I beg to move, That the Bill be now read a Second time.
May I begin by thanking the former Minister, the hon. Member for North East Bedfordshire (Richard Fuller), who is in the Chamber, for his time and effort— I am also grateful to civil servants for their time and effort—and for our fruitful discussions, which have led me to introduce the Bill in the Chamber? While the Bill does not cover the whole scope of what I wanted to achieve, the fact that the Government are willing to give their support to a key part of my proposals and instruct the Law Commission to conduct a review of legislation affecting co-operatives, mutuals and friendly societies is, in my view, major progress.
I first became active in the co-operative movement 40 years ago, when I bought a £1 share in the Norwest Pioneers Co-operative Society in 1982. The society had evolved from the actions of the original Rochdale Pioneers in 1884, and set up what is generally regarded as the first successful co-operative retail venture. The society was set up in the harshest times, when 19th-century industrial capitalism was on the rise. It was an age of child labour, exploitation and poverty. Sometimes owners of cotton mills paid their workers in tokens, which could only be spent in shops owned by the mill owners. In those shops, the food was often adulterated, so those pioneers set up their first shop in Toad Lane in Rochdale. It was an explicit example of self-help, which started a movement that is now global.
Co-operative societies then mushroomed to form dozens of co-operatives in many Lancashire towns and cities until the 1930s, when the Manchester, Salford and Stockport societies amalgamated to form the North West Co-operative Society. In July 1982, what became the Norwest Co-operative Society merged with the Pioneers Co-operative Society to form the Norwest Pioneers. I bought a share later that year. I would never have dreamed that 40 years later I would have the opportunity to stand here and propose a new piece of legislation that could help to preserve and protect members’ assets accumulated, in many cases, over generations from potential predators who, in recent decades, have sought to take away those assets from members for their own personal profit and gain. That matters to me because co-operation and mutuality are about equity and fairness. The growth of co-operatives in the UK is an integral part of the levelling-up agenda; it can provide many thousands of new jobs in the economy; and it is complementary to the Government’s growth agenda.
Alongside investor-owned firms, co-operatives, mutual insurers and friendly societies have an important part to play in the biodiversity of our economy. These businesses share their origins in self-help movements that are relevant to the economic and social challenges that people face today.
The hon. Gentleman is making a fantastic speech. In my constituency, in Hinckley and Bosworth we have several building societies spawned from the fact that we had shoe manufacturing there. Does the hon. Gentleman agree that it is fantastic to have a mix of options for people? These organisations will often pick up people who may not be able to get finance and support they need, but because they have that local community connection they are able to make that judgment and give people the support they need; that should be welcomed.
I agree and commend the hon. Gentleman for his comments. Co-operatives spring up from local communities; they are bottom-up, grassroots organisations—certainly not top-down.
As I said, alongside investor-owned firms, co-operatives, mutual insurers and friendly societies have an important part to play in the biodiversity of our economy. They need a business environment that facilitates this: Government policy that understands and supports the mutual business difference; and legislation that is up to date, flexible and permits co-operatives, mutuals and friendly societies to undertake their purpose of serving their members’ needs in the best way possible. Only by working in a modern and supportive business environment will co-operatives, mutuals and friendly societies be able to make a full contribution to the prosperity of our country by serving the interests of customers and citizens. Yet demutualisation remains a real and present threat to the mutual sector, which is, unfortunately, incentivised by the system.
My Bill is about giving mutuals the option to maintain mutual capital for the purpose it was intended. There is a fundamental distinction between the rights of members of a mutual society and members of an investor-owned company. Members of a company—shareholders—have the right both to a pro rata share of distributed profits, or dividends, based on their shareholding, and also to a pro rata share of the underlying value of the company. The more capital they own, the greater their share of the profits and of the value of the company. Members of a mutual society, by contrast, generally have neither of these rights, because in mutuals profits are generally not used as a mechanism for rewarding capital, and members of a mutual do not have any expectation of any entitlement to a share in the increased value of their society.
Since members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of a society exceeds the capital provided by members—commonly referred to as the “capital surplus on a solvent winding up”—has no specific owner. It is effectively a legacy asset, held by the society for future generations, and enables it to provide for, and invest in, its future. It is a core part of its mutual identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations. Societies were originally set up not to make a capital surplus to reward members, but to provide goods and services for those who need them; that was the purpose, and this was the basis upon which previous generations have taken part in the trade.
I am grateful to the hon. Gentleman for his speech and very supportive of his Bill. He talked about how the Bill would protect mutuals and co-operatives. Will he give us some examples of when things have gone as he suggests they could and some assets have been used for other purposes? I think that is at the heart of it, and any examples would be welcome.
I thank the hon. Member for his intervention. Actually, I will come to that later in my speech.
Provided that the relevant formal procedures are completed, including securing consent from a statutory minimum threshold of members, a demutualisation cannot be stopped. That threshold has been changed from time to time for different types of mutual societies to make demutualisation less likely, but those measures provide only partial protection. There is currently no statutory mechanism for ensuring that surpluses, which previous generations never intended to be a private reward for anybody, remain committed to that wider public purpose.
At the moment, legislation governing mutuals can incentivise demutualisation by permitting those legacy assets to be distributed. Legacy assets have often been built up over many generations of membership and can constitute a significant part of the working capital of the business. Current members typically have not contributed to that capital base but have enjoyed the benefits of previous years of successful trading. Most demutualisation attempts succeed, assisted by a significant power imbalance between the boards of mutuals and members.
The example of Liverpool Victoria last year shows that demutualisation attempts can, however, be defeated, even when proposed by a mutual’s board. We should be wary of the interests that private equity is showing in mutuals across the world, attracted by the prospect of acquiring significant assets built up by generations of members. At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. That leaves mutuals vulnerable to those simply aiming to liberate those legacy assets, sharing them out among people as they choose, and converting the business into an investor-owned company. That has resulted in much of the UK building society sector being lost and their businesses either failing or transferring to non-UK ownership. That has been bad for mutuality and bad for the economy, given the damage that it has caused to corporate diversity.
The hon. Gentleman is making a fantastic speech on how to protect from demutualisation, but it seems a very defensive way of looking at things. Will the Bill provide a chance for new innovations and further capital to be brought into the sector to help its members?
I thank the hon. Gentleman again for intervening. One proposal I did not take up and put to the Government was the idea of a new share for co-operatives that would allow them to develop in a way that they have not been able to before. Unfortunately, the Government are not at the moment able to do that, but it would bring in the additional capital to encourage the growth he talks about. I understand from the Government that it will be considered as part of a Law Commission review of the sector. The issue is on the agenda; it is just not included in the Bill at the moment.
My Bill will introduce new provisions to maintain the destination of the capital surplus to ensure that where a mutual’s rules make the capital surplus non-distributable, any resolution to convert it into, amalgamate with or transfer engagements to a company shall also include a provision to transfer the capital surplus, as provided by the rules in the event of a solvent winding up. With the support of the House, we will be able to incorporate sensible amendments that ensure that this legislation works for the co-operative and mutual sector, and fits in with the Government’s stated policy objectives.
In finishing, I would like to thank the Minister and his officials for their time devoted to holding discussions and their help in re-drafting parts of my Bill to our mutual satisfaction. I thank Peter Hunt and Mutuo for their help, advice and expertise throughout the time we have been working together on the Bill, and I thank the Co-operative party and the co-operative societies, mutuals and friendly societies that have engaged with me to give me the encouragement and enthusiasm to get to this stage. I look forward to working with parliamentarians from across the House to get the Bill through the forthcoming stages required to bring it into law.
Before I sit down, Mr Speaker, I would like to declare an interest as a Co-operative Member of Parliament and as a member of a co-operative society.
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on moving the Second Reading of his Bill. Having had the pleasure of introducing my own private Member’s Bill in the last Session, I know only too well what a privilege it is to be drawn in the ballot.
