Co-operatives, Mutuals and Friendly Societies Bill

I beg to move, That the Bill be now read the Third time.

The object of my Bill is to help ensure the best business environment for co-operatives and mutuals, and that means three things. First, we need a good policy understanding of the importance of mutual business, and that must stretch across Government to Ministers and officials. We recognise that it is always a challenge to get attention from a busy Department such as the Treasury, but well-informed and motivated Ministers and officials will give us a fighting chance. Co-operatives and mutuals are an important feature in a mixed economy when their different business purposes are recognised and allowed to flourish. Good policy is the foundation stone for that.

Secondly, on legislative reform, the Bill is part of making legislation on co-operatives and mutuals fit for purpose for a modern economy. Co-operative law was first introduced to this House in the 1860s, and formed the basis for co-op law in many countries around the world, but it has sadly not been kept up to date. We want to draw on the best practice in the world, which is why the idea of protecting assets for their intended purpose is so important.

Countries that have adopted such provisions have much more robust co-operative and mutual business sectors. The removal of the incentive to demutualise means that they can continue to grow in line with the interests of the members they serve. There is more to do on legislative reform, as my original Bill identified. We look forward to working with the Government to ensure that legal options are no longer a poor relation but match the standard of the best in the world.

Thirdly, we need regulators to appreciate the role of co-operatives and mutuals. We can have the best policy and legislation, but in practical terms, progress can be thwarted if regulators lag behind. They should no longer see their role as facilitating demutualisation, as they unfortunately did in the LV debacle. Instead, the true champions of consumers should be driving corporate diversity and choice. If there was one lesson to take from the global financial crisis, it was that we do not want all businesses following the same mistaken strategy. In that regard, diversity is strength, and regulation should take seriously its role in ensuring that co-operatives and mutuals are not ignored, or worse, homogenised into a single idea of business driven by shareholder-owned interests.

The Bill is one of a series of such private Members’ Bills over the last 20 years. I am proud to have played my part in bringing it to the House in the way that my predecessors did. There have been five Bills to modernise co-operative and mutual law, all of which have received Royal Assent. It is welcome that our efforts and endeavours have had the support of Treasury Ministers and from both sides of the House. This is one area in which there is genuine and lasting cross-party consensus. It is no less welcome that we enjoy today the support of His Majesty’s Government for this sixth such Bill. It is perhaps less positive that we have had to take this piecemeal private Member’s Bill approach to legislation, but I sincerely hope that the promised Law Commission review puts that right, and that a modern framework for business is established once and for all.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on his Bill’s successful Committee stage and on its reaching Third Reading today. Mutuals and co-operatives are not an insignificant sector of our economy: across the UK, the industry comprises more than 7,000 co-operatives, employing some 250,000 people with an annual turnover close to £40 billion. The sector is not standing still; it is growing, with more co-operatives forming despite the very challenging circumstances caused by the covid pandemic.

Perhaps nothing highlights the purpose of the Bill better than mutual insurers and friendly societies, the origins of which stretch back to the late 17th century. In 1703, the Amicable Society, chartered by Queen Anne, was set up to provide support to widows and children in the event of the policyholder’s death. Such organisations spread rapidly across the country. As the industrial revolution took hold in our towns and cities, mutual insurance and friendly societies acted as a social safety net for their members in case they were injured in what Blake described as the dark satanic mills. Thankfully, we have moved very far from those working conditions, but that does not mean that we no longer require mutual societies. The development of the sector continued for much of the 19th and 20th centuries. Many of the UK’s now well-known insurance companies began as mutual societies; there were then the various amalgamations, mergers and takeovers to which the hon. Gentleman referred.

There are 50 financial mutuals currently operating in the UK. According to the Association of Financial Mutuals, they represent 30 million members and write £20 billion of premiums annually; as I said, the sector is not at all insignificant. Many farmers in my constituency have policies with their local NFU Mutual, and people can remember the days of the man from the Pru—it was frequently a man—coming round to collect membership subs. Mutuals take many different forms. The Hughenden valley community shop in my constituency is a fine example of such an organisation today; it does a tremendous service to people in the area, and was particularly welcome during the pandemic.

I, too, commend the hon. Member for Preston (Sir Mark Hendrick) on his strong advocacy for co-operatives and mutuals, and on the progress that he has made with the legislation. I am delighted that the Bill has been supported by hon. Members on both sides of the House at all stages.

