HL Deb 23 July 1986 vol 479 cc275-83

7.16 p.m.

Lord Brabazon of Tara

My Lords, I beg to move that this Bill be now read a third time.

When I moved the Second Reading of this Bill I expressed the hope that its central purpose—to reform and modernise building society legislation, and to give the societies new freedoms—would not be a controversial one in your Lordships' House. I am glad to say that, in the main, that has turned out to be the case. However, it has not stood in the way of the close and detailed scrutiny that the Bill has merited and has received.

I should like to thank all those who have played a part in our proceedings. I am grateful to the noble Lord, Lord Williams of Elvel, for the contructive way in which he has led for the Opposition on much of the Bill. I am grateful also to the noble Lord, Lord Barnett, for what I understand may have been among his last speeches from the Opposition Front Bench. We on this side shall miss his contributions, but we wish him well for the future.

There have been many interesting and authoritative contributions from noble Lords on all sides of the House with closer experience than I of building society matters. I must mention in particular my noble friend Lady Gardner of Parkes, who so ably moved a series of amendments on Report, and my noble friends Lord Selkirk, Lord Campbell of Croy, and Lord Plummer for their contributions throughout our proceedings. One noble Lord who spoke to nobody's brief but his own was of course the noble Lord, Lord Houghton of Sowerby. His trenchant contributions enthralled us, and I am glad that the Government were able to accept at least one of the amendments that he tabled.

I owe a particular debt of gratitude to my noble and learned friend the Lord Chancellor for tackling the thorny question of conveyancing. The noble Lord, Lord Foot, spoke with eloquence on those provisions. I should mention also my noble friend Lord Morris for his carefully thought out contributions both on that subject and on other parts of the Bill. Finally, I thank my noble friend Lord Skelmersdale for his help and support throughout the passage of the Bill in your Lordships' House.

While the debate during Committee and Report naturally tended to concentrate on the more contentious issues such as conveyancing and the conversion to company status, it is worth recalling now those many other provisions that have been welcomed on all sides. I refer to the fuller and improved services that the societies will be able to offer their members, the greater contribution they will now be able to make to the development of the nation's housing, the improved competition that will follow between building societies and others, and the improved arrangements for supervising the societies' custody of their investors' money.

The Bill will give building societies the ability to develop and evolve in a changing world. I believe that it leaves your Lordships' House in better shape than when it arrived. I beg to move.

Moved, that the Bill be now read a third time.—(Lord Brabazon of Tara.)

Lord Williams of Elvel

My Lords, we on this side of the House express our gratitude to the noble Lords, Lord Brabazon and Lord Skelmersdale, for the way they have conducted the proceedings on this Bill. It is an extremely complex measure and we have had some very interesting debates, but we have always felt that we have had the best possible co-operation from the Government Front Bench and I should like to record our appreciation of that fact.

So far as the Bill itself is concerned, I agree with the noble Lord that it is probably a better Bill on leaving this House than when it arrived. Nevertheless, we have certain reservations about it, as the noble Lord, Lord Brabazon, will have recognised from our debates. We are particularly concerned that the mutuality of the building societies should be preserved. We are concerned about the whole question of what I call the secondary market in mortgages. We are concerned still about the relationship between auditors and their clients; although the noble Lord was kind enough to accept one of our amendments on the subject which made some improvement. Nevertheless, it is an abiding matter of concern, as we shall see when we come to other Bills.

We still take the view that, over time, building societies will need to develop in the direction of the German mortgage banks and use the wholesale market more than the retail market. We believe that in the course of time the same kind of competition for retail deposits will break out among building societies and banks as broke out among banks and led to the closing down of many branches, and indeed to many amalgamations. It comes as no surprise to hear the announcement today that the Leeds Building Society is trying to merge with another building society in Yorkshire. We think that this is a feature of the future of building societies.

