding companies are inappropriate for community-based businesses. They are good for certain types of entrepreneurs; they have been successful historically in creating wealth. However, companies legislation constrains them to put their shareholders' interest first. The Bill would strengthen organisations that put service before shareholders.
The hon. Member Twickenham (Dr. Cable) mentioned some of the difficulties that the co-operative and mutual movement has faced in the past few years. I concede that it has faced difficulties, but one must also recognise that many co-operatives and mutual organisations that have survived until now have their origins in the previous century. It would be interesting to compare the longevity of co-operative and mutual organisations with that of private shareholding companies.
§ Ms Meg Munn (Sheffield, Heeley)
Will my hon. Friend pay tribute to a co-operative that he and I know well—Wortley Hall, in the constituency of my hon. 1131 Friend the Member for Barnsley, West and Penistone (Mr. Clapham), which is also used by many of my constituents and many other people in South Yorkshire? It is a co-operative holiday and conference centre which was taken over 50 years ago, and celebrated its 50th anniversary last year. It became known, not surprisingly, as the people's stately home.
Wortley Hall provides conference facilities for much of the trade union movement, and holidays. It has been used for the benefit of local people for more than 50 years, yet how often do we go to a hotel or similar establishment in the private sector and find that it is now owned by someone different?
§ Mr. Bailey
I thank my hon. Friend for that information. Yes, I will pay tribute to Wortley Hall. I have spent many happy weekends there, and my hon. Friend's intervention reminded me that in addition to all its other achievements it has one above all: it is the place where my wife agreed to marry me, which I think everyone would agree makes it even more remarkable.
It is a testimony to the relevance and resilience of mutual and co-operative organisations that they have survived so long in a not very friendly legislative climate.
As the hon. Member for Twickenham said, mutuals and some co-operative societies have not always sold themselves very well. They have been happy to do their business, in some cases very successfully, but they have not conveyed to their members or the wider world the fact that they are a different type of business, and the merits of surviving as a different type of business. That omission was one of the factors that made them vulnerable to the predatory efforts of the carpetbaggers about whom we have heard so much this morning.
When the attacks on mutual societies were at their height, I read the financial pages of many newspapers, some of which should have known better, and I felt that the debate that went on failed to give a balanced perspective on the relevance and significance of the mutual sector in our financial set-up. All too often, many financial commentators were happy to go along with the tide of self-interest that dominated the debate.
That attack on the mutual sector highlights the need for the Bill, but I emphasise that it is not just a defensive Bill, designed to protect societies. It is a recognition that today's economy is more complex. The economy is no longer divided purely into the private sector and the public sector. The social economy is ever more important. In an increasing number of areas, although companies have to survive in the market, profit is not their main motive or driving force. Attempts to deliver many vital services by private shareholding companies have not worked. I could mention the water utilities and—dare I say it—Railtrack as classic examples.
Different forms of community-based business have proliferated. This morning we have heard about housing co-operatives, care co-operatives, football trusts, food co-operatives, credit unions, societies, clubs, and even the Women's Institute. My hon. Friend the Member for Ilford, South (Mike Gapes) has said that although those are different in so many ways, they all have one thing in common: they are owned by their members. For the most part, they also have other things in common. First, there is a degree of education in participation. Secondly, their success is measured by the quality of the service that they 1132 perform. Thirdly, the assets that they build up are available to the community rather than going into the pockets of the shareholders.
When I look around my constituency of West Bromwich, West, I see traditional and new co-operative and mutual endeavours. There is the West Midlands co-operative society, which still has many vital trading outlets, often in places where other multiples would not go. There is the Tipton and Coseley building society, which has survived the predatory instincts of certain people. It has not only provided many years of valuable service to the local community and the local economy, but been a linchpin in initiatives to regenerate the Tipton area.
There is also a housing co-operative at Cotterills Farm in Tipton, which works with the local authority and provides an excellent service to its tenants. We have a food co-operative, Sandwell Community Foods, which provides much needed healthy foods to people who otherwise would not have access to shops. It concentrates on delivering fresh fruit and vegetables at competitive prices to private homes, schools and nursing homes. It is funded partly by the national lottery board, partly by income that it generates itself and partly by the health authority through the health action zone. It is a clear demonstration of a community business complementing Government initiatives in the realisation of agreed social objectives.
These community-based companies are growing because the dividing line between the traditional public and private sectors is becoming blurred. Many services provided by national and local government have lacked flexibility and sensitivity to consumer needs. However, those services would suffer if they were delivered by private companies, where scarce resources would be diverted into shareholders' pockets. The co-operative or mutual alternative provides a solution that is as sensitive to consumer demand as the private sector, but which does not divert those much needed revenues into private shareholders' pockets.
However, under existing legislation there is a problem. The irony is that the more successful a mutual or co-operative becomes, the more vulnerable it is to privatisation. The richer it becomes in assets, the more likely it is to become a target for carpetbaggers.
Once privatisation takes place, the assets that have been built up by individuals on behalf of the community are lost, the service that the mutual or co-operative has delivered to the community is all too often lost—and, perhaps most worryingly, it provides a tangible disincentive for the other organisations that seek to do that work to organise on a mutual or co-operative basis. The fear of having the assets built up by a co-operative initiative taken over and privatised is still a definite disincentive in some areas.
The provisions in the Bill to ensure that any privatisation of a society will require a higher threshold of membership support should act as a deterrent; I welcome them. The clauses are designed to ensure that the society's assets continue to be used for community or other benefits will remove that incentive for carpetbaggers.
I recognise the point made by the hon. Member for Epsom and Ewell (Chris Grayling), who is not in his place at the moment, that the provisions could present difficulties in certain circumstances. I believe that most of 1133 us who have been local authority representatives have come across that problem when trying to realise the aspirations of charitable trusts that were designed in previous centuries. However, I do not regard that as an insurmountable obstacle; I simply think that it requires an appropriate level of legislative flexibility.
The clauses that would provide for the updating of society legislation in line with other forms of company law are very welcome. They are welcome, above all, because they represent a recognition that industrial and provident society law is as important and significant as other forms of company law—that it is not just an archaic relic left over from the Victorian era, but a living and dynamic form of corporate legislation that plays, and will continue to play, a vital role in a Modern, socially sensitive market economy. I therefore ask all hon. Members to support the Bill.
§ Mrs. Ellman
On a point of order, Mr. Deputy Speaker. I note that several of my hon. Friends, as Labour and co-operative Members of Parliament, have declared their membership of the co-operative group. I was not aware that that was a requirement in this debate. If it is a requirement, I wish to declare my membership of that group, as a Labour and co-operative Member of Parliament, and I apologise for not doing so when I made my speech.
§ Mr. Deputy Speaker (Sir Michael Lord)
That is not really a point of order for the occupant of the Chair, but the hon. Lady has made her point, and it is now on the record.
§ 12 noon
§ Jim Sheridan (West Renfrewshire)
May I say from the outset that I am not a member of the co-operative party, but that I will still endeavour to co-operate and keep my contribution brief?
I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on introducing the Bill. It is a breath of fresh air for me that the Bill contains social values that are consistent with my own values, when this society is one of personal gain and personal greed. The values in the Bill are consistent with those that brought me and a number of my colleagues into politics—social responsibility, accountability and the fundamental recognition that the more vulnerable people in our society depend on such organisations to enhance the quality of their lives.
I can think of no other recognised organisations—other than the Labour party and the trade union movement—that have the absolute commitment to democratic member control and participation that is apparent in the constitution of the co-operative societies. They have one member, one vote—as opposed to registered companies, where each share has a vote.
co-operatives work for the benefit of their communities in a way that other financial institutions choose to ignore. Likewise, I also want to mention the good work done by credit unions, which has been mentioned already. A number of local credit unions in my constituency do sterling work day in, day out.
1134 I am fortunate to represent a constituency that is diverse and somewhat complicated. In West Renfrewshire, many people live comfortable lives and operate within the established financial institutions, but there are those who, through no fault of their own, are unable to do so, or are uncomfortable in that environment. That is why the Bill is important. It would protect the interests—and, more importantly, the assets—of the societies from the carpetbaggers, whose only interest is self-interest; they have no interest in our communities. There is clear evidence that the financial predators are in the vicinity. That is why we must get the wagons in a circle now and legislate to protect those valuable and socially inclusive societies.
Industrial and provident societies have a crucial role in monitoring and delivering our public services—an issue of particular interest to me. Trying to deliver good quality transport is a particular problem in the rural communities in my constituency, and such societies could play a role in solving that problem.
We often refer to those societies as friendly societies, which is exactly what they are. They are community-based and their members feel comfortable participating in their structure, which strikes a proper balance between prudence and the needs of the community. On that basis, I am absolutely delighted—as a non-member of the co-operative party—to support the Bill, which offers tangible legislative protection to those who have a social conscience in our society.
§ 12.4 pm
§ Mr. Tom Watson (West Bromwich, East)
I, too, congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on introducing the Bill. It has at its heart the values of the co-operative movement that were established by the 28 weavers more than 150 years ago. My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) talked about that cold December night when the weavers opened their half-empty warehouse, selling only four items—flour, oatmeal, sugar and butter. Who would have thought then what a movement they were unleashing?
The Bill is about safeguarding and refreshing the values that led to the establishment of those early co-operatives. Hon. Members have highlighted the fact that many organisations in our constituencies remain true to those principles and are looking to Parliament to provide them with a Modern framework within which they can thrive for the benefit of future generations. It is a classic example of traditional values in a Modern setting.
The co-operative movement is on the brink of a renaissance. If my hon. Friend's Bill does one thing, it puts the co-operative movement and mutuals firmly on the political agenda, at the heart of debate in this country. I must pay tribute to Peter Hunt and his team at the co-operative party, who have done so much to ensure that co-operators have an amplified voice not just in the Chamber, but in the newspaper columns.
