Co-operatives and Community Benefit Societies Bill

HC Deb 31 January 2003 vol 398 cc1113-46

Order for Second Reading read.

9.34 am

Mr. Keith Simpson (Mid-Norfolk)

On a point of order, Mr. Speaker. Have you been advised whether any Minister, possibly the Deputy Prime Minister, is going to come to the House at 11 o'clock and make a statement about the inability of the Government and local government to respond to the recent extreme weather conditions? Nobody can legislate for the weather conditions, but a creaking, broken-down transportation system, which is not working, has literally been brought to a halt on the roads, rail, underground and at our major airports, and it is a disgrace. Labour is not working, nor is the country. Is the Deputy Prime Minister coming to the House?

Mr. Speaker

No Minister has approached me this morning.

9.35 am

Mr. Mark Todd (South Derbyshire)

I beg to move, That the Bill be now read a Second time.

Attendance in the Chamber may have been inflated by the weather conditions, but I hope that it is because of enthusiasm for the Bill. I begin by declaring the assistance that I have received from the Co-operative party and its advisers. I have chosen to promote this Bill, in part, because I served as a director of the then Cambridge and district co-operative society between 1987 and 1990. There are other Members in the Chamber who have had experience of that society. I have been a member of various societies, including those that served my constituency for many years.

Co-operatives and community benefit societies have their roots in the self-help tradition of the Victoria era. Their origin dates in part from the beginning of company law in this country and the incorporation of legal bodies, which first became possible with the establishment of joint stock companies in 1844. Incorporation allows an organisation its own legal personality. It can sue and be sued, own property, enter into contracts and enjoy the privileges 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, generating rewards for entrepreneurs and for those who are prepared to take risks with their capital, and will rightly continue to play the dominant role in the development of our economy.

The advantages of the company are reflected in the registration figures for various forms of organisation. Each year, over 200,000 companies limited by shares are established; about 6,000 charities; over 5,000 companies limited by guarantee, a common charity model; but only 200 industrial and provident societies are registered in any one year. When the company was emerging, different 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. Their purpose was first established and protected in law in 1852. The preamble to the Industrial and Provident Societies Partnership Act 1852 notes: Associations of Working Men have been formed for the mutual Relief, Maintenance, Education and Endowment of the Members, their Husbands, Wives, Children or Kindred, and for procuring to them Food, Lodging, Clothing and other Necessaries by exercising or carrying on in common their respective Trades or Handicrafts. Building societies emerged at the same time as a vehicle to help those who lacked the means to purchase their own home. Friendly and provident societies were also established at that time to offer mutual insurance against sickness or unemployment.

All those organisations, together with trade unions, were established on the principles of self-help and democracy—still novel in a world where hierarchy, patronage and either benevolent charity or exploitation were the means of control and service provision for working people. Since then, those principles have remained relevant and been applied by our citizens to found organisations relevant to almost every part of our economic and social life.

Co-operatives and community benefit societies are incorporated under the Industrial and Provident Societies Act 1965, which consolidated various changes since 1852. While company, building society and friendly society law has changed substantially in the past 150 years, with the exception of certain consolidating statutes and specific narrow issues, industrial and provident society law had not, until last year, changed fundamentally since 1862.

Fascinating and inspiring as the history of the co operative and mutual sector is, it is important that we should not just simply admire the sepia images or the marvellous examples of surviving organisations. Mutualism has a robust future, relevant to the lives of all our constituents. If we reflect on the themes that inspired the brave, imaginative founders of those societies, we can see that they are just as central now—a desire for more control of our lives; recognition that membership and involvement can add quality to service; and acceptance that services for a community can be best managed by that community.

As one author considering the role of mutuals in the future has written: One of the most important issues facing the Government at present"— he referred to this Government— concerns the appropriate mechanism for delivering public services. In the UK we have moved from transport and utilities services owned by private enterprise, through nationalisation to state-owned and controlled services; and then back again in a number of areas to privately-owned services with a state-appointed regulator. The latter has not been an overwhelming success"— nor were some of the former experiences— and there are those who believe that further transition is necessary. A move to a community-based form of ownership is one possibility. I have on another occasion in the House reflected on what seems to me to be a conundrum. As some hon. Members know, my grandfather was a Member of the House in the 1930s. At that time, few would have expected Governments to provide administrative or legislative solutions to all their problems. If my father's recollection is anything to go by, an MP's caseload was tiny, yet respect for the work that Parliament did, for Government institutions and for politics appears to have been immeasurably greater than it is now. Yet now Governments seek, at the request of citizens, to intervene more and more. The more laws we pass and the more institutions we establish to solve perceived problems, the less our efforts are regarded.

When I reflected on the subject of this Bill, I was approached, as one can imagine, by many organisations wishing to pass laws that would restrict other people's freedoms in various respects, often for sound reasons. However, I firmly wished to see a measure in my name that permitted people to do something that they are currently not able safely to do. That was my choice in the matter, and I shall expand a little further on that point.

There are many possible explanations for the conundrum that the more we do, the less we are regarded, and the more the state provides, the more suspicion in which the state is held. It is not appropriate for me to dwell on that now, but one part is touched on in the foregoing quotation, which rightly reflects the disengagement of most citizens from state-owned or controlled services. Transferring ownership and control to the community served by the service can add quality to the service itself, by improving its reflection of user needs, and strengthening the value that the community places on that service.

There are suggestions that the Government may be prepared to entertain such ideas for their reform of public services. It is partly for that reason that I am promoting the Bill, as it will, as I shall outline, remove one weakness in the current model of ownership and control of community benefit societies, a possible vehicle for public sector management reform.

The out-of-date framework for industrial and provident societies is recognised in the Government's excellent strategy unit report, "Private Action, Public Benefit", which was issued last autumn. It remarks: Industrial and Provident Society legislation has not kept pace with changes to company law. A fundamental overhaul of the structure is long overdue. Last year my hon. Friend the Member for Harrow, West (Mr. Thomas) promoted a Bill with that aim, and I pay him great credit for his efforts. The measures in this Bill were contained in the Bill last year and were the subject of considerable debate at the time. They were deferred, partly because of the need to consider further their possible impact. My hon. Friend's Bill, which became the Industrial and Provident Societies Act 2002, was the first update of industrial and provident societies legislation since 1965. In summary, it gave the same level of protection from carpetbaggers as exists for building societies, and allowed future changes to company law to be applied to industrial and provident societies by means of a statutory instrument. My hon. Friend's Bill was much needed, but there remain a number of outstanding issues, which this Bill, in part, seeks to address.

Although they are covered by the same legislation, there are some major differences between co-operatives and community benefit societies. A co-operative conducts its business in the interests of its members, who gain from it on the basis of how much they use the service or its trade, rather than purely on the basis of their investment in it. If people want to register a new co operative society, 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.

In my constituency there are successful retail outlets owned by two societies, Midlands co-operative society and Tamworth co-operative society. They offer a range of convenience, non-food and funeral businesses from Chellaston on the edge of Derby to Swadlincote in the south. My one regret is that the range has diminished over the years, as has been common in several parts of the country. The most recent example was the closure of the store serving the village of Hilton. The village in which I live, Willington, has an excellent Co-op convenience store, which my family uses regularly.

The retail co-operative movement makes up a significant part of the UK economy. Retail co-ops alone have an annual turnover of £9.7 billion and employ 115,000 staff. They operate for the benefit of their 9.7 million members throughout the UK.

Community benefit societies are the second category of industrial and provident society. They differ from co operatives in that they trade for the benefit of a wider community, rather than just their own members. Their name is often abbreviated to bencoms, and I shall use that term. They include the many housing associations that exist, but I should explain that housing associations have greater protection than other community benefit societies because the Housing Corporation oversees their activities. Community benefit societies also include some social clubs—I remember some entertaining exchanges last year about some of the social clubs that had been established, including Conservative clubs in some parts of the country—and the new football supporters trusts.

Many South Derbyshire people support Derby County. There is a football trust for supporters of the club, set up as a community benefit society with the aim of strengthening links with the club and adding weight to the voice of supporters. In other parts of the country, such societies have been able to share in the ownership of clubs. If we reflect on the origins of the industrial and provident society movement—a desire on the part of ordinary people to have more control over their lives and to rely less on the decisions of a wealthy few—we can see its attractions in the football world.

Mr. Gareth Thomas (Harrow, West)

My hon. Friend mentioned football. Will he also pay tribute to rugby clubs that use the industrial and provident society model—such as the Pinner and Grammarians rugby club based in my constituency—and the many industrial and provident societies that are affiliated as rugby clubs to the Welsh rugby union? Does he share my hope that those rugby clubs will soon produce again the players to help Wales rightly challenge and win the six-nations championship?

Mr. Todd

Until my hon. Friend's final sentence, I would have agreed with him entirely. As hon. Members can imagine, with my build I was a pretty competent rugby player in my day, and I am a keen supporter now. I am delighted to see the industrial and provident society model being used by rugby clubs across the country, including the one in my hon. Friend's constituency. I congratulate him on the assumed association that he has with those clubs.

Industrial and provident societies give legal form, and 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, and where it differs most markedly from a shareholding operation, presents a powerful attraction. It is an arrangement by which power and 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 offices and shopping facilities available to communities, are good examples.

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 criticise that approach, but the problem is that nothing can stop shareholders changing or abandoning the original purpose for which the company was set up.

Another 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 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—and rightly—so but with the result that shareholders or members of a company can change that 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 the 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 motivations, modus operandi, financing, governance and so on. I am not seeking to say that either the co-operative or community benefit route represents the best legal structure for every situation. For some scenarios, the approach would be entirely inappropriate, but our legal structures need to be appropriate for the circumstances to which they are applied.

