§ 2.28 p.m.
§ Lord Carter
My Lords, I beg to move that this Bill be now read a second time.
The Bill deals with a specific sector of the cooperative movement. Community benefit societies are known handily as combens. They are enterprises that benefit the community. They are not suitable for registration as companies but exist only for the benefit of their own shareholders as investors.
The Bill has three main parts. The asset lock-in provisions permanently prevent the use of or dealing in the assets of combens, except for the benefit of the community. There are technical provisions which bring combens into line with companies when they enter into transactions. There are further technical provisions when combens execute deeds and documents and enter into contracts.
1370 I was particularly pleased when Mr Mark Todd, the Member for South Derbyshire who took the Bill through the Commons, asked me to steer it through the Lords. The Bill is part of an ongoing process. Between the election victory on 1st May 1997 and my entry into government as Chief Whip on 5th May, in my role as chairman of the United Kingdom Cooperative Council (UKCC), I presented the incoming government with a draft co-operatives Bill. I am delighted that my successor, the chairman of the UKCC, my good and noble friend Lord Graham of Edmonton, is speaking in the debate.
Before I deal briefly with the main clause in the Bill, perhaps I may summarise the background. The cooperative movement has argued for many years that the law relating to co-operatives should be updated. The draft co-operatives Bill that I presented to the Government was a part of that process. A community benefit society, or comben is an industrial and provident society—an I & P society—in a corporate form which is used by co-operatives as organisations that provide a benefit to the community. These will include a number of housing associations and clubs as well as a number of members of VRSA, the Village Retail Services Association. The noble Baroness, Lady Byford, the noble Lord, Lord Phillips, and I are the three patrons of the Village Retail Services Association. Football supporters' trusts are also combens.
Registration under the Industrial and Provident Societies Act 1965 gives such organisations legal status, continuing existence and limited liability, while allowing their governance structure to reflect the mutual and the community ethos, which is distinct from convention and corporate principles. This form is increasingly suggested as the model for securing community assets by delivering public services which are based on those assets.
However, the feeling is that the governing legislation, the Industrial and Provident Societies Act 1965, is now outdated in comparison with company law, and it is argued that that acts as a disincentive to the wider use of the I & P form. Initial reforms were made in the Industrial and Provident Societies Act 2002, a Private Member's Bill promoted by Mr Gareth Thomas, the Member for Harrow West. Perhaps I should mention that my last appearance on the Front Bench at the Government Dispatch Box was to reply for the Government to the Second Reading debate on that Bill.
The present Bill will allow members of community benefit societies to alter their rules to prevent their assets being distributed, except to other bodies with equivalent purposes. The provisions for such an asset lock, as it has been called, were withdrawn from Mr Gareth Thomas's Bill in 2002 in the face of government concern about the wider effects of such a lock, and because, sensibly, the Government wanted to wait until the autumn of 2002—September—for the Strategy Unit report, Private Action, Public Benefit, which recommended that community benefit societies should be permitted to protect their assets in perpetuity for a public purpose.
1371 The Bill will also bring I & P law into line with modern company law on the effects on the third parties or actions taken by the company that are beyond its capacity, the ultra vires rule, and the role of the corporate seal. The Bill applies to England and Wales.
As I said, combens are a particular category of I & P society that operate for the benefit of a wider community compared with the normal co-operative society, which acts for the mutual benefit of its own members as users of the society, rather than as investors in the company. The Bill received all-party support in the Commons and was amended to deal with several technical aspects. It was drafted by the Treasury and therefore unsurprisingly has the support of the Government.
I shall now deal briefly with the Bill's main clauses. Clause 1, the asset lock, as it is known, enables the Treasury to bring forward under secondary legislation provisions under which community benefit societies could prevent any use of or dealing in their assets, except for the benefit of the community or some other specific defined purpose. The aim is not to restrict societies from buying, selling or trading in their assets. The purpose is to develop a regime that will enable a society to ensure that its assets are permanently dedicated, in whatever form, to the intended use set out in the society's rules or for some similar beneficial purpose.
The aim is to create a regime under which the members of a society could vote irrevocably to prohibit the distribution of assets to members or the conversion, amalgamation or transfer of a society with or to a company or other body, unless that body were also subject to a regime including an irrevocable restriction on the use of and dealing in its assets.
Clauses 2 and 3 are highly technical. Currently, there is a burden on a party to a contract with a society to verify that the society's rules permit it to enter into such a contract and to check that the committee is acting within its powers. Those clauses will make clear that where a transaction is outside a society's rules and was conducted by the society in good faith, the transaction will remain valid and in place. That should facilitate societies' ability to enter into transactions and bring IPS legislation into line with company legislation in the area.
