Financial Mutuals Arrangements Bill

I shall be even briefer now that I have received that response. We have had a full and comprehensive debate, although there are only a few Members in the Chamber. I am sure that the hon. Member for Bournemouth, West (Sir John Butterfill) is keen to hear what the Minister and the Conservative Front-Bench spokesman have to say about his Bill, which I congratulate him on promoting. This is only the second time that I have attended the Chamber on a Friday to debate a private Member’s Bill. Last time the Bill’s promoter received something of a mauling, so it is a tribute to the hon. Gentleman’s experience in this field that there has been such a degree of consensus on the Bill. Congratulations to him, for putting forward such a coherent measure. Like my hon. Friend the Member for Hackney, South and Shoreditch (Meg Hillier) and the Economic Secretary, I speak not only as a Labour MP but a member of the Co-operative party. I used to be a director of a co-operative development agency, and am now a proud member of Money-Go-Round, Bristol’s credit union, so I very much support the mutual sector—as much for what it represents as for the important role that it plays. I support the idea that the financial sector is there to serve the needs of its community. As we have heard from various speakers, that was the origin of the building and friendly societies movement through the self-help initiatives of the 18th century. When I went on a Treasury Committee trip to the United States last year, it was obvious from the community development financial institutions and legislation such as the Community Reinvestment Act that the US still has the ethos that financial institutions should be made to play a role in their communities. That is something that we have drifted away from in this country—a point to which I shall return. It is important to protect mutuals, but we will not do that by preserving in aspic the way in which they operate now. We should do it by introducing incremental changes as necessary, to allow them to survive and flourish in an ever-changing and often challenging market place. As we have already heard, previous legislation, including the deregulation of the 1980s, has allowed diversification, but—unfortunately, some would say—it led to demutualisation. We have already heard from my hon. Friend the Member for Edmonton (Mr. Love) about some of the organisations that chose to demutualise. I worked for one of them—Abbey National—shortly after it floated and became a plc. It was very successful as a result, and was the biggest bond issuer in the country at one point. It has had its ups and downs in more recent years, but as an institution it benefited from demutualisation. None the less, it is sad that so many such institutions went down that path. When customers of mutuals have been surveyed, it is clear what they perceive as the advantages. They believe that mutuals are much more democratic, in that members have a direct say in decision making and are able to exercise their voting rights. Above all, they are thought to work in the interests of the members, not of the shareholders. In 2001 a survey was carried out by the Consumers Association, which said:"““Building societies deliver better value for one simple, crucial reason. The priority of the shareholder-owned banks is to keep their shareholders happy by paying large dividends, and increasing profits…we calculate that for every £100 in after tax profit the banks make, about £30-40 of that goes to shareholders as dividends.””" The Centre for Business Research at the university of Cambridge has undertaken an ongoing programme of research into the benefits of mutuals. When it spoke to customers and asked them their reasons for choosing a building society, it was clear that the feeling of ownership was very important to them. The No. 1 reason they gave was the lack of shareholders, which creates a feeling of trust. Customers feel part of the institution to which they entrust their money or from which they borrow money. The CBR survey of the mutuals says:"““The essential point is that a PLC owes its duties to its shareholders; we owe our duties to our members. It is easy for a PLC to make attempts to blur that distinction…But at the end of the day they are presented with an inescapable fact: the interests (that is, the interests of shareholders and customers) conflict…We only have to consider the interests of members present and future.””" Another point about the mutual sector, the survey said, is that"““The whole tone, the whole motivation, the whole aspiration is different.””" One point that has not been made so far today is the extent to which credit unions are now filling in the gap left by the mutuals merging or demutualising. My constituency has several credit unions, but most have now merged to form one big credit union, which gives it added strength. In some ways, the credit unions have picked up the mantle of the early mutuals, harking back to their origins, when communities came together to make their own provision and fill in some of the gaps for the financially excluded communities, about which my hon. Friend spoke. We learned earlier this month that high street banks’ profits have now hit $40 billion. I have no objection to them making such profits, but more should be done to encourage them to reinvest some of those profits in communities through, for instance, promoting basic bank accounts and the free cash machines that other hon. Members have mentioned. Earlier this month, Save the Children and the Family Welfare Association published an important piece of research illustrating what they call the poverty premium or the price of being poor in the UK. For example, if people do not have a bank account, they cannot pay by direct debit, so their utility bills are likely to be higher. It was estimated that poor families pay 150 per cent. more for basic household goods bought on credit, more than 50 per cent. more on credit and loans, and 10 per cent. more on gas bills paid through pre-payment meters. The poverty premium for a family of four, with one adult earning £250 a week, was estimated at 9 per cent. of their income. In effect, being poor makes people poorer, because they do not have access to financial products at the same rates as other people. Support for the credit union movement is an important step in tackling some of those issues. In my constituency, the credit union benefits from capital and revenue from the Department of Work and Pensions growth fund, which means that it can make loans to people who cannot access them from mainstream financial institutions. Eighty per cent. of those loans have gone to women, 60 per cent. of whom were lone parents. The credit union made a comparison of the costs of a loan from the credit union and a doorstep lender. It was estimated that someone borrowing £500 from Provident Personal Credit—the country’s largest doorstep lender—would have had to pay £825 over a year, at an annual percentage rate of 177 per cent., but borrowing from the credit union would cost about £65 in interest over a year. That shows the difference that a small organisation can make in a poor area in my constituency.