As amended (in the Standing Committee), considered.
New Clause 3
Power To Amend, Etc, To Assimilate To Company Law
'(1) If, on any modification of the statutory provisions in force in Great Britain or Northern Ireland relating to companies, it appears to the Treasury to be expedient to modify the relevant provisions of this Act for the purpose of assimilating the law relating to companies and the law relating to building societies, the Treasury may, by order, make such modifications of the relevant provisions of this Act as they think appropriate for that purpose.
(2) The "relevant provisions of this Act" are the following provisions as for the time being in force, that is to say—
(3) The power conferred by subsection (1) above includes power to modify the relevant provisions of this Act so as to—
(4) An order under this section may—
(5) The power to make an order under this section is exercisable by statutory instrument but no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.
(6) In this section—
"modification" includes any additions and, as regards modifications of the statutory provisions relating to companies, any modification whether effected by any future act or by an instrument made after the passing of this Act under an Act whenever passed; and
"statutory provisions" includes the provisions of any instrument made under an Act.'. — [Mr. Ian Stewart.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.The new clause provides that if in future changes are made to the law relating to companies such as are also appropriate for building societies, comparable provisions can be made by statutory instrument to apply those changes to building societies. By way of example, I should mention clauses 57 to 60, which deal with loans to directors and cover matters which were enacted for companies in 1980 but which had to wait for several years for primary legislation to extend them to building societies. The power proposed in new clause 3 would enable building societies to be brought into line and to avoid that problem in future.
The Opposition have nothing of substance to argue with in the new clause. If company legislation is amended and the Government want to amend building society legislation accordingly, the new clause empowers them to do that without too much fuss. We believe that that is quite logical.As building societies are to have more commercial purposes and as large sections of the Bill are derived or borrowed from company legislation, it seems logical to empower the Treasury to relate new and amended company legislation to building societies without primary legislation. Only one matter has occurred to the Opposition upon which we would like assurance. In the first place, the legislation would be thoroughly scrutinised by the House if the House wished to take that opportunity. Will the Minister explain why such alterations were contemplated? Under subsection (5), that must be done by affirmative resolution. There will be ample opportunity for scrutiny and questioning about its purpose and relevance. Therefore, the Opposition do not take issue with the Government over the new clause.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 4
Service Of Notices
'.(1) This section has effect in relation to any notice, directions or other document required or authorised by or under any provision of this Act or by the rules of a building society to be served on any person other than the Commission and the central office but subject, in the case of notices or other documents to be given or sent to members of a building society, to any provision of its rules.
(2) Any such document may be served on the person in question—
(3) Any such document may—
(4) For the purposes of this section and section 7 of the Interpretation Act 1978 (service of documents) in its application to this section, the proper address of any person is—
and, in any other case, his last-known address (whether of his residence or of a place where he carries on business or is employed).'.— [Sir George Young.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will he convenient to take Government amendments Nos. 7, 33, 125, 131, 136, 143, 148, 151 to 153, 157, 159, 164, 179, 180, 187, 210, 215, 217, 218,155, 234, 241,242,255,263 to 267, 275,290, 292,306,333,337, and 341.
New clause 4 and the Government amendments are a series of relatively unexciting and mainly technical amendments which improve the parts of the Bill which cover communications between a society and its members, and a society and the commission and the central office.
If ever a true word were spoken, it is that this batch of amendments is totally unexciting. Having examined each amendment separately, there were times when I just had to hold on. I can underline what the Minister has said.In politics nothing is quite what it seems. We are discussing a great batch of amendments, starting with new clause 4. We believe that the Bill contains certain matters of principle and the remainder is administrative superstructure. While we accept that the superstructure must be correct—and that is important—we intend as a matter of tactics and strategy to confine our main lines of argument to what is controversial, not to these administrative matters which form part of the superstructure of the Bill. The amendments largely cover technical matters, but we must be assured that the procedures are logical, watertight and, if challenged, accord with principles of natural justice. We have examined all the amendments and are satisfied that these steps meet the criteria needed. Provided that the Government are satisfied that they meet the needs of potential problems that might arise, we give the amendments our approval. With that, the Opposition will not challenge the clause or the amendments.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 6
Power To Make Advances Secured On Land Overseas
'. — (1) The appropriate authority may, with a view to conferring on building societies or building societies of particular descriptions powers to make advances to members secured on land outside the United Kingdom corresponding to the powers to make advances secured on land within the United Kingdom, by order—
(2) Any powers conferred on building societies under this section may be conferred on building societies of a specified description or all building societies other than those of a specified description.
(3) Where, by virtue of an order under subsection (1) above, advances are made by a building society on the security of land outside the United Kingdom, the aggregate amount of mortgage debts outstanding in respect of such of those advances as are class 2 advances under the order shall count in accordance with section 18 towards the limit applicable to class 2 assets under that section.
(4) Subsection (3) above is subject to any provision contained in the order.
(5) The "appropriate authority" for making an order under subsection (1) above is—
(6) The power to make an order under subsection (1) above is exercisable by statutory instrument and, as regards the procedure applicable to such an order,—
(7) In this section—
"relevant British overseas territories" means the Channel Islands, the Isle of Man and Gibraltar;
"security on land" includes any right or power in or over land to secure the payment of a debt and "secured on land" has a corresponding meaning;
"specified" means specified in an order under subsection (1) above;
and any reference to a provision of this Part is a reference to that provision as applied to advances under this section. — [Sir George Young.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to take the following: Government new clause 7 — Qualifying asset holding for certain powers.Government new clause 23—Loans for mobile homes (No. 2). Government amendments Nos. 6, 56, 58 to 60, 62 to 64, 240, 243 and 246.
In fairness to the amendments that we have just dealt with, I said not that they were "totally unexciting", but that they were "relatively unexciting". The totally unexciting amendments will be dealt with in a moment.New clause 6 honours a commitment that my hon. Friend gave in Committee. New clauses 7 and 23 deal with mobile homes. The Government believe that it is important to provide more help for the mobile home sector. These days, mobile homes are a far cry from the caravans whose image they share. Mobile homes are prefabricated units built to a high specification conforming to BSI requirements and they have a life of at least 25 years. The fittings are of a high quality and all main services are laid on. They are mobile in the sense that they can be dismantled and moved to a new site. It is appropriate that building societies should be given greater powers to lend on security of a mobile home than other class 2 lending powers. After considering the position, the Government have decided to make an exception on mobile homes to the £5,000 limit on class 3 loans to individuals. Societies with a qualifying assets holding will be able to lend up to £10,000 on the security of a mobile home.
I should like to introduce my brief remarks by declaring an interest. I have the honour and privilege to he a vice-president of the Building Societies Association.I support the remarks made by my hon. Friend the Under-Secretary of State for the Environment. I am sure that one way in which building societies can help is to lend money at realistic and responsible rates of interest to people who want to exercise their right to buy but who, through dint of circumstance, are unable to do so through normal and traditional methods. The only way these people can achieve that is to acquire a mobile home. My hon. Friend the Under-Secretary of State introduced legislation which brought security of tenure to those who had previously found that, although they owned a home, they did not own the land on which their home was situated. The Government have secured for them the right to ownership through the Mobile Homes Act 1983. Building societies have a responsibility to ensure that these vulnerable people who own and occupy mobile homes on mobile parks are protected. Hon. Members on both sides of the House who have mobile home parks in their constituencies know that these people do not consider themselves as owner-occupiers or council tenants in the first place. They consider themselves to be home owners in the last resort. Such people could fall prey to consumer credit organisations which charge rates of interest far in excess of those charged by responsible and prudent building societies. I commend the new clause. I issue a challenge to building societies to allocate significant funds to extend to a large section of the mobile home community the opportunity to exercise the right to buy and the right to home ownership.
I declare an interest as the parliamentary adviser to the Midshires Building Society.New clause 6, when exercised, will give building societies the power to lend on property overseas. Does my hon. Friend the Under-Secretary of State intend to ensure that building societies will be given early powers to lend on land in Great Britain, for example, in the Channel Islands and on the Isle of Man? It is an anomaly that building societies are not able to lend on the security of land in these islands. Other financial institutions in the United Kingdom with which building societies compete—the banks and the trustee savings banks, for which my hon. Friend the Economic Secretary to the Treasury has responsibility—are able to do business on the Isle of Man and in the Channel Islands. Will my hon. Friend the Economic Secretary ensure that building societies are given powers to carry out business in those territories, even though the House understands that there are many overseas territories in which he would not wish to authorise building societies to act as that might be detrimental to the interests of lenders?
I do not wish to anticipate what the Minister might say, but I believe that the points that have been raised in relation to the Channel Islands and Gibraltar have been dealt with satisfactorily by the Government in other new clauses.I also declare an interest, although this is not a financial interest. I am also a vice-president of the Building Societies Association for which I am not paid. That is a great honour. The hon. Member for Mid-Staffordshire (Mr. Heddle) raised the important matter of mobile homes. Increasing numbers of people live in very satisfactory accommodation in mobile homes. There is no reason why building societies should not advance money on a mobile home provided that it is a permanent home on a mobile home site and not a touring caravan or something of the kind that we have read about recently in the newspapers. This is particularly important because nowadays one marriage in three ends in separation or divorce, resulting in great economic difficulties. It is all very well in Hollywood or on the screen among very rich families, but most ordinary families in this country cannot afford divorce and the cost of supporting an ex-wife as well as a current one. Often the husband or the wife—usually the husband—gives or is forced to give the matrimonial home to the spouse and family and would himself be homeless if he could not occupy a mobile home. It is extremely sensible to provide that building societies may lend on mobile homes, and the Building Societies Association entirely agrees with what the Government are doing, but the association has just one query about the wording of the new clause. It seems not to deal with joint loans in relation to mobile homes. The association believes that the Bill should provide that a joint loan to two or more persons should be treated as though it were a loan to one of those persons for the purposes of the relevant limits. As this will not be a class 1 loan, the overall limit for class 2 or class 3 loans could be affected. Perhaps the Government could make it clear susequently, either here or in another place, that a joint loan will be treated as one loan.
We are going through the Bill at exhilarating speed, but the Government's luck cannot last. Nevertheless, the Opposition support the new clauses and the amendments.It was pointed out in Committee that it made more sense for building societies to lend directly overseas rather than through a clutter of subsidiaries, but one or two questions arise in relation to the new clause. I appreciate the distinction between the negative resolution procedure in relation to designated British overseas territories and the affirmative resolution procedure in relation to other overseas territories. These presumably correspond to the possible degrees of risk on categories of secured investments, the firmer security of the affirmative procedure being required as a check by the House. Subsection (5)(a) of new clause 6 provides for the commission to act with the consent of the Treasury, but under subsection (5)(b) the Treasury will act on its own. Perhaps the Minister will explain why in one case the Treasury will advise the commission whereas in the other the Treasury will act alone. In new clause 7 it makes a great deal of sense to separate the two principles originally contained within the framework of clause 14. By and large, all these provisions make a great deal of sense, and the provisions with regard to mobile homes are to be welcomed. I shall therefore say no more on that subject as I am most encouraged by all that has been said already.
