Financial Mutuals Arrangements Bill

As always, the hon. Gentleman is absolutely right. That is the whole purpose of clause 3. As we stand at the moment, it is not possible for a member of one mini-sector to amalgamate with a member of another mini-sector without one of them demutualising, which defeats the point of the exercise. We want to enable those sectors to merge together, provided that they are all mutuals as defined in the Bill, and to do so without losing the mutuality of each of the members. That would create cross-fertilisation between the mini-sectors and help to allow the boards of mutuals that are considering their future status to offer their members alternatives to demutualisation. The capacity to grow, perhaps by merger, is at the heart of clause 3. At the moment, the situation is ridiculous. It emerges not out of any devious means of trying to restrict building societies and other mutuals, but out of the original legislation that set them up. The Bill will deregulate the sector and the various pieces of legislation that apply to it so that mergers can take place across the boundaries. For example, it is not currently possible for a building society and a friendly society to merge. One could take the other over only through the demutualisation of the other, which would be crazy. If the Liverpool Victoria friendly society in my constituency wanted to merge with a building society, it could not now do so. Similarly, a co-operative society could not merge with a mutual insurer. Those restrictions are petty, and restrict and restrain the growth and strength of the mutual sector, which is why the Bill seeks to eliminate them. The technical term used in the Bill is ““engagements””, which has nothing to do with putting rings on fingers. At the moment, engagements can be transferred only if the two bodies involved are in the same category. Such events are dealt with under the Building Societies Act 1997 and the Industrial and Provident Societies Act 1965. There are different voting thresholds for transfers between societies and for those who want to demutualise. In some cases—for example, industrial and provident societies—the thresholds are higher. The threshold under the Friendly Societies Act 1992 is the same for any transfer. The Bill would rationalise that situation, largely through the power to make regulations in the future. In comparison with the rest of the world, the UK environment currently restricts, or at least does not encourage, new corporate options for mutuals, which compares unfavourably with external competitors. For example, there are huge mutual businesses that operate group structures elsewhere: in France Crédit Agricole is a huge mutual, in the Netherlands there is Rabobank, and in Germany there is DZ bank. Seeing the mutual sector as a series of ring-fenced mini-sectors is too restrictive for the remaining businesses, and it militates against consolidation and strong mutuals. Apart from the damage that that restriction does to the continuance of mutuality, the higher voting thresholds can also lead to higher windfall payments being paid to members in order to secure their votes. That involves the bribery of the members—the carpetbagger syndrome—which can happen only through the higher thresholds. That ultimately reduces the capital value of the business, and it is against the long-term interests of members who want to stay with the business post-transfer and continue to enjoy the benefits of mutuality. The Bill will give the Treasury a power to make orders to allow different categories of mutuals that want to do so to receive transfers from other categories of mutual society. It would allow Her Majesty’s Treasury to treat the transfer of mutuals to other mutuals, or their subsidiaries, as if they were transfers between the same category of mutual. Under the Bill, a building society could be transferred to a subsidiary of an industrial provident society that is qualified to take deposits under the same rules that allow thresholds that pertain to transfers from building society to building society. The same principle could be established for transfers from building societies, industrial and provident societies, friendly societies and mutual insurers. The only exception to that rule is, of course, credit unions, where the nature of their business would preclude them from participating in this type of transfer. I believe that that would be an important amendment of the law, which would assist in the cross-fertilisation of mutuals and strengthen the sector with very little legislative change. With the order-making power established, we can envisage Her Majesty’s Treasury consulting either separately or collectively on changes.