§ 6.56 p.m.
§ Order of the Day for the Second Reading read.
§ LORD PEDDIE
My Lords, I rise to move the Second Reading of the Industrial and Provident Societies Bill, 1961. This is a Bill that has been received from another place, where it was introduced by a Private Member and, after 1344 minor amendments, received the Government's support. I do not intend to delay your Lordships unduly, but I welcome the opportunity of explaining the content and purpose of this Bill.
It extends somewhat overdue facilities to co-operative organisations, both consumer and agricultural, and, from a national standpoint, I believe it has the virtue of encouraging saving and investment. The Bill seeks, first, to raise the maximum individual holdings of members in societies registered under the Industrial and Provident Societies Act, 1893, from the present figure of £500 to £1,000. Secondly, it enables certain agricultural, horticultural and forestry societies to make advances of money to their members, without security, for agricultural purposes. The consumer societies welcome the increase in the maximum individual shareholding but do not seek power to loan money without security. This is a facility solely for the benefit of agricultural societies. I would emphasise that these amendments are permissive in character.
Clause 1 gives power to a committee of a co-operative society to pass a resolution, not later than eighteen months after the Act is passed, that would permit members to increase their individual shareholding from the present maximum of £500 to £1,000. Although a simple resolution can give effect to this provision, Clause 1 (6) states that when next the rules are amended, such change must be the subject of an appropriate amendment. This facility is introduced as a matter of convenience for societies who may not wish, for a variety of reasons, to amend their rules for that particular purpose only.
Clause 2 (1) enables societies consisting mainly of members engaged in agriculture, forestry or horticultural production, or organisations of such producers, to make advances of money to their members, but only if this is the principal object of such societies, and the power to loan money in those circumstances must be contained in the rules and objects of these societies. I may explain the reasons for the difference in treatment under these two clauses. In the first place, the decision to increase the maximum shareholding can be achieved by simple resolution whereas the right to make advances must be contained in the rules. In the first case, it is obviously not open to abuse, because the 1345 decision to increase individual shareholding is a purely individual decision, but in the second case the advancing of monies without security to members is the concern of all the members; and, naturally, the members must have the right to be aware of the powers vested in their committee.
To turn to the arguments in support of Clause 1, I would point out that the present maximum limit is £500, which was established in 1952 in an amending Bill. Up to that point it had been £200 since 1862 and the original Bill of 1852 established it at £100. I am sure your Lordships will be appreciative of the necessity for keeping pace with the value of money. I have in my possession ample statistics which would give an indication of the tremendous depreciation of the value of money since those days, but I am sure your Lordships will need no convincing, when one compares to-day's money values with those of the dates I am mentioning, that the present suggestion of £1,000 is more than justified.
Let us examine it, also, from another angle. The increase in the maximum individual shareholding can be justified from the increased necessity that arises from the greatly increased volume of trade. The co-operative trade in 1914 was £88 million a year; to-day it is over £1,000 million a year. True, there have been changes in prices over that period. But the membership has increased from 3 million to 13 million. Obviously this great expansion of trade demands more capital; but although trade has increased, the rate of capital growth has slowed down. Between 1852 and 1959 the trade increase was 42 per cent., and the capital increase over that same period was 11 per cent. I am sure your Lordships will be appreciative of the fact that the development of technical processes, not only in manufacturing but in the distributive trades, demands the employment of more capital; and the encouragement of more efficient methods in that direction is, naturally, in the national interest.
I might, in passing, make reference to the development of self-service, which was pioneered by co-operative societies and has made a tremendous reduction in the costs of distribution; and I am happy to say that many of the non- 1346 co-operatives stores are adopting the same practice.
§ LORD PEDDIE
It is not my intention to attempt to claim that the slowing down of capital accumulation is due entirely to the present limitation. We must recognise the fundamental difference that exists between co-operative organisations and joint stock companie.4 In the case of co-operatives, their shares have a fixed interest. A co-operative organisation registered under the Industrial and Provident Society's Act has as its principal object the maximising of benefit to the consumer by distributing the surplus to the members, instead of, as in the case of joint stock companies, to the shareholders. I would also point out that co-operative shares suffer a handicap compared with deposits in the Post Office and Trustee Savings Banks, where the first £15 of interest is exempt from income tax. That, we feel, is a serious handicap. I would also emphasise, as justification for this Bill, that the inflow of necessary share capital comes solely from members and, in consequence, has the effect of increasing overall national savings.
