That leave be given to bring in a Bill to enable co-operatives to issue permanent shares; and for connected purposes.
Permanent mutual shares are the rocket fuel that would help the co-operative and mutual movement to double in size. That is an ambition that the Co-op party has long sought, and I am pleased to say that the Labour party now seeks it. They would offer to housing associations, agricultural co-operatives, employee-owned businesses and mutual insurers a source of venture capital that, crucially, would not require them to demutualise, end their British ownership or scrap their democratic governance. The independent mutuals think-tank Mutuo has suggested that a Government ambitious for British business to succeed and grow could help the sector raise some £13 billion over five years using permanent mutual shares.
Such investment has the potential to be galvanising for individual co-op businesses and mutuals. Had this option been available to Liverpool Victoria, there would have been no need to consider demutualisation and selling up to the controversial private equity giant Bain Capital. The challenges facing John Lewis only underline the limited capital-raising options for successful, sustainable co-op and mutual businesses that need to finance expansion and investment plans but do not want to give up control by their British customers or employees.
Permanent mutual shares provide an opportunity to create a genuine marriage between what is known as patient capital and co-op and mutual organisations rooted in their communities that are looking for the finance to tackle long-term environmental, economic and social challenges. Patient capital is that part of the private equity world, such as some pension funds, that is willing to invest for the long term and is not focused on securing ownership or part ownership of a business. The investment raised by permanent mutual shares does not have to be paid back. The value of the investment is maintained by allowing the shares to be traded. As with any shares, the investor will hope for a dividend but takes a calculated risk. There would no doubt be considerable discussions before such investment was made into a co-op or mutual business. In that, it is similar to the debt finance that businesses can now access to varying degrees.
Agricultural co-operatives could also benefit. I am particularly grateful for the interest and insights of the Scottish Agricultural Organisation Society. Agricultural co-operatives could benefit from this device, offering them new opportunities to invest in the best of British farming and fishing produce, as well as in our shared environmental futures.
Retail co-operatives operating in highly challenging markets can be hamstrung by a lack of access to capital, needing constant investment to drive year-on-year growth. This slight change in the law could, according to Mutuo, galvanise over £1.2 billion to drive investment in businesses in every region of the UK.
Housing associations face major costs over the coming years to tackle mould, improve building safety and meet environmental standards. Many housing associations have already raised significant debt capital. Permanent mutual shares offer a route to raise further transformational levels of investment to build social and genuinely affordable housing. The independent think-tank Mutuo suggests that with sustained and shrewd leadership, up to £10 billion could be raised to meet Britain’s housing challenges, potentially financing between 60,000 and 90,000 new homes.
Ministers—I say this gently—have known for some time that these types of shares could make an enormous difference to great British co-op and mutual businesses. Two private Members’ Bills have proposed this solution. A hundred MPs wrote to the then Chancellor of the Exchequer, now the Prime Minister, in the wake of the Liverpool Victoria attempt at demutualisation, referencing the need to offer this capital-raising solution. Since 2015, mutual insurers and friendly societies have been waiting for the Mutuals’ Deferred Shares Act 2015 to bring permanent mutual shares into effect for friendly societies. Ministers and officials know what needs to be done in this space, but have not yet demonstrated the political will to back these great British businesses and level up the playing field with their overseas and domestic rivals. I should point out to the House that there is no financial cost to the British taxpayer from this proposal.
In the UK, since 2013, building societies have been able to issue a version of permanent shares called core capital deferred shares. Nationwide Building Society, Cambridge Building Society and Ecology Building Society have between them issued shares worth more than £1.3 billion for investment in their businesses. The governance of those societies has not altered. They are still member owned, answerable to their customer members here in the UK, and not, for example, to overseas private equity interests.
In Australia, another version of permanent mutual shares, mutual capital instruments, came into effect in April 2019, and 400 million Australian dollars has already been raised, primarily for investment in retirement housing. Other mutuals in Australia are looking at permanent mutual shares as a way of investing in pharmacies and in insurance services for farmers and other groups where clear market gaps exist at the moment. Nearer to home, the Dutch co-operative bank, Rabobank, one of the world’s largest banks with total assets of over $900 billion, issued €8 billion of the Dutch version of permanent mutual shares to expand and grow its banking operations. Desjardins Group, a federation of credit unions originally established in Quebec in Canada, has issued 4 billion Canadian dollars-worth of permanent mutual shares. It has used the additional capital to help small and medium-sized businesses in Quebec to grow and develop, as well as to expand its operations across the rest of Canada.
Many in the House and outside will want reassurance about the safeguards around such large sums coming into a co-op or mutual business from large investors. Each investment, regardless of its size, would only offer one vote—just one vote—giving parity of power with each existing member. The investor would not be able to participate in any decision about demutualisation or the transfer of assets. Crucially, the private Member’s Bill from my hon. Friend the Member for Preston (Sir Mark Hendrick) also allows co-ops and mutuals to safeguard their legacy assets, removing the incentive for demutualisation.
Then there is the role played by financial regulators. The shares that are created do not have to be paid back, unlike a loan, which is a crucial balance sheet advantage. The investor gets a dividend on the investment and can trade their shares, selling them on to realise the asset and potentially to move their original investment elsewhere.
If we want to double the size of the co-operative and mutual sector, and if we want a new wave of environmental and sustainable investment, and new projects for social value in renewables, social care or affordable housing, then permanent mutual shares, in one shape or another, are essential. Traditional routes to raising finance for businesses via equity investment or a listing on the stock exchange would all but dilute, if not completely end, consumer or workforce control of the business.
This proposal is a sensible, pro-business measure, which would be good for jobs, good for the economy, and good for co-op and mutual businesses. Permanent mutual shares are available across the world. They could be more available here, too.
Question put and agreed to.
Ordered,
That Gareth Thomas, Anna McMorrin, Clive Efford, Sir Mark Hendrick, Seema Malhotra, Rachael Maskell, Ms Lyn Brown, Kerry McCarthy, Ms Karen Buck, Alex Sobel, Kate Osamor and Mr Virendra Sharma present the Bill.
Gareth Thomas accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 24 November, and to be printed (Bill 289).