The Rochdale pioneers were committed to economic democracy—to operate their co-operatives collectively. They ensured that each member had only one share and one vote. Every member family had a say in the decisions that they made for the business. It is no surprise that all such organisations support the Bill. I pay tribute in particular to the members of social clubs—the Labour, 1135 Liberal and Conservative clubs. This morning I talked to the treasurer of the National Union of Labour and Socialist Clubs, Mr. Bill Thomas, who told me to let hon. Members know that clubs up and down the land and their thousands of members will drink a toast to Parliament if we pass the Bill. I apologise to the hon. Member for Angus (Mr. Weir), but I do not know whether there are any Scottish nationalist clubs. If there are, I am sure that they will drink a wee dram, too.
Co-operatives are not only economic entities, but community entities. They foster a great social awareness and build communities. John Williams, the president of my club, West Bromwich Labour club, is an electrician by trade. He leads a band of artisans who have been maintaining the club for many years. They are Pete Lowbridge the plumber, John the glazier and Geoff the builder—[HON. MEMBERS: "Bob the builder?"] No, Geoff the builder. In their own time they not only enjoy the club's provisions, but maintain it—notably, they have rewired the entire second floor on Sunday mornings over the past six months.
Co-operatives also foster a cultural spirit in a community. There are many youth music groups and arts groups. I am not sure whether members of the band Hear'Say formed a co-operative when they won the television show, but—this is hot off the press—one of its singers, Kym, has left it, and I am sure that the House will want to wish her all the best with her solo career.
I am sure that Kym would agree that the attack on mutuals and co-operatives has a corrosive effect on community building. The Mirror encapsulated it best when it said in 1999 that carpetbaggers weretrying to destroy institutions for which our fathers sweated blood. The despicable greed at the root of all this is a shameful reflection on the values of Britain today. Carpet-bagging is not a freebie but is asset-stripping and legalised theft from future generations.By increasing the threshold of votes needed for demutualisation and by giving societies the opportunity to change their rules so that any assets from demutualisation will transfer to a charity or another society that works on behalf of the community, those greedy windfall hunters will be deterred.
As hon. Members have said, the co-operative Wholesale Society recently fought off a carpetbagging attempt. When Andrew Regan was defeated, a co-operator said:Members of the co-operative Movement are not cans of beans to be bought and sold by the City. The co-ops constitute a social and economic movement clustered around distinct principles which it has recently been reviving.The Bill is part of that revival.
That threat has helped to rally co-op members throughout the country to a degree not seen for generations. The co-op is now well prepared to fight any future carpetbaggers, but it is incumbent on us to protect others who are less fortunate, so I am pleased that we are aiming to give all co-operatives the same degree of protection that we gave building societies in 1997.
West Bromwich, East is home to one of the best examples of a mutual, which works for the long-term benefit of its members and the surrounding community. West Bromwich building society is one of the largest employers in my constituency, and works at the heart of the community. Some 200 of my constituents who are employed by the society have written to me, urging me to 1136 support the Bill, which I enthusiastically do today. They know that the benefits of membership of a mutual such as the West Bromwich are clear.
Last year, the society was able to pass on to its members its biggest ever mutuality benefit, which was worth £15 million, and its mortgage rates were 0.8 per cent. lower than those of most high street banks. In a constituency such as mine, affordable mortgages are particularly important because they give people who may not ordinarily have the opportunity the option of reaching the first rung on the property ladder.
The society is more than just a financial institution; it plays a leading role in the social life of my community. It sponsors the West Bromwich Albion football club and the Duke of Edinburgh award programme. By looking after its staff, the society has won the business in the community award, the black business in Birmingham corporate responsibility award and, last year, the equal opportunities employer of the year award. It also delivers £500,000 of investment every year through its community programme, to the benefit of more than 500 charities in the midlands and beyond.
§ Phil Hope
My hon. Friend is talking about the importance of local community trusts. That new form of organisation, which is growing and is supported by the Government through the community network fund, provides new opportunities for local communities to have an endowment that generates interest, which is spent in the interests of those communities. That is another example of a way in which the industrial, provident and co-operative society movement is contributing to the regeneration of communities.
§ Mr. Watson
My hon. Friend is absolutely right, and the West Bromwich building society is a classic example of that. In the past six months, in partnership with the new deal, the building society has had discussions with the police and allowed them to open a local community headquarters on its site. That is a perfect example of a mutual putting something back into the community. Crime figures are already falling in that area because the police are now right on top of a crime hotspot.
The House should do all that it can to promote and protect the invaluable role played by mutuals. We must establish a new and secure environment for the development of new mutualism and existing societies. The Bill will safeguard the very values that led to the establishment of the early co-operatives. Today, many organisations remain true to those principles, but they now need us to provide them with a Modern framework within which they can thrive for the benefit of future generations. The Bill will do that, and I hope that all hon. Members will unite in supporting it today.
§ Andy Burnham (Leigh)
Even someone as new to the House as I am is old enough to know that no ideas are new, not even the third way. In 1844, just a few miles from my constituency and, my hon. Friend the Member for West Bromwich, East (Mr. Watson) may be interested to hear, not far from Wigan, where Kym from Hear'Say grew up, the Rochdale Society of Equitable Pioneers realised that to protect the interests of its people, it needed an alternative to the sterile choice of state control versus 1137 private ownership, to paraphrase a Member of the House. One hundred and fifty-eight years later, and following two decades during which we were told there was no such thing as society, those concepts are community-based as the solution to the inheritance of individualism from the 1980s and 1990s—the decline in civic participation and the deterioration of the fabric of public life.
The Bill will help that process and create a stronger legal framework for mutualism and community ownership that will enable them to continue to flourish in Britain. I offer my warm congratulations to my hon. Friend the Member for Harrow, West (Mr. Thomas) on a speech full of knowledge, humour and conviction and on his choice of subject for his private Member's Bill. The benefits of community benefit societies are clear; they provide for the wider public good, rather than narrow private interest; they are democratically controlled by their members; and their proceeds are ploughed back into extending their activities, as contributors to our debate have made clear.
As my hon. Friend said, the free market works and serves parts of society well, but that is not true across the board. In some areas, including, as we have all experienced in our local constituencies, train and bus services, it fails communities. It is in areas where we have a common interest in comprehensive and responsive services that mutualism can have a growing role.
§ Phil Hope
My hon. Friend mentions transport. A new wave of community transport schemes is being developed throughout the country. Sometimes, especially in rural areas, they are funded from Department for Transport, Local Government and the Regions budgets and serve estates that private bus companies have abandoned. Elderly and disabled people rely on community transport schemes. Will my hon. Friend comment on the importance of those schemes in the wider mutual network and the way in which the Bill accelerates the growth and support of such services in local communities?
§ Andy Burnham
My hon. Friend is right. Deprived housing estates in my constituency are no longer served by local bus companies, which unilaterally decided to withdraw services. I hasten to add that there is no longer a service to Leigh infirmary, presumably because the companies did not make enough money from that route. The community has a crucial interest in retaining bus services for those estates and the local hospital; mutuals and community benefit societies can plug that gap in provision.
§ Linda Gilroy (Plymouth, Sutton)
Has my hon. Friend come across the urban bus challenge fund? Indeed, today, the Under-Secretary of State for Transport, Local Government and the Regions, my hon. Friend the Member for Northampton, North (Ms Keeble), made a further announcement of funding for the rural bus challenge fund. Some money will go to buses in Devon, and no doubt some will go to areas represented by Members attending our debate. Perhaps my hon. Friend would like to draw attention to that.
§ Andy Burnham
My hon. Friend makes a pertinent point. She is right—the urban bus challenge fund is benefiting my constituency. It supports existing operators 1138 and will help them to provide services that they are not currently providing. I should certainly be interested if that funding could be extended to help start-up or community organisations that want to run their own transport services. Labour Members would certainly wish to explore that valid longer-term solution.
§ Mr. Colin Challen (Morley and Rothwell)
As we are looking at new ways of introducing mutuality to our communities, particularly our estates, does my hon. Friend agree that the police reform White Paper offers several opportunities to do so, especially with accredited community safety organisations? The Home Secretary is talking about accrediting private organisations. Does my hon. Friend agree that the mutual model would best suit those private organisations?
§ Andy Burnham
I entirely agree with my hon. Friend. The point about community benefit societies is that one can always have full confidence that they exist to serve the whole community and not only part of it, and that there is no inherent conflict in their articles of association. Communities throughout the country are becoming increasingly anxious about rising crime and they want to do something about it and to reclaim their estates and streets. I strongly endorse his suggestion.
§ Mr. Gareth R. Thomas
I am grateful to my hon. Friend, who has been extremely generous in giving way. While he is on the subject of new mutuals and transport in particular, may I flag up the Community Transport Association, which is one of the sponsors of industrial and provident societies? One of its members—Ealing Community Transport—is active in my constituency. That reinforces some of the points that he and other hon. Friends have been making.
§ Andy Burnham
My hon. Friend makes an interesting point. There is a big gap in our constituencies, in that community transport is not properly catered for. None the less, he, like me, will represent people who are out of work and who want to contribute to society. Surely initiatives could be taken to enable them to do so. It is to be hoped that community transport will generate a new wave of projects. I hope that the Community Transport Association will help to secure such a development.
I do not want to be naive, but I feel that community ownership may be to this decade and the next what privatisation was to the 1980s and 1990s. While its benefits are known to enthusiasts such as us—this point was made by my hon. Friend the Member for West Bromwich, West (Mr. Bailey)—there is a problem with wider public awareness. That might be changing. We have heard today about the breadth of areas with which the Bill deals and have touched on some of them, but I should like to focus on one that I feel is especially relevant: football.
Football is Britain's biggest outlet for the expression of collective endeavour. It is no coincidence that it is one of the sectors experiencing the fastest expansion of community and supporter ownership. Millions of people support football clubs in this country—not to make money, but because of a love of the game and the sense of belonging and civic pride that it gives. Many of them, however, have become embittered by the profiteering and excessive commercialism in the game today. I have 1139 always believed that the moral owners of football clubs are their supporters and communities. My family has poured tens of thousands of pounds into Everton football club over four generations—a very wise decision, as I am sure all hon. Members will agree—but we do not own a single share in it.
