§ 9.32 p.m.
§ Lord Graham of Edmonton
My Lords, I beg to move that this Bill be now read a second time.
The noble Lord said: My Lords, I start by declaring the assistance that I have received from the Co-operative Party, from Cobbetts, a law firm with a sound track record of advising the mutual sphere, and from Mr Ian Snaith, Mr Peter Hunt and Mr John Tilley of the Co-operative Union.
Having joined my first Co-operative Society, the Newcastle Society, more than 60 years ago, I have had an attachment to co-operative enterprises all my life: to this day, when I am proud to declare that I am chairman of the United Kingdom Co-operative Council, a body in whose membership lies the Cooperative Group, the Co-operative Bank, co-operative insurance, the Co-operative Union, co-operative housing, credit unions, workers' co-ops and others.
I pay full tribute to the interest and experience on display when this Bill went through all its stages in another place. The record shows that it was subject to a vigorous scrutiny. From all Benches it was evident that they knew what they were talking about. My honourable friend Gareth Thomas did not have an easy ride, but that is how it should be. He has performed a Herculean task, holding scores of meetings both inside and outside Parliament. He has proved to be an operator of high skill and I congratulate him warmly.
In your Lordships' House we bring experience of a different level, but no less relevant. The noble Lord, Lord Fyfe, is a co-operator of great distinction. A life-long co-operative official and chief officer of the successful Midlands Co-operative Society, he recently retired as chairman of the Co-operative Group, formerly known as the CWS. He and I share a common heritage and a common path, both of us being graduates from the Co-operative College and recipients of the highest honour the Co-operative movement can bestow on an individual: we were elected to preside over the Co-operative Congress. I was before he was.
1461 Another congress president is my very good friend the noble Lord, Lord Morris—again post my year of 1987—an honour given to him as an acknowledgement of his outstanding service to cooperation. It is fitting that he carries the title of "Manchester", which, after Rochdale, is synonymous with co-operation.
The noble Lord, Lord Newby, is no stranger to the mutual and social enterprise world, while the noble Earl, Lord Northesk, has demonstrated his grasp of these issues in previous debates. The noble Baroness, Lady Thornton, brings to the debate, at such a young age, a life-time of work and achievement, especially her work in the Royal Arsenal Co-operative Society, the Co-operative Bank and her contribution to the world of social enterprise. All this gives great credibility to her contribution.
The former Minister and Government Chief Whip, my noble friend Lord Carter, has the best of pedigrees. As the chair of the United Kingdom Co-operative Council he helped to fashion co-operative ideas and a co-operative Bill of 135 clauses presented to the Government in 1997. He was and is a well respected practitioner of co-operative solutions to economic and social problems. On behalf of his co-operative friends, here and elsewhere, I place on the record our deep gratitude for all that he has done for us in getting the Bill this far. Thank you, Denis.
The response and interest shown in the progress of the Bill in another place impressed me greatly. From all Benches, without exception, it was clearly seen that the value of the Bill was appreciated and supported. A reading of the official record of all stages demonstrated a knowledge and grasp of the issues involved, as well as the fact that the benefits flowing from the Bill can have effect in every constituency and in thousands of clubs and groups.
Make no mistake, while it is true to say that the Co-operative movement lays great store by putting the Bill on the statute book, its benefits will be felt much further and much deeper in British society. Working men's clubs, Conservative clubs, Liberal clubs, Labour clubs, football, cricket and rugby clubs, agricultural clubs or societies, housing and health groups and more than 500 Women's Institute markets, they and many more have this in common: they are all industrial and provident societies which will benefit from the Bill.
Historically, industrial and provident societies have their roots in the self-help tradition of the Victorian era. Their origin dates in part from when the incorporation of legal bodies first became possible with joint stock companies in 1844, the beginning of company law in this country. Incorporation allows an organisation its own legal personality. It can sue and be sued, own property and enter into contracts, and it enjoys the privilege of limited liability.
As we know, the company is the commonest form of incorporated body. The number of registered companies runs to many millions, more than 1 million of which are currently trading. The company 1462 continues to be a highly effective means of attracting investment and of generating rewards for entrepreneurs and those who are prepared to take risk with their capital. It will rightly continue to play an important role.
According to the Financial Services Authority, at the end of 2000 there were more than 9,000 industrial and provident societies, with some 10.5 million members between them, funds of more than £14.5 billion and assets worth almost £61.5 billion.
There are two kinds of industrial and provident societies, the first of which is the co-operative society. A co-operative conducts its business in the interests of members, who gain from it on the basis of how much they use its services or its trade rather than purely on the basis of their investment in it. If people want to register a new co-operative society today, they must satisfy the Financial Services Authority that the proposed organisation is a bona fide co-operative. Many retail and agricultural organisations and many social clubs are designed as co-operatives.
The second category of industrial and provident societies are those that carry on a trade for the benefit of the community rather than just their own members. Such societies are known as community benefit societies—abbreviated to "bencoms". They include the many housing associations that exist, some social clubs and the new football supporters' trusts. Industrial and provident societies give legal form, and thus structure and clarity, to a range of community organisations and activities, for which charitable structures, public sector structures and the company model are not entirely appropriate.