In expressing gratitude and reservations that we have about the Bill, we are nevertheless glad that the Bill has passed through your Lordships' House with good debate and co-operation from all sides. As my honourable friend Dr. McDonald said on Third Reading in another place, we wish the building societies well and we hope the Bill will enable them to move ahead in the right, sensible and cautious manner which we think they should.

Lord Campbell of Croy

My Lords, as this Bill leaves your Lordships' House, I should like to draw attention to two points. First, this is the first new legislation for building societies for about 100 years. Previous Acts have been virtually re-enactments of earlier arrange-ments. Secondly, the Bill, with cautionary and prudential provisos, enables building societies to carry out new functions which will promote competition in markets and enable them to carry out more services for the public. That is for the benefit of the general public and their convenience. I remind the Committee that it has been estimated that about half the adult population of the country is a saver or a borrower with a building society; so this is a measure which really does affect the general public.

I particularly congratulate the Members of the Government who have handled this Bill—my noble friends Lord Brabazon and Lord Skelmersdale. They have had the task of explaining the Government's intentions, answering questions about parts of the Bill—sometimes at very short notice—and dealing with amendments in quick succession. They have performed a great service in helping the House with the Bill. They carried out those tasks diligently and effectively. A particular burden has fallen on my noble friend Lord Brabazon who has been speaking in this House for the Treasury.

I should also like to join my noble friend Lord Brabazon in what he said about the noble Lords, Lord Barnett and Lord Williams who made sure that the important relevant matters about the Bill were raised and discussed. I too am sorry that the noble Lord, Lord Barnett, is going to the BBC, and therefore presumably has to be muzzled or at any rate can no longer speak from the Opposition Front Bench. We were of course for many years together in another place.

The Government adjusted the programme to provide a second Committee day, although at one time that looked absolutely impossible. I know that the building societies will be grateful that it has now been made possible for enactment of the Bill to take place before the other place goes into Recess at the end of this week. Provided nothing unexpected happens, that looks to be the position. I am grateful to my noble friend the Chief Whip because I know the problems he has had in trying to get a number of major Bills through this House. Both he and the Opposition Whips had to find this extra time and arrange the stages at appropriate intervals. I acknowledge that achievement because, on Second Reading I pointed out that there would be a great difference for the building society movement between completion this week and just missing completion and having to wait for three or four months—which would have been the effect for the building societies so far as concerns the commencement dates. As the societies have to deal with special meetings and all kinds of other procedures, the fact that they will shortly be able to see where they are will be extremely helpful to them.

The debates in your Lordships' House, and the differences of opinion that have take place, have not followed party political lines. The noble Lord, Lord Houghton, followed his own path, and there was much experience and logic in what he had to say. All points were clearly and cogently argued and discussed. It is now up to the building society movement to do the best it can for the British public with the new mandate and new powers it will have.

7.30 p.m.

Lord Houghton of Sowerby

My Lords, may I first of all say how much I agree with the concluding remarks of the noble Lord, Lord Campbell of Croy, and how much I appreciate the kind references to me by the noble Lord, Lord Brabazon.

We have been well served by both Front Benches during the debates on this Bill. I am grateful for all the courtesy I received during my interventions, which were probably too frequent and too long. However, for a number of years I have felt very keenly about much relating to building societies.

We must also remember that this is one of the major Bills of the Session. It is one of the longest and heaviest Bills. It rivals the Finance Bill, which we have just received, and that is always a good basis for comparison. There are 285 pages, containing 126 clauses and 21 schedules.

I felt at one stage that we were coming under a little pressure. When we were concluding the first day of the Committee stage some impatience was expressed by noble Lords—and if not impatience, anxiety—about the progress of the Bill. However, I should like to point out the strange career that this Bill has had in recent months. At this season of the year your Lordships' House is the whipping boy of Parliament and we suffer greatly. We are suffering now and are going to be here longer than the other place and come back from the Recess earlier. That is the pressure we are under.