I thank the hon. Gentleman for taking the opportunity to raise the important issue of co-operatives, mutuals and friendly societies, which colleagues across the House have raised on several occasions. My hon. Friend the Member for Wycombe (Mr Baker) led a Westminster Hall debate on the issue last December, emphasising the opportunity to generate wealth through co-operatives and mutuals and the role that they can play in our levelling-up agenda. I know that the chair of the all-party parliamentary group for mutuals, the hon. Member for Harrow West (Gareth Thomas), has endorsed the principles of the Bill; I commend the APPG’s work to champion co-operatives, mutuals and friendly societies.
“Mutuals” is an umbrella term for organisations whose members have democratic control of their business and that are owned by and run for the benefit of members, with profits reinvested in the organisation or among the membership. They include co-operatives, mutuals and friendly societies, but for ease of reference I will use the umbrella term “mutuals.”
Mutuals are fantastic business vehicles and are at the forefront of good behaviour when it comes to investing in people, developing skills and creating opportunities. Moreover, a range of co-operative models are increasingly being used as tools for community-led economic development, with people collaborating and pooling resources to improve their economic and social circumstances. Alongside that, educating and developing members is one of the fundamental principles of the co-operative model and is critical to making it effective. Mutuals are positioned as a potential tool to leverage the community support that we need to ensure that levelling up is a success in communities such as Darlington, and no doubt in the constituency of the hon. Member for Preston.
I am so pleased to see this Bill here today. As a proud Co-op Member, I truly hope it progresses to the next stages. I am also proud to have played my small part in getting it to where it is today. It is a version of the private Member’s Bill I brought forward in 2020, so to see it proceed to the next stage would be incredibly heartening. Legislation that supports positive social and economic transformation has never been more necessary. As we live through turbulent times, politically and economically, it is essential that we create the right regulatory framework from which we can safeguard and grow our economy. There is a need to facilitate and to protect new capital in co-operatives, without compromising their co-operative nature and without members losing control. As we know, several barriers prevent co-operatives from growing to their full potential and place them at a disadvantage, at risk of demutualisation. This Bill provides a way to ensure that co-operatives and mutuals are not compromised.
The co-operative model is truly a British success story, as my hon. Friend the Member for Preston (Sir Mark Hendrick) has ably explained. It is also truly a Welsh one and it has been at the heart of economic renewal in Wales. Robert Owen, a prominent Welsh textile manufacturer, was one of the founders of the co-operative movement, with the creation of the villages of co-operation. Co-operation is a way of life in Wales. I am proud that in Wales, and under a Welsh Labour Government, we hold the values of co-operation, fairness and social responsibility closely within our communities and in how we govern.
It would have been nice to see the full version of the Bill proceed today to enable the raising of investment and shares. I hope we see that in future. I truly support and warmly welcome my hon. Friend’s groundbreaking Bill and congratulate him on bringing it forward.
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on bringing forward the Bill and I thank my hon. Friend the Member for North East Bedfordshire (Richard Fuller) for the amount of work he did on it —he has a lot to be proud of.
I should declare an interest: my Heywood and Middleton constituency is located in the Metropolitan Borough of Rochdale and includes the western third of the town. As Members will be aware, Rochdale is the home of co-operativism—I am almost certain I can hear someone furiously typing on Twitter to tell me that it did not start in my constituency, but we were certainly among the first—so this subject is very dear to me.
I have something else in common with the hon. Member for Preston: we are both alumni of Salford City Council, along with the much-missed Paul Goggins and the formidable Hazel Blears. Members can tell from that list that I am a bit of an outlier, as I sit on the Conservative Benches—
There is form now for Greater Manchester MPs. [Interruption.] No, you are welcome to him.
Having begun with the founding of the Rochdale Society of Equitable Pioneers in 1844, the Co-operative Group is now a major employer nationwide, and particularly in Greater Manchester. Co-operativism is at the heart of our town and plays an important part in our wider national identity. It gives agency to workers, ensures fair trade practices and drives up the quality of products and services. The Rochdale principles by which most co-ops are guided—equity, anti-discrimination, participation and democratic control—are fundamentally British principles. The co-op was the at the nexus of modern society in this country. It educated people, gave them a voice and treated them as partners in their endeavours at a time when most workers could only dream of that kind of relationship with their employer.
As I said, co-operatives are not the only thing the hon. Member for Preston and I share, and Salford City Council is actually now a co-operative council, as he will know. When we discussed how to bring the Government’s localism agenda to Salford, it was decided that the best way to proceed was as a co-operative council. That change has been hugely successful in including Salford’s citizens in the way we run things. It has created credit unions and given people control over things such as childcare by making it affordable and accessible. There is a huge amount of benefit in how co-operatives work.
I am pleased the legislation acknowledges that although the co-operative movement started in the 1840s and is still going in the modern era, it needs a bit more flexibility to operate in the society in which we now live. Collectively, co-operatives and mutuals are worth roughly £40 billion to the economy and represent 250,000 jobs; the sector is relatively small compared with some of its foreign cousins, so there is a bit of work to do. More co-operatives would bring huge amounts of extra economic benefits to this country. There is a traditional view that because the Co-operative party is associated with the Labour party, co-operativism is a left-wing ideal, but it is not: it is apolitical in its operation. It is just a way to ensure that people can participate fairly in their endeavours.
It is a pleasure to speak on this Bill, which was introduced in this House on 15 June by the hon. Member for Preston (Sir Mark Hendrick), and I congratulate him on that.
Essentially, the Co-operatives, Mutuals and Friendly Societies Bill aims to make it easier for co-operatives to get more investment while retaining their democratic structures, ensuring that they work in the interest of, and are owned by, their members. It also brings friendly societies law up to date and establishes tax neutrality for mutuals’ deferred shares.
I am proud of the work of mutuals such as the Hastings Mutual Insurance Company and the Hastings and East Sussex Building Society. The now de-registered Hastings Pier Charity in Hastings and Rye has done some great work locally. But I am not on an expert on them, so I did a bit of research before today. I was interested to learn that the term “mutual” is used as an umbrella term for several different ownership models. Mutuals are often described as being characterised by the extent to which members have democratic control of the business and share in its profits, in contrast to investor-controlled companies. This is a bit of a misleading distinction; all limited companies really operate for the benefit of their members—the shareholders who invest in a company limited by shares or the guarantors of a company limited by guarantee. These members are involved in the control of the business whether directly or through the scrutiny of the actions of the directors, or simply by buying and selling shares in response to the company’s performance.
The distinguishing characteristic of a mutual is that the organisation is owned by and run for the benefit of its members, who are actively and directly involved in the business—whether it is employees, suppliers, or the community or consumers that it serves—rather than being owned and controlled by outside investors.
Mutuals can be based on a variety of different legal structures. Even limited companies, partnerships and limited liability partnerships are essentially mutual because the partners own and run the business for their own benefit. There is also an incorporated legal structure, which is specifically mutual: the industrial and provident society. There are two types of these: co-operative societies and community benefit societies.
Thank you, Madam Deputy Speaker, for calling me so early in the debate.
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on the Bill, and thank him for his patience as his discussions evolve through the myriad manoeuvres within the Treasury. I add my thanks to Peter Hunt, the chief executive of Mutuo, for the benefit of his extensive knowledge of this sector. I also thank Treasury officials. Much has been said in recent months about Treasury orthodoxy, not always in a polite way. I should just like to point out that there are two aspects of Treasury orthodoxy. There is policy; that is a matter for politicians and Ministers, and of course we can have disagreements about it. But there is another Treasury orthodoxy, which is the way in which the civil servants in the Treasury work. In my brief time with them, I observed a level of dedication, hard work and responsiveness, and a spirit of public service, for which my constituents and the people of this country should be truly grateful. I thank them for that.
I know that you, Madam Deputy Speaker, as I do, would like to talk about my paper from 30 years ago about anomie and the way in which Max Weber has had such an important influence on organisational theory. We could talk at length about methodological individualism and the boundaries between an atomistic view of society and the limitations that places on effective co-operative action.
What it says, essentially, is that people come together in different ways to achieve shared objectives—as charities, as corporations, as Governments, as international organisations, as trade unions, as partnerships and, yes, as co-operatives, mutuals and friendly societies. Each of those organisational forms has its role in enabling us as individuals to fulfil our lives, achieve our objectives and, hopefully, create a better world for future organisations.