Clauses 4 and 5 deal with the use of the seal. Those clauses propose that a society can execute documents in the same way as companies. At present, the method is old-fashioned and cumbersome, requiring the application of the society's seal to documents. In my time as secretary of an agricultural co-operative society, the first task was to find the seal. However, societies will not be forced to adopt those new ways of working. Those that still place more value on current practices can continue to trade using those procedures if they wish. The clauses also clarify the legality of contracts made prior to official registration of a co-operative or community benefit society.
1372 Clause 6 is an interpretation clause. Clause 7 is the commencement clause, which proposes commencement by Treasury order. Clause 8 deals with the Channel Islands and Clause 9 contains the short title and extent of the Bill.
The Explanatory Notes to the Bill prepared by the Treasury set out in much greater detail the technical aspects of each clause—if your Lordships are interested in those aspects, I suggest that you read those notes.
Before I conclude, I should mention the report of the Delegated Powers and Regulatory Reform Committee, which was published only yesterday. I have clearly had no time to take advice or consider its recommendations on the Bill. I shall obviously need a little time to reflect on the report.
In conclusion, I cannot do better than cite the Prime Minister, who, in his foreword to Private Action, Public Benefit, drew attention to the insufficient recognition of the particular needs of social enterprises, a rapidly growing group of businesses that are carrying out a wide range of activities for the benefit of society rather than of the individual. The Bill helps to redress that situation. I commend the Bill to the House.
§ Moved, That the Bill be now read a second time.—(Lord Carter.)
§ 2.35 p.m.
§ Lord McNally
My Lords, I declare an interest as a trustee of St Albans Liberal Club. I put my name down to speak on the matter because I thought that the noble Lord, Lord Carter, might be lonely on a Friday afternoon, but I see a number of distinguished Co-operators around the Chamber. The presence of the noble Lord, Lord Skelmersdale, on the Conservative Front Bench brings to mind a link with the Cooperative movement involving his name, if not his person. When I worked for the noble Lord, Lord Callaghan, he used his not inconsiderable influence to persuade the Co-operative Bank to locate a quite important function in Skelmersdale. Once it was established, we visited Skelmersdale and were received by several hundred militant supporters shouting "Callaghan out, Callaghan out!". The noble Lord, Lord Callaghan, said "I sometimes wonder why I bother".
I do not put that at the feet of the Co-operative movement. My first duty is to congratulate Mark Todd on introducing the legislation. At Second Reading in another place he mentioned that his grandfather was a Member of Parliament in the 1930s. Hope against hope, I asked his office whether his grandfather was a Liberal, but he was a Tory—another of their lost sheep. At Second Reading, Mark Todd warned against "sepia-tinged nostalgia" when dealing with Co-op matters. He is right; my generation certainly has sepia-tinged nostalgia.
Mr Bert Glynn, the manager of the Fleetwood Coop, was a figure of some substance in our local community. Every Friday night, the Co-op insurance agent called to collect my mother's contribution to her policies. At age seven, I thought she was showing 1373 undue pessimism in taking out a penny a week on my life. That was the kind of role the Co-op played in many communities.
Later, as a student, I went with four others to the annual general meeting of Fulham Co-op to oust four elderly, and probably very worthy, members of the local Communist Party who were the controlling majority on the Co-op. In fact, from what I could see, they were the only members until we joined to overthrow them. The Co-op has not always benefited from such political infighting.
In the mid-80s, I was the director-general of the Retail Consortium. I well remember a lunch attended, not by the Co-op, but the chief executives of the major supermarkets. When guests reached the time for coffee and brandy, someone lifted his glass and said "Let's toast the Co-op. Long may it sleep!" There has been a tendency to think of the Co-op as a sleeping giant. That may be so, but it is still a giant. In retail, its turnover is nearly £10 billion. It has over 5,000 shops and over 115,000 staff. It is Britain's biggest farmer and—this will be of particular interest to your Lordships—Britain's biggest undertaker. It is a big organisation.
As the Bill makes clear, legislation in this area affects over 500,000 charitable and non-profit organisations, over 300,000 allotments, and 6,500 registered clubs, including the political clubs, which is why I made my declaration of interest. This is not a trip down memory lane; we are talking about organisations that are very relevant, even more relevant—I will argue—to our present age.
The solutions with which co-operation and mutualism provide our society are increasingly relevant. Morrisonian nationalisation has had its day, and, as we begin to learn about some of the limitations of privatisation, it may be that the third way for which the Prime Minister is searching desperately is staring him in the face—co-operation and mutualisation. It is certainly the solution in some areas. We already see it in operation, in services to rural areas and deprived inner-city areas. There are inner-city social enterprises, and credit unions are of great importance in keeping hard-pressed poor people out of the hands of loan sharks. There are the after-hours medical services, the schoolkids' clubs, the country markets and village retailers, to which the noble Lord, Lord Carter, referred, and housing associations. Those organisations are at the sharpest of sharp ends, dealing with the problems of everyday life, and we must ensure that they are not open to hijack and asset stripping.