A number of points have been raised in this short debate. I can assure my hon. Friend the Member for Ludlow (Mr. Cockeram) that it is indeed our intention to lay orders at an early stage providing the relevant powers in relation to relevant overseas territories.The right hon. Member for Halton (Mr. Oakes) made a fair point about joint loans. The Government will look again at the point and if we are convinced of the logic of the case we shall take appropriate steps in another place. With regard to new clause 6, the Government agreed in Committee to consider an order-making power to allow societies to act directly overseas rather than through subsidiaries, thus allowing flexibility to reconsider arrangements for overseas operations if circumstances—for example, in the EEC—should change. Although the provisions in the Bill already go beyond what is available in most other states and are entirely consistent with our treaty obligations and with the draft directive, the Government have looked at the matter again and in the interests of flexibility we have decided to include an order-making power for direct operations. On the rather technical question about the Treasury acting on its own volition or giving advice, I should like to reflect on what the right hon. Gentleman has said and write to him or see that his representative in another place gives him the answer.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 7
Qualifying Asset Holding For Certain Powers
' .—(1) This section has effect for determining for the purposes of this Act whether, in any financial year, a building society has a "qualifying asset holding".
(2) A building society has a qualifying asset holding in any financial year if, and only if, the aggregate value of its total commercial assets, as shown in its annual accounts for the previous year, is not less than £100 million or such other amount as may be substituted for it under subsection (3) below.
(3) The Commission, with the consent of the Treasury, may by order made by statutory instrument substitute for the amount for the time being specified in subsection (2) above such other amount as the Commission considers appropriate.
(4) An order under subsection (3) above may contain such transitional provisions as the Commission considers necessary or expedient.
(5) An instrument containing an order under subsection (3) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.'. — [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 8
Officers And Auditors Not To Be Exempted From Liability
' .—(1) Subject to subsection (3) below, any provision to which this section applies, whether contained in the rules of a building society or in any contract with a building society or otherwise, shall be void.
(2) This section applies to any provision for—
(3) Subsection (1) above shall not prevent a building society from indemnifying a person against any liability incurred by him in defending any proceedings (whether criminal or civil) in which judgment is given in his favour or in which he is acquitted.
(4) Section 727 of the Companies Act 1985 or, as the case may be, section 394 of the Companies Act (Northern Ireland) 1960 (which empower the court to grant relief in certain cases of negligence, default, breach of duty or breach of trust) shall apply in relation to officers and auditors of a building society as it applies in relation to officers and auditors of a company.'.— [Mr. Ian Stewart.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.The purpose of imposing obligations on individuals is nullified if the society of which they are directors or by which they are employed is unable to undertake to pay any damages or fine due from it in the event of non-compliance with any obligation. The provisions of section 92 of the Building Societies Act 1962 therefore remain appropriate and the new clause re-enacts them.
This is a straightforward matter, merely repeating the safeguards contained in the 1962 Act. Perhaps the Economic Secretary will refresh my memory. Has this provision been separated from another part of the Bill which came before the Standing Committee, or was it an omission that is now being rectified?
When the new clause was brought to me for approval I asked exactly the same question. The provision was not included in the original arrangements. As the hon. Gentleman knows, many of the provisions of the Bill differ from those of the 1962 Act and it was not fully evident until the Bill was in being that it was still appropriate to include this provision. That is why the new clause has been put forward.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 9
Rights Of Appeal
`.—(1) A building society which is aggrieved by a decision of the Commission—
(2) Any person in relation to whom the Commission, in deciding to refuse to grant or to revoke authorisation or to impose conditions, makes a determination that a person is not a fit and proper person to hold, or as the case may be, to remain in an office in the society or imposes a requirement that he be removed from an office in the society, may appeal against the decision so far as it relates to that determination or requirement.
(3) The revocation of a society's authorisation shall not have effect until—
(4) Subsection (3) above applies in relation to the expiry of a society's authorisation on a refusal to grant authorisation under section 39 as it applies to the revocation of a society's authorisation.
(5) Subject to any order of the tribunal made under section (Determination of appeals) (5), an appeal under subsection (1) (c) or (2) above shall not affect the operation, pending the determination of the appeal, of any condition which is the subject of the appeal; and no determination of an appeal by any person, under subsection (2) above shall affect the revocation for the purposes of which the Commission made its determination or requirement in relation to that person.
(6) In this section and section (Determination of appeals)—
"conditions" means conditions to be complied with by a building society and imposed on the grant of authorisation under section 9, on the renewal of authorisation under section 39, on reauthorisation under section 42, or under section 40;
"grant" includes renew; and
"revoke" means revoke under section 41(1).'.—[Mr. Ian Stewart.]
Brought up, and read the First time.
With this it will be convenient to discuss the following:Government new clause 10 — Determination of appeals, Government new clause 12 — Further appeals on points of law, Government amendments Nos. 24, 32, 135, 139, 235 and 293 to 300.
The new clause and the amendments deal with the system of appeals. The clauses provide for a new system whereby building societies may appeal to an independent tribunal against decisions of the commission regarding matters of authorisation. Under existing legislation, the chief registrar's use of discretionary powers on prudential matters is subject to Treasury consent and, ultimately, of course, to judicial review in court.Under the new building society regime, we have concluded that- societies should have available a formal system of appeal which is designed to take account of the new system of authorisation to be established by the Bill and which can be brought into operation as rapidly as possible in cases of dispute. The clauses have been discussed extensively with interested parties, and particularly with the Building Societies Association, which has welcomed their inclusion. I hope that they will also be welcomed by the House.
The commission that was set up earlier in the Bill will have considerable powers. It is right that there should be comprehensive rights of appeal. The Opposition accept that fully in principle. We have scrutinised the new clauses and the amendments. The clauses cover rights of appeal, the determination of appeals, costs and related conditions, and appeals on points of law. They appear to be comprehensive, which we welcome.I have one question on the detailed text of new clause 9. Similar points arise later on other new clauses and on some of the amendments. The imposition of conditions, as well as the impositions themselves in terms of the subject matter, is now to be subject to appeal. An appeal may be mounted on both aspects—the principle as to whether conditions will be imposed and the factual content of the conditions themselves. As I understand it, a building society can appeal against the principle of conditions being imposed and against the subject matter of the conditions. In new clause 10(6)(c), the tribunal will have power to direct the commission to determine conditions. Therefore, do I understand correctly that if a building society loses the day on the imposition of conditions, the tribunal can say what the conditions are to be? Subsequently, could another appeal be mounted against the factual contents of the conditions that were declared as a result of the request of the tribunal ?
The hon. Gentleman has rightly drawn attention to the technical operation of the provisions. We decided that appeal should be available across the range of decisions which the commission can make, that is to say, not only on the granting or on the revoking of authorisation but on the imposition of conditions. The hon. Gentleman has put his finger on a difficulty; a society can appeal against conditions absolutely but it can also appeal against the conditions themselves.If the commission is clear that the society should be able to continue with authorisation only provided that conditions are attached, an appeal against any conditions being applied would in effect be a challenge to the commission on its assessment of the position. The commission might well respond by suggesting revocation. It is more likely in practice that the appeal will be on the nature of the conditions rather than on the imposition of conditions. That means that it is more likely to be a single exercise of the appeal procedure than a to-ing and fro-ing. I shall read later what the hon. Gentleman has said and if I have anything to add I shall write to him. The matter was considered for its practical implications during the consultation period. I am advised that the points which the hon. Gentleman has raised have been dealt with in the proposed system and that that system is the one most likely to operate cleanly and quickly. One of the most important requirements for any appeal procedure in relation to a society is to deal with the appeal with as little fuss and bother as possible so that the affairs of the society are not held up to public view and its dirty linen is not washed in public, which might cause anxiety to members and depositors and therefore damage the credibility of the society in the market. We want to avoid that. Therefore, we want as direct and rapid a system as possible. We think that we have achieved it. That is what the amendments are designed to do.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 10
Determination Of Appeals
`.—(1) Where an appeal is brought under section (rights of appeal) a tribunal to determine the appeal shall be constituted in accordance with subsection (2) below.
(2) The tribunal shall consist of—
(3) The chairman shall be a barrister, solicitor or advocate of at least seven years standing; and the other two members shall be persons appearing to the Chancellor of the Exchequer to have respectively experience of accountancy and experience of the business of building societies or of other financial institutions.
(4) On any appeal against any decision of the Commission the question for the determination of the tribunal shall be whether, for the reasons adduced by the appellant, the decision was unlawful or not justified by the evidence on which it was based.
(5) The tribunal may, on the application of the building society concerned, order that the operation of any condition which is the subject of an appeal by the society be suspended pending the determination of the appeal.
(6) The tribunal may confirm or reverse the decision which is the subject of the appeal but shall not have power to vary it except by directing the Commission—
(7) Where by virtue of subsection (6) above the tribunal directs the Commission to determine conditions or different conditions, the Commission shall by notice to the society concerned impose such conditions to be complied with by the Society as it considers expedient in order to protect the investments of shareholders or depositors and—
and on any such appeal the tribunal may confirm or reverse the Commission's decision with respect to the conditions which are the subject of the appeal or may direct the Commission to determine different conditions.
(8) Where by virtue of subsection (7) above the tribunal, on an appeal against any conditions, directs the Commission to determine different conditions, the other provisions of that subsection shall apply as they apply where the tribunal gives such a direction by virtue of subsection (6) above.
(9) Where the tribunal reverses a decision of the Commission to refuse to grant authorisation, it shall direct the Commission to grant it; and where the tribunal reverses a decision of the Commission to make the grant of authorisation subject to conditions, it shall direct the Commission to grant it unconditionally.
(10) Notice of a tribunal's determination, together with a statement of its reasons, shall be given to the appellant and to the Commission; and unless the tribunal has directed the Commission to determine conditions or, in any other case, the tribunal directs otherwise, the determination shall come into operation when the notice is given to the appellant.
(11) The Treasury may out of money provided by Parliament pay to the persons appointed as members of a tribunal under this section such fees and allowances in respect of expenses as the Treasury may determine and any other expenses incurred for the purposes of this section.'— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Further Appeals On Points Of Law
'. — (1) An appeal shall lie to the High Court at the instance of the building society concerned or of the Commission on any question of law arising from any decision of a tribunal uner section (Determination of appeals); and if the court is of the opinion that the decision was erroneous in law, it shall remit the matter to the tribunal for re-hearing and determination by it.
(2) In the application of this section to a building society whose principal office is in Scotland, references to the High Court shall be construed as references to the Court of Session.
(3) No appeal to the Court of Appeal or to the Court of Appeal in Northern Ireland shall be brought from a decision under subsection (1) above except with the leave of that court or of the court or judge from whose decision the appeal is brought.
(4) An appeal shall lie, with the leave of the Court of Session or the House of Lords, from any decision of the Court of Session under this section, and such leave may be given on such terms as to costs, expenses or otherwise as the Court of Session or the House of Lords may determine.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 13
Schemes For The Investigation Of Complaints
' . — (1) An individual shall, by virtue of and in accordance with schemes under this section. have the right, as against a building society, to have any complaint of his about action taken by the society in relation to a prescribed matter of complaint which affects him in prescribed respects investigated under the scheme.
(2) An individual shall also, by virtue of and in accordance with schemes under this section, have the right, as against any body which is associated with a building society, to have any complaint of his about action taken by that body in relation to a prescribed matter of complaint which affects him in prescribed respects investigated under the scheme.
