Building Societies Bill

HL Deb 03 July 1986 vol 477 cc1092-142

House again in Committee on Schedule 1.

Lord Houghton of Sowerby moved Amendment No. 10: Page 172, leave out line 29.

The noble Lord said: Associated with Amendment No. 10 are Amendments Nos. 11 and 12, and it is tabled for the purpose of elucidation. I am a little confused about the whole of paragraph 11 and also paragraph 12, to which I shall come in a moment. The Minister has an amendment of his own in respect of paragraph 11 (2), to alter the word "orders" to the world "rules", which helps me a little.

What puzzles me is the impression given that the commission has some powers of laying statutory instruments. Am I right about that? Sub-paragraph (2) states: The Commission shall not delegate any power it has under this Act to make orders"'—

as it says now, but the Minister proposes to use instead the word "rules"— or regulations by statutory instrument".

It may be convenient for me to refer now to Amendment No. 14, which relates to paragraph 12. It states that: The Statutory Instruments Act 1946 shall apply to all powers of the Commission of making statutory instruments under this Act as if the Commission were a Minister of the Crown".

That is what puzzles me but probably it can be explained.

I have always understood that statutory instruments had to be laid before Parliament by a Minister. Will the commission be able to lay something on the Table of the House of Commons that will be subject to the negative procedure? I shall be glad if that point can be made clear. I do not want to carry on speaking until the noble Lord, Lord Skelmersdale, finds the answer, but I shall give him a minute. I shall be much obliged if I may hear a few words from the Minister.

Lord Brabazon of Tara

I am grateful for the opportunity given to me by the noble Lord, Lord Houghton, to offer an explanation. It is unusual to give a legislative power to an authority other than a Minister who, as a Member of Parliament, is directly answerable to Parliament. On constitutional grounds it can be argued that it is inappropariate to allow for the power to be exercised other than by the commission. From a policy viewpoint, it is desirable for the commission itself, which is a supervisory body being established under this legislation, to take decisions regarding any power it has to make orders, etc., by statutory instrument rather than allow for delegation. The expertise will be in the collectivity of the commission, and that is where the final authority should rest.

It is possible of course that individual commissioners may be unavailable at particular times; but that is not sufficient reason for removing the statutory requirement that the commission itself only has the power to make orders or regulations. If it proved necessary, the decision to make a particular order could be taken at more than one meeting, with those unable to attend the first attending the second.

The noble Lord's other amendment would remove the reference in brackets in paragraph 11. The words in brackets are necessary to make it clear that the full commission may delegate to a commissioner or commissioners the power on behalf of the commission to delegate commission functions; that is, sub-delegation. Without those words the position as to whether such a power would be delegated by authorisation will be uncertain.

There is no question that delegation of particular functions to an individual commissioner or group of commissioners is a necessity, given the range of matters that will fall to be determined by the commission. However, the power of sub-delegation is permitted only in so far as that is provided for in the original delegation by the commission. Thus, if the full commission considered that a matter ought to be dealt with by a particular commissioner and delegated its powers to him alone, the commissioner could not pass that responsibility to a colleague if, for example, he found himelf with a conflicting engagement on a particular day. The full commission would have to issue a fresh authority to the other commissioner. The commission may make and lay statutory instruments, and that is equivalent to a provision in the existing 1962 Act, whereby the chief registrar can do so, in Section 126(1) of that Act.

The noble Lord mentioned also his Amendment No. 14, which would disapply the provisions of the Statutory Instruments Act 1946. The purpose of the amendment is somewhat unclear to us. The Statutory Instruments Act provides for instruments to be printed and sold by the Stationery Office, and its sets out the negative and affirmative resolution procedures. The consequence of the amendment would be that there would be no need to make an instrument available for sale to the public; secondly, that the effect of the various provisions for instruments to be improved or subject to annulment would be made uncertain. I hope that with that explanation the situation will be somewhat clearer to the noble Lord.

Lord Plummer of St. Marylebone

I must say that I am not altogether clear. Can my noble friend say whether or not the commission has the power to delegate the making of orders or regulations by statutory instrument?

Lord Brabazon of Tara

Yes, I thought that I had answered that point. The commission may make and lay statutory instruments under the provisions of the Statutory Instruments Act 1946, which is equivalent to the provision currently in force in respect of the chief registrar under the 1962 Act.

The Earl of Selkirk

May I ask my noble friend whether the statutory instrument is laid by the commission and not by the Treasury? Am I correct in thinking that it is laid before Parliament but that Parliament does not either approve or disapprove of it? I just want to be clear about what precisely is the position of a so-called statutory instrument.

Lord Brabazon of Tara

It is a negative instrument. It would be laid by a Treasury Minister, I gather, but it would be laid on behalf of the commission.

Lord Barnett

I am glad to hear that explanation because I was beginning to be as worried as my noble friend and the noble Lord, that some commissioner acting alone or perhaps with one other, would have delegated powers to lay a statutory instrument that would immediately become law. Provided that it is properly understood that the statutory instrument would be laid before Parliament as a negative order, and that it would have to be prayed against, or could be prayed against, then I would not object—just so long as that is absolutely crystal clear.

Lord Brabazon of Tara

Yes, I hope that I have made that clear.

Lord Houghton of Sowerby

We were given the answer we have been waiting for right at the end of the Minister's comments, following the intervention of the noble Earl, Lord Selkirk. The position is now clear that a statutory instrument which is laid before Parliament, under either the negative or the affirmative procedure, will be laid by a Minister. I thought from the text of paragraph 12 that the commission itself had the power to lay an order.

As my noble friend Lord Barnett said, it would be unusual—I have never heard of it—were a person other than a Minister to lay an order on the Table of Parliament and for it to be dealt with according to the procedures on statutory instruments. We could pray against it. In fact, we could ask Her Majesty to annul it. I hope that when we read in Hansard what the Minister said we will all be much clearer about it. The point seemed to be worth exploring, but in the circumstances I beg leave to withdraw the amendment and I hope that I do not have to come back to it again.

Amendment, by leave, withdrawn.

[Amendments Nos. 11 and 12 not moved.]

Lord Brabazon of Tara moved Amendment No. 13: Page 172, line 35, after ("orders") insert (",rules").

The noble Lord said: This is purely a drafting amendment to clarify that the commission cannot delegate any of the legislative functions given to it under the Bill. I beg to move.

Lord Barnett

I appreciate that this is only a drafting amendment but I hope the Minister will understand that for the rest of us in the Committee—this certainly applies to the Opposition, and I imagine to others—when we see Government amendments of the size and quantity that we have in the case of this Bill (there are nearly 200 Government amendments) it takes us some time to check them to see whether they are drafting amendments.

I realise that this is a large Bill and that even at this late stage there is a need for some Government amendments. However, this is almost as if the Government are seeking to sabotage their own timetable. With nearly 200 amendments and new clauses it is extremely difficult. As the Minister knows, I have no wish to deliberately delay the passage of this Bill. Indeed, I generally welcome the Bill. However, there are no explanatory notes of any kind so we must go through every single amendment to ascertain what it is about.

The Minister says that this is a drafting amendment. I understand that but, with the greatest possible respect to him, this volume of amendments makes a mockery of the functions of the Committee. If we are to perform our proper role of scrutinising and revising Bills that come to us from another place—which inevitably come to us, whichever Government is in power, badly drafted, and are bad legislation, because of the political and time pressures—it means that with the number of amendments involved in this case it is an extremely difficult job to do.

I would imagine that we will need to obtain permission to consider tabling manuscript amendments of a probing nature to the Government's own amendments. We do not have time to do anything else. We do not have anybody to help us go through the amendments to decide which are drafting amendments and which are not. Therefore, although I accept that this is a drafting amendment, the Minister cannot expect us to rubber stamp a Bill even though we welcome it generally. I hope that the Minister will consider, before we reach the next stage of the Bill, that we can at least have notes as to what these Government amendments, this huge volume, are all about.

Lord Brabazon of Tara

I certainly accept the points made by the noble Lord, Lord Barnett. I must immediately say that a great many of these amendments are purely drafting amendments. As the Committee are aware, it is a very large Bill and there are many technical matters arising from it. Many other amendments are a result of the continuing process of consultation with interested parties and others arising from commitments made by the Government in another place. There are also a considerable number of amendments resulting from the consolidation of the Northern Ireland companies legislation and of the insolvency legislation which is presently going through Parliament. I believe that about 40 or 50 amendments relate to the Insolvency Bill. There are one or two amendments of substance, and when we reach those we shall debate them fully.

Lord Barnett

I am sure that the noble Lord will understand that without going through the 200 amendments one by one we cannot find out which are drafting amendments, which are minor amendments and which are substantial amendments. That is the problem. It is difficult for us to work in this way.

8.15 p.m.

Lord Brabazon of Tara

My noble friend and I will do our best to give a comprehensive explanation of the amendments as they are dealt with. I hope that we shall be able to give them the consideration they deserve. I certainly take the point made by the noble Lord, Lord Barnett, about the possibility of notes being available before the next stage, and I shall see what I can do. In the meantime, I certainly undertake that during the passage of this Committee stage we shall not try to slip anything through on the nod, so to speak, which could be of substance.

[Amendment No. 14 not moved.]

On Question, Whether Schedule 1, as amended, shall be agreed to?

Lord Houghton of Sowerby

I refer to paragraph 13, page 172, which we have just been dealing with. This is about the ombudsman. This paragraph inserts the name of the Building Societies Commission on the list of those offices and departments which are subject to the scrutiny of the Parliamentary Commissioner. I assume that in that one paragraph everything relating to the Parliamentary Commissioner and his rights of intervention in the work of the Building Societies Commission is fully covered.

The question I have is this. Is the Parliamentary Commissioner a person who should have any writ in the Building Societies Commission? It is not a Government department in the true sense of the term. Will he therefore be available to deal with the complaints from members of the building societies? I am not clear as to what the Parliamentary Commissioner is going to do in the Building Societies Commission.

I ask this question because in the Government which introduced the Parliamentary Commissioner I had an awful lot of fussing around in order to find out who would be and who wanted to be left out of the Parliamentary Commissioner's oversight. We tried to lay down some rules as to what the Parliamentary Commissioner should be doing. He is called an ombudsman but is a Parliamentary Commissioner and as such is answerable to a Select Committee of the House of Commons. I believe that in the health service they have a separate person, but, as I understand it, that person is not answerable to the Parliamentary Commissioner.

I wish this could be cleared up because it is an important function that is put at the disposal of another person appointed by the House of Commons and it is not clear to me what he is going to do and who he is going to listen to. "Maladministration" is the key word in the work of the Parliamentary Commissioner: not to put himself in the place of those whose discretion rests with them by statute, and not to interfere with the normal processes of administration and the use of authority, but maladministration. What maladministration will he look into? Is it maladministration of the Building Societies Commission, or maladministration in the building societies themselves?

Lord Brabazon of Tara

It is solely maladministration by the Building Societies Commission that he can look into.

Schedule 1, as amended, agreed to.

Clauses 2 and 3 agreed to.

Clause 4 [Annual and other reports]:

Lord Williams of Elvelmoved Amendment No. 15: Page 4, line 13, leave out ("section 39") and insert ("sections 39, 41, 42 and 43").

The noble Lord said: I beg to move Amendment No. 15. This clause refers to the annual reports which the commission will make, and our amendment is basically very simple. The Bill as drafted directs the commission to submit a report to Parliament, which shall be published, on the exercise of its powers under Section 39. It seems to us that there are other sections under which the commission should report, and those sections are in particular Sections 41, 42 and 43.

Perhaps I may refer the Committee to those particular sections. In fact, they cover some very important matters about which Parliament and the public have a right to be informed. Section 41 deals with the power to direct application to renew authorisation. That is an important power, and the commission's activities under that section should be reported annually. Section 42 deals with the imposition of conditions on current authorisation, which again is an important power, and the exercise of the power should be reported annually by the commission to Parliament. Section 43 deals with one of the most important of all the powers of the commission, which is revocation of authorisation. It seems only logical that if the commission is to report on the exercise of its powers under Section 39, then it should also report on the exercise of its powers under Sections 41, 42 and 43.

The noble Lord may say that this is covered in the Bill, in which case that is fine and there is no particular problem with it. However, it is a point that is worth raising because it is vitally important that Parliament should be informed annually by the commission exactly what it has done under the very important powers that this Bill is giving it. I beg to move.

Lord Brabazon of Tara

Of course it is entirely proper and necessary that decisions not to renew an authorisation under Clause 41 or to revoke authorisation under Clause 43 should be publicised when brought into effect; that is, after conclusion of any appeal proceedings. In fact, the Bill makes provision for placing a record of these events on the public file, and no doubt the commission would include information about such cases in the annual reports and make such other provision as it considers appropriate. There is no need for express statutory reference to this because it is covered by the words in Clause 4(1): report on the discharge of its functions". There is not the same need to establish a formal body of case law in this area as there is in the area under Clause 39, so no further statutory provision is appropriate.

The position is slightly different in relation to Clause 42. Here, there is no provision for a record on the public file and it is not the intention to publicise any conditions that might be imposed, because publication might well adversely affect the protection of investors which the imposition of the conditions was aimed at protecting. Of course it may prove to be the case that the commission would wish to refer in a very general way to any cases involving the imposition of conditions in its annual reports. But in our opinion it would not be appropriate to go further than that. In brief, that is the difference between the Clause 39 determinations and those in Clauses 41 to 43. I hope that with that explanation the noble Lord will feel able to withdraw the amendment.

Lord Williams of Elvel

I am grateful to the noble Lord for his response to this amendment. I should like to make it clear—I hope I make it clear—that I understood exactly what he was saying: that the commission would—I think he used the word "would"—wish to report on the exercise of its powers under certain sections—that is, Sections 41 and 43; and I think he said "would no doubt", or words to that effect. If we can have "would no doubt" transformed into "will", that will meet the thrust of the amendment.