There are other areas of interest. Mutualism can be applied to football, rugby and other sports clubs. We all get worried when sports clubs, which are community assets and belong to the fans, are taken over and used as the playthings of rich men or become simply commercial organisations. It is probably too late for the mutualisation of Manchester United, but, at the other end of football, there is a great deal to be said for bringing the fans into soccer clubs, rugby clubs and other sporting ventures, so that they become protected, community-based assets.
1374 Noble Lords will know that I am involved with the Communications Bill. I see that the noble Lord, Lord McIntosh of Haringey, is on the Front Bench. When reading this Bill, I thought that access radio might find a solution in mutualisation. It would be interesting to see genuinely local radio stations run by such organisations. I fear that access radio, if it becomes really popular, will, like local radio, be hoovered up by big organisations.
The point is that, wherever we look, co-operation and mutualism are pertinent to today's needs. As the noble Lord, Lord Carter, said, we need an asset lock, to keep the assets in the community, and we need to modernise the law to protect organisations from two threats. There is the threat of the asset stripper and the threat of fossilisation when social change on narrowing of membership base means that organisations should be able to change but where the present law is cumbersome.
As the noble Lord, Lord Carter, said, this has been an ongoing process since 1997. We welcome these government measures and that they have acted, not just with the co-operatives but previously with the building societies, to prevent carpetbaggers and asset strippers moving in. The Government are to be congratulated on this legislation.
I am glad that the noble Lord said what he said about the scrutiny committee. My noble friend Lord Wigoder drew attention to three quite powerful recommendations in its report. We shall have to examine those closely in Committee, particularly the concerns about Henry VIII powers in the Bill. However, I know that the noble Lord will do so.
The Government should move on, as it were, from fulfilling the manifesto commitment to a much more confident promotion of the ideas of co-operation and mutualisation. In a wide range of areas—rural, inner city and elsewhere—it is a solution which should commend itself to a Government with their roots. Personal responsibility, community involvement, local accountability and democracy, and a commitment to quality and service are as relevant today in the 21st century as when those pioneers first met in Toad Lane, Rochdale, nearly 160 years ago. Therefore, I have much pleasure in commending this Bill to the House.
§ 2.47 p.m.
§ Baroness Thornton
My Lords, I am delighted to speak at Second Reading in support of my noble friend Lord Carter on the Co-operatives and Community Benefit Societies Bill. I congratulate my honourable friend Mark Todd on choosing this Bill and on skilfully steering it through another place. I declare several interests. I am a life-long co-operator and I work with the Co-operative Group. In an unpaid capacity, I am chair of the national organisation, Coalition for Social Enterprise, which is an umbrella organisation for the whole co-operative and social enterprise movement. Finally, recently I was fortunate enough to be elected to the chair of the newly formed All-Party Parliamentary Group for Social Enterprise.
1375 I am pleased that the noble Lord, Lord McNally, ended his remarks on that upbeat note because I feared that at the beginning he was sinking into his own sepia-tinged tale of co-operation. The modern co-operative movement is supporting many new kinds of social enterprise and social ownership. This Bill is part of that process. I also regard this Bill as yet another stage in the process of updating and modernising the law as it relates to I&PS companies. It is the third Private Member's Bill that we have seen in the past two years seeking to bring legislation that governs co-operatives and mutuals into the 21st century. I fear that we are not quite there yet but we have travelled a long way down that road. I was delighted to take through your Lordships' House a Private Member's Bill sponsored by my honourable friend Mark Lazarowicz.
This Bill builds on the Industrial and Provident Societies Act 2002, steered through another place by Gareth 'Thomas. It will benefit a large number of organisations, including consumer co-operatives, worker co-operatives, housing associations, credit unions and a variety of social clubs. The proposed reforms are welcome in that they seek to provide a level playing field for companies and secure the benefit of assets for the community that the co-operative seeks to serve and thus deter carpetbaggers.
In many ways, I am particularly interested in the potential that this Bill offers to those who are seeking to establish new forms of social enterprise and cooperatives today. The Bill needs to be seen in the context of the Government's overall commitment to extending new forms of enterprise into British economic life and their determination to reform public services by offering a range of alternatives to either public or private ownership. That range of alternatives seeks to look at the provision of—dare I say?—health services, nurseries, library services, leisure services and care of the elderly. I believe that there are no barriers to the enterprises that could serve and trade for a social purpose in our communities.