The agricultural co-operatives have a great interest in this Bill, although their case has rather a different emphasis from the one I have given. I am sure your Lordships will be interested to observe the tremendous development of agricultural co-operatives over the past years. The turnover of agricultural cooperative societies in England increased! from £25 million in 1946 to £l44¼ million in 1959; and the share capital of those societies is only £10 million (it is exceedingly small; I might even say dangerously small) in relation to their turnover. A recent survey conducted by independent economists showed that agricultural societies needed new capital at the rate of £21 million a year at the present rate of growth. This can be found only by adding to share capital and reserves, loan capital or increased overdrafts. Loan capital is on a short-term basis and not the most suitable way of financing agricultural co-operatives. Overdrafts and trade credits at the moment are responsible for not less 1347 than one-third of the total capital employed by agricultural co-operatives, and agricultural co-operative societies, whilst appreciative of the help in that direction, are naturally anxious to cut down on that high percentage. Therefore, this indicates the need to increase the maximum individual shareholding to the modest figure of £1,000.
I am informed that the average Requirement Society needs £250 capital for each £1,000 annual through-put. The Agricultural Central Co-operative Association (of which I am sure your Lordships will be aware) in a survey of 1957 showed that approximately £70,000 was lost during that year because the limit of £500 would have been exceeded. To quote the experience of one individual society, this society obtained just over £61,000 share capital that year, but had to reject an additional £9,526 because of the operation of this maximum shareholding of £500. I might also point out that the present limit imposes a particular burden when large farmers are in membership, and marketing societies, which require expensive equipment, have relatively small membership.
I turn now to Clause 2. The purpose of Clause 2 is to effect a modification of the restriction in the original Act. Because of this restriction a federal agricultural organisation which was formed for the purpose of providing credit or loan facilities for farmers has had to be registered under the Companies Act as a private limited company, where there is a limit of 50 members. A public company could not be formed, because the farmers are all too appreciative of the danger that farmers and societies may lose control when that type of organisation is employed. I might say that the Government have made provision in the Horticulture Act, 1960, for financial assistance to stimulate co-operative organisations in that industry. It would be regrettable if such developments were frustrated by the present legal handicap in the Industrial and Provident Societies Act.
This Bill is a simple Bill. I believe that its principles are acceptable to the Government, and I make my plea in support of this Bill, not only because it will be of considerable value to co- 1348 operative organisations, but also because I believe that it will stimulate the recruitment and more effective employment of capital; and that, without question, is in the national interest. In consequence of that, I am confident that the House will accept the Second Reading, and I beg to move.
§ Moved, That the Bill be now read 2a. —(Lord Peddie.)
§ 7.12 p.m.
§ LORD WILLIAMS OF BARNBURGH
My Lords, without detaining your Lordships for more than two or three minutes, I should like to associate myself with all my noble friend Lord Peddie has said in favour of this Bill. It is a very small Bill, but I do not think its importance can be over-exaggerated, particularly where agricultural and horticultural cooperation is thought of. Indeed, I cannot imagine any more fruitful activity in the countryside than that of agricultural and horticultural societies.
The case has been made out for the Bill. It received a universal welcome in another place, and it would be folly on my part to detain your Lordships for more than a moment in associating myself with what has already been said. It has been demonstrated that the rapid growth of these agricultural and horticultural co-operative societies has left them more or less without the share capital necessary under the 1952 Act if they are going to grow, develop and expand, as we should all like to see them do. Therefore, Clause 1 is both urgent and necessary if the societies are to be helped and encouraged to get on with this particular part of their duties. From the earliest part of my association with the agricultural and horticultural industry I have been a strong advocate both of agricultural marketing schemes and of agricultural co-operation in any form. I am delighted to see that the present Government are not only displaying much more interest than ever before but are actually giving practical encouragement to this form of activity—something they have rarely done in the past. Indeed, in looking back for a moment it is a welcome change from their attitude towards marketing in 1931, when they voted against the Agricultural Marketing Bill. We congratulate the Government on their educational processes and we hope they will continue.
1349 Noble Lords will appreciate, as my noble friend has said, that there is nothing compulsory about this small measure. No society, unless they wish, need pass the appropriate resolution. They may do so if they wish, or they need not. No member of the society is obliged to increase his share capital, even if the resolution is passed. All that Parliament is asked is to allow these agricultural and horticultural societies, and their members, to develop and extend their legitimate activities with their own funds.
Clause 2 has been mentioned by my noble friend, but some people may have doubts in their minds about making loans without what is called security. I think your Lordships will agree that we can rely upon the discretion of these societies when dealing with their own members. They will know, perhaps better than the bank managers or other credit agencies, just where the real security lies in many cases—in the fields, if not in the bank. En fact, the enormous growth of the turnover of agricultural and horticultural co-operative societies over the past few years is in itself a first-class guarantee of the businesslike methods employed by them. My noble friend Lord Peddie has given the figures between 1953 and 1959. There has been a lift in turnover from £92 million to £144 million. So I have no misgivings about Clause 2.
I hope that this measure will give the co-operative and the agricultural and horticultural societies a feeling that Parliament is behind them in this form of activity. I repeat that I can think of nothing more helpful, more hopeful and more encouraging than what we have witnessed during the past eight or ten years. I hope that those associated with these co-operative societies will feel that Parliament is behind them, and that they will do their best to develop their activities in the interests of both producer and consumer.
§ 7.16 p.m.