It is therefore an important responsibility of Government to maintain a structure of legislation that enables each of those organisational structures to thrive and prosper. Such organisations are the essential “little platoons” of the Burkean view of Conservative ideals and of the co-operative ideals of the Labour party. I congratulate the hon. Member for Preston on putting forward his Bill in such a way that I believe the Treasury Bench will be supportive; I look forward to hearing from my hon. Friend the Minister that that is his intention.
I am delighted to have the opportunity to speak on this important Bill. I congratulate the hon. Member for Preston (Sir Mark Hendrick), who is, as he said, a member of the Co-operative party. I wish I could be a member of the Co-operative party; I do not see why that should be confined to Labour Members. I would love there to be a Conservative and Co-operative Member, because the Conservative and co-operative tradition is very good and honourable.
The hon. Gentleman mentioned Rochdale, and I have visited the home of the Pioneers. He talked about the existence of predatory mill owners in the 19th century—the sort of capitalists who gave capitalism a bad name and have become caricatures. There was another tradition, of course, of a different sort of mill owner and capitalist, which was the Tory tradition that recognised that labour and capital were not equal in their relations and that labour did need some protections. Part of that was the tradition of the Earl of Shaftesbury and other reformers who legislated to protect workers against outrageous working conditions, but it was also Conservatives who legalised trade unions, mutuals, friendly societies and co-operatives. Disraeli’s Government did that, because they recognised the importance, which my hon. Friend the Member for North East Bedfordshire (Richard Fuller) just mentioned, of enabling people to co-operate, to come together and to bargain together.
Both Labour and the Conservatives have a common heritage in this space, and a common enemy, the Liberal party, which in the 19th century was the party opposing factory reform and the legalisation of trade unions. They do not seem to be here today to discuss this important Bill.
However, I am afraid to say that it is also our two parties, Labour and the Conservatives, who are between them responsible for the sad decline in the 20th century of the co-op and mutual movements. One reason was the creation of the welfare state, which crowded out and effectively abolished many of the friendly societies and mutuals that had provided welfare and mutual support to working people, and I am afraid the other was my party, which in the 1980s and 1990s was responsible for the great demutualisation of building societies. I regret that.
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on introducing this important Bill. In North Devon, co-operatives cover industries ranging from agriculture through to retail, recreation and housing. I was delighted this summer to see the power of a co-operative in action in the village of Parracombe on the edge of Exmoor, where the community has come together to build and staff a wonderful village shop and meeting place. Communities can achieve so much more when they are well organised and supported. I hope that in Parracombe and many other villages, people can come together to help their neighbours, particularly where they could help with affordable rural housing by being part of community land trusts. While councils are provided funding for community land trusts, they need access to additional funding, and what better way to do that than through the involvement of a truly locally owned co-operative.
In comparison to a traditional start-up, a co-op is twice as likely to still be trading after five years and its workers support six times more livelihoods. It is likely that co-operatives are so resilient because decisions are made in the interests of long-term community success, rather than the conflict of who can make money quickest. There is a focus on building up reserves in capital rather than relying on debt to fuel growth. The number of co-ops actually grew by 1.2% between 2020 and 2021, despite disruption from covid-19. Community-led economic development takes the idea that communities know best what they need to serve their community, and can implement that to support them and best manage their development.
The UK has a significantly smaller proportion of mutuals and co-operatives compared with similar nations, such as Germany and France. I suspect that is partly down to the ability of the sector to access external finance. I would like to take this opportunity to highlight the Co-operatives UK strategy, which is
“To build a strong, sustainable and diverse UK co-operative movement that positions co-operatives as a better way to do business and transform people’s lives”
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on introducing this private Member’s Bill, and it is a great pleasure to take part in the Second Reading debate. I am very supportive of the measures in the Bill, and I know that the Government have also indicated their support. To that end, I do not intend to speak for too long, but I want to reflect some of the views that my constituents have shared with me. Before I do that, I want to speak about the importance of the co-operative movement on our high streets. As somebody who grew up in the 1970s, I remember my mum shopping in the Co-op because she got her dividend stamp. She got rewarded for supporting a local supermarket on our high street. I have to say that I am a member of the Co-operative. I have my little card, and when I go into the Co-op in my village to do my shopping today, I will get rewards for doing that. I am proud as a Conservative to be supporting the Co-op in Cheshire.
It is not just the Co-operative superstores, there are many insurance mutuals on our high streets. I suspect that many of our constituents do not realise—I certainly did not until I started looking into this—how important mutuals and co-operatives still are to the high street today. It demonstrates the longevity and importance of this business model, so I am pleased that we are supporting the Bill.
The Co-operative in Warrington is among the strongest supporters of community activity. It regularly contacts me to ask if we will support community initiatives. It recently contributed to one of my local playgroups, helping to provide new equipment for the children. Incredibly, that money is raised by people shopping and then given back out into the community. Co-operatives provide real value.
In some respects, it is surprising that the co-operative sector in the UK remains relatively small compared with similar economies. Like many colleagues in this House, I have received a significant amount of correspondence on this Bill from constituents. When talking to a dairy farmer in Lymm, I was struck by the importance of co-operatives for that sector. He gets up very early in the morning to look after and milk the cows, and then waits for the milk tanker to arrive. The business model he follows means that he works with a co-operative to negotiate with the major supermarkets and major dairy companies. He told me, “I simply wouldn’t be in a position to negotiate with supermarkets and head offices all around the country if I didn’t work with a co-operative that generates support and profits.” Co-operatives are experts in negotiation, and they are incredibly supportive when working with farms.
Similarly to my hon. Friend the Member for Warrington South (Andy Carter), if I had walked down Hinckley high street earlier this week and told people that I would be talking about the Co-operatives, Mutuals and Friendly Societies Bill this Friday, they would have looked at me aghast or blankly and said, “What’s he talking about?” because they would have had no idea. I want to put this in perspective: what does it mean to the people of Hinckley and Bosworth? In considering that question, we can see how far these mutuals have come.
I, too, have a local Co-op card, because in my area we have multiple Co-ops, including one in Newbold Verdon, two in Desford, and one in Earl Shilton—they really are part of the fabric of Leicestershire.
It is absolutely fantastic, and even better when it is just down the road if you are in your pyjamas. The main thing is not to forget the card so you can support the economy.
It goes a little further than that. I began to think about the other things that could be tied up with mutuals. I was a doctor before I came to Parliament, and had a lot of dealings—I still do, and declare an interest—with them. I have investments with the Wesleyan Assurance Society, which began in Birmingham in 1841, supporting doctors with investments and financial products. Both professionally and in the local community, we can see the effect that mutuals have. It goes further than that. In my constituency, the Hinckley & Rugby Building Society was formed in 1983 when two societies joined, but there has been a society in place since 1961. It is in the top 20 building societies, with assets of £830 million, and more than 50,000 users and customers, many of whom are based in my local area. It emerged from the need to support our local industries, particularly lacemakers and shoemakers. It is still there today, providing products for people who might not be able to secure them on the open market.
My hon. Friend is generous in accepting interventions. As he knows, I grew up in his constituency. One of the first things my mum and dad did was open an account at the Earl Shilton Building Society, and I still have that account today. I think that they put in £2—today, having not put any money in, it is worth about £4,000. That is certainly a demonstration of the value of local building societies and the role they play in local communities.
My hon. Friend is absolutely right. When I was young, I was given a small account with the Nationwide Building Society. It was common for previous generations to do that. We seem to have lost the sense of what building societies and mutuals can provide in our community. That is why it is good that the Bill has been introduced, so that it can provide a forward-thinking ability not only to defend them but to set them up for the future.
We can see the tangible difference that these societies can make. The Hinckley & Rugby Building Society supported a cricket match in Earl Shilton, as well as Leicestershire Cares, giving money back and investing it to make our communities better.