In explaining the full relevance of the Bill to football, I hope that the House will allow me to spend a moment or two on the history of professional football in Britain. The preamble to the Industrial and Provident Societies Partnership Act 1852 describes such societies asvarious Associations of Working Men formed for the mutual relief, maintenance, education and endowment of the members.If recreation were added to the list, it would be an accurate description of the origins of the leading and most prestigious football clubs in this country. My own club began its life as St. Domingo football club—a humble church club from Everton valley in Liverpool. At the same time, over in Manchester, a works team from the Lancashire and Yorkshire Railway Company called Newton Heath had been formed and in time would become the world's most famous club. That happened in 1878–26 years after the 1852 Act took effect.
The new clubs could and perhaps should have been established as industrial and provident societies, but as interest in the new game grew in the industrial north and payments to players became prevalent they took another route. To limit the liabilities of those who ran them, they began to incorporate as limited companies. Although we were not to know it until many years later, that decision was to have a crucial bearing on professional football in Britain, especially in the 1990s. Despite their business organisation, however, they remained sporting clubs first and foremost. Shares were issued, but they were few in number and difficult to transfer, and in some cases re-sale values were capped—all to protect the club from speculators.
In many cases, majority ownership of clubs fell into the hands of wealthy local families who more often than not owned the major local employers. I am thinking of the Moores family in Liverpool and the Edwards family in Manchester. They saw themselves as the custodians of the local club whose role was to ensure their safe keeping and to pass them on for the enjoyment of future generations.
Aware of the potential conflict between clubs as businesses and as sporting and community organisations, the Football Association of the time showed foresight and decisiveness. Nowadays, some people might say that that was uncharacteristic. It amended its rule book to try to reconcile the competing interests. Rule 34 of the Football Association's articles sought to prevent profiteering and asset stripping of football grounds. It required all FA-affiliated clubs to incorporate provisions in their articles to protect the ground for local sporting purposes and for the benefit of the wider community if they were wound up.
For many years, the company model served football and its clubs well. That changed with three key developments in as many years: the Hillsborough disaster in 1989, Italia '90 and Gazza's tears and the breakaway of the premier league. Almost overnight, the old methods of running football clubs were gone. The new-found mass interest in the televised game, the financing from the public purse of wholesale ground improvements and changes to football's redistribution mechanisms attracted 1140 a new breed of director to the boardroom: someone who understood how proud community organisations—now some of the country's leading brands—were ripe for cashing in.
Not only the top clubs were subject to such threats. Small-time business men entered the boardrooms of smaller clubs to sell off grounds and burn down stands in insurance scams. Clubs that were built on generations of support from families and communities were and are under threat. The hon. Member for Twickenham (Dr. Cable) made that point strongly and coherently in his remarks about the current threat to York City football club. Rule 34 has been put to a vigorous test, and its enforcers have been found wanting.
Those developments in football and the conflict between clubs as public limited companies and community entities was brilliantly exposed by a columnist for The Independent, David Conn, in his seminal book, "The Football Business". At the end, he calls for a full reassessment of the game's policy direction by its authorities and anticipates two possible outcomes. His words go to the heart of our debate:It may be that people will decide that in fact they like the free market model of football. They may decide that human beings must not stand in the way of market forces and that cherished institutions should be allowed to die. Or they might decide the opposite. That making money is an important activity for football, but only if it is to be put to constructive use. People may decide that it has all been a strangely paralysing dream, this handing everything to the rich, and remember that human beings can organise their own societies and institutions. They may decide that football should be run in a business-like manner, to guard against shame and tragedy of the past, but that business alone does not preserve history, magic, soul. They might, after proper reflection, decide that football is a greater, more wonderful thing than merely a business. And that it needs to be reclaimed, before it is too late.
§ Chris Grayling
The hon. Gentleman may have inadvertently emphasised a point that I made earlier about the need for caution before setting the rules for such societies in stone. He and the hon. Member for Angus (Mr. Weir) will know about the change from Meadowbank to Livingston and the success that the club has subsequently enjoyed. If the provident model were set in stone, there would be a danger that a provident organisation in football might not be able to make such a decision, and thereby enhance rather than detract from the quality of the contribution that the club makes to the game. We might not always want such transitions to occur, but perhaps the option should be available.
§ Andy Burnham
I understand the hon. Gentleman's point. However, I believe that the Bill is as relevant to football as it is to some of the other sectors that we have discussed because football clubs belong where they were founded and nurtured by generations of local people. I do not understand why Wimbledon should be given permission to move to Milton Keynes. That goes against the grain. If Wimbledon's articles contained provisions such as we are considering, that possibility would already have been ruled out. If the members of a football club trust wanted to vote for such a move, a three quarters majority would be required, but it is important that football clubs are anchored in their communities. The Bill would help to achieve that.
§ Mr. Gareth R. Thomas
May I draw attention to clause 2(1)(c)? It provides flexibility for community 1141 benefit societies, should they vote for protection against having their assets demutualised. It provides protection for organisations that need flexibility. It will prevent any liberation of assets from community benefit societies, although how exactly those assets are used is not prescribed in the provision. Perhaps my hon. Friend will endorse that point.
§ Andy Burnham
I am pleased that my hon. Friend has brought that to my attention. He clearly has a much more detailed knowledge of the Bill than I do, and I am glad that he was on hand to point that out. It is helpful that that flexibility is in the Bill. There is a strong recognition that the communities that have set up these organisations will want them to be there for future generations, although the Bill does not rule out the possibility of future change.
§ Mr. Weir
Mention was made of Livingston football club. In the Scottish league, there are, unusually, still some clubs controlled by their local members. As I understand it, there is nothing in the Bill to stop such a club selling its stadium and building a new one, provided that it remains part of the assets of the association. There would, therefore, be nothing to stop clubs selling outdated stadiums and upgrading to new ones for safety and other reasons. The Bill would, however, prevent them from selling off their assets, disbanding, or—as often happens in America—moving across the continent.
§ Andy Burnham
I am pleased that the hon. Gentleman has made that point. I am trying to articulate—and perhaps not getting it over as explicitly as I should—that these mechanisms for supporters trusts and football clubs will step in where the English Football Association has failed to enforce its own rule that clubs should not be asset stripped. The Bill gives supporters the mechanism to deal with such matters for themselves if there is a failure to protect the club at that level. The hon. Gentleman is also right to say that if the members choose a different future for their club, there is nothing in the Bill to stop them doing so.
David Conn's words about greater community ownership anticipated a movement in football and I am pleased to say that, five years on, that movement is well under way. His book prompted the Government's football taskforce—for which I was the administrator—being set up to consider how the rising commercialism in football could be reconciled with the wider public good. The taskforce recommended that the Government should consider how the community and supporter ownership model could be expanded throughout football.
The model that the taskforce took was Northampton Town. A financial crisis caused by boardroom mismanagement had led to the birth of the Northampton Town supporters trust. Fans had raised money to save their beloved club but were simply no longer prepared to throw it into a black hole without knowing where it was going or having any say in return, so they set up as an industrial and provident society.
The trust's chairman, Brian Lomax, went on to become the first director of an English football club to be democratically elected by the fans. Through his position of influence, he ensured that the reborn Northampton Town was run not for the interests of a few but for all its 1142 fans and the local population. It is no coincidence that the club currently has the best facilities for disabled people of almost any in the English league, and that is has led the way with its work on anti-racism initiatives. Northampton Town stands as an antidote to the ills at other clubs in the country and shows what can be achieved when fans get together to determine their own future.
It is to the great credit of my right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), that he understood the potency of co-operative principles and ideas in football and, as a result, accepted the taskforce's recommendation and agreed funding to set up a new organisation to encourage the development of other supporters trusts at clubs across the country.
Supporters Direct has now been working for 18 months. It was set up with the help of the co-operative party—to whose general secretary, Peter Hunt, I pay tribute for his unstinting support for this initiative—the co-operative bank and Cobbetts solicitors, all of whom deserve great credit for having had the foresight to back this ground-breaking initiative. The Supporters Direct model is right because it does not impose anything from the centre, but is instead a facilitating resource for groups of supporters who have got together and want to build a better future for their clubs. Crucially, it also makes available standard legal advice and articles. My hon. Friend the Member for Corby (Phil Hope) made the point that the cost of such services can be prohibitive when groups start out.
In its first year, Supporters Direct has helped fans at 40 football clubs—from Celtic, Tottenham and Swansea to Leyton Orient, Bournemouth and Manchester United—to establish trusts. All are community-focused mutual organisations and most are industrial and provident societies based on model rules developed by Mutuo and Cobbetts solicitors in Manchester. Another eight are in the pipeline and fans of 143 clubs have contacted Supporters Direct.
For many trusts, majority outright ownership of the club is not a realistic short-term goal. Nevertheless, they exercise real influence. At Tottenham Hotspur, the supporters trust has been recognised by the new owners as the genuinely democratic voice of the supporters and it regularly consults the chairman on matters such as ground expansion and ticket pricing. There are no limits to what supporters trusts can achieve. At Lincoln City and Chesterfield, they have taken over and run the clubs as community-owned mutual organisations.
Those stories give hope to others. As we worry about low turnout at elections and young people's lack of engagement in society, what better vehicle to kindle a sense of citizenship and community among those young people than a football supporters trust through which they can have direct ownership, influence a club's direction and become involved in its day-to-day running?
§ Phil Hope
I am listening with fascination to my hon. Friend's description of the encouraging changes in the football world. He has described several initiatives. I am not a Sunderland fan—I support Rushden and Diamonds in my constituency, which is doing well in the third division—but Niall Quinn is to donate the money from his testimonial to the local community. Would not it make a difference to football if the initiatives that my hon. Friend is describing moved forward and achieved 1143 community support and if many other footballers who earn extremely high salaries provided a model for young people and made a contribution to the community?
