Mutual Societies (Transfers) Order 2009

The order has its origins in the Building Societies (Funding) and Mutual Societies (Transfers) Act, which received Royal Assent in 2007. The Act addressed some very important issues and contained three key sections: Section 1 on how building societies are funded, Section 2 on the rights of members in the event of insolvency, and Section 3 on arrangements to facilitate transfers of engagements between different types of mutual organisations. As the Committee will know, the Government laid an implementing order in January this year under Section 3 of the Act, and it is the subject of today’s debate. The first order relates to building societies, and it is significant that the recent merger proposal between the Co-operative and Britannia Building Society cited this order as having made the merger possible. It is the Government’s intention to lay an implementing order for industrial and provident societies in the near future after further discussions with the sector. However, the Government are not convinced of a case for implementing this in relation to friendly societies as same transfer provisions already apply, whether the transfer of business is to another mutual society or to a company. The Government welcome this opportunity to update legislation for the mutual sector, and I shall start by explaining why we believe this order merits the support of the Committee. Mutual societies, such as building societies, industrial and provident societies and friendly societies, play a significant role in enhancing financial inclusion and social cohesion and in offering diversity and choice in the financial services sector as well as in contributing to the wider economy. Mutual societies continue to excel in their respective sectors. Even in the current tough economic climate, the leading best-buy tables for mortgages are populated by building societies. Child trust funds by friendly societies and, of course, co-operatives continue to lead the way in ethical policies putting the concerns of their members and customers first. I am sure the Committee will recognise the widespread public recognition of the virtues of these societies. Membership of mutual societies now exceeds 30 million with total assets in excess of £400 billion. They are a significant employer in the UK economy as they employ nearly 1 million people and are the mainstay of many communities. Indeed, the mutual form is now widely acknowledged to be a viable alternative to the proprietary company model. The Government believe that it is all the more important in today’s global economic climate to have a variety of legal forms of business not only to meet the needs and aspirations of their members but to enhance competition within the economy. Under current legislation, the scope for mutual societies to transfer their business is limited. Usually this means that they are permitted to transfer their business to another mutual of the same category only—for example, from building society to building society. Otherwise, they may transfer to a company and become demutualised, leading to a loss of mutual status and membership. The order will increase the options available to building societies, allowing them to transfer to a subsidiary of another mutual society under a simplified procedure. This will make it possible to retain the business within a group with a mutual ethos as well as to provide for members of the transferring mutual to have rights in the holding mutual. It contains appropriate safeguards not only to protect the rights of members of the transferring mutual but to prevent demutualisation by the back door. It will enable mutual societies to develop strong group structures as an alternative to demutualisation, which will in turn result in a revitalised and self-sustaining sector offering quality services to its members and enhancing competition in the UK economy. The order has been drafted after extensive consultation with key stakeholders and interested parties, and we have already seen from the press reports just how exciting the sector considers these proposals in the order. I commend it to the Committee.