(3) Every authorised building society shall be a member (and it may be the sole member) of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (1) above in relation to every matter (within its powers) which is for the time being a prescribed matter of complaint.
(4) The obligation imposed by subsection (3) above, in so far as it relates to a prescribed matter of complaint arising out of the exercise of adoptable powers, is to be construed as requiring a society to be a member of a recognised scheme conferring rights in relation to that matter not later than the date at which the alteration of the society's power takes effect.
(5) Every authorised building society shall secure that each of the bodies associated with it is a member of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (2) above in relation to every matter (within the powers of that body) which is for the time being a prescribed matter of complaint.
(6) Schedule (schemes for investigation of complaints) to this Act has effect for the purposes of this section and, in that Schedule—
(7) The Commission, with the consent of the Treasury, may by order vary Part II or Part III of Schedule (Schemes for investigation of complaints) by adding to or deleting from it any provision or by varying any provision for the time being contained in it; and an order under this subsection may make such transitional provision as appears to the Commission to be necessary or expedient.
(8) The Commission shall have the function, in accordance with Schedule (Schemes for investigation of complaints; recognition, accession etc.) of granting recognition of schemes and of withdrawing any recognition it has granted; but recognition does not extend to, and if not required for, provisions in a scheme which are not required to be made in pursuance of Schedule (Schemes for investigation of complaints) to this Act.
(9) The Commission shall have power to do anything which is calculated to facilitate the discharge of its functions under subsection (8) above, or is incidental or conducive to their discharge, but this does not extend to expenditure for the purpose of operating a scheme.
(10) For the purpose of complying with the duty imposed on it by subsection (3) above, a building society may—
(11) A building society may also make or join in making, or accede to, schemes which are not required for the purposes of this section.
(12) The central office shall have the function, in accordance with Schedule (Schemes for investigation of complaints: recognition, accession, etc.) of recording accessions to schemes and of confirming any withdrawal from a scheme.
(13) A building society may withdraw from membership of a scheme but, if the scheme is a recognised scheme, its withdrawal is not effective except in accordance with the applicable provisions of Schedule (Schemes for investigations of complaints: recognition, accession, etc.).
(14) The power to make an order under subsection (7) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(15) In this section, section (Investigation of complaints: supplementary provisions), Schedule (Schemes for investigation of complaints) and Schedule (Schemes for investigations of complaints: recognition, accession, etc.)—
"accede", in relation to a scheme, means assume the obligations and rights of membership and "accession" has a corresponding meaning;
"action" includes any failure to act, and so as regards "exercise" in relation to any power; and "action", in relation to a society, includes action on its behalf by any body associated with it;
"prescribed", in relation to matters of complaint, means prescribed for the time being in Part II of Schedule (Schemes for investigation of complaints) and, in relation to the respects in which a complainant is affected by any action, means prescribed for the time being in Part III of that Schedule as grounds for making action subject to investigation under the scheme; and
"recognition" means recognition of a scheme by the Commission for the purposes of this section.'.—[Sir George Young.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this, it will be convenient to take the following:Government new clause 14 — Investigation of complaints: supplementary provisions. Government new clause 15—Settlement of disputes. Government amendments Nos. 4, 5, 251 to 253, 261 and 291.
This is an important new clause which imposes an obligation on societies to belong to an ombudsman scheme in relation to certain of their activities and to enable the commission to recognise schemes for that purpose. The provisions give effect to an undertaking that we gave in Committee to oblige building societies to belong to an approved ombudsman scheme. While voluntary ombudsman arrangements have become more widespread in recent years, and while the Building Societies Association had been planning a scheme for building societies, this is the first compulsory scheme outside the public service.Before coming to the provisions, I want to pay a tribute to my hon. Friends the Members for York (Mr. Gregory) and High Peak (Mr. Hawkins) for the energy and diligence with which they argued the case for a statutory ombudsman. The introduction of the new clauses is due in no small measure to their efforts. New clause 13 contains the obligation for societies to belong to a scheme in respect of the relevant activities and provides for recognition of schemes by the commission. It also gives effect to a new schedule which sets out the criteria that a scheme must satisfy if it is to obtain recognition. Firstly, the scheme must cover some or all of the activities on which there must be recourses to an ombudsman: broadly speaking, savings accounts, whether shares or deposits, services relating to the handling of money and all lending, whether classes 1, 2 or 3. Secondly, the schedule sets out the powers wind' the ombudsman must have to investigate complaints. It makes it clear, however, that his writ does not run to questions purely about a society's commercial judgment about the creditworthiness of a customer, for example, in deciding whether or not to make an advance or to make available a cheque guarantee card or other facilities. It is a fundamental point of principle to the prudent operation of its business that a building society must ultimately reserve the right to make such decisions without the possibility of their being overturned by an outsider. Where there has been maladministration, the ombudsman will be able to ask the society to take the decision again but he will not be able to take the decision for the society. Thirdly, the schedule deals with the powers of the ombudsman to offer redress to complainants. He may require a society to take steps to remedy its actions or to pay compensation up to a maximum of £100,000, as in the voluntary insurance ombudsman scheme. The scheme need not oblige societies to comply, so long as their reasons are spelt out in the annual directors' report and made public in a way laid down by the ombudsman. That is to avoid derogation by statute from the normal rights of a building society before the courts. However, it would be open to the societies voluntarily to join a scheme which offered no such let-out. New clause 14 deals with some supplementary points. It sets out the criteria which the ombudsman must use in determining complaints; provides for his decision to be final if accepted by the complainant, although the society may always seek leave to appeal to the High Court on a point of law arising from his decision; and provides a penalty for non-compliance with the statutory obligation to belong to a scheme. The related new schedule sets out the procedure for recognition of schemes by the commission and for the registry to record their membership. The statutory obligations will be enforced primarily by the criminal penalty for non-compliance, but, as a last resort, the commission may assist in the establishment of a scheme. Those provisions mark a major step forward in the protection of consumers and will help to ensure that building societies continue to observe the high standards in dealing with their customers for which they are justly renowned. I commend them to the House. Amendment No. 253 gives effect to arrangements for the reference of disputes to an arbitrator of the High Court or the commission. They replace part IV of schedule 2 and, if required, I can give a more detailed explanation.
I congratulate the Government on carrying out the express wish of both sides of the Committee. I agree that two Conservative Members suggested establishing an ombudsman for building societies, and that was fully supported by the Opposition.I have one minor query. Some societies are uneasy about new clause 14 and about paragraph 4 of the new schedule listed as amendment No. 251. At first sight it seems that the adjudicator can override contractual agreements between a building society and a complainant. That may well be right in some cases, especially exceptional ones where the society had clearly acted unreasonably, but the clauses seem to be far more complex than ever we imagined they would be in Committee. We imagined the establishment of an ombudsman to be a simple matter. The clauses are legalistic and complex. This may be necessary — I am not complaining—but they seem to be long winded. Societies believe that an adjudicator should intervene if a building society's act is overridingly and clearly unreasonable. However, it is hoped that the ombudsman will not use his powers under the schedule to intervene in minor matters where there is a clear contractual agreement between a complainant and a building society.
I support the Government's new clauses. I heard my hon. Friend the Minister say that this is the first compulsory scheme outside the public sector, and I deplore the fact that he had to make that statement. I am not criticising him, but I am criticising the Building Societies Association, the banks, the insurance companies and a host of other industries concerned with consumers. The furniture industry, for example, has set up a complaints procedure under the Office of Fair Trading. I deeply regret the fact that the building societies have had to be forced into a statutory scheme.As the right hon. Member for Halton (Mr. Oakes) said, the clauses are much more legalistic and lengthy than we expected when we tabled the amendments in Committee, requiring the establishment of an ombudsman for consumer complaints. I regret and deplore the fact that the scheme is so rigid and inflexible, and I hope that other industries in the financial sector and elsewhere which deal with consumers will learn a lesson from this, namely, that it is much better for them to set up their own scheme than to have one imposed upon them.
As a vice-president of the Building Societies Association, I must say that the building societies in no way oppose the estabishment of an ombudsman. For years the association knew that there was to be a Building Societies Bill. The Government wisely listened to the points made in Committee and inserted this clause in the Bill. It has not been forced on the Building Societies Association. The association happily acquiesces in it.
I do not dispute that the building societies accept this need. My point is that other industries, including those in the financial sector, have recognised both the need for an ombudsman and the pressure from consumers for an independent adjudicator to whom they can take complaints, and have set up their own ombudsman scheme. It would have been better if the BSA had recognised that pressure and done something similar, thereby avoiding this long and inflexible scheme, which is not in the interests of consumers to the extent that it could have been had the building societies set up their own scheme at the outset.I congratulate the Minister on having acted in this way, following pressure in Committee.
I echo the remarks of my right hon. Friend the Member for Halton (Mr. Oakes) and the hon. Member for Ludlow (Mr. Cockeram) in welcoming the new clause. The proposal had all-party support in Committee, which may be why the Government agreed to take it up, although it may be that we had an unusually relaxed and friendly Committee. I pay tribute to the Government for being so accommodating.The new clause puts into law an important principle, and I accept my right hon. Friend's point that it is not being forced on the building societies, but that they welcome it. It has been inserted in the Bill because this is the most convenient way of providing for an ombudsman. The Government listened to the arguments and seized this opportunity. The building societies are pioneering a development which should be universal and have enforceable provisions. It should exist for the whole of the banking sector more strongly and effectively than it does, for financial institutions, for insurance companies and, indeed, for newspapers. I know that the Daily Mirror has its ombudsman, probably in Liechtenstein, or somewhere equally convenient, for adjudication purposes. I should like this development to spread over a wide range of industries. Some suspicions have been voiced, especially by solicitors, who are afraid of building societies doing conveyancing, but we shall come to that later. They attempt to give the impression that building societies are huge domineering monopolistic organisations of which people should be afraid. That is not their nature. I do not expect an overwhelming rush of complaints. It is right that building societies should show themselves whiter than white by acceding to the scheme, and I hope that they will accede to a compulsory, binding scheme, not one that allows them to dismiss adjudications in their annual report. It should not be like the local government scheme, which enables local government to reject the ombudsman's recommendations too easily. Consumers need some help and protection. They need a body to identify with and an agency which will protect them with clear, simple, straightforward procedures so that they have confidence to operate in a system which is often intimidating and frightening.