I turn to what the Bill is designed to achieve. It contains two key clauses to try to change the current situation. The first clause would ensure that industrial and provident societies could not be dissolved by the vote of a small and unrepresentative group of members. The second clause would enable industrial and provident society rules to be updated by secondary legislation.
Clause 1 deals with the power to convert an industrial and provident society into, or to transfer the entire business to, a company. Such a step can be taken if 75 per cent of those at a general meeting vote in favour of conversion. No requirement exists for a minimum number of members to be in favour of the resolution, and any attempt to include such a provision in a society's rules would contravene the 1965 Act and would be rejected by the FSA. Conversion to a company is a fundamental change in the nature of an industrial and provident society.
The ability to convert has existed under the legislation since the 19th century, and the provisions that require a 75 per cent majority of those voting at a meeting of members also have a long history. If a majority of members of a society want to convert, neither I nor anyone else should stand in their way, but the membership's view must be fundamentally clear. A 75 per cent vote in favour of a conversion resolution by those who turn up at a meeting might involve a mere handful of people turning up to a badly advertised 1463 meeting and agreeing a change that might irreversibly alter the nature of a corporation with hundreds of thousands of members.
The building society movement has wrestled with that issue for a number of years, and a significant number of societies have demutualised and paid a windfall gain to their members. There has been only one failed attempt at a hostile dissolution of a cooperative society. In 1997, Andrew Regan, through Lanica, attempted to demutualise the Co-operative Wholesale Society. Notwithstanding the fact that the attempt failed, the threat of demutualisation remains real to many co-operatives societies.
Since the Lanica affair, a number of societies have adopted rules to introduce a high quorum for resolutions to convert a society into a company. There has not been a legal challenge to such rules yet, but there is concern that it could be made by a predator with a deep pocket, and there is a danger that it might succeed. Doubts about that should not be left to the courts and the lawyers to determine. Surely it is a matter for Parliament to address, and the Bill offers the House the opportunity to do just that.
Such a provision has already been introduced for building societies. The Building Societies Act 1986, and the 1997 statutory instrument that updates it, require 50 per cent of the membership to participate in any such vote for it to be effective. Another parallel is the takeover code, which sets a 50 per cent threshold as the key to resolving the success or otherwise of a vote in a public takeover of one company by another. The Bill proposes a similar provision for industrial and provident societies. It does not change the requirement that 75 per cent of the vote of members attending a meeting is necessary; it simply adds the requirement that 50 per cent of eligible members would need to vote for that conversion to occur.
Clause 2 attempts to provide a mechanism to allow Parliament to consider sensible reforms to the corporate governance of industrial and provident societies when those same reforms have been introduced by companies after parliamentary debate. The reality is that there have been very limited opportunities under both the Conservative government and the Labour Government to update the rules and regulations by which industrial and provident societies operate.
Company legislation prohibits provision in the constitution of companies that prevents claims against directors for breaches of statutory or common law. Societies still have such provision in their constitution. Clause 2 holds out the possibility that such changes to industrial and provident societies' rules could occur if Parliament were so minded.
The Bill emerged from Report significantly improved, and achieves two things. First, it places cooperatives registered under the industrial and provident societies legislation in the same position as building societies by ensuring that there is substantial democratic participation on that most crucial decision—whether or not to convert to a company. Members can still change the structure of their 1464 organisation, but only on a 50 per cent turnout and the 75 per cent vote in favour which was already provided for in law, mirroring the existing provision in building society law.
Secondly, the Bill will permit the use of statutory instruments when company law is changed in future to assimilate industrial and provident society law into company law, to deal with the discrepancies in, for example, insolvency procedure, capacity rules, accounts and audit, and other aspects of corporate governance which meant that industrial and provident society legal form lagged considerably behind that of the company model and the friendly society and the building society model.
The Bill, although modest, allows both issues to be resolved and should play a small but important role in encouraging the use of industrial and provident societies, so facilitating the development of cooperatives and of businesses with community benefit aims. That can only benefit our economy and the development of communities that are both enterprising and caring. I beg to move.
Moved, That the Bill be now read a second time—(Lord Graham of Edmonton).
§ 9.46 p.m.
§ Lord Morris of Manchester
My Lords, I have an interest to declare and do so with pride. It is my abiding commitment to co-operative principles and values and lifelong membership of the Co-operative movement in which, like my good and noble friends Lord Graham and Lord Fyfe, I have been president of the Co-operative Congress, the movement's highest elective office.
It was in 1951—over 50 years ago—that I first stood for Parliament in the Co-operative interest, and I represented my birthplace in that interest for 33 years as the first Co-operatively sponsored Member of Parliament for Manchester from 1964 to 1997. Thus I most warmly welcome my co-operative colleague Gareth Thomas's Bill and congratulate my noble friend Lord Graham on both the content and manner of his speech in commending it to your Lordships' House this evening.
One of the deep sadnesses of my parliamentary life was that the service in another place of my noble friend Lord Graham was cut so cruelly short after only nine years there; and one of its joys is his achievement this evening in bringing together—I understand for the first time ever in a debate in this House-three former presidents of the Co-operative Congress.