The Government recently launched a consultation process seeking views on the proposal to introduce a community interest company Bill. The fact that it was launched by three—or was it four?—Cabinet Ministers and several of their junior Ministers sent a fairly strong signal that the Government want to take that Bill forward. The genesis for the community interest company Bill was the work done by the Government's Strategy Unit, already referred to by my noble friend Lord Carter, in its report entitled Private Action, Public Benefit, which was discussed in this House on 6th February last. It made two recommendations on social ownership and the legal framework that would encourage its future growth.
The report recommended, first, the creation of a new legal entity—the community interest company—and, secondly, that the industrial and provident society legislation,should be strengthened and updated by enabling Societies to opt for protection from demutualisation, and by renaming them as either Co-operatives or Community Benefit Societies".1376 It is this second proposal that we are discussing today.
Noble Lords will be aware that it can take as little as 24 hours to set up a company in the United Kingdom and that it can cost as little as £90. We should be proud of that. However, if one wants to establish a cooperative, a mutual or a social enterprise, the I&PS legislation used is still based in the 19th century and is very outdated. Therefore it should be no surprise to learn that only 200 such companies were registered last year, compared with 6,000 charities, over 5,000 companies limited by guarantee and well over 200,000 companies limited by shares. Thus I&PS companies are still expensive, complicated to establish and not straightforward to administer. A fundamental overhaul of the structure has been recommended in the report.
As has been said, this is about creating a level playing field. I believe that it is important that it should be easy to create a co-operative model for an enterprise as a community interest company and that a range of legal structures should be available, accessible, reasonably priced and appropriately regulated. This Bill marks another step along that road and its passing will make it easier when we come to consider the community interest company.
Many of us are very committed to the legal reforms that will offer a range of structures, because the enterprises we seek to encourage are constantly seeking new and innovative ways to run their businesses and serve their communities. That is why this is such an exciting sector of the economy.
I close by saying how much I welcome the Bill and I hope that it will receive an easy and constructive journey through your Lordships' House.
§ 2.53 p.m.
§ Lord Graham of Edmonton
My Lords, it is always a pleasure and a privilege to speak in these debates. Like the noble Lord, Lord McNally, I put my name down to speak in order to ensure that my noble friend Lord Carter was not lonely. However, the noble Lord, Lord McNally, referred to a remark made many years ago by my noble friend Lord Callaghan. After an event he was heard to say, "I don't know why I bother". Frankly, I do not know why I have bothered today because the case has been so well made by my noble friends Lord Carter and Lady Thornton, and the noble Lord, Lord McNally.
This has been a good week for the co-operative idea. On Wednesday, the noble Lord, Lord Naseby, brought before the House a debate on the future of friendly societies. That was a little gem of a debate, in that it served to remind the Government that there are other enterprises aside from the industrial giants and global players; there are the comparatively little people who also need government protection. However, I am bound to say that my noble friend Lord McIntosh, the Minister who responded to the debate, gave a friendly nod to the future of friendly societies.
1377 The noble Lord, Lord McNally, referred to a period when he helped my noble friend Lord Callaghan. Before the 1974 election, the great prize for the Cooperative movement was to get accepted a body called the Co-operative Development Agency. Mr Terry Pitt, the research officer at Transport House, played a great part in it, as did the noble Lord, Lord McNally.
In 1978–25 years ago, but only 25 years ago—the Labour government under the noble Lord, Lord Callaghan, introduced the Co-operative Development Agency. It was not the be all and end all of the future of the Co-operative movement—that has always been in its own hands—but it was the creation of a structure which endeavoured, nationally and regionally, to promote co-operatives. Sadly, during the 1980s and into the 1990s that ideal fell by the wayside.
But the Co-operative movement picked up the challenge and the United Kingdom Co-operative Council was created. Its second, and illustrious, chairman was my noble friend Lord Carter, and I followed him.
From the days when it fought itself into existence the Co-operative movement has had to survive very bleak conditions. At one time it deserved the description of the noble Lord, Lord McNally, as a "sleeping giant". The "sleeping giant" then illustrated on the front page of the People newspaper was the Maldon Co-operative, which was represented by the noble Lord, Lord Wakeham. So we have been through the troughs.
My noble friend Lord Carter quite rightly pointed out why we are here at the moment. At one time the solution was seen to be the Government's endorsement of a co-operative Act. Everything went into it. Rut it was so comprehensive that we quickly recognised that the difficulty of finding time for it was beyond us.
I wish to put on record my gratitude to the civil servants of the Co-operative movement outside the House who may be listening. We are indebted for their hard work in helping our good friend Mr Gareth Thomas—the chairman of the Co-operative Party as well as a Member of another place—to produce his amendment to the Industrial and Providence Societies Act. The Bill represents another bite at the cherry.