On behalf of the Opposition, I warmly welcome the principle of an ombudsman for building societies. From experience. I know that disputes between building societies and their members have caused much dissatisfaction. I have been involved in several disputes on a constituency basis, and I have followed some others through the newspapers. Some celebrated disputes with building society boards of management reached the press some years ago and obtained publicity. To put it no higher, there was a feeling among some ordinary members of building societies that when a dispute occurred and had to be adjudicated upon, the cards were stacked against the ordinary membership. That being so, it was high time that there was an alteration.I shall keep my remarks about the clauses to a minimum because most of the substantial issues have been discussed. The fact that we have a scheme will give much confidence to the public and will probably underline the increased confidence which investors and members have in building societies. I am pleased that the promise given to the Standing Committee by the Economic Secretary to the Treasury to set up a scheme was fulfilled. He should be personally commended on it. In principle, it covers almost everything; indeed, perhaps it covers too much and a little more should have been left to discretion. However, one can never get these matters right. The scheme covers the fact that an individual has a right to make a complaint on stipulated matters and that a building society must be a member of an approved scheme. The Government have said that a scheme must be compulsory. They lay down basic principles that must be followed and leave the building society movement to construct a scheme. That is as good a way forward as any. The ombudsman principle is well founded in public life. It is a success. There are good precedents in the insurance industry and in banks, and it is a sound way of adjudicating in disputes. I underline the fact that, although the clause was the responsibility of the hon. Member for York (Mr. Gregory), it had substantial all-party support. The hon. Member for High Peak (Mr. Hawkins) was also involved. Such all-party support is the clause's political strength. It has been put firmly on the political map, which is a good thing. The provisions for an ombudsman to adjudicate in disputes are lengthy, detailed and complicated. Could we not have set up a scheme which occupied less print? In the brief which it sent to hon. Members who were interested in arguing the Bill, the Building Societies Association said that the amount of print is such that it may create some awkward legal precedents. Is that the case? What legal scrutiny has it received? Will there be more scrutiny when it reaches the other place so that any rough bits can be made smooth? Although I make those comments, I do not wish to detract from anything that I said at the beginning of my speech. The House welcomes this considerable step forward for the building society movement.
I am grateful for the kind words from hon. Members on both sides of the House about the new clause and the Government's initiative to set up an ombudsman scheme. I shall deal briefly with the points that were raised.On the complexity and length of the schedule, no one is more anxious to keep down the volume of print than my hon. Friend the Economic Secretary and myself, but the complexity is an inevitable result of trying to codify in statute what is a voluntary arrangement. Once the decision is taken to specify that in statute, it becomes unfortunately necessary to do so in some detail, given the criminal sanctions against non-compliance. The right hon. Member for Halton (Mr. Oakes) was worried about the adjudicator overriding the contractual arrangements between the society and the complainant. Clause 14(4) is the let-out clause that I mentioned in my opening remarks. The adjudicator's finding is legally binding if accepted by the complainant, but is subject to the let-out in subsection (4) whereby the society is not obliged to accept the findings so long as it gives the reasons for so doing in the way specified in the new clause and the amendments. We felt obliged to include the let-out clause by which a society may decide not to comply with the ombudsman's decision as long as it explains its reasons publicly, because we did not want to remove the legal rights of a society before the courts. The hon. Member for Great Grimsby (Mr. Mitchell) expressed the hope, with which I agree, that the occasions on which a society would take advantage of the let-out clause would be exceptional. Nothing in the provisions would prevent a society from voluntarily giving up the let-out clause. But there is a point of principle. In requiring societies to belong to a scheme under which they must accept the directions of a third party, we should be depriving them of their rights of law before the courts. Parliament would not wish to do that. It is one thing voluntarily to contract to give up those rights, which is an option, but another to remove them. That is why that clause was included. I hope that the building societies will not seek to abuse the clause or use it lightly. They can expand the scope of the scheme beyond the basic minimun that is already in the Bill. The hon. Member for Ipswich (Mr. Weetch) asked whether the Government would have any further thoughts on the Bill. The Government tabled several hundred amendments between Committee stage and Report, arid I doubt whether the ingenuity and investigative powers of the draftsmen are as yet exhausted, so there may be another opportunity to improve and refine the Bill. In the secure knowledge of all-party support for this fresh initiative, the Government are happy to leave the matter as it is for the time being.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 14
Investigation Of Complaints: Supplementary Provisions
'(1) A building society, as a member of a recognised scheme, shall discharge any obligations and is entitled to enforce any rights imposed or conferred by the scheme or any determination of the adjudicator under the scheme, but nothing in section (Schemes for the investigation of complaints), this section or a scheme requires or authorises a building society to do anything which is outside its powers or otherwise contrary to any provision of this Act or any instrument under it.
(2) Determinations of complaints under recognised schemes shall be made by reference to what is, in the adjudicator's opinion, fair in all circumstances of the case and any direction given to a building society or associated body by an adjudicator may (if the complainant accepts the determination) require it and the complainant to vary any contractual or other obligations or rights subsisting between them.
(3) Subject to subsections (4) and (5) below, a determination of the adjudicator under a recognised scheme which is, by virtue of the complainant's acceptance of it, binding on the building society or associated body shall be final and conclusive and shall not be questioned in any court of law.
(4) Subsection (3) above does not apply where a society or associated body is authorised by the scheme to relieve itself of its obligation to take the steps it is directed to take or pay the compensation awarded by the society's undertaking an obligation to give the requisite publicity for the reasons for not doing so and the society undertakes that obligation.
(5) Where a determination of the adjudicator under a recognised scheme is binding on the building society or associated body, the adjudicator shall, at the request of the society or associated body, state a case for the opinion of the High Court on any question of law and the High Court may direct the adjudicator to reconsider the complaint.
(6) A decision of the High Court under subsection (5) above shall be treated as a judgment of the High Court within the meaning of section 16 of the Supreme Court Act 1981 or section 39 of the Judicature (Northern Ireland) Act 1978 (which relate to the jurisdiction of the Court of Appeal to hear and determine appeals from any judgment of the High Court) but no appeal shall lie from the decision of the High Court on any case under subsection (5) above without the leave of the High Court or of the Court of Appeal.
(7) In the application of this section to Scotland—
(8) If a building society fails to comply with section (Schemes for the investigation of complaints) (3) the society shall be liable on summary conviction—
and so shall any director of the society who is also guilty of the offence.
(9) If a building society fails, without reasonable excuse, to comply with section (Schemes for the investigation of complaints) (5) the society shall be liable on summary conviction—
and so shall any director of the society who is also guilty of the offence.
(10) If a building society fails to comply with section (Schemes for the investigation of complaints) (3) or (5) the Commission may make an application to the High Court for an order directing the society to comply within a specified period with that subsection and the High Court may, if it thinks fit, make an order accordingly.
(11) In subsection (4) above the reference to an obligation to give the requisite publicity for a building society's or associated body's reasons is a reference to such an obligation undertaken in pursuance of a provision of the scheme authorised by paragraph 6(2) or (3) of Schedule (Schemes for investigation of complaints).'.— [Sir George Young.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Settlement Of Disputes
' .—(1) Schedule (Settlement of disputes) to this Act shall have effect for the settlement of certain disputes between a building society and a member, or a representative of a member, of the society or, as provided by Part II of the Schedule, between a building society and a depositor with the society.
(2) Nothing in that Schedule affects the jurisdiction of any court to hear and determine disputes arising out of any mortgage or any contract other than the rules of a society.'. — [Sir George Young.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 16
Transfer Of Business To Commercial Company
' .—(1) A building society may, in accordance with this section and the other applicable provisions of this Act, transfer the whole of its business to a company (its "successor").
(2) The applicable provisions of this Act other than this section are section (Transfers of business: supplementary provisions), section (Regulated terms: compensation for loss of office, etc), section (Regulated terms etc: distributions and share rights), section (Protective provisions for specially formed successors), section (Transfer regulations), pargraph 27A of Schedule 2 and Schedule (Transfer of business: supplementary provisions).
(3) The successor may be a company formed by the society wholly or partly for the purpose of assuming and conducting the society's business in its place or an existing company which is to assume and conduct the society's business in its place; and for the purposes of the transfer the society may, notwithstanding anything in section 16, form, or acquire and hold shares in, a company whose objects extend to the carrying on of activities which a building society has no power to carry on.
(4) In order to transfer its business to its successor a building society must—
(5) In so far as the transfer agreement made between the society and its successor provides for rights to be conferred on members or officers of the society, whether or not in pursuance of regulated terms, the members or officers shall, in relation to those provisions, be treated as if they had been parties to the agreement and the rights shall be enforceable accordingly.
(6) If the Commission confirms the transfer under section (Transfers of business: supplementary provisions) then, on the vesting date, all the property, rights and liabilities of the society making the transfer (whether or not capable of being transferred or assigned), except any shares in its successor, shall by virtue of this subsection and in accordance with transfer regulations be transferred to and vested in the successor.
(7) Where a building society continues to hold shares in its successor after the vesting date, the consideration (if any) for the disposal of the shares together with any other property, rights or liabilities of the society acquired or incurred after that date shall, by virtue of this subsection, be transferred to and vested in its succesor on the date specified for its dissolution under subsection (10) below.
(8) A building society which has obtained confirmation of the transfer of its business shall send to the central office notice of the date which is to be the vesting date and shall do so not later than seven days before that date; and the central office shall record the date and, if a later date is notified under subsection (10) below, that date, in the public file of the society.
(9) Except where notice is given under subsection (10) below, a building society which under this section, transfers its business to its successor shall, by virtue of this subsection, be dissolved on the vesting date; but the transfer effected by subsection (6) above shall be deemed to have been effected immediately before the dissolution.
(10) A building society may, for the purpose of facilitating the disposal of shares in its successor, include in the notice of the vesting date under subsection (8) above notice of a later for the dissolution of the society; and, if it does so, the society shall by virtue of this subsection be dissolved on that date instead of the vesting date but the transfer effected by subsection (7) above shall be deemed to have been effected immediately before the dissolution.
(11) As from the vesting date a society which has given notice under subsection (10) above shall cease to transact any business except such as is necessary for the purpose of securing the disposal of the society's holding of shares in its successor.
(12) In this section, and the other applicable provisions of this Act—
"company" means a company within the meaning of the Companies Act 1985 or the Companies Act (Northern Ireland) 1960 which is a public company limited by shares; and a company is a "specially formed" company if it is formed by a building society (and by no others than its nominees) for the purpose of assuming and conducting its business in its place and is an "existing" company if it is a company carrying on business as a going concern on the date of the transfer agreement.
"confirmation", in relation to a transfer, means the confirmation of the Commission required by subsection (4)(d) above;
"regulated terms" means any terms of a transfer agreement which are regulated terms under section (Regulated terms: compensation for loss of office, etc), section (Regulated terms etc: distributions and share rights) or section (Transfer regulations),
"the requisite protective provisions" means the provisions required to be made by section (Protective provisions for specially formed successors) (2);
"the requisite transfer resolutions" has the meaning given by subsection (4)(c) above;
"successor", in relation to a building society, has the meaning given by subsection (1) above;
"transfer agreement" means the agreement required by subsection (4)(b) above and, in relation to it, "conditionally" means conditional on the approval of the transfer by the requisite transfer resolutions and on confirmation of the transfer;
"transfer of business" means the transfer of the business of a building society to its successor under this section and "transfer" has a corresponding meaning;
"transfer regulations" means regulations under section (Transfer regulations); and
"the vesting date" means the date specified in or determined under the transfer agreement as the vesting date for the purposes of subsection (6) above 2 ' — [Mr. Ian Stewart.]
Brought up, and read the First time.
With this, it will be convenient to discuss the following Government new clauses:No. 17 — Transfers of business: supplementary provisions. No. 18 — Regulated terms: compensation for loss of office, etc. No. 19 — Regulated terms etc: distributions and share rights. No. 20 — Protective provisions for specially formed successors. No. 21 — Transfer regulations. No. 22 — Cancellation of registration. Government amendments Nos. 113 to 123, 211, 220, 229, 230, 254 and 272.