On the question of Section 42, it seems to me to be a matter of very great public importance that if there are any conditions imposed on the authorisation of a building society to conduct business, that should be known by Parliament and known by the public at large. I cannot see that the commission need have any problem about that. If it is to be left to the commission to decide whether or not in any particular circumstances it decides on Monday, Tuesday, Wednesday or Thursday that it will reveal this or that restriction, and on Friday it will not reveal it, then that seems to give us some sort of problem.

We are not asking for the commission to publicise immediately but we are asking for a report to be laid before Parliament on the exercise of powers. I am not entirely happy with the Minister's reply and I hope that he will be able to expand it.

Lord Brabazon of Tara

I can expand my reply on Clauses 41 and 43 by saying that instead of saying "no doubt would" I shall say "will", because I went on to say slightly further on that it was covered in Clause 4(1) on the report of the discharge of its functions.

As regards Clause 42, I do not think I can expand any further than I have already done at the moment. I have given the reasons why we do not think that it is necessarily right to publicise any conditions—that is, that it might adversely affect the protection of investors which the imposition of the conditions was aimed at protecting. I think that the noble Lord could possibly envisage circumstances in which that could apply.

Suppose it came to the attention of the commission that matters were not absolutely right with a building society but not sufficiently serious to warrant publica-tion of that fact, and perhaps the building society had undertaken or hoped to be able to put things right shortly, the worst thing that could happen would be that publicity should be given to that matter which could cause a run and the consequences which would result from it. I think that that is the sort of situation to which I am referring and therefore it would be right to leave things as they are. As I said earlier, if the commission so wished, it could refer in a general way to cases involving the imposing of conditions in its annual report, but I think that is the best way to leave it at the moment.

The Earl of Selkirk

Have I understood my noble friend to say that supposing there is a comment on the liquidity of a building society or something of that sort, he would not want this to be mentioned in the report? Is that the point that he is making? In other words, there would be some point at which the building societies were getting near a margin of some sort and he would say, "Please keep your reserves or liquidity up" and he would not want to report that in the annual report. I can understand that. Is that what the noble Lord is saying?

Lord Brabazon of Tara

Yes. That is the sort of point that I am making—to give everyone a chance to put themselves right without the kind of results that publicity could achieve at that particular moment.

Lord Williams of Elvel

I accept the point that there is a question of at what stage one gives publicity to what the commission has imposed on the "noodle" building society. Clearly that must be right. Nevertheless, the annual report of the commission to Parliament is a retrospective document. It is a record of what has happened—the exercise of the commission's powers over the year—which is covered by the annual report.

It does not seem to me to be at all improper, in the hypothetical case that the noble Earl, Lord Selkirk, mentioned, if the commission had to impose certain conditions on the current authorisation and if everything went right after that. There seems to be no problem whatsoever if the commission reported subsequently, probably several months after the event, that it had had to exercise its powers under Section 42—if you like, not even spelling out the problem but saying that it had had to exercise its powers and everything was all right. That does not seem to be a serious constraint. I accept what the noble Lord said about the immediacy of having to publish certain matters if conditions are imposed. I do not accept that there should be any restraint on the commission's retrospective reporting in its annual report to Parliament.

8.30 p.m.

Lord Plummer of St. Marylebone

I urge caution on this point. As I think was said just now, it is easy, as has been seen, for a run on a bank to start. The commission will have to be careful about what it reports in that respect. I shall not go into detail, but I can think of several circumstances where it might prove detrimental to the society concerned without there being good reason.

Lord Williams of Elvel

I accept what the noble Lord, Lord Plummer, says. I think we are arguing at cross-purposes. I am not arguing that the commission should state immediately at any one time what it proposes to do in the way of imposing conditions. I am saying that under Clause 42 the commission has many powers to impose conditions. There should be some mechanism for retrospective reporting—not that a run on a bank or building society will happen tomorrow or happened yesterday. A year later the commission will come forward and say that it imposed certain conditions and restrictions, and that, "The public should know about that, but everything is all right or everything is all wrong". That does not seem to be wholly unfair. It will not affect the building society's current status. It will add a further element of protection for the generality of investors in the building society.

I shall not press the point. I understand that the noble Lord, Lord Brabazon, has his difficulties with it. I shall merely look carefully at what he said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clause 5 [Establishment, constitution and powers]:

[Amendment No. 16 not moved.]

Lord Brabazon of Tara moved Amendment No. 17: Page 5, line 25, after ("meetings") insert (", postal ballots").

The noble Lord said: This is genuinely a drafting amendment to include postal ballots in the summary in Clause 5 of the contents of Part III of Schedule 2.

Clause 5, as amended, agreed to.

Schedule 2 [Establishment, incorporation and constitution of building societies]:

Lord Brabazon of Taramoved Amendment No. 18: Page 174, line 28, at beginning insert ("Subject to subparagraph (2A) below").

The noble Lord said: With the leave of the Committee, 1 shall speak also to Amendments Nos. 19, 20 and 21. These amendments provide for the manner in which Clause 18 and Clause 23 powers are to be covered in the society's memorandum. They clarify the source of powers of a society and ensure that any reduction in its powers is noted. I beg to move.

Lord Williams of Elvel

This is one of the cases where we cannot possibly comment on the amendment because we have not had time to digest the wording. It is complicated wording. I accept the noble Lord's assurance that he will let us have Notes on Clauses in due course. We shall be able to respond accordingly then.

Lord Brabazon of Taramoved Amendment No. 19: Page 174, line 30, at end insert— ("(2A) For compliance with sub-paragraph (l)(c) above as respects the powers conferred by section 18 or under section 23, it shall be sufficient—

1. (a) in the case of section 18, to specify (as the case may be) the fact that the power of investment or support or both the powers of investment and support has or have been adopted in the case of companies, industrial and provident societies, corresponding European bodies and bodies included indesignation orders under that section respectively, specifying, in the case of designated bodies, or descriptions of designated bodies, the body or description of body in relation to which the power or powers is or are exercisable;
2. (b) in the case of section 23, to specify the power in terms of subsection (1) of that section.").

Lord Brabazon of Taramoved Amendment No. 20: Page 174, line 31, after ("society") insert (", as read with the provisions of this Act as in force for the time being,").

Lord Brabazon of Taramoved Amendment No. 21: Page 174, line 38, at end insert— ("( ) Where any adoptable power conferred by virtue of an instrument under a provision of this Act ceases, by reason of the amendment or revocation of the instrument, to be available to building societies or building societies of any description, every society affected by the amendment or revocation shall annex to its memorandum a note of the fact that, as from the operative date of the instrument, it no longer has that power and shall send a copy of the note to the central office which shall keep the copy in the public file of the society.").

Lord Houghton of Sowerby moved Amendment No. 22: Page 177, line 19, after ("may") insert ("not").

The noble Lord said: Paragraph 5 of the Schedule, on page 177, states: The rules of a building society may allow a person to become a member without holding a share in the society".

I am doubtful about what that means. On Second Reading the Minister said that he hoped to get Notes on Clauses for us. I am not aware that they have come out; I have seen nothing of them. No, I have not had the document that the Minister is holding. That is a great pity because it would have saved me a great deal of time.

Does the provision refer to the new status of what is called the "borrowing member"? If it does, I understand it because I have always thought that every borrower should be a member of the society. Normally, that means he should either be allotted a share or should acquire one. He should be a shareholder, if he thought that he was going to participate in the society's work, and it was agreed that he should. Under the Bill he does. He has a separate category of membership. Particular conditions relate to it, such as matters of transfer of mortgages, conversions and so forth. Will the Minister clear up that point?

My amendment says that the society may not allow a person to become a member without holding a share in the society. The clause clears the decks so that a borrower may become a borrowing member. Surely no one without a share can be called an investing shareholder. Can we have the confusion about membership cleared up? I beg to move.

Lord Brabazon of Tara

In one word, yes; the provision covers the situation of borrowing members. I gather that some societies insist that borrowers should be depositors as well. That is easily overcome by merely putting a pound or something like that into the society. Other societies do not insist that borrowers should have any share in the society. This covers borrowers.

Lord Houghton of Sowerby

I am much obliged for that answer. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Taramoved Amendment No. 23: Page 178, line 27, leave out ("94") and insert ("100")

The noble Lord said: With the leave of the Committee I shall speak also to Amendment No. 24. These are technical amendments to extend the provisions on joint shareholders to cover the approval of a conversion proposal. It is clearly appropriate that in the conversion procedure, as in other areas of the Bill, where shareholders have voting and other rights, only the representative joint shareholder among any group of joint shareholders should have those rights. The amendment therefore extends the list of rights applying only to the representative joint shareholder to cover the conversion provisions. Amendment No. 24 is a parallel. I beg to move.

Lord Williams of Elvel

I accept that these are technical amendments. We are waiting for the notes which will no doubt expand in greater detail what the noble Lord has said. We must accept the amendment; we have no option. We do not oppose it.

Lord Brabazon of Tara moved Amendment No. 24: Page 179, line 22, leave out ("94") and insert ("100")

Lord Houghton of Sowerbymoved Amendment No. 25: Page 188, line 30, leave out ("ten") and insert ("twenty").

The noble Lord said: This amendment relates to Schedule 2, paragraph 25, on page 188 of the Bill, which deals with the right to demand a poll. Unless I am mistaken, a poll may be demanded by not less than 10 members having the right to vote at a meeting. Is this correct? I put down the figure of 20 thinking that, if this is a numbers game, 10 seems quite small and 20 is just twice that. Do I understand that 10 members can demand a poll? May I ask the Minister if he will reply to this?

Lord Brabazon of Tara

Basically, this is the number of members who, upon joining together, have an absolute right to force a question to be put to a vote at an annual general meeting. This in fact comes straight from the 1962 Act. There is no change.

While I am on this point, may I apologise to the noble Lord, Lord Houghton of Sowerby, for the fact that he did not have the Notes on Clauses. They have been available in the Printed Paper Office for a week. I should perhaps have written to the noble Lord and told him they were available.

Lord Houghton of Sowerby

I did not in fact know that they were in circulation or I would have asked for a copy. I think that the reason I did not was that I thought the Committee stage was beginning so soon after the Second Reading that probably there had been not time to get the very voluminous papers together; but I can assure the noble Lord that I did not receive the Notes on Clauses. I have been gathering together everything concerning building societies and this was not among those papers. These things do happen, but the noble Lord has given me the explanation I sought on this clause. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara moved Amendment No. 26: Page 189, line 34, leave out ("Act") and insert ("paragraph")

The noble Lord said: I beg to move Amendment No. 26 which is a drafting amendment. Clause 123 provides for different commencement dates for various parts of the Bill and it is therefore appropriate to make this amendment so that paragraph 29(4) refers to the commencement of this particular paragraph concerning borrowing members' resolution. I beg to move.

8.45 p.m.

Lord Houghton of Sowerby moved Amendment No. 27: Page 190, line 4, leave out ("on which not less than 20 per cent.").

The noble Lord said: In moving this amendment, I should also like to speak to Amendments Nos. 28, 29, 30 and 31. This concerns the very troublesome question of the conditions under which a building society may decide to convert itself into a public company, creating a special company for the purpose, or electing to join an existing company and not to form a company of its own. There are different conditions for the alternative courses. I will deal with the proposed conversion of a building society into a public company created specially for the purpose.

We are not, I believe, dealing with a matter which will affect very many building societies; but there are several very large ones which may find that even with this Bill and the added flexibility and the extension of the areas of activity that will not be enough to enable them to deal adequately with their enormous resources and their desire for extensive broadening of activities.

Looking at the history of building societies, it probably was a pity that those which are the size of the Halifax and the Abbey National ever came into being. When I hear noble Lords and others talking about building societies keeping their local interests, having friends in the locality and deriving their inspiration from the community in which they live, I believe that that is true of a great many building societies and it is a relationship to be cherished. However, the Halifax, which was the first building society to have branches extending its activities many years ago, has not stopped growing yet. The Abbey National is another example of this, although the Halifax is more identified with a locality than the Abbey National. Both of these societies had some very great men of vision and activity and drive to spur them on and their phenomenal success is the consequence of that.

The result is that at the present time these two largest societies, which are of national significance and supported by national advertising and who grant mortgages throughout the country, have more than enough assets to grant an adequate mortgage to every householder in the Halifax and then start again. We therefore have two building societies with something like from £20 billion to £24 billion in assets. The Nationwide comes third in that it is half the size of the two giants, and after that we come to the Leeds and the Woolwich which are only a quarter of the size of the two largest societies. Following those we have 11 societies which have from between £ 1 billion and £5 billion in assets. The approximate result of this is that 16 building societies have assets of £1 billion or more and its is in that area that we should think about conversion. The 140 societies which are below the first 16 have assets ranging from £1 billion downwards to £300,000, with a very small tail at the end, so we are not talking about matters which one would expect to affect a large number of building societies. However, it could affect very dramatically indeed some of the larger building societies who want to do a great deal more than the limitations of this Bill provide for.

All this has aroused a certain ideological controversy. In another place this matter was dealt with at great length at different times, and finally at Report stage a few weeks ago we saw two schools of thought emerging. There were those who were probably connected with the larger building societies or who were encouraged by them and who were in favour of reasonable conditions upon which a building society could convert into a limited company. On the other hand, there were those (mostly on the Opposition Benches in another place) who were rather against giving such facilities to building societies to enable them to desert their history and their heritage and to go into the big world of finance. At Report stage in another place there was still a tussle even on the modified proposals that are in the Bill at the moment between those wanting more room and those wanting less room for conversion to public companies. So the proposals in the Bill are there under considerable pressure of opinion and compromise. I understand that the building societies that were fairly strong in wanting better facilities to convert are reconciled to what is in the Bill. At any rate, their great anxiety is to get the Bill through and not to delay its passage by needless controversy in your Lordships' House.