Of course, interest in this Bill is not confined to the Co-operative movement. It benefits, as my noble friend Lord Graham said, a very wide range of other interests. Indeed I am informed that over 9,000 organisations—many of them household names—are backing this Bill.
My noble friend addressed many aspects of the Bill's provisions; but I shall focus only on Clause 2(1), which empowers the Treasury to update industrial and provident society law, 1465on any modification of the statutory provisions in force in Great Britain in relation to companies".This allows for changes likely to be introduced as a result of the DTI's Company Law Review to be applied to societies where appropriate and for existing discrepancies to be dealt with at that time.
As my noble friend said, the Building Societies Act 1986 and the Friendly Societies Act 1992 have already achieved that for the organisations they affect. Only industrial and provident societies have been left out. Gareth Thomas's Bill allows Ministers to remedy this without using legislative time after changes to company law have already been debated and passed by both Houses in the future.
Among policy areas in which updating is currently needed are: first, the availability of insolvency rescue procedures such as the administration procedure and the company voluntary arrangement in the Insolvency Acts of 1986 and 2000 to societies which are currently excluded from them; secondly, the possibility of disqualifying society directors under the Company Directors Disqualification Act 1986; and, thirdly, the application to societies of the provisions of the Companies Act 1985 that protect people dealing with companies from the effects of contracts being outside the objects clause of the company or outside the powers of its agents (ultra vires).
Again, rules about accounts need updating to reduce the burden of requiring audits on societies with a turnover of under £1 million and generally to bring accounting requirements into line between the two areas of law; as do the rules on transactions between directors and their society such as those found in Part X of the Companies Act 1985 which prohibit many loans to directors and require member approval of certain large-scale property transactions.
Legislative time is always at a premium and it is most unlikely to be found to deal with these and other anomalies by primary legislation. For that reason the Bill proposes to do so by statutory instrument. This alone justifies support for the Bill from both sides of this House and I hope to see it enacted as it now stands with all possible speed.
For as I have learned from piloting so many other Bills to the statute book—I speak as a serial legislator—time for Private Members' Bills is at the highest premium of all. To delay is to kill and this Bill eminently deserves to live and thrive. Let it do so and pass quickly into law with our unqualified support this evening.
§ 9.52 p.m.
§ Baroness Thornton
My Lords, it is with great pleasure that I rise to support the Bill. I start by thanking my noble friend Lord Graham for his kind opening remarks. I feel privileged to have belonged to two great institutions in this country: the Co-operative movement and the House of Lords, both of which have regarded me as a youngster for a lot longer than my age warrants.
1466 I also wish to place on record my congratulations to my honourable friend Gareth Thomas on the progress he has made in another place which allows us to debate the Bill here this evening. Tonight is also a special debate as I believe that it may be the last occasion for the time being on which my noble friend Lord Carter will speak from the Front Bench. I place on record the fact that he was the Chief Whip when I entered the House. I have been grateful—as I know have many other noble Lords—for his support,' succour and advice throughout that time.
I need to declare an interest as someone who works as an adviser to the Co-operative Group and as the voluntary chair of a newly formed organisation, the Coalition for Social Enterprise. As my noble friend has already said, I have worked for and in the Co-operative Movement for most of my adult life. I have been involved in helping to establish a number of organisations—a community recycling workshop in Hackney and a co-operative development agency in London—to promote workers' co-operatives. I am at present a director of an umbrella organisation for cooperative and social enterprises in London, Social Enterprise London, Our job in SEL is to encourage the growth and development of many new kinds of enterprise which are trading for a social purpose.
I want to address my remarks to the matter of why the Bill is so important to the future of an exciting and growing sector of the economy—the social enterprise sector. The Bill is important for a number of reasons. It is important because it clarifies and because it updates. It makes it easier for more institutions and enterprises to come into being. It updates legislation that has its history in Victorian times, as do much of the Co-operative movement and the mutual sector. Just as those organisations and businesses have updated themselves and are making themselves ever more relevant to the 21st century, so it is important that the regulations and legislative framework in which they have to operate is also updated and made modern. That is the purpose of this Bill, particularly of Clause 2. That clause will allow the Treasury to update certain parts of the industrial and provident society legislation by order to bring it more into line with company law, allowing modification of company law where that is deemed appropriate.
The new enterprises that are being established today are many and varied. Some are like the Furniture Resource Centre in Liverpool. It is a wonderful business which provides work for the homeless. They make furniture for homes which will house the homeless. The centre does that with minimal support from the state.
Other enterprises are nurseries which are set up in deprived areas to enable parents to go back to work. They are owned and run by the parents and staff. Some enterprises are businesses, such as Poptel, the IT and computer company, which trades extremely successfully in a very competitive marketplace and is owned by all of those who work in it. Some enterprises, such as Greenwich Leisure, provide public services. Greenwich Leisure provides all of the leisure services in the London Borough of Greenwich. It is owned and 1467 controlled by its stakeholders—the workers and local community. That model has been replicated in many cities as local authorities have sought to improve the delivery of their local services.