§ Andy Burnham
I am grateful to my hon. Friend for that point, and he is absolutely right. Some people may think football trivial and wonder why I am going on about it, but my point is that it is an entry point to those values for young people. They understand support for a football club and they like the sense of belonging. Through that gateway, they may see that they can gain by being part of a wider movement that embodies more than narrow self-interest and is about community involvement. I, too, pay tribute to Niall Quinn for his gesture, which is entirely consistent with what we are discussing.
For all those reasons, Supporters Direct is important and there is no reason whatever for it not to extend to other sports. Indeed, many county cricket clubs are already incorporated as industrial and provident societies. Although cricket clubs are often considered to be stuck in the past, they have led the way in democracy in sport and given members votes on key issues over the years. My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) mentioned regional development agencies and they could play a key role in promoting mutualism.
In particular, I want the services of Supporters Direct to be extended to rugby league and I ask the Government to consider giving the modest funding needed to provide them. Interest in rugby league in towns such as Leigh is as strong as ever, yet in some newspapers it appears to be as popular as synchronised swimming and gains only an inch or two in the "sport in brief' column. Rugby league does not get the attention of the London-based media, but that does not mean that the sport and its supporters have not suffered those same abuses at the hands of corrupt directors over the years. Although the future of some clubs is more fragile than that of many football clubs, there is great potential in the heartland of the co-operative movement for helping communities to protect their clubs for future generations.
We are only scratching the surface of mutualism in sport and its potential, but I do not expect a revolution. Instead, there will be an organic process. As more football and rugby league clubs struggle due to the inequitable distribution of resources in their sports, more and more supporters' groups will stop waiting for the mysterious wealthy benefactor to turn up and start to shape the future themselves. I hope that, for many years to come, Supporters Direct is there to help and guide them and that this important Bill gives those trusts the protection and stability they need.
§ Chris Grayling
On a point of order, Madam Deputy Speaker. I apologise to the hon. Member for Harrow, West (Mr. Thomas) for interrupting the debate, but Members will be extremely concerned about the matter that I wish to raise.
You may be aware, Madam Deputy Speaker, of reports in today's newspapers that the bankers supporting National Air Traffic Services have asked the Government for emergency aid to prevent the collapse of the business. They also say that last summer the Civil Aviation Authority told the Secretary of State for Transport, Local Government and the Regions that the business plan proposed for NATS was not sufficient for it to withstand a major shock such as that experienced on 11 September.
1144 May I ask, Madam Deputy Speaker, whether you have received any information that Ministers intend to come to the House either today or early next week to deal with this important issue, which will be of concern to Members throughout the House?
§ Madam Deputy Speaker (Sylvia Heal)
No, I have not been made aware of any Minister's intention to deal with that in the House next week.
§ Mr. Mark Lazarowicz (Edinburgh, North and Leith)
I am delighted to have the opportunity to speak. As another member of the Labour co-operative group in the House and a member of the Scottish Midland co-operative Society, I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on his choice of subject. As well as recording my membership of those organisations, I declare an interest, namely the support I have received from the co-operative party in connection with a private Member's Bill of my own.
As a number of speakers have said, the Bill is designed primarily to prevent the asset stripping of co-operative societies and other industrial and provident societies by those who might wish to manipulate them for short-term gain. The gain to be made from asset stripping could be substantial. The co-operative movement may be more than 150 years old, but it is a substantial economic force with substantial assets that may be attractive to those wishing to engage in such activities.
We heard earlier of the failed Lanica bid led by Andrew Regan, who sought to take over the co-operative Wholesale Society at a price of £1.2 billion—big money. Given that it was an apparent asset-stripping exercise, he presumably thought that the break-up value would be much higher. In fact, the total assets of the nearly 9,000 registered industrial and provident societies—not all co-operatives in the traditional sense—amount to more than £60 billion. As the hon. Member for Angus (Mr. Weir) pointed out, in many communities the small co-operative store is a vital link; but the co-operative retail sector in general, although it has declined, is still an important force. Indeed, the Scotmid is now Scotland's biggest independent retailer, serving not just my area but much of east and central Scotland.
The Bill is especially valuable in giving added long-term security to what is termed the community benefit co-operative—or, somewhat inelegantly, the bencom co-operative. It provides strong underpinning for such co-operatives, which I believe can play a vital role in strengthening our communities.
It is a commonplace that the fabric of community life is now weak, and I think that that is true. A few days ago, Members may have seen media coverage of preparations for the Golden Jubilee later this year, and heard expressions of concern about the apparent lack of community preparations. They, and members of the public, may well have different degrees of enthusiasm for the event and different explanations for their level of enthusiasm, but I shall not dwell on that. What I found interesting was that it was said that one reason for the failure to arrange events to mark the jubilee was people's view that "no-one knows anyone around here now" or that "there is no community feeling nowadays."
1145 I am aware that it is always easy to look back to a golden age when communities were perfect and everyone knew everyone. I know that not everywhere had a wonderful, vibrant community back in 1977. And at the time when the co-operative movement was growing there may have been stronger communities, but they certainly faced many problems that we do not face today.
Nevertheless, for a whole host of reasons, there has in many cases been a weakening of community links over the past few decades. The reasons include smaller households; television and other leisure interests; more people working and undertaking their leisure activity away from their local community; dependence on the car; and fear of crime. However, whatever the reason, it is widely recognised that the weakening of community links can result in major social problems.
Rebuilding the sense of community is an essential step in tackling many of the problems that affect society today. As several hon. Members have pointed out, the co-operative movement and community-based co-operatives can play a vital role in the rebuilding of our communities.
Many Members have referred to housing co-operatives. The strong housing co-operative in my constituency—the West Granton housing co-operative—has played an important role in the regeneration of what was once probably the most rundown area of public sector housing in Edinburgh. It is successful not just as a housing co-operative, but as a foundation for other community activities in that area.
The housing co-operative movement provides an efficient mechanism for delivering public service precisely because the people who ultimately control the co-operatives have an intimate knowledge about how the service is delivered on the ground. However, in addition to that, the movement also brings people together. It builds communities by involving people in community activities. In that way, it strengthens local links and networks.
§ Mr. Kevan Jones
In places such as North Durham, housing co-operatives may provide a solution to the problems found in pit villages when landlords buy up whole streets and let both the streets and the fabric of the community go to rack and ruin. Does my hon. Friend agree that housing co-operatives can help to prevent the problems caused by landlords buying up whole streets purely to make a profit?
§ Mr. Lazarowicz
I agree with my hon. Friend. He makes the valuable point that housing co-operatives are valuable not just in the urban settings with which they are sometimes most associated. They can be particularly important in smaller communities where, as he points out, the whole social fabric can be torn up by people who are more interested in making a short-term profit than in the interests of the community.
By strengthening the foundations of the community benefit co-operative, I hope that the Bill will be used to expand the growing community-controlled sector. Together with the Bill on another aspect of the co-operative and mutual sector that I was fortunate enough to introduce and that received its Second Reading 1146 last week, this Bill means that the House has the biggest opportunity for 40 years—perhaps 140—to pass a package of legislation that is designed to encourage the growth of the co-operative and community sector.
I hope that the Bill will receive its Second Reading, that the Government will support it and that it will eventually become law. If it does, the opportunity that it presents should be built on and grasped by both the co-operative movement and the Government. I agree with much of what the hon. Member for Twickenham (Dr. Cable) said. Notwithstanding the wide variety of activity in the co-operative movement and the mutual sector—we have heard many examples in the debate—we lag behind our many European neighbours that have a strong and vibrant co-operative and community-controlled sector. In many ways, they have encouraged and developed that sector.
I am pleased that the co-operative and mutual sector is working much more effectively together to proselytise its ideas. I pay particular tribute to the work of Mutuo, the trading name of Communicate Mutuality—a new think tank for the co-operative and mutual sector. That organisation brings together the co-operative movement through the co-operative Union, the Building Societies Association, the Association of Friendly Societies and the Mutual Insurance Companies Association. All work together to conduct research, to campaign for better understanding of the benefits of mutual businesses and to develop new mutual businesses. I pay tribute to the excellent range of publications that Mutuo has already produced to publicise the case for the extension of mutuality.
I am pleased that the Government have taken a much more active interest, both in word and in deed. They have given much more active support to the promotion of the social economy and the co-operative sector than many Governments have for many years. However, there is still some way to go. At the grass roots, for example, notwithstanding the lead that is given at national level, many of the public or quasi-public organisations that promote economic development or business start-ups still do not actively promote the co-operative model of business organisation as one of the viable options for business. I have gone into one-stop shops or business start-up centres and seen no information whatever about co-operatives or how to set them up. If one asks for such information, it can be very difficult to find.
In many areas, there is still some political or bureaucratic resistance to community control of public services that would benefit from community control or involvement. In Glasgow, for example, the imaginative plans of Labour Ministers in the Scottish Executive to transfer housing to a community-controlled body are being resisted by an unholy coalition of the Scottish Socialist party, Scotland's version of the militant tendency and the Socialist Workers party; some elements, I am afraid to say, in the Labour party; and the Scottish National party, I understand. I trust that that resistance will not stop what is an exciting initiative for housing in Scotland.
To show that I do not wish to be partial to any party in handing out criticisms, I may say that the Liberal Democrat Minister in Scotland who is responsible for the area concerned seems to be hostile to the idea of transferring Scotland's water industry to a mutual along 1147 the lines of that operating in Wales, so everyone needs to look at the way in which they put into practice their commitment to mutuality.
§ Linda Gilroy
I was astounded at my hon. Friend's report that the Liberal Democrats are resisting mutualisation in the water industry. In its first trading year, Glas Cymru in Wales has been able to return a £41 million surplus to that mutual organisation.
§ Mr. Lazarowicz
I am grateful to my hon. Friend for her intervention. I cannot be too unkind about Liberal Democrats in the Scottish Executive, for reasons of which she will be well aware but it is disappointing that the excellent record of Glas Cymru has not found favour in Scotland so far.
There is a way to go before the full potential of the new revived and Modern co-operative ideal is grasped. I hope that the Minister will support the Bill, but more than that I hope the Government will regard today as a starting point for further work to promote the co-operative, community-controlled and mutual sector. I hope that the Minister will also tell us how she can build on the opportunity presented by the Bill further to promote this now vibrant and vital sector for our society and economy.