Nevertheless, there are important considerations at stake. One is the doctrine of authority. That is my own definition for it. When an appeal is made to the final authority in any institution—a trade union, a learned society, a building society, a county council or the electorate in a parliamentary election—no condition should be laid down to frustrate reaching a conclusion. I feel strongly that this should be so; otherwise, you are playing ducks and drakes with the final authority. The final authority is the voice that you want to hear and, having heard it, say, "That is it".

A trade union ballot occupying the headlines yesterday and today has been that for a new general secretary of the Civil Service clerical union. It was a low poll and a narrow majority. But no one questions the authority of the decision, unless there is something wrong in the way it was reached—corruption, irregularity or whatever. If it is clean, that is the voice. And as Winston Churchill often said in the House of Commons, "In this place one vote is enough".

Here we have a proposition that in order for a building society to convert into a public company it must first pass a special resolution—this is common form in societies—which requires those who are voting to vote a certain way in respect of two-thirds of the members in order to make it effective. Following upon that there can be a poll. It is the poll that is in question there, not the conditions of the special resolution. On a special resolution members of the society who cannot get to the meeting can send proxies. There is no criticism to make of the conditions in the Bill for the reaching of decisions on a special resolution.

But when it goes to the poll—this is where the final authority is—the special resolution has to be passed on the ballot with at least 20 per cent. of those entitled to vote voting. So this is a ballot taken on a condition that a certain proportion of those entitled to vote in the ballot do vote. This means therefore that the decision may not be taken by those who vote but by those who do not. That involves another very bad principle. You do not reach a decision by voting; you reach it by staying at home, or, in the case of the postal ballot, by throwing the ballot paper in the waster paper basket. This is not the way, constitutionally speaking, that we settle things in this country.

On Second Reading the noble Lord the Minister said something about the Scottish devolution Bill. It was very late in his speech. It was also getting late in the day. I allowed it to pass. But those of us who remember the episode very clearly will recall that the Labour Government of the day did not stipulate, or wish to stipulate, any condition of this kind in the referendum on Scottish devolution. But some Members from both sides of the House, led by a certain Member, Mr. George Cunningham—

Lord Ross of Marnock

No longer a Member.

Lord Houghton of Sowerby

—erected a stratagem whereby in the last 40 minutes before the gullotine fell they moved a new clause which instructed the then Secretary of State for Scotland (who is, I think, sitting near me now) to require an order for the repeal of the Act unless at least 40 per cent. of the electorate—not just those voting but 40 per cent. of the electorate—voted "Yes" in the referendum. That new clause passed just as the chopper was about to fall. It was passed by 168 votes to 142. It was an excrescence on the whole process envisaged for the devolution legislation. I deal with it only because the noble Lord the Minister evidently had it in mind that it was a suitable precedent to quote if anyone referred to it in the debate on Second Reading. I have therefore given the explanation. It was never intended and it should never have been done from a constitutional point of view. There may have been other remedies if the vote was not satisfactory. But we went into the Common Market on a referendum with no such conditions. The fate, the destiny, of the nation was decided by that means.

I take the view that a condition requiring that 20 per cent. of those eligible to vote shall vote or the special resolution is ineffective is an unsatisfactory condition and should not be included. The Building Societies Association has issued numerous briefs to us on the Bill. These have been very useful. I must say that the association does its work extraordinarily well. Every single one of those briefs, in dealing with the conversion problem, has said that the conditions laid down are so harsh and so stiff that it is unlikely that they could be complied with to make any conversion effective. Certainly this could not be done in the case of conversion to an existing company because the conditions are stiffer still. One can understand that.

The fear is that someone may come along and buy up a building society. The greatest fear, of course, is that this will be done by foreign banks and other foreign money. I can quite understand that we do not want a picking of our building societies all over the country by vested financial interests who might come along and get the conversion procedure through with little difficulty. If a financial inducement could be offered to members to vote for the conversion, there would be little difficulty in getting 20 per cent. But the Bill prevents such inducement being offered. The most that can be offered on conversion is a possible bonus two years afterwards in respect of which conditions are laid down.

In the case of conversion to an existing company, there are some complicated conditions about the process on what amounts to liquidation of the building society in order to convert itself and hand itself over to another company. But I do not want to go into the complications of the different methods. I want to deal with the principle of the matter, because this is what really concerns me.

Are we justified in creating conditions which are alien to our concept of the operation of democracy in this country? Are we entitled to create, exceptionally, conditions relating to building societies in order to stop them from taking the course which quite legitimately they may wish to take? The noble Lord, Lord Campbell of Croy, referred at Second Reading to a ballot on a merger with which he was concerned in a building society. They had a 10 per cent. vote, which seems low, but we have to consider the nature of a very large proportion of the investing members in building societies and of a very large proportion of borrowing members. When you have nothing to offer them, when it is one man one vote, and in the case of borrowers at the present time no vote at all, how can you maintain any interest in the democratic process?

9 p.m.

Lord Campbell of Croy

I am grateful to the noble Lord for giving way. I was in fact supporting his point about how high a threshold of 20 per cent. is, because in the latest merger, which came into effect in October, I think that 2 million people were able to use proxies by post. Ten per cent. was about the number who voted and that is more or less what was optimistically expected. Incidentally, may I point out that in giving the sizes of societies earlier in his speech, the noble Lord overlooked that merger which has resulted in a different order of size.

Lord Houghton of Sowerby

I am sorry about that. I feel that I am entitled to make this speech, because it is an important question of principle in our affairs. I shall be told that the Building Societies Commission has power, as it has, to vary the percentage, but one wonders when the Building Societies Commission may consider varying it. One thing that is certain is that if a building society seeks to convert and goes through the process and then, in the end, fails to get the 20 per cent. vote to give effect to it, its morale will be seriously harmed, its reputation may be damaged, it may appear to be a huge liner which is rudderless and rocking about on the sea. It will not do anybody any good and will be a thoroughly unpleasant experience. So I do not think that it is any excuse to say "Ah, but the 20 per cent. can be varied, subject to Treasury consent, by the Building Societies Commission".

My final point is that if those who put this condition there firmly believe, as the Building Societies Association apparently does, that it is virtually impossible to fulfil, then it is humbug to put it in at all. I see no point in putting conditions in the statute law which look to be feasible but which in fact would probably be quite ineffective. Already the rules of building societies read rather like the constitution of the Soviet Union. It all looks nice and pretty in the rule book, but when you come to want to use your democratic rights you see how many you have got.

So I quite understand when the leadership of the Halifax Building Society ask, "Have you tried democracy among 8 million members of the society scattered all over the world?" To be honest, I have not. But then why pretend that we have these rights? This is why some building societies may feel that the only thing for them to do is to go public and have an entirely different format and wider opportunities. It is grossly unfair to stick to conditions which are practically useless in the hands of those who may wish to use them.

I am sorry to have detained the Committee for so long at this hour. In offering my apologies, I can only say that I think the time we are spending on Statements in this House, in the middle of important debates which are on the Order Paper as the business of the day, is becoming quite excessive. There were 55 minutes taken today on the Peacock Report, and the other day there were three Statements which took one hour and forty minutes out of the business of the day. But there is no Member sitting on the Front Bench opposite who can protect the business of the House—

The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)

Order!

Lord Houghton of Sowerby

I am raising a point of order, and I think I am entitled to do that.

Lord Belstead

No.

Lord Strabolgi

Why not?

Lord Houghton of Sowerby

If the noble Lord wants to shut me up, he had better try.

Lord Campbell of Croy

If the noble Lord will give way, perhaps I may say, as I was here at the time, that it was a Member on the Front Bench who eventually brought the debate on the Statement to an end when several Members on the opposite side were still getting up.

Lord Houghton of Sowerby

I am very grateful to the noble Lord, Lord Skelmersdale, for his great courage on that occasion, but it was half an hour too late.

I conclude, therefore, by saying that the Bill will surely have to go through the test of experience and the societies themselves will have to do the same. But I sincerely hope that we are not going to find this venture into the field of wider opportunity and activity giving rise to some very big problems of where the larger societies are to go in order to accomplish their legitimate ambitions. We are in a very restive state of financial activity throughout the world, as well as in this country. There is a new industry in financial transactions. The money that is now being made in this country is being made out of money. There is more money to be made out of money than there is to be made out of industry. It is money that will attract people who have it; it will not be industry.

We should also bear in mind that the money is being made out of those who accept deposits from people and who hold them long enough to make use of them without paying interest to those who have deposited the money. Profits come out of transactions in that way. My banker friend has opened my eyes. I did not know that such a world existed. Why go to gambling casinos when you can go to the City? That will be the world in which the new building societies will operate.

I have said enough, so I shall sit down. I beg to move my amendment.

Viscount Ridley

I do not know what the noble Lord wants, after listening to him for 25 minutes with great patience, unless it be to torpedo the Bill, which I suspect he has effectively done. If that is his aim, I congratulate him, but I do not think that it is the desire of the Committee that we should stray so far from the point. As I am the first to speak on the amendment, let me say that I think that the conditions laid down in the Bill are correct. It should not be too easy to become a plc. It should be difficult; and it will be very difficult to get 20 per cent. of those eligible to vote. I hope very much that the Government will resist the amendment and try as hard as they can to get the Bill through.

Lord Campbell of Croy

As the noble Lord, Lord Houghton, mentioned me, let me add to what he kindly enabled me to say during an intervention. Although the threshold is high—and that seemed to be generally agreed in another place—there is the provision in paragraph 6, lower down in Schedule 2, which enables the percentage to be changed by a statutory instrument, subject to decisions of both Houses of Parliament. I hope that my noble friend on the Front Bench will point out that that means that in changing circumstances in the future the threshold could be lowered if it seemed to be the right thing to do then.

Lord Brabazon of Tara

I accept that the subject of conversion to public company status is an extremely important part of the Bill. We shall be returning to that, no doubt, in due course when we reach the main clause which it involves, which the noble Lord, Lord Barnett, has given notice to oppose.

The amendment would take away what the Government consider to be a crucial part of the machinery of conversion to company status. We consider that it is not enough for a three-quarters majority to be obtained on a special resolution, no matter how few members take part. It is essential that the poll should be a substantial one, for this is a substantial step that the building society would wish to take.

There are several reasons for that. First, conversion to company status would be a major and fundamental step for a society to take. It is right and proper that it should be allowed only if a sufficient proportion of the members assent. Secondly, it serves an important prudential purpose. Those members who express positive support for a conversion proposal by voting in its favour will be all the more likely to stay with the society after it becomes a company, both as customers and perhaps as shareholders. It is important for the company in its early days to be able to rely upon the continued support of its former members. But there is also a wider public interest. Building societies collectively play an important part in our national life, as many noble Lords reminded us on Second Reading and, indeed, again in Committee today. I believe that the public interest requires that they should not lightly be able to give up their present mutual status, but should do so only if substantial levels of membership support are forthcoming.

My noble friend Lord Campbell of Croy pointed out the paragraph in the schedule which allows those amounts to be altered by statutory instrument. No doubt if at some time in the future that proved to be necessary, that step could be taken. They are difficult hurdles to overcome, but we do not believe that they are impossible. For the reasons that I have given it may be an onerous task, but it should not be impossible. I think that we have the right balance. Similarly, on the second leg of the amendment, on the merger proposals, I think that we have achieved the right balance, and I cannot accept the amendment.

Lord Houghton

of Sowerby: I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 28 to 31 not moved.]

Lord Houghton of Sowerbyhad given notice of his intention to move Amendment No. 32: Page 195, line 17, leave out ("£100") and insert ("£1000").

The noble Lord said: I shall not move Amendments Nos. 32 or 33. With the leave of the Committee, I shall reserve them for a later stage in the Bill. I am sure that the Committee is getting weary of me, and I am certainly weary of the Committee.

[Amendments Nos. 32 and 33 not moved.]

Schedule 2, as amended, agreed to.

Clause 6 [Power to hold land etc. for purposes of its business]:

Lord Barnett moved Amendment No. 34: Page 5, line 41, after ("may") insert (", after consultation with the Commission,").

The noble Lord said: I shall try not to weary the Committee. This is an important part of the Bill relating to premises. I have no doubt that Members on all sides of the Committee will share my concern about the number of premises in high streets being used by building societies. The number seems to have grown in recent years. I have no statistical evidence. Indeed, the Building Societies Association says that the number has been decreasing. If they say this, I suppose that it must be true. Maybe it is decreasing in the sense that it is not increasing as fast as before.

I could not think of an amendment that would sensibly deal with this problem, for the fairly obvious reason that it would be unfair in terms of competition to restrict the right of one building society to open another shop in a high street, or wherever, if it was seeking to expand in a particular town where it did not have a shop. I am bound to say that when one goes to comparatively small towns one sees so many building societies to the exclusion of almost any other kind of shop. It does not make the high street look a more attractive place.

The only kind of amendment that I could think of was to add the words that I am now moving in Amendment No. 34 which provides that the building society should have to consult the commission. I recognise that that is not an ideal solution. I accept that when a building society wants to take additional premises—whether it be another shop or other premises for headquarters somewhere—it does not want the delay of further consultation. But I want to bring to the attention of noble Lords the feeling of many people who are unhappy about the number of building society premises in this country and the extent to which all these premises are advancing the cause of the building society movement.

I do not pretend for one moment that the amendment I am moving is ideal. If the Minister agrees with my worry and concern then with all the advantages of the huge department he has behind him, perhaps he will come up with a better amendment. I beg to move.