When we talk about the beneficiaries of the Bill, we of course include the existing co-operatives. Today we have the benefit of reading the debates in another place and reading about enjoyable facts and situations; we can see the opportunities that are available for ordinary people to benefit. But a co-operative is an organisation designed for the benefit of its members and the Bill is designed for the benefit of the communities in which those people live. I hope that the Minister will be helpful, if not strictly correct, when he refers to the significance of the information we received yesterday.
I declare an interest as a consultant to the Cooperative Group, which used to be called the CWS and which was well known, respected and successful.
1378 The Co-operative movement recognises that its future is in its own hands, but it needs assistance. I can recall from my time in both this House and another place—which is not considerable but is somewhat lengthy—that, arising out of the Victorian ethos, the banking movement, the insurance movement, credit unions and building societies have all had a modern Act framed in accordance with the conditions appertaining to them in 2000 and beyond.
I am grateful to the noble Lord, Lord McNally, for outlining the strength of the Co-operative movement and to my noble friend Lady Thornton for pointing out the possibilities for the application of the cooperative ideal. We all know about Co-ops—shops on the corner, dividends, and all the rest of it. But lots of people like the idea of co-operative organisation; they do not necessarily approach it in the same way as I do, or anyone else. The beauty of the co-operative idea is in democracy, self-help and self-reliance. It is open to all, democratically controlled, and is of benefit not just to individuals but to communities.
We are indebted to the noble Lord, Lord Carter, for bringing the Bill forward. The noble Baroness, Lady Thornton, referred to a Bill from the same stable, which she ran through the House last year. I had the same privilege with the Bill introduced by Gareth Thomas. This is a good time for the idea of mutuality to be kept alive in the minds of legislators, whether it is in the form of co-ops, friendly societies, building societies or those who do not wish to be demutualised but to continue the sound practices of our Victorian forebears. The Rochdale pioneers got off their knees, stood up proud, and gave the country and the world the Co-operative movement. When we realise their struggle and what they did, it is surely not beyond our wit to do even better in the next century.
§ 3.1 p.m.
§ Lord Newby
My Lords, I, too, declare an interest as vice-chair of the all-party group on social enterprise. Having listened to the eloquent speeches already made, I am very aware of the old political adage that everything has already been said but not everybody has said it. I shall try not to repeat too much of what has already been said.
There has been some discussion of the extent to which co-operatives and community benefit societies are viewed with sepia-tinged nostalgia. My view has been expressed by a number of noble Lords: I think we are entering an era of renaissance for the mutual sector. It is very different from the original impetus for the Co-operative movement in that I do not think that the renaissance will find itself in the retail sector. But there is a lot of thought and a lot of work on mutuality in the provision of public services and elsewhere.
When the Liberal Democrats looked at the future of the delivery of public services under the Huhne Commission, one of the principal strands was the need to investigate the scope for mutuality as the basis of provision in healthcare, education and elsewhere. One interesting thing has been the extent to which the framework of mutuality has been able to adapt to new 1379 areas of activity which were far removed from the pioneers in this sector. For example, I have been particularly struck by the work of Greenwich Leisure in producing much more innovative and efficient leisure facilities than the local borough was able to do under the previous rules or regime, and in selling its services outwith Greenwich and, indeed, London. The noble Lord, Lord McNally, mentioned the work being done to see how football clubs, which are very much community clubs at the other end of the scale from Manchester United, might be run on a mutual basis.
This is an area and a form of organisation whose time has come. We look forward to discussing the community interest company Bill in due course because that is another building block to enable this sector to move forward more quickly.
This Bill is part of that process and, as everyone has said, it is very useful. Clause 1, which is the heart of the Bill, deals with locking in. When I first read the Bill and the briefing notes, I was somewhat surprised to contemplate members of a community benefit society turning themselves into a company and dissipating the assets on some other area of activity. I was still not sure how often that has happened, but then I was reminded of the recent history of the major building societies, so I could immediately see the relevance of it.
The Bill also brings out how much legislation in this area has fallen behind that elsewhere. In the Finance Bill, we discussed a provision under which large companies will have to pay all their tax electronically, yet in the same year we are just abolishing the need for a common seal to be applied to every document that must be verified in this sector. That is a stark indication of how far there is to go before the legislation in this sector is brought up to date. Everything in the Bill is very welcome.