New clause 16 relates to the conversion of building societies into limited companies. Our principles in approaching the matter have been clear. First, any such decision by the members of a building society must be made with clear support from investing and borrowing members and from a significant proportion of the entire membership. It is an important change in the nature of the business of a building society to move from mutual to incorporated status, and it would be wrong for such a change to be made without the strong support of the society's members.Secondly, we have been anxious to ensure that the process protects the rights and interests of members in. such a way that it does not, at the same time, encourage members of the public to switch their funds around in the market on a speculative basis hoping to make a quick profit, which has happened in the United States. 5.30 pm Thirdly, we felt that limits should be placed on the compensation payable to outgoing directors so that conversion is not a course of action promoted by management in its own interests. I think that those principles are supported not only by the Building Societies Association, but by both sides of the House. The details of the clauses have been carefully worked out, but the main question is one of principle. The Bill sets out a regime for all societies, large and small, local and national. It may be that as financial markets develop some societies will want to develop more rapidly than the Bill allows. I see no reason to prevent that, provided they have the overwhelming support of their members. It seems to be the essence of mutuality that members should take the crucial decisions. That is what we are providing in this procedure.
I hope that my hon. Friend will contribute to the debate, but I would just like to finish this passage.It may also be useful if there is a degree of diversity in the movement as to whether all building societies remain as mutual institutions. However, the possibility of converting into incorporated status would add to the range of types of society or mortgage-providing institutions. I should like to listen to the debate and, if I am fortunate enough to catch Mr. Speaker's eye at the end, I could then respond to the points raised. At this stage I should like to say that I have taken careful note of the arguments put forward during the passage of the Bill so far, but they have not convinced me that conversion is wrong in principle. I am now more than ever sure that it is an option which should be available, subject to the necessary safeguards and principles that I have described. Therefore, I should like to respond more fully when I have heard the views of my hon. Friend the Member for High Peak (Mr. Hawkins) and other hon. Members.
So far the debate on the new clauses has proceeded amicably, with agreement between the two sides of the House, but I tear that at this point the two sides will differ.I understand that the Minister has carefully considered what safeguards can be built into the process of conversion from a mutual organisation to a plc, and I appreciate that he has resisted pressures to, for example, decrease the percentage of members who would necessarily have to vote for such a conversion. One must be grateful for small mercies. It is a small mercy, because for a variety of reasons we do not see the necessity for building societies to convert from mutual organisations into plcs. I know that the Minister is aware of some of the reasons that have been presented by the Opposition, but I hope that even at this late stage he will reconsider his decision. Several points need to be made in connection with the process of conversion. First, during the progress of the Bill the Minister has considered in great detail what sort of legislation is necessary for building societies and just how he can ensure that the legislation is correct and will not cause undue difficulties. However, he has not attended sufficiently to the fact that changes in the nature of the building societies are being proposed and will take effect shortly after other aspects of the financial markets will have undergone major changes. If nothing else, conversion to plcs ought to be postponed until one sees what the effects of the so-called big bang, due to take place at the end of October, will be. Therefore, I would recommend even more caution than the Minister has proposed. Secondly, the proposal to allow the conversion to company status, taken together with the proposal to allow for contested mergers, can speed up the concentration of the number of building societies. Indeed, even without the provisions in the Bill, mergers are taking place, leading, for example, the chief executive of the Abbey National building society, Mr. Peter Birch, to say recently that he expected that over a period of 10 years there would be only five mega-building societies and possibly a number of smaller building societies.
I wonder whether the hon. Lady is aware that it is not only conversion that is the threat. New clause 16(3), which was not in the original Bill discussed in Committee, says that the successor company may be an existing company. In other words, an existing company, such as a foreign bank, may take over a building society even though it has not converted to plc status.
I thank the hon. Gentleman for making that point. I was about to move on to the problems that I consider are caused by takeovers. The two provisions in the Bill that I have mentioned can speed up the process that the hon. Gentleman has in mind, although, as he rightly says, it can happen without conversion to company status. That is a matter of concern.I am concerned because I believe that over a period of time, though obviously not immediately after the Bill takes effect — probably in April next year — we will find ourselves with a small number of large financial institutions. Because of the possibility of the takeover of existing building societies by foreign banks—we know that some foreign banks, such as Citicorp and Standard Chartered have already shown their interest in this matter — we shall have a small number of financial institutions, large in size, but without any particular commitment to the provision of finance for housing. They will obviously continue to offer mortgages, because I think that the mortgage market will continue to grow for the rest of this century, but they will have no prime commitment to housing.
Has that not already taken place, as in the past year or two the joint stock banks have moved heavily into providing mortgages?
It is true that other organisations also offer mortgages. For many years we have had the benefit of a range of institutions primarily concerned with financing housing. As we know, the Bill allows building societies to provide other financial services. The building societies have enormous assets—£100 billion. This is an important source of finance to be concentrated on the provision of housing, either through mortgages, or through the provision of something which we in the Labour party strongly favour—housing provided through part equity and part rent. This enables young couples especially to purchase their first house more easily than by raising the deposit for a mortgage or by facing the prospect of a 100 per cent. mortgage.
The hon. Lady has obviously studied the matter more thoroughly than I have, but my understanding is that under subsection (3) it would be possible for Citibank to buy the Halifax building society in its present form. There seems to be a real threat, which must be considered carefully.
I think the hon. Gentleman is unaware that that point was made earlier and that I accepted it. I am trying to develop the argument that conversion to plc status will also facilitate the process. That is why I have argued against that point of view. I have argued the possibility that large financial institutions may not have the commitment to housing that building societies have.The point has been made that building societies need the possibility of such conversion to provide themselves with adequate capital funds, despite the fact that the Building Societies Association, in its bulletin of October 1985, stressed that owing to the mutual nature of the building societies they were readily able to raise funds, and had successfully done so, on the wholesale market. The argument that conversion to plc status is necessary to provide building societies with adequate funds is one that we need not take too seriously. I cannot understand the Government's prejudice against the continued existence of mutual organisations. It is a perfectly proper, respectable and successful alternative to company status. Why not encourage its continued existence? It is true that criticisms can be made of the nature of the mutuality of building societies. Perhaps that was not the case in years gone by when building societies were smaller. Nevertheless, building societies have been able to concern themselves to a greater extent with social objectives, with concerns and needs, of which housing is a fundamental aspect. Conversion of building societies to plc status and being swallowed up by banks which are concerned, not with the social need of housing but with all kinds of financial provision, and so on, is a step backwards, and not a step forwards. For the reasons that I have outlined briefly — the argument was put both on Second Reading and in Committee — the Opposition are firmly convinced that the provisions in the new clauses are wrong. Therefore, we shall reject and vote against them.
I shall not approach the subject as analytically and with the same economic expertise as the hon. Member for Thurrock (Dr. McDonald), but I agree with much of what she said. I think that on a point of detail the hon. Lady was wrong to advise the House that the Standard Chartered bank was a foreign bank. I am reliably informed by my hon. Friend the Member for Ludlow (Mr. Cockeram) that the Standard Chartered bank is British, is proud to be British and hopefully will remain British. I agree with some of the hon. Lady's sentiments. I approach the matter from the point of view of sentiment.Although the Bill, in broad terms, will enable building societies to extend into a much broader field, way beyond the definition of mutuality — with which I have no quarrel whatsoever—I am concerned that new clause 16 could, in certain circumstances, enable our much-loved building societies, which many of us associate with our towns, counties and regions, to become multinationals. It might be fine for certain large building societies to become part of the First National Bank of Chicago, but it would not necessarily be right for the Staffordshire building society to do so, because it might become a nameless and faceless subsidiary of a nameless and faceless multinational which breaks the link between the borrower and the lender. I believe that the link between the borrower and the lender is a fundamental, vital and almost unquantifiable benefit of the building society movement as we know it today. 5.45 pm Perhaps I can illustrate the point by narrating a story that was told to me by the chairman of one of the major building societies at the recent annual conference of the Building Societies Association held in Bournemouth. He reminded me of a lady who went into her local branch of his building society wanting to withdraw £1,000 from her savings account. She had only about £1,000 in her account. She said to the counter clerk, "Do not worry, young man. I only want that money to buy clothes and books for my daughter who is going to university in September. I promise you that I shall put the money back as soon as I can." The lady had a direct relationship with, and a direct loyalty and obligation to, her building society. If she had been the customer of a bank, she would not have cared a tuppenny damn about putting back the money. There is not the same loyalty between a bank and its customers as there is between a building society and its customers. If that sense of mutality is broken, which the new clause will enable financial institutions to do, that link of loyalty, which is inestimable, will be broken. What worries me about the clause is that it is not only another lending institution, another savings institution, or another bank that will be enabled to take over a building society. As I understand it, any company—national, international or multinational—could do so. Therein lies a real cause for concern. In my constituency of Mid-Staffordshire, the much-loved and very British 200-year-old company of Wedgwood is under threat of takeover by the London International Group, formerly known as the London Rubber Company. No doubt it is well known and much respected for producing certain rubber goods to meet the everyday requirements of some people, but what expertise and qualifications does that American-owned company have for taking over a ceramics company that manufactures tableware that hon. Members in this and another place use every day? The company has no real understanding of the highly specialised, top-market sector of the industry. What about job security? What undertaking would the company give to the shareholders and employees of Wedgwood if other parts of that conglomerate play-pen based in the United States or elsewhere were to fall prey to the international economic recession? What job and economic security would the shareholders of that company have? Let us suppose that the London International Group, formerly known as the London Rubber Company, took over the Goldhawk building society, the Staffordshire building society or the Abbey National building society. Let us assume that there was a down-turn in the market for rubber gloves in Ohio or elsewhere and the company was forced into liquidation. In what position would that leave the borrowers of mortgages from the Goldhawk building society, the Staffordshire building society or the Abbey National building society? Let us take the example of a constituent of mine who falls, through no fault of his or her own, into arrears. He or she does not have the same relationship with the local manager, because the local manager does not have the same relationship with head office, because head office is not situated in Stafford, Birkenhead or Burgess Hill. It is probably somewhere in Baltimore or Boston, and so there is not the same link, loyalty or understanding between lender and borrower as was highlighted in the case of the lady who wanted to borrow £1,000 to provide books and clothes for her undergraduate daughter. I am concerned about the new clause. I did not serve on the Committee, and so I did not have an opportunity to express these views. However, I expressed them to members of the BSA at the annual conference of the Metropolitan Association of Building Societies. I hope that my hon. Friend the Economic Secretary will consider those points and will withdraw the new clause to allow further debate within the building society movement and to allow wider debate, as the hon. Member for Thurrock said, after the big bang. Incidentally, that big bang may well turn out to be a little whimper. The new clause could then be reintroduced, in the light of experience, in the other place.
I agree with what my hon. Friend the Member for Thurrock (Dr. McDonald) and the hon. Member for Mid-Staffordshire (Mr. Heddle) have said. The hon. Gentleman was absolutely right about the building societies. People invest their savings in building societies rather than in banks partly because, as the hon. Gentleman said, there is a mutuality of trust and understanding between the society and its customer. That mutuality is never felt between a bank, even a small bank, and its customer. The investor in the building society knows that his money is not only safe but will be used to provide a mortgage to give someone a home. The investor can feel quite proud of his investment.I imagine that the new clause was initiated by the Treasury rather than by the BSA or individual building societies. I do not know who asked for it, but it can only be the Treasury that wants to convert building societies into plcs. Apart from the Treasury, I do not know of anyone who wants the new clause. But perhaps we are worrying unduly. After all, the new clause requires that 20 per cent. of the building society's subscribers must vote and that 75 per cent. of them must agree before the society can be converted into a limited company. It takes some doing to persuade 20 per cent. of borrowers to vote. Big societies have run major campaigns but have not managed to get even 10 per cent. to vote.
