HL Deb 26 July 1911 vol 9 cc701-10

[SECOND READING.]

Order of the Day for the Second Reading read.

THE EARL OF SHAFTESBURY

My Lords, your Lordships were kind enough last session to refer to a Select Committee a Bill dealing with the subject-matter of the Bill of which I am moving the Second Reading. Ample evidence was heard by that Committee from all those best qualified to speak on the subject. Their Report is now in your Lordships' hands, and it is upon that Report and the recommendations contained therein that this Bill has been drafted. I may say that I should have introduced this Bill long ago had I not been led to understand that the Government had the matter in hand and were shortly going to make a move in this direction with the idea of introducing a Bill which I hoped would meet the requirements indicated in my Bill of last year. We waited some time, and our powers of waiting being exhausted I thought there was no better course to pursue than to proceed with this Bill independent of any Government measure, and I think there is ample justification for this procedure from the fact that the Government Bill has only just been brought in. And now that we have seen it in print we find that its operations are confined entirely to England, and that the other parts of the United Kingdom, where an amendment of the law is urgently required, are left out altogether. I do not wish to discuss the Government Bill to-day. It would be premature to do so, and there will be opportunities for criticism when that Bill comes up for Second Reading. But I should like to hazard this opinion, an opinion in which I hope the noble Earl the President of the Board of Agriculture will concur—namely, that there is nothing in these two Bills to make them run counter one to the other. There is nothing in them to clash, and if both Bills become law those who are interested in setting up these thrift and credit societies will have the choice of two systems, both of which I believe are sound, and in every way I think it would be an advantage to have the two systems. But, of course, the noble Earl will forgive me if I say that I prefer the existing machinery and this Bill which proposes to improve upon it.

I will first explain what are the needs which this Bill is intended to meet, and then I propose to show how the Bill meets them. But I would like first to say that this Bill does not seek for powers to set up or establish thrift and credit societies. There is apt to be a little confusion on this point. These powers have existed for a great many years past. The Irish Agricultural Organisation Society, as far back as 1894, hearing of the success of these small agricultural banks on the Continent—which banks were created for the purpose of undermining the power and tyranny of the usurer and moneylender—made a special study of the systems in vogue on the Continent and finally the Raffeissen system was selected. I do not wish to enlarge upon the reasons for which that system was chosen. There is not time to go into it now. Nor do I wish to weary your Lordships by going into the different systems that exist on the Continent. Suffice it for me to say that the Raffeissen system is the most popular of all, and under that system a number of poor men, powerless to offer individually any degree of security to a banker or a capitalist, join together and create by union greater credit than they could offer individually. The Raffeissen system having been selected by the Irish Agricultural Organisation Society, it was found necessary to register these societies under the Friendly Societies Act, and powers were given for this purpose by the Treasury in the year 1898, and the machinery was further greased and helped along in 1899 by the Act introduced and passed by Sir Horace Plunkett. So you will observe that the machinery for setting up these thrift and credit societies has been in existence for many years past, and is applied to the whole of the United Kingdom. This Bill is to improve the existing machinery, to make it more elastic, and we propose to do this upon the lines recommended in the Report of the Select Committee of last year.

The needs which this Bill is intended to meet are shortly these. First of all, incorporation. When these thrift and credit societies are registered under the Friendly Societies Act they have, not being incorporated societies, to act through trustees. They cannot sue or be sued, and this is a very cumbersome and tiresome procedure. Under the Indian Act, passed by Lord Curzon in 1904 when he was Viceroy of India to enable thrift and credit banks to exist in India, these banks become ipso facto incorporated societies, and wherever there is machinery set up in the different parts of the Indian Empire for providing these societies they are always ipso facto incorporated societies. We only claim for the United Kingdom the privilege which exists in India. I do not think there is any really valid objection to incorporation being granted to these societies. You will find that the Select Committee, in Paragraph 9 of their Report, unanimously recommend that these societies should have incorporation so as to enable them to sue and be sued and to hold property in their registered names. Provision is made in Clause 3 of this Bill to meet this requirement. Clause 4 is a necessary corollary to Clause 3.