I have two questions for the Minister. First, the noble Lords, Lord Carter and Lord McNally, referred to the report of the Select Committee on Delegated Powers, which suggests that in three areas the powers in the Bill may be slightly too wide. In two cases, it suggests how that might be rectified. If amendments that deal with the issues raised in the Select Committee report are introduced in Committee and passed, can the Government give any assurance that the Bill, being then an amended Bill, will be given a fair wind when it goes back to the Commons? I notice the noble Lord, Lord McIntosh, smiling, so I suspect that I know what his answer will be. It would be a great pity if technical amendments dealing with valid concerns ended up scuppering the Bill.
Secondly, will the Minister give a commitment that any secondary legislation that the Bill will introduce, on the assumption that the Bill is passed, will be published in draft form and commented on? In that way, when it is passed, it will have had proper pre-legislative scrutiny and will be in the most appropriate form.
With those caveats, I have pleasure in supporting the noble Lord, Lord Carter, and all those who have spoken on the Bill.
§ 3.7 p.m.
§ Lord Skelmersdale
My Lords, I can tell the noble Lord, Lord McNally, that today I am not in a militant mood, despite my name. Rather, it is my great pleasure to congratulate the noble Lord, Lord Carter, on what his noble friend Lord Graham called achieving a part of his original intention.
That intention was to legislate on a promise by the Government, in last September's Strategy Unit report, Private Action, Public Benefit. Paragraph 8.10 of the report states:Reform of Industrial and Provident Societies is likely to require separate legislation".What, if any, more legislation can we expect in that area? That is essentially what the noble Baroness, Lady Thornton, was asking.
I am coming new to the subject, and it seems to me that the title of the report applies aptly to the noble Lord, Lord Carter, and to his Bill. It aims to reduce the time that the mutual and community benefit societies spend in dealing with regulations and allows them to enlarge the scope of their activities. Specific clauses will give them the right to safeguard the societies' assets in their constitutions, thereby protecting them from asset-stripping. The noble Lord, Lord Newby, made that point. Clearly the noble Lord, Lord Carter, feels that the current lack of that protection prevents mutuals and co-operatives from controlling public services. It seems that the Government agree with him.
In another place, we signalled our support for this Bill, while raising some concerns, including querying the reference to industrial and provident societies in the Short Title as hardly fitting in the 21st century. Be that as it may, the Bill as it is now is far better than it was when introduced in another place. Indeed, the Bill has undergone a huge metamorphosis since Mr Todd introduced it in another place. It will now be greatly welcomed by co-operative and community benefit societies. They play an important role in the voluntary sector which, as all today's speakers have proved, is supported by Members of this House as being integral to the way in which we in this country live our lives and as part of the essential culture of a civilised society. The initiative of the honourable Member to whom I have just referred has allowed the Government to focus their energy on addressing the matter seriously with all the professional resources at their disposal, resulting in the almost total redrafting to which I alluded.
The noble Lord, Lord Carter, will be relieved to hear that we still support the Bill's passage to the statute hook. It is a permissive Bill and is consequently enabling legislation. Producing such legislation rather than measures which curtail and restrict freedom is a proper role that this House has taken upon itself in recent years and is, of course, an essential element of our democracy.
There is no doubt that co-operatives and community benefit societies comprise a very important sector of the economy, not least because, at the end of 2000, the 8,382 industrial and provident societies on the register held assets of £61 billion. That amount of loot simply proves the point. The register is 1381 divided between retail societies including the small cooperative stores and the wholesale and productive societies. The register also includes not only the agricultural societies which have been dear to me, and I am sure also to the noble Lord, Lord Carter, and which are so important to our rural economy given the challenge that it currently faces, but also the fishing societies which provide for the supply of fishing equipment to members and marketing facilities to each other. It also includes clubs, general service societies and housing societies.
I agree with the noble Lord, Lord Newby, that the opportunities to provide services to the public sector are enormous and growing by the moment. Given the great importance of those organisations to what is taking place in so many of our communities, the Strategy Unit report correctly puts its finger on this important area for review.
In regard to the regulatory impact assessment's finding on the power to restrict the use of assets—the so-called asset lock—in Clause 1, the letter from the Minister, Ruth Kelly, in March suggests that without an asset-locking regime in place, there would be,a serious deterrent to funders".I note that that was not clear from the Bill's introduction and that the point was seized on during deliberations in another place. That was important not only because we have looked at a number of the processes by which these entities are able to commit themselves and to be bound to the outside world as well as ensuring that they have modern procedures, but because in the modern competitive world they must have the opportunity to gain the confidence of those who would seek to fund them so that they can be competitive while maintaining the mutuality of interest of their members.
As with public limited companies, provisions also allow for the possibility of a reduction in transaction costs and the facilitating of business transactions, which we welcome as potentially deregulatory.