I will not dwell on the impact of the Bill, because what it is trying to do has already been highlighted. The provisions that would be put in place would not interfere with the ability of co-operatives to give profit to members or pay interest on share capital. I am keen to see, as I hinted in my intervention—and as has been followed up by my hon. Friend the Member for North East Bedfordshire (Richard Fuller)—how we can turn this into an industry that is fit for the future and drives innovation in the sector. The measure is a starting framework that can provide for that. If the Law Commission review is correct and forward thinking, we can restore the impact of mutuals on society that I had the pleasure of seeing as I grew up, and now have the pleasure of representing in my area. Long may they live.
I, too, congratulate the hon. Member for Preston (Sir Mark Hendrick) on introducing this important Bill. Having been elected in February, I have not yet had the pleasure of presenting a Bill to the House, but I hope to be successful in the ballot soon.
This is indeed, as colleagues have said, a very worthwhile Bill, and I am delighted that there is cross-party support for it. Of course, this issue has been raised in the House on a number of occasions and, like others, I read with great interest the speech by my hon. Friend the Member for Wycombe (Mr Baker) in his Westminster Hall debate last year. He spoke on the subject extremely eloquently, and I hope that the House will allow me the liberty of quoting a small part of his speech:
“A free society—one based on a market economy—really must have within it a place for co-operatives”.—[Official Report, 14 December 2021; Vol. 705, c. 249WH.]
How right he was. Co-operatives, mutuals and friendly societies are a wonderful resource embedded at the heart of our communities. They expand opportunity, wealth and aspiration throughout our great nation. They are democratically owned and controlled by their members, with profits reinvested in the organisations or among their memberships.
As has been mentioned, the co-operative economy is diverse, resilient and growing. At the last count, there were more than 7,000 co-operative businesses in the UK, with a combined annual turnover of almost £40 billion in 2021. Importantly, that has grown from £38 billion in 2019, and I am assured by the wonderful resource that is the Commons Library that the figure will grow again next year.
Co-operatives, mutuals and friendly societies trade in sectors as diverse as agriculture, renewable energy, retrofitting, the creative industries, manufacturing, distribution, wholesale, retail and finance. In 2020, the turnover of the co-operative economy grew by £1.1 billion. Of course, most co-operatives in the UK are consumer-owned, but in recent years we have seen a marked growth in community ownership, worker co-operatives and freelancer co-operatives. Many of the UK’s largest co-operatives comprise other businesses such as farmers’ co-operatives.
It is a pleasure to support my hon. Friend the Member for Preston (Sir Mark Hendrick) in bringing this important issue to Parliament for debate. It is also impressive that there is so much cross-party support for the Bill, and I thank my hon. Friend for working so closely with civil servants and Treasury Ministers on this important topic. It is never easy to bring any topic to the House with so much cross-party support, but my hon. Friend has demonstrated in the past that he is very capable of working in a team. I saw the sterling work he did on the Committee for HS2 and I know that he worked hard as part of a team to ensure that Preston was recognised as a city in 2002.
My hon. Friend’s association with the Co-operative party and movement is not a recent one. Between 1984 and 1994, he was secretary of the Salford Co-operative party. He mentioned the shirt he bought 40 years ago for £1. It is the same age as me, which shows the House how long his association with the Co-operative party has been. I pay tribute to him for all the work he has done on bringing the Bill forward.
The principles of co-operation and mutual support have roots in both conservative and socialist traditions, and the histories of the co-operative movement and the Labour party in this country are closely intertwined. Indeed, the hon. Member for North East Bedfordshire (Richard Fuller) eloquently set out how there is support in both our parties for the co-operative movement. The relationship was institutionalised in 1927, and the Co-operative party and the Labour party entered into an electoral agreement to stand joint candidates at election. It is fantastic to hear so much support for the Co-operative party from across the Chamber. If anyone wants to stand on that ticket at the next election, our doors are open.
It is fantastic that this Bill also has the support of the Co-operative party, and I know that my hon. Friend the Member for Preston is proud to be a Co-operative party and Labour party Member. To this day, both parties continue to make the case for co-operatives, and friendly and mutual societies, which all give us a greater say and stake in institutions that affect our lives and play such an important role in improving equality and productivity at work. The hon. Member for North Devon (Selaine Saxby) talked about that in relation to the opportunities that are brought for young people, and I think we can relate to that in all our constituencies.
It is always a pleasure to follow the hon. Member for Hampstead and Kilburn (Tulip Siddiq). May I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who has joined us on the Front Bench this morning?
I congratulate the hon. Member for Preston (Sir Mark Hendrick) on reaching Second Reading with his Bill and on the committed and passionate advocacy that he and his team have shown on behalf of the mutuals sector. It takes a team effort to get things done, as my colleagues could sometimes benefit from remembering, and this is no exception. I pay tribute to my predecessor, my hon. Friend the Member for North East Bedfordshire (Richard Fuller), for his hard work over the summer, with officials, to bring us to this important moment. I also thank the hon. Member for Cardiff North (Anna McMorrin), who started the ball rolling; it is delightful that she was able to join us today. As the hon. Member for Hampstead and Kilburn says, this is a cross-party endeavour, and it is all the stronger for it.
The fantastic speeches from Members across the House have brought to life the tapestry of co-operatives and mutuals and their contribution to society across the United Kingdom. We heard about the Darlington Building Society’s five-year sponsorship of the Darlington rail heritage quarter. We were reminded of Robert Owen and the origin of the Welsh co-operative movement. My hon. Friend the Member for Heywood and Middleton (Chris Clarkson) took us back to the birthplace of the co-operative movement. My hon. Friend the Member for Hastings and Rye (Sally-Ann Hart) spoke about the contribution of White Rock Neighbourhood Ventures, which is helping to build her society. My hon. Friend the Member for Devizes (Danny Kruger) made a typically thoughtful contribution; he not only auditioned for the support of the wider co-operative movement, but rooted co-operative and community values firmly in the tradition of Disraeli.
Let me say a little about the Government’s intentions for the Bill. I can confirm that we will support it because we believe in, understand and recognise the contribution that the mutual model makes to society and financial inclusion, which is important to hon. Members on both sides of the House, and the diversity that it provides for the financial services sector. We have a fantastic financial services sector in this country, and mutuals are an important part of that and we wish to see them continue. The scale is often not fully understood, but Royal London is the largest mutual life insurance, pensions and investment company in the UK, and has assets under management of £164 billion—8.8 million policies in force. Therefore, as well as contributing to their communities up and down the United Kingdom, mutuals are also a very important part of our financial sector.
I am very grateful to my hon. Friend for the opportunity to press him again. As he makes these considerations, will he commit from the Dispatch Box that, at Committee stage, he will come forward with the framework of the recommendations and, if he is minded to pursue this with the Law Commission, what issues it might cover?
My hon. Friend is familiar with the process for establishing the final Law Commission review. I will undertake to keep him and the hon. Member for Preston informed as we move forward, and I hope he will be happy with that undertaking.
In conclusion, I have outlined the Government’s stance on the private Member’s Bill brought forward today for Second Reading. It is unusual for a Government to support a private Member’s Bill tabled by a member of the Opposition, but that only speaks to the value of this Bill and the work done to build consensus. I hope the House will recognise that the Government are committed to the development and growth of mutuals, including co-operatives, mutual insurers and friendly societies, and that they have been listening to and celebrating with us the work that is being done in our constituencies. The Government see great value in the mutual sector, not just because of the contribution to our economy, but because of the contribution to our communities. That is why we have already taken steps to support all types of mutuals and will always be open to ideas for broadening that support. Our goal and the goal of this Bill is the long-term growth and success of the sector, and for that reason I commend it to the House.
I thank the Minister again for his positive attitude towards this Bill and for bringing in the support of his party and the Government. I am particularly happy that we have had such a lengthy debate, because I did not think it would go on for so long; it has been fascinating to hear the views of many hon. Members across the House on how co-operatives in their area function and what their attachment to the movement is.