Having dealt with the need of incorporation we come to trading. We ask that trading powers should be granted to these thrift and credit societies, which at present are restricted entirely to banking business. Unless power is given to trade there is no alternative but to form a separate society under the Industrial and Provident Societies Act, which does give power to trade. This is also a rather cumbersome and troublesome procedure. The whole success of the cooperative movement depends upon getting men voluntarily to combine, and when you have got them to combine you should not surround them with niceties of law. They find it almost impossible to understand why they can act under one Act—namely, the Friendly Societies Act—and then in order to do something else have to study the Industrial and Provident Societies Act. Then it is asked why cannot two societies be formed in the same district, one for banking purposes and the other for trading purposes. In the backward and poorer districts of Ireland it is found sometimes impossible to get more than one efficient committee or set of officers; to find two would be impossible. So we suggest that the committee should be entrusted not only with banking powers but also with trading powers.

I know there is great diversity of opinion on this question. The Select Committee of your Lordships' House went most thoroughly into the question, and weighed most carefully all the evidence they could get on the point. Amongst others we had the evidence of Sir George Murray, whose severance from the Treasury I am sure your Lordships all regret. Sir George Murray stated that he saw no fundamental objection to permitting thrift banks to be carried on together with trading—of course subject to certain safeguards; and the safeguards he suggested were that you would have to restrict very closely the area in which these unlimited societies act, and that the question of unlimited liability would have to be thoroughly safeguarded also. We propose to do both of these things in this Bill. You will see in Clause 5 that rules are provided for restricting the area in which these societies can operate, and subsection (a) says that the rules of a thrift and credit society shall provide that it shall carry on business only within such area as may be specified in the rules, not exceeding ten miles from the registered office of the bank. We also suggest that separate accounts shall be kept of trading transactions. I think there is no real cause for alarm with regard to these trading powers.

Then comes the need of setting up central societies. Having encouraged individuals to co-operate and form small societies of their own, you have to go a step further and get those societies when they are formed to federate into a central society. This is done in all co-operative movements, and we suggest that it should be done in the thrift and credit co-operative movement. In this case the central society has certain functions allotted to it which are clearly set out in the Bill. If your Lordships will look at Clause 7 you will find that the central society has for its object the receipt of deposits and the creation of funds to be lent out to thrift and credit societies, and generally to assist the working and development of such societies; and the thrift and credit societies may hold shares and make deposits in and become members of such central society. There is provision for a certain amount of inspection and auditing of the accounts of these societies. This is a point to which I know Lord Welby attaches great importance, and rightly so. He may not be satisfied with the provisions in the Bill to meet this point, and, if so, no doubt he will offer criticisms and I hope suggestions on the point. At the same time I think that we must be careful not to have too rigid a system of inspection with regard to these societies or an undue amount of interference on the part of the Government or anybody else which would be inclined to be looked upon with suspicion by the members of the society. I hope and believe the Bill does make good and sufficient provision for the auditing of the accounts of these societies. Those are the three needs which this Bill is framed to meet.

All the other clauses are fairly straight. forward. Clause 10 deals with the liability of past members of a society at the dissolution of the society, and Clause 11 is to prevent a contingeney which might occur—namely, a society might be set up and reserve funds got together simply for the purpose, when there is a good surplus fund available, of breaking up the society and sharing out alike. Therefore it is necessary to put in a provision that upon the dissolution of a thrift and credit society such funds should be devoted to an object of public utility in the area in which the society carried on its business. In suggesting central societies I would like to make it quite clear that those engaged in the banking business need take no umbrage in this matter. Indeed this proposal ought to facilitate the banking system. One of the most important banks in Germany has intimate relations and has come to a regular arrangement with two great cooperative unions, of which the Raffeissen Union is one, and I think the central societies might be a stepping stone between the small village credit societies and the banking system of this country.

Moved, That the Bill be now read 2a.—(The Earl of Shaftesbury.)

EARL CARRINGTON

My Lords, I do not think anybody would complain of the noble Earl for introducing a Bill on a subject of which he is undoubtedly the pioneer in your Lordships' House. On the contrary, everybody who takes an interest in credit societies—and I believe their name is legion on both sides of the House—would congratulate him on having done so, and perhaps I may be allowed to congratulate him also on the lucid and plain manner in which he explained his somewhat intricate Bill. The noble Earl said that he had been waiting a long time for a Bill to come from this side of the House, and that he thought it his duty not to delay bringing his Bill forward any longer. I might say, in explanation of the apparent delay on our part, that it has been our object in all our land legislation not to rush it hastily before the public, but to try to build it up stone by stone and brick by brick and place it on an economic basis. We try to make it safe and practical, and we try to make it self-paying. That is the reason why, in a complex matter of this sort, we thought it right to consider the question very carefully before venturing to submit a Bill of this importance to your Lordships.

