Mutuals’ Deferred Shares Bill [Lords]

Chris Leslie Excerpts

Friday 6th March 2015 Commons Chamber

I hope that my right hon. Friend has found my explanation helpful, and that, in the light of what I have said, he will feel able to withdraw his amendment.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I think that, on this fine morning, I too should declare an interest, although there is no requirement for me to do so. I am a Labour and Co-operative Member, and have received support from the Co-operative party. More generally, the House is aware of my historical support for the mutual sector. Unlike other Members, I come to the Bill at a late stage in its progress, and I commend, in particular, the hon. Member for Cardiff North (Jonathan Evans) and Lord Naseby for their diligence.

As the hon. Member for Cardiff North explained, after the global banking crisis had swept across the world like a tsunami and the tide had eventually ebbed, one of the critical risks that were revealed was the issue of the ability of organisations—in this instance, mutual insurers and friendly societies—to withstand, and have the capacity to absorb, difficult circumstances that might make a call on their capital. So the need to resolve this has been a priority for these institutions, although I feel that regulators and others have perhaps not put this as high up the agenda as it should have been, hence the point made by the hon. Member for Cardiff North about the building society sector getting its house in order in terms of the core capital deferred shares, but now we also require a similar set of instruments for the insurance sector.

It is important to put on the record the work done not just by the Building Societies Association but the Association of Financial Mutuals and many others who have helped create a potential solution here. It is not absolutely necessary for the sector, which is able to cope with the new regulatory requirements, but it would certainly make it easier and provide much more of a level playing field, given the ability of the PLC shareholder sector to obtain capital in a far simpler way.

I also want to commend the right hon. Member for Banbury (Sir Tony Baldry) for at least taking the opportunity to put the spotlight on clause 2 and the question about the number of votes. Having listened to his comments, however, I would not want to see that part of the Bill taken out. The hon. Member for Cardiff North was very persuasive in pointing out that the particular character of mutual insurers and friendly societies is that their members together have control and ownership of the organisation, and history shows, through demutualisation efforts in the past, that we need to safeguard the ownership and the integrity of those organisations in this way. Therefore, I am persuaded that the single vote, regardless of the amount of the investment, through the deferred shares is the right way to proceed.

This is a sensible set of measures. It is important that we have them on the statute book. However, we are at a late stage in this Parliament and I ask the Minister to clarify the Government’s intentions for bringing forward the regulations and making sure we can get these changes through, because this is a piece of primary legislation that then enables regulations to be made by affirmative order, hopefully in quick succession. I therefore ask the Minister to give us a sense of the time scale for when that may happen, because, with the level of scrutiny we have had on this, there is quite a lot of consensus on the matter and we need to ensure that the financial services and insurance sectors have this diversity. The gradual disappearance of mutuals in this area will be to the detriment not just of the sector and competition, but consumers as well. Therefore, we have to modernise and sustain the mutual sector. The Bill provides worthwhile provisions for doing that and has the support of the Opposition.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

I would like to put on record my great pleasure at the extent of cross-party consensus on the importance of this Bill to support the mutuals sector. I thank my right hon. Friend and constituency neighbour the Member for Banbury (Sir Tony Baldry), who raised some important points. I hope he will be persuaded to withdraw his amendments, as there are clear reasons for doing so.

One of the Government objectives for the Bill is to preserve the mutual status of firms in the sector. Government amendments give firms the option to provide membership rights to deferred shareholders, if they so wish. However, if deferred shareholders do become members of the firm, they will not be entitled to additional voting rights, regardless of the value of their deferred shareholding. This clause serves to protect the principle of mutuality. My hon. Friend the Member for Cardiff North (Jonathan Evans) set out very clearly why that is vital to ensure the success of this sector, which the Government have been so keen to support.

The proposals in the Bill have been carefully drafted to provide mutual organisations with a means to raise external capital in a way that preserves the mutual status of firms. This is no easy task, and the merits of attracting external capital into the mutual sector have been debated at length by mutuals, and some mutual organisations have taken steps to reform and issue mutual capital instruments. For example, in recent years building societies have commonly issued permanent interest-bearing shares that pay the holder a fixed rate of interest. The shares cannot be sold back to the society, although they can be bought and sold on the stock exchange, which means that the price can vary. Changes in banking regulation mean that those instruments will no longer be classed as core tier 1 capital, so the building society sector has designed a replacement mutual capital instrument, known as core capital deferred shares, which will enjoy the same tax treatment as ordinary shares.

--- Later in debate ---

[Chris Leslie]

I have my own Michael Foot story. I will come to it in a minute, but first I wish to support the Bill, which will make a vital change to support the integrity of mutual financial services and the insurance sector.

I echo the tributes that the hon. Member for Cardiff North (Jonathan Evans) paid to all those involved, and I should mention Mutuo and Peter Hunt, who have been crucial in ensuring that the Bill’s details are right.

The Bill will provide a more level playing field for the sector, so that it can cope with difficult circumstances that might call on capital in the future. The creation of the deferred share facility is very important and does not jeopardise the fundamental values of these institutions, which are so vital to preserve the integrity of organisations that are owned and controlled for the benefit of their members. That is an important principle. It would be a great shame if that alternative model disappeared and we were dominated by the monoculture of the plc shareholder structure. This important Bill could bring the extra capital that we need into the sector, while safeguarding against demutualisation and risks to the sector.

I had not realised that the hon. Gentleman stood against Michael Foot at the outset of his career. When I was a mere stripling—I know that hon. Members think that I still am—my father wrote to Michael Foot because he knew that I was interested in parliamentary procedure for my first degree. By return of post, to complete strangers, Michael Foot sent his own signed copy of “Erskine May”. The generosity of a great parliamentarian and bibliophile was overwhelming. I regarded that as one of the key spurs that made me get involved in politics, and here we are today. Some people may regret that, but I regard it as a mark of the man.

The hon. Member for Cardiff North mentioned the beginning of his career, and he has had an important political career in this place. The House will be worse for his departure, but whatever may happen in the future, I wish him well. This Bill will be useful testimony to his support for the sector. I urge the Minister to tell us when the starting gun will be fired on the regulations, because the Bill facilitates a great change, but that does not necessarily mean that it will actually happen.