§ Mr. Christopher Chope (Christchurch)
I declare my interest as a member of the Christchurch Conservative club. I can tell the hon. Member for Harrow, West (Mr. Thomas) not just that it is a good club for lunches but that it serves full pints and real ale. I hope to hear a speech by the hon. Member for Wolverhampton, south-east (Mr. Turner), whom I congratulate on the accolade that he was given the other night by the Campaign for Real Ale. A special ale has been brewed in his honour, which is quite an accolade for an hon. Member. I hope that when he is next in Christchurch he will call in and try some of our ales.
I am a member of the Christchurch branch of the Royal British Legion, which I think is the finest Royal British Legion club in the country. I am also a member of an allotments society. I have a share in a co-op: the International Exhibition co-operative Wine Society, which was founded in 1875 and which I think is the finest wine society in the country, if not in the world. Indeed, last night I spent a little time looking at its spring list of wine offers, which I recommend.
I congratulate the hon. Member for Harrow, West on his success in the ballot, his choice of subject and the lucid way in which he introduced the Second Reading debate. He and other speakers have shown the Government up. In 1998, the Government introduced a wide-ranging consultation paper on industrial and provident societies and invited people to send in their comments before 1 May 1998—indicating, thereby, some sense of urgency. Now, almost four years later, we have still not had a formal Government response to the consultation, or even the publication of the responses to the consultation.
That point was emphasised by my hon. Friend the Member for Epsom and Ewell (Chris Grayling). He raised a number of important issues concerning the virtues of the Bill, including housing stock transfer, the community benefit of his local co-ops and the warm welcome that he 1148 gives and receives at his local Conservative club. He also expressed a few reservations about some aspects of the Bill, particularly about the way in which it restricts the future use of assets. I hope that my hon. Friend will be willing to serve in Committee because his knowledge of and interest in the matter will be useful in debate.
There have been many other interesting speeches. It is interesting to see so many Members from Scotland here on a Friday—they are down in England for the weekend, I hope. It shows that the Bill appeals to a wide range of interests.
We do not oppose giving the Bill a Second Reading, but we have some concerns and questions that can be explored further in Committee. When the Government brought out their consultation paper, they bought some time. However, they raised expectations in the consultation paper, and they have failed to deliver. I hope that the Minister will take the opportunity to explain exactly what Government policy on industrial and provident societies is.
The 1998 consultation paper was sponsored by the Treasury and the Registry of Friendly Societies. Since then, the Financial Services Authority has taken over the role of registrar of industrial and provident societies, and is threatening a sharp increase in fees. The hon. Member for Corby (Phil Hope) referred to that in passing. It is a serious issue, to which the Minister should respond, and I am disappointed that the hon. Member for Harrow, West, the Bill's promoter, did not raise it in his speech. I know that he has heard from the Village Retail Services Association—ViRSA—which is based in Dorset, about the problem that will be caused by the burden of the new charges to be imposed by the Government, through the FSA, on industrial and provident societies.
§ Mr. Gareth R. Thomas
As the hon. Gentleman says, I am aware of the concerns about the charges, and I endorse the concerns of my hon. Friend the Member for Corby. As to why I did not raise this matter during my speech, I could have raised numerous issues and given numerous examples across the industrial and provident societies area, and I am grateful to the hon. Gentleman for giving me the opportunity to set the record straight.
§ Mr. Chope
I am grateful to the hon. Gentleman. The theme of his speech, and of the Bill, is creating better opportunities for existing industrial and provident societies and enabling more to be created. The increase in charges is a relevant issue because it is a burden on existing societies and a threat to the establishment of new ones.
It is worth reading from the letter from ViRSA. It says:ViRSA deals with small rural communities who wish to revive or resurrect their retail facilities. Such communities have scant resources but much enthusiasm. Village shop associations that have already registered as IPS did so in the belief that their registration fee was a one-off cost and any changes would be at additional cost. Annual recurring costs were not in the prospectus. Such associations will now be faced with an additional cost which was not in their budgets, nor part of their original plan and the level of which is not yet finally determined. How are associations to plan to meet these periodic costs if they are dependent solely on the derivation of the FSA's forward budget—there may be wide variance each year? Government policy exhorts regeneration and community projects, particularly in rural areas. The imposition of these additional costs on 'benefit of the community—not-for-profit associations' runs contrary to this policy.1149 Mr. Peter Jones, the director of ViRSA, then gives some examples of industrial and provident societies that ViRSA has sponsored for registration as shop associations. He says:I have noticed a recent increase in the adoption of this form of association by rural communities but feel that this will tail off with the impact of additional costs".We are talking about costs that will have a serious impact. As an illustration, if someone wishes to set up and register a shop association using the ViRSA organisation, it might cost them about £450 to register. That is a one-off cost with no recurring annual costs. Obviously, if they wish to change the rules, fees are incurred as a result of that. I understand that the FSA proposes an annual charge of between £300 and £400 per association just for the privilege of being registered.
There are 9,000 industrial and provident societies, and if one takes a mid point between £300 and £400—£350—that would give the FSA an income of £3,150,000 every year. To put it another way, a burden of £3,150,000 is being imposed on industrial and provident societies. That is unhealthy and unacceptable, and it is another example of a Government stealth tax. I hope that the interest in the issue will now be such that the Minister will instruct the FSA to ensure that its proposal, which is so seductive for a self-financing regulatory authority, will be dropped.
Societies that have set out on the basis that they would pay a one-off fee for registration should not have to pay recurring annual charges. [Interruption.] I am delighted to see that the hon. Member for Wolverhampton, south-east (Mr. Turner) is showing his enthusiastic support for that.
§ Mr. Dennis Turner
That is because we are talking about 6 million people who are associated with clubs, and 5,000 non-profit-making clubs will be faced with increased charges. That is of great concern to the all-party group. It is on our agenda, and we shall be making representations, as the hon. Gentleman has made them from the Dispatch Box today.
§ Mr. Chope
I am grateful to the hon. Gentleman for that—and I am delighted to see that the Minister is to get some more briefing, so that she will have the opportunity to respond to the point.
There is no need to make much comment on clause 1; it is a sensible proposal to bring the rules in line with the rules that apply to building societies. I am an enthusiast for mutual organisations. I have a mortgage with the Nationwide and an insurance policy with Standard Life. I practice what I preach, and I can see the benefits of mutual organisations.
I was interested to hear the hon. Member for Stroud (Mr. Drew) refer to the fact that the Government had had some problems with clause 2. I look forward to hearing what the Minister has to say. I noted that in paragraph 44 of the consultation paper issued in March 1998 an issue was raised in response to the suggestion that a special type of co-operative should be created, the undertakings of which could be transferred only to another co-operative and not to a company.
The response was that the suggestion raised concerns: 1150It seems wrong, in principle, to prevent a society transferring to a company under any circumstances. Not only could this go against the wishes of the vast majority—or even all—of the members of the society at some point in the future, but it would appear inequitable to creditors—not all of whom may appreciate the situation—if a society were forced into liquidation when there was a company willing to buy it.I should be interested to hear from the Minister whether that reservation still applies, and if so, what amendments or proposals she would suggest as a consequence.
§ Mr. Gareth R. Thomas
I, too, read the 1998 consultation document, and I tried to reflect the concerns expressed in it in the drafting of the Bill. Clause 2(1)(c), which I referred to when I intervened on my hon. Friend the Member for Leigh (Andy Burnham), gives the flexibility to allow community benefit societies to sell assets and deal in the usual way, but it locks in the value of those assets for community benefit. To take the example of the British Legion club, to which the hon. Gentleman says that he is affiliated, there is nothing in the Bill to prevent the British Legion club or anyone else from selling their building if they want to, but the cash realised by the sale must continue to be used for community benefit. That is the additional protection that the clause offers.
§ Mr. Chope
I am grateful to the hon. Gentleman for clarifying that point.
I have a principled objection to clause 3. It would enable the Government to impose company law provisions that do not currently apply to industrial and provident societies, by means of an unamendable statutory instrument. It would enable not only existing company law, but company law as it might become at any stage in future, to be imposed without effective parliamentary scrutiny. An extensive legislative shake-up of company law is imminent. The effect of the clause would be that company law could be amended in a Bill confined to companies, and later applied to industrial and provident societies without the same scrutiny.
My solution to the problem of the interrelation between certain provisions of company law and industrial and provident society law would be to ensure that industrial and provident societies were brought within the long title of any Bill to amend company law, so that Parliament could properly debate which provisions should apply to industrial and provident societies and which should not.
Such a Bill could cover in its long title all corporate bodies whose liability was limited. As that feature is common to companies and industrial and provident societies, there could be proper consultation beforehand with those who might be affected. It would also enable industrial and provident societies, through their organisations and through Members of Parliament, to table their own amendments and make their own suggestions, and perhaps instigate their own legislation for debate. That option is not open to them if we are dependent on the use of statutory instruments instigated at the behest of the Treasury, which are unamendable.
My concerns about clause 3 are supported by Robin Pooley, the chairman of NFU Corporate. The hon. Member for Harrow, West referred to the National Farmers Union's support for the Bill in general, but Mr. Pooley has grave concerns about clause 3. I understand that he has expressed similar concern to the hon. Gentleman.
1151 The omission of clause 3 would improve the Bill beyond all measure. It would confine it to the limited role that is appropriate for private Member's legislation, by amending law to address a specific and important problem in a defined way. It should be for the Government to legislate to provide for large-scale changes in the law, and the opportunity presented by the need to legislate in the aftermath of the wide-ranging review of company law should provide just such an opportunity.
The hon. Gentleman referred to minor deregulatory changes, which could be made under the Deregulation and Contracting Out Act 1994. That is fine—deregulatory changes would be made by statutory instrument—but clause 3 suggests that new regulatory burdens would be imposed by statutory instrument.