I should like to raise a practical point; namely, that in relation to the sealing of documents there is an added benefit which is not highlighted in the Minister's letter of 25th March. These days, commercial deals are often done quickly to capture the opportunity, and cooperative or community benefit societies equally need to try to ensure that they do not lose out by being unable to act swiftly when it is in their interests and the interests of their members so to do. In plcs the seal is no longer needed. Here, although it has to be considered in jurisdictions other than England and Wales, it is appropriate that we have that benefit, which is also necessary given that, these days, company executives as well as those of co-operatives and community benefit societies have to travel extensively, despite the fact that their jobs are focused within their community. They are often not in the right place to be able to sign against the seal. The point is very practical, but all those who have been involved in commerce realise that such factors can often be a serious deterrent to getting deals done quickly and giving confidence to the other party.
1382 The Bill is highly desirable and, unlike another piece of legislation that begun its passage through another place on Wednesday, likely to be effective. The point on the question of the name has been considered but it would be helpful if the Government reiterated their assurance that the legislation is not intended as a blank cheque but as a process by which secondary legislation is clearly itemised and dealt with by statutory instrument. Mostly these would be negative but I am glad to see that Clause 1 on the power to restrict the use of assets is to be done by affirmative instrument. Indeed, I note the report of your Lordships. Select Committee on Delegated Powers and Regulatory Reform that the Bill already goes over the top in this respect. I trust and believe that the noble Lord, Lord McIntosh, will take this criticism on the chin and do something about it.
I should like to pay tribute to all that the cooperatives and community benefit societies do. This is a well deserved measure that will assist them in going forward in the 21st century. We hope that it builds on the legacy of past generations which made available assets as well as their time, skills, endeavour and good will. I hope that this House will acknowledge them by doing the same and adding to their good work. I again congratulate the noble Lord, Lord Carter.
§ 3.16 p.m.
§ Lord McIntosh of Haringey
My Lords, I start by congratulating my noble friend Lord Carter on the way he introduced the Bill and, indeed, on not being too lonely in doing so. It has certainly freed me from the responsibility of going through the detail of the Bill other than, as the House would expect, analysing Clause 1 in some detail as that is the most controversial part.
It is clear from the debate on Wednesday, referred to by the noble Lord, Lord Graham, that the Government are, in his phrase, "friendly about friendly societies". I hope that I can be co-operative about co-operative and community benefit societies.
I do not want to repeat what I said in support of the principles of mutuality but I want it to be known that the Government's support for the mutuality principle has not disappeared in the past 48 hours. We remain committed to the concept of mutuality with its focus on member participation and service to the community. The mutual sector is made up of a wide range of organisations including building societies, friendly societies and credit unions in addition to industrial and provident societies. That is why we supported last year's Private Member's Bill brought forward by Gareth Thomas MP which initiated reform in a number of key areas of industrial and provident society legislation.
The Government also initiated a review of the voluntary and not for profit sector by the Strategy Unit in July 2001, which has already been referred to. The final report, Private Action, Public Benefit was published in September 2002 and contained a number of recommendations for reform of the industrial and provident society sector. The noble Lord, Lord 1383 Skelmersdale, asked what further legislation will be required. Certainly, the report indicates the need for reform of the legal framework for industrial and provident societies. We shall shortly respond to the recommendations in the report. There will then be an answer to the question posed by the noble Lord, Lord Skelmersdale, as to what, if any, legislation is required.
The most important recommendation so far as we are concerned is the asset lock-in regime for community benefit societies, which Clause I would enable. The Bill before us has three main objectives: first, to allow a community benefit society to adopt an asset lock-in, ensuring that its assets can be used only for the benefit of the community; and, secondly, to enact changes to the powers and capacities of societies to facilitate their ability to enter into business transactions. I note the helpful comments of the noble Lord, Lord Skelmersdale, about the use of a common seal. When I ran companies I always had to search for the common seal on the rare occasions when it was required for business transactions. The Bill's third objective is to amend industrial and provident society legislation to make it easier for societies to enter into contracts and execute documents.
Clause 1—the asset lock-in clause—would allow the Treasury to bring forward in secondary legislation provisions to permit community benefit societies to ensure that their assets can be used only to the benefit of the community. The aim is not to restrict societies from buying, selling or trading in their assets. The purpose is to develop a regime that enables the society to ensure that its assets are permanently dedicated, in whatever form, for a business purpose for the benefit of the community.
Although the Financial Services Authority, which of course is the regulatory authority, will not register a community benefit society unless it has an asset lock-in rule in its constitution, that does not give the societies the security that they might need. For example, a society could convert into a company, and some time later reverse the asset lock-in rule in its company constitution. Asset lock-in for community benefit societies emerged as one of the key recommendations of the Strategy Unit report on the voluntary and not-for-profit sector, and has received firm support in the public consultation that has now ended on that Strategy Unit report.