Some enterprises are similar to the Bromley-by-Bow Health Centre. Bromley-by-Bow is one of the most deprived areas in the UK, with multiple social problems. The centre boasts a community café, a health centre where GPs and other health professionals are integrated with community projects, a nursery for local children, opportunities for learning and skills development for more than 150 people at one time, community care and opportunities in arts and sports for young people. It is run by the local community.
The Government have not only allowed but encouraged the growth and development of the sector. The DTI has established the Social Enterprise Unit, which is at this moment working hard to deliver an overall policy. Everyone in the co-operative and social enterprise sector is keen to encourage it in its work. There is a clear recognition by the Government that the legal and regulatory framework in which those enterprises are attempting to flourish needs to be reviewed and reformed.
In speaking in support of the Bill, I do so from the co-operative roots of my background and the modern movement of social enterprise. I hope and trust that the Bill will succeed in your Lordships' House.
§ 9.57 p.m.
§ Lord Fyfe of Fairfield
My Lords, my noble friends Lord Graham of Edmonton and Lord Morris of Manchester have already referred in detail—in necessary detail—to the need for mutual organisations to have a similar legal framework in relation to Cooperative societies as that enjoyed by building societies. There is therefore no need for me to labour that point.
I care about the Co-operative movement. Indeed, I can say that I am passionate about co-operation and mutuality. I spent all of my working life in the Co-operative movement, starting as a part-time errand boy in a fish shop at the age of 13. Believe me, there is no particular joy in sweeping snow from Scottish pavements at six o'clock on a very cold and dark January morning. I determined that I should try to make my career in the movement, albeit not by sweeping snow. I declare an interest.
Among the offices that I have held, I have served as chief executive of the Midlands Co-operative Society, as a director of the Co-operative Insurance Society, as deputy chairman of the Co-operative Bank and, finally, I ascended the Co-operative greasy pole to become chairman of the CWS in 1989, from which I retired in 2000—almost exactly two years ago.
In that last capacity, I had the privilege—in retrospect, it was also a pleasure—of leading the C'WS hoard's successful defence against the notorious Lanica bid for the Co-operative Group in 1996. Frankly, that was an attempt to dismember the Cooperative movement and all that it stood for. It 1468 intended to sell off its assets, built up over many generations, to the highest bidders, some of whom had already been identified. One can imagine: thousands of shops; farmland; the Co-operative Bank—the "ethical" bank; the Co-operative Insurance Society—a major financial institution; hundreds of funeral parlours; many, many travel operations; a significant property portfolio; and many other Co-operative enterprises. All those would have been lost but for the determination of co-operators to resist ruthless predators plundering long-held, mutually owned assets.
It was said by some of the predators at that time that to take the Co-operative movement would be like throttling a little chicken. In the words of a famous statesman more than 60 years ago:some chicken; some neck! It would also have affected employment, and I shall tell your Lordships why. Many services provided by the Co-operative movement are not conducted only for profit; we maintain uneconomic services, in some instances, in lonely outposts in the Highlands and Islands of Scotland. That very valuable social function would have been sacrificed if the predators had had their way.
Together with my noble friends Lord Graham and Lord Morris, I spent last weekend in Belfast at the annual Co-operative Congress—the movement's Parliament. I was impressed by the way in which the Co-operative Group and all its associates are performing. The Co-operative movement is widening its scope: it is all-embracing. It embraces all manner of different co-operatives: workers' co-operatives, productive co-operatives and many other cooperative organisations.
We do not seek favours. But action is necessary to protect, in particular, new co-operative endeavour, which is spreading all over the UK and beyond. I believe that it is absolutely vital that people have a sympathetic regime—not a fawning regime but a sympathetic one—which will foster the creation of new co-operatives and encourage them to prosper in the years ahead. The Co-operative movement has a noble history. Like all organisations, it has had its ups and downs, but it has a noble history and it intends to have a prosperous and relevant future.
From humble beginnings in Rochdale almost 160 years ago, co-operative values and ideas have been embraced by more than 700 million people in over 100 countries across the world. Kofi Annan, the United Nations Secretary-General, recently reinforced the movement's importance at a meeting of the International Co-operative Alliance. He said:Co-operatives have been able to help millions of people around the world to improve their lives. They are an effective operating mechanism".I believe that the Bill will assist that process.
§ 10.3 p.m.
§ Lord Newby
My Lords, I, too, congratulate the noble Lord, Lord Graham of Edmonton, on bringing forward this Bill, which we firmly support from these Benches. For 150 years, industrial and provident 1469 societies played an extremely important part in the economic and social life of the UK. For generations, the Co-op was the cornerstone of local life. I know that from my own experience. My great uncle delivered coal at walking pace even after his horse and cart were replaced by a motorised lorry. As a young woman, my mother worked in the cheque department at the Co-op in Albion Street in Leeds. As a boy, the Co-op dominated Rothwell to an even greater extent than the modern supermarket does today.