§ LORD HASTINGS
My Lords, I should like to express the general support of the Government for this small but very useful Bill, amending the law relating to industrial and provident societies. The duty falls to me largely because the Bill is of great interest to co-operatives connected with agriculture, 1350 horticulture and forestry, and I am charged with assisting my noble friend, the Joint Parliamentary Secretary, in these matters in his absence.
As your Lordships will recall, the Government have more than once stated their belief that co-operation in various forms can help farmers and growers to become more efficient, both in production and in marketing. The latest proof of this, of course, is to be found in the Annual Review and Determination of Guarantees for 1961, which your Lordships were debating only a little more than a month ago. I may point out that this Bill was introduced in another place and passed through its Second Reading and Committee stages before publication of that Annual Review. Your Lordships will remember that the Government have offered £500,000 a year for market research and development and, in addition, grants of one-third of the total cost for buildings provided by machinery syndicates and grain-drying syndicates which, of course, help the producer greatly. A very large number of people are members and shareholders of societies registered under the Act, and this, of course, does not apply only to the agricultural societies, but applies also to the cone sumer societies to which the noble Lord, Lord Peddie, referred in his speech. I: is very proper, therefore, that we should examine from time to time the statutory requirements to which these societies are subject, making sure that they are in line with modern conditions and needs.
As the noble Lord sponsoring the Bill has explained, it provides two changes in the present arrangements, both of which mainly concern agricultural, horticultural and forestry co-operatives. The first is to raise the limit on the value of shares that a society's rules may permit an individual member to hold. The limit on individual shareholding is a basic principle of societies organised under the Act. This is intended to ensure that they are, in fact, run for the benefit of their members as members, and not as mere shareholders. But the Government accept that there is now a case for some further increase in the permitted shareholding from the present level of £500, which was fixed by the 1952 Act. The limit of £1,000 proposed in the Bill will enable some societies to raise appreciably larger amounts of capital in the form of share capital subscribed by their 1351 own members than is at present possible. To that extent they will be less dependent on outside sources for the finance they require. The amendment will be particularly valuable to specialist marketing societies, which I think the noble Lord mentioned, of agricultural and horticultural producers—for example fruit packing societies, which need a rather heavy capital investment.
In order that this higher limit for individual shareholdings may take effect without delay, Clause 1 provides that the relevant rules of a society may be adjusted by a resolution of its committee of management, instead of through the normal procedure for amending rules, which I understand takes a very much longer time. This follows the precedent of the 1952 Act, but in this case there are certain limitations on the use of this procedure. These limitations, in their present form, have been agreed between the Government and the promoters of the Bill, and have been clearly elucidated by the noble Lord, Lord Peddie. They secure that the shorter procedure is a strictly temporary arrangement.
The second revision of the Bill concerns only agricultural, horticultural and forestry societies. It is intended to facilitate the co-operative supply of credit for the purposes of those three industries. Under the present Act a co-operative society cannot lend without security unless it is a banking society. The Bill would permit lending without security to be undertaken by societies consisting mainly of agricultural and horticultural producers and persons engaged in forestry (or organisations of these), provided that the rules of such societies show that their main or principal object is to lend to their members for agricultural, horticultural and forestry purposes. This provision, too, incorporates certain amendments of the Bill as originally submitted to Parliament which have been agreed between the Government and the promoters, and to which the noble Lord, Lord Peddie, made some reference. As a result, we now believe that we have a reasonable compromise between the requirements of enterprise and those of financial prudence, and I 1352 support what the noble Lord, Lord Williams of Barnburgh, said in that connection as to the people who know what real security is amongst the farming fraternity. We thought it right that the easier conditions for lending now proposed should be available only to specialist lending societies which may be expected to have the necessary expertise in operating credit facilities. The detailed provisions of this clause, which may appear a little complicated, can be fully explained, of course, in Committee.
I need not delay your Lordships any longer, except to say that the Government are grateful to the noble Lord, Lord Peddie (who is, of course, a distinguished leader in the Co-operative Movement) for introducing the Bill into this House, and for doing so in such a clear and concise manner which nobody could fail to appreciate or to understand. Therefore, in spite of a certain lack of support from behind me, I should like to assure both noble Lords who have spoken that not only the Government, but I think also supporters of the Government, especially those interested in agriculture, commend this very useful Bill (which I might describe as a Bill not only for helping ordinary people but for helping ordinary people to help themselves) as permitting certain developments by co-operative societies which the Government consider to be reasonable and consonant with modern needs. In particular, the Bill may be expected to benefit co-operation in agriculture, horticulture and forestry, for which the Government have pledged their support.
§ 7.24 p.m.
§ LORD PEDDIE
My Lords, I would express appreciation for the support which has been given by my noble friend Lord Williams of Barnburgh, and particularly by the noble Lord, Lord Hastings, when expressing his confidence in co-operative organisation with the approval and support of the Government. This, I am quite sure, will be appreciated immensely by co-operative organisations.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.