One type of organisation that has been particularly attracted to the co-operative and community benefit society models is local registered clubs. There are 6,500 registered clubs in the UK, many of which have chosen to be co-operatives or community benefit societies. Examples include clubs of the Royal British Legion, the Association of Conservative Clubs, the National Union of Labour and Socialist Clubs, the National Union of Liberal Clubs, the Royal Naval Association and the Royal Air Forces Association.

Mr. Andrew Love (Edmonton)

Does my hon. Friend recognise that any organisational form that can bring together Conservative societies and working men's and socialist clubs must have something very special about it?

Mr. Todd

Indeed. My hon. Friend highlights the fact that this has never been a partisan issue, as was demonstrated in last year's debate. It is a model that can be applied in a wide range of circumstances when it is convenient for particular bodies to incorporate themselves so as to protect the interests of the original purpose for which they were set up.

Mr. John Bercow (Buckingham)

As the hon. Member for Edmonton (Mr. Love) implied, the hon. Gentleman is offering us a heady cocktail. Will he now tell the House something about the diverse range of purposes for which members will allocate surpluses?

Mr. Todd

If I may, I shall not deal with that point now, as I have some way to go. In dealing with the clauses, I shall come to the issue of how to deal with assets should they be dissolved for some purpose.

David Cairns (Greenock and Inverclyde)

One of the first things I was asked to do when I was elected as a councillor some years ago was to intervene with the local Conservative association, whose club was being closed owing to lack of interest. Tragically, it was one of those things that history leaves behind. Would the Bill have allowed me to intervene more strongly to prevent the people who were running the Conservative club from flogging it off altogether, even though nobody was using it and there was absolutely no interest in it?

Mr. Todd

I thank my hon. Friend for that intervention, which I am sure contained no political message in respect of the Conservative cause in his constituency. If the Bill had been enacted and the society had held a democratic vote and was seeking to protect its value, it would have had more difficulty in disposing of that value, except for the purpose for which it was set up. Of course, in the case to which he refers, the purpose for which the club was set up was presumably either the promotion of the Conservative cause or another associated purpose.

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. Co-operative societies and bencoms, however, are set up not as vehicles to generate profits for investors but to trade for the benefit of a community of members or the community at large. Members of a community benefit society are not permitted to receive any payment by way of profit distribution. All such profits must be retained in the society and applied to its objectives in serving the community. That partly addresses the issue raised by the hon. Member for Buckingham (Mr. Bercow). Similarly, on a solvent dissolution, any surplus remaining after all 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 that of a company. It is set up by its members as a vehicle to pool their transactions and co-operatively to provide certain goods or services to themselves and/or the wider community. A co-operative is legally permitted to make a distribution to its members or customers from its surplus profits, but that power of distribution originated from the need 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 their paying too much. That is illustrated by the fact that a distribution of profits is based on purchases and not on the size of the shareholding.

I turn now to the detail of what is proposed in the Bill, but I recognise that this is a Second Reading and I do not intend to labour every clause. Clause 1, the value lock, seeks to give community benefit societies the option of protecting their assets for the purpose for which the society was established. The assets in a community benefit society are held for the benefit of the community for which the society was established. The biggest group of bencoms is housing associations, and I have referred to other examples.

An important feature of a community benefit society is that, unlike the comparable company model, the commitment to community benefit is subject to review by the registering authority—the Financial Services Authority—so any attempt to change the constitution or water down such a commitment would not be approved. The assets may have been built up over many years with generations of people from different families in a community working to contribute to them. Charitable assets are effectively dedicated permanently to a particular charitable purpose. The purpose of the clause is to offer the same principle of protection to community benefit societies.

Clause 1 would free societies from the risk of one group of activists in the organisation attempting at some stage to use its assets for their own benefit, rather than for its original established purpose. Such societies may not make distributions out of profits or surplus to members. On a solvent winding-up, assets should not be distributed to members. However, there is the ability to convert or transfer engagements to a company under section 52 of the 1965 Act. That would allow such restrictions to be avoided.

Once a society is converted into a company, the shareholders can amend the rules to permit the distribution of assets to themselves. That is clearly a loophole in legislation that the Bill tries to tackle. The measure proposes that a society should be able to elect that no such power should be included in the rules, subject to obtaining the support of a 75 per cent. majority of those voting at a meeting when not less than 50 per cent. of those qualified to vote participate.

Clause 1 specifically permits the constitution of a bencom to include provisions to prohibit the distribution of assets except on dissolution. Even when it is dissolved, the clause allows the imposition of significant restrictions on the distribution of the assets. It allows the prohibition by democratic choice. It is important to emphasise that it has to be the will of the society's members when it is set up and its purpose is defined. Existing societies can also call a duly constituted meeting and decide in favour of prohibition.

Clause 1 allows for considerable flexibility. Sometimes a community purpose can cease to exist. My hon. Friend the Member for Greenock and Inverclyde (David Cairns) gave an example from his constituency. It could be argued that the purpose of the club had ceased to be relevant to the area. That may be an extreme example, but sometimes a community benefit society's purpose is no longer relevant to the community. There must be a mechanism to deal with that. If the bencom dissolved, its assets could be transferred to another community benefit society with similar provisions in its rules or to a charity.

Clause 1 does not prevent the sale of an asset. For example, one could convert a building into cash, but the value should continue to be applied for a specific purpose. It would not therefore put a lock on a redundant building and mean that it remained an eyesore in a community for ever. The clause provides for converting an asset into another form of asset for disposal for a specific purpose. Crystal Palace Supporters Trust is an example of that. I am not a Crystal Palace supporter, but it is written into the trust rules that, in the event of dissolution, its assets must go to community football in the Croydon area.

Clause 1 also allows a bencom to convert to a company or another body if the latter contains similar provisions in its constitution to protect the assets for the benefit of the community. The bencom is also permitted to convert to a different legal entity. However, the liberation of the assets from their original purpose is not permitted. The provisions will apply only if the society adopts them in its constitution by resolution of its members and if FSA approval is secured in the normal way.

The safeguard could be perceived as a protection against a hypothetical risk. However, the strategy unit report emphasised the problem. It states The thresholds for voting for conversion should be increased. In addition, it would be desirable for I&PSs to choose to protect their assets against any possibility of conversion. In this case, a system would be put in place to ensure that the assets would be transferred to an organisation with similar aims should the society dissolve or be taken over. However, this 'lock' on assets will not be appropriate for many I&PSs, and should be optional. Hon. Members will acknowledge that my description of clause 1 precisely fits the report's recommendation.

Huw Irranca-Davies (Ogmore)

I wish the proposal well. Does my hon. Friend agree that a bencom with a regional or local aspiration should consider making that explicit in its terms of reference to ensure that the locked assets go back into the community?

Mr. Todd

I agree. It is critical at a society's inception that members carefully consider its then purpose and any future developments.

Mr. Gareth Thomas

Before my hon. Friend moves on to clauses 2 and 3, will he acknowledge the interest of the Women's Institute Country Markets, another body that sponsors industrial and provident societies, in clause 1? As he acknowledged, we could not get the provision through last year. Will he join me in paying tribute to Ruislip women's institute country market, an excellent organisation to which some of my constituents belong?

Mr. Todd

Clearly, my hon. Friend represents a colourful and thriving community, which contains many examples of industrial and provident societies. I join him in applauding women's institute country markets. A much more distinguished Member than me would counsel me not to give offence to the National Federation of Women's Institutes in any circumstances.

Clauses 2 and 3 would effect some modest changes in the way in which industrial and provident society law reflects company law. Clause 2 would bring industrial and provident society law into line with specific aspects of company law. The proposed change was effected for companies in 1989 and subsequently for building societies and friendly societies. Hon. Members will recognise its relevance in other transactions that relate, for example, to local government.

The proposed assimilation with company law relates to sections 35, 35A and 35B of the Companies Act 1985. Those sections are for the benefit of third parties that deal with companies in good faith and do not need to be concerned about whether, under a company's constitution, it has the capacity to enter into a transaction or whether the power of the board of directors to bind a company is subject to any limits. Such matters are important for third parties that enter into substantial transactions with societies, including trading and financial transactions.

For example, it would be a considerable bar to trading if a society had a track record of trading just outside its constitutional limits, thus placing the third party at risk of not having its contract honoured. The directors of such a society could say, "We made an error in following our constitution and we have therefore moved ultra vires." Clause 2 is intended to deal with that circumstance.

Company law reforms in 1972 and 1989 ensured that no question about the company's power to conduct specific business that was not mentioned in its constitution's "objects clause", or about how and whether power was given to the company's agents, could affect transactions as far as outsiders were concerned. It would be straightforward to apply the same solution to the problem of the capacity of an industrial and provident society or its agents to be questioned. I believe that the change would be consensual and mere common sense.

The only safeguard that an industrial and provident society can currently provide to anyone who trades with it is to offer a copy of its constitution and say, "Please read that if you have any concerns about whether we're trading with you legally." Clearly, that is a long-winded and deterring approach to doing business.

Mr. Love

Is my hon. Friend attracted to the recommendation in the recent strategy unit report that we should do away with the term "industrial and provident societies" because it is redolent of their Victorian origins, and change it to "co-operatives and community benefit societies"? Has he thought about including that in the Bill?

Mr. Todd

My hon. Friend will note that the Bill's title is precisely that. Until it completes all its stages and amendments have been discussed, the words "industrial and provident societies" remain relevant in English law. Although I am an admirer of the Victorian heritage, the terminology is off-putting. The strategy unit report refers to poor brand image. The brand of industrial and provident societies is scarcely enticing in a modern world.