They could be bribed to vote.
I do not know about that, but I agree with the hon. Member for Mid-Staffordshire that those who vote will do so out of loyalty to their society, and so will not want it to be turned into a limited company.Moreover, the new clause gives the Treasury power, by negative resolution of the House, to alter that 20 per cent. figure. If building societies could not get 20 per cent. of their members to vote, or anything like that number, would the Treasury reduce the figure to 10 per cent. or 5 per cent.? If so, there is a grave danger of that mutuality disappearing. We want building societies to be brought into the modern world. That is what the Bill is about. We want to transform the 1871 Act into a 1986 Act in order to allow building societies to compete in the modern world, but we also want to preserve the peculiarly British nature of building societies and to retain that mutuality. I fear that the new clause, which has been introduced solely at the whim of the Government, could destroy that mutuality.
I merely wish to ask my hon. Friend the Economic Secretary two questions which I would have asked during his speech if he had given way. First, why do we want to allow companies which are not building societies to buy building societies, including those which have not converted? It would be interesting to know the reasons for that. Secondly, there is a technical problem with new clause 19. Subsection (4) specifies the bribes that may be paid to people voting for or against converting a building society into a plc. I have been over this issue with people in the BSA and in building societies, and none of us can make head nor tail of it.Half the time the new clause appears to say that bribes can be paid only to people who have less than £100 in the building society, and thus to people who do not qualify to vote. I refer to subsection (2)(b), which is qualified by subsection (4). In other parts, the new clause seems to suggest that payments could be made to people with more than £100 in the building society. Clearly it is important that building societies should know exactly what the new clause means. I should be grateful if my hon. Friend the Economic Secretary would explain it to me now. If he has as much difficulty as the rest of us in understanding its drafting, perhaps he will drop a line to me and to the BSA.
I did not like the idea of a building society converting to plc status when it was discussed in Committee. I think that the provision has been reintroduced because several Conservative Back Benchers did not like the idea either. Treasury Ministers felt that they had to assuage in some way their Back Benchers' feelings. Indeed, the hon. Member for Mid-Staffordshire (Mr. Heddle) has outlined some of the concerns.I found the Economic Secretary's reasoning rather faulty — and I am being generous to him. He had already made up his mind. Yet he came to the House and told us that he did not have much to say today, but that he would listen, as though he might be converted at the end of the debate. Judging by his actions and statements, and by the way that he dealt with the subject today, it is obvious that his mind is made up. Like my right hon. Friend the Member for Halton (Mr. Oakes), I just wonder what has generated this great desire for conversion. That word conversion makes people think immediately of some religious connotation, as though conversion would be a bracing experience for everybody. But it will be nothing of the kind. We are really talking about immersion, whereby the whole character of the building society movement will be changed. I suspect that the building society movement will be led away from its original purpose, which was to finance house purchase and home improvements. There is a danger that following the helter skelter towards conversion, as the Treasury puts it, we shall end up with more banks than the economy requires. The Economic Secretary has never fully dealt with how he thinks that the building society movement will benefit from this proposed change. He has not really answered the points that have been made, not only today but in Committee, about whether, in the long run, this will strengthen the building society movement or, as many of us believe, will weaken and divert the building society movement from its purpose. 6 pm Like my right hon. Friend the Member for Halton, I have a non-pecuniary interest as an honorary vice-president of the Building Societies Association, but that does not mean that I cannot say what I think, and I think that the United Kingdom does not need any more clearing banks. The Economic Secretary has somewhat fogged the issue of principle by the way that he has tried to impose his ideas on conversion of building societies to company status, and even by the way in which the consultative paper came up out of the blue. People were told that it will be a great thing if the Government allow building societies to become companies, when, for many years, they have been functioning satisfactorily as mutualities. Like my right hon. Friend the Member for Halton, I agree that there is a need for improvement, but there is great danger that if the Government have their way in the new clause this will reduce the potential that is available to the ordinary man or woman to acquire housing finance either for home purchase or improvement. I fully support the points made by my hon. Friend the Member for Thurrock (Dr. McDonald).
It is important that the Labour party adds its voice to the doubts that have been expressed by Conservative Members. Given that the Minister heard so many hostile speeches. and that so many critical doubts were raised on this matter, I would find it surprising if he persevered with this new clause, for which there is no great need. He said that he was open to argument and would listen to it, but as he has not listened to the serious doubts raised in Committee, he will not be listening to the arguments now. He will not be accommodating himself to the views of the House and his party but will be steamrolling the clause through with the backing of the Government's majority. That is wrong.It is important that the Labour party emphasises its opposition to the nature of this proposal. If the Minister perseveres with it, we shall vote against the new clause. I hope that he will make some accommodation to the doubts that have been expressed. We are talking about a substantial change in the nature of building societies for which no good reason has been given. I do not see pressure from the building societies for this. I know that some would like to spread out into the financial services sector, but they wish to do so always on the basis of the organisation and principle from which they sprang, the good, sound and extremely important basis of mutual principles. That differentiates them from other predatory financial institutions which are much more the embodiment of organised greed. Why are the Government allowing this important principle to be undermined? The Minister has given no adequate reason for taking an axe to the whole trunk of the building society movement. That movement involves people who have a habit of thinking in terms of their building society and feeling some participation in it, even if they do not attend meetings and take but little interest. That is important to maintain because it conditions the thinking of the people who run the building societies. We should not like to see their transformation into just another predatory financial institution, working for their own interests and those of organised greed. In Committee, we argued about whether building societies were Socialism in action or capitalism in action at the level of the ordinary man. The mutual principle means that they are at the level of ordinary man, and we want to keep them there and keep their unique nature. That is a strong reason for voting against the new clause.
I am disturbed by what I have heard in the debate. I did not serve on the Committee and I came into the Chamber to listen to the debate and speak later. However, I now have some questions to ask my hon. Friend the Economic Secretary to which I would like a reply.Can my hon. Friend give reasons for the policy contained in this new clause? Is it a fact that building societies, on conversion, can he taken over not only by banks and other companies in the United Kingdom but by banks in other countries? If that is so, would we not possibly face, in some years' time, the situation in which the major building societies were owned by a number of dominant banking groups, and the ownership of the societies, taken together with the business that such companies already transact in the market, might produce an even more dominant position? I am concerned about the possibility that our building societies might be owned by consortia of American or Community banks. The unique feel that the building societies have for most people might then be diminished. What are the reasons for that policy? I was not aware of its inclusion in the Bill when it was originally published, and so I am rather surprised to find ourselves debating it now. I should also like my hon. Friend to comment on the approval that needs to be given for such transfer by the members. As I understand it, the conversion requires a 20 per cent. vote of which 15 per cent. must be in the affirmative. In many cases, borrowing members of building societies will take the lead from the chairman of that society and from others who recommend a particular course of action. Many of them will cast their votes in accordance with advice, while others will take advice from their professional advisers, whether banks, solicitors, accountants or whoever may advise them. Is my hon. Friend satisfied that, in the event of such a major step being contemplated by a society, the ordinary members of the building societies who not only support them with their savings but depend upon them for their mortgages will be fully informed and able to play an active role in making decisions of this magnitude?
I begin by saying in self-defence to the hon. Member for Glasgow, Maryhill (Mr. Craigen) that it seemed to me proper to introduce the new clause briefly so that the House could have an opportunity to debate it properly before I attempted to respond to the questions. I am not sure whether he would have been any happier if I had tried to respond to the questions before hon. Members had had a chance to put them. However, my attempt at courtesy to the House has been misunderstood, so I hope that it will accept that that is what I had in mind.My hon. Friend the Member for Uxbridge (Mr. Shersby) said that he had recently come into the Chamber and was disturbed by what he had heard. He has every right to be disturbed because the case has been overstated. I recognise the anxieties that have been expressed on both sides of the House, as I recognised them in Committee. The Government have been mindful of the controversial nature of conversion, not only back to the original introduction of the Bill, when we published the discussion document about these proposals, but back to the earlier Green Paper and the earlier stages of the discussion, We need to measure the likely developments of the building society movement against the actual impact of the proposals that are included in the new clauses. I thought that the right hon. Member for Halton (Mr. Oakes) was fair minded when he said that in practice these would be difficult criteria to meet. One has to accept that the whole debate should be in the context of the fact that these proposals are not meant to be an easy option. They are not proposals that can be lightly nodded through by a few members without the general support of the membership of the societies. However, I must put the right hon. Gentleman right about one point. The hon. Member for Glasgow, Maryhill (Mr. Craigen) raised the same point. They said that nobody wants these proposals, that they have been cooked up by the Treasury and that the Government do not have many supporters for them. These proposals were first put forward by the Building Societies Association, of which the right hon. Member for Halton is a distinguished vice-president, in its 1983 discussion paper. In its brief for the Report stage of the Bill, the Building Societies Association says:
That is probably a fair and balanced assessment of what is likely to happen. The Government's proposals——"The Association considers that it is necessary to have a procedure by which a building society can convert to another corporate form with the agreement of its members, although it doubts whether many societies will wish to consider this option."
Will the Minister give way?
In a moment, when I have finished my sentence.The Government's proposals have been designed to strike exactly this balance between not making this process impossible and at the same time imposing quite significant requirements. In her opening remarks the hon. Lady was good enough to say that she accepted the fact that I had been under some pressure to make the requirements less stringent but that I had resisted that pressure.
The Minister referred to the BSA report. I think I am correct in saying that in mentioning the 1983 report the Minister was referring to the extremely ambitious Spalding report, which was much modified in later reports by the BSA as to how it viewed the future. The Spalding report was over-ambitious and was very much watered down in later BSA reports. Therefore, it is not fair to take the BSA's Spalding report as a guide. To my knowledge, it has been primarily the Abbey National building society that has favoured conversion status. Belatedly, possibly feeling that it must follow in the footsteps of the Abbey National building society, the Halifax building society has come round that point of view.
I do not want to spend too long on the history of this matter. However, I have been told that it was dreamt up by the Treasury. I have pointed out that it has a longer history and that originally this idea was initiated by the Building Societies Association. I accept the hon. Lady's point that in its latest form the association is not quite so enthusiastic about the idea as it was originally, but that does not mean that the BSA believes that this route should not be open at all. I find myself very much in agreement with the Building Societies Association about this.I do not think that our proposals are likely to lead to any great rush to conversion. Indeed, I should not have wanted them to be formulated in the way in which they are formulated if that had been the likely consequence. However, I agree with the right hon. Member for Halton and with the Building Societies Association in its note to hon. Members that this is not an option that many societies will want to consider. In some quarters I have been strongly criticised for making the requirements far too difficult. In other quarters I have been criticised for apparently making it possible for a mad rush to take place by the whole of the building society movement towards conversion. My view is that the truth, as is so often the case, lies in between the two, and that the proposals that we have put forward are realistic. They are not permissive, in the sense that they make it easy for members of building societies to take the decision to convert. At the same time, they are not unattainable. The hon. Member for Thurrock (Dr. McDonald) suggested that I might have some prejudice against mutual status. That is certainly not the case. The hon. Member for Maryhill asked how these proposals would strengthen the building society movement. I have the same respect for the building society movement as he has. I appreciate the qualities of loyalty and the traditions that have given the building society movement its strength. I do not wish to dismantle all that. Certainly I do not want an Act that I have taken through this House to be on the statute book which would lead to such a consequence. There are many provisions in the Bill which strengthen the concept of mutuality. I do not intend to rehearse them now, but they give members a greater opportunity to take part in the affairs of building societies. They also give members better opportunities to vote on issues than they have ever had under the existing legislation. Therefore, I do not think that I can fairly be accused of doing anything to dismantle the mutual principle. Indeed, I hope that we have given it a new strength and a new lease of life.