If the changes were deregulatory, they could be dealt with under the Deregulation and Contracting Out Act. So we are talking about increasing regulation on industrial and provident societies by statutory instrument, without the opportunity for proper debate or amendment. That is not the right way to proceed, not least because, as has already been made clear during the debate, industrial and provident societies vary enormously in scale and purpose.
There is a small club in my constituency called the NADSS club, which is part of the National Association of Discharged Soldiers and Sailors. It is the last remaining club founded after the first world war, and it has a very small membership and a relatively small income, but probably quite valuable assets. To impose new regulations on that club would be unduly burdensome, and I should like to allow greater flexibility. A proper debate in the House would allow the legislation to be tailor-made to the needs of different sorts of societies, and I would much prefer that to the blanket power in clause 3.
§ Linda Gilroy
Does the hon. Gentleman accept that the Companies Act 1985 has been extensively amended, often using order-making powers? Does he further accept that the Treasury has consulted widely on this issue and that proposals such as those that he mentions would reflect changes made to Government controls on directors' interests that have long been standard in companies?
§ Mr. Chope
The hon. Lady is right to say that such proposals might be made in statutory instruments, but all sorts of other regulations are envisaged in the Government consultation paper—for example, changes to corporate governance that might be appropriate for very large industrial and provident societies, but not for the smaller societies. For the House to give the Treasury the power to introduce wholesale changes that would impact on all industrial and provident societies by statutory instrument alone would be wrong in principle. If the hon. Lady thinks that some important changes could be made now, she could move amendments to the Bill in Committee.
§ Mr. Gareth R. Thomas
I heard a hint that the hon. Gentleman was concerned about clause 3, so I have listened extremely carefully to his comments on that clause. I shall try to reassure him by flagging up the fact that the Bill makes it clear that the affirmative procedure must be used, so parliamentary scrutiny would be available in the order-making process.
There has been substantial consideration of the changes in company law that would be appropriate for industrial and provident societies, and there were various attempts 1152 to reform company law and building society and friendly society legislation in 1986 and 1992, but if the Bill receives its Second Reading, I shall reflect further on what the hon. Gentleman says before it is debated in Committee.
§ Mr. Chope
I am grateful to the hon. Gentleman for that intervention, and the spirit of friendliness and co-operation that he offers is appropriate to the Bill. Indeed, I look forward to co-operating when the Bill is debated in Committee, as I am sure that that will happen, because the Government realise that they would be extremely unpopular if they were to talk it out today.
For the third week running, a private Member's Bill will receive Treasury support in Committee. I hope that the Government business managers will ensure that some extra Standing Committees are set up so that more than one Treasury Minister at a time can discuss those important Bills in Committee. That is enough from me for the moment, but I look forward to having further constructive debates on the Bill in Committee.
§ Mr. Mark Hendrick (Preston)
I speak as a Member who was elected under the designation of Labour and co-operative candidate. I also declare an interest as a member of the United Norwest co-operative society and of the co-operative party.
The Bill would amend legislation governing the operation of industrial and provident societies, which has not been addressed by the House since 1965—nearly 40 years. I welcome it with open arms. For too long, co-operatives have operated at a disadvantage compared with other forms of enterprise.
My hon. Friend the Member for Wythenshawe and Sale, East (Paul Goggins) mentioned the Rochdale pioneers who set up the Rochdale co-operative society in the 19th century, the first society of the Modern era. We have recently been considering what form the movement should take in the 21st century. The newly formed co-operative Commission was established by the movement to draft a report on the challenges that it faces. The report has been passed to the Prime Minister. It makes important recommendations, and I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on including many of them in the Bill. The Prime Minister was sympathetic to the report and promised to consider the commission's recommendations with a view to legislating.
The Bill is aimed at bringing industrial and provident society legislation into line with company and building society legislation. It will also make possible the establishment of, or conversion to, an industrial and provident society for the delivery of services. Many of my hon. Friends referred to the wide range of services provided. My society offers such a breadth of services and is the second largest co-operative in the country. It has a proud history, deriving, as it does, from the original Rochdale co-operative society and the Pendleton co-operative society in my original home town of Salford.
The Bill would give the Chancellor of the Exchequer the power to amend industrial and provident society legislation to bring it into line with company legislation. It would also allow him to update industrial and provident society legislation as changes to company law arise. As 1153 hon. Members said, the voting requirements for demutualisation of the societies would also be brought into line with those that apply to building societies. Those issues have been much researched in the building society sector. Recent legislation now provides that before any such change can take place to a building society, a vote must be carried by at least 75 per cent. of members and at least 50 per cent. of the membership must participate.
Hon. Members also explained that such a provision would mean that a demutualisation resolution would have to be passed by a minimum percentage of the total members rather than a minimum percentage of those attending meetings. That aims to discourage the practice of carpetbagging, which is intended to give large windfall profits to some members and allow some directors of former mutuals to cash in on the accumulated wealth of the wider membership. It is not right that any irreversible changes to their fundamental constitutions should occur without the majority of members participating in the decision.
We need a balance between the original basis on which societies were founded and the need to be able to react to the membership of the mutual, and the market within which it operates. The founders of a mutual business that has been established for the benefit of the community should be able to hold on to the business and its assets for the general benefit of the membership. The Bill would allow the founders of an industrial and provident society set up for the benefit of the community to choose whether to include those private provisions in its rules. The Bill should enable the founders of a society to choose a constitution that cannot be converted. The society should have to specify in its rules the destination of any surplus profit accrued if the society were wound up. That is extremely important, for the reasons that I have already outlined.
My hon. Friend the Member for Leigh (Andy Burnham) highlighted a good example of a new model that has been established. It is one that touches many interests throughout the country. Setting up football clubs as mutuals is, perhaps, a perfect example to highlight not only the continued relevance of such societies in the modern economy but the ambition and imagination shown by the sector in constantly readapting and reinventing itself. Lincoln City is now a mutually owned football club, and fans in many other clubs throughout the country have been looking to follow its example. Those developments, which, as other hon. Members have said, have been supported by the Government through Supporters Direct and by the co-operative Commission, would be considerably advanced by the Bill.
§ Gillian Merron (Lincoln)
I thank my hon. Friend for referring to Lincoln City, which is indeed a pioneering football club. Is he aware that the student union at the University of Lincoln is the first in the country to be run co-operatively, and does he agree that, as the city also has the Lincoln co-operative society, Lincoln is right up front as the city of co-operation?
§ Mr. Hendrick
I thank my hon. Friend for that intervention, but people in Rochdale might have a problem with her last statement. I was not aware that the student union had been set up as a co-operative, but I applaud its efforts in that respect.
1154 Historically, the co-operative movement was a fundamental strand in the establishment of the Labour movement and later the Labour party. Over a century on, the co-operative party is stronger than ever and it is time that we helped to create a more appropriate framework for our old friend to thrive in our Modern economy. The view that communities and customers should be the top priority in business has not dated—it is still widely treasured. There is a realisation that it can survive in a practical business environment, and that is very important. This small Bill would considerably benefit the co-operative movement in its work to secure its aim, so I hope that the House will join me in supporting it.
§ Linda Gilroy (Plymouth, Sutton)
It is a pleasure to follow my hon. Friend the Member for Preston (Mr. Hendrick), whose city has a long and distinguished association with the co-operative movement, as indeed does my own city. I add my voice to the congratulations to my hon. Friend the Member for Harrow, West (Mr. Thomas) on giving us all an opportunity to celebrate our rich heritage throughout the country. Other colleagues have contributed interesting stories about their communities, and I am pleased to join fellow co-operative Members in declaring that I am one of that 29-strong group and, indeed, vice-chair of the group for this year.
In this harmonious debate, we have a chance to celebrate the rich range of industrial, provident and mutual models in this country. Those organisations deserve the protection against carpetbagging offered by the Bill. Much has been said about the important contribution of co-operatives and mutuals. My hon. Friends the Members for Corby (Phil Hope) and for Wythenshawe and Sale, East (Paul Goggins) described it as a bottom-up approach. It is a model that brings to the fore the important principle, which the Government greatly value, that rights are accompanied by responsibilities. What could demonstrate that better than co-operative and mutual models?
I want to talk about the rich tradition of co-operation in Plymouth and the importance of the Plymouth and South West co-operative society, which has 122,018 members, including me. It is the successor to the Plymouth Mutual co-operative society, which was founded on 27 December 1859 by six shoemakers, two carpenters, one painter and one mason, who were advised by one of the Rochdale pioneers. According to the history of the co-operative society written by one of our members, the late Bob Briscoe, in its first quarter its turnover was £87 15s 4½d. The society has travelled a long way in the intervening years; its current annual turnover is now £150 million.
The society's value is not just in its turnover and the many small retail shops that it has set up in some of the most difficult and deprived communities in my constituency, but in its deep and broad roots in the community. My hon. Friend the Member for Stroud (Mr. Drew) spoke about that; he has many concerns about agricultural and rural communities, as well as the interaction between the supermarkets and the supply chain, including the foreign supply of fruit and vegetables, which can be produced in this country. I am pleased that the Plymouth and South West co-operative society 1155 demonstrates the value of the virtuous circle that can be created by co-operative enterprise and has a "buy local, eat local" project.
Lucy Carver recently examined that project for buying manager Tony Stoneman; she found that the society had sold 6,731,654 items from 11 local suppliers, excluding greengrocery items, which constituted more than 37 per cent. of fresh food purchases. The society plays an enormously important role in marketing produce from the south-west peninsula. Another important aspect of the society is its support for community organisations and initiatives; last year, it launched a 13 mile, figure-of-eight walkway through the green spaces and urban environment of Plymouth, paid for by its profits. It has also supported the young consumer of the year award.
Since we were elected in 1997, many good things have happened in my constituency, which, as Members will know, included the poorest ward in England in the 1995 index of local deprivation. A lot has been done as a result of regeneration and the new deal, but I am extremely concerned about the Torridge Way shopping centre in Efford; I cannot say that that part of my constituency has yet turned the corner. The Plymouth and South West co-operative society is looking at that shopping centre and seeing what part it can play, based on its retail operation there, to help that part of my constituency turn the corner.