9.15 p.m.

Lord Campbell of Croy

I sympathise with what the noble Lord, Lord Barnett, has said. I declare an interest, being a director of one of the large building societies. I felt exactly the same when I saw what was happening in Scotland in the towns and cities there. So many new branches seemed to be appearing—I am talking about five or 10 years ago. But when one looked into it one found that much of the retail investment was coming in through those branches, off the street. A service was being provided for the ordinary citizen or housewife who appreciated being able to go into a building society to do business over the counter in a way which building societies could afford. Financially it was absolutely justified, and it was helping the citizen on the street. But the multiplication of these branches seemed very strange. However, at least they were able to pay the rates. Some of the shops were having to close down because they could not pay the rates, but the building societies were doing so well with these branches and the use that was being made of them that they could afford to be there. My society has made a small change in this. As a result of a merger some premises will not have to be used in the future.

Lord Brabazon of Tara

I am grateful to the noble Lord for raising this matter. It is one that has caused concern over the country as a whole and possibly in certain high streets—that every second shop seems to be a building society. But I think that my noble friend Lord Campbell of Croy has to some extent answered that question. I can confirm that the huge growth of the 1970s in the number of branches has now slowed down. Perhaps it will not go any further now that there is greater competition in the market and costs will have to be contained. However, I cannot accept this amendment which would require the commission to vet every application by a building society to open a branch. I think that that would be a very onerous task on the commission. I am sure that we want to see the commission not over-staffed but adequately staffed for the very important role it has. I suggest that to give it this further task would be to go a little beyond that.

I will say this. I shall draw the remarks of the noble Lord to the attention of the Secretary of State for the Environment who is responsible for planning laws. I gather that these kind of matters can come under the change of use regulations. It will probably be a local matter rather than one for the Secretary of State. Local councils can probably have some input in that. But that is as far as I can go.

Lord Barnett

I think that the Minister has probably gone too far anyway. He is quite right—it is a local planning permission matter; but it could go to the Secretary of State if whoever has been refused planning permission wants to appeal. That is my understanding.

However, as I made quite clear, it is the principle that I wanted the Committee to discuss because this is an important matter. I recognise exactly what the Minister has been saying about why he cannot accept the amendment as it now stands. As I have said, I am not sure whether or not he has already gone too far, but I shall not hold him to it. Building societies may begin to feel that there are some instructions coming down from on high that local authorities should refuse to give planning permission for new building society pemises. It may be a bit counterproductive with the present Secretary of State giving instructions to some local authorities because they may feel all the more that they should grant permission. However, I am assuming that the noble Lord had not consulted his right honourable friend when he made that remark.

Lord Brabazon of Tara

Before the noble Lord decides what to do with the amendment, perhaps I may retract a little of what I said. I withdraw the offer to bring the matter to the attention of my right honourable friend the Secretary of State. Perhaps the noble Lord woud like to refer particular cases to his own local authority where he feels that that is applicable.

Lord Barnett

I can imagine what the noble Lord's right honourable friend would have said. If the Committee thinks that we are sitting late, I point out that when I was taking Finance Bills through the other place the noble Lord's right honourable friend kept me up night after night until 8 o'clock the following morning. So if noble Lords think that they are being wearied tonight, it is as nothing to what the noble Lord's right honourable friend did to me. Indeed, as will be quite clear, I am not seeking to keep anybody up tonight. However, in the light of what has been said—

The Earl of Selkirk

The noble Lord rather suggests that building societies have offices for fun, for amusement. If the noble Lord examines the situation—and I have looked at this matter over a large number of years—he will find that every building society will say that each office is worthwhile. If anyone knows enough to deny that, then let him say so.

It is not merely a matter of simply putting offices somewhere for the fun of having their name in that place or purely for the purposes of advertising. That is not the case. I take the opposite line. One of the strengths of the building societies is their diversification throughout the country for the convenience of their members and their depositors. They do not simply sit in London and get their money from the general market there. There is a great deal to be said for having these offices which are of great convenience to the public.

Lord Barnett

I have no wish to delay the Committee, but if one took the noble Earl's remarks to their logical conclusion every shop on every high street would be a building society and I am not sure where we would get to then. However, I do not wish to pursue the subject. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 35 not moved.]

Lord Brabazon of Tara moved Amendment No. 36: Page 6, line 19, leave out from ("that") to ("shall") in line 22 and insert ("no part of the premises comes to be or, as the case may be, is any longer occupied for the conduct of the business of the society or a subsidiary or associated body").

The noble Lord said: I beg to move Amendment No. 36. This is a purely drafting amendment to remove any doubt about the intention of the provision.

Clause 6, as amended, agreed to.

Clause 7 [Power to raise funds and borrow money and limit on non- retail funds and borrowing]:

Lord Williams of Elvel moved Amendment No. 37: Page 6, line 35, at end insert ("or (c) raise funds by the issue of debt instruments.")

The noble Lord said: I beg to move Amendment No. 37, and it may be for the convenience of the Committee if I speak also to Amendments Nos. 38, 39 and 40. This brings us back to a discussion which we had earlier today about the relationship between retail deposits of building societies and the wholesale market which is ready, and I think fairly willing, for building societies' use.

There are a number of slightly technical points that I should like to go through. However, essentially the thrust of these amendments is to give greater power to building societies to borrow in the wholesale market to complement—as we have established that they are primarily going to raise funds from their members—their faculty to raise money from their members.

I should like to spend a moment on Amendment No. 37. This may be an unnecessary point, but it is a clarifying amendment or, if you like, a probing amendment. The building societies should be allowed to raise funds by the issue of debt instruments. Amendment No. 38 refers to instruments which may not be transferable, and by that I mean private placements rather than public issues. One would not wish the building societies to be constricted in going to the private market and making a private placement of a debt instrument that is not in fact transferable.

Amendment No. 39 is again designed to make sure that there is greater leeway. I understand that the Bill, as drafted, allows greater leeway to be given by order of the Commission with the consent of the Treasury. However, it seems to us—and 1 am glad to see that the Building Societies Association is sympathetic to this—that the 40 per cent. limit should be one which is available immediately rather than being 20 per cent. subject to Treasury adjustment as necessary. Finally, Amendment No. 40 says that the 40 per cent. rule should not necessarily stand. It does not seem to us to be a condition of sensible and prudent building society management that they should not raise on the wholesale market more than 40 per cent. of their total funds.

I recognise that to a certain extent we are going over some of the ground covered earlier; but I believe that these amendments would give the building societies the flexibility we were trying to introduce earlier. The noble Lord, Lord Brabazon, in his reply to my earlier points, referred to the amendments that were coming up under this clause. These are the amendments, and I hope that the Government will see fit to accept them. I beg to move.

Lord Campbell of Croy

Perhaps I may say a word about this, because the noble Lord referred to me when this came up earlier this afternoon. The building societies moved into the wholesale market about five or six years ago, and my society was the first one. It has been controlled and restricted by the chief registrar whose policy, certainly up-to-date, has been less than 20 per cent. Therefore, 20 per cent. being put into the Bill seems to be following present prudential policy, but also giving further scope.

Speaking as someone in the movement, I think that we would like to have a higher limit, and in future we might want to go to more than 20 per cent. On the other hand, I see that building societies, being mutual institutions, are still expected to raise most of the funds on the retail side. We were talking about that just now and how much normally comes in from members throughout the country through the branch offices.

I sympathise with what the noble Lord has said. Certainly building societies would like to have the flexibility, but 40 per cent. seems to me higher than we would need at the moment in the building society movement. However, we would hope that if 20 per cent. seemed a bit restricted in the future, it would be possible for it to be lifted.

Viscount Ridley

Would not 30 per cent., or even 33⅓ per cent., meet the objections of everybody?

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Campbell of Croy, for his intervention, because this is a point about which we had an exchange at Second Reading and we have had earlier debates on this matter. I think that there is a philosophical point, and it is something of a difference of opinion between myself and the noble Lord. Lord Campbell of Croy, on the future of building societies, looking over a 10 to 15 year span. My view is that the building societies—and this relates to the debate that has just taken place on the question of premises—will no longer be able to sustain the retail thrust that they have engaged in over the past few years, and that they will be more and more obliged to have recourse to sources of funds which are not from the retail side, or not from their members.

I believe that the format that a building society in, say, the year 2,000 will be taking will not necessarily be one of a number of retail outlets in the high street but will be much more like the German mortgage banks—which indeed we actually set up after the war—where there is access to the wholesale market, and the maturity of the borrowings corresponds more or less to the maturity of the loans that are made. I think building societies will have to move in that direction. Whether I am right or wrong, I do not wish to restrict the building societies if I am right.

This is the point I am trying to make, and a point I have made on a number of occasions. If it is right that building societies will have to move more and more into the wholesale market because of the competition for savings, then it is right on the face of the Bill to introduce the flexibility that allows building societies to do so. If it is right, as my noble friend Lord Barnett was saying, that retail outlets will perhaps become redundant in the same way as the retail outlets of banks have become redundant—with banks having to close down branches in the High Street and going more and more into the wholesale market for their funds—then it is right not to restrict building societies. That is the thrust of the amendment.

Lord Brabazon of Tara

I shall deal briefly with the first two amendments, Amendments Nos. 37 and 38. I can give the noble Lord an assurance that Amendment No. 37 is not necessary and that debt instruments would be covered by borrowing money in Clause 7(1)(b).

Regarding the kind of loans he talked about in Amendment No. 38, private placements, I think that these will cover any non-transferable wholesale instruments that societies might consider at the present time. Furthermore, there exists in subsection (9) the power to designate further instruments as wholesale for these purposes. If the noble Lord can think of any other kind of issue which might not be covered I should be grateful to hear and we should be interested to consider that.

On the more fundamental issue of the 20 per cent. and the 40 per cent. I find myself somewhat puzzled standing here. The noble Lord said that it seems to him that it would be a good idea to raise this to 40 per cent. My honourable friend the Economic Secretary in another place spent a great deal of time arguing with honourable Members from the Labour Party who sought to reduce these numbers. I find myself in the curious position of occupying the middle ground between noble Lords in the Labour Party here and honourable Members in another place.

Lord Williams of Elvel

As the noble Lords knows, we are a party of very rich contrasts. We can adopt different positions according to different requirements at different times. I hope the noble Lord will accept that.

Lord Brabazon of Tara

I am pleased to know about that flexibility and I hope that his honourable friends down the other end accept that same view.

We cannot accept this amendment. The building societies have gained experience in recent years with some notably successful forays into the wholesale markets. I think I am right in saying without checking that some societies have up to 10 per cent. of their money in wholesale funds at the moment, but we still think that there is a need for considerable caution. Raising funds on the money markets involves very different types of risks to raising it from ordinary depositors. Indeed, the wholesale markets can and have been much more fickle than the man in the street. I only give the noble Lord the example of the Continental Illinois bank in the States where they discovered recently to their cost what happened when wholesale depositors lost confidence.

We therefore believe that 20 per cent. is the right reasonable initial limit for societies. As the noble Lord and my noble friend Lord Campbell of Croy have mentioned, this could be raised to 40 per cent. if it was felt appropriate and consistent with building societies continuing to operate under their own legislation and in a form distinct from banks. Of course they can go a stage further than that and become plcs if they wish; but that is another debate again.

Lord Williams of Elvel

I am grateful to the noble Lord for his response. I understand—and I am grateful to him for the clarification—that Amendments Nos. 37 and 38 are redundant because their substance is covered under the Bill. If I read the Bill again and discover other methods of financing which are not covered, I shall certainly write to the noble Lord.

I think that we have had a debate on this topic; in fact, we have had two debates on it. I hope that the Committee recognises the strength of what I feel about the future of building societies, but I shall not pursue it at this late stage and therefore I beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 38 to 40 not moved.]

Clause 7 agreed to.

Clause 8 [Proportion of liabilities to be in form of shares]:

Lord Brabazon of Tara moved Amendment No. 41: Page 10, line 42, after ("or") insert ("rules under subsection").

The noble Lord said: I beg to move Amendment No. 41. This is genuinely a purely drafting amendment. I beg to move.

9.40 p.m.

On Question, Whether Clause 8, as amended, shall stand part of the Bill?

Lord Barnett

With the best will in the world, and much as one wants to make progress as fast as possible, there are certain parts of the Bill that need examination. It is bad enough being glared at by one's own Chief Whip, but to be glared at by the Government Chief Whip can be counterproductive. We in this Committee have some function to examine Bills. I am sorry, but we have a Bill of some 273 pages; and nearly 200 amendments have been put down by the Government. I have not in any way sought, as anybody who has been present in this debate will know, to delay this Bill. But we have a function, we have a role, to examine the Bill. Being glared at by the Government Chief Whip does not help us. Does the noble Lord wish to intervene? No? Then I shall continue.

Clause 8(1), to put it mildly, is somewhat unclear. If I read it, it will be clear why it is unclear. It reads: Subject to subsection (2) below, a building society shall secure that the amount of the principal of, and interest payable on, sums deposited with the society does not at any time exceed 50 per cent. of the aggregate of that amount and the principal value of, and interest payable on, shares in the society". Perhaps the Minister can explain it.

Lord Brabazon of Tara

I can do little better than read out what it says in the Notes on Clauses, which I think makes the situation fairly clear. Clause 8 provides that at least 50 per cent. of a society's liabilities by way of shares, deposits and loans shall be in the form of shares. This provision replaces Section 39(2) of the 1962 Act, which provides that a society's total borrowings shall not exceed two-thirds of its mortgage assets, and also the provision in paragraph 2 of the Schedule to the Building Societies (Designation for Trustee Investment) Regulations 1972 that shares must account for at least 50 per cent. of liabilities if a society is to enjoy trustee status". I hope that with that explanation the noble Lord will find the subsection a little clearer. I must say that I did not find any particular difficulty with it.