But, of course, as has already been said, it is not only co-operative societies that are covered by the provisions of the industrial and provident societies legislation. It is a measure of the robustness of that framework that it has been possible for it to find new uses with the passage of time. Noble Lords have already referred to a number of examples. In the week of the World Cup, perhaps it is appropriate to mention football supporters' trusts. It is extraordinary that within a year, 40 football supporters' trusts have come from nowhere to become vibrant organisations in their local communities and in a couple of cases—Lincoln and Chesterfield—they have already taken control of their football club. It is possible to argue that in many cases a football club is as important an institution as any for the cohesion of the local community. Looking forward, and sticking to football, the collapse of ITV Digital will undoubtedly mean that in many cases football supporters' trusts will be the only bodies able to secure the continued longevity of many venerable football clubs. They will do that within the framework of the Bill.
As the noble Baroness, Lady Thornton, has said, the future for mutuals is extremely exciting. That future does not lie largely in looking to the kind of organisations that mutuals have been in the past, although no doubt retail co-operative societies will continue to evolve and fill niches in the market that the commercial co-ops cannot fill. I hope that they will increasingly offer a framework for a new generation of service delivery in key public services, including health and education. We have heard this evening of nurseries, doctors' practices and care homes that are administered under this framework. As the state increasingly looks to diversity in the provision of public services, I am sure that this sector will grow. My party wishes the Social Enterprise Coalition well.
If the sector is to thrive, it needs a sympathetic legal framework. We regret that this is not a government Bill and a rather more comprehensive updating of industrial and provident societies legislation. Although I agree with the noble Lord, Lord Morris, about the importance of Clause 2(1), it appears from an initial reading to relate to future companies legislation rather than the implementation or reading across of existing companies legislation into industrial and provident societies provisions. When we have a new Companies Act it will be very convenient to be able to read that across, but we are not starting from an ideal situation. It would have been highly desirable if we had been able to ensure that we could bring some 1470 of the more flexible provisions of the Companies Acts into force in industrial and provident societies legislation.
The Bill makes two provisions, both of which are welcome. The raising of the threshold in Clause I will make it much more difficult for carpetbaggers to take over co-ops or other bodies covered by the legislation. I suspect that the number of cases in which that is likely to happen is relatively small, but none the less this is a useful additional strengthening of the existing threshold requirements. Clause 2 allows the legislation to be updated without requiring primary legislation. That is clearly highly desirable.
I assure the noble Lord, Lord Graham, that I am not seeking to cause trouble in Committee, but if I had to make a single amendment to the Bill I would like to change its title. Industrial and provident societies sound so boring and antiquated that it is enough to put anyone off before they read any further. I would love them to be called mutual societies or social enterprise societies—a 21st century definition of a 21st century institution—rather than a wonderful, portentous, Victorian statement that is now completely meaningless. However, I do not intend to press such an amendment in Committee.
Finally, like many other noble Lords, I want to take this opportunity to congratulate the noble Lord, Lord Carter, whose swansong I believe this may he, on the way in which he has played a major part in the institution and the running of the House of Lords since I became a Member. I wish him well for the future.
§ 10.10 p.m.
§ The Earl of Northesk
My Lords, I thank and congratulate the noble Lord, Lord Graham of Edmonton, for his introduction of the Bill. I shall not allow the moment to pass without paying tribute to him. His lifelong—on his own admission 60 odd years—and passionate support for the Co-operative movement is greatly admired and respected on all sides of the House. That, taken together with his former incarnation as Chief Whip in this House for the party on the Benches opposite, demonstrates that the Bill could not have a more effective promoter in this House.
We are doubly blessed in that the noble Lord, Lord Carter, will respond for the Government. Like other noble Lords I can do no other than to pay wholehearted tribute to him for the kind and congenial manner in which he has managed our business over the past five years. He knows the huge respect and affection that the whole House has for him. I am uncertain what the collective noun is for Chief Whips, be they current or former.
§ The Earl of Northesk
My Lords, I was going to say a lashing. Without in any way debasing the contribution of other noble Lords, I cannot help feeling that perhaps we are all a mildly indigestible filling to a distinguished sandwich.
1471 I turn to the Bill. In the circumstances, it is with delight, perhaps even a little relief, that I say that we on these Benches are entirely happy to support its purpose of allowing the industrial and provident societies' sector to flourish and to develop. One of the most striking things about this form of organisation is how deeply entrenched in the fabric of our society it is, especially at local level. As the noble Lord, Lord Graham, has told the House, the range and diversity represented is spectacular: consumer co-operatives, worker co-operatives, credit unions, housing associations, social clubs (not least Conservative, Labour and Liberal clubs), football supporters' trusts, allotment societies and so on. It is little wonder, therefore, that the Bill has attracted cross-party support.
The noble Lord, Lord Graham, has of course explained its provisions with his customary verve and good humour. None the less, I have a few observations about its clauses. Manifestly, where ventures are organised for the benefit of their membership, it is appropriate that a decision to convert to an entirely different business model should be based on a definitive and clear-cut opinion from that membership. Clause 1 deals with that problem admirably. Indeed, as other noble Lords have observed, the drafting here is consistent with the current position in respect of building societies. As the noble Lord, Lord Fyfe, suggested, greater protection against predators will have the desirable effect of creating improved opportunities for existing industrial and provident societies as well as facilitating the establishment of even more.
