Building Societies Act 1986 (Amendment) Bill
(Limited Text - Ministerial Extracts only)
Read Full debateFriday 19th January 2024
(3 months, 1 week ago)
Commons ChamberBuilding Societies Act 1986 (Amendment) Bill 2023-24 Read Hansard Text Watch Debate
This text is a record of ministerial contributions to a debate held as part of the Building Societies Act 1986 (Amendment) Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Financial Secretary to the Treasury (Nigel Huddleston)
I, too, congratulate the hon. Member for Sunderland Central (Julie Elliott) on, first, being lucky, and secondly, choosing to be impactful by introducing a Bill that will help to support the future growth and success of the mutuals sector. I understand that her husband, Andrew Fletcher, is in the Gallery today to observe her performance. I am sure he will be rightly proud of the work she is doing with others to make a real impact on people’s lives right across the country. I know that she is driven by a desire to support building societies so that they are able to compete on a level playing field with retail banks, and I am pleased to say that the Government share that desire. That message has also been clear from the Members’ speeches.
I will run through some of the comments we have heard—there were some excellent speeches. The speech by my hon. Friend the Member for Mid Norfolk (George Freeman), with his insights on Labour co-operativism and civic conservatism, was a true tour de force. As always, he spoke passionately about the importance of mutuals in rural areas. My hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon) spoke warmly about the importance of community banking and mutuals in more urban areas, reiterating the importance of those institutions right across the country. I agree completely with her comment about the contribution of the over-70s in society.
My hon. Friend the Member for Dover (Mrs Elphicke) spoke passionately and knowledgably about her experience with mutuals, and with Principality in particular. She raised points about the logistics of arranging virtual meetings and a few other matters. I will certainly ensure that the City Minister, my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), is aware of some of her comments. She spoke warmly about the human experience she had and about her interactions with Mr and Mrs Jones. In this sometimes remote area of banking, we are dealing still with human beings. In a rare experience, we also heard somebody volunteer to be a member of a Bill Committee.
My hon. Friend the Member for West Bromwich East (Nicola Richards) spoke of her affection for the West Brom and the role of mutuals in the west midlands, particularly in promoting and encouraging the habit of saving among young people and promoting home ownership via mortgages.
My hon. Friend the Member for Bury North (James Daly) laid out the strong case for the social and cultural impact of building societies. He spoke about nostalgia, but made it clear that we all need to work together to ensure that building societies and mutuals also have a thriving future.
My hon. Friend the Member for Southend West (Anna Firth) expressed her appreciation for the physical presence of so many building societies that are still on our high streets, particularly in the context of digital exclusion.
We want to ensure that building societies are supported so that they can continue to give people greater choice in where they put their savings, get their mortgage or, in some cases, open their current account. Today, I want to do two things. First, I will set out why the Government value the mutual sector, demonstrated by recent steps we have taken to ensure that legislation is updated so that they are able to grow, compete and succeed in the future. Of course, many have referred to the recent consultation on some of those matters. Secondly, I will briefly outline why the Government are fully supportive of the objectives and principles of the Bill, and I hope the hon. Member for Sunderland Central will set me right if I misinterpret the details of her Bill in any way.
The Government recognise the valuable contribution that mutual businesses play in the UK economy, as well as in the local communities in which they operate. Their unique ownership model means that those businesses are driven by the core values of openness and collaboration. Every member gets a vote and therefore a direct say in how the business operates. Given their unique ethos and desire to drive positive change in society, as well as the vital role they play in our economy, it is natural that the Government have committed to supporting the mutual sector to ensure their place in our future. For example, through the Financial Services and Markets Act 2023, the Government amended the Credit Unions Act 1979 so that, since last summer, credit unions in Great Britain have been able to offer a greater range of products and services.
To date, the Government have allocated £145 million in dormant asset funding to Fair4All Finance, which works to improve the availability of affordable credit, including through support for community finance providers, thereby strengthening the growth of credit unions. Moreover, last year the Government supported the private Member’s Bill of the hon. Member for Preston (Sir Mark Hendrick), which achieved Royal Assent in June 2023. The Government continue to develop a modern and supportive business environment and have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.
To further support the sector, the Government are also progressing secondary legislation changes to the Building Societies Act 1986, delivering on the Edinburgh reforms. Alongside this Bill, those changes will help to modernise the 1986 Act, helping building societies to grow and compete on a more level playing field with the retail banks.
