Financial Mutuals Arrangements Bill

I am grateful to my hon. Friend for pointing that out. [Interruption.] The Economic Secretary suggests that my hon. Friend may have been overly generous in his remarks. I would not be quite as churlish as to say that myself, but I recognise the comments that have been made on both sides. It is important to look at the impact that the existing limit on borrowing from wholesale markets has. It is recognised that it is, on the whole, cheaper to borrow from those wholesale markets, rather than to rely on retail funds. The hon. Member for Edmonton talked about Northern Rock. It is interesting to look at the evidence that it gave to the all-party group on building societies and financial mutuals. Its report on demutualisation said that Northern Rock"““insisted that its success over the past eight years would not have been possible under the old mutual model. By being able to access external capital (75 per cent. of which is now raised abroad) it could grow quickly and therefore keep unit costs down.””" That is an important factor to recognise. Clearly, the benefits that will accrue to building societies from the relaxation of the limits will, I hope, flow through to borrowers. The hon. Gentleman talked about some of the issues around demutualisation. It is important to recognise that, when Northern Rock demutualised, it set up the Northern Rock Foundation, which continues to support community activities across the north-east and plays an important role in providing support to community organisations across the region. Commenting on the Bill, the Building Societies Association said:"““The removal of the constraint means that building societies would be in a position to meet whatever changes emerge in the marketplace over the next few years, rather than having their response to market changes constrained by legislation that might, in the future, appear out of date and unnecessarily restrictive.””" That is an important point to make. The measure facilitates the development of the building societies sector in the future. That point was also made by Professor David Miles in his report in 2004. In the context of funds being raised from members of a building society, the report pointed out:"““If there were a significant increase in long-term, fixed-rate lending, this requirement could place building societies at a disadvantage to other mortgage lenders if tapping wholesale markets turned out to be the most effective way of funding fixed-rate lending.””" Again, that shows the commercial need and the need to continue to provide good value for money to borrowers by accessing the funds that are available in the wholesale markets. My hon. Friend the Member for Rochford and Southend, East has commented on the Financial Services Authority. The FSA states that while"““we do not think there is any immediate need for an increase in the building society funding limit, we do think it is sensible to build in flexibility for the future: ie to permit””" the Treasury"““to raise the limit if circumstances in future make that desirable.””" That is an important signal from the FSA about the way in which the powers can be used in the future. The second matter that the Bill deals with is establishing that the interests of members are to rank pari passu with non-member funders. That point has been discussed at some length already in the debate and I do not wish to comment much more on it. I took heed of the comments made by my hon. Friend the Member for Bournemouth, West about the acceptance of that by wholesale markets. That is an important factor as well. It would weaken the purpose of the Bill if wholesale markets took an adverse view of that change in priorities. I am glad to hear that they do not and that they support the change in priorities. The third objective of the Bill is to widen the opportunities for societies of different types to merge. At a time when the commercial sector is combining different types of activities—the bank assurance model—it is important to reflect that different types of financial mutuals themselves should be able to join together without losing the benefits of mutuality. It is important to remember why mutuals are so important today. They often service markets that many listed companies or larger businesses would not service. Because they collect relatively low premiums and use a different distribution method, they can reach out to members in a way that larger commercial organisations cannot. We need to bear in mind the diversity in the financial mutual sector, too. When I attended the conference of the Association of Friendly Societies last October, I was impressed by the variety and diversity of the organisations there, and by the different ways in which they had developed, whether they represented specific geographic communities, people in particular types of employment, or trade unions. If we are to encourage the sector to develop, so that it remains viable and continues to meet the needs of its members, we need it to be much more flexible in the way in which it can organise itself. Of course, we must not forget the tremendous work that it does in supporting the needs of members and in going beyond contractual requirements. When I met Mark Rothery from the Ancient Order of Foresters friendly society, he emphasised the importance of the benevolent activities of friendly societies, and of going beyond a strict, contractual relationship with members. If the Bill is able to renew, revitalise and refresh the financial mutual sector, we should welcome it. I am conscious that a lot has been said, and the Minister is keen to speak, too, so I conclude by welcoming the Bill on behalf of the official Opposition. My hon. Friend the Member for Bournemouth, West, has identified an important way in which we can help the financial mutual sector to develop, and to strengthen and renew itself. We look forward to debating the Bill in Committee, and we wish it success in its remaining stages.