The strange fact is that this Bill was introduced in another place on 19th December, 1985. It went into Standing Committee which had its first meeting on 21st January with the second meeting on 25th February. There was then a long waiting period. It took over three months for the next stage of the Bill to be reached in another place. It was not until 4th June that the Report and Third Reading of this Bill were taken both on the same day.

I think we can guess at what was happening in those three months. The Government found so much in the original Bill which was subject to criticism and suggestion by the Building Societies Association that I think those three months must have been taken up by reconsideration of much in the original Bill. Certainly large government amendments were put down for the Report stage in another place on 4th June. The Bill came to us on' 20th June and our first day of Committee took place on 3rd July and the second day on 10th July. The Report stage was last Friday and today we are at Third Reading. This great and complicated Bill is today reduced to supper break status. Another important Bill, the Finance Bill, is reduced to Friday morning status this week.

This is the humiliation of parliamentary procedure on great measures of state. As the noble Lord, Lord Campbell, reminded us a moment ago, this is the first major Bill for 100 years to review the functions and powers of building societies. I shall not make any complaints now. There has perhaps been a surprisingly small amount of parliamentary interest in this Bill, probably because of its complexity and because only those of us who have worked with and for building societies have been attracted to its many provisions. When Members of both Houses have declared an interest, more frequently than not that interest has been an honorary and unpaid one, for which they received one free lunch a year if they were lucky. I was one of those people and I know how valuable the vice-presidents have been to the Building Societies Association over the years.

As the noble Lord, Lord Campbell, and other noble Lords, have said, with the passing of this Bill we are starting a new era in the life and times of building societies. They will take quite big leap forward in providing ancillary financial services and, as regards the larger societies, unsecured money lending business which is already attracting considerable funds from overseas and into which the Building Societies Association wish to enter.

This is a principal purpose of the Bill and concerns me most this evening. So I hereby give up my self-appointed role as the lord protector of the security of tenure of boards of building societies, which I have been undertaking all through the discussions on this Bill. I now cast them adrift to the tender mercies of shareholders who possess votes but have no share, and to the big black crow known as the Building Societies Commission, the beating of whose wings will be heard in every building society boardroom for many years to come. I wish them well—I really do—but I am bound to say that in doing so I bid farewell to my own part in a movement in which I have spent so long, now that it has become really and truly an industry.

Movements which have generated a satisfying spirit of common endeavour are being absorbed into the motivations of the new age. Building societies, trustee savings banks and friendly societies all began as grass-roots collectives. They showed the way for commercial enterprise to come in and operate on a larger scale, very often more efficiently. But is it not ironic that while trustee savings banks, co-operatives and building societies were showing the way forward, those who built up the work and prosperity of those voluntary societies had no share whatever in the equity? All have carried the movement forward to be enjoyed by others and in a few cases it has been lost on the way. That is the end of my lamentations.

The range, limits, curbs and controls of the societies are numerous and complex. The Building Societies Commission has been given wide powers, but in some material matters even its judgment has to be submitted for the approval of both Houses of Parliament or be subject to the procedure of negative approval of both Houses. The Treasury and Parliament are therefore in the forefront of the background and they will certainly have a good deal to say to building societies in the course of their development. I think that the network of checks and balances, however irksome to the management, will be of great benefit to the societies during the rather long transitional period that lies ahead. They will retain the confidence of the public while gaining qualifications and experience in a wider field of financial wizardry.

The effect of changes brought about by the Bill, coupled with the forces of change already at work, gives rise to considerable speculation about the future. I am an avid reader of everything that comes from building societies, including the journal of the Chartered Building Societies Institute. The first thing that my eye saw when I looked at the current issue was that three new mergers were announced this week. One of them concerned a society of which I am a member. It is the first that I have heard of it. However, that is a sign of the times. In all three cases, it looks as though the merger is to establish a building society which will have an asset qualification. They want to go into the bigger category.