The Government see this private Member’s Bill as a great way to support building societies, ensuring that they can compete with retail banks on a more level playing field while continuing to provide essential competition within the UK financial services sector. The Bill will deliver on key asks from the building societies sector. As the hon. Member for Sunderland Central set out, it makes provisions in three key areas: funds that can be disregarded by a building society for the purpose of calculating its wholesale funding limit; allowing real-time virtual member participation in building society meetings; and aligning provisions in relation to the execution of deeds and other documents with those of companies law. I will comment briefly on each of those.
The 1986 Act sets out building societies’ distinctive model and other legal requirements. Under the Act, building societies are required to obtain at least 50% of their funding from individual retail deposits, thus ensuring that the members are the primary owners. That funding limit is a key feature of building societies’ unique ownership model, ensuring that these businesses are mutually owned and run for the benefit of their members. While retaining that at-least-50% funding model, and thereby maintaining building societies’ unique characteristics and core values, this Bill will enable the exclusion of three key sources of funding from counting towards the wholesale funding limit, which are accessed or held for regulatory purposes. Those will be further specified by the Treasury in secondary legislation.
The other amendments the Bill makes to the 1986 Act relate to the modernisation of building societies’ corporate governance requirements, so that they can operate under the same modern governance flexibilities as companies. The first of those is an amendment to the 1986 Act to allow for the option of real-time virtual participation at building society meetings, which my hon. Friend the Member for Dover focused on in her speech. That change will help to modernise the day-to-day practices of these societies, promoting greater membership engagement and improving the accessibility of these meetings. This will be updated in line with rules for retail banks operating under the Companies Act 2006, thus ensuring that building societies and retail banks are afforded the same flexibilities.
The second amendment to building societies’ corporate governance requirements relates to common seals and the execution of documents. This Bill will provide the Treasury with the power to make secondary legislation to align the constitutional provisions in part 2 of the 1986 Act with updates to company law concerning common seals and the execution of documents. That will give building societies useful flexibilities that will ensure that they continue to operate on a level playing field with retail banks.
I have outlined the Government’s support for the private Member’s Bill brought forward by the hon. Member for Sunderland Central on Second Reading today, and I again congratulate her on it. We expect that the Bill will be greatly welcomed by the mutuals sector, and it clearly has support from Members across the House. The Government intend to work closely with the hon. Lady in progressing this legislation through Parliament. The Government’s goal, and the goal of this Bill, is to modernise the Building Societies Act 1986, so that building societies are able to scale, grow and succeed into the future. For those reasons, the Bill has the Government’s wholehearted support.
Building Societies Act 1986 (Amendment) Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 7th February 2024
(2 months, 2 weeks ago)
Public Bill CommitteesBuilding Societies Act 1986 (Amendment) Bill 2023-24 Read Hansard Text
This text is a record of ministerial contributions to a debate held as part of the Building Societies Act 1986 (Amendment) Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Julie Elliott
I thank the hon. Gentleman for reminding me of that situation, which affected an awful lot of my constituents, as Northern Rock and the vast majority of its members were based in the north-east. People still tell me on the doorstep today that they lost literally tens of thousands of pounds. The issue of malpractice and bad practice within building societies is separate from what the Bill does. If things are not being run correctly, there are other checks and balances that came in after the Northern Rock crisis to stop that—particularly the protection for deposits up to £85,000. It is a relevant point, but the Bill will not make that possible again; I am quite sure about that.
The specified debt instruments are not named either. Notably, this function is not to introduce risk into the process—it is to help to support building societies to remain comfortably solvent at a time when they need it most. Proposed new subsection 7(3)(e) of the 1986 Act is quite clear about sale and repurchase agreements. Clause 1(3) inserts appropriate new definitions into section 7 of the 1986 Act and gives the Treasury power to make regulations specifying the detail of funds and Prudential Regulation Authority rules. The regulations will be subject to the negative resolution procedure.
The approach has been consulted on by His Majesty’s Treasury and was backed by industry. It is what the sector needs, and this clause has the power to unlock billions. The removal of these considerations from the 50% wholesale funding limit means that building societies that want to can run much closer to the 50:50 ratio than the 70:30 or 80:20 ratios they do now. That is where my point about unlocking billions comes from. When we look at how many people are supported already and what a difference giving that freedom to the building societies can make, we see there is huge potential to help many more people access a mortgage for the first time.
