HL Deb 19 May 1988 vol 497 cc575-8WA
Lord Bruce-Gardyne

asked Her Majesty's Government:

What progress has been made on the review of Schedule 8 to the Building Societies Act 1986.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My honourable friend the Economic Secretary has laid two draft orders before the House today. If these orders receive parliamentary approval and are made, the Building Societies Commission, with the consent of the Treasury, intends to make two further orders to complete the package. Copies of provisional drafts of these orders together with a summary note of the intended provisions of all four orders have been placed in the Library of the House.

The orders will implement the main conclusions of the review of Schedule 8 to the Building Societies Act 1986 which my honourable friend the Economic Secretary outlined in another place on 2nd February (Official Report, cols. 537–539). The orders will do two things. They will recast Schedule 8 so that it proscribes particular activities within certain broadly specified powers instead of banning everything except narrowly specified powers. And they will implement a wide ranging extension of societies' powers to provide financial services, and effectively give societies the full scope permissible within the primary legislation.

The mainstream business of societies is, and must remain, that of raising funds from the public for lending on house purchase. But we believe that societies should be free to undertake activities which complement their mainstream business and to provide the wider range of finance services which customers now expect. Societies will, as at present, continue to provide services primarily to the personal sector, rather than to companies. The proposed measures will enable them to compete more effectively in their primary markets.

Societies will therefore, subject to certain limited restrictions, be allowed: —

  1. (a) to own or take an equity stake in a life insurance company, and to take an equity stake in a general insurance company;
  2. (b) to own or take an equity stake in stockbrokers;
  3. (c) to undertake fund management including management of unit trusts generally (rather than just for the provision of pensions, as at present);
  4. (d) to offer a wider range of banking and housing related services than hitherto.
The draft Commercial Assets and Services Order which was laid today will replace Schedule 8 to the Act with a completely new Schedule 8 which will provide six broad service powers as follows:—
  • Investment services
  • Insurance services
  • Banking services
  • Trusteeship
  • Executorship
  • Land services.
A society will then be able to provide any service within those general areas unless it is specifically precluded or restricted by other parts of the schedule.

Societies may need to hold new forms of asset to undertake a wider range of business. This order therefore contains provision for societies to hold leasable chattels (to undertake leasing and hire purchase), residual mortgage debts (to enable them to repurchase the residue of a securitised pool of their mortgages), mortgage finance rights (mortgage backed securities, and similar instruments) and bridging debts (to enable societies more readily to provide temporary bridging finance for house purchase).

The Building Societies Commission is prepared to examine the possibility of making an order to allow societies to acquire mortgages from other lenders. This will be the subject of further consultation with the Building Societies Association in due course. There are also a number of matters which are consequential to this review. For example, the commission will be consulting interested parties on the proposed scope of an order to extend the required coverage of the Building Societies ombudsman scheme to reflect the wider scope of societies' activities as a result of these orders.

To provide societies with the necessary scope to offer the wider range of services, it is proposed to increase the commercial asset limits in the draft Limits on Commercial Assets order which my honourable friend the Economic Secretary also laid today. This proposes an increase in the Class 2 and 3 limits to 17½ per cent. and 7½ per cent. respectively in January 1990, to 20 per cent. and 10 per cent. respectively in January 1991 and a further increase to the maximum extent possible within the primary legislation (i.e. 25 per cent. and 15 per cent. respectively), in January 1993.

Subject to parliamentary approval of these orders, the Building Societies Commission will make a Designation of Qualifying Bodies Order to allow societies to invest in or support new subsidiaries to provide the Schedule 8 services. They will also, as previously announced, make in due course a Limits on Lending Order to increase the unsecured lending limit to individuals to £10,000. I do not expect any substantial changes to these orders from the provisional drafts placed in the Library.

These proposals are a substantial step forward in building society development. They will give societies the freedom to develop and compete across a wide range of financial services business.