Clause 8, as amended, agreed to.

Clause 9 [Initial authorisation to raise funds and borrow money]:

Lord Brabazon of Tara moved Amendments Nos. 42 and 43: Page 12, line 3, at end insert— ("( ) if those matters are or include the matters specified in paragraphs (a) and (b), refuse to grant authorisation;"). Page 12, line 4. after ("(a)") insert ("in any other case,").

The noble Lord said: I beg to move Amendments Nos. 42 and 43. With them, I shall take Amendments Nos. 116 and 117. These are technical amendments to ensure that the provisions for authorisation and reauthorisation conform to the letter with the Community obligation under the first Council directive on credit institutions.

Clause 9, as amended, agreed to.

Clause 10 [Advances secured on land]:

Lord Skelmersdale moved Amendment No. 44: Page 14, line 11, after ("estate") insert ("or, as provided under subsection (6) below, an equitable interest").

The noble Lord said: I beg to move Amendment No. 44, and I shall speak also to Amendments Nos. 45, 46, 47, 48, 49, 50, 61 and 243. For the avoidance of doubt and the information of noble Lords opposite, I should say that the substantive amendment of this large block is Amendment No. 49. At present, Clause 10(6) allows a society to lend on equitable interest within class 1 or class 2 in addition —and this is the important point—to a loan on freehold or leasehold estate. This is to provide for shared ownership schemes where the tenant in effect owns part of the property and rents the remainder.

This amendment replaces that with a general order-making power for the commission to enable societies to lend on equitable interest in classes 1 or 2. The order could, for example, prescribe loans to builders who are parties to building-under-licence agreements under Sections 32 and 33 of the Housing Act 1985. Societies have been keen to see scope in the Bill for loans on such equitable interest to count as advances secured on land.

The amendment also makes it clear that the commission's order-making power includes the power to lay down how Clause 17(10) of the Bill is to operate. That subsection, to which a consequential amendment (No. 61) is proposed, provides at present for societies with less than £100 million of commercial assets to lend on equitable interest in certain cases, particularly shared ownership schemes. Until any orders were made, by virtue of Amendment No. 243, societies would be able to lend on equitable interest for shared ownership schemes in just the way that Clause 10(6) of the Bill currently envisages. The first part of that amendment repeats the substance of what is presently Clause 10(6), but it is moved to Schedule 20 since it would now be a transitional provision, falling away as soon as the commission used its order-making power. With those exceptions all the other amendments in this group are genuinely drafting or consequential amendments. I beg to move Amendment No. 44.

Lord Williams of Elvel

Perhaps I may speak to Amendment No. 49, if the noble Lord is going to move the amendments separately. I tried to follow the noble Lord, Lord Skelmersdale, in what he was saying about Amendment No. 49, which is the substantive amendment. I am not sure that I fully followed him, but no doubt I shall be able to read tomorrow in Hansard exactly what he said; and if there are any problems, we will come back at a later stage.

There is, however, one substantive problem on No. 49, and that concerns housing trusts which exist in Northern Ireland; and some of them are sponsored by building societies here. They will be expected to become wholly-owned subsidiaries once the new legislation allows. For instance, the Nationwide Housing Trust Limited in Northern Ireland is sponsored by the Nationwide Building Society. That company is involved in a wide range of development schemes, primarily aimed at the provision of what might be termed "social lending". One has to accept that as a possibly desirable expression in the context of Northern Ireland, and it includes sheltered housing for the aged and cost-sale developments in partnership with local authorities, usually for sale to local authority nominees.

Under existing law a building society can make a loan to a company such as the Nationwide Housing Trust Limited on the sole security of a contract to develop and purchase a site, which is the equitable interest. Housing thus financed is then sold off to ultimate purchasers without the need for the developer itself to have completed its own purchase of the land. Neither under the Bill as brought from another place nor under Amendment No. 49 will building societies, in the absence of an order satisfying this type of transaction, be able any more to lend on the security only of a development land purchase contract from a local authority in this way.

What we are therefore seeking is an assurance from the Minister that an order will be made specifically to allow this important category of social lending to be continued, and that would enable such schemes in partnership with local authorities to continue. We should like to have that assurance from the Minister if he would be kind enough to give it.

Lord Skelmersdale

The noble Lord could not have been more accurate or more succinct had he spoken from this Dispatch Box. The answers are: yes, yes and yes.

Lord Skelmersdale moved Amendments Nos. 45 to 49: Page 14, line 19, after ("estate") insert ("or equitable interest"). Page 14, line 26, after ("is") insert ("or is"). Page 14, line 27, after ("by") insert ("that security or, as the case may be,"). Page 14, line 30, after ("constitutes") insert ("or will constitute"). Page 15, line 6, leave out from ("Ireland") to end of line 11 and insert: ("if the equitable interest is an equitable interest in land of a description and is created in circumstances prescribed in an order made by the Commission with the consent of the Treasury under this subsection and any conditions prescribed in the order are complied with. ( ) Any powers conferred on building societies by an order under subsection (6) above may be conferred on building societies of a description specified in the order or all building societies other than those of a description so specified. ( ) The power to make an order under subsection (6) above includes power—

1. (a) to prescribe the circumstances in which the power conferred by section 17(10) on building societies of the description specified therein is to be available to them; and
2. (b) to make such incidental, supplementary' and transitional provision as the Commission considers necessary or expedient.

( ) An instrument containing an order under subsection (6) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.").

9.45 p.m.

On Question, Whether Clause 10, as amended, shall stand part of the Bill?

Lord Williams of Elvel

Perhaps I may ask the Minister to comment briefly on a matter that I raised on Second Reading concerning what I called, much to the objection of some noble Lords, securitised mortgages. We are talking here about advances made by building societies. Our concern is that advances may be in the form that will allow them to be tradeable. If that is not the case, and if the Bill as drafted and as enacted prohibits or inhibits such action, then I shall be perfectly happy with a ministerial assurance that that is so. However, if the Bill does not, then it raises a whole host of questions as to the circumstances in which such advances might be sold on to a third party and under what conditions that might be done. I shall be grateful if the Minister will give the Committee an indication of what the Bill says on that topic.

Lord Skelmersdale

Clause 10 should be read with Clause 11, which we have not yet reached, but I can say for the moment that the Department of the Environment and the Treasury are currently discussing the particular matter that the noble Lord has just raised with the building societies following the initiative of my honourable friend the Minister for Housing.

The intention is to devise in due course a code of guidance; but we have not gone that far as yet, and we shall not do so until the discussions are much nearer to completion.

Lord Williams of Elvel

Can the noble Lord give the Committee a rough timetable as to when those discussions will be brought to fruition? It is, as he will be aware, a matter of enormous importance not only in the context of what building societies can do with their assets but also to the public. It would be unwise for the Committee to consider this Bill as complete until we have received some response to the outcome of the discussions.

Lord Skelmersdale

As I have said, the discussions are in the process of happening. I am not able this evening, standing at this Dispatch Box, to give a date for the outcome of those discussions, but I shall make sure, following the noble Lord's request, that they are conducted as speedily as possible.

Clause 11 agreed to.

Clause 12 [Class 1 and class 2 advances: supplementary provisions]:

Lord Skelmersdale moved Amendment No. 50: Page 19, line 5, leave out subsection (5). On Question, amendment agreed to.

Clause 12, as amended, agreed to.

Clause 13 [Security for advances: valuation and supplementary and related provisions]:

Lord Campbell of Croy moved Amendment No. 50A: Page 21, line 7, leave out ("or saleability").

Lord Campbell of Croy

At the request of my noble friend Lord Kinnoull, I beg to move Amendment No. 50A standing in his name on the supplementary list. I understand that it makes a technical change to the Bill that has been agreed in discussions between the Royal Institution of Chartered Surveyors and the Government. 1 beg to move.

Lord Skelmersdale

I am glad to be as amenable to my noble friend Lord Kinnoull, and now to my noble friend Lord Campbell of Croy, as my noble friend Lord Brabazon was at the beginning of these proceedings. We are nothing if not even handed at this Dispatch Box this evening. Following representations from the profession, we accept that it is unrealistic to accept saleability as a concept that the valuer's expertise should cover. Therefore, I am very pleased to accept the amendment.

Clause 13, as amended, agreed to.

Schedule 4 agreed to.

Clause 14 [Power to make advances secured on land overseas]:

Lord Barnett moved Amendment No. 51: Page 22, line 43, leave out ("class 1 advances or").

The noble Lord said: I am not sure that the amendment means what I intended and I shall therefore tell the Committee what it is I did intend. I was confused by some notes from the Building Societies Association. The notes said that my amendment is to remove the requirement that where a society makes loans outside the UK, if they would be classified as class 2 loans, they should be so classified for the asset categories.

The amendment would certainly give societies more flexibility, although the amounts of such lending is likely to be very small. However, it would not seem logical to allow a society to lend, say, to the Channel Islands for rented property within class 1 while similar lending in the United Kingdom would be in class 2.

The purpose underlying my amendment was some concern about overseas lending in relation to the total lending of a building society. I should have thought that the whole Committee would be concerned to ensure that the main function of a building society in the United Kingdom should be what it always has been; namely, to use the bulk of its funds and its efforts to furthering the wellbeing of housing in the UK. If my amendment does not do what I was expecting it to do, perhaps the Minister will tell me. It is, in a sense, a probing amendment to enable me to express my concern that there should not be too great an amount of lending overseas. If the noble Lord agrees with me and shares my concern and can find a better way of wording an amendment, I shall be glad to hear from him. I beg to move.

Lord Skelmersdale

Before the noble Lord concludes, is he also speaking to Amendment No. 52?

Lord Barnett

Yes.

Lord Skelmersdale

The Government have indicated that the present intention is to make an early order under this clause to allow lending direct in the Channel Islands, Isle of Man and Gibraltar. But they have no intention at present to make an early order in respect of other countries—the noble Lord may be thinking, for example, of farm houses in France, or wherever.

I think it would be wrong in either case to deprive the authority making the order—likely in the first instance to be the commission—from allowing some loans to count in class 1. A society operating in the Channel Islands should surely not be restricted in its lending there by having to count it wholly towards the class 2 limit, even when the loans otherwise meet the criteria for class 1, as defined in Clause 11(2) and (4)—which I mentioned in error earlier on another amendment. If it is decided to allow societies to operate in other EC countries, it would be wrong if the Bill prevented a similar categorisation of the assets there as apply in the United Kingdom.

There is, of course, scope in the order-making power for the authority to ensure that the security required for a loan overseas to count in class 1 is comparable to what is required domestically. But, given that, I think it would be wrong to prevent the authority from allowing class 1 loans overseas once the order-making powers had been used.

As regards Amendment No. 52, where it occurs, for example, in Clause 15(7) and Clause 17(10) it is first provided for the assets to be of a certain class and then for them to count towards the relevant asset limits. Clause 14(l)(c) and (3) are therefore structured in a way consistent with these other similar provisions which I trust the Committee will agree is the right and proper way for societies' asset holdings to be structured. Their primary function—and we know how extraordinarily successful they have been over the years—is to lend to individual borrowers with the loans secured on land. I fail to see why it should be any different with overseas loans. I have perhaps gone slightly wider than the interpretation that the noble Lord put on his own amendment but, after all, he asked to leave out subsection (3).

Lord Barnett

I am obliged to the noble Lord the Minister. As he appreciates, the problem is that it is a complex Bill and with complex legislation it is very easy for someone without assistance to make mistakes in the drafting of amendments. I thank the noble Lord for his reply and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 52 not moved.]

Lord Skelmersdale moved Amendment No. 53: Page 23, line 30, at end insert— ("( ) An order under this section made as regards any of the relevant British overseas territories may make all or any of the powers conferred thereby exercisable by building societies without the need for adoption; but, in the absence of such a provision, any power conferred under this section must, in order to be exercisable by a building society, be adopted by the society.")

The noble Lord said: I beg to move Amendment No. 53. It is a general principle in this Bill that before a society takes on a major new power it should seek the approval of its members through the process of adoption under Schedule 2. That should clearly apply to a society which issued to lend overseas following an order under this clause, just as it does to the other new powers in the Bill. The amendment therefore provides for that, and I beg to move.

Lord Williams of Elvel

Perhaps I may raise a point for clarification, because this is the first time that we have really had a look at these amendments. The amendment says: in the absence of such a provision, any power conferred under this section must, in order to be exercisable by a building society, be adopted by the society". Does that mean exactly what the noble Lord has been saying, that it is to be adopted in the absence of the provision in the order? I do not quite understand. Maybe I misunderstood what he was saying.

Lord Skelmersdale

The noble Lord is very quick. I was trying to save a little of the Committee's time. I should have added that a partial exception is given in the case of the Channel Islands, Isle of Man and Gibraltar, which we discussed in the last series of amendments. The commission, which would make any enabling order for these territories, would be given discretion to disapply the adoption requirement in these cases. This is because the Government regard lending in these territories simply as an extension of the power to lend on United Kingdom land and not as a new departure in itself. The detail has been delegated to a statutory instrument purely because there are complicated technical issues to be sorted out; there is no need on that account to make the power an adoptable one. I hope that that explanation will help the noble Lord.

Lord Williams of Elvel

I am most grateful to the noble Lord for reading out the rest of his brief on this amendment. I shall have to look at Hansard and see what all this means and perhaps come back at a later stage. I am sure that it is perfectly all right. I have no reason to think that it is not.

Clause 14, as amended, agreed to.

Clause 15 [Loans for mobile homes]:

Lord Skelmersdale moved Amendment No. 54: Page 24, line 15, after ("by"), insert ("—(a)").