Clause 3 relates essentially to the formalities of conducting a society's business. It proposes that societies execute documents in the same way as companies. At present, the method is old fashioned and cumbersome, requiring the application of the society seal to documents. The proposed assimilation with company law would introduce the ability for societies to execute documents by signature of officers rather than by seal. The relevant provisions of the Companies Act 1985 are—it tells us something about English law that there is such a profusion of them—sections 36, 36A, 36B, 36C, 37, 38, 39 and 41. The clause will assimilate the necessary company law provisions and it represents a gain by levelling the playing field. I am aware of one society that has a board sub-committee devoted entirely to the authorisation of the application of the society seal. Following a society name change, it was necessary laboriously to approve the use of the seal on many hundreds of documents. A similar company would have simply been able to execute the documents by signature of an authorised officer.

If the mutual sector is to develop, further sensible protection and reform of the rules will be needed. Many recognise the need to develop social enterprises. In the Prime Minister's foreword to "Private Action, Public Benefit", he drew attention to the insufficient recognition of the particular needs of social enterprises, a rapidly growing group of businesses carrying out a wide range of activities for the benefit of society rather than the individual. I shall not make wild claims for the Bill. It 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. The Bill seeks to strengthen our co-operatives and community benefit societies, and I hope that the House gives it a Second Reading.

10.13 am

Mr. Stephen O'Brien (Eddisbury)

I draw attention to my entry in the Register of Members' Interests as the parliamentary adviser to the Institute of Chartered Secretaries and Administrators. As a former group company secretary of a FTSE 100 company, many of the issues raised touch on my direct experiences. I am also an honorary member, along with my spouse, of the Winsford Constitutional and Conservative club, which is the type of society covered by the Bill.

I congratulate the hon. Member for South Derbyshire (Mr. Todd) for doing so well in this Session's ballot and for endeavouring to reform an aspect of the law that will bring real benefit to communities across the country. I know that the hon. Gentleman has stated his desire to present a useful Bill that can be passed into law. This Bill is a good example of an hon. Member using the pole position granted through the ballot process to demonstrate that Parliament has a crucial role in aiding our local communities.

It is a particular pleasure to follow the hon. Gentleman. I noted that as my hon. Friend the Member for Mid-Norfolk (Mr. Simpson) raised a point of order, the hon. Member for Bolsover (Mr. Skinner) suggested from a sedentary position that he and some other hon. Members should be stranded in Cambridge. The hon. Member for South Derbyshire and I shared years together at Emmanuel college, Cambridge. It is of interest, therefore, that although we are on different sides of the House, we can join forces today, just as we did in those days.

The hon. Gentleman's introductory history lesson, based on information gleaned from his father about his grandfather's experience in the House, was an interesting description of the way in which MPs' roles have changed over the years. I applaud him for thinking carefully about introducing a Bill that is permissive rather than restrictive. That is especially important in our day and age. The temptation in recent years has been to introduce Bills that curtail people's freedoms rather than to make them freer. That is why this Bill is to be welcomed. I was also extremely amused by, and rightly supportive of, the hon. Gentleman's sensitivity not to stray too far into falling on the wrong side of the WI country markets, raised by the hon. Member for Harrow, West (Mr. Thomas). The country markets in my constituency do an outstanding and critical community job.

The Bill is closely defined in its scope, which is the right way to use private Member's Bills. It is clear that the hon. Member for South Derbyshire has worked closely with the co-operative societies. I extend my best wishes to them for helping to produce a timely, justifiable and broadly sensible Bill to sit within what is broadly defined as the voluntary sector. Although that term might give rise to some confusion, it is important to recognise that the historical context of the Bill, as set out by the hon. Gentleman, belongs to that fine tradition of people wanting to be part of the voluntary self-help mutually beneficial culture that served our country well for decades and, it could be argued. centuries.

The charitable and wider not-for-profit sector covered by the Bill is both economically important and extremely diverse. It encompasses organisations of widely varying scale, purposes and structure. It is estimated that there are between 500,000 and 750,000 organisations in the charitable and wider not-for-profit sector in the United Kingdom. My right hon. and hon. Friends and I believe in encouraging that immense resource to be used to the benefit of all, especially, although not exclusively, the vulnerable in society.

Mr. Bercow

My hon. Friend describes the position pithily. Does he agree that those excellent organisations form part of what Edmund Burke famously described as the "little platoon", which constitutes civil society and is the middle way between an atomised individual and the state?

Mr. O'Brien

My hon. Friend generously describes my contribution as pithy, but it does not come more pithy than that. I not only endorse what he says, but recognise how critical the little platoons are for this country to move forward. They help to ensure that we balance the dignity of individual families and communities against what is, at times, an over-mighty state and the arrogance that goes with it.

I am sure all hon. Members are aware that co-operatives and community benefit societies provide essential services and amenities to communities. The list of the societies is diverse, ranging from housing associations to football supporters trusts, to social clubs and home care providers. It is helpful to have in mind the football trusts, be they rugby or soccer—as I still, perhaps anachronistically, call that form of football—and the Royal British Legion clubs. It is important to have in mind those examples as we go through the more detailed aspects of the Bill. For instance, perhaps one of the least controversial types of club is the British Legion club. It is hard to imagine that the purpose of such clubs would ever cease to exist. They not only give support to those who have served our country so well in the past; they honour the memory of those who made the ultimate sacrifice. That sacrifice has enabled us to be in this House today under the freedom of the rule of law, which our generation is lucky enough to enjoy in this democratic and civilised society.

However, what if, over time, the membership of a British Legion club were to fall to such a level that it became important to review its operation, and the supporting assets given in perpetuity for that purpose? It is important to ensure that no one generation of membership can remove a benefit that is provided not only for past generations, but for future generations. None of us can ever know how the future will work out, or the extent to which those assets might prove of benefit to future generations.

The voluntary sector has a key role to play in the renewing of our society. As my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) has said, the Conservative party will work with voluntary groups and other groups of all types, including co-operatives and community benefit societies, in breaking down the constraints that are currently applied to this sector. We have been listening, and will continue to listen, to the problems that such groups face, and we will seek to identify the solutions. The Bill before us today is a solution, and it defines the problem that it seeks to address well.

To the extent that this Bill has not already done the work on co-operatives and community benefit societies, and in the hope that it does become an Act, we will build solutions to the problems faced by the voluntary sector into a voluntary society Bill, which we will lay before Parliament in the first Queen's Speech of an incoming Conservative Government.

I want to look at the Bill in a little more detail. As has already been made clear, we are in broad agreement with its contents and intent. I should like to acknowledge the helpful advice that I was given by Mr. Martin Beaumont, a constituent of mine who is the chief executive of the Co-operative Group. Until last September, he was also chief executive of United Co-op, which serves the citizens of the north-west, including the local village shop in Bunbury, in my constituency, where my family and I shop every week. It is apparent that the governing legislation is outdated in comparison with company law, and it can be argued that that acts as a disincentive to wider use of industrial and provident societies, as they are still called, as a form of enterprise and organisation.

The hon. Member for Harrow, West, who has already intervened, should be congratulated again on his efforts to reform the situation. The Bill before us attempts to move the law on, building on the industrial and provident societies legislation that he introduced so successfully in the previous Session. As I have said, the reasoning behind the Bill is sound and well-intentioned, but I have a few minor reservations and certain questions, which I hope the Government are ready to answer in summing up today's debate.

It is perhaps easiest if I discuss the Bill's clauses, if I may, in reverse order. We support clause 3, as it will remove an often onerous and cumbersome regulation from the day-to-day running of such societies. It seems somewhat strange that, in a modern society, the formalities for executing documents still require the use of an authenticating stamp. I am old enough—as the colour of my hair perhaps displays, I am afraid—to remember what used to happen. Even in the late '80s, when I was acting group secretary of a large FTSE 100 company with 44,000 shareholders on its membership register, we would spend many hours signing share certificates individually. Nothing has changed to the detriment of those shareholders by the fact that that system is no longer current practice, and has quite properly been consigned to history, important though it was. The measure in clause 3 is an equivalent one, and it is therefore wholly appropriate and does not carry grave risk.

Of course, the continuing justification for the use of seals is that they provide protection from wrongdoing. During the Committee stage of the Industrial and Provident Societies Bill, which was enacted last year following the hard work of the hon. Member for Harrow, West, the Government expressed sympathy with an amendment tabled by the hon. Member for Edmonton (Mr. Love)—he, too, has intervened today—the aim of which was similar to clause 3. Have the Government reviewed this procedure as part of the charity law review or the strategy unit's report, and in terms of protection against wrongdoing, what are their views on the use of seals and the replacement of that process?

A great deal of work is going on in connection with the strategy unit's report. Does this Bill pre-empt proposals that the Government have yet to put forward, and which arise from recommendations by the strategy unit that are still being consulted on? Have the Government established what effect this change in the law might have on societies, and are they—as I hope they are expressing towards it more than the mere sympathy that they expressed towards the amendment, to which I have referred, tabled by the hon. Member for Edmonton?

We support clause 2, which will bring the law applying to societies into line with company law. It is essential that all parties dealing with co-operatives and community benefit societies can rely on the usual rules of ostensible authority, without risking being ultra vires. This is working well for companies under current companies legislation, and before such changes were introduced there was considerable discussion about the potential for abuse. In my business and professional career before being privileged enough to be elected to this place, I worked for a large manufacturing company with many subsidiaries, all of which had to comply with the Companies Acts. When the procedures for the use of seals and certification were relaxed for such companies, there was no demand, in the absence of evidence to suggest an increase in wrongdoing or uncertainty, to return to the status quo ante or an equivalent. So it is important to recognise that the track record should encourage support and acceptance of clause 2.