The report noted that the current situation, with no unalterable or irreversible asset lock-in provision available, was a "serious deterrent to funders" of those societies. The Government support the principle of asset lock-in. We can see the benefits that it could bring to the community benefit society sector. However, we are in a complicated policy area, and it is important that the principle is implemented in a manner that maximises the benefits for the sector and the economy as a whole.
It is vital that any asset lock-in regime does not decrease the efficiency of the sector or create inappropriate restrictions on the societies' ability to merge or consolidate. The Strategy Unit identified a 1384 number of detailed points where we need to consult further. For example, the report referred to "robust mechanisms" that,would have to be put in place to ensure that takeovers, mergers and dissolutions are conducted in a fair and transparent way".The report also makes it clear that the lock on assets may not be appropriate for all societies.
The clause provides the framework for what we believe is necessary to set up an appropriate asset lock-in regime. If the Bill becomes law, we will undertake further work to consult on the details of how such a regime might function, and bring forward secondary legislation if such a regime continues to be sensible and feasible. In order to ensure that any asset lock-in regime receives the benefit of appropriate parliamentary scrutiny, it is already clear that the secondary legislation would be subject to affirmative resolution in both Houses.
I note, however, the report of the Select Committee on Delegated Powers and Regulatory Reform and its three recommendations. Clearly, my noble friend Lord Carter will have to talk to the Select Committee and his advisers who have been promoting the Bill. I know that he will do so, because I know from my experience of working with him that he shares the respect that the Government have for the judgment of the Select Committee.
It is not clear to me yet—it cannot be, because we have not had a chance to look at the report in detail—whether the committee's recommendations will make amendments necessary. I say that because the noble Lord, Lord Newby, asked a consequential question about whether we could give a fair wind to the Bill if it went back to the House of Commons with amendments. He will know that I cannot commit government time to a Private Member's Bill. However, he will also wish to know that we have considered the possibility. I cannot go any further than that.
The noble Lord also asked whether regulations would be available in draft. I have already made it clear that any regulations would have to be subject to consultation, and therefore they certainly will be available in draft. I think that I have answered the point made by the noble Lord, Lord Skelmersdale, about further legislation for industrial and provident societies.
I shall not go into the detail of the subsequent clauses. They were more than adequately presented by the noble Lord, Lord Carter. I believe that these proposals represent a welcome move towards the modernisation of industrial and provident society legislation by increasing the societies' operational flexibility. On that basis, we support the Bill.
§ 3.25 p.m.
§ Lord Carter
My Lords, I am grateful to all noble Lords who have spoken. Far from being lonely, I thought that the debate was more of a "love in" than anything else.
I am extremely grateful to the noble Lord, Lord McNally, who reminded me about the collection of the Co-operative insurance society premiums. The chap 1385 who collected our premiums used to collect a sub for the Labour Party at the same time. I am not sure whether the Financial Services Authority would allow that now. I am also grateful to the noble Lord for illustrating the very wide range of community benefit societies. I did not have the time to do so.
The noble Lord, Lord Newby, referred to the "renaissance" in mutuality. The whole co-operative movement missed a trick when, under the previous Conservative government, organisations were in the throes of privatisation. Although that government would not have accepted the idea of mutuality for the nationalised corporations, as it were, I think that we should at least have started to get this matter on to the agenda, where it is now.
There have been a number of references to the Delegated Powers and Regulatory Reform Committee. I shall take advice and decide how best to deal with that.
My noble friend Lady Thornton referred to CICs. I am surprised that my noble friend Lord Graham, with his fondness for punning, did not link CICs to football supporters' trusts. He confirmed what is now the incremental progress in the reform of Co-op law. Although I did not think so in 1997 when I presented a Bill containing 137 clauses to the incoming government, this Bill perhaps provides a better way to proceed than a "big bang" Act.
My noble friend the Minister dealt with the reference to the Delegated Powers and Regulatory Reform Committee and the fact that there will be a widespread and lengthy consultation process. Then the Bill will be taken forward.
Perhaps I may say a brief word to the noble Lord, Lord Skelmersdale, on the history of the need for lock-in. He referred to the demutualisation of building societies. We should not forget the attempt a few years ago to break up the CWS. There has always been a fear—which lay behind the draft Bill that I presented—that the assets of a society that was constructed for the benefit of the community could be stripped away.
I certainly agree with the noble Lord that we need a more up-to-date name than "industrial and provident societies". It is an old-fashioned terminology. I hope that there will be a final overhaul of the 1965 "I&P" Act, as we all know it—which is itself based on 19th century legislation. I hope that more modern terminology can be found.
I think that I have answered all the points made. I have pleasure in commending the Bill to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.