The society played an important role in Mount Wise in my constituency. In an area where there were no shops before, it opened a shop in an old chapel, which is now very much at the heart of the community, providing not only the usual range of reasonably priced goods to the community in the poorest ward in England, but fresh fruit and vegetables, which are important in deprived areas.
The society therefore plays an exceedingly important role. Its chief executive and secretary, Mr. Douglas Fletcher wrote to me:I believe that co-operatives and Mutuals represent a valuable and ethically responsible part of the UK economy, and it is only right that the level of legal protection that has been afforded to Building Societies since 1997 be extended to the rest of the sector.The letter goes on to state thatnot only would co-operatives and Mutuals be free to devote less time to fending off hostile demutualisation bids and more on developing their business potential, but social entrepreneurs—often the drivers of community regeneration and social responsibility in business—would be given the confidence to develop new and lasting models for the delivery of services.I want to turn to that social regeneration for the one or two minutes that remain to me. My area not only has a very old tradition of co-operation, but one of the finest and most innovative new forms of co-operative and mutual development. It takes the form of a body that used to operate as the Devon and Cornwall Community co-operative Development Agency, but now calls itself Co-active. The body seeks to deliver expert support through its business advisers and provides research and development programmes assistance for enterprises such as the Wolsely community economic development trust. I think that the trust is the largest organisation of its kind in Europe. Its site has not only incubator facilities for new businesses, but a co-operative trading shop. It is a mutual that is very well rooted in its community. In 1995, a capacity-building programme was delivered to involve local residents. The people who run the trust must come from the local community and are elected from its different parts to operate the trust and the site.
1156 The Millfields community economic development trust took over buildings in the old Royal Navy hospital in Plymouth for a similar purpose. After the Jaeger factory closed, with the loss of several hundred jobs, the trust took on that building and is using the facilities there to develop incubator space with support from business advisers to help new small businesses to get going. That work has been recognised by the Minister for E-Commerce and Competitiveness, my hon. Friend the Member for Paisley, South (Mr. Alexander), who is responsible for the new social enterprise unit. He paid tribute to the Get Up and Go community nursery, which operates on the Wolsely development trust site, for being very innovative in a recent speech addressed to Social Enterprise London. The Wolsely economic development trust, which is at the very forefront of regeneration work, explained to London its track record and expressed its hope that others could share and learn from some of the lessons that it had learned in the past 10 years.
In conclusion, I commend the Bill to the House. I hope that my hon. Friend the Economic Secretary will recognise in co-operatives and our desire to protect them in the ways outlined in the Bill the virtuous economic circle that can be created in our communities and cities. In the far south-west peninsula, that circle plays a very important part in recycling money within the area, rather than, like some plcs, syphoning it off to who knows where. She will probably remember the Chancellor posing the principles of post neo-classic endogenous growth theory with symbiotic relationships. I can tell her that in Plymouth, we have, through Co-active, the local community version of those principles: the integrated community economic development strategy. I look forward to hearing what she has to say and wish the Bill a fair wind.
§ Mr. Dennis Turner (Wolverhampton, south-east)
As a long-serving member of the co-operative parliamentary group, I thank my hon. Friend the Member for Harrow, West (Mr. Thomas) for taking the opportunity to promote this important Bill having won the ballot for private Members' Bills.
You will know the old song "This is My Lovely Day", Madam Deputy Speaker. For me, today is our lovely day. We have tried for many years to introduce a reforming, Modernising measure that will go to the hearts of millions of people in this country and many ethical, mutual, co-operative organisations. Many people will be influenced and affected by our actions today.
Hundreds and thousands of people travel from Birmingham International, East Midlands and Manchester airports to go on their holidays and find the sun through Travel West Midlands, a wonderful part of our co-operative movement. Staffordshire building society, which is based in the west midlands, provides an excellent service for thousands of people in my area and throughout the west midlands.
I am a member of a co-operative that is based on a sports and social club that we formed 20 years ago. Many people come to the club: senior citizens come for their lunches; others come for the darts, dominoes and crib. They come for presentations, social events and happy events in people's lives in our community.
§ Mr. David Crausby (Bolton, North-East)
As a great non-profit-making members' clubs man, my hon. Friend 1157 will know that three of the finest Labour clubs in the country are based in my constituency, in Breightmet, Tonge and Halliwell. They not only sell the finest ales but provide finest and best community service, as do many other political clubs of all colours. That also applies to services clubs, social clubs, working men's clubs, sports clubs and trade union clubs. They are irreplaceable. Does my hon. Friend agree that their members will rest easier in their beds tonight after the Bill receives its Second Reading?
§ Mr. Turner
Tonight, they will all drink a glass of cheer to hon. Members who are making a fundamental and historic decision.
I thank the hon. Member for Christchurch (Mr. Chope) for mentioning the fact that I received the beer drinker's champion award this week from the Campaign for Real Ale. I got it not for the number of pints that I drank, although I have drunk quite a few, but on behalf of the fight for the full and fair pint.
In the context of co-operatives, hon. Members who go to the Stranger's Bar after today's proceedings and take a glass of cheer will be supporting the small brewery co-operatives that sell their products there. I chair the Catering Committee, and the Catering Department sells Fairtrade products that are based on co-operatives. We therefore touch the lives of Members of Parliament and millions of people—our constituents—whom we represent.
§ Ms Claire Ward (Watford)
Does my hon. Friend agree that we should publicise the fact that we support co-operatives not only through measures such as this Bill, which we hope will get its Second Reading, but through products that we buy in the House of Commons and in our constituencies?
§ Mr. Turner
Yes, indeed. I certainly endorse that. My hon. Friend captures the flavour of what we are essentially doing here today, representing the people of our constituencies who are involved in all these majestic endeavours.
Today is an important day. It is the best day that I have had in Parliament for many years, because we are doing something practical and real on behalf of the people we represent. William Morris said:the cause alone is worthy till the good days bring the best.We want to give the Bill a Second Reading and put it on to the statute book, to give a new renaissance to the co-operative, mutual and community organisations in Britain.
§ Richard Younger-Ross (Teignbridge)
I apologise to the hon. Member for Harrow, West (Mr. Thomas) for not being here when he introduced the Bill earlier, but I have been here for much of the debate. I congratulate him on a very worthy Bill, and I am pleased to be able to speak in the debate.
When we talk about co-operatives, I am reminded of the town where I was born, Walton-on-Thames, in the Surrey stockbroker belt. There, if hon. Members 1158 remember their history, a gentleman called Winstanley formed a group called the Diggers, who tried to form the first commune—one of the first co-operatives, perhaps—at St. George's Hill. That now has a Weybridge postal address, and it is ironic that it has for some time been one of the wealthiest pieces of real estate in Europe, if not the world.
Sadly, Winstanley was moved away from that first co-operative commune in Walton by the local residents. Perhaps they realised that it would be good real estate at a later date and wanted to move him on. They moved him on to Cobham, and it then took a number of years for the co-operative movement to catch on and take wind, but we should all be pleased that it did. It has a noble and proud history, as all hon. Members appreciate. The question is, where does it go from here?
The hon. Member for Plymouth, Sutton (Linda Gilroy) has already mentioned many of the initiatives in the south-west, and I shall not go back over them. I shall mention a few areas that have touched my life, and tell the House why I think that this is an important Bill. We have seen what happened to the building societies. Most of us were dismayed when a number of mutual societies—which were started up so that their members could help each other—went off to become banks, and to join the other side in the battle and make profits for their shareholders rather than for the mutual benefit of all their members. I bitterly remember the day that we lost the battle for my building society. Luckily, I was able to move to another one which has remained a mutual, but I was distressed that something was eating away at a common good, at something that was a power against profit and greed. It was sad to see that power eroded during the 1980s, a period in which greed seemed to dominate.
Many hon. Members have mentioned the well-known social aspects of the mutuals. The hon. Member for Epsom and Ewell (Chris Grayling) talked about Conservative clubs closing, and about carpetbaggers. I am sure that parties have seen clubs close in all areas—they certainly have in my constituency—and the assets being sold off. It is sad, when people have come together over a period of history, to see that history come to an end. Things roll on, however, and I hope that the Bill will help to resurrect and shore up the co-operative movement and the mutual societies.
I hope that people who wish to come together to share profits, and to work together towards a co-operative aim, will benefit from the Bill. I see a battle in society between those who wish to work for the common good and those who wish to work for profit. With globalisation, more and more companies are becoming part of multinationals and fewer and fewer appear to be working for the benefit of their members, so sometimes we seem to be losing that battle. If we are to win and if we are to stop those who aim only for profit, people must come together and we must encourage them to form new co-operative ventures. I hope that they do so when we pass the Bill. It will make them feel more sure that their efforts will not be plundered—I use that word because it is appropriate—by those who come after or even during their tenure.
In particular, I hope that people in agriculture, food production and other forms of manufacturing come together to speak out with a united voice against those who wish to gain great power and profit. The Bill should be considered as a means to help redistribute profits. As I promised to be brief, I shall finish on that point.
§ The Economic Secretary to the Treasury (Ruth Kelly)
It is a pleasure to respond to the debate. Let me say how much I enjoyed the speech of my hon. Friend the Member for Harrow, West (Mr. Thomas), which was informative, stimulating and entertaining, and congratulate him on his choice of Bill. He has campaigned effectively on these issues and I am sure that he will continue to do so. As several hon. Members made clear, the industrial and provident societies sector is large and diverse—it has more than 10 million members—and the co-operative movement is well represented in the House. Many powerful speeches pointed to the sector's achievements and potential for development.
In particular, the potential for regenerating the rural economy was identified by my hon. Friend the Member for Stroud (Mr. Drew) and others. The potential for supporting football's original recreational function through Supporters Direct and supporters clubs was described by my hon. Friend the Member for Leigh (Andy Burnham), whose constituency borders mine, and the sector's potential for providing a venue for marriage proposals was mentioned. I was delighted to hear the anecdote told by my hon. Friend the Member for West Bromwich, West (Mr. Bailey). Most appropriately, the Bill has been described today as offering traditional values in a Modern setting.