I turn to Clause 2. First, I echo the comments of the noble Lord, Lord Graham. Thanks to thoughtful and effective scrutiny, this part of the Bill has emerged from another place in much better shape than when it began its passage through Parliament. Colleagues in another place and on all sides of the political divide are to be warmly congratulated on their work in this regard. That said, I should flag up those few areas where we have slight residual concerns.
We do not doubt the utility of Clause 2 as the means to allow the sector, as it were, to catch up with company and building society law. After all, despite numerous Acts in those sectors, this is the first legislation on industrial and provident societies for some 30 years. Yet, as the Economic Secretary, referring to the Government's review of company law, observed in another place:We expect the review to be far reaching—the most important reform of company law in a generation and, perhaps, the most important in 150 years or so".— [Official Report, Commons; Standing Cttee G, 13/2/02; col. 23.]Echoing the words of the noble Lord, Lord Newby, this prompts the question as to whether it may be appropriate for the changes sought in Clause 2 to be delivered by primary rather than secondary legislation. Lest it be felt that my point is a little churlish, of course I concede that we do not know when the Government propose to bring their review forward in a legislative form. Nor would I expect the noble Lord, Lord Carter, to enlighten us on the point. 1472 None the less, picking up the suggestion made by the Select Committee on Delegated Powers and Regulatory Reform, I invite the noble Lord to offer the House assurances that any secondary legislation that emanates from the Bill will be suitably constrained on its face.
As to the substance of Clause 2, we continue to have slight reservations about subsection (3)(b), which is the inclusion of a power to create new criminal offences. Can either of the noble Lords, Lord Graham or Lord Carter, assist me on this point: what precedents are there for the use of secondary legislation to achieve this purpose?
On a separate point, your Lordships will he aware that the fee structure that is being developed for industrial and provident societies by the Financial Services Authority is a source of anxiety for many. Indeed, that was a recurrent theme of debates in another place. For illustrative purposes, I cite the example of the Women's Institute country markets. In the past these worthy organisation—of which there are some 500 operating throughout the country—were required to pay a £15 fee per annum to the Registry of Friendly Societies for filing their accounts. As I understand it, under the FSA's proposals, this will rise to about £240 a year with a further £80 backdated for last year.
I readily accept that the diversity of the sector creates difficulties for the FSA. None the less, for many societies, especially those that are most in tune with their local area, the rise in fees is a particularly heavy financial burden that may even drive some out of business. I also recognise the obligation of the FSA that it should be self-financing. But, surely, an increase of 960 per cent or so, plus the additional burden of a retrospective charge, is, in any circumstances, unreasonable.
Can the noble Lord, Lord Graham, tell us how the meeting last month between the FSA and the promoter of the Bill in another place, Mr Gareth Thomas, went? Was any progress made in terms of resolving the problem? Certainly, any comfort that may have emanated from that meeting would be welcome. After all, there is a fundamental point of principle at work here. If the situation in relation to these fees persists, it will put very severe obstacles in the way of mutuality. Such an outcome would be inconsistent with the admirable and worthy purposes of the Bill explained so eloquently by the noble Baroness, Lady Thornton.
I conclude with this thought. As befits a Private Member's Bill, its provisions are essentially modest, but that should not in any way detract from the significance and merit of their purpose. As I say, we on these Benches support the Bill; and, in so doing, we wish the noble Lord, Lord Graham, every success as he steers it through its remaining stages.
§ Lord Carter
My Lords, I start by thanking my noble friend Lord Graham of Edmonton for bringing the Bill before the House today. It is an important Bill that will bring welcome changes to industrial and provident society law.
1473 I also thank noble Lords for their many kind words about my role as Chief Whip. I am afraid that the business today, including the Motion for the House of Lords Reform, is rather like a memorial service with the subject present and alive and well. I am extremely grateful for the much over-stated and much exaggerated kind words that have been said.
Before outlining the Government's support for the Bill, perhaps I may say how pleased I am that my swansong from the Dispatch Box, after 10 years on the Official Opposition Front Bench and five years on the Government Front Bench, is a Bill introduced by my good and noble friend Lord Graham of Edmonton on a subject which has been dear to my heart for nearly 40 years; for some 30 years as director of an agricultural co-operative; and for four and-a-half years as chairman of the United Kingdom Cooperative Council before entering government. That post was most ably filled by my noble friend Lord Graham of Edmonton when I resigned on becoming Government Chief Whip.
I turn to the Bill. The Government believe that it is important that industrial and provident societies are not unnecessarily disadvantaged relative to companies or other mutual organisations and are able to operate on a level playing field—that familiar phrase—where appropriate. The Bill provides an important stepping stone to achieve that level playing field. That mixes two metaphors.
We believe that mutuality has a great deal to contribute now and in the future, offering potential benefits to individual members and to the communities on which they are based; for example, greater consumer choice and innovative services at a fair price. As a chairman of the United Kingdom Co-operative Council. I was pleased to organise research, for example, into co-operatives for community care and healthy living centres—new forms of co-operation of which I am sure that there will be many more in years to come.
It is because the Government have recognised the value and potential of mutual societies that we have recently been involved in initiatives to help to maximise the benefits that such societies can offer their members. For example, the Performance and Innovation Unit is currently undertaking a broad-ranging review of the legal and regulatory framework for charities and the voluntary sector. It deals with what are known as the "bencoms"—societies for community benefit.