Mutuals and co-operative societies are distinctive organisations in that they are owned by and run for the benefit of their members. Whether employees, suppliers or the community and consumers that it serves, those who are actively involved in the business control decisions, rather than outside investors. Mutual ownership therefore helps to ensure that decisions are focused on the long-term sustainability of the business. Profits are not distributed among members but returned to the community, so such organisations provide a legal structure designed for social enterprise.

Indeed, co-operatives spring from local communities. They are bottom-up, grassroots organisations that are set up to provide goods and services for those who need them. Clearly, mutuals play a hugely important role in our local areas for education, engagement, charity and, fundamentally, the financial services that they offer. They provide a way for communities to come together to solve problems.

I have always been a strong advocate for the social enterprise movement in this country. Social businesses, including those that are community owned, are responsible for job creation in areas of deprivation—jobs that last and provide the crucial spirit of enterprise and innovation that our left-behind areas need. That makes the growth of co-operatives in the UK an integral part of the levelling-up agenda.

In 2021, co-operatives were five times less likely to permanently close than other UK businesses, and they were significantly more likely to tackle other important projects, such as decarbonisation, technology and the current cost of living challenges. Co-operatives have been incredibly resilient in the face of the pandemic, with the sector growing by an impressive £1.1 billion in 2020, despite the economic challenges resulting from national lockdowns.

It is a pleasure to follow my hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon). I join her in congratulating the hon. Member for Preston (Sir Mark Hendrick) on bringing forward this important Bill, piloting it through its stages so far and, indeed, securing the important cross-party support that he has secured for this Bill. Co-operatives play a vibrant part in our economy, as others have said. They bring greater choice to consumers and greater choice to people who need the goods and services that they put together. I hope I maintain the spirit of cross-party support for the Bill when I say that the co-operative movement is part of a vibrant free market economy in the United Kingdom, and we should celebrate that.

As my hon. Friend the Member for Aylesbury (Rob Butler), my constituency neighbour, commented, the more we can drive the ability for co-operatives to compete with their commercial counterparts, the stronger our economy overall can become. I particularly endorse the point he made about the importance of this being an opt-in Bill. It is not the state dictating or this House setting out a “how it must be” clause for co-operatives, friendly societies and so on to operate; it is something about which those organisations must make an active choice for themselves.

To go to the heart of the Bill—this is why I believe it to be an important Bill that, as the hon. Member for Preston said, brings the legislation up to date and moves the sector forward from its legislative origins all those decades, if not centuries, ago—the very hub or core of the co-operative movement is about people doing something because they want to create a better society, a legacy and, indeed, something lasting. When organisations fail or are forced into some form of closure we can see that that legacy can be lost all to easily if there is no protection around the assets. That is why I believe it to be so important, and as my hon. Friend the Member for Aylesbury indicated, this is no small undertaking. The helpful House of Commons Library paper on this details how 7,200 co-operatives were employing 250,000 people across this country. That is no small thing; that is a significant part of our economy, stretching across 14 million members. My hon. Friend mentioned the Hughenden valley community shop in his remarks, and that is a wonderful example from Buckinghamshire. A simple search of the Co-operatives UK website indicates just how far reaching co-operatives, mutuals, and friendly societies are in my constituency.

I am learning a great deal about the hon. Gentleman’s constituency that I was not previously aware of, so I think him for that. I recognise what he is discussing because I, too, have such cases in my constituency. I wanted to ask about the building societies that we still have, and the diversity of our financial services sector. If we had retained more of the mutual building societies in the ‘70s, for example, would we still have had the same financial crash in 2008?

On the point about high street banks, it is noticeable across the Buckinghamshire constituency that in 335 square miles there is only one high street premises left standing, which is the Nationwide in the town of Princes Risborough. I do not share the hon. Gentleman’s projection that we would not have had the 2008 crash had we not seen the demise of so many building societies, as many other factors were at play there. Indeed, a note highlighting one of those factors was left by the former Labour Chief Secretary to the Treasury for the incoming Government in 2010. [Interruption.] If he would like another bite, I would be delighted.

Perhaps the hon. Gentleman could be more precise about the point I was seeking to make, which was whether we would have been more financially resilient in the financial services sector, and the public’s money more secure, had we had a greater diversity and spread of those sorts of institutions in our economy, as perhaps they have in France.