The noble Earl said he thought there was nothing in his Bill which ran counter to the Bill which I shall have the honour to ask your Lordships to give a Second Reading to on Tuesday next. I will not go into that. But I hope your Lordships will extend favourable consideration to my Bill, as the subject is of such importance that the Leader of the Opposition has himself asked the Government to grant facilities for its passage through both Houses. The noble Earl's Bill and my own Bill will both be of great use and assistance to those small holders who have been under discussion this afternoon on the Question put by Lord Northbrook, and perhaps I may be pardoned for saying one word on that subject. One would think, from what has been said on the opposite Benches, that small holdings were a new discovery. People ask, What in the name of fortune is to happen if these small holders are subject to bad seasons? It seems to be thought that small holdings are something new in England. On the contrary, before our Act was ever thought of there were a quarter of a million small holdings, 6,000 of which exist in Hampshire alone. In my wildest dreams I never could have hoped that I would get 6,000 small holdings in Hampshire during the two and a half years in which the Act has been in operation. Yet there are all these lamentations and prognostications of ruin! The great majority of the 6,000 small holders in Hampshire have gone through the bad times mentioned by Lord Lansdowne in the seventies and eighties. They have gone through the cattle plague and the outbreaks of foot-and-mouth disease, and are still in existence at this moment. These croakings are really very far-fetched, and it is as well for the people of England to know that there is nothing new in the system of small holdings. They have existed for years and years and have been able to pay their way, and there is no reason to suppose that the new small holdings will be in any way less successful or less a boon than were the small holdings in days gone by.

Lord Shaftesbury in his Bill proposes that these societies should be started subject to what I think may be described as a rigid set of rules. If you look at pages 1 and 2 of the Bill you will see that the rules of a thrift and credit society shall provide quite a number of things—from paragraph (a) to paragraph (j). The noble Earl apparently contemplates that these societies should obtain money from a central authority registered under the Companies Consolidation Act, 1908. I venture to suggest to the noble Earl, as our experience is so very limited at the present time, whether it would not be better to avoid being so precise at the beginning. Would it not be better to allow plenty of latitude and allow these societies to develop naturally and in the way that is most suited to British conditions as experience may show? I quite agree that the noble Earl's Bill applies to Ireland and Scotland, and that my own Bill applies to England alone.

THE EARL OF SHAFTESBURY

The noble Earl is mistaken in thinking that my Bill lays down a hard-and-fast rule that these banks are to obtain their money from the central society. Clause 7 only gives power to the central society to set up reserve funds, but there are many other ways in which thrift and credit societies could obtain working expenses, and probably the last persons they would go to would be the central society.

EARL CARRINGTON

The rules I was referring to are in Clause 5. I was not referring to the rules in Clause 7. One considerable advantage that this country possesses over other countries is in our great banking system, and I hardly think the noble Earl quite recognised that fact so as to utilise it as far as possible. One way, I think, in which his object might be attained would be by securing the confidence of the existing banking system by providing for a more independent audit, and one on which the banks could independently rely. By the noble Earl's Bill the audit of all these societies is to be made by some person connected with the society and not by an independent person. Then we hope to secure their co-operation by framing rules so as to satisfy the legitimate requirements of bankers. I think the most important thing which is left out of the noble Earl's Bill is that the Government should take some active part in the formation of such societies. I am all against, and never would have anything to do with, these great schemes of dipping one's hands into the pockets of the public Treasury and bringing out tens of millions for experimental objects, however good those objects may be; but I think that the Board of Agriculture should take an active part in the formation of these societies by paying the preliminary expenses, so as to provide them with a secretary, set them on their legs and help them through the most critical part of their life—that would be, of course, when they were first being formed. Perhaps the House would agree that the best coarse would be to proceed with the Government's Bill with its financial provisions first, and incorporate in it any provision from the noble Earl's Bill which it might; be desired to include. I venture to throw out that suggestion to the noble Earl. I need hardly repeat how very much we on this side of the House welcome his having brought forward a Bill on this most important subject, and we do not propose to offer any opposition to the Second Reading. We heartily welcome it as far as it goes as an earnest of the desire to come to some decision on a great policy which both sides of the House have at heart.

