Financial Mutuals Arrangements Bill

My hon. Friend makes a valuable point. I do not wish to indulge in the grief of the experience of one or two of the companies that demutualised, but it is worth underlining that, in many cases, members of building societies that demutualised have subsequently lost out on the value of the products that they had with those companies. Since mutuals have an obvious cost advantage, one would think that they commanded a higher proportion of both the savings and the mortgage markets. However, obstacles have stood in the way of their expansion. One is the wholesale funding restraint, which the hon. Member for Bournemouth, West mentioned. The Bill tackles that. To hark back to the Miles report, which the Treasury commissioned in 2004 to make recommendations for improving funding provision for long-term mortgages, recommendation 19 advocated modifying the wholesale funding restraint to enable building societies to take up to 70 or 75 per cent. of their funds from the wholesale funding market. The issue has lain fallow until the hon. Member for Bournemouth, West took it up. That restraint acted as a considerable brake on the potential for building societies to expand. The history of building societies shows that they grew out of small, often deprived communities, and their savings products reflect that. By their nature, building societies found it proportionately more difficult than the plc banks to obtain the savings that would have enabled them to get greater wholesale funding. The difficulty has been exacerbated by the fact that, for good community reasons, building societies have maintained their branch networks and their roots in local communities in a way that plc banks have not. In my area, the successful West Bromwich building society has done well historically in providing low-cost financial services for the local housing market, and plays an active part in promoting community causes. We also have two much smaller societies that do the same in very local areas. They are the Tipton and Coseley building society, which operates in one of the most deprived communities historically in the black country, and the Dudley building society. They provide access to financial services that the major plc banks do not. However, the nature of the customers with whom they engage means that there is not the same intake of funds that there might be in other areas. By removing the wholesale funding restraint or modifying it to the point where mutual societies can borrow more on the wholesale funding market, the Bill takes away one of the obstacles that prevents them from undertaking their activities more effectively. The hon. Member for Bournemouth, West mentioned the Bill’s provisions on pari passu, which effectively give members equal rights with wholesale funders in the event of a dissolution of a society. As he said, dissolution is highly unlikely and the provision is not likely to be used, but it is necessary to include it. It makes it clear that, in the unlikely event of a dissolution, existing members will not be disadvantaged if the building society had expanded its wholesale funding, so the provision is welcome, logical and necessary. The Bill also deals with transfer of engagement. Again, that has an undeniable logic. Let us consider the co-operative movement. A hundred years ago, there were literally thousands of co-op retail societies. Even as recently as 20 years ago, there were well over 100. However, a process of transfer of engagement, which was allowed under the Industrial and Provident Societies Act 2002, means that those societies have merged to become, in many cases, major societies with huge turnovers. That has happened in response to market conditions and the need to adapt to changes in consumer behaviour. It is therefore illogical that the mutual sector does not have the same flexibility. I understand that some technical problems exist, but I hope that the Treasury ensures that they are ironed out to give the mutual sector the same flexibility that has existed for the plc and co-operative retail sectors for many years.