Clause 2 amends schedule 2 of the 1986 Act to modernise the building society sector’s relationship with its members in line with company law. It sets out the possibility of holding and conducting building society meetings in a hybrid way so that persons who are not present together in the same place may attend, speak or vote. First, that is important to allow access to meetings for those who are unable to attend in person due to health or geographical issues. For example, the Nationwide Building Society is, as the label says, nationwide, so having hybrid meetings opens up the ability for more people to attend, because a physical meeting can be held in only one part of the country. The situation may well be different for smaller, local building societies, but the change is still important.
The second main argument behind the clause is simply that the change brings the building society sector into line with businesses and retail banks as defined in the Companies Act 2006. Building societies should not be held to different standards. The important mitigation is that it is down to individual building societies to consider what is best for them; if a particular building society wants to make the change, its members will need to vote on it and agree to it. That means that the clause does not enforce anything, but gives building societies the ability to change if their members want it; it gives more flexibility. I hope that helps any Members who might have worries about the clause. It is about putting building societies on a more level playing field with retail banks, and it is what the sector has asked for.
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 company law. 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 4 states the territorial extent of the Bill, which covers all of the UK, and when the Bill will come into force. It also makes it clear that modifications of company law to which assimilation can happen as described in clause 3 cover those made both before and after the Bill comes into force.
The Bill does a lot for a sector that needs it and has asked for it. Building societies support millions of people up and down the country, and are much more adept at supporting first-time buyers than other parts of the sector. The Bill gives them much more flexibility to do exactly that.
The Economic Secretary to the Treasury (Bim Afolami)
It is a pleasure to speak to the Bill and, as always, to serve under your chairmanship, Mr Hosie. I congratulate the hon. Member for Sunderland Central on introducing it and on reaching Committee stage, which is no mean feat in this place for a private Member’s Bill.
It is clear from the hon. Member’s remarks that the Bill has the noble aim of supporting the future growth and success of the building society sector. As she said, it will do a lot for building societies, which have asked for this legislation—and the Government and the Treasury strongly support them. As my hon. Friend the Member for Mid Norfolk described, building societies are some of the best in the financial services sector for benefiting local connected communities, and that is the sort of activity we want to encourage.
The Bill will help by modernising legislation so that building societies can have more flexibility around their funding and certain corporate governance requirements. That delivers on the key asks from the sector. As the hon. Member for Sunderland Central said, it is rare that something gobbledegook can have a positive impact on people’s lives, but the technical amendments in the Bill—particularly around capital requirements, which I will explain briefly—will have a positive impact on the ability of building societies to contribute to their local communities in all our constituencies.
As member-owned financial institutions, the 42 building societies in this country work to support the financial resilience of communities throughout the length and breadth of the UK, because they encourage savings and responsible lending, and promote financial literacy and inclusion, which often gets lost. They also play a vital role in supporting their members to buy their own homes, and the hon. Member for Sunderland Central has spoken about the potential for the sector to further support first-time buyers. The Bill achieves all that by making provisions in three areas, which she has already set out, so I will give a shortened version.
First, the Bill amends section 7(3) of the 1986 Act. The year 1986 was a very—
Bim Afolami
Exactly—an auspicious year for me.
The Bill amends section 7(3) of the 1986 Act to exclude three specified sources of funding from the 50% wholesale funding limit for building societies. By excluding these sources of funding from the wholesale funding limit, building societies will be able to raise additional wholesale capital, which strengthens their arms to compete with retail banks while promoting competition within the financial services sector.
Mrs Natalie Elphicke (Dover) (Con)
My hon. Friend the Member for Mid Norfolk mentioned Northern Rock, which was a bank, not a building society, when it failed. Does the Minister agree that the provisions being brought in will allow greater access to capital so that building societies can flourish, while keeping in place the checks and balances that have made building societies so much better at being able to respond to the financial crisis than we saw with some of the banks?