This issue was examined before. In 2000, the Government reviewed the situation through a Treasury consultation on the proposal for a new industrial and provident societies Act. Paragraph 22 of that consultation states: This aspect of the ultra vires rule no longer applies to companies, following enactment of the Companies Act 1989. There seems no reason why societies should not have an equivalent legal capacity to deal with others. So it is proposed to cease to apply this aspect of the rule to societies. It would be helpful if the Government could explain today why this recommendation has not been acted on. Do they still stand by the proposals included in that report, which was issued jointly with the Registry of Friendly Societies. If they do still agree with their own proposals, why has there been such delay? Surely today is the chance to ensure that they are implemented.

Clause 1 offers the most potential for debate, as the hon. Member for South Derbyshire pointed out in his introduction and the time and detail that he devoted to that clause. The Government's strategy unit report, "Private Action, Public Benefit", recommended that community benefit societies should be permitted to protect their assets—this is the crucial point—in perpetuity for a public purpose. That is the nub of the matter. It is that important purpose that underpins the rationale and intent of the Bill.

As the law stands, societies and the communities that they serve could easily be vulnerable to asset stripping. If a society converts to a company, it will be easier for the members to alter its rules and to allow distribution of valuable assets to members without thought of the consequences for the greater community. The Bill relates to assets that have been granted, or given, in perpetuity for the community, so it is right to protect such assets from distribution to members of a community at a given time. For these purposes, it is the community that evolves and changes, not the asset base that was granted to benefit that community generation after generation.

Mr. Michael Connarty (Falkirk, East)

I declare an interest as I am a member of the West Quarter Labour and Community club in my constituency, which is owned by the community and local Labour parties.

The hon. Gentleman referred to the British Legion. Is it not often the case that such social clubs have been superseded by many other facilities? Might it not be better to transfer the value of those assets to something that would be more valuable to the community to which they were originally gifted?

Mr. O'Brien

The hon. Gentleman raises an important point. As I understand both the intent and the detail of the Bill, it would provide that, in the event of evolution such as he describes, purpose is the important factor. There is provision for transfer on dissolution—the most difficult aspect—to another benefit society that satisfies the purpose. The main thing for us to do is rigorously to ensure that there can be no possibility of asset stripping. That would be a wrong motivation. As long as the purpose of the asset is kept, the community benefit is likely to be sustained. However, it would be wrong to set provisions in such a solid form of aspic that there was no chance of responding to changing circumstances such as those described by the hon. Gentleman.

I was pointing out that the Bill would rightly entrench the assets, apart from a purpose-based transfer, such as we have just discussed. A transfer should not benefit an existing cadre of members. Transfer by conversion is a possibility, but the presumption is that the benefit should be maintained for the community over time.

In the past, the Government have been against entrenching assets in principle. That applied to the co-operative sector, too. Do the Government agree with the strategy unit's recommendations and the supporters of the Bill that a different approach is appropriate for community benefit societies? During the proceedings on the Industrial and Provident Societies Act 2002, the strategy unit deliberations were referred to frequently, especially as regards the use of an asset lock and how it could be introduced for community benefit societies. The unit's recommendations supported the concept of entrenchment and the modernisation of industrial and provident society law.

In parallel with this debate, we need to consider the wider implications; for instance, the Government's proposals for foundation hospitals, which also have an element of asset lock. The Government need to ensure consistency and clarity in their approach to legislation for different bodies; I hope that they will support the Bill in that regard.

Mr. Love

There is already an asset lock in relation to charities and credit unions. As Members who have read the strategy unit report know, it suggests that community benefit societies are a halfway house and that such protection should also be available to them.

Mr. O'Brien

The hon. Gentleman is right. However, the Government have not yet made clear their response to the recommendations in the very good report of the strategy unit. Of course we need to debate many aspects of the detail but the report is extremely useful in broad terms. In a sense, the Bill pre-empts much of what might follow from the recommendations and is one of the three measures that might be developed from them. We await the Minister's comments on that.

As the hon. Gentleman pointed out, the Bill would regularise the position for the community benefit societies, which have become trapped between two stools. As he and my hon. Friend the Member for Buckingham (Mr. Bercow) have pointed out, it offers a middle way.

The Government need to show that they have internal consistency in their approach to that aspect of the law. The point also applies to their proposals for foundation hospitals, which are being considered by Parliament.

Naturally, we have reservations about some of the technical aspects of how asset locks might work. For example, what would happen to the assets of a society when it dissolved? That is addressed in paragraph (a), subsection (1) of clause 1, and although the Minister may not be able to go into such points in detail on Second Reading, they certainly warrant careful scrutiny in Committee.

I urge the Government to support the Second Reading of the Bill. We are generally supportive of the measure and I look forward to debating a number of the points raised today during its—I hope—successful passage through Committee.

10.38 am

Mr. Gareth Thomas (Harrow, West)

It is a pleasure to follow the hon. Member for Eddisbury (Mr. O'Brien), especially given his fulsome support for the objectives of the Bill promoted by my hon. Friend the Member for South Derbyshire (Mr. Todd). As I am the first Back-Bencher to speak in support of the Bill, may I lead the tributes to the way in which my hon. Friend introduced the Bill? He demonstrated a grasp of the legislation and of many of the difficulties that face the community benefit society sector. His introduction of the subject will give the House confidence as he takes the measure into Committee and beyond.

My hon. Friend has done an especially important job. As he rightly said, the fundamental legislation on industrial and provident societies dates from the 19th century and has been largely unreformed since then. He offers the House the chance to modernise a little further the rules and regulations under which co-operatives and community benefit societies operate and that is enormously welcome.

Such organisations have, unfortunately, been in a twilight zone between the public and private sectors. Some of the enormously good work undertaken by the most successful co-operatives and community benefit societies has not received the publicity and attention that it warrants.

For example, the excellent Tower collery in south Wales—the only employee-owned coalmine in Europe —was set up precisely because a public sector organisation wanted to shut down the coalmine, with devastating consequences for that constituency. The initiative and entrepreneurial skills of the local community, using the co-operative model, have restored the coalmine for the community and kept wealth locked in that area.

The attraction of co-operatives and community benefits societies is that they entrench real power and decision-making opportunities in the communities that are affected by the decisions that need to be taken. Many public sector organisations and, now, many private companies recognise the need to consult local people. Some of the best local councils use citizens juries, citizens panels and residents forums to assess what they do. Companies—for example, developers involved in planning—also seek to consult local communities. However, whereas those organisations retain the real power to make decisions for themselves—they keep it in the council chamber or the corporate boardroom—co-operatives and community benefit societies keep the power with the people who are affected by the decisions that have to be taken.

Mr. Colin Challen (Morley and Rothwell)

My hon. Friend talks about strengthening power in the community. Does he agree that the Bill, if passed, should enhance that power against that of financial institutions, which tend to regard community benefit co-operatives or mutual sector bodies as rather strange, unusual things to which they cannot lend money and on which they put pressure to transform themselves into the normal kind of institution that they recognise?

Mr. Thomas

My hon. Friend is right to suggest that there is a lack of understanding about the co-operative and community benefit society model. Indeed, the fact that it is unreformed compared with company, building society and friendly society legislation has put off many organisations that may have wanted to use that structure. That has helped to reduce any enthusiasm among those who might lend to such organisations and has prevented them from doing so. The Bill offers the opportunity to reform several weaknesses in the legislation, which is excellent news.

I particularly welcome clause 1. As my hon. Friend the Member for South Derbyshire said, we attempted to cover that topic last year in considering the Industrial and Provident Societies Act 2002. Indeed, those on all three Front Benches supported our proposals, but we were unable to resolve some of the technical concerns that rightly needed to be resolved. So my hon. Friend deserves particular praise for giving the House the opportunity to put that provision into law so soon after the strategy unit's ringing endorsement of the principle of clause 1. As the hon. Member for Eddisbury rightly said from the Opposition Front Bench, there are examples where the provisions in clause 1 already apply. Charities, housing associations and credit unions were mentioned. Clearly, clause 1 gives us an opportunity to provide consistency across the community sector.

In addition, it is worth highlighting the importance of clause 2, on modernising the ultra vires or capacity issues, particularly given my hon. Friend's intervention. Clause 2 would help to give confidence to third parties in dealing with co-operative or community benefit societies. Let us consider the rugby club analogy. It is possible to imagine that similar towns have two clubs. We might call one the Tigers rugby club, which uses the industrial and provident society model; the other rugby club in the neighbouring town might choose the company model. Both clubs decide that they want to borrow £250,000 from the bank to build an extension to house a bar facility. If the England rugby team starts to do very badly in future and that has an impact on the membership of those clubs, the revenues will start to decline at both clubs. Both clubs run into financial trouble and cannot pay back the loans. The bank considers its options. What can it do? The bank knows that the rugby club that is a company has a charge on the club's assets and could get its money back. However, the rugby club that is an industrial and provident society could argue, if there is no reference in its constitution to providing social facilities, that the loan was ultra vires and therefore that it does not have to pack it back.

That type of problem has occurred in the past. For example, in the 1980s, councils engaged in a number of interest-rate swaps. As has been said, that problem motivates financial services organisations to be cautious about lending to industrial and provident societies, so we need to use the Bill to resolve that unreformed element of the legislation.

