Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011

Lord Kennedy of Southwark Excerpts

Thursday 20th October 2011 Lords Chamber

In conclusion, credit unions and co-operatives have been waiting a long time for this LRO to be made and many stand ready to take benefit of the order as soon as it takes effect. This LRO reflects our commitment to promoting the mutual and co-operative sector in Great Britain, ensuring that we enhance diversity in our financial services and that we support a sector that provides finance, employment and support for millions of people, including those hardest to reach and most in need of help. This legislative reform order will support and enable growth of co-operatives and credit unions and I look forward to hearing your Lordships’ views on these proposals. I very much hope that you will lend your support to these important reforms. I beg to move.

[Lord Kennedy of Southwark]

My Lords, today is International Credit Union Day and the theme for the celebrations is “Credit Unions Build a Better World”. It celebrates the important economic and social contributions credit unions make to their communities worldwide. I am vice-chair of the All-Party Parliamentary Group on Credit Unions and it is wonderful that we are debating and approving this statutory instrument today of all days.

As the noble Lord said, credit unions are financial co-operatives owned and controlled by their members. Credit unions in the UK manage over £600 million on behalf of over 900,000 people. The order before us today makes some very welcome changes. It was originally laid in similar form by the last Labour Government, as the noble Lord said, and I was delighted when the present Government sought to carry forward these much needed reforms. The order makes a number of sensible changes, such as allowing credit unions to pay interest on savings rather than a dividend. It allows them to provide services to community groups, attract investments and extend the services that they offer. That is all very welcome. I congratulate the Government on what they have done.

However, this is only one of a number of steps that the Government should be taking. Although the credit union sector in the UK is growing, it is still relatively small. With the right support, the potential for major expansion is all too evident. That expansion and growth would be of benefit to communities up and down the country. We must also remember that it is a sad fact that some of the most financially excluded citizens have to pay the highest price for credit, which we should all regret and want to work to eliminate. We have seen organisations on the high street that are little more than legal loan sharks which charge people 2,000, 3,000 and 4,000 per cent interest to borrow money. Expansion of the credit union sector gives people who are financially excluded the opportunity to become financially included and to pay a fair price for the credit that they need.

The big society seems to have disappeared a bit from the vocabulary of the Government in recent months, but initiatives like this, which enable people to help themselves, are what I understand by the big society and are very welcome.

[Baroness Kramer]

My Lords, let me join others in welcoming this order laid before us. Like others, I think that the only regret is that we had not seen it perhaps a little sooner, but I am delighted that it has come now. I am also delighted to be able to look at it in the context of the Government’s commitment to credit unions. A project is now under way between the Post Office and ABCUL—a sort of industry spokesperson for credit unions more broadly—to find ways for the Post Office to be the front-door platform for many people to access their accounts through the Post Office structure. That would have been inadequate were these other steps not being taken to expand the capacity of credit unions.

I am particularly delighted that we now have a new definition of the common bond, which will take a real constraint away from credit unions and their capacity to build membership and to serve the community. The United States has long had much greater flexibility. Whereas in the UK the figures from ABCUL suggest that the current amount of assets under credit union management is £790 million, in the United States—even allowing for the difference in population size—some $900 billion of total assets come within the credit union structure. We are looking at a completely different dimension, which I hope the UK will be able to move towards. As the noble Lord, Lord Kennedy, has said, many people who are financially excluded can see a route into financial inclusion through credit unions that they would not find in the high street banks.

I also am encouraged by the expansion of the groups which a credit union can serve to include corporate bodies, partnerships and unincorporated associations. We have many small businesses which once again cannot find a satisfactory financial relationship through existing high street banks. They need other sources and mechanisms. Again, if we look at the United States, it is interesting that the ability to serve small business has long been part of the credit union framework. In 2011 alone, the Obama Administration are using that credit union network to push $300 million in additional credit directly to small and very small business in a way in which we have no capacity to do here in the UK. For the kind of activity that we are seeing through credit easing—obviously, that is a much broader programme—in the United States that is able to happen far more easily and fluidly through mechanisms such as the credit union and the much wider world of community development banks. We can now begin to move towards having that potential here in the UK.

With the new classes of shares and the ability to deepen investment, we are coming now to the point where there is a recognition that more diversity and provision that focuses on people who are financially excluded, and on businesses that are micro and small, is all to the positive for the growth that we need in our economy.

I join others in welcoming this order laid before us by the Government today. I express apologies from my noble friend Lord Newby, who had expected to be standing here but, because of the time, unfortunately could not cancel another commitment. I welcome this move by the Government.