Bim Afolami
It is worth explaining the dynamic, because it is not straightforward. In essence, the point of the Bill is to level the playing field between building societies and retail banks in this key area. Resilience, in terms of capital, will not be lower for building societies than for any of the retail banks with which we are all very familiar. That is the first point. The controls that are applied to retail banks by sophisticated people with sophisticated mechanisms will have the same capital requirements as building societies—so I agree with my hon. Friend.
Building societies will still be required to hold specified sources of funding for regulatory purposes. That is the key point. The reason we have the capital limits is that, if a shock happens—however rare or unusual that might be—we need to make sure that there is enough of a buffer of capital so that the building society or, indeed, the retail bank does not go bust. Over the last 15 years, we have been through a huge programme of reform to broadly increase the levels of capital by many multiples of what was required in the 2000s, so that that does not happen. Building societies will adhere to that in the same way as our retail banks. Moreover, building societies will still be required to ensure that at least 50% of their funding comes from their members—again, that is a critical way in which buildings societies are different from a typical retail bank—which ensures that the Bill has no impact on building societies’ important and unique ownership model.
Secondly, the Bill amends the 1986 Act to allow the option of real-time virtual member participation at building societies’ meetings, which, as everybody can appreciate, now happens across the corporate sector—it does not happen in Parliament, but that is for another day. This amendment can help to modernise the day-to-day practices of building societies, promoting wider membership engagement by making such meetings more accessible to a greater number of members. That matters particularly for building societies, because they have a membership model; the point is that members find them accessible and know what is going on.
Given that members can do things digitally and more flexibly in other areas of their lives, this small measure can have quite a big and positive impact on participation, but it is worth stressing that the decision on whether to hold hybrid meetings will be up to the members of each individual building society; the Government are not imposing the requirement for endless Zoom calls. If that is what people want, they can have them—they just have to vote in favour of making the relevant changes to the society’s rules by special resolution, which, if I recall my company law properly, requires passing a 75% threshold.
Thirdly and finally, the Bill will provide the Treasury with the powers to further align the constitutional provisions in part 2 of the 1986 Act that concern common seals and the execution of documents with modifications to company law. I do not need to explain to the Committee that common seals have sort of fallen out of general usage—although I have often fancied having one, because I think it would be rather fun to stamp various documents, rather than sign them. But that is now the past and we are bringing building societies into the modern day, which is positive.
Overall, the Bill will help to deliver important amendments to the Building Societies Act 1986 by modernising the legislation so that building societies can compete with retail banks, better serve their members and, to be perfectly frank, better serve the communities they are set up to support. The Government are fully committed to ensuring that all subsequent secondary legislation, which will be subject to parliamentary timetabling, is enacted as soon as possible. I commend the Bill to the Committee.
Building Societies Act 1986 (Amendment) Bill
(Limited Text - Ministerial Extracts only)
Read Full debateFriday 19th April 2024
(1 week, 1 day ago)
Commons ChamberBuilding Societies Act 1986 (Amendment) Bill 2023-24 Read Hansard Text Watch Debate Amendment Paper: Consideration of Bill Amendments as at 19 April 2024 - (19 Apr 2024)
This text is a record of ministerial contributions to a debate held as part of the Building Societies Act 1986 (Amendment) Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Exchequer Secretary to the Treasury (Gareth Davies)
Let me first congratulate the hon. Member for Sunderland Central (Julie Elliott) on reaching the Third Reading of her important Bill, which will help to ensure the future growth and success of the building society sector. She is a strong advocate for the sector, and has introduced a Bill that will help it to grow and compete with retail banks, so that it can continue to provide vital diversity to the UK financial services sector.
I also congratulate my hon. Friends the Members for East Kilbride, Strathaven and Lesmahagow (Dr Cameron), and for Milton Keynes North (Ben Everitt), and especially my hon. Friend the Member for Darlington (Peter Gibson), who I was delighted to join back in November to open the Darlington Building Society in the middle of town. I saw from him and the employees just how impactful they are in his community, and I am sure that they will go from strength to strength.
Peter Gibson
While the Minister is on his feet, I wonder whether he could outline to the House the gift he received from Robin Blair, our veteran fruiterer and vegetable trader in our historic market hall, who joined him on that opening day.
Gareth Davies
I was not expecting an intervention on that of all subjects, but I did enjoy the satsumas that were provided by the very nice gentleman, who I understand is an institution in the town of Darlington.