As I have said, this is an excellent Bill. I hope that the House will not only agree to it on Second Reading, but speed on to consider it in Committee and on Report. I hope that the House will consider in Committee or on Report whether the Bill offers the opportunity to modernise the legislation on a number of other issues, too. For example, it is worth seeking clarification on why Northern Ireland should be exempted from those reforms, given the existence of so many industrial and provident societies there. Why should those organisations be excluded from the benefits?

I also hope that, now or on Report, the Minister will give some clue about a time scale for reforming the audit and accounting requirements that impose a much greater financial burden on industrial and provident societies than on companies. Will she say whether the Bill offers the opportunity to reform the regulator's powers to inspect societies? At the moment, the Department of Trade and Industry can, of its own volition, investigate a company that it suspects of fraud or wrongdoing. In the case of a regulator for co-operatives and community benefit societies, the Financial Services Authority cannot do that; it has to wait until it receives a complaint from a society member. Again, reform is needed because of the FSA's lack of power to intervene of its own volition, as that puts off organisations from dealing with industrial and provident societies or from using that route in the first place.

Mr. Love

One of the more successful aspects of company law has been the Company Directors Disqualification Act 1986, which does not apply to industrial and co-operative societies. If we are to get some of the benefits, we must ensure that directors of those societies are treated in exactly the same way as company directors.

Mr. Thomas

My hon. Friend is absolutely right, and I hope that we might hear about when such reforms might take place for co-operatives and community benefit societies. He may well remember that some of those issues were thrown into stark relief during the consideration of the Enterprise Act 2002, as such provisions were reformed and modernised for companies, but not entirely for industrial and provident societies.

I hope that, during our consideration of the Bill, we might also hear whether there is a time scale for introducing, by statutory instrument, powers to modernise the insolvency provisions that exist for industrial and provident societies but have not been implemented.

I pay tribute to my hon. Friend the Member for South Derbyshire for choosing this topic. He has done an excellent job in introducing the Bill, and I hope that it will have a smooth passage today and throughout its remaining stages.

10.49 am

Mr. Adrian Bailey (West Bromwich, West)

In speaking in support of the Bill, I should first declare an interest. I am a Co-operative Member of Parliament and vice-chair of the co-operative group in Parliament. Prior to coming to the House, I was employed for 18 years as a national organiser of the Co-operative party, and I am a member of many co-operative societies. To keep a certain political balance, I was once a member of the Winsford Labour club. I do not know whether it still exists and—if it does not—what happened to its assets on dissolution. Perhaps the hon. Member for Eddisbury (Mr. O'Brien) could advise me.

I congratulate my hon. Friend the Member for South Derbyshire (Mr. Todd) on promoting the Bill. He may not recall the first time that we met. It was several years ago on a wet, windy, dark night in south Derbyshire, when he agreed to address a function that I had arranged on co-operation. On that occasion, he waxed eloquently on his commitment to the co-operative cause. In these days of cynicism about politicians, it is gratifying to see him demonstrate ably that he practises what he preaches in public. As he and others have said, one of the Bill's main purposes is to ensure that community benefit societies, registered under the Industrial and Provident Societies Act 1965, can dedicate their assets permanently for the community: the so-called asset lock.

Ironically, the democratic nature and management of bencoms contain the potential for their ultimate self-destruction. The more successful such open and democratic organisations become and the more assets they accumulate, the greater their vulnerability to takeover by those whose only desire is to enter the organisation, manage it, and asset-strip it for their benefit. It seems appalling that, hitherto, there has been no legal barrier to prevent bencoms from being taken over by such a self-seeking bunch of individuals.

Earlier, my hon. Friend the Member for South Derbyshire referred to the sepia-tinted photographs associated with co-operative societies. In my previous incarnation, I visited societies on many occasions to see those sepia-tinted photographs of the bewhiskered, waistcoated gentlemen who founded such societies—unfortunately, it was mainly gentlemen. We may feel that the values of those philanthropic visionaries are a little outdated, but the Bill is a way of updating those values and providing a framework in which they can continue to serve the very objectives that those bewhiskered Victorian gentleman envisaged.

Fresh in the minds of most co-operators are the events that occurred in relation to building societies a few years ago. There was little protection within the rules, or within legislation, to prevent them from being taken over. About two thirds of the building society movement disappeared over several years. While there may have been legitimate issues to be debated concerning building societies, there can be no doubt whatever that the motives of the great majority of people in voting to privatise those companies had nothing to do with the long-term welfare of those societies. It was merely an opportunity to gain a windfall profit.

Building societies have adapted their rules. The Nationwide led the way by enforcing a rule that new members should donate any windfall gains to charity. In many ways, that principle has been incorporated in the Bill. It would be a mistake, however, to think that the danger has passed for organisations registered as industrial and provident societies. It is astonishing that there are more than 8,300 of them, with assets of £61 billion, which provide potentially rich pickings for anyone motivated to try to take over some of those societies.

Mr. Stephen O'Brien

In a constructive attempt to help the Bill's progress, may I ask the hon. Gentleman whether he accepts that there is a clear difference between building societies, whose purpose is to benefit current members at any one time, and community benefit societies, whose assets would be deliberately endowed in perpetuity for the purpose defined? That is why a proper distinction should be drawn and why it is proper to consider the asset lock provision in the Bill.

Mr. Bailey

I accept the hon. Gentleman's point, but the point that I want to emphasise is that a group of highly organised individuals are targeting mutually based organisations with a view to exploiting any deficiencies in their rules or legal structures in order to take them over and asset-strip them. There is an organisation that is specifically dedicated to that purpose, but I will not advertise it in the Chamber today. It exists, however, and we must be aware of it and the threat that it poses to co-operative and community benefit societies.

One positive development that arose from what happened to building societies was that it forced those that survived to demonstrate the virtues of mutuality. It also provoked something akin to a public debate on the advantage of mutuality. Above all, it alerted the Government to the potential that community benefit organisations can offer to the delivery of public services in a more market-sensitive way. The Bill is needed not just to protect existing bencoms but for a positive purpose: to enhance the attractiveness of alternatives to existing company models. It is not just a defensive piece of legislation, but one that offers enormous potential. I would single out three areas in that regard.

The first is the existing social enterprise sector, which is growing but will no doubt grow faster if it feels that enterprises will not at some time in the future succumb to members taking over and using their accumulated efforts and assets for speculative purposes. People who invest in social enterprise do so to meet specific social needs. They will have the security of knowing that there is a way of protecting their form of contribution, whatever happens in the future of the bencom. Existing bencoms will also be provided with an opportunity and an incentive for members, in considering whether to introduce the asset lock, to debate the long-term purposes of their organisation. That will raise awareness and potential commitment.

It is not only the existing social enterprise sector that could benefit. My hon. Friend the Member for South Derbyshire mentioned in his speech the dissatisfaction with the privatised utilities. It is fair to say that the privatisation of those utilities demonstrated that shareholder-driven priorities did not sit comfortably with public good or public welfare. The route proposed in the Bill offers an alternative somewhere between the monolithic state provision of old and the profit-seeking, shareholder-driven private sector company of more recent years. Currently, the favoured replacement mechanism appears to be the company limited by guarantee, which may be appropriate in some cases, but I and many others believe that the model proposed in the Bill offers far more potential for the future. Above all—this may be crucial in the Government's development of public service policy—the Bill offers a model to provide public services, particularly in health and social care, that will enhance participation, enable access to a wider source of investment and develop roots in local communities. The Bill will deal with one of the major problems that impede that development—the security of public assets once they have been transferred.

In many ways, the old demarcation between the public and the private sector is becoming blurred. The consumer is more concerned about the quality of services than how they are delivered. In order to improve services, it is important to give people a stake in them, and I believe that bencoms, by reinvesting profits in the service rather than rewarding shareholders, and by encouraging community involvement and participation by employers, offer an important alternative to existing structures and models.

The Bill removes a major obstacle to the development of bencoms. They may or may not be the answer in every case, but there can be no doubt that if the Bill is enacted they will become a relevant and significant option in the delivery of our public services.

11.1 am

Dr. Vincent Cable (Twickenham)

I support the Bill both as a party spokesman and as an individual. Indeed, I was privileged to be asked to sponsor it. I pay tribute to the hon. Member for Harrow, West (Mr. Thomas), who led the way in developing legislation in this field.

I came 10th in the ballot for private Members' Bills last year, and was treated to a seminar from the Government Whips in which it was spelled out in terms that even the slower among us could understand that there are two choices: either one can choose a Bill that is useful, practical, sensible and uncontroversial, in which case there is a reasonably good chance of its going through, provided that the shadow Leader of the House is in a benign mood on the relevant Friday morning, or one can go for something radical and controversial that annoys Ministers, in which case one gets a few hours of fame and then nothing else. I can see that the hon. Member for South Derbyshire (Mr. Todd) benefited from the same seminar and came to the same conclusion as I did. As a result, we have a useful and practical Bill that I hope we can all rally behind.

Five years ago, many of us who were enthusiastic about the mutual movement felt that there was an opportunity for a big leap forward. There was a burst of enthusiasm for mutuality among think tanks such as Demos, philosophers such as Anthony Giddens and politicians such as the right hon. Member for Birkenhead (Mr. Field), who was suggesting that the welfare state should be recast around mutual institutions. There was a great deal of hope, but in practice, although there has been some growth, it has been modest and incremental. The positive changes to the building society regulations have certainly helped. The legislation promoted by the hon. Member for Harrow, West helped, too, as will the three Bills in the pipeline, but they are quite modest.

