HL Deb 31 July 1997 vol 582 cc311-3

11.26 a.m.

Lord Taylor of Blackburn

asked Her Majesty's Government:

What steps they intend to take to prevent "carpet-baggers" from attempting to force mutual societies to convert to banks against the wishes of the majority of the members, such as recently occurred with the Nationwide Building Society.

Lord McIntosh of Haringey

My Lords, the Government are well aware of the benefits of mutual societies. We have been looking at a number of proposals for secondary legislation put forward by the Building Societies Association. They all raise difficult issues of principle because they could frustrate the will of the members or significantly reduce the board's accountability to members. In short, they highlight the difficulties that the Government face in acting to protect mutuality without diluting the essence of a mutual organisation; namely, a society owned by and run for its members. But the Government are keeping the situation under careful review.

Lord Taylor of Blackburn

My Lords, I declare an interest as a member of the Nationwide Building Society. I am sorry that other Members of the House who are interested in the agricultural world have not done that this morning. Can the Minister say whether there are other measures that he believes building societies themselves can take to prohibit the action that took place last week with the Nationwide Building Society and the costs that the members had to incur to prevent the carpet-baggers trying to take over the society?

Lord McIntosh of Haringey

My Lords, my noble friend is certainly right that carpet-baggers cause considerable cost and disruption to mutual building societies. They cause additional management costs and put a strain on the service to existing members. I am sure he is also right that there are steps that building societies themselves can take to discourage carpet-bagging. For example, they might consider whether the emphasis on a flat-rate windfall does not actually encourage carpet-bagging.

Lord Dean of Beswick

My Lords, the Minister gave a detailed reply to the initial Question. But is any legislation at present in place, financial or otherwise, that the Government can resort to or place at the disposal of people to stop this practice taking place? If there is not any legislation in place, can the Minister try to get the Government to speed up the inquiry that is taking place with a view to putting a law on the statute book to deal with this situation?

Lord McIntosh of Haringey

My Lords, my noble friend will remember that the Building Societies Act 1997 was enacted just before the election, with all-party agreement. That reduces the temptation, if I may put it that way, to depart from mutual status by giving building societies greater powers to extend the range of businesses that they undertake. I am sure that that is the most important and effective way of reducing carpet-bagging and preserving mutuality.

Lord Skelmersdale

My Lords, is not the answer to the problem in the hands of the members of the mutual society concerned? Is it not a fact that under existing law every member of a mutual society has a vote in such a situation and it is for the members to determine whether the mutual society should convert into a bank?

Lord McIntosh of Haringey

My Lords, the noble Lord is right to say that the answer lies in the hands of the members. Unfortunately, recent experiences do not give us confidence that the members will take full account of the long-term interests of the society and its future members. The result of the Nationwide ballot was, of course, welcome, but, as the noble Lord will know, a number of societies have been invaded by people who are only out for a windfall gain rather than for the long-term benefit of the society.

Lord Burnham

My Lords, is it not the case that the enactment of Section 9 of the Building Societies Act would largely solve the problem? Further than that, undesirable as carpet-bagging is, is it not also the case that every step which is being proposed to stop it equally discourages small investors for whom the building societies are particularly designed?

Lord McIntosh of Haringey

My Lords, I assume that the noble Lord is referring to Section 9 of the 1997 Act which is due to come into force in October. Its effect will be to stop building societies having two-tier memberships, with some voting members and some who are simply investing members. Although that is clearly desirable, I am not certain that it will have all of the beneficial effects which the noble Lord is expecting. Indeed, some people in the building societies movement have been urging the Government to defer the implementation of Section 9.

Lord Sefton of Garston

My Lords, in view of the important part which the mutual societies play in democracy in our society, can the Minister give me an assurance that if the building societies come up with proposals which will more firmly place the control of those societies in the hands of long-term, genuine members, the Government will treat such proposals sympathetically in order to stop the parasites who are moving into building societies only for their own benefit?

Lord McIntosh of Haringey

My Lords, I am sympathetic to the thrust of my noble friend's question, as I have been, I think, to all similar questions. The problem is that all the specific proposals which the Building Societies Association has put to the Government for secondary legislation involve provisions such as raising the threshold for approval, delaying the qualifications for membership or increasing the number of nominations required for membership of the board, all of which involve a diminution of the principle of mutuality. Although the Government are, of course, reluctant to legislate for business management reasons, that is not the fundamental issue. We would like proposals from the building societies which will protect mutuality without reducing the rights of members.