I draw the Minister’s attention to the references in my speech to the use of the Law Commission to explore the other issues I raised originally with the Treasury and his civil servants. The hon. Member for North East Bedfordshire (Richard Fuller) also referred in his intervention to the question of the Law Commission. I had the assurance during my discussions with the Treasury that that would be looked at seriously and I would hope, as he said, that it would be explored at Committee stage, with some firm proposals and the framework for the Law Commission being entered into as part of that process.
I thank everybody who has supported me on this Bill in this House, in the co-operative sector and in the Co-operative party, and, of course, Mutuo, which has helped a lot to provide all the material for my discussions with the Treasury.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).
Seen through the lens of investor-ownership, a capital surplus is a tempting asset—a windfall or unearned profit —which, if mutual members were to be replaced by investor-shareholders, could be shared out among those shareholders. Capturing this asset is the usual incentive for a “demutualisation”, which is when a capital surplus or legacy asset is divided up between shareholders—when the mutual agreement between the former members, whereby they engaged in their society on the basis that they would not personally profit from its trade, is broken up. In short, it is when a mutual purpose for the common good is replaced by a profit-driven purpose for private benefit.
In UK law there is no generic or principled recognition of the value to wider society of mutuality or of the legacy asset of a mutual society. As a result, the ability to access legacy assets actively incentivises demutualisation.
Demutualised former building societies were mostly absorbed into banks that failed during the financial crisis. None of the demutualised former building societies continued for long as an independent bank. They became part of larger listed banking groups or, in the cases of Northern Rock and Bradford & Bingley, failed in the financial crisis and were later nationalised. Moreover, those demutualisations converted some of the largest building societies at the time. The argument for demutualisation has proved to be bogus. It has not delivered the strong independent businesses that it was supposed to do, and the need for more capital is soon forgotten as the newly proprietary entities are generally merged into larger firms.
Diversity of ownership types and business models creates a corresponding diversity in forms of corporate governance, risk appetite and management, incentive structures, policies and practices, and corporate behaviours and outcomes. It also offers a wider choice for consumers and enhances competition that derives in part from the juxtaposition of different business models.
Legislation is needed to help UK mutuals to preserve their legacy for the purposes for which they were intended, to maintain and encourage greater corporate diversity, and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions which have a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval. This will be even more important if the legislative reforms for co-operative and community benefit societies explained above are taken forward. To optimise the successful implementation of new legislation, properly recognising legacy assets for the benefits they bring will be an important ingredient for building confidence.
Many jurisdictions have acted to preserve mutual ownership by ensuring that assets are used only for the purpose for which they were intended. That ensures they cannot be distributed to members or third parties, and thus disincentivises demutualisation. Mergers, dissolutions and transfers of business are still permitted, so this arrangement does not hamper the evolution of business in any way. Ideally, such measures will be universal, but in some legal traditions that is considered problematic as it arguably alters members’ ownership right retrospectively. It is not desirable to cut and paste legislation between different traditions, so solutions are required that respect the culture of different legal frameworks. To deal with that, simple legislation can be introduced in common law jurisdictions that would give every mutual the right to choose a constitution that preserves legacy assets for the purpose they were intended.
My Bill does that. My Bill disincentivises the raiding of legacy assets. Voluntary legislation will ensure that legacy assets are preserved for the purpose for which they were intended. It empowers mutual members to decide what should happen to assets on a solvent dissolution. It would match the best legislation that exists in many other countries. My Bill also: introduces a voluntary power to enable a mutual to choose a constitutional change, so that its legacy assets would be non-distributable; details precisely the destination of any capital surplus on a solvent winding up; outlines the procedures necessary to include such provisions in a mutual’s rules; and inserts a statutory provision for the relevant rules to be unalterable. My Bill will define the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its assets, including repayment of members’ capital.
As I understand it, the UK has a comparatively smaller mutual sector than some other European economies. In its 2021 report, Co-operatives UK showed that there were more than 7,200 co-ops in the UK, employing approximately 250,000 people and with a combined turnover of £39.7 billion. In 2017, an estimated 11% of the UK’s insurance market was provided by mutuals, compared with 52% in France and 47% in Germany. I also understand that the sector has been largely resilient to the problems caused by the covid-19 pandemic, and I welcome the 1.2% growth in the number of co-ops in 2020-2021.
The sector faces a number of challenges. Unlike companies and banks, mutuals are largely dependent on bank borrowing and on their own revenues, as they are unable to sell shares without losing member control. The ability of the UK’s mutual sector to expand is therefore limited by its access to external finance. As the Ownership Commission noted in 2012:
“Legal limitations prevent many mutuals from raising…capital sums from their members.”
The commission made three recommendations: that new capital instruments should be introduced to allow mutuals to raise external capital, that mutuals should be able to issue bonds to members, and that they should be able to count deferred shares as tier 1 capital if trading as a bank or building society. I would be grateful if the Minister outlined the Government’s current thinking on those recommendations.
Many colleagues across the House will have received correspondence from constituents who are concerned about the proposed demutualisation of the financial services firm Liverpool Victoria. In December 2020, LV announced that US equity firm Bain Capital was in talks to acquire the business. The sale would have included the demutualisation of LV, with the mutual becoming a public limited company owned by shareholders rather than by members. I understand that LV’s chief executive argued that such a move was necessary to ensure the continuation of the business. However, in December last year the sale failed to gain the required support of 75% of LV members, with only 69% voting in favour. The potential need to demutualise LV exposes the difficulties that mutuals face when they need to raise capital. To protect those jobs, what action have the Government taken to ensure that LV can continue operating?
As I understand it, the Bill proposes legislative changes for share capital and non-distributable capital surplus. It would give mutuals the option of adopting a statutory provision guaranteeing that their residual capital surpluses are not distributable among members. The term “capital surpluses” means residual equity minus members’ shareholdings and share interest. The provisions would not interfere with mutuals’ ability to pay profits to members or to pay interest on share capital. I understand that the Bill would also enable mutuals to issue equity shares that are repayable at the option of the mutual, rather than being withdrawable at the option of shareholders. At present, mutuals looking to raise equity are hampered by legal uncertainty as to whether they can repay non-withdrawable shares at their option.
In preparing for this debate, I have been interested to read about comparable legislation abroad. Australia’s Treasury Laws Amendment (Mutual Reforms) Act 2019 introduced new mutual capital instruments. I understand that, previously, mutual companies did not have the power to issue such shares. Under the 2019 Act, share owners in Australia are limited to one vote per member regardless of how many MCIs the owner holds. The Act also introduced a clarification that the issuing of MCIs does not amount to demutualisation by the organisation for tax purposes, I would be interested to hear the Minister’s thoughts on that Act and its relevance to any legislation that might be appropriate for the UK’s mutuals sector.
It would be remiss of me not to mention a fantastic example of a mutual in Darlington and to praise the work it does in and around Darlington. Darlington Building Society was established in 1856 and now has nine branches across the north-east, County Durham and North Yorkshire. It describes its mission as being
“to develop our staff, technology, customers, brand and place ourselves at the heart of the communities we serve.”
This is a mission it undoubtedly achieves.
In September, a new play area, funded with a £15,000 donation from the Darlington Building Society, was unveiled at a Teesside school run by the North East Autism Society, which also freed up its staff to volunteer on my project to build a playground in Skerne Park in Darlington. I am also delighted that Darlington Building Society has announced a five-year deal to sponsor a new exhibition hall that will become a key feature of the Darlington rail heritage quarter, a £35 million project to create a national visitor destination as we fast approach the 200th anniversary of the Stockton and Darlington railway in 2025, marking the birth of the modern railway and a moment in history that changed the world. To quote Andrew Craddock, chief executive of Darlington Building Society:
“At Darlington Building Society, we are passionate about helping the members we have today, but we are also committed to encouraging the members of tomorrow to get into the saving habit. That’s why financial education is such an important part of what we do. As well as going into local schools, The Exhibition Hall will give us fresh opportunities to stage educational workshops in an engaging environment that is steeped in history.”
I warmly welcome this commitment to preserving and showcasing our local rail heritage in Darlington.