As regards the future, I was interested in a speech made by Mr. Leslie Priestley, who is the chief general manager of the TSB England and Wales, when he spoke at the Building Societies Association conference. He said: Based on the rationalisation of the industry to date, and in parallel with experience in the world of banking, it seems likely that by the year 2000 there will be no more than five major societies, with a maximum of 20 smaller ones, who will probably be operating in partnership with other financial organisations". That is his prediction. Small may be beautiful, but beauty fades and we have to console ourselves with that well-known comment, "You can't stop progress".

To begin with, the societies will have to pick their way through their numerous opportunities. The strain on their staff will be heavy and the need for the recruitment of expertise will be strong. When societies begin their new activities, members such as myself will want to know the route that they will follow. It seems that in this wider field of opportunity there will be profits and losses to be made. It appears that the losses of subsidiaries will have to be borne by the societies. Yet one might ask: where do the profits go? This is one of the reasons for strict control. I should be much comforted to know that the societies are much more eager to devote their resources to the provision of housing to rent than to use them to enter the field of uneasy lending to people on reasonable incomes but who have no visible security.

I presume, as I asked the Minister earlier, that the societies must change their rules in numerous ways before they can proceed further. I hope that the period of apathy of large numbers of members of societies will end and that we can question our respective societies on their intentions. I hope that the communication between the boards and their members will be much better in future than it has been in the past. Some important questions of policy will have to be decided.

The other day a young lady of 18 told me that she was going to buy a car. The bank was willing to lend her the money, and she said that it was better to go to the bank, which charged only 5 per cent., than to take up hire purchase, where the rate was 8 per cent. I asked her what were the terms of the loan. It was £1,000 over two years repaid by instalments of £70 a month. I thought that with O-levels she should be able to calculate the true rate of interest.

Are the building societies going into that business? If so, they will have a choice between the going market rate, which may be nearer 25 per cent., or lending at a lower rate, with all the implications that that carries. They would certainly be competitive, but they have a limit on the resources that they can devote to such lending.

I was interested to note that in the same speech, Mr. Priestley said: Although half of the loans made by banks and finance houses were for car purchase"— listen to that, my Lords!— at least 40 per cent. related to the home, for such things as central heating, double glazing, kitchens and bathrooms; a market to which the societies might feel they had a natural right of access". I can only hope that the building societies will be prudent and cautious in the use of that new field of lending and have regard to their name, their traditions and one of the purposes which, as my noble friend Lord Williams of Elvel said, should be their main interest.

In general, in the past 30 years or so we seem to have gone through the welfare state and the subsidy state and now we are in the borrowing state. We have the PSBR to set the example; the personal mortgage borrowing requirement following on; and the financing of consumer credit, which is both pressing and profitable and amounts to many billions of pounds. We are told that industry is in need of investment. There are proposals to repatriate profitable investments in the United States and to bring them home to put into British industry. I hope that industry will get the investment that it needs. The market in financial transactions is growing so fast and is so profitable that it is difficult to imagine how industry can compete.

If I could see that the Bill contributed anything whatsoever to the nation's wealth, earning capacity or even a great deal to the building of houses to rent, I should be happy about it and welcome it. As long as industrial investment is likely to have a lower return than the interest that people are prepared to pay for money to spend on themselves, the country will continue to be in difficulties. Financial institutions are springing up all over the place, and they are putting the building societies under pressure. Financial transactions are a growing business, but factories continue to close.

7.45 p.m.

The Earl of Selkirk

My Lords, I am glad that the noble Lord, Lord Houghton, mentioned the story of the Bill, but he utterly forgot one thing. It is a magnificent example of the flexibility of our constitution. Many people never thought for a moment that we should have Royal Assent by August, but we stand a reasonable chance of that. That is because we have an extremely flexible constitution.

This is an important Bill. Let there be no illusion. The standard of living in this country today depends more on building societies than on governments. That is a bold statement but it is just about true, and we should recognise the significance of that.

