I agree. Building societies were certainly part of my life when I was growing up. I got my first mortgage with a building society—a very long time ago, because I am getting old. The principle of mutuality is really important and does set building societies apart from banks. They are a very different model and serve communities in a much closer way than banks do.
By introducing welcome flexibility to a sector that does so much for first-time buyers and others, the Bill, although it does not directly provide provision for the building of homes or assure the retail customer of any extended product lines, does provide more room for the sector to work in, given that its use of finance is different from that of banks as it lends significant amounts of money to first-time buyers.
The building society sector is made up of 42 separate building societies and currently has almost 26 million members. It holds over £352 billion of mortgage assets and £313 billion of savings from individuals. It is not a small sector, but it is a sector that can grow.
Building societies face significant challenges. The Bill has the potential to unlock billions of pounds in additional lending capacity for them. It is estimated that for every £10 billion of new lending capacity, the sector could support an additional 20,000 mortgages. As we know, over half of building society lending goes to first-time buyers, so the potential impact of the Bill is huge. Since 2020, building societies in the north-east and Cumbria have lent £3.4 billion to first-time buyers. In the first nine months of last year, they supported nearly 4,000 first-time buyers—4,000 people who last year started their journey of home ownership, with all the financial security and benefits that brings. Increasing lending capacity is incredibly important in supporting hard-working people. It is essential to the UK’s future prosperity and desperately needed for economic growth.
I want briefly to run through the four clauses of the Bill and the impact the changes will have. It is not a standalone Bill; it amends the Building Societies Act 1986 by inserting new provisions. Clause 1 deals with funds that can be disregarded by a building society for the purpose of calculating its wholesale funding limit. The 1986 Act currently requires them to obtain at least 50% of funding from their members—from individual member deposits. The retention of this 50% minimum requirement ensures that the members remain the primary owners of building societies; it is what makes the sector so unique. The other 50% can come from external sources. This balance will not be changed, but there is a need to modernise the rules governing the sector in order for building societies to compete with banks on a level playing field.
The Prudential Regulation Authority and the Financial Conduct Authority engaged with the sector on this issue in 2021. The conclusion of the Government’s consultation recommended the exclusion of some sources of funding from building societies’ wholesale funding limit calculations, as well as the modernisation elements that come later in the Bill. The recommendations were never implemented, which is why the Bill is needed.
Clause 1 will disregard the following from the 50% wholesale funding limit: Bank of England liquidity insurance facilities, debt instruments raised to meet the minimum regulatory requirement for own funds and eligible liabilities requirements, and sums received under sale and repurchase agreements, with a view to complying with Prudential Regulation Authority rules.
These changes will not dilute the unique ownership model under which building societies operate. They will not increase the financial risk to the sector, because these liquidity insurance facilities, the debt instruments and the sale and repurchase agreement sums will be effective tools at a time of national economic crisis to
ensure that building societies remain comfortably solvent and active in the interests of their members. These changes will help to future-proof building societies from external factors, economic shocks or periods of financial stress.
The specified facilities and so on will be described in a statutory instrument laid by the Government of the day, which will provide additional detail to allow the funding disregards broadly described in subsection (2) to be activated. The Bill is designed so that any Government at any given time can react to the needs of the building society sector, the Bank of England and the Prudential Regulation Authority. Enabling such changes in regulation to be made by means of secondary legislation will make the sector much more sustainable and able to react to changes in circumstance.
The changes presented in the Bill formed part of the Edinburgh reforms. All the responses to the Government consultation were in support of these changes. Prudent lending is crucial to the UK’s economic growth. Making this change will make building societies safe, more secure, and competitive in the long term, without affecting their status as mutuals.
Clause 2 is about modernisation. It amends the 1986 Act to explicitly allow the option of real-time virtual member participation in building society meetings. The change presented in the Bill aligns the sector with modernisations made to company law by section 360A of the Companies Act 2006. It will allow virtual attendance and voting as part of hybrid meetings, making it clear that nothing in the 1986 Act precludes this. Allowing hybrid meetings will improve accessibility and will hopefully allow engagement from members who cannot currently travel to meetings, enabling a broader cross-section of members to participate.
Clause 3 is another modernising clause. In simple terms, it will enable the Treasury to introduce increased flexibility for societies in relation to common seals and the execution of documents, in line with companies. It reserves to the Treasury the right to make provision by regulations in future, upon which further consultation in the sector would be usual.
Finally, clause IV defines the territorial extent of the Bill, which covers all four nations, and specifies that the Bill
“comes into force at the end of the period of two months beginning with the day on which it is passed”—
the standard period set out in legislation.
The Bill has no implications for public funds, as the impact assessment shows, and does not contain any provisions that will require a money resolution or a Ways and Means resolution.
Ultimately, the Bill does a lot of things in a succinct way. It will enable the modernisation of the building society sector and brings it up to date; it will put the sector on a more level playing field with banks; and it will potentially allow them more scope for supporting their members or future members. The Bill has overwhelming support from the sector, including from the Building Societies Association, the representative body of the sector, and its members. The BSA was founded in 1869 and is now the voice of the sector, representing 42 building societies and seven credit unions, and serving 27 million members up and down the UK.
The sector has helped 3.5 million people to buy a home with mortgages totalling over £375 billion. That accounts for 23% of total outstanding mortgage balances in the UK. The building societies that the BSA represents account for 19% of cash savings in the UK, and 40% of all cash ISA balances. Across the country, the sector employs 51,500 people, both full-time and part-time, working in around 1,300 branches in the UK. The BSA contributed greatly to the consultation process in 2021, and I am proud that it supports the Bill. I also wish to thank His Majesty’s Treasury for the support it gave me in preparing for today’s Second Reading.
The Bill will make building societies lend on a similar basis to banks, freeing up more money to help more working people in the UK. It has the potential to unlock billions of pounds of additional lending capacity at a time when so many people need it. I commend it to the House.
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