The noble Lord said: I beg to move Amendment No. 54, and I should like also to speak to Amendments Nos. 55, 56, 57, 59 and 246. These are geographical drafting amendments to make it clear that money may be advanced on mobile homes whether they are situated in England and Wales, as the Bill currently provides, or in Scotland or Northern Ireland, which I think is only fair. I beg to move.

Lord Skelmersdale moved Amendments Nos. 55 to 57: Page 24, line 16, after ("home") insert ("situated in England and Wales"). Page 24, line 16, at end insert ("; or (b) in the case of a mobile home situated in Scotland, such security as the Commission may, with the consent of the Treasury, prescribe by order in a statutory instrument"). Page 24, line 30, after ("home") insert ("or, as the case may be, no other security prescribed under subsection (2)(b) above").

The noble Lord said: I beg to move these amendments en bloc.

Lord Skelmersdalemoved Amendment No. 58: Page 25, line 3, at end insert— ("( ) Joint borrowers under this section shall be treated, for the purpose of the limit on loans under this section, as a single individual and any sums outstanding in respect of loans made under this section or section 16 by the society to any one of the joint borrowers is to be taken into account in determining the balance available for any further loan to him or to him and any joint borrower with him.").

The noble Lord said: The Committee may be surprised to hear that the limits on loans of £ 10,000 and £5,000 on non-mortgage loans under Clauses 15 and 16 respectively apply to loans "to any one individual" (in Clauses 15(6) and 16(7)) but not to joint borrowers. This is clearly a lacuna in the Bill that needs to be filled, and Amendments Nos. 58 and 60 do just that. I beg to move.

Lord Skelmersdale moved Amendment No. 59: Page 25, line 25, leave out ("subsection") and insert ("subsections (2)(b) or ").

The noble Lord said: I spoke to this amendment with Amendment No. 54. I beg to move.

Clause 15, as amended, agreed to.

Clause 16 [Power to lend to individuals otherwise than by class 1 or class 2 advances]:

Lord Skelmersdale moved Amendment No. 60: Page 26, line 40, at end insert— ("( ) Joint borrowers under this section shall be treated, for the purpose of the limit on loans under this section, as a single individual and any sums outstanding in respect of loans made under this section or section 15 by the society to any one of the joint borrowers is to be taken into account in determining the balance available for any further loan to him or to him and any joint borrower with him.").

The noble Lord said: I spoke to this amendment with Amendment No. 58. I beg to move.

Clause 16, as amended, agreed to.

Clause 17 [Power to hold and develop land as commercial asset]:

10 p.m.

Lord Skelmersdalemoved Amendment No. 61: Page 29, line 3, leave out from ("advances") to ("section") in line 4 and insert ("on the security of equitable interests in the land in the circumstances authorised by an order under").

The noble Lord said: I believe that this amendment was spoken to with Amendment No. 44. I beg to move.

Clause 17, as amended, agreed to.

Clause 18 [Power to invest in subsidiaries and other associated bodies]:

Lord Brabazon of Taramoved Amendment No. 62: Page 31, line 27, leave out ("investment powers") and insert ("powers to invest in or support").

The noble Lord said: This is a drafting amendment to make it clear that the provisions of subsection (11) relate to Clause 18 as a whole.

Lord Brabazon of Tara moved Amendment No. 63: Page 32, line 13, leave out ("Act (Northern Ireland) 1960") and insert ("(Northern Ireland) Order 1986").

The noble Lord said: With this it will be convenient to speak also to Amendments Nos. 131, 146, 148, 149, 150, 152, 208, 210, 216, 217, 219, 220, 221, 234, 235, 237, 240 and 242. These, as will be apparent from the wording of the first amendment, take account of the Northern Ireland Companies (Consolidation) Order 1986. I beg to move.

Clause 18, as amended, agreed to.

Clauses 19 and 20 agreed to.

Clause 21 [Liquid assets]:

Lord Williams of Elvel moved Amendment No. 64: Page 36, leave out lines 8 and 9.

The noble Lord said: This is a probing amendment designed to discover why in the Bill as drafted there needs to be a limit upon the extent to which a building society can stay liquid. As far as I can see, there is no limitation on banks, commercial companies and other organisations staying liquid. I find it difficult to understand why building societies are not to be allowed to hold cash in large amounts in the same way as any other commercial organisation.

My second question is: why 33⅓ per cent.? Why not 20 per cent., 40 per cent., or any other percentage that the noble Lord wishes to pull out of the air? The amendment is designed to obtain a response from the Minister as to why it is there and what the motives are behind restricting the liquidity of building societies. I beg to move.

Lord Brabazon of Tara

The reason for the limit of 33⅓ per cent. of total assets is to ensure that societies apply the bulk of their funds for the purposes of the legislation; that is, to the building societies, not banks or commercial companies. Without such a provision a society might be able to raise funds merely to invest them in liquid form that would be contrary to the primary purpose of a society and likely to prove a less financially stable mode of operation than lending on security of mortgage. The limit in effect prevents them from becoming a different type of financial institution, perhaps a money fund, through the back door.

It is possible to envisage circumstances, such as the setting up of a new society, where it could be appropriate to provide for a limit different from the 33⅓ per cent. for a society for a specified period. That is covered under subsection (6).

Why 33⅓ per cent. rather than 20 per cent. or whatever the noble Lord mentioned? The proposal was in the Green Paper in July 1984. It has been generally accepted. I accept that it is a matter of judgment, but after considerable consultation we have arrived at that figure.

Lord Williams of Elvel

I am grateful to the noble Lord for that response. I understand that building societies are not meant to be money funds or anything else other than building societies; but I still have a problem about this. What happens if involuntarily a building society finds itself in a position where its liquid assets are 33.5 per cent. of the total balance sheet? It may be that they can do nothing about this and it simply happens because the timing of loans has gone wrong or it may have been engaged in a money market operation or have raised wholesale funds and has to keep those funds in cash balances. It seems rather extraordinary to put a limitation of such a precise amount without apparently having any way of granting exceptions to building societies who may find themselves temporarily in breach of this regulation. Perhaps the noble Lord the Minister can help me.

Lord Brabazon of Tara

I mentioned in my earlier remarks that subsection (6) allows the commission at any time, by notice to a building society, to direct that the limit in force under the section shall not, subject to any conditions specified in the notice, apply to the society during such period as the commission specifies. That may be part of the answer the noble Lord looks for. I doubt if it is the whole answer. The commission does have some discretion, as I have said. Perhaps I may write to the noble Lord throwing further light on this.

Lord Williams of Elvel

I am most grateful to the noble Lord. He is right in saying that it is only part of the answer. These things happen very suddenly and the commission may not be in a position to grant that sort of notice. If he can write to me shedding further light on this aspect, I should be most grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 agreed to.

Clause 22 [Obligation to meet liabilities of associated bodies]:

Lord Brabazon of Tara moved Amendment No. 65: Page 37, line 26, after ("society") insert ("then, subject to subsection (1A) below,").

The noble Lord said: In moving Amendment No. 65 I should like to speak also to Amendment No. 66. These amendments make it clear that a society's statutory obligation to stand behind its associates does not extend to repaying debts owed by the associate to one of its other members. At Committee stage in another place the question was raised of the extent of the statutory obligation to stand behind a subsidiary or other associate. The Law Society have also suggested that the clause as it now stands could require a society to underwrite not only those who deal with its associates but also any minority shareholders. The Government have now had the opportunity to consider the point more fully. It would clearly be wrong if a society was obliged, for example, to repay a business partner for a loan he had made to the associate body, or indeed to protect his investment in the venture. That would in effect make a venture where a society was a majority shareholder risk free for its partners. The first amendment makes it clear that the statutory obligation does not extend that far. The second amendment is consequential upon that. I beg to move.

Lord Williams of Elvel

I understand the thrust of these amendments, and there is no particular problem although I should like to have a look in Hansard tomorrow and see what the noble Lord has said. However, on this general point on the obligation of building societies to associated bodies, can I briefly raise the question of protection of third parties dealing with building societies in good faith, whether they are associated bodies or members of associated bodies or dealing with associated bodies, when those transactions are ultra vires. In the Companies Act in Section 35 there is a very clear indemnity against people who are caught when an ultra vires transaction is entered into by a company. That is in the companies legislation and I take the opportunity of raising this. The noble Lord may wish to come back at a later stage and I do not wish to press it now but merely to put the matter on record. There is no provision, so far as I understand it, in this Bill for protection of those who are caught by ultra vires transactions, be they associated bodies or any other third party.

Lord Brabazon of Tara

I am grateful to the noble Lord for raising the point. It is not one which I had considered before. If I may, I shall look into what the noble Lord has said and write to him before the next stage.

Lord Brabazon of Tara moved Amendment No. 66: Page 37, line 29, at end insert— ("(1A) The obligation so imposed does not extend to the liabilities of the associated body to its members other than the building society with which it is associated.").

Clause 22, as amended, agreed to.

Clause 23 [Power to hedge]:

Lord Williams of Elvelmoved Amendment No. 67: Page 37, line 35, after ("description") insert ("and of a non-speculative nature").

The noble Lord said: This is a particularly important amendment. It refers to a point that I raised on Second Reading—the ability of building societies under the new dispensation, if I may so describe it, to hedge their position either in foreign currencies, in interest rates or in other factors. I understand fully that building societies, if they are to provide the sort of services in the retail market and in the high street that a number of noble Lords wish them to perform, such as selling foreign currency for travel purposes, travellers' cheques or whatever, will have to cover forward when they make that transaction at the retail level.

The problem arises when large societies may feel that transactions—if I may talk, for the moment, about foreign currencies—in which they are engaged, even for individuals, are such as to require the services of a foreign exchange dealer. The societies may feel that the foreign exchange dealer—this is, by definition, how you make money on foreign exchange dealing—will start mismatching the currency transactions and the maturity of the currency transactions.

The same is true of interest rates. If you start allowing building societies to go into the financial futures market to hedge their interest rate obligations, there is a danger that they will start to hire some high-priced dealer and some high-priced American bank and that they will go in not just to cover some specific liability that they may have in doing business for individuals but that they will be doing business in their own right in the way that banks and other financial organisations do. This would seem to us to be an extremely dangerous development. It is something to which the Government may wish to pay attention.

I recognise that it is necessary to give building societies the ability to cover their forward positions. I start getting worried, however, when we begin to use the word "hedge" and phrases such as, reducing the risk of loss arising from changes in interest rates, currency rates or other factors". I seek an assurance from the Minister that the intention that will be translated into executive action by the commission is that building societies should not attempt to become major players in the currency and the futures markets. That is the thrust of the amendment. I beg to move.

Lord Brabazon of Tara

Yes, I agree with everything that the noble Lord, Lord Williams, has said. We believe, however, that this is covered by use of the words, for the purpose of reducing the risk of loss arising from changes of interest rates". The purpose of reducing the risk of loss means that building societies are given no power to use such instruments to seek profits but only to reduce the risk of loss. In other words, they are allowed to go in for hedging operations but not for speculation. Perhaps the noble Lord—

Lord Williams of Elvel

I am sorry, but here I must part company with the Minister. If you hedge for the avoidance of risk of loss, you hedge to make a profit. There is no difference in practice between the two. I do not understand how this wording covers the point that I was making. Perhaps the noble Lord, Lord Plummer, who has great experience, can help. I do not agree with the Minister.

Lord Brabazon of Tara

If the noble Lord had allowed me to finish the paragraph perhaps I could have provided a little more clarification. We believe that these words cover the point he raises. The commission may specify the conditions under which such contracts may be used and these could include any further restrictions that may be appropriate. Therefore, I think that the commission will be keeping a very close eye on the way in which these operations are conducted. I have a difficulty with the noble Lord's amendment, in that it might be difficult to operate in practice, since it requires the use of contracts which are of a non-speculative nature. That may, in practice, prove difficult, since any investment, of its very nature, carries some degree of risk, however slight, so that it could rule out virtually all the types of contract that we have in mind in this clause.

As I said at the beginning, I take seriously the noble Lord's concerns and I believe that we cover them by the use of the words I have described. I would also say that I have difficulty with the words which the noble Lord has described. I hope he will be satisfied with the explanation I have given. In the meantime, I will look again at this. I think that our intention is the same and I will see whether there is any possible improvement that could be made. But at the moment I am satisfied with the way it stands.

Lord Plummer of St. Marylebone

Perhaps consultation with Sporting Life might help.

10.15 p.m.

Lord Williams of Elvel

I am most grateful to the noble Lord and to the noble Lord, Lord Plummer, for his intervention, which was very well taken.

I think the noble Lord recognises the problem and is very sympathetic to it, and I am very grateful for that. I am afraid that I have to take issue with his view that the words in the Bill, as at present, satisfy what I am trying to do. I have no pride of authorship in the amendment. Indeed, my noble friend Lord Barnett and I spent a few minutes trying to find something better. It was simply devised to try to make the point we were wanting to make. If the noble Lord could go a little further and say that the commission not only has the power and will look at this but will take steps to ensure that transactions which are entered into on hedging are carefully controlled, then I would be perfectly satisfied and would be very happy to withdraw the amendment.

Lord Brabazon of Tara

At the moment, I do not think I can go much further than what I in fact said: that the commission may specify the conditions under which such contracts may be used, and these could include any further restrictions which might be appropriate. I think that would be sufficient to cover the point.

Lord Williams of Elvel

I note what the noble Lord said. I understand that it is perhaps not fair to ask him to be more specific at this point and at this stage of the Bill. I hope very much that we may be able to make a little more progress on this, which I think is an extremely important problem, as I believe the noble Lord recognises. But in the light of what he has said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara moved Amendment No. 68: Page 38, line 5, after ("regulate") insert (", or provide for the regulation of,").