I thank the Government especially for their close consultation with those engaged in the business. I know of no Bill that has been examined more closely by those who work in the area and by the Government. I wish that they would do that more extensively on a number of other Bills that I can think of.

Looking a little further ahead, do we really think that the will of Parliament can be expressed and serve the best interests of the public only in 300 pages? But we continue to make such assumptions day after day in this House. Sometimes the Government should consider whether there is a better way to serve the public interest with greater brevity and clarity. I endorse what my noble friend Lord Campbell of Croy said, particularly concerning the care and the clarity with which the Government have dealt with the many complicated issues on the Bill. The House is greatly indebted to them and I thank them very much. I wish the Bill every good fortune and I hope that it will come into operation at the beginning of August.

Lord Gallacher

My Lords, I intervene briefly in no sense to detract from the significance of the Bill which your Lordships are about to pass, but rather to draw attention to what I regard as a piece of fiscal impartiality which will flow following the passing of the Bill on to the statute book. I refer to the impact of the new powers being given to the building society movement to make unsecured loans upon credit unions and in particular to what I regard as the probable demise of the credit union movement as a result of those powers unless certain action is taken by the Government to achieve what I have already described as fiscal impartiality between the two movements.

So far as legislation is concerned the credit union movement in Britain has been in existence only since 1979. It is severely restricted by the Act of that year in the matter of the rates of interest which it may pay to lenders, on the one hand, and the rates which it can charge to borrowers on the other. While those rates of interest, which are variable by order, were realistic in 1979 when the Act was passed, as a result of more expensive money they have become increasingly unrealistic and, as a consequence, the credit union movement now faces a building society movement which has complete freedom to fix both its borrowing and its lending rates. As I say, under Clause 16(8) of the Bill, there is further freedom to give unsecured loans to the extent of £5,000, or even more if subsequently that figure is varied by order.

I have written to the Treasury about that and I had a fairly dusty answer from one of the Ministers in that great department of state. It would appear that the basis for not doing anything to ease the problem is that the Minister is somewhat disappointed with the returns of certain building societies already registered. On making inquiry I found that the credit union movement, which is a shoestring organisation and totally insignificant in terms of the building society movement, made the mistake, unlike the Rochdale pioneers of a century ago, of seeking to interest the deprived and needy classes in the movement, as a consequence of which the Chief Registrar of Friendly Societies is dissatisfied with the way in which certain of those credit unions have been keeping or not keeping their books, as the case may be. While the Minister has said to me that once existing credit unions put their house in order he may be prepared to do something about it, he has said nothing about the restrictions which are currently imposed on those who would like to form credit unions but who are in no way able to do so by reason of the limitations on interest rates to borrowers and to lenders.

I hope that the Minister will bring this matter to the attention of his right honourable friend in another place. My plea is that, coincident with the passing of this Bill onto the statute book, action should be taken to ensure equality of opportunity and competition between the building society movement and the credit union movement, because it would be a great pity if an organisation which Parliament, with all-party support, as recently as 1979 decided should have legislation to enable it to flourish, is now doomed to die merely because this Government choose to give building societies the freedom which they currently deny to credit unions.

I echo what has already been said round the Chamber in support of the Bill. I regard the building society movement as a shining example of voluntary endeavour to the world. I hope that under the additional powers now being given to it, it will continue to flourish.

Lord Brabazon of Tara

My Lords, it only remains for me to thank all noble Lords who have been so kind about my noble friend Lord Skelmersdale and myself during the passage of the Bill. I shall draw the remarks of the noble Lord, Lord Gallacher, to the attention of my right honourable friend the Chancellor and the Chief Registrar of Friendly Societies. I cannot say any more than that at the moment.

On Question, Bill read a third time.

Lord Brabazon of Tara

My Lords, I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(Lord Brabazon of Tara.)

On Question, Bill passed, and returned to the Commons with amendments.

Lord Skelmersdale

My Lords, I beg to move that the House do now adjourn during pleasure until 8.15 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.54 to 8.15 p.m.]