Darlington Building Society also has a long-term commitment to donate 5% of its profits to good causes, as well as freeing up staff time to volunteer in the community. In 2022 the building society has so far donated a total of £172,000 to local charities and community organisations. In September alone, Darlington Building Society donated £36,050.
If you will indulge me, Mr Speaker, that donation included: £8,000 to help combat food poverty this Christmas by providing 200 families with food hampers; £5,000 for Rubies GLOW project, which provides a safe space for girls to meet, receive support and develop self-confidence; £5,000 for Red Balloons, which helps to promote positive mental health through exercise and free guided walks; £7,200 for Wheels 2 Work, which is helping more than 40 people get into and stay in employment by providing mopeds and scooters; £2,400 for Studio Burn Fitness; £4,200 for Trinity Youth; £2,000 for Beyond Limits; £1,000 for Angel Trust; £500 for the North Yorkshire scout council; £250 for the Cockerton community business group; and £300 for Darlington Railway Athletic football club.
I would also like to draw the House’s attention to Darlington Credit Union, a community financial co-operative founded in 2009, following the merger of four smaller credit unions. Since then, it has grown to serve the whole of the north-east. It performs a vital community function, by being a source of affordable loans, which help people to avoid loan sharks. Darlington Credit Union faced an uncertain future in the wake of the pandemic, but Darlington Building Society, another of our mutuals, came to the rescue by providing crucial financial support and ongoing expert guidance on a voluntary basis. That really is a testament to how embedded in the community Darlington Building Society is. That is just the tip of the iceberg when it comes to the community work that Darlington Building Society engages in, and were I to list all of its achievements, I fear I would be on my feet all day. It is a fantastic example of the good that mutuals can do in our communities, and I want to put on the record my praise for its work in Darlington.
Returning to the Bill, I want to be clear that I fully support its principles. As I have outlined, mutuals have a hugely important role to play in our communities, in terms of education, engagement, charity and, fundamentally, the financial services they offer. It is also hugely important that we ensure that there is diversity in the financial services sector and that mutuals are able to raise the capital they need more easily without the need for demutualisation. I also note that both Co-operatives UK and Mutuo, an advocacy organisation for mutuals, also support the principles and aims of the Bill. There is clearly a significant appetite for reforms for the mutuals sector. I also note that Co-operatives UK has suggested that these reforms would have a significant economic benefit if they were to be introduced. I trust that the Minister has taken full note of that and will engage with the mutuals sector further on the matter.
I am pleased to be able to support this Bill, and I am grateful to the hon. Member for Preston for giving us the opportunity to debate these issues today. I know that he will continue to engage closely with Ministers as he continues to guide this Bill through its legislative journey, and I trust that the Minister will have listened closely to the contributions from across the House today. I look forward to his response.
The Bill will give co-operative societies the option to adopt a statutory provision that guarantees that their residual capital surpluses are non-distributable among members, without interfering with co-operative societies’ ability to distribute profits to members or to pay interest on share capital. It also has the potential to enable significant new investment, innovation and development in a wide range of co-operatives. The hon. Member for Preston pointed out that that will be part of the review, and I would like to see that as well. It is a bit of a win-win: if we can make co-operatives more agile and economically flexible, that can only be a good thing. By creating more optimal conditions for investment and asset growth in co-operative societies, setting the right boundaries and engaging with the appropriate motivations of entrepreneurs, members and investors, and preventing perverse incentives to destroy co-operative values, such as unnecessary demutualisation, the position of existing co-ops will be enhanced, offering greater market agility, boosting business investment and committing more capital surpluses to reinvest in economically, environmentally and socially productive enterprise. The Bill will enable societies to issue equity shares that are repayable at the option of the society, rather than being withdrawable at the option of shareholders. At present, societies looking to raise equity are hampered by legal uncertainty as to whether they can repay non-withdrawable shares at their option. Again, this should enhance the position of co-ops by reducing financial costs in the sector.
I thank the hon. Gentleman for introducing the Bill and providing options for a modern, more agile framework for co-operatives and mutuals to operate. I am very much looking forward to supporting this Bill as it goes forward.
Co-operative societies operate for the benefit of their members, and distribute any surplus not reinvested in the business to those members. Community benefit societies conduct business for the benefit of their community. Any profits are not distributed among members, but returned to the community. They therefore provide a legal structure designed for social enterprise. However, not all co-operatives use those legal structures and many are, in fact, limited companies.
Although mutual ownership models may not be appropriate for all businesses, evidence shows that mutual models can form the basis for high-performing, profitable businesses, and deliver genuine business advantage. For example, mutual ownership can help to ensure that decisions are focused on the long-term sustainability of the business. Employee-owned mutuals often involve some form of employee engagement and participation, allowing employees a say in the running of the company. This can help to align the interests of management and employees, increase motivation and job satisfaction, and can be a means to raise new capital without going public.
Mutual ownership models and social enterprises offer a way for communities to share the wealth that businesses create more widely in the community, and, indeed, for communities to come together to solve problems. In Hastings and Rye, we have a number of successful and evolving social enterprises, including White Rock Neighbourhood Ventures, which is a joint venture between three social enterprise organisations: Meanwhile Space CIC, Jericho Road Solutions and Heart of Hastings CLT.
White Rock Neighbourhood Ventures owns Rock House, which was redeveloped as a mixed-use project, breathing new life into a previously underused building situated in the White Rock area of Hastings town centre. It is a large building and is home to living space, work space and a community hub. The redevelopment was funded by a number of organisations, including Big Issue Invest, Jericho Road Solutions, and the Government, through the former Ministry of Housing, Communities and Local Government, now the Department for Levelling Up, Housing and Communities. Rock House fosters creative enterprise and has generated jobs and self-employment, and is a real social enterprise asset to Hastings.
The Bill’s proposed legislative measures involving share capital and non-distributable capital surplus would enable significant new investment, innovation and development to take place in a wide range of co-operatives for the purpose of greater economic, environmental and social impact. The current legislation governing the raising of capital for co-operatives is rather 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, it would enable co-operatives to raise amounts in excess of the current £100,000 holding limit for withdrawable shares. It would provide legal certainty as to whether co-operatives can choose to repay non-withdrawable shares. It would also give co-operative societies the option of adopting a statutory provision guaranteeing that their residual capital surpluses are non-distributable among members. However, the provisions would not interfere with co-operative societies’ ability to pass profits on to members or to pay interest on share capital.
The accumulation and reinvestment of capital surplus is a feature of the co-operative model, as recognised internationally and in UK policy. For this reason, most co-operative societies include non-distributable capital surplus provisions in their rules. The issue is that these rules-based provisions fall short of the permanent legal guarantee sought by many co-operative entrepreneurs, investors and policymakers.
This legislative change would have a number of economic benefits. It would create better conditions for investment and asset growth in co-operative societies by setting the right boundaries and engaging with the appropriate motivations of entrepreneurs, members and investors, and by preventing perverse incentives to destroy co-operative value, such as unnecessary demutualisation; it would boost business investment by committing more capital surplus to reinvestment in economically, environmentally and socially productive enterprise; and it would give co-operative entrepreneurs more optimal choices of legal form, enabling innovation and impact to take place in the social economy.
These changes have the potential to lead to large capital-driven co-operative societies raising millions of pounds 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. This is compassionate capitalism at its best. The Bill has much merit, and it deserves our support.
The hon. Member for Preston will be aware that several other issues need updating in the Friendly Societies Act 1992 and other associated legislation. The proposal in his Bill is a defensive one to protect organisations from the vagaries of time and the interests of passing individuals who may temporarily have power over the original principals of the organisations from when they were set up. He is absolutely right to point a way forward on that.
In the hon. Gentleman’s speech, however, he also talked about the positive way in which legislation can be changed to enable friendly societies, mutuals and co-operatives to play a bigger role in society—particularly, as my hon. Friend the Member for Bosworth (Dr Evans) said, in attracting new capital. It is for those purposes that I encourage the Minister to be clear today in his intention to ask the Law Commission to conduct that broader investigation in due course—but as urgently as possible—so that the Bill can be seen as the first step in a much more important set of steps to confirm the role of such organisations in our society.