I still do not follow the argument on the central point of why the mutuality principle should be weakened in any way. We are sending this pristine maiden, the building societies, out into the financial jungle where dangers abound and rapists throng. Why, in any sense, loosen the lock on the chastity belt?
I think that I ought to resist following too far the imagery that the hon. Gentleman has conjured up, particularly in view of the nature of the bidder for Wedgwood, and various other matters that have been brought into the debate.However, let me reflect for a moment on the point that the hon. Gentleman has raised, because it is important. We have had to face a problem in trying to legislate for the building society movement. I am sure that it is necessary at this stage to have a single legislative framework for building societies. Building societies can be very large, national institutions, or they can be small local or regional societies. Their needs are diverging. If the option of conversion under certain circumstances had not been available, it would probably have been necessary to draft a Bill that went wider as to the business that can be conducted by building societies as mutual institutions in order to take account of the realities of the situation and of the way in which the financial markets are developing. The building societies must continue to compete in that market. It is no good saying, on grounds of sentimentality, or whatever it may be, that all building societies have been lovely in the form in which they have existed for more than 100 years and that we want them to stay that way, regardless of whether they will be able to attract the necessary funds for future mortgage lending if they stay exactly as they have been for all that time. We came to the conclusion that it would be right to allow a degree of flexibility within the Bill so that further stages of relaxation and gradual evolution could be permitted over the years and that it would also be right to allow the small and very limited number of societies that might feel they are too much constrained by the legislation —perhaps because they need further capital to compete on the scale on which they are conducting their business — to convert themselves into limited companies and therefore to be able to step outside the framework of building society legislation. That enables us to maintain one regime for all societies. It is a better solution than either constricting societies too much or widening the provisions of the Bill in such a way that many other societies that do not want to convert might then lose their identity and change their nature very much more rapidly than any right hon. or hon. Member would like them to do.
What my hon. Friend has just said does not put my mind at rest. I have listened very carefully to what he said. He says that he respects, but does not believe that he can be persuaded by, the views expressed by hon. Members and me on this aspect, because the Building Societies Association says that if this new clause is carried tonight it will relate only to one or two societies. I do not believe that to be a particularly valid argument. It was Adam who is reputed to have said to Eve, "You know, my dear, we are living in changing times." What may be true today may not be true this time next month. The permission that the House might give to the building societies industry if it passes this new clause this evening is not simply, as I understand it. to allow building societies to change from being mutual societies to public liability companies. That I can live with. I can understand why building societies might wish to do that for the reasons that my hon. Friend has just given. It will enable them to raise capital and meet much more easily the requirements of those who want to buy houses. I stand corrected if my hon. Friend can persuade me, but I believe that the clause goes much further. It will enable building societies, having become plcs, then to become subsidiaries of multinational conglomerates whose prime function may have nothing whatever to do with the provision of——
Order. This is a Report stage. The hon. Gentleman is intervening to ask a question, not to make a further speech.
I am grateful for that, Mr. Speaker. I was trying to establish whether my hon. Friend had understood the fears and concerns that I expressed earlier. I am seeking clarification and comfort from my hon. Friend on behalf of borrowers and lenders of the Staffordshire building society in my constituency. It just so happens that my constituency chairman is also chairman of the Staffordshire building society. It might find, having been taken over by the London Rubber Company—which also wishes to take over Wedgwood in my constituency —that it is forced into liquidation because the market for rubber gloves in America——
Order. We must get back to the clause. If the hon. Gentleman asks a question, no doubt the Minister will answer it and then we must get on.
My question to my hon. Friend is: what protection will lenders and borrowers of building societies in the United Kingdom have in the event of the clause going through because it will enable building societies, having been converted to plcs, to become subsidiaries of multinational companies, leaving that borrowers' and lenders' link inextricably ruined?
I wonder whether my hon. Friend will permit me to intervene in his speech. I was trying to be accommodating to the House in responding to the point made by the hon. Member for Great Grimsby (Mr. Mitchell). I said at the beginning that I would try to respond to the points raised in the debate. Most, in fact all, of the points raised by my hon. Friend the Member for Mid-Staffordshire (Mr. Heddle) have already been made in the debate and, therefore, I shall deal with them. However, I must continue my speech in order to do so.I was talking about the general question. Although I have not satisfied the hon. Member for Great Grimsby, it is important that building societies should be enabled to respond to changing circumstances. The option of conversion should be open to them provided that the necessary safeguards exist. I now come to the next general point which was raised in the debate and which my hon. Friend the Member for Mid-Staffordshire has now underlined, and that is the terms on which building societies could convert to companies and the safeguards and requirements for support from members to enable them to do so. As my hon. Friend the Member for Uxbridge (Mr. Shersby) reminded the House, it is necessary in order to pass the resolution for conversion that 75 per cent. of those investing members of a society who vote should vote in favour of it. That is a prime requirement. It is also a prime requirement that more than 50 per cent. of borrowing members should also support such a resolution. That is an innovation in this legislation. Borrowing members have never before had significant rights in building societies, certainly not statutory rights which must apply to all societies. We have carefully introduced this because we think that it is important when considering the possibility of changing the nature of a society from mutual status to incorporation that the borrowers should be happy with what is proposed. In many ways they are much more locked into the society than investing members. That provision has been generally welcomed. In addition to that, we have a requirement that at least 20 per cent. of the members should vote and take part. The reason for that is that we do not believe that a significant change of the kind that is involved in moving from mutual status to a company should be taken without the active participation of a considerable proportion of members. There has been a lot of dispute about the 20 per cent. As the hon. Member for Thurrock reminded the House, there has been considerable pressure from certain quarters to reduce that figure because it has been described as an impossible hurdle. One should not necessarily go on the basis of experience. I hope that under the provisions of the Bill when enacted building societies will be encouraged to communicate much more frequently with their members. The relationship between the societies and their members will be strengthened by the very fact that societies will be able to offer more services and it will therefore be in their own commercial interests to communicate with members. That is one of the fundamental purposes of the Bill. The climate in which building societies encourage members to take a greater interest in their affairs means that the threshold of 20 per cent. should be at a level which is higher than that which has been generally achieved in certain merger resolutions in the past. The cultural change which will follow from the implementation of the Act w ill move in that direction and therefore it is right that the hurdle should be at a level that is not prohibitive but certainly demanding.
Will my hon. Friend explain the apparent inconsistency in his argument? On the one hand he is putting forward the argument that this fundamental change is desirable and on the other hand he is going on to explain how difficult it will be to bring about that so-called desirable change. If he believes that this is so desirable, surely he should be making it easier. If, on the other hand, he is seeking to make it difficult, why is he introducing it at all?
With great respect, my hon. Friend is putting words into my mouth. I never said that the change itself was desirable. I said it was desirable that there should be an option for that change to take place if members of a particular society wished it to happen. That is a different matter. The level of approval should not be prohibitive and I do not believe that the level of 20 per cent. is prohibitive. Equally, the possibility should not be excluded, and in that I agree with the Building Societies Association.I must deal briefly with the question of takeover by public companies. That matter has caused a good deal of concern on both sides of the House.
What sort of criteria does the Minister have in mind for a future Government, in co-operation with the commission, varying that 20 per cent. to possibly a much lower figure by negative resolution of either House, which would seriously undermine what we are talking about today?
I can speak only for myself. We have no expectation of altering that figure. I have been under some pressure to say that we would do so and to list the terms and conditions which would encourage us to do so. I do not want anyone, inside or outside the House, to get the impression that that figure is just a cockshy which we expect to change in a few months' time. It is not that at all. We believe that that is the right figure. If in the fullness of time the figure appeared to be wrong, it could be changed, but I do not think that the only factor to take into account would be the percentages achieved in particular cases. In addition to that, we would have to take into consideration the development of the building society movement and whether we wanted to change and make easier this particular form of conversion. As I say, in the foreseeable future we have no intention of doing that.6.30 pm Some rather worrying comments have been made by a number of hon. Members about takeovers. They have said that there might be takeovers by unsuitable bodies such as large foreign banks. I draw their attention to the practical provisions that are set out in the clauses and the demanding nature of the figures which are included in them. If there were to be a takeover by a limited company, 50 per cent. of members of a society would be required to vote in favour and not 75 per cent. of members with a threshold of 20 per cent. If I am told that 20 per cent. is unobtainable by those in some quarters, 50 per cent. would be a much more difficult hurdle to surmount. As an alternative, a takeover would have to be approved by the holders of 90 per cent. of the shares of a society, which again is an extremely high figure. It is the same figure as is required to trigger the special resolution procedure for the acquisition of an outstanding minority in the Companies Act in a takeover. As there are so many more shareholders in a building society than in a limited company, the percentage is very much more difficult to meet. As the Government share the anxieties that have been expressed by some hon. Members and those of the building society movement that predators could move in on them, we have provided that takeovers may take place only in extreme circumstances where the overwhelming body of the members of a society want it to happen, and in practical terms I cannot see any likely prospect of that happening for a long time. Meanwhile, there will be a 15 per cent. minimum on any shareholding for the first five years of a building society's existence as a public company. Taken together, I think that the proposals strike the right balance. The fact that the Government have been criticised from opposite directions for the measures that we are bringing forward reassures me that we have taken into account all the conflicting views which have been expressed on this difficult and contentious issue. Accordingly, I commend the clause to the House.
I listened carefully to the Minister's reply and he revealed even more greatly his uncertainties about the measure that he is proposing. It has been rightly said by a Conservative Member that, on the one hand, the Minister is committed to allowing this process of change to take place while, on the other, he is uncertain about its usefulness and rightness and is trying to put as many obstacles in its way as possible. I hope that the House will put a proper obstacle in the way of conversion to plc status because the Opposition intend to vote against all the new clauses that will allow that process to take place.
I remind my hon. Friend the Minister that, on behalf of a number of building societies, I asked whether he would explain the meaning of subsection (4) of new clause 19. When can bribes be paid to people to vote for conversion? Can a bribe be paid only to those with less than £100 in a society? Can it be paid only to those who have been in the society for more than two years? Before we vote on the new clause, we should understand what lies behind it.When the hon. Member for Thurrock (Dr. McDonald) said that the new clause had been bounced in by the Treasury, I did not think that she was referring to conversion, which has been mentioned at times with support by the BSA. Who asked whether a company should be allowed to buy a building society which is mutual? The issue did not come before those who considered the Bill in Committee. That is the answer to those who say that it is a pity they were not members of the Committee. We are faced with a new clause on Report. In Committee, we understood that companies did not have the ability to buy building societies that had not converted. The position in Committee was that once conversion had taken place there could be a takeover. That was because the society had plc status. The position now is that a company can take over a building society, even if it has not converted.