As I was saying, building societies are important to all our communities, not least mine in Grantham and Bourne. In Grantham I have the Nationwide Building Society, the Nottingham Building Society and the Melton Mowbray Building Society, a new branch of which is opening in Bourne in April.
Today I wish to outline a few things: first, the Government’s support for the mutuals sector; secondly, the importance of mutuals to our overall financial services sector; and, finally, how this Bill will further support the future growth and success of mutuals. The Government want to promote the growth of mutuals, which make a vital contribution to the UK economy. As outlined in the mutuals prospectus, there are over 9,000 mutuals operating throughout the country, with a combined annual turnover of some £88 billion in 2022, which equates to 3.5% of UK GDP. However, beyond their vital financial contribution to the UK economy, mutuals play an important role in supporting people across the country. Their unique ownership model means that these businesses are rooted in their local communities, and working to make society better.
It is for those reasons that the Government are committed to supporting the growth and success of the mutual sector. For example, last summer the Government amended the Credit Unions Act 1979 so that credit unions in Great Britain can offer a greater range of products and services. Moreover, as the hon. Member for Sunderland Central said, last year the Government supported the private Member’s Bill introduced by the hon. Member for Preston (Sir Mark Hendrick), which achieved Royal Assent in June 2023. The Co-operatives, Mutuals and Friendly Societies Act 2023 will allow the Treasury to pursue further secondary legislation to give co-operatives, mutual insurers and friendly societies greater flexibility in deciding what to do with their surplus capital and the restrictions on their assets. The Government continue to develop a modern and supportive business environment for mutuals. As part of that, we have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.
Building societies are perhaps one of the best-known types of mutuals. There are 42 building societies operating throughout the country, providing mortgage and savings products to around 26 million members. They play an essential role in supporting their members in building savings habits and buying their own home, as the hon. Member for Bristol North West (Darren Jones) outlined. That cause is supported by Members from across the House, but particularly by the hon. Member for Sunderland Central, who has consistently championed the importance of supporting first-time buyers—not just in her constituency, but across the country.
Building societies are especially well represented in communities outside the south-east. For example, the Melton Mowbray Building Society provides vital support in all areas neighbouring my constituency, and I note that the Newcastle Building Society has a significant presence in the constituency of hon. Member for Sunderland Central. It builds on a 160-year history, and its amazing commitment to its members in the communities in which it operates remains strong. It has partnered with the citizens advice fund to provide expert advice to members, answering questions on a variety of important issues. She also has the Yorkshire Building Society in her constituency, which has done great work on financial literacy through its Money Minds programme.
It is clear that building societies contribute to the wellbeing of communities throughout our country, including in the constituency of the hon. Member for Sunderland Central. The Government are fully supportive of this private Member’s Bill, which will help the sector to compete more effectively with retail banks, so that building societies can continue to work.
This Bill is about enabling building societies to grow and compete with retail banks. We are achieving that by updating the legislation in three short ways. First, the Bill excludes three specified sources of funding from the 50% wholesale funding limit for building societies. This will provide them with greater flexibility in raising additional wholesale funding, while still operating within the mutual model. The detail of the funds will be further specified by the Treasury through secondary legislation in due course. Furthermore, the amendment in the name of the hon. Member for Sunderland Central means that the statutory instruments will be subject to the affirmative procedure, allowing for greater parliamentary scrutiny; that comes on the back of very constructive work from across the House. The amendment does not change the policy outcome of the Bill in any way, but simply amends the parliamentary procedure that will be followed when subsequent regulations are made.
Secondly, the Bill allows for the option of real-time virtual participation at building society meetings. This will improve meeting accessibility and promote wider membership engagement, should the members of any building society choose to permit virtual participation under their rules.
Finally, the Bill will provide His Majesty’s Treasury with the power to further align constitutional provisions. Specifically, it will align provisions in part 2 of the Building Societies Act 1986 on common seals and the execution of documents with modifications made to company law. This will remove outdated and burdensome legislative requirements, and update the 1986 Act, in line with modernisations made to company law.
In conclusion, the Government fully support the hon. Lady’s Bill. We recognise the importance of the building society sector, which supports people and communities across the country. I extend my thanks to the hon. Lady for introducing the Bill and for progressing it to Third Reading. She can be assured that the Government share the vision set out in the Bill for supporting the future growth and prosperity of the building society sector.