The paradox is that, although there is great enthusiasm for mutuality across the party political spectrum—many people think that it is the model of organisation—many mutual bodies have struggled. That is especially true of the traditional mutuals rather than the community benefit societies. The hon. Member for West Bromwich, West (Mr. Bailey) spoke about the tribulations of the building society. When I first became a Member, I belonged to a group called Save Our Building Societies, which tried to stop the process of attrition. Market share has now stabilised at around 20 to 25 per cent., with the help of regulatory change and the ingenious asset lock devised by the Nationwide, but it is not an expanding sector. The mutual insurers—Equitable Life, Standard Life and others—have struggled even more. There are problems in the friendly society sector, which does much useful work but is a shadow of its former self. The Co-op almost suffered a humiliating takeover by an asset stripper.

At the same time, there has been tremendous grassroots growth of mutuality, although it is sometimes difficult to recognise. For example, there are the after-school kids' clubs, which have about 15,000 to 20,000 members and are growing rapidly, and the pre-school playgroups, which had well over 100,000 members at their peak, although they have taken a hammering from the nurseries. They are predominantly community benefit mutuals.

There are also groups such as the Workers Education Association and, in a way, its successor, the University of the Third Age, which is a nationwide mutual with many thousands of adherents, providing community benefit, which is expanding and flourishing.

There has been a growth of mutuality in the health sector. Regardless of whether foundation hospitals succeed and take a mutual form, many local doctors have formed mutuals to deal with after-hours care, for example. Mutual organisation provides a useful vehicle for that. Many mutuals are so successful that we forget that they are mutuals at all: we tend to think of BUPA as private medicine, but in fact it is a mutual. Some mutuals have become highly successful multinational companies. If Bill Gates lies awake at night worrying about competition, he worries not about traditional companies, but about Linux, which is a true mutual. I am interested in whether the community benefit provisions would apply to such big operations, which could well define themselves as community benefit societies. Would they fall within the provisions in the Bill? I do not know whether the Government have thought about that.

All those new organisations are not emerging artificially. Several of those who have spoken today have explained the demand and need for mutuals, which is partly an impetus towards diversity and getting away from the rigidity of the private limited company on the one hand and state or local government bureaucracy on the other. It also stems from the fact that many activities require a blend of community mindedness with businesslike efficiency and entrepreneurial flair. Somehow, those have to be combined in the same institution. Mutual organisations, and especially community benefit institutions, are really the only models that achieve that. The mutual structure is ideal for something that is rooted in the local community but none the less businesslike.

Despite the need, and the good things that are happening, community benefit societies are not spreading as rapidly or on the scale that they should be. One of the main reasons for that is tackled in the Bill—the problem of assets. There are many reasons why the lack of an asset lock can be extremely debilitating to mutual organisations. The Co-op has been mentioned. Although I represent the Rugby Football Union as the Member for Twickenham, my heart is still with my old football club in York, which is where I grew up. York City is a wonderful example of a club succumbing to unscrupulous asset strippers but then being rescued by community spirit.

A problem that is perhaps less acute than that of asset stripping is, however, more difficult to deal with. When a mutual community benefit organisation has become fuddy-duddy and inward-looking and people within it want to do new things and make it grow, they often take the view that the only way of doing that is to escape from the mutual structure. There are often, in a sense, creative reasons why mutuality breaks down, and somehow that has to be overcome.

Then there are cases in which a community benefit group is providing a useful service but has valuable assets. Allotment holders and British Legion clubs, for example, find themselves, because of economic change and development, sitting on a gold mine. There is great temptation to try to find a way of cashing in the assets and distributing them among members in such a way that the community benefit is lost. Those different factors lead to the need for a more positive approach to the asset lock question.

I understand the dilemma. I remember debate on the Industrial and Provident Societies Bill, promoted by the hon. Member for Harrow, West, in which the Treasury argued that there are dangers in asset locks—assets get tied up in unproductive uses. That is a problem, for example, with private trusts. However, there is now a weight of evidence that one must be much more positive.

The hon. Member for Edmonton (Mr. Love) intervened to remind us that asset locks are available in the credit union and charitable sector. They are widespread in the European Union, which is one reason why mutuals on the continent are so much more successful. The Government strategy unit report effectively endorses the principle, too. So, we have got to the point where I hope that the Government accept the principle and recognise that the argument is not always clear cut.

The one question that I have is why the provisions must be quite so restrictive. As I understand the Bill, in order to vote an asset lock into perpetuity it is necessary to have a 50 per cent. turnout and 75 per cent. agreement. I would have thought that 50 per cent. of members voting for such change would be adequate. I ask the Minister and the hon. Member for South Derbyshire to justify such a restrictive provision. Given that minor query, I strongly support the Bill. It is an excellent step forward. I hope that the Government will endorse it and that it speeds through the House.

11.12 am

Mrs. Louise Ellman (Liverpool, Riverside)

I am a member of the Co-operative group of Members of Parliament and I am very pleased to support this very important Bill. I add my congratulations to those paid to my hon. Friend the Member for South Derbyshire (Mr. Todd) on bringing the Bill before the House. As he said in his initial comments, it is about taking co-operation forward and building on the co-operative movement, which has achieved so much and become such a fundamental part of our society.

I see this Bill as an opportunity to move us into the future and to build on all that is good in co-operation. Co-operation in essence is about people working together to provide goods or services that benefit members or the community on the basis of mutual support or ownership. That is extremely important and has been a fundamental contributor to what is good in our society. Co-operation has a very fine history. Many are aware of its importance to production, retail services, agriculture, banking, finance, housing, funeral provision, and more recently, as hon. Members have said, to the wide range of social clubs.

Co-operation is part of a movement. When co-operatives were first developed in strength they were seen as the beginning of a co-operative commonwealth—a new society where the values of mutuality and self-help were central. The co-operative movement is a proud part of the Labour movement, but its virtues are so self-evident that they are supported and, indeed, adopted by those well outside those confines. Indeed, judging from the comments this morning of the hon. Members for Buckingham (Mr. Bercow), for Eddisbury (Mr. O'Brien) and for Twickenham (Dr. Cable), we are all co-operators now.

One area in which co-operation has been distinguished and has a great future is finance. The successes of credit unions are well known. They are an excellent example of applying loans on the basis of self-help and mutual support without exploitation. Over the past few years, credit unions have grown considerably in number from 73,000 in 1992 to 220,000 in 1999, although we still have a long way to go. It has already been clearly shown that credit unions make a great contribution to individuals' well-being and to dealing with social exclusion. Indeed, they are a vital part of regeneration.

I want to draw particular attention to the Co-operative bank as a fine example of co-operation—working for individuals, proving that it is a commercial success and leading the way in the development of our communities and society. I pay tribute particularly to its former chief executive, Terry Thomas, who is now a Member of the other place. During his tenure at the Co-operative bank, he began what has become commonplace in banking but was unusual and revolutionary in its time: ethical banking. The Co-operative bank led the way, showing that banking could be commercially successful while at the same time responsible to the community as a whole.

Moving on from ethical banking, the Co-operative bank took a lead in working with business, in particular to improve the environment. It set up the first business environment centre in the country when establishing its organisation in Manchester some years ago. The bank is a fine example of co-operation, showing how the co-operative movement combines individual need, self-help, mutuality and commercial success, leading the community forward on the basis of those values.

Several hon. Members have mentioned the importance of the growing social enterprise sector. That is one area where the Bill will have particular relevance. It is highlighting the importance of mutuality to production, enterprise, people working together and to meeting community need. There are particular examples of social enterprise in Liverpool that have national significance. In developing the provision of furniture particularly for poorer people, in providing training and now in developing Bulky Bob's in recycling, not just in Liverpool but in London and other areas of the country, the furniture resource centre has shown the importance of social enterprise and individual initiative.

It is in Liverpool, too, that another body vital to the development of social enterprise is already working successfully. I refer to the Merseyside special investment fund, which was set up in 1996 as an experiment in how the private sector could work with objective 1 funds to develop business in the Merseyside area. In the five years that have passed, it has invested £32 million, attracted another £88 million and supported 600 businesses and 5,000 jobs. What is most significant is that only a few months ago it set up a new loan fund, initially of £2 million, and it is ready to lend between £3,000 and £100,000 not to conventional businesses but particularly to community-based businesses. It anticipates that over the next few years it will be supporting 80 such community-based businesses, involving 1,000 jobs.

I find it highly significant that the successful Merseyside investment fund, which started in Liverpool and is now working with objective 1 areas throughout the United Kingdom, regards as important the opening of a new fund that is directed especially towards community-based businesses. That is a clear indication of the importance of social enterprise and community business. I am sure that the fund will work with the already established Phoenix fund and local investment funds, as well as Business in the Community and the funds in which it is involved. The Bill is an important element in giving more support to the social enterprise movement and community businesses in general as they develop.

The work of the Eldonians in the Vauxhall area of Liverpool is well known. Indeed, they are hailed in this country and throughout Europe as a fine example of co-operative enterprise that considers both individual ventures and community regeneration. Their successes include housing, care for young and older people, sports facilities, and wider regeneration activities in the Vauxhall area. I hope that the current discussion of schools' reorganisation in Vauxhall will take account of the excellent work being done by the Eldonians. The Bill is directly relevant to the work of such groups.

The Bill is important because it marks a new and significant stage in the development of co-operation. It is about protecting assets, thus helping the work of community-based organisations to proceed more smoothly and supporting those who want that part of the sector to expand. The value of co-operation and the co-operative movement has already been shown by its direct achievements and the direct support that its has attracted. I congratulate my hon. Friend the Member for South Derbyshire on bringing the Bill to the House. In years to come, it will be seen as another staging post in the growing success of co-operation, and the growing acceptance and recognition by the whole of our society of the fact that co-operation is a vital part of our economic progress, based on the everlasting values of mutuality and community benefit.

