Financial Mutuals Arrangements Bill

Let me start by congratulating the hon. Member for Bournemouth, West (Sir John Butterfill) on securing his position in the private Members’ ballot. From the perspective of the chair of the all-party group on building societies and financial mutuals, I am very pleased that he took up this issue, for two reasons in particular. First, it is recognised across the House that he has unparalleled expertise and experience in this area, so the Bill could not be in better hands. Secondly, although he was too modest to say so, he has had previous experience of navigating private Members’ Bills through the House. We therefore have the benefit of somebody with considerable financial expertise allied to a certain navigational skill, which, as we all know, is most necessary to guide private Members’ Bills through the rocks and obstacles that lie ahead of them. The hon. Gentleman made several kind comments about me. Perhaps I should make it clear that prior to coming to this House I had 18 years’ experience in the co-operative movement. The values that underpin it are somewhat akin to those that underpin the mutual movement. The Co-operative party has had long-standing political representation, and I am one of those representatives. The mutual movement has always been slightly different. When it hit the problem of privatisation 20 years ago, one of the reasons why it had such difficulties was that its unique ethos, structure and value system, and its worth in the marketplace, were under-recognised. The public perceived it to be little different from the banks, and its members could see no reason why they should not go along the privatisation route. As a result, a lot of mutuals privatised and became banks. Happily, what remained of the mutual sector responded positively by clarifying the benefits of mutuality in the provision of financial services. Since then, there has been, if not a renaissance of mutuals, then certainly a consolidation of their position in the market and an increased recognition by the financial press and consumers of the unique role that they play in the provision of financial services. Arising out of that experience, we have the all-party group, which has about 170 Members from both Houses and, obviously, from all parties. It is one of the largest all-party groups, which reflects the esteem that the movement enjoys within the House. The genesis of the Bill lies in two inquiries that were held by the all-party group and in the Miles report, which has already been mentioned. The all-party group carried out its first inquiry in 2004. Its purpose was to explore and demonstrate the role of the mutual sector in the provision of financial services. It had a Select Committee structure whereby the group interviewed representatives of the movement and of other financial services sectors, as well as commentators. The inquiry reached two key conclusions. First, institutions in the mutually owned corporate structure, being owned by the customers rather than the shareholders, offer certain natural advantages over other financial institutions. The crucial advantage is that they do not have to pay dividends to shareholders. An estimate by the Building Societies Association has put the cost savings derived from that advantage at as much as 35 per cent. One can have a cost advantage but still not be efficient. Happily, however, one of the other key indicators of efficiency demonstrated that in providing services to customers the margin between mortgage and savings rates in the past year was typically 1.09 per cent. for mutuals and 1.5 per cent. for plc banks. That is a clear indication that the cost advantage is reflected in the value of service provided for the customer. Secondly, the mutual sector, merely by having a presence in the financial marketplace, provides competition that prevents the plc banks from becoming too shareholder-focused, which means not only that it provides better value for its customers but that the non-mutual sector has to pay more regard to its customers and to compete. The mutual sector benefits not only its own customers but consumers requiring services across the whole sector. After the first inquiry, it was decided that it would be logical to hold another to assess whether members of the former mutuals that had demutualised had been better served by that process and whether the value of the windfalls that they received after privatisation had subsequently been outweighed by higher costs or lower returns on investment. Again, the group carried out the inquiry in a Select Committee style, interviewing representatives from the mutual sector, from companies that had not demutualised, and from other interest groups, including campaigners for privatisation. The second report, entitled ““Windfalls or Shortfalls””, was written independently by the Association of Chartered Certified Accountants. It demonstrated that the mutual sector, including building societies and life assurance companies, performed better than their plc rivals in a variety of performance indicators. As my hon. Friend the Member for Edmonton (Mr. Love) said, mutuals are consistently placed higher than plcs in the ““best buy”” tables on a variety of criteria, ranging from savings and mortgage rates on the one hand to annual premium-with-profits policies for insurers on the other. In comparing the average standard variable rate mortgage of the top 10 mutual building societies with nine converted societies assessed in September 2005, it was found that the average rate was 6.58 per cent. for former mutuals and 6.37 per cent. for building societies. Again, that is a clear statistical demonstration of the added benefit that mutuality brings.