The noble Lord said: I beg to move Amendment No. 68 and, at the same time, will speak to Amendment No. 69. These are technical amendments to enable the commission's order specifying hedging contracts to be permissible to societies to prescribe the names of persons or descriptions of persons with whom societies can enter into such a contract.

It may be useful, for instance, in allowing societies to enter into interest rate swaps, for the commission to be able to prescribe permissible counterparties or, in the case of financial futures, to specify which Exchange societies may trade in. These amendments give the commission that power. I beg to move.

Lord Williams of Elvel

May I just say I am very pleased that the Government are introducing these amendments, because it is an important part of the armoury of the commission, particularly when you get interest rate swaps in futures, because these are dangerous areas. So I certainly welcome these amendments.

Lord Brabazon of Tara moved Amendment No. 69: Page 38, line 5, after ("which") insert (", the persons or descriptions of persons with whom,").

Clause 23, as amended, agreed to.

[Amendment No. 70 not moved.]

Clause 24 agreed to.

Schedule 5 [The Building Societies Investor Protection Board]:

Lord Brabazon of Taramoved Amendment No. 71: Page 205, line 28, leave out ("notice to the Treasury") and insert ("giving to the Treasury a signed notice stating that he resigns from that office.")

The noble Lord said: In moving Amendment No. 71, with the leave of the Committee I should like also to speak to Amendments Nos. 73, 74, 75, 77, 78, 79, 80, 81, 82, 83, 84, 86 and 87. The amendments in this group all make minor technical changes to the investor protection scheme. If there are any detailed points on them, I shall certainly be happy to deal with them when we reach the amendment concerned.

As the Committee will be aware, the scheme is modelled on that in the Banking Act 1979. Most of the amendments reflect points where it is proposed to modify the Banking Act scheme (for example, on client accounts; Amendments Nos. 81 to 83) or to reflect the differing structure of building society shares and deposits (for example, Amendment No. 75, dealing with people who have both deposits with and shares in the society). Amendment No. 78 exempts CDs and other negotiable instruments from the coverage of the scheme. Wholesale instruments issued by building societies are cushioned by the very high proportion of funds raised in the form of shares in a way which such instruments issued by banks are not. With that explanation of the amendments, I beg to move.

Schedule 5, as amended, agreed to.

Clause 25 agreed to.

Clause 26 [Power to levy contributions and to borrow money in event of insolvency]:

Lord Skelmersdale moved Amendment No. 72: Page 40, line 30, leave out from beginning to ("(effect") in line 31 and insert ("section 95 of the Insolvency Act 1986 or Article 541 of the Companies (Northern Ireland) Order 1986").

The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 85, 109, 195 to 202 inclusive, 212, 222, 226 and 227. Some Members of the Committee may remember a song sung by Maurice Chevalier in which the chorus went "C'est formidable", and so is the enormous list of amendments, comprising something like nine-and-a-half pages of the Marshalled List. I am glad to say that they are almost totally technical, stemming from the consolidation of the Insolvency Act 1985 and the relevant provisions of the Companies Act 1985, which has already been before your Lordships' House. In addition, the Northern Ireland companies legislation, as my noble friend Lord Brabazon said earlier this afternoon, is currently being consolidated.

The three new clauses replacing Clause 90 and the replacement Schedule 15 are essentially therefore a translation of the existing provisions in terms of those consolidation measures. The other amendments are consequential and tidying up or drafting. I should, however, say a word about the wholesale replacement of Schedule 15. The existing Schedule 15 adapts the provisions relating to the winding up of companies in Part XX of the Companies Act 1985, Part II of the Insolvency Act 1985 and corresponding provisions in Northern Ireland company law so as to apply in relation to building societies. However, winding-up provisions of the two 1986 Acts are now being consolidated in the Insolvency Bill, which has already been, as I said just a minute ago, before your Lordships' House, and the companies legislation relating to Northern Ireland is currently being consolidated in these provisions and those of the Companies (Northern Ireland) Order 1986.

The extent of the consolidation is such that it would not have been practicable to proceed by amendment to the existing schedule. It would have taken many hundreds of amendments to translate references to particular parts and sections of the insolvency and companies legislation and corresponding references to the Bill, whose structure is quite different. Such a forest of amendments would have been even more impossible to follow than these. The Committee can take that from me. I had a look at them originally, and I know that it is true.

It was decided that complete replacement of the schedule was the only practical option. If any noble Lord has a particular query, I shall do my best to answer it now. If not, perhaps any questions may be conducted by correspondence. I beg to move.

Lord Williams of Elvel

I understand that we are promised notes on these new amendments and I think that we must wait for those notes at a later stage of the Bill. In the meantime, I congratulate the noble Lord on having read through the schedule.

Lord Brabazon of Tara moved Amendments Nos. 73 and 74: Page 40, line 40, leave out ("authorised"). Page 40, line 41, after ("society)") insert ("authorised on the date of the insolvency").

The noble Lord said: I have spoken to Amendments Nos. 73 and 74 with Amendment No. 71. With the leave of the Members of the Committee, I beg to move Amendments 73 and 74 together.

Clause 26, as amended, agreed to.

Clause 27 [Payments to investors]:

Lord Brabazon of Tara moved Amendment No. 75: Page 43, line 23, leave out from first ("has") to end of line and insert ("a deposit with, or a share").

The noble Lord said: This amendment was spoken to with Amendment No. 71.I beg to move.

Lord Strabolgi moved Amendment No. 76: Page 43, line 26, leave out ("£10,000") and insert ("£30,000").

The noble Lord said: I beg to move Amendment No. 76, standing in my name and in the name of my noble friend Lord Williams of Elvel. I should point out that there is a printers' mistake—a misprint—in the amendment as it appears on the Marshalled List. The second figure should read "£30,000".

The purpose of my amendment is to increase the level of protection to depositors from 90 per cent. of £10,000 to 90 per cent. of £30,000. This in our view is an important matter which I raised briefly on Second Reading. The noble Lord, Lord Brabazon, in his reply said that the sum of £ 10,000 is the same as that applied in the 1979 Banking Act. This may well be so, although I do not understand why this should be on the basis of the banks' existing scheme which was instituted in 1979. If the banks' scheme had been index-linked the figure surely would be nearer approximately £18,000 today. I understand that anyway the banks' scheme is to be reviewed soon.

The present voluntary scheme operated by the building societies is openended, although it is fair to say that when the scheme was first set up the total allowed for individual deposits was £30,000. Since then the Government have removed the limit altogether, a decision, I may say, which I support. However, this makes the amount of £9,000 even more unrealistic. The Government are trying to take two opposing courses, in my view. On the one hand, they lift the limit on investors and encourage small investors, rightly, to deposit with building societies. On the other hand, they limit the amount of compensation to what is surely a derisory figure.

No one likes losing money, but for a small investor, say with less than £40,000 of savings to lose, such a large proportion would surely be a calamity. Any sum less than, say, £50,000 is considered today to be too small for a Stock Exchange portfolio. There is not enough hedge if there is a slump. Indeed, any stockbroker will tell one that unofficially. Small investors are usually advised, unofficially, to seek other outlets, particularly building societies. That is why, in my submission, we need an adequate scheme.

I accept that it is not possible to have a statutory scheme that is openended. That is why I have put down the figure of £30,000 as a compromise which I hope will be acceptable to the Government. This figure is more or less in line with the compensation scheme proposed in the Financial Services Bill, which I believe is likely to give 90 per cent. protection up to a maximum of £30,000.I may say that my amendment is supported by the Consumers Association. It would have liked the figure to be rather more but it supports my amendment. It is also supported by the Building Societies Association, which has indicated that it would prefer a more generous level of protection than the £9,000 at present in the Bill. I hope therefore that my amendment will prove acceptable to the Government. I beg to move.

Lord Williams of Elvel

I should like to support the amendment moved by my noble friend Lord Strabolgi.

10.30 p.m.

Lord Brabazon of Tara

As the noble Lord, Lord Strabolgi, pointed out, the limit of £10,000 provides consistency with the comparable scheme for banks and licensed deposit takers under the Banking Act 1979. It also ensures that statutory investor protection is not set at an unduly generous level which removes an important discipline from investors and building society managements.

However, there are some particular points relating to the £ 10,000 limit. Its intention is to concentrate the protection under the scheme on small investors. We also need to ensure that the potential costs of the scheme—which of course fall to other building societies—should not be excessive. The amendment would have two effects. First, it could increase the potential costs of the scheme quite considerably. I would remind the Committee that that cost must ultimately be borne by members of building societies at large. But, secondly, it would greatly increase the level of protection available to larger and generally more sophisticated investors. These are the people who are best placed to judge the prudence of different investments, and are least in need of statutory protection. On the Building Societies Association's figures, only 4 per cent. of building society accounts exceed £10,000.

The noble Lord quoted the £30,000 maximum compensation which is proposed for the securities and investment board, under the financial services legislation. I must say to the noble Lord that these two schemes deal with slightly different situations. So long as an investment business conforms fully to the rules regarding the keeping of money in client accounts, the investor's money should be safe if the business became insolvent. While an insolvent business may have cut corners on the client account rules, they provide an extra layer of protection which is not available for building societies. And it needs to be remembered that the proposed limit for the SIB scheme is not prescribed in the Financial Services Bill. It is similarly open to the building societies, if they so wish, to go beyond the £10,000 figure here by setting up voluntary arrangements under Clause 31.

As I have explained, the Government regard the Banking Act scheme as a much closer analogy to the financial services scheme. If the figure for banks were reconsidered—although the White Paper on banking supervision last year proposed that the maximum should remain at £10,000 for now—the Bill provides powers to make a parallel change for building societies, and obviously that could be brought into effect. I am afraid that I cannot accept the noble Lord's amendment. We believe that £10,000 is the right amount for the reasons that I have given. I cannot accept the amendment.

Lord Williams of Elvel

Will the noble Lord elaborate on two points that he has made? First, he said that the protection was not in the Financial Services Bill as at present drafted and as it will come to your Lordships' House. Is there no provision in the re-writing of the Bill that I understand is at present taking place, for putting it in the Bill or in one of the schedules?

Secondly, can the noble Lord be a little firmer when he says that there is provision in this Bill for upping the ante, if I may put it like that? If the banking supervision legislation ups the ante in the banks, can the noble Lord go a little further and say that those provisions would be activated? If the banking supervision legislation provided for a higher figure, would the Government ensure that that higher figure was in the building societies' legislation?

Lord Brabazon of Tara

As regards the noble Lord's second point, I am able to say that if the Banking Act figure were changed, we would bring forward the necessary statutory instrument under that Act to put up the figure.

To clarify the point about the Financial Services Bill, it will not be prescribed in the Financial Services Bill as it stands at the moment; but that is perhaps a matter to which we could return when we come to that Bill.

Lord Strabolgi

I am grateful to the noble Lord, Lord Brabazon of Tara, for his explanation of the reasons why the Government do not wish to accept my amendment. The problem is: what is a small investor? I did not hear the percentage that the noble Lord gave of investors who had £10,000 or more in building societies, but I think it was fairly small. I happen to know that in my own building society over 60 per cent. of the investors have much more than this sum. This is particularly so in the smaller societies.

The trouble is that the Government are trying to equate this sum with a Bill of seven years ago. We are now legislating for some years ahead, and yet they are tying it down to a Bill in 1979. In other words, as I suspected, I do not think that this scheme has very much depth to it or very much value. Its purpose is largely cosmetic, as I said on Second Reading. It should really be called the part Protection of Investors Scheme, because it does not give full protection. And what is a small investor to do if he has not enough capital for the Stock Exchange, for reasons I gave earlier? If he puts it into a building society he is only going to get a small proportion back.

The only hope for the future is the next subsection, where, as the noble Lord said, the Treasury can by statutory instrument increase the sum to something which is rather more realistic. I hope that they will give this their attention at the earliest possible opportunity after the Bill becomes an Act. In the meantime, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara moved Amendments Nos. 77 to 80: Page 43, line 44, leave out ("and"). Page 44, line 4 at end insert— (", and (c) any deposit which is evidenced by a certificate of deposit or other negotiable instrument.") Page 44, line 4, at end insert— ("( ) In determining what is the protected investment of an investor, no account shall be taken of any liability unless proof of the debt or claim which gives rise to it has been lodged with the liquidator of the society.") Page 44, line 22, leave out from beginning to ("shall") in line 23 and insert ("investments held by trustees or jointly or on clients' account,").

The noble Lord said: I spoke to Amendment No. 77 with Amendment No. 71, as I did with Nos. 78, 79 and 80.I beg to move all four en bloc.

Clause 27, as amended, agreed to.

Schedule 6 [Insolvency payments: trusts and joint holdings]:

Lord Brabazon of Tara moved Amendments Nos. 81 to 83: Page 206, line 38, after ("JOINT") insert ("OR CLIENT ACCOUNT"). Page 207, line 34, at end insert— ("4A. Where an investment is made by a person whose business is the provision of professional services with money held to the account of clients of his, each of them shall be treated as having a separate investment of an amount equal to so much of the amount of the investment as represents money held to his account as a client."). Page 207, line 43, at end insert ("or, (d) that paragraph 4A above applies to an investment,").

The noble Lord said: Again, I spoke to Amendments Nos. 81, 82 and 83 with Amendment No. 71. With the leave of the Committee, I beg leave to move them en bloc.

Schedule 6, as amended, agreed to.