11.22 am

Ms Meg Munn (Sheffield, Heeley)

Like other hon. Members, I congratulate my hon. Friend the Member for South Derbyshire (Mr. Todd) on obtaining first place in the ballot and on his choice of subject for his private Member's Bill. Like my hon. Friend the Member for Liverpool. Riverside (Mrs. Ellman), I am a member of the Co-operative group of MPs, and I am delighted to support the Bill.

By building on the improvements made last year, the Bill extends into public services. This week, I met groups of constituents who are extremely concerned about council housing and what might happen to them in the light of changes in ownership. They want to know from whom they will be renting properties in future. Developing other forms of organisation such as housing co-operatives, and ensuring that such organisations enjoy greater security, will enable more people in local communities to have greater confidence when changing from state and local authority ownership to locally owned organisations. In delivering public services, it is vital that people do not feel that they are being "done to", but feel empowered to be more involved in the delivery of the services that they receive.

One sector in which co-operatives have started to develop is care services. Having worked in social care for many years, I am especially interested in the sector. In September, I visited the Willows residential home in Codsall, which is part of the West Midlands co-operative society. I was impressed by the home, but asked myself whether it was merely well run, or whether it was different because it was a co-operative. As I talked to the staff, it became clear to me that the values that are at the heart of co-operatives make a real difference to staff teamwork, their investment of their time in the home, the training that they receive and the qualifications that they are able to gain. Furthermore, the residents feel confident in the home and its future because it is a co-operative.

In my view, residential care should not be the only service that is provided in the co-operative way. Much of our debate on care of the elderly focuses on residential and nursing homes, but most elderly people want to stay in their own home, and if they need care, they want that care to be provided in their home. I was encouraged to learn that the West Midlands co-operative society is already considering both the provision of care through short stays in the care home, to enable people to recover from illness, and how to ensure that after the short stay, when the person returns to their own home, domiciliary care can be provided. In that way, if people become so disabled that they need permanent residential care, they will already be familiar with the home and the people who will care for them there. That is an extremely beneficial model of care.

Co-operatives can provide such services better than private organisations, not only because they recognise the benefit of providing through care, but because of the values that are at the very heart of co-operation—the social values that co-operatives hold dear, the investment of surpluses to build service quality and capacity rather than generate profit, and the drive to engage and empower service users. The residents of the home that I visited were seen as partners in provision—care was not simply given to them; they were asked about how they wanted the care to be provided and they were involved in the running of the home. The West Midlands co-operative society is examining ways of involving other stakeholders—families and other interested parties in the community—in discussions about the way in which care is provided.

Co-operation is about engaging and empowering people—engaging communities in service development and management, and in monitoring and sustaining provision. For me, the heart of the process of providing services in a co-operative way is the long-term commitment to sustainable local provision. It is not about going in, providing a service and continuing to do so only as long as it delivers a profit. Especially in the sustained provision of services to vulnerable people, only that long-term commitment can provide the security that both services users and communities seek. I am delighted to be here to support the Bill on Second Reading.

11.28 am

Andy Burnham (Leigh)

A Bill has to be a good one to keep me from Leigh on a Friday, and I am delighted to be able to say that the Bill before us is one such Bill.

Supporters trusts have been mentioned during the debate. I have an interest in that I am the chair of Supporters Direct, the Government-backed initiative to promote supporters trusts. The fact that the past two years have seen two prominent Bills that are relevant to the mutual sector provides clear evidence that the sector is on the march again. It is only a matter of time until many more people recognise that mutual ownership has answers to some of today's problems, whereas other, corporate forms have failed communities and people. Nowhere is that analysis illustrated more starkly than in professional football.

The welcome proposal in the Bill of an asset lock has great relevance to the beautiful game. Today, football is bringing the concept of mutual ownership to people who might never have tasted its benefits before. Hon. Members should reflect on the fact that, in the past four years, 50,000 people, many of them young men who had taken little interest in the democratic process hitherto, have become members of supporters trusts. They are now experiencing at first hand what mutualism is all about.

There are now 80 not-for-profit democratic supporters trusts in England and Scotland, all of which are industrial and provident societies, owning varying percentages of the league clubs with which they are associated. In the most celebrated cases—Lincoln City, Chesterfield and the new AFC Wimbledon—the supporters trust owns the club outright. It is my view and my hope that, if passed, the Bill will strengthen and protect these trusts.

The prolific growth of mutualism in football is a direct consequence of the way in which the private ownership model—the company model—has been shown to fail supporters and communities throughout the country. Today, professional football in England and Scotland is in financial crisis, and some of the game's oldest names—York City, Port Vale, Bradford City, Tranmere Rovers—stand on the brink of extinction.

Each club is a proud and cherished community institution. I stress the word "club", because they all had typical mutual beginnings—factory teams, church teams, boys clubs. However, as football became more popular and players began to be paid, the clubs set up as companies to limit the liabilities of their directors. At the time, the Football Association recognised the potentially devastating conflict of that, and introduced rules to prevent asset-stripping of grounds and the leaching of money out of the game by payments to directors. Sadly, its fears have been proved well-founded in recent years and the finances of many once-proud clubs have been plundered for private gain.

Let me mention two case studies that show why the Bill is relevant to football and why the asset lock proposals could be of great benefit to football supporters.

York City, a club mentioned by the hon. Member for Twickenham (Dr. Cable) and a great name in English football, is today in administration, on the brink of extinction. Two weeks ago, the York City Supporters Trust, a mutual society that Supporters Direct helped to create, had to pump £90,000 into the club just to keep it going over the next few weeks, for no share return whatever. It is in this parlous state because of the actions of its former chairman, Douglas Craig, whose activities were brilliantly exposed in The Independent by columnist David Conn. Unbeknown to the fans, he transferred the ownership of Bootham Crescent, the club's main asset and traditional home, to a holding company called Bootham Crescent Holdings, specifically to bypass FA rules. Craig—I hate to inject a partisan note into the debate—formerly a Tory councillor, stands to profit personally to the tune of £3.5 million if a bid to build houses on Bootham Crescent is approved, having bought his shares for not much more than £120,000 in the early 1990s. By contrast, the club is crippled with a range of debts and now fears that every match will be its last.

York City is an organisation nurtured and cherished by its community. One of its stands—the David Longhurst stand— was built in memory of a player who died on the pitch during a game, and was built with money donated by the fans and ordinary people. Now it will be bulldozed for houses.

The case of Wimbledon football club is a different example. It highlights the strengths of the community benefit society model and the appalling weaknesses of the private company model when it comes to safeguarding a community organisation such as a football club. The key word is democracy. Whatever anyone in football says, supporters see these clubs not as businesses but as public bodies—public property. It has been widely reported that the club's chairman, Charles Koppel, plans to remove Wimbledon FC from south London to Milton Keynes, 100 per cent. against the wishes of the fans, who have not been consulted on whether they think that it is a good idea. Those two examples illustrate why mutual solutions have, by necessity, gained currency among football supporters.

A supporters trust is initially a vehicle to raise cash to save a club, but if it builds influence and ownership in the long term it can save the club for future generations, protect the assets and exert direct democratic control over how the club is run. Douglas Craig is certainly not the first person to asset-strip a football club for personal gain, and he will not be the last. The private ownership model has left clubs too unaccountable and too lightly regulated—easy meat for the unscrupulous to ransack and bleed dry.

If, back at the origins of the game, clubs had set up as mutual organisations, as other professional sports clubs did—my hon. Friend the Member for Harrow, West (Mr. Thomas) mentioned that—many of these problems might have been avoided, but they were not and we are where we are. Nevertheless, I hope that, in the early part of this century, football will belatedly go down the mutual path.

Supporters Direct has been behind the spread of supporters trusts. We shall soon be looking to engage directly with clubs to see whether we can develop a full community mutual model for football that will bring financial incentives for going down that route and ensure that all proceeds are reinvested in the club. Some would say that that is not the big league; cynics say that football league clubs have been not-for-profit for many years. I would not comment on that; suffice it to say that, at the moment, football league rules prevent a mutual organisation from owning a football club, and I hope that the right hon. Member for North-West Cambridgeshire (Sir Brian Mawhinney), the new chairman of the Football League, who is not present today, might consider that and allow mutual organisations to own football league clubs. It is in that way, if the measures in the Bill become law, that football assets throughout this land will be protected against the abuse and asset-stripping that we have witnessed in recent years. It will help to preserve a diverse and extended football league across all the towns of this country.

If that day comes when we see mutualism in football, the great attraction of the Bill for football fans will be that the profiteering motive will be entirely removed from the equation. For supporters trusts it holds out the enticing prospect that if they can take control of their club they can effectively save it for this generation and generations to come. It is unlikely, but perhaps one day a few football grounds may ring to the chant of, "There's only one Mark Todd".

11.35 am

The Financial Secretary to the Treasury (Ruth Kelly)

I should like to start by thanking my hon. Friend the Member for South Derbyshire (Mr. Todd) for introducing the Bill so eloquently. He set out the issues clearly and in depth, and demonstrated a thorough understanding of them. There have also been interesting and important contributions from several of my hon. Friends, particularly my hon. Friend the Member for Harrow, West (Mr. Thomas), who has led the way in this matter, and also from my hon. Friends the Members for West Bromwich, West (Mr. Bailey), for Liverpool, Riverside (Mrs. Ellman), for Sheffield, Heeley (Ms Munn) and for Leigh (Andy Burnham).

The Government are clearly committed to the mutual sector, but we are keen to ensure that the industrial and provident society is seen as a modern and flexible corporate form within that sector, while retaining the unique and distinctive qualities that mark it out as a mutual organisation. That is why we gave our support to the private Member's Bill introduced last year by my hon. Friend the Member for Harrow, West, and I congratulate him on his achievements in ensuring that it reached the statute book.

In addition, last September the strategy unit completed "Private Action, Public Benefit"—its review of legislation for the charity and not-for-profit sector. It proposed wide-ranging reforms, including proposals to modernise the industrial and provident society legal framework. Those recommendations have been the subject of a public consultation, which has now finished. We are currently examining the responses received and considering options for taking forward the agenda, but I emphasise to the hon. Member for Eddisbury (Mr. O'Brien) that the Bill does not pre-empt reforms that the Government may otherwise have made, somewhat further along the path, as the initial responses from the consultation are very positive towards modernisation of the sector.

The Government certainly welcome this new opportunity to update industrial and provident society legislation. I am very sympathetic to the changes and the reforms that it is trying deliver, because they are consistent with our aim to support and modernise industrial and provident society legislation, and to strengthen such societies' contribution to social enterprise. I am therefore pleased to say that, in principle, the Government can support the objectives behind the Bill.

However—[Interruption.] There is always a "however." We believe that the Bill will require amendment to ensure that those objectives are genuinely achieved. I have had constructive discussions with my hon. Friend the Member for South Derbyshire on the nature of these amendments, and I hope that we shall shortly be able to agree where changes might be made, so that the Government can give their full support to the Bill.

Mr. Stephen O'Brien

I hope that in the spirit of the constructive approach that hon. Members on both sides of the House have taken to the Bill, and to speed its passage. any amendments that the Government have in mind can be shared, perhaps even before we reach Committee.

Ruth Kelly

We shall certainly seek support from hon. Members on both sides of the House to ensure the smooth passage of the Bill. I look forward to fruitful discussions with all interested parties.

I should like to examine briefly the main clauses. Clause 1 proposes to allow community benefit societies to include a rule in their constitutions, which could not subsequently be reversed by its members, prohibiting the distribution of their assets to any person or body other than another society with an equivalent rule or a charity. It also prohibits conversion to a company or other body, unless that company or body has an equivalent rule.

At the moment the Financial Services Authority will not in practice register a community benefit society unless it has such an asset lock-in in its constitution, but that restriction is not totally binding. For example, a society could convert to a company and some time later reverse the asset lock-in rule in its company constitution.

During the passage through Parliament of the Industrial and Provident Societies Act 2002, the same asset lock-in provision was considered. At the time it was acknowledged that there were benefits and potential drawbacks to such an approach. but we were not in a position to consider both the policy and legal implications within the time scale of the private Member's Bill process. Since then the strategy unit has recommended that an asset lock-in provision is made available to community benefit societies.

We will need to study carefully responses from the public consultation on the strategy unit report, but I understand that those on the asset lock-in proposals have been positive. The Government therefore wish to undertake further work on the possibility of an asset lock-in provision for community benefit societies to examine how a scheme might work. We will further consult on the detail and the possibility of introducing legislation to enact such a regime, if it continues to appear sensible and feasible to do so.

I am doubtful that it will be possible within the time scale available in Parliament for the Bill to establish in detail exactly what substantive provisions should be made in relation to an asset lock-in regime and what amendments would be needed to make it fully workable. However, the Government support that proposal and wish to examine the suitability of an asset lock-in regime. I therefore commit to continue to work with my hon. Friend the Member for South Derbyshire to see whether proposals can be brought forward during progress on the Bill that will ultimately facilitate the implementation of an asset lock-in regime for community benefit societies.

The hon. Member for Twickenham (Dr. Cable) raised a couple of specific issues in relation to a possible asset lock-in. In particular he asked whether a large mutual might consider changing its constitution to become a community benefit society so as to take advantage of the proposals that are under consideration. In principle, we believe that a company could set up a community benefit society and transfer its assets to it. However, it would need to satisfy the criteria of benefiting that society, a condition which is part of the constitution and make-up of community benefit societies. He also queried the 75:50 thresholds for conversion. I cannot give a commitment now that the Government would wish to pursue that matter, but I am sure that the issue will be debated further in Committee and I look forward to the hon. Gentleman's contributions on that subject.

Mr. O'Brien

I am grateful to the Minister for giving way a second time. I understood her to say that, while the Government broadly support the Bill, she is concerned that the timetable for private Member's Bills might mean that the Government will not be ready with the detailed proposals that might fit into the Bill. She cloaks that with the promise of further consultations with the hon. Member for South Derbyshire. Can she explain the impediments to fitting in with that timetable? It seems to me that, with the support of hon. Members on both sides of the House, delay may be unnecessary so she might need to revise her idea that this measure is not intended to pre-empt the strategy unit report, given that she also supports its recommendations in this regard.

Ruth Kelly

Yes, I can. The strategy unit report raises various issues that we will need to consider in detail. They include precisely how a regulator would work, and the precise terms under which assets could be transferred to another community benefit society. In principle, we could overcome many of these difficulties, given more detailed consultation. The plan is to enable the passage of such legislation in due course, subject to detailed consultation, particularly with the benefit society movement, to make sure that we get it right, rather than to suggest provisions during the passage of the Bill which may be counter-productive to the movement. In particular, we are concerned about preserving the flexibility of the movement to deal with unforeseen circumstances. Clearly it needs to he sufficiently flexible to evolve over time to changing circumstances. We will need to get the precise details right, but in principle the Government are supportive of such a move and it may well be possible to work with my hon. Friend the Member for South Derbyshire and come up with a proposal that would allow us to pass legislation in due course.

Clause 2 proposes to change the powers and capacities of industrial and provident societies in order to improve their ability to enter into business transactions. The current risk for those dealing with societies is that transactions may be invalid if a society performs an act that is within the law but outside the rules of that particular society. An apparently legitimate business transaction might then prove to be invalid. The current situation therefore places a burden on those trying to do business with societies to investigate the societies' rules. It may also deter some from conducting business with a society if it is perceived to involve a higher risk of a contract being declared void.

The Bill seeks to address this by applying to societies and their committees certain company law provisions which allow a company and its directors to bind the company if it acts outside its constitution but within the law—a contract made under these circumstances remains in force between the contracting parties without absolving directors and other company officers from their obligations or liabilities to company members.

These principles are easily transferable to the industrial and provident society context and measures to this effect would increase protection for those doing business in good faith with a society. They should also facilitate the ability of societies to conduct business and we therefore fully support the principles behind the clause.

Clause 3 aims to make it easier for societies to enter into contracts and execute documents. I do not propose to examine those provisions in detail now, but I take note of the comments made by the hon. Member for Eddisbury.

Mr. Love

I thank my hon. Friend for giving way. A number of hon. Members have suggested further amendments that could be included in the Bill, very much along the lines of the Treasury consultation document that was circulated in 1998 and which included many non-controversial provisions. Would the Minister be sympathetic to some of those non-controversial amendments being included in the Bill?

Ruth Kelly

Following the strategy unit report, the Government will have to make a number of decisions about priorities and which areas we wish to pursue in relation to industrial and provident societies. The Bill's progress and what we can do within its framework will determine how we can take the movement forward. It is a little early for me to say precisely what those priorities may be, although in due course we will make recommendations for the sector.

In principle, we are sympathetic to clause 3, which makes it easier for societies to enter into contracts and execute documents, and we very much hope to be able to support it in Committee. In that context, I look forward to the debate with the hon. Member for Eddisbury on the nature of protection for members.

The proposals are a welcome step towards the modernisation of the industrial and provident society movement, as they would increase its operational flexibility. The Government therefore support the principles behind the clause, but again we will need to examine it in detail, and work with my hon. Friend the Member for South Derbyshire to table any necessary amendments to ensure that the Bill achieves what is intended.

Finally, I reaffirm the Government's commitment to a thriving mutual sector. I congratulate all those who have been involved in the preparation of the Bill and look forward to assisting with its progress through Parliament.

11.50 am

Mr. Todd

With the leave of the House, I should like to respond briefly to Members' comments and speeches. First, I thank everyone who has attended the debate, whether they have spoken or not, for demonstrating support for the sector and their interest in its future development.

I thank the hon. Member for Eddisbury (Mr. O'Brien) for his thoughtful and positive contribution to the subject and the way in which he reinforced his points with his experience in the corporate sector. My hon. Friend the Member for Harrow, West (Mr. Thomas) drew attention to the issue of ultra vires and a possible discussion about audit and accountancy frameworks which arises if relevant amendments are tabled in Committee. I am sure that those issues will be debated again should the Bill reach that stage.

My hon. Friend the Member for West Bromwich, West (Mr. Bailey) debated the issue of the asset lock and its meaning, and emphasised the future use of the industrial and provident society in developing the mutual sector. The hon. Member for Twickenham (Dr. Cable) touched on the diversity of existing mutuals and made some detailed points about the democratic framework which, I am sure, will be debated further in Committee. My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) spoke powerfully about the sector's contribution to social enterprise in her constituency and area. My hon. Friend the Member for Sheffield, Heeley (Ms Munn) spoke interestingly about care services and added greatly to my knowledge of the sector. She reinforced the benefits of the co-operative model for that sector.

May I tell my hon. Friend the Member for Leigh (Andy Burnham) that I look forward to my name being used in football chants, although I suspect that I may have to wait some time for that? He rightly drew attention to the importance of the sector in football and the reasons why it is relevant to the football community, which is all too readily dominated by wealthy people with short-term interests. Finally, I thank the Minister for her careful but positive response to the Bill. I look forward, if the House wills it, to debating many of the issues raised this morning in Committee. I very much hope that the House will 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).