LORD WELBY

My Lords, I am very glad that the noble Earl has brought this measure to the Second Reading. I think, considering the time that the Bill has been before the House and the fact that it has been submitted to a carefully chosen Select Committee, it is very undesirable that there should be ally further delay in getting the opinion of this and the other House of Parliament upon the important provisions embraced within it. My noble friend below me (Lord Carrington) remarked on what he considered the rigid provisions of this Bill. I have looked carefully through these provisions, and I am afraid I cannot altogether agree with him. I think the provisions are in themselves not over-rigid, but such as are calculated to maintain and promote the credit of the banks established under them. My noble friend appears to think that these banks may interfere, or perhaps I should say be unpopular, with the ordinary banks of the country. The real fact is that the great stream of credit can never reach these small persons in villages, people who want a loan of a few pounds, and who have not enough credit of their own. One great merit in this Bill to my mind is the manner in which it encourages that spirit of self-help which has developed itself of late in Ireland. The noble Earl's Bill provides that districts should be formed and that the societies established in those districts should be limited to carrying on their business within those areas. The consequence is that all the members of the societies will be well known to each other, and I lay immense stress on the fact that they will be able to gauge the real credit of the humblest member of the society who comes to them for a loan. The loan so granted is one that could never be granted by a bank. No joint stock bank could go into an inquiry as to the credit of these humble persons.

We must all have been struck by the very great progress that has been made in Ireland within the last thirteen or fourteen years. The idea of co-operation has really taken root in Ireland, and the number of societies already created by the Irish Agricultural Organisation Society is remarkable. There have been established 357 dairy societies, 106 agricultural societies, and 268 of these credit societies, turning over between them a sum of between £2,000,000 and £3,000,000. I believe that the benefit which this system of co-operation is having in Ireland will be very much increased by the passing of this Bill. The Bill as the noble Earl introduced it last year was very carefully considered by Lord Mersey's Committee. That Committee carefully considered whether it was safe to allow these thrift and credit banks also to undertake cooperative trading. One of the great objects of the whole system of co-operation is that the bodies with whom money is deposited, who collect money for the purpose of making these loans, should have as many advantages as possible towards increasing those deposits; and it was conclusively proved before the Committee that trading co-operation, under certain proper limitations, might safely be entrusted to societies in small districts, especially when it was coupled with the condition that trading should only be carried on with the members of the society. I think, with the safeguards provided in the Bill, the power of trading might be extended to these banks, though I know that as a general rule it is not considered desirable that trading and banking should go together.

This country is exceedingly behindhand in this question of co-operation. We have only to look abroad to see what an enormous extension of co-operative trading has taken place. I believe there are no fewer than 17,000 of these trading societies in Germany. The great central Bank of Prussia, which was established almost on purpose to act as a central bank to the societies throughout the country, has an enormous capital and turnover. If you turn to France you find very much the same state of things. The Bank of France is obliged to lend £4,000,000 free of interest to the societies which carry out loans of this kind, and almost wherever you turn you find credit societies of this kind advancing small loans to humble agriculturists who cannot get the advantage of banking accounts or that acquaintance with bankers which would enable them to obtain small loans. I should like to see the same facilities extended throughout the agricultural districts of this country.

The audit question has been alluded to. I am not satisfied with the provision on that subject in this Bill. I need not allude to it now, because that is essentially a question for Committee, and it is one on which I feel certain the House would desire that proper precautions should be taken. One point I hope will not be lost sight of in connection with these measures. In Ireland the progress that has been made has been based on self-help almost entirely, and I look upon the progress which has been made there as one of the most promising signs of the times. I therefore trust that this Bill, and supplementary measures if necessary, may find favour with your Lordships and the other House of Parliament, in order that the principle of thrift and co-operation may be more fully availed of.

THE EARL OF SHAFTESBURY

There is only one word I wish to say in reply to the observations of the noble Earl the President of the Board of Agriculture. I would point out that the Bill permits outsiders to be elected by the societies for the purpose of inspection. And with regard to the noble Earl's criticism that it would be better to bring the Government into this Bill, I would remind him that the principle is to try and drive home to the people of this country the value of self-help and not to encourage them to look to the Government for everything.

On Question, Bill read 2a, and committed to a Committee of the Whole House.