There was a very interesting interview with Maurice Saatchi today in The Times, in which he reflects on what he thinks Margaret Thatcher would think of what has become of her great drive for competition in the finance sector and across industry, with the development of cartels in place of competition. This debate on this important Bill is an opportunity to remind ourselves of a different Conservative tradition, where we support these other forms of capital and enterprise.
Social enterprises are part of this, and community-owned businesses play a crucial role in our society. I put on record my appreciation for the social enterprise movement in this country, supported in its development, in many cases, by mutuals and friendly societies. Social enterprises and community-owned businesses are responsible for job creation in areas of deprivation, the jobs last and they provide the crucial spirit of enterprise and innovation that our left-behind areas need. There is an important role for social enterprise.
Also in pride of place, I am pleased to see my hon. Friend the Member for Bury North (James Daly). His role in saving Bury Football Club from liquidation in recent years is commendable, and that happened because of the efforts of people in Bury to form a new co-operative structure to take over the ownership of that football club that enabled it to be saved—as well as the role of the Government, of course, in providing capital for that and subsequently in the creation of the community ownership fund, inspired by what happened to Bury FC, which businesses in my constituency and across the country have benefited from.
I must briefly mention the role of mutual finance: there is a tremendous new bank being developed called Avon Mutual, serving the west of England. It is a modern, 21st-century mutual bank. I also place on record my delight that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake)—he is not here today; presumably he is taking up a role in his new office—has been appointed to the Business Department. He is a great champion of the mutual tradition—[Interruption.] There he is. I thought I was praising him behind his back, but he is here to listen. I am very pleased that he has that role, because he is a tremendous champion of the importance of regional banks in supporting local economies, and I hope that is something he will take up in his new role.
I welcome the Bill, particularly the role it will play in creating an asset lock for mutuals. That is a crucial point, and an important lesson for those of us who believe in capitalism and the importance of free enterprise: not all capital is fungible. It is not appropriate to allow all capital to be blown to the four winds at the whim of speculators and investors. It is important sometimes to lock capital in the places where it belongs, for the benefit of the people it was invested for.
and
“To promote and embed the values and principles of co-operation across UK enterprise and communities.”
Importantly, it sees co-ops as a way to empower young people. Co-ops are the opposite of the more insecure gig economy pioneered by tech apps. They give young people a stake in their work and allow them to engage more fully with it. They allow young people to engage with the issues that matter most to them and to make a positive change in their communities on issues such as climate change. In communities like mine, they encourage young people to stay rather than feel that they need to move away. There remains an opportunity for rural communities to benefit from additional funding for matters such as community land trusts and shops, as seen in Parracombe, and I am delighted to support the Bill.
What is the overall impact of co-operatives on the economy? A 2021 report by Co-operatives UK identified that about 7,200 co-ops operate across the UK. Their turnover in 2021 was £39.7 billion, which was an increase from £38.6 billion in 2020. The co-ops employed about a quarter of a million people in 2021, with membership totalling 14 million. Between 2020 and 2021, the number of co-ops grew by 1.2%.
I will turn briefly to important elements in the Bill. It provides His Majesty’s Treasury with the powers to make regulations that would allow all co-operatives, mutual insurers and friendly societies to opt to restrict the use or dealing of their assets. I made that point in an earlier intervention on the hon. Member for Preston. There have been recent examples of co-operatives and mutual societies finding themselves under attack. That is why I support the Bill, which also brings friendly society laws up to date and establishes tax neutrality for mutuals’ deferred shares.
The impact of co-operatives on our economy and their members is broadly good. The Bill’s measures are, broadly speaking, updates to enhance the operating environment so that they can continue to serve their members and improve choice in the markets in which they operate. I know that the sectors face significant challenges. They are limited by issues with access to external finance, so it is important that we take that into consideration. The intention is that, where members of the society choose to adopt legal restrictions, the use of the assets will be limited to specific purposes in line with the objectives of the mutual society. The use of any other assets for those purposes would then carry legal recourse. That optionality in the regulations will be important in mitigating any potential negative impact. I know that the Government will continue to work with the sector, and I am very pleased that the Minister is in his place and that he will respond shortly. I encourage the Government to continue to work with the sector, to ensure that the regulations are appropriate and adapted to the needs of different mutual models.
Finally, I am pleased that Co-operatives UK fully supports of the Bill. It has carried out consultations with its members, which indicate that the measures enjoy widespread support. It has also said that the measures would bring
“significant new investment, innovation and development in a wide range of co-operatives, for greater economic, environmental and social impact.”
Likewise, mutuals have praised the proposals for offering more choice and competition in their markets, and for allowing them to serve their members with an enhanced operating environment.
In short, I support the hon. Gentleman’s Bill, which is clearly welcomed by the sector, and I look forward to continuing to use my Co-op membership card when I buy my tea this evening.
We must not forget what a powerful employment sector the co-operative movement is. Last year, it employed more than a quarter of a million people in the UK. It may surprise the House that that is more than the whole population of the new, sparkling city that is Southend, which I am sure the whole House agrees is the greatest city in the country and fully deserves to be the UK’s 2029 city of culture.
It is interesting to look at international comparisons as the UK co-operative economy is relatively small and growing more slowly than others. Co-operatives account for only 2% of our GDP, whereas the figure in New Zealand is 20%, in the Netherlands and in France, 18%, and in Finland, 14%. Less than 1% of UK businesses are co-operatives. In Germany, the co-operative economy is four times bigger than that in the UK. France’s is six times larger, and South Korea’s is 12 times larger. It is much the same story in insurance, where an estimated 11% of the UK market is provided by mutuals, compared with 47% in Germany and a whopping 52% in France. Perhaps the co-operative model is underused and something of a best-kept secret in our society and economy.
I hope that the Bill might go some way to bringing our laws up to date so that it is easier for co-operatives, mutuals and friendly societies to attract the investment they need to grow and thrive. At the moment, that is not as easy as it could—and perhaps should—be. The sector faces challenges not faced by other sections of the financial market such as banks and other companies. The Bill seeks to solve some of those challenges, and I commend the hon. Member for Preston on the excellent, thoughtful way in which it seeks to do that.
The Bill seeks to provide His Majesty’s Treasury with the power to create regulations to allow co-operatives, mutual insurers and friendly societies to choose to adopt legal restrictions on the use of their assets. As I understand it—I am sure hon. Members will correct me if I am wrong—the intention is that where the members of a society choose to adopt the legal restrictions, the use of their assets would be limited to specific purposes in line with the objectives of the mutual society, and the use of those assets for any other purposes would lead to legal recourse.
The Bill seems sensible to me, and I believe that it would have a direct, positive impact on my constituency of Southend West. At the heart of my constituency, on Leigh Broadway, we have the Co-op store, which is obviously the UK’s most famous co-operative. The Co-op manages to raise tens of thousands of pounds for local charities every year. I am sure that many Members know that Co-op members can choose from three local charities each month, and the money raised is split among the charities according to how many votes each charity receives. These charities are chosen by the members and this is a brilliant way to raise money.
Money is raised in a variety of ways, including the traditional raffle prize. This month, the wonderful Leigh Broadway Co-op is having a raffle for an excellent-looking hamper full of Halloween goodies, and raffle tickets are just £1 a strip. The proceeds will be donated to the absolutely brilliant Lady McAdden Breast Cancer Trust charity, located in Leigh-on-Sea in my wonderful constituency of Southend West. The Lady McAdden trust has been nominated by members of the Co-op as one of their October charities, and there could not be a better charity to support in October, which we all know is Breast Cancer Awareness Month.
I am a huge supporter of the Lady McAdden trust, and earlier this year I opened its new breast cancer screening centre in Elmsleigh Drive in my constituency, which has been the home of the charity since April 2022. A couple of weeks ago I attended its event at the Leigh community centre, and the refreshments were all provided by the fantastic Leigh Broadway Co-op.