I apologise to my hon. Friend for not responding to his question on new clause 19. I had intended to do so, but I was somewhat diverted by those of my hon. Friends who intervened in my reply. I shall write to the building societies, the BSA and to my hon. Friend on that issue. His other question was fully explained in the consultation document that we put forward in December.
Question put, That the clause be read a Second time: ——
The House divided: Ayes 229, Noes 148.
Division No. 203]
|Amess, David||Cash, William|
|Ancram, Michael||Channon, Rt Hon Paul|
|Ashby, David||Chope, Christopher|
|Aspinwall, Jack||Churchill, W. S.|
|Atkins, Rt Hon Sir H.||Clark, Hon A. (Plym'th S'n)|
|Atkins, Robert (South Ribble)||Clark, Sir W. (Croydon S)|
|Atkinson, David (B'm'th E)||Clegg, Sir Walter|
|Baker, Rt Hon K. (Mole Vall'y)||Conway, Derek|
|Banks, Robert (Harrogate)||Coombs, Simon|
|Batiste, Spencer||Cope, John|
|Beaumont-Dark, Anthony||Couchman, James|
|Best, Keith||Cranborne, Viscount|
|Bevan, David Gilroy||Currie, Mrs Edwina|
|Biffen, Rt Hon John||Dorrell, Stephen|
|Boscawen, Hon Robert||Douglas-Hamilton, Lord J.|
|Bottomley, Mrs Virginia||Dunn, Robert|
|Bowden, Gerald (Dulwich)||Durant, Tony|
|Brandon-Bravo, Martin||Eggar, Tim|
|Bright, Graham||Eyre, Sir Reginald|
|Brinton, Tim||Fallon, Michael|
|Brittan, Rt Hon Leon||Farr, Sir John|
|Brown, M. (Brigg & Cl'thpes)||Favell, Anthony|
|Bruinvels, Peter||Fenner, Mrs Peggy|
|Bryan, Sir Paul||Fletcher, Alexander|
|Buck, Sir Antony||Fookes, Miss Janet|
|Carlisle, John (Luton N)||Forsyth, Michael (Stirling)|
|Carlisle, Rt Hon M. (W'ton S)||Forth, Eric|
|Fowler, Rt Hon Norman||Major, John|
|Fox, Marcus||Malins, Humfrey|
|Franks, Cecil||Malone, Gerald|
|Fraser, Peter (Angus East)||Maples, John|
|Freeman, Roger||Marlow, Antony|
|Fry, Peter||Mates, Michael|
|Gale, Roger||Mather, Carol|
|Galley, Roy||Maxwell-Hyslop, Robin|
|Garel-Jones, Tristan||Mayhew, Sir Patrick|
|Goodlad, Alastair||Mellor, David|
|Gower, Sir Raymond||Merchant, Piers|
|Greenway, Harry||Meyer, Sir Anthony|
|Gregory, Conal||Miller, Hal (B'grove)|
|Griffiths, Sir Eldon||Mills, lain (Meriden)|
|Griffiths, Peter (Portsm'th N)||Mills, Sir Peter (West Devon)|
|Ground, Patrick||Mitchell, David (Hants NW)|
|Grylls, Michael||Moore, Rt Hon John|
|Gummer, Rt Hon John S||Morrison, Hon P. (Chester)|
|Hamilton, Neil (Tatton)||Moynihan, Hon C.|
|Hanley, Jeremy||Neale, Gerrard|
|Hannam, John||Needham, Richard|
|Hargreaves, Kenneth||Newton, Tony|
|Harris, David||Norris, Steven|
|Haselhurst. Alan||Onslow, Cranley|
|Hawksley, Warren||Page, Richard (Herts SW)|
|Hayes, J.||Patten, Christopher (Bath)|
|Hayhoe, Rt Hon Barney||Pawsey, James|
|Hayward, Robert||Peacock, Mrs Elizabeth|
|Heathcoat-Amory, David||Pollock, Alexander|
|Henderson, Barry||Porter, Barry|
|Hickmet, Richard||Portillo, Michael|
|Hicks, Robert||Powell, William (Corby)|
|Higgins, Rt Hon Terence L.||Powley, John|
|Hogg, Hon Douglas (Gr'th'm)||Prentice, Rt Hon Reg|
|Holland, Sir Philip (Gedling)||Price, Sir David|
|Howard, Michael||Proctor, K. Harvey|
|Howarth, Gerald (Cannock)||Raison, Rt Hon Timothy|
|Howell, Ralph (Norfolk, N)||Rathbone, Tim|
|Hubbard-Miles, Peter||Renton, Tim|
|Hunt, David (Wirral W)||Rhodes James, Robert|
|Hunt, John (Ravensbourne)||Rhys Williams, Sir Brandon|
|Hunter, Andrew||Ridsdale, Sir Julian|
|Irving, Charles||Rifkind, Rt Hon Malcolm|
|Jackson, Robert||Roberts, Wyn (Conwy)|
|Jenkin, Rt Hon Patrick||Robinson, P. (Belfast E)|
|Johnson Smith, Sir Geoffrey||Rumbold, Mrs Angela|
|Jones, Gwilym (Cardiff N)||Ryder, Richard|
|Jones, Robert (Herts W)||Sackville, Hon Thomas|
|Joseph, Rt Hon Sir Keith||Sayeed, Jonathan|
|Kellett-Bowman, Mrs Elaine||Shaw, Sir Michael (Scarb')|
|Kershaw, Sir Anthony||Shelton, William (Streatham)|
|Key, Robert||Shersby, Michael|
|King, Roger (B'ham N'field)||Silvester, Fred|
|Knight, Greg (Derby N)||Sims, Roger|
|Knowles, Michael||Skeet, Sir Trevor|
|Knox, David||Smith, Tim (Beaconsfield)|
|Lang, Ian||Soames, Hon Nicholas|
|Latham, Michael||Spencer, Derek|
|Lawler, Geoffrey||Spicer, Jim (Dorset W)|
|Lawrence, Ivan||Stanbrook, Ivor|
|Lee, John (Pendle)||Steen, Anthony|
|Leigh, Edward (Gainsbor'gh)||Stern, Michael|
|Lennox-Boyd, Hon Mark||Stevens, Lewis (Nuneaton)|
|Lester, Jim||Stewart, Andrew (Sherwood)|
|Lewis, Sir Kenneth (Stamf'd)||Stewart, Ian (Hertf'dshire N)|
|Lilley, Peter||Stradling Thomas, Sir John|
|Lloyd, Peter (Fareham)||Sumberg, David|
|Lord, Michael||Taylor, Teddy (S'end E)|
|Luce, Rt Hon Richard||Temple-Morris, Peter|
|Lyell, Nicholas||Thomas, Rt Hon Peter|
|McCrindle, Robert||Thompson, Donald (Calder V)|
|McCurley, Mrs Anna||Thompson, Patrick (N'ich N)|
|MacGregor, Rt Hon John||Thornton, Malcolm|
|MacKay, Andrew (Berkshire)||Thurnham, Peter|
|MacKay, John (Argyll & Bute)||Townend, John (Bridlington)|
|Maclean, David John||Trippier, David|
|McLoughlin, Patrick||Twinn, Dr Ian|
|McNair-Wilson, M. (N'bury)||van Straubenzee, Sir W.|
|McNair-Wilson, P, (New F'st)||Viggers, Peter|
|McQuarrie, Albert||Wakeham, Rt Hon John|
|Wall, Sir Patrick||Wolfson, Mark|
|Waller, Gary||Wood, Timothy|
|Wardle, C. (Bexhill)||Woodcock, Michael|
|Watts, John||Yeo, Tim|
|Wells, Bowen (Hertford)||Young, Sir George (Acton)|
|Wells, Sir John (Maidstone)|
|Wheeler, John||Tellers for the Ayes:|
|Whitfield, John||Mr. Tim Sainsbury and|
|Winterton, Mrs Ann||Mr. Francis Maude.|
|Abse, Leo||Hogg, N. (C'nauld & Kilsyth)|
|Adams, Allen (Paisley N)||Holland, Stuart (Vauxhall)|
|Alton, David||Home Robertson, John|
|Anderson, Donald||Howells, Geraint|
|Archer, Rt Hon Peter||Hoyle, Douglas|
|Ashton, Joe||Hughes, Roy (Newport East)|
|Atkinson, N. (Tottenham)||Hughes, Simon (Southward)|
|Bagier, Gordon A. T.||John, Brynmor|
|Barron, Kevin||Jones, Barry (Alyn & Deeside)|
|Beckett, Mrs Margaret||Kaufman, Rt Hon Gerald|
|Beith, A. J.||Kennedy, Charles|
|Benn, Rt Hon Tony||Kinnock, Rt Hon Neil|
|Bennett, A. (Dent'n & Red'sh)||Kirkwood, Archy|
|Bermingham, Gerald||Leighton, Ronald|
|Boyes, Roland||Lewis, Ron (Carlisle)|
|Brown, Hugh D. (Provan)||Lewis, Terence (Worsley)|
|Bruce, Malcolm||Litherland, Robert|
|Buchan, Norman||Livsey, Richard|
|Caborn, Richard||Lloyd, Tony (Stretford)|
|Callaghan, Rt Hon J.||McCartney, Hugh|
|Callaghan, Jim (Heyw'd & M)||McDonald, Dr Oonagh|
|Campbell, Ian||McKay, Allen (Penistone)|
|Campbell-Savours, Dale||McKelvey, William|
|Canavan, Dennis||McNamara, Kevin|
|Carlile, Alexander (Montg'y)||Marek, Dr John|
|Clay, Robert||Marshall, David (Shettleston)|
|Clelland, David Gordon||Martin, Michael|
|Clwyd, Mrs Ann||Mason, Rt Hon Roy|
|Cohen, Harry||Maxton, John|
|Cook, Frank (Stockton North)||Maynard, Miss Joan|
|Cook, Robin F. (Livingston)||Meadowcroft, Michael|
|Corbett, Robin||Michie, William|
|Corbyn, Jeremy||Mikardo, Ian|
|Craigen, J. M.||Mitchell, Austin (G't Grimsby)|
|Dalyell, Tarn||Morris, Rt Hon J. (Aberavon)|
|Davies, Rt Hon Denzil (L'lli)||Oakes, Rt Hon Gordon|
|Davies, Ronald (Caerphilly)||O'Brien, William|
|Davis, Terry (B'ham, H'ge H'l)||Orme, Rt Hon Stanley|
|Deakins, Eric||Park, George|
|Dewar, Donald||Patchett, Terry|
|Dixon, Donald||Pendry, Tom|
|Dormand, Jack||Penhaligon, David|
|Douglas, Dick||Pike, Peter|
|Dubs, Alfred||Radice, Giles|
|Dunwoody, Hon Mrs G.||Randall, Stuart|
|Eadie, Alex||Raynsford, Nick|
|Eastham, Ken||Redmond, Martin|
|Evans, John (St. Helens N)||Rees, Rt Hon M. (Leeds S)|
|Ewing, Harry||Richardson, Ms Jo|
|Fatchett, Derek||Roberts, Ernest (Hackney N)|
|Faulds, Andