§ Mr. HindTo ask the Chancellor of the Exchequer whether he plans any further extension of the powers of building societies; and whether he will make a statement.
§ Mr. LilleyThe series of orders extending building societies' powers, made last June, were designed to set the 397W future framework for building societies within which they could make sensible plans about their development. However, I indicated then that it would be necessary from time to time to make minor changes by order to suit particular circumstances, within that broad policy framework.
I announced last June that the Building Societies Commission would consult societies and other interested bodies about one such order, namely one to permit societies to own, or to take an equity stake in, companies involved in the acquisition of mortgages from other lenders. Following those consultations, the order was made by the Commission yesterday and will be laid before Parliament shortly. Recently, the attention of the Treasury and Building Societies Commission has been drawn to the two minor respects in which the intention of the June 1988 measures is not being fulfilled as expected.
The first is that some societies have been frustrated in developing money transmission services by the fact that although they could offer such services to companies, they cannot offer them incidental overdraft facilities. I accordingly intend to table a draft order for approval by Parliament to be made under section 19 of the Building Societies Act 1986, to create a new type of class 3 asset. It would empower societies to offer temporary or occasional overdraft facilities, incidental to the provision of money transmission business. But it would not allow continuing unsecured lending to a company in the form of a permanent overdraft.
The second limitation is that a society can provide a wide range of financial services to companies, but they can neither provide companies with unsecured loans themselves, nor introduce the borrower to another lender. I adhere to the view that for at least the next stage of their development, societies should continue to be limited in making unsecured loans on their own balance sheet only to individuals. But I have agreed to a proposal from the Building Societies Commission that it should make an order which would enable societies to introduce, or otherwise arrange, unsecured loans and leases for companies as agents of another financial institution.
The Building Societies Commission is initiating consultations on two new draft orders, so that the draft money transmission order may be laid before Parliament shortly. Many societies have their annual general meetings during March and April, and they may wish to adopt the revised powers at this time.