HL Deb 24 February 1994 vol 552 cc793-5

7.19 p.m.

Lord Henley rose to move, That the draft order laid before the House on 19th January be approved [5th Report from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the order be approved.

This order is made under Section 14 of the Building Societies Act 1986, which allows the Treasury to designate countries or territories outside the United Kingdom where building societies may lend on the security of land. The order designates all the EFTA states: those which have joined the European Economic Area; namely, Austria, Finland, Iceland, Norway and Sweden, together with Switzerland— which has voted against entry— and Liechtenstein, whose entry will be delayed.

We believe that the order represents a further useful and sensible measure to deregulate building societies' activities and to ensure that they can take full advantage of the expanded single market. I commend it to the House.

Moved, That the draft order laid before the House on 19th January be approved [5th Report from the Joint Committee].—(Lord Henley.)

Lord Eatwell

My Lords, I thank the Minister for that explanation of the order, about which I have two technical points and one more general point to make. I turn first to the technical points. Are the Government satisfied that the foreign exchange exposure that is implied by the measure will not endanger the position of building society depositors? Will the noble Lord explain the Government's agreement to or promotion of Article 4 of the order because that suggests that power conferred by the order is not revoked by the cessation of availability of a qualified asset holding? That sounds to me as if a building society could no longer have a qualified asset and yet be exposed in foreign exchange terms. Are the Government content that in those circumstances depositors will be adequately protected?

More generally, can the Minister tell the House how the order fits into the general review of the building societies industry which the Government announced on 20th January? Are the Government contemplating a further deregulation of the industry and, if so, what new powers do the Government intend to take for the protection of depositors, particularly as far as foreign exchange risk is concerned? Indeed, why have the Government brought forward this order at a time when they are contemplating a review of the industry? Will the Government take note of the very huge losses that have been suffered by the savings and loan industry in the United States, which is equivalent to our building societies industry, and take care that the deregulation that they seem to be proposing does not produce a similar crisis here?

Lord Henley

My Lords, as regards foreign exchange risks, building societies will be subject to supervision by the Building Societies Commission, a statutory body which will ensure that societies hedge any foreign exchange rate risk as necessary. Further, as regards protection for their members in this respect, obviously any investment abroad is a matter on which building societies would have to consult their members. They would have to adopt the new power by amendment to the memorandum which requires a special resolution to be passed by a 75 per cent. majority of investing members who vote.

The noble Lord also asked whether we were bringing the order forward somewhat prematurely when, as he said, we have made noises— or rather, my honourable friend the Economic Secretary announced in January—that the Treasury and the Building Societies Commission would be reviewing the Building Societies Act. As regards timing, the main reason for the order is to allow building societies to take advantage of the extension of the single market to the European Economic Area. The Swiss referendum result put the future of the EEA agreement into doubt and, until the position was clearer, it made sense to postpone the order. So we have been delaying the order, rather than bringing it forward prematurely.

As regards the announcement that my honourable friend the Economic Secretary made, all that I can say at the moment is that discussions have begun between officials and representatives of the industry. The aim is to make recommendations to Ministers later in the year, possibly in the summer. If a case is then made that major changes are needed to the legislation, obviously there will be wider consultation following consideration by Ministers. It is certainly intended, whatever should happen, that that process should be completed by the end of 1994.

Lord Eatwell

My Lords, do the Government intend that there should be a Green Paper?

Lord Henley

My Lords, obviously I cannot comment at this stage. The idea at the moment, following the announcement of my honourable friend, is that, as I said, there should be discussion between officials and representatives. They will then make recommendations to Ministers. It is for my right honourable and honourable friends in the Treasury to consider the matter further before there is any wider consultation. Obviously, if there was wider consultation, there would be some form of Green Paper, the "greenness" of which would depend on a number of factors, but it would be a matter for my honourable friends to consider in due course.

On Question, Motion agreed to.