The aim is to enable existing and new not-for-profit organisations to thrive and grow in all sorts of sectors. The report will examine the specific role of industrial and provident societies—I must agree with the noble Lord, Lord Newby, that that is a rather outdated term, but if he does not mind, we shall not have an amendment to change the Long Title—and changes that could be made to help that part of the mutual sector.
1474 The DTI has set up the Social Enterprise Unit, which is examining the barriers to growth of social enterprises. The unit aims to identify how the Government can help to improve the credibility of social enterprises and help them to become more effective businesses. We are also taking action in the wider mutual sector. For example, we have brought forward proposals to reduce the number of restrictions on credit unions' operational powers to allow them to offer a wider and more competitive range of services to their members.
The measures that we are taking will have an impact across a wide range of mutual societies including credit unions and building societies and industrial and provident societies. That is why we have been keen to lend our support in other areas, including this Private Member's Bill. The Government have made it clear from the outset that we support the Bill in principle and we are now able to lend our full support for it as currently drafted.
My noble friend Lord Graham and other noble Lords have examined the Bill's two main clauses, so there is no need for me to go into great detail. To summarise, the first clause relates to voting procedures for all industrial and provident societies in the event of a demutualisation bid. That is a useful modernisation measure that would bring the rules for such votes in industrial and provident societies into line with those for building societies. We fully support the clause.
The Government have already strengthened members' rights in building societies and ensured that decisions to change their nature are not taken lighly—and are certainly not to be reversed. The issue is getting the right balance by protecting mutuality without diminishing democracy or accountability in any way. The measures proposed in the Bill would ensure that a vote on conversion to a company, if successful, was the result of an active decision of its members to opt for company status and not of the actions of a small minority—who are otherwise known as carpetbaggers.
The other main clause of the Bill would enable the Treasury to update industrial and provident society law by assimilating it to company law. The scope of the power as drafted is similar to powers in the Building Societies Act 1986 and the Friendly Societies Act 1992. I welcome the opportunity to improve consistency amongst those different types of mutual organisation in this area.
The Bill will produce an important mechanism whereby industrial and provident societies will not fall behind changes that may he made to the legal framework of companies. We will, of course, need to consider how we use the power as and when company law changes. We will need to take into account the views of Parliament, the sector and the wider contribution that changes may make to the efficiency with which societies are able to provide goods and services.
To turn to the points that have been addressed to me, the noble Lord, Lord Newby, suggested that the Bill will not bring into force any existing flexibilities in 1475 company law. When further changes to company law are made, IMP law can be updated under Clause 2 to incorporate existing as well as new advantages. That is important. The first question asked by the noble Earl, Lord Northesk, who was kind enough to send his questions to me beforehand so that I could be fully briefed, could more appropriately dealt with in a company law reform Bill—when that appears, which may take a little time. I am not putting a timetable on it. Yes, as a retired Chief Whip, I am pleased to say that I am not putting a timetable on it.
Although the clause allows for the assimilation of industrial and provident society law to company law, it is not about the simple extension of company law to societies. The power will allow for the adaptation or substitution of provisions in industrial and provident society law so that they more closely resemble company law. The real subject matter of Clause 2 is industrial and provident society law, not company law as such. It is more appropriately included in this Bill than in a Bill amending company law, for which we might have to wait some time. Similar provisions in building society and friendly society law appear in Acts that specifically govern such societies. That is why the Bill is a more appropriate place for the introduction of the power.
The noble Earl also asked what assurances could be given that any secondary legislation to flow from the Bill had the appropriate checks and balances. There are already several safeguards in place that, we believe, will ensure that the powers available under Clause 2 are exercised appropriately. The affirmative procedure must be used in making an order under Clause 2, meaning that any order made under the clause must be debated and approved by both Houses. The opportunity for parliamentary scrutiny is guaranteed. The power is limited and can be used only when existing company law is modified and only when the change to industrial and provident society law brings it more closely into line with company law provisions already approved by Parliament.
The safeguards in the clause, in which the statutory provisions are set out, cannot be amended by an order made under the Bill. That will ensure that no fundamental change to the nature or character of societies can be effected by the use of the power. The powers in the clause closely resemble existing powers in the Building Societies Act 1986 and the Friendly Societies Act 1992, both of which have been approved by Parliament. The Treasury will, of course, consult on any new proposals that are made under the power.
The noble Earl also referred to new subsection (3B) and asked about precedents for introducing criminal offences via secondary legislation. There are similar provisions in building society and friendly society legislation that expressly allow for the creation of criminal offences. Another example of the power can be found in the European Communities Act 1972. If there exists a criminal offence for a certain act under company law, we do not see why that should not be considered for the equivalent area of industrial and provident society law. That does not mean that we will 1476 always be obliged to create a criminal offence; the clause allows for some discretion as to how company law is assimilated.
There is also the vexed question of fees, about which my noble friend Lord Graham of Edmonton will also say something. We are aware of the concern that has been expressed by some in the movement about the fee structure that is being developed by the FSA in relation to its duty under the relevant Industrial and Provident Societies Act. In passing, I must say that I shall look back with nostalgia on the Financial Services and Markets Act 2000, which was the most heavily amended Act ever to go through Parliament. I can remember every amendment.