§ Adam Price (East Carmarthen and Dinefwr)
The Minister has mentioned the excellent work of Supporters Direct. Does she welcome the excellent contribution made by the Swansea City supporters trust, which last night managed to secure the future of league football in Swansea by getting Tony Petty to agree to a sale? Again, an overseas business man with no interest in football was stripping a club of assets. Will the Minister join me in welcoming his agreeing to sell to a consortium led by a former player—not at five to midnight, but at five to eleven—and wish the new owners and the trust every success?
§ Ruth Kelly
I thank the hon. Gentleman for drawing the matter to my attention and I send my congratulations and support as he requests.
I look forward to sharing a pint with my hon. Friend the Member for Wolverhampton, south-east (Mr. Turner) and I congratulate him very much on his recent award. In passing, I ask my hon. Friend the Member for Bolton, North-East (Mr. Crausby) to give my regards to Bolton's Labour clubs, which fulfil a valuable function.
The Government and the mutual movement have a shared interest in an inclusive society in which all have equal access to the means of participating to the best of their ability, in markets as social institutions that confer rights and obligations in equal measure on the participants, and in the exercise of individual liberty in concert with the acknowledgement of mutual responsibilities. That is a powerful position from which to start.
Many Members have referred to the roots of the mutual movement in the work done by the Rochdale pioneers back in 1844. More than 150 years later, those principles still ring true and the mutual movement is still thriving, an important partner as we proceed with our public policy 1160 agenda and our drive to root out poverty and disadvantage wherever we find them, especially in deprived communities.
§ Paul Farrelly (Newcastle-under-Lyme)
Is my hon. Friend aware of the pain and torment suffered by the Britannia building society, one of the largest remaining mutuals, which does so much for local housing? It is based in north Staffordshire, in the area of my constituency. It has fought off carpetbaggers before, only to find them returning like a particularly virulent form of seasonal blight.
§ Ruth Kelly
I have regular conversations with the Britannia building society, to which I ask my hon. Friend to pass on my warmest regards. He will, however, recognise the changes the Government have made to protect building societies from carpetbaggers, and to put them in a much better position in future.
The mutual sector is already highly successful. The building society sector alone contains 66 societies with assets worth around £172 billion, which continue to perform well in highly competitive markets that have undergone significant change and faced difficult challenges in recent years. The credit union movement also continues to grow: there are about 700 credit unions, all of which help to promote thrift and self-help among their members. They play a vital role in extending the availability of basic financial services to parts of our society that are often ignored by other financial institutions. They also play a vital role in combating social exclusion, instilling a sense of responsibility, and giving people the means to have more control over their affairs. Moreover, the United Kingdom's largest farmer, one of the largest sellers of cars, and our largest funeral business are all co-operatives.
Because we recognise the valuable contribution that mutual societies can make to the economy and the advancement of social enterprise, we have played an active role in a number of initiatives that we hope will help societies to maximise the benefits they can offer their members and the communities they serve. It is important to provide a level playing field to allow mutuals to make the most of what they see as the mutual advantage—not having external shareholders to satisfy, so they can concentrate on providing their members with goods and services.
We will shortly present legislation allowing building societies to communicate with their members electronically. At first sight that may seem a rather technical change, but the building societies have been calling for it. They believe it will allow them to benefit from the greater efficiency offered by such technologies, and to compete on an equal footing with banks and other PLCs. In October, with the specific intention of strengthening credit unions and allowing them to thrive and prosper, we issued a consultation document containing proposals to reduce the number of restrictions on credit unions' operational powers. Those proposals will allow the sector to offer their members a much wider and more competitive range of services, and to maximise their ability to compete for and attract new deposits by developing the range of products they can offer new and existing members. The consultation period has just ended, and unfortunately is too early for me to give an indication of the results; but I believe that they are very positive, and that the credit unions welcome the proposed changes.
1161 We are currently negotiating in Brussels on a statute for a European co-operative society. The Treasury and the Department of Trade and Industry jointly issued a consultation document last summer, and we are currently deciding how best to proceed on the basis of the responses we have received. It should be clear to everyone that we are keen to encourage the mutual sector and to allow it to flourish.
The hon. Member for Christchurch (Mr. Chope) criticised the Government for not taking seriously enough the consultation on industrial and provident society legislation that took place in the summer of 1998. However, I have outlined the range of measures that we have taken to allow the whole mutual sector to thrive. We are in the long process of developing the sector, and the social unit of the Department of Trade and Industry is considering ways of encouraging social enterprises. The performance and innovation unit is also considering issues pertinent to the sector, and I look forward to reading its report. The private Member's Bill promoted by my hon. Friend the Member for Harrow, West is an important part of the process of strengthening industrial and provident societies. I welcome it, and the contribution that it makes.
The hon. Member for Christchurch also referred to fees. I point out to him that the fees are not quite as high as those he outlined, but I recognise that they represent an increase on what was in place before. Regulation by the Financial Services Authority has been welcomed by the sector and fees are set on cost-covering basis and after wide consultation with members of the sector.
I shall examine the contents of the Bill directly. I welcome it and I am sympathetic to the changes and reform that it is trying to introduce. It has clearly been motivated by a desire to see the industrial and provident society sector Modernise and grow without sacrificing—indeed, by reinforcing—the essential principles of mutuality and being rooted in the community that underpin it.
Much in the Bill could be of real benefit in allowing the sector to develop and in offering even greater benefits to individual members and communities. It chimes well with the concerns expressed to me by people in many quarters, including many hon. Members. Although it needs amendment to be workable, and although we will need to scrutinise it and consult interested parties on the detail of some measures, we can support it.
It is worth outlining the key features of the industrial and provident society sector. Organisations registered as industrial and provident societies can be split into two sub-groups: bona fide co-operatives and benefit of the community societies—bencoms, co-operatives are generally controlled by their members according to the principle of member, one vote and conduct their business for the mutual benefit of their members, with the benefits members receive deriving mainly from their participation in the business. Bencoms use any surplus that they make to further the aims of the society. They are often set up to serve the community in which they are based.
The Bill has three main objectives. The first is to align the voting requirements for demutualisation with those for building societies. The second is to allow bencoms to lock in capital so that the bencom can be used only to serve the community in which it is based. The third is to allow 1162 industrial and provident society legislation to be more easily amended to take account of changes to company law.
I shall briefly consider each clause in turn. Clause 1 is about the voting procedures for all industrial and provident societies in the event of a demutualisation bid. This is a useful Modernisation measure that would bring the rules for such votes in industrial and provident societies into line with those for building societies. The Government fully support the clause. Currently, 75 per cent. of those who vote on a demutualisation proposal must vote in favour of conversion for a bid to be successful, and this vote must be confirmed at a subsequent general meeting by at least 50 per cent. of those who vote.
Clause 2 proposes to allow bencoms to vote to include in their constitutions a rule that the members cannot change and that would prohibit distribution of the society's assets to any person or body other than another industrial and provident society with an equivalent rule or a charity. It would also prohibit conversion to a company or other body unless that company or body has an equivalent rule.
I see the potential benefits of this proposal and I am very sympathetic to the thinking behind the measure. If new social enterprises wish to set themselves up using the industrial and provident structure, it might help to attract and reassure investors if they could be sure that the capital they are investing is locked into benefiting the community in perpetuity. Of course, industrial and provident societies can insert such provisions into their constitutions now, but it is thought that that may not be binding. Also in clause 2's favour is that it is a permissive measure and would be taken up only if a society's members were disposed to do so.
However, the clause poses some real difficulties and may need significant amendment. In particular, locking in a society's assets could restrict the flexibility afforded to the bencom if it were struggling. It is conceivable that a society could in good faith choose at its inception to lock in its assets in perpetuity but then run into trouble and not find another industrial and provident society in a fit state or willing to take it over. It is not clear how that dilemma could be resolved under the clause. We need to continue discussions to see if we can come to some agreement.
I am also not convinced that a lock-in needs to apply to all bencoms rather than just some. As hon. Members on both sides of the House have said, it is extraordinary how diverse the sector is. It covers all sorts of different organisations. I think that it is fair to say that we need to explore those initiatives in great depth before committing ourselves to locking in assets in perpetuity. I give a commitment that my officials will explore the issues in more depth with the Bill's sponsors and other interested parties. We also think that there are certain technical issues, but perhaps I can discuss those at some other date.
I understand that this issue is being looked at elsewhere in government. I look forward, for example, to reading the performance and innovation unit report on the social enterprise sector when it is published.
Clause 3 proposes to introduce a power to modify industrial and provident society law by assimilating it into company law. It closely resembles powers already in place in building society and friendly society legislation, and I strongly support the principle of levelling the 1163 playing field between those different classes of mutuals. However, the clause as currently drafted gives significantly broader powers to the Treasury than do corresponding provisions in the other legislation that I have just mentioned, a point recognised by the hon. Member for Christchurch. Therefore, although we are prepared to support the clause in principle, we want it to be amended so that it is brought into line with other legislation, particularly that on building societies. I believe that if we made that sort of amendment we would have an appropriate constraint in place.
Some may argue that the need to update industrial and provident societies legislation is so urgent that that would be too restrictive, but given that a major reform of company law by the Department of Trade and Industry is under way, the scope for amendment of industrial and provident societies legislation based on changes in company law is likely to be considerable in future.
At this stage, I am happy to give Government support to the Bill. I congratulate my hon. Friend the Member for Harrow, West on introducing it and hope that it reaches the statute book.
§ 2.3 pm
§ Mr. Gareth R. Thomas
I am grateful to the Minister for her remarks. I am grateful, too, for the many excellent contributions by Labour Members, for the silent support of so many of my hon. Friends, and for the contributions from Opposition Members, in particular the reference to the Swansea City supporters trust, which I have recently joined.
I recognise the concerns raised by the hon. Member for Christchurch (Mr. Chope) and by the Minister. I will take those points on board and see whether I can satisfy them. I hope that on that basis the House will be willing to give the Bill a Second Reading.
§ Question put and agreed to.
§ Bill accordingly read a Second time and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).