I am grateful to the hon. Gentleman for his clarification. I believe that for a successful economy, there does need to be that diversity and spread of different models and different institutions—fully commercial enterprises, co-operatives, friendly societies and mutuals. As a committed free marketeer, which I accept the hon. Gentleman perhaps is not, those are the building blocks for a successful economy, and I certainly would not seek to diminish the role of building societies and mutuals in securing that diverse, successful and buoyant economy. We can certainly find some common ground there.

Having highlighted the wealth of friendly societies, mutuals and co-operatives across my constituency and their value to the United Kingdom economy, let me say that this Bill is a welcome bringing up to date of the legislation. I look forward to hearing my hon. Friend the Minister confirm the Government’s full support for the Bill as it passes Third Reading and goes to the other place. I hope to see it receive Royal Assent before too much longer.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on bringing this Bill before the House, and also congratulate my hon. Friend the Member for Buckingham (Greg Smith) on listing pretty much every business in his constituency during his speech, which is quite the feat.

This is a really important Bill, and I want to cover some of the key points that make it so important, some of which have already been mentioned by other hon. Members and hon. Friends. It proposes a way for co-operatives, friendly societies and mutual insurers to grow and develop their organisations while maintaining their commitment to member ownership and control. That is important, as it will enable co-operatives to compete on a more even playing field with their corporate counterparts and increase their impact across all sectors.

The current legislation that governs the raising of capital by co-operatives is, as we know, somewhat inflexible. The Bill would enable co-operatives to raise more money by issuing equity shares that are repayable at the option of the society, rather than being withdrawable at the option of the members. By introducing repayable shares, the Bill would enable co-operatives to raise amounts in excess of the current £100,000 holding limit for withdrawable shares. It would also provide legal certainty as to whether co-operatives can choose to repay non-withdrawable shares. Those changes have the potential to lead to large, capital-driven co-operative societies raising millions of pounds or more each year in equity, which could then be used to invest in important initiatives, tackling issues such as decarbonisation, technology, and the current cost of living crisis. The Bill would enable co-operatives to secure increased investment while retaining their democratic structures and ensuring they work in the interests of their members, something that I know is of great importance to the hon. Member for Preston.

We need to talk about co-operatives and about the British co-operative movement, starting with its history. In 1844, on the other side of the Pennines, the Rochdale Pioneers founded the modern co-operative movement to provide an affordable alternative to poor-quality and adulterated food and provisions, using any surplus to benefit the community. That was the start of the modern co-operative movement; as my hon. Friends the Members for Aylesbury (Rob Butler) and for Buckingham mentioned, the movement has grown substantially since then, with 7,200 co-operatives employing 250,000 people, 14 million members, and a combined turnover of just under £40 billion. That is how big the modern co-operative movement has grown.

I begin by warmly congratulating my hon. Friend the Member for Preston (Sir Mark Hendrick) on his important Bill, which receives its Third Reading today. My hon. Friend has worked tirelessly to build cross-party support for the Bill, the success of which has been evident today. I also congratulate him on securing Government backing for this legislation, and for that support I extend my thanks to the Minister.

As we have heard during debates on the Bill, including today, Members across the House see the huge value of co-operatives, mutuals and friendly societies. There are now over 7,000 co-operatives operating in the UK, with a combined turnover of almost £40 billion, and almost 235,000 people earn their livelihoods directly through co-operatives trading in a range of different sectors.

Co-operatives have proven resilient in the face of hardship. Despite the covid-19 pandemic and the economic challenges resulting from the national lockdowns, the co-operative and mutual sector grew by an impressive £1.1 billion in 2020. The resilience of co-operatives is also evident in the higher levels of productivity that can result from employee ownership. In the United States, for instance, the National Centre for Employee Ownership tracked the performance of more than 57,000 firms and reached the conclusion that employee ownership can greatly improve a business’s productivity and its chance of success. However, despite the fantastic contribution that co-operatives and mutual societies make to society and the economy, outdated legislation has prevented the sector from reaching its full potential in the UK.

Given their unique structure, co-operatives, mutuals and friendly societies are often excluded from traditional investment methods. Today, less than 1% of businesses in the UK are co-operatives. By comparison, as another hon. Member mentioned, Germany’s co-operative economy is four times the size of that of the UK. In Emilia-Romagna, Italy, co-operative enterprises generate close to 40% of GDP, and the province has the lowest socioeconomic inequality of any region in Europe.

My hon. Friend just cited statistics about Germany and Italy, but does he agree that one of the interesting things is the culture of mutuals and co-operatives? Their thinking on financial investment and return is much longer term, and that is surely to the benefit of investors.