I stress that the final level of fees for the coming year has not been finalised. The FSA's consultation with the movement has only just drawn to a close. The figures proposed in the FSA's consultation document—I emphasise the word "consultation"—were only illustrative. Many other figures have been quoted publicly but were completely unfounded. We understand that, along with many in the movement, the FSA prefers a flat fee approach. Inevitably, that will affect some societies unfavourably, but we must appreciate that some societies will gain from such a move, particularly those active in developing and updating their government structures.
We must not underestimate what the Bill will achieve: a more robust demutualisation procedure should create more confidence and strength. The ability to update industrial and provident society legislation through secondary legislation will ensure that the legal framework for societies need not fall further behind that for companies. In time, the Bill will have a profound effect in allowing industrial and provident society legislation to catch up in areas in which it is felt appropriate, helping to create a genuinely level playing field—that phrase again—with companies and across the mutual sector.
I thank my noble friend for bringing the Bill before the House and all those who have contributed to the debate. I affirm the Government's support for the Bill.
§ 10.29 p.m.
§ Lord Graham of Edmonton
My Lords, it is with pleasure and not a little relief that we have come as far as we have with the Bill. I shall begin my closing remarks by telling the House that my noble friend Lord Carter was particularly anxious, regardless of anything else that was happening, to be here to deal with the Bill. I said earlier that as chairman of the UKCC, he had the responsibility six years ago to try to do something similar to what we are doing tonight. The group did a first class job, but it produced a 135-clause Bill. The former Chief Whip was very ambitious.
§ Lord Graham of Edmonton
My Lords, we slimmed it down to 13 clauses, which was still a lot.
1477 Everyone who is present tonight would rather that the Bill was a little more comprehensive, but beggars cannot be choosers. We are looking at a tiny advance towards a level playing field with other organisations.
I am delighted to see the noble Lord, Lord Brabazon, in his place. Earlier this evening, the noble Baroness, Lady Nicol, was present. She had the pleasure of being president of the Cambridge Cooperative Society for many years. The House is a repository for a great many who have been involved in that way.
I very much liked what my noble friend Lord Morris said about the modernising possibilities in Clause 2, but the measure must be carried with a modicum of patience. We shall never get major advances, but we have a foot in the door at all sorts of places, not least the Treasury where the Ministers are. I was pleased that the noble Baroness, Lady Thornton, took the opportunity to pinpoint successes outside the normal sphere of the consumer Co-operative movement. She painted a picture of what can happen if the idea of co-operation and mutuality is given a greater crack of the whip.
My noble friend Lord Fyfe made a unique contribution which went to the heart of what could have been a petrifying situation for the Co-operative movement. He used phrases that I have used before. I have said that the Co-operative movement never made a pauper nor a millionaire. It is not its job to make people either very poor or very rich. It has collective assets that need to be protected.
The noble Lord, Lord Newby, shared our regret at the limited nature of Clause 2. But as my noble friend the former Chief Whip pointed out, the possibilities are there and provided that one can read across to any changes that take place, they can be applied to the co-operative system.
I was more than pleased to hear the remarks of the noble Earl, Lord Northesk, because in the other place there was sparring and points were made. But I was delighted with the words of Christopher Chope at Third Reading when he spoke unashamedly of being satisfied that a good job had been done. Far more time was spent in the other place where consensus was reached than we are able to spend here.
The noble Earl, Lord Northesk, asked about fees. There is no question about that. I see that the noble Baroness, Lady Byford, is sitting next to him. She alluded to the concern in the Women's Institute movement about the possibilities. My noble friend Lord Carter has told us about the parameters in the matter.
My honourable friend Gareth Thomas and Mr Chope went to see representatives of the FSA to discuss the fees. I am informed that they were heard with respect and sympathy but were not told anything definite. The FSA was made fully aware of what we say are deleterious effects. The noble Baroness, Lady Byford, gave an example of the fee being £25 this year and the possibility of having to pay £250. I remember 1478 Mr Greg Knight reporting that an official had said, "Well, if you can't pay it, you need not join. You can go somewhere else".
Our objective is to increase the number of organisations, not to diminish them or to lead them in the wrong direction. I am therefore optimistic. We must bear in mind that the fees issue is an FSA matter, not a legislative one, and that is accepted. When Hansard is read by officials of the FSA and they read the words of the noble Earl, Lord Northesk, and of noble Lords from all around the Chamber, they will be fully aware that the feelings expressed by Mr Chope and Mr Thomas are echoed here.
In case people believe that we are making too much of a meal of the issue, I say that we may never have another opportunity to put on the record two aspects. First, this House is as competently equipped as is the other place in terms of what is happening outside. Secondly, when people look back and ask what noble Lords did when they had the opportunity to speak, they will see that we did not just nod the legislation through but that we debated it for an hour and a half. That has served the cause well.
I am grateful to Mr Thomas and his colleagues on all sides in the other place for giving us a good review and to all colleagues and friends on all sides of this House today. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.