Financial Mutuals Arrangements Bill

We have looked carefully at the legislation and where the responsibility lies. We have consulted the hon. Member for Bournemouth, West and the FSA. The FSA is the regulator of individual institutions, but responsibility to this House for setting the overall framework, and therefore the accountability for that framework in legislation, lies properly with the Treasury. I assure my hon. Friend that we will make decisions in full consultation with the FSA. This House will always have the opportunity to scrutinise the decisions that we take. As has been said, the limit will give the building societies substantial room for manoeuvre, but the appropriate decision maker to be accountable to this House should be the responsible Minister. In discussion, we therefore concluded that it should be for Treasury Ministers to make those decisions and to be directly accountable to this House for them. Clause 2 relates to the consequential rights of building society members on a winding-up or a liquidation. The intention of the clause is to place members on a par with other creditors in the case of a winding up. Currently, members’ funds would rank below those of other creditors. The clause would put members’ funds on an equal footing with wholesale debt in the event of a building society being wound up. The position of members’ funds has been a cause for concern for regulators for some time, because following the winding up of a building society, members could stand to lose more than the equivalent bank customers, although up to certain statutory limits they would most likely have recourse to the financial services compensation scheme. As my hon. Friend the Member for Edmonton has said, that is an academic concern, rather than a real concern, in today’s environment. For many decades, no building society has been in difficulty, because of the soundness of the sector and the cautious way in which it operates. We agree with the hon. Member for Bournemouth, West that we should take this opportunity to make the position clear. I assure the hon. Member for Rochford and Southend, East that the Bill provides an equal ranking with creditors, including wholesale depositors. The financial compensation scheme applies exactly the same as it would to bank deposits. We will introduce minor amendments to clause 2 in Committee, but only to ensure that we can give proper effect to the intention of the clause. As I have said, we believe that clauses 1 and 2 stand together. Clause 3 would give the Treasury the power to make regulations to facilitate transfers of business from one type of mutual to another. There are currently legal limits on the permissible types of transfer between different mutual bodies, whereas companies have no such restrictions on the transfer of ownership. The clause would make it easier for a financial mutual to transfer its business to another mutual or to its subsidiary. It would give the Treasury the power to treat transfers between mutuals as if they were transfers between the same category of mutual. For example, a building society could be transferred to a subsidiary of an industrial and provident society or a friendly society under simplified rules and thresholds. In principle, we support the intention behind the clause, but it is undoubtedly the most challenging part of the Bill. There are still important legal and technical issues to be resolved. A key risk is that it could, if we get it wrong, inadvertently remove certain safeguards that are in place to protect mutuals from carpetbaggers converting them into non-mutual companies. For that reason, we will propose, and I believe that the hon. Gentleman will accept, amendments in Committee whereby the provisions should be subject not to the negative but the affirmative resolution procedure. That means that not only will the Treasury consult on the detail of the proposed measures but that Parliament will have the opportunity for further debate to ensure that the principles of mutuality are not compromised. I hope that all hon. Members will recognise that that extra safeguard is right and proper in order to ensure that the strengths of the mutual sector, which I and many other hon. Members have set out today, are preserved and not inadvertently undermined. We are concerned about three particular issues. First, there is the question of how a mutual transferring its business to a subsidiary of another mutual would work. Most subsidiaries are companies, and we need to ensure that a mutual transferring business to a company subsidiary would not inadvertently make demutualisation easier. Secondly, the Bill seeks to make transfers to mutual insurers easier, but, again, some mutual insurers are companies, and we want to ensure that the procedure does not inadvertently lead to more demutualisation. Thirdly, some mergers or transfers are not possible because of European legislation—for example, it is not possible to be an insurer and a bank at the same time. We need to ensure that we get that technical issue right in the final drafting of the clause. As I say, we will need to table further amendments to clause 3 in Committee to ensure that we get the detail right. I cannot, at this stage, give an absolute guarantee that we will succeed, although the indications from our discussions with the hon. Gentleman and his advisers is that we are making good progress, and we are confident that it can be done. In conclusion, the Government are committed to the continued success of the mutual sector and to playing a role in supporting it. We are sympathetic to the principles that underpin the Bill and wholly support the values that it seeks to entrench in legislation. We need to keep the building society and mutual sector competitive, and if we get the Bill right, we will succeed in that objective. We congratulate all those who have been involved in its preparation, particularly the hon. Member for Bournemouth, West on his leadership, and look forward to assisting with its progress through Parliament.