The Co-op is also doing a lot to eliminate food waste and to ensure that the most vulnerable in our society are helped and protected. Thanks to Co-op members, an astonishing £100 million has been raised to support local communities across the UK.
Turning to mutuals, many bank branches have closed over recent years in Southend West, but the Nationwide, a mutual on Leigh Broadway, lives on. We all know that bank branches are a very important resource, especially for communities with an elderly population. The elderly are not always able to go online, and they rely on mutuals such as the Nationwide both by visiting branches to deposit money or pay in cheques and for financial advice.
I am so proud that the Nationwide in Leigh-on-Sea has a dedicated cost of living expert, who is helping the most vulnerable members of our society navigate the challenges caused by the cost of living crisis. The branch is also going out of its way to ensure that people who are not as tech savvy as some of the rest of us, particularly the elderly, are supported. Next week, it is holding a “tea and tech” event, which will teach people how to use online banking and apps to manage their money. Digital exclusion is a huge problem in our modern society, and it is really encouraging that our co-operatives, mutuals and friendly societies have recognised this and are doing all they can to help.
Co-operatives, mutuals and friendly societies have so much to give to our society. They play a hugely important role in our communities, and it is also hugely important that we ensure that there is diversity in the financial services sector and that we ensure that mutuals are able to raise the capital they need more easily without the need for demutualisation.
I am pleased to be able to support the Bill, and I am very grateful to the hon. Member for Preston for giving us the opportunity to debate this important issue.
Co-operative and mutual societies have never been more important in the UK’s economy and public life. More than 7,000 co-operatives are operating across the UK, with a combined turnover of almost £40 billion, and some 200,000 people earn their livelihoods directly through co-operatives. They trade in sectors as diverse as agriculture, renewable energy, retrofitting, the creative industries, manufacturing, wholesaling, retail and finance. Many Members have cited examples from their own constituencies. Co-operatives have also proven resilient in the face of hardship. The pandemic was an incredibly difficult time for many British businesses, but the co-operative and mutual sector grew by an impressive £1.1 billion in 2020, despite the economic challenges resulting from the national lockdowns.
The hon. Member for Hastings and Rye (Sally-Ann Hart) talked about how mutual or co-operative models can provide significant business advantages. As she pointed out, the resilience of co-operatives is rooted in the higher levels of productivity that can result from employee ownership. In the United States, the National Centre for Employee Ownership tracked the performance of more than 57,000 firms and found that employee ownership can greatly improve a business’s productivity and chances of success.
That resilience and strength allowed the mutual sector to play such a heroic role during the pandemic, by plugging gaps in Government support for communities across the country. The hon. Member for Warrington South (Andy Carter) talked about how mutuals play a particularly important role in rural communities. For example, Arla farmers contributed 900,000 litres of long-life milk to Government grocery packs for vulnerable people during lockdown, and the Little Pioneers nurseries, run by the Midcounties Co-operative, kept nurseries near hospitals open and affordable for the children of key workers. They also offered additional temporary places for key workers who were unable to rely on their usual childcare arrangements and developed a frontline hero support fund to subsidise fees for key workers’ families.
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. The hon. Members for Southend West (Anna Firth) and for Darlington (Peter Gibson) said that the mutuals sector in the UK is relatively small compared with what we find in other countries. Fewer than 1% of businesses in the UK are co-operatives. Germany’s co-operative economy is four times the size of the UK’s. In Italy, co-operative enterprises generate close to 40% of GDP in the province of Emilia-Romagna, which has the lowest socioeconomic inequality of any region in Europe. The growth of co-operatives in this country is being held back by a legislative and regulatory framework that is not designed for co-operative businesses. The unique structure of co-operatives, mutuals and friendly societies means that they are often excluded from traditional investment methods.
Sadly, the sector is also under threat from demutual-isation. There was celebration across the co-operative and labour movements last year when members voted to reject the controversial takeover of the insurer Liverpool Victoria by the private equity firm Bain Capital. I want to take a moment to recognise the work of my hon. Friend the Member for Harrow West (Gareth Thomas)—he is not in the Chamber—and others who fought to protect the mutual status of this historic firm. However, as my hon. Friend the Member for Preston made clear, demutualisation remains a real and present threat to the sector. Importantly, the Bill will help to ensure that mutual capital is maintained for the purpose intended.
As my hon. Friend the Member for Cardiff North (Anna McMorrin) pointed out, the Opposition believe that further legislation is needed to secure the future of the sector, for example by giving co-operatives more freedom to issue perpetual capital to fund investment. I thank my hon. Friend, who introduced a version of this Bill and who has done a great deal of work to advance the issue, on which we all agree. We recognise that the Bill is an important step forward. The Labour party will give it our full support. I thank my hon. Friend the Member for Preston and all the Treasury Ministers who have worked so hard on the Bill.
We heard, too, from my hon. Friend the Member for North Devon (Selaine Saxby) about Parracombe, from my hon. Friend the Member for Bosworth (Dr Evans) about the contribution being made by the Hinkley and Rugby Building Society, and from my hon. Friend the Member for Warrington South (Andy Carter). This shows the real contribution that these organisations make.
Let me make some progress on the Bill itself. The Government see this private Member’s Bill as a valuable attempt to build on progress, and further support the mutual model by granting His Majesty’s Treasury the power to make changes to what co-operatives, mutual insurers and friendly societies are able to do under legislation.
The House will note that the final Bill is more focused compared with the original long title. Allow me to briefly set out what we aim to achieve through the Bill. The Bill will allow co-operatives, mutual insurers and friendly societies further flexibility in determining for themselves the best strategies for their business relating to surplus capital. More specifically, this allows the Treasury to create regulations to provide these mutuals with the option to restrict the distribution of surplus capital—defined as equity minus members’ shareholdings and share interest—to their members on solvent dissolution of the mutual, or on the sale or conversion of the mutual to a company. The Bill does that by providing the power to create regulations to allow co-operatives, mutual insurers, and friendly societies to choose to adopt legal restrictions on the use of their assets. The intention is that, where the members choose to adopt these restrictions, the use of the assets would be limited to specific purposes in line with the purpose of the mutual society.
The Government anticipate that this will provide additional safeguards against demutualisation for those societies that choose to adopt the so-called “asset lock”. The Government understand that many here today were motivated by the proposed sale and demutualisation of LV= in 2021. Although, ultimately, that sale did not go through, because the vote in favour of selling was not backed by a sufficient proportion of members, we understand that it is right to interrogate the demutualisation process and consider the case for reform.
Voluntary asset locks—to prevent the distribution of legacy assets on the dissolution, sale, or conversion of a mutual—are already successfully adopted and freely entered into by co-operatives, mutual insurers, and friendly societies. The aim of these voluntary asset locks is to limit the financial incentives that many believe sit behind demutalisation processes. For example, many mutual entities have adopted “charitable assignment clauses” into their rules. This determines that any capital surplus on the dissolution, conversion, or sale has to go to a nominated charitable cause and not to the members at that moment in time. Within this, it is an established practice for mutuals to adopt high voting thresholds when members are deciding on decisions that affect the future strategic direction of the mutual.
We think these aims are laudable, but what the Government want to do is to build on the safeguards already in place to preserve the mutual movement. By placing an ironclad guarantee in legislation, we aim to support mutuals to make these locks harder to unpick in the future so that a mutual’s funds continue to be used for their social purpose and the social contract with its members and future members continues to be honoured, where the members choose to implement it.
By bringing forward this legislation, we are granting these efforts with a statutory footing should a mutual and its members decide that this is the best route for them. The optionality of the statutory asset lock is key, for it leaves the decision on the future of a mutual in the hands of mutuals and their members. Throughout, we have been guided by the core value of what it is to be mutual—with the interests of their members and communities at the heart of what they do.
If possible, I would like to go further: in alignment with the spirit in which the hon. Member for Preston has introduced this Bill, we are exploring the options for delivering reviews of key legislation underpinning the sector, including engagement with the Law Commission to help us to finalise our approach. I cannot go further than that today, as my hon. Friend the Member for North East Bedfordshire pressed me to, but that is something we are looking at and will move forward with.