Clause 28 [Liability of insolvent society in respect of payments by Board]:

Lord Brabazon of Tara moved Amendments Nos. 84 and 85: Page 45, line 18, at end insert— ("(2A) Where the society's liability to the investor is referable to both shares and deposits, the amount equal to the insolvency payment to him shall, for the purposes of subsection (2)(b) above, be first applied in reduction of the liability referable to his shares then, if that amount exceeds that liability, in reduction of the liability referable to his deposits.") Page 46, leave out lines 34 to 36 and insert— ("411 of the Insolvency Act 1986, and (b) for Northern Ireland, under Article 613 of the Companies (Northern Ireland) Order 1986;").

The noble Lord said: I have spoken to Amendments Nos. 84 and 85 at an earlier stage. I beg leave to move these two together.

Clause 28, as amended, agreed to.

Clause 29 [Repayments in respect of contributions]:

Lord Brabazon of Tara moved Amendments Nos. 86 and 87: Page 47, line 35, after ("are") insert ("more than"). Page 47, line 37, leave out ("any") and insert ("the").

The noble Lord said: I have spoken to Amendments Nos. 86 and 87 with Amendment No. 71.I beg to move these two together.

Clause 29, as amended, agreed to.

Clauses 30 to 32 agreed to.

Schedule 7 agreed to.

Clause 33 agreed to.

Clause 34 [Powers to provide financial services or services relating to land]:

Lord Barnett moved Amendment No. 88: Page 50, line 40, leave out subsection (2).

The noble Lord said: I beg to move Amendment No. 88 standing in the names of my noble friend Lord Williams of Elvel and myself. It is effectively a probing amendment to see why it is necessary to have this order. In the helpful briefing notes we have had from the Building Societies Association they give a number of reasons why the subsection is necessary. I would be interested to know whether they coincide with the Government's view. I beg to move.

The Deputy Chairman of Committees (Lord Ampthill)

I remind the Committee that if Amendment No. 88 is agreed to, I cannot call Amendment No. 89.

Lord Brabazon of Tara

I have not read that particu-lar part of the building societies brief; so we shall see whether it does. Briefly I can say that this merely provides the power to bring new provisions forward for the services which societies may wish to carry out. I could give one example—the provision of personal pensions within the meaning of the Social Security Bill. That could be one service which the building societies might wish to be allowed to take part in in the future. A second example might be investment business. I can say here that we intend to bring forward an amendment at the next stage of the Bill to provide for building societies to be able to do personal equity plans. Those are two examples of the sort of functions which we might wish to have included.

Lord Williams of Elvel

When shall we have a sight of this amendment allowing building societies to deal in personal equity plans, so that we can study it?

Lord Brabazon of Tara

As soon as possible.

Lord Barnett

It makes it very difficult for your Lordships, as I am sure you will appreciate, but I hope the Minister will be able to let us have a note of it. When he says "as soon as possible" I hope it will be in good time for us to check it before the next stage of the Bill. With that assurance, which I assume is there, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara moved Amendment No. 89: Page 50, line 40, leave out ("Treasury") and insert ("appropriate authority").

The noble Lord said: In moving Amendment No. 89 I shall speak at the same time to Amendments Nos. 90, 96, 97, 98, 99 and 100. These are amendments to amend the powers in Clause 34 to vary the Schedule 8 services that societies can provide. The power to change Part I of the schedule, which lists the services that societies may offer, would stay with the Treasury subject to the affirmative resolution procedure. The commission would, however, have the power to vary the other parts of the schedule subject to the negative resolution procedure. With that explanation I beg to move.

Lord Brabazon of Tara moved Amendment No. 90: Page 51, line 4, leave out ("Treasury") and insert ("authority making the order").

The noble Lord said: I have already spoken to this amendment. I beg to move.

Lord Brabazon of Tara moved Amendments Nos. 91 to 95:s Page 51, line 12, after ("subsidiary") insert ("or other associated body"). Page 51, line 13, after ("subsidiary") insert ("or other associated body"). Page 51, line 13, after ("shares") insert ("or corresponding membership rights"). Page 51, line 13, after ("by") insert ("or which is linked by resolution to"). Page 51, line 16, after ("subsidiary") insert ("or other associated body").

The noble Lord said: With the leave of the Committee I shall move Amendments Nos. 91 to 95. The amendments allow for services provided by societies under Schedule 8 in future through other associated bodies as well as through subsidiaries as the Bill at present provides. As the Bill stands, societies can, for example, have estate agents as subsidiaries where the equity stake is more than 50 per cent., but could not have an associated estate agent if their stake was less. What these amendments will do is to give scope for powers under Schedule 8 to be made available to other associates as well as subsidiaries. They will not actually make any powers available to a society's other associates. I hope the Committee will agree that it is sensible to provide this flexibility. I beg to move the amendments en bloc.

Lord Brabazon of Tara moved Amendments Nos. 96 to 100: Page 51, line 25, leave out ("Treasury") and insert ("authority making the order"). Page 51, line 27, at end insert— ("( ) The "appropriate authority" for the purpose of exercising the powers conferred by this section is the Treasury as regards any variation of Part I of Schedule 8 with or without other provision and the Commission in any other case."). Page 51, line 29, leave out ("but") and insert ("and— (a) in the case of an order varying Part I of Schedule 8 with or without other provision,") Page 51, line 31, at end insert ("and (b) in the case of any other order, the instrument containing it shall be subject to annulment in pursuance of a resolution of either House of Parliament."). Page 51, line 33, leave out ("Treasury") and insert ("authority making the order").

The noble Lord said: I spoke to Amendments Nos. 97 to 100 at an earlier stage with Amendment No. 89. With the leave of the Committee I beg to move the amendments en bloc.

Lord Williams of Elvel

I am sorry to interrupt the noble Lord. Will he assure us that in Amendment No. 96 we are under the same principle that he announced when we were discussing the amendment moved by my noble friend Lord Houghton—that the authority making the order would place this order before Parliament through a Treasury Minister?

Lord Brabazon of Tara

Yes, I can give that assurance.

10.45 p.m.

On Question, Whether Clause 34, as amended, shall stand part of the Bill?

Lord Morris

My Lords, before we leave Clause 34, I should like to raise a very simple point. As we are well aware, Clause 34 empowers the building societies to provide a whole series of services. Among these services is arranging for the provision of insurance of any description. In the course of the Second Reading debate, (in col. 1229 of Hansard) my noble friend Lord Brabazon of Tara stated: We do not believe that the Bill would tend to diminish the role of small, independent professionals or that they will all have to become employees of building societies. In addition, he said: In the Government's view the small business will continue to be able to offer a distinctive specialist service. It will be able to respond [that is. the small business] to competition from building societies; and although evolution of their markets is inevitable. I believe that they will continue to thrive. I question that at this stage of the Bill because I think it is the right place to do it; because the dominance of the building societies in the market place is something that Her Majesty's Government themselves had admitted on numerous occasions. I went to the trouble of looking at the Government's position in the discussion on this issue in the Standing Committee stage in the House of Commons. Sir George Young said (at col. 244 of the Official Report of Standing Committee A on 6th February last): With the easy accessibility of their branches and the public esteem that they enjoy, the societies are well placed to bring share ownership within the reach of a much wider range of people". This of course was on a specific issue of the provision of a specific service. On another occasion, he made it quite clear (at col. 263 of the same report): collectively, the building societies have a dominant position in the provision of first mortgages". Later, in the same column, he said that Her Majesty's Government, recognise the unique position of the building societies". I have had a lot of representations from insurance brokers—not agents, but brokers—who genuinely broke the service to the benefit of the public at large. They have no concerns whatsoever with regard to competition on the broking in the public interest of insurance services. What they are deeply concerned about is the position of the building societies at present who hold themselves out to be insurance brokers when so many of them are members of BIBA (the British Institute of Brokers' Association), and when in fact they are not fundamentally brokers at all. All that they are really acting for are one, two, three or four agents. It is this position I am concerned about.

The brokers' role is very simple. They are the buffer between the public (whom they are meant to be serving) and the markets available to benefit the public. The building societies—and indeed the banks—do not do that. They have a cosy relationship with certain—maybe two, three or four—of the large insurance companies.

Members of the public enter the office of the mortgage company—and I am talking about the real world and not the world that the Bill envisages. They are given the opportunity of taking advantage of the insurance services of the company with which the society is linked. The society contacts that insurance company and says, "We have a client who wishes to see one of your representatives". That is not broking. That is agency work.

I am concerned about the small man. I am concerned very much about this. I have given notice to my noble friend to give substance to the fundamental premise that he made at Second Reading and I am taking this opportunity to ask him to do just that.

Lord Brabazon of Tara

I understand my noble friend's concern about small professional practices but, as I said during the Second Reading debate, I am sure that many will adapt to the new competition and thrive on it. We should not assume too readily that building societies will try to use their new powers in a monopolistic fashion, such as my noble friend seems to suggest. After all, first, they will not have the market share and strength in these new services to do so. Secondly, in general they will need to look to the new services as a means of generating profit in order to stay competitive in the mortgage and savings markets. There is a great threat of competition in that market at the moment.

Regarding the insurance broking activities, I am quite sure that if they have only a cosy relationship with two or three insurance companies, as my noble friend suggests, they should go further than that if they are going to act properly as insurances brokers and look further afield. I am sure that if their customers find they are not doing that, they will very soon lose their customers.

Lord Morris

I have listened to what my noble friend says, but it has a certain paucity about it. I do not wish to go further on the point at this late hour, and no doubt I shall dream up some opportunity of returning to this subject at Report stage. At this stage I shall say nothing more.

Clause 34, as amended, agreed to.

Schedule 8 (Powers to provide services]:

Lord Morris had given notice of his intention to move Amendment No. 101: Page 209, leave out line 29.

The noble Lord said: I have considered the placing of this amendment at this particular place in Schedule 8 and I think it is wrong. It would be far better, because of the issues involved, if this point were taken up in the course of discussions on Schedule 21.

[Amendment No. 101 not moved.]

Lord Brabazon of Tara moved Amendments Nos. 102 to 104: Page 210, line 42, at end insert— (" . For the power to provide estate agency services to be available to the subsidiary of a building society, the following conditions must be fulfilled as regards the subsidiary and its business, that is to say—

1. (a) the subsidiary must have been formed in one of the following countries or territories, that is to say, the United Kingdom, a relevant British overseas territory or another member State and the principal business of the society must, at the time the society forms or acquires the subsidiary, be conducted in that country or territory;
2. (b) 40 per cent. or more of its total income in any financial year (wherever arising) must be derived from estate agency work done in countries or territories in which the society, at any time in that year, carried on the business of making advances secured on land; and
1141
3. (c) its business must not include the lending of money, secured or unsecured, on its own account or the provision of any service which is a financial service for the purposes of this Schedule other than one which is for the time being specified in Part I of this Schedule.").

Page 212, line 23 at end insert— (" "estate agency work" has the same meaning as in the Estate Agents Act 1979;"). Page 212, line 43, after ("1979") insert— (" "relevant British overseas territory" means any of the Channel Islands, the Isle of Man and Gibraltar,").

The noble Lord said: With the leave of the Committee, I shall move these amendments together. They are detailed amendments to specify the conditions on which a building society's subsidiary may offer estate agency services. The present power in the Bill is for societies to offer estate agency services through subsidiaries. The Building Societies Association has represented to the Government that the term "estate agency services" could unduly restrict the range of estate agency businesses a society could acquire. I hope, with that explanation, that your Lordships will agree to these amendments.

Schedule 8, as amended, agreed to.

Lord Denham

I beg to move that this House do now resume.

Viscount Ridley

Before we take that Motion, may I ask my noble friend whether the failure to complete the Committee stage of this Bill tonight means that the Bill will probably not receive Royal Assent before the Summer Recess? I think that building societies will desperately want to know what the situation is.

Lord Denham

All I can say to my noble friend is that Her Majesty's Government are aware of this wish. We very much wanted to complete this Committee stage tonight. We are sitting at eleven o'clock tomorrow. I understand that the next amendment could take rather more than six minutes, and therefore this seemed to be the right stage at which to finish. But of course we are in the hands of your Lordships. I believe it would be right that we should get this Bill through before the Summer Recess if we possibly can; but it depends entirely on whether the time is available and at this stage in any session it is very difficult to find an extra day.

Lord Plummer of St. Marylebone

I think it should be fully realised that if time is not made for this, it will severely restrict the ability of building societies to compete in the market. This is a serious consequence for those of us who are at the sharp end of earning our living, and I think we must really appeal for further time to see this Bill through. There are a great number of people moving into the mortgage market, and if the building societies are unable to have the powers this Bill would give, it will tie their hands behind their backs.

Viscount Whitelaw

My noble friend the Chief Whip has explained the position. I note my noble friends' comments, but I have a duty to the House. My duty to the House is to make sure that when legislation comes forward it is properly discussed and properly considered. I have to fulfil that duty and of course I shall fulfil it.

If it is possible to combine those two duties and to succeed, that is my dearest wish. I can only say to the Committee that the fact that I have come here specifically to find out how the Bill has progressed tonight, and to do everything that I can to further this legislation, is evidence that I want to do all those things. However, I must be in the hands of the Committee and I must protect the Committee when a very large number of amendments—and that must be faced—have been put down. We shall do our best; that is all I can possibly say.

Lord Barnett

I thank the noble Viscount the Leader of the House for his comments. As he and everybody else who has been involved today knows, we have not in any way sought to delay the Bill. Indeed, we welcome the Bill, and if it is at all possible then we should like to get it on the statute book before the House rises for the Recess. However, as I have said before, it was not only us who put down amendments. The Government themselves have put down nearly 200 amendments. In fairness, if we do not have a role to play in examining a Bill of this size, then we in this place do not have a role at all. I hope that the Government will be able to find the time to get the Bill through. I entirely take the point of the noble Lord. Lord Plummer, and I hope we can still achieve what is required. Certainly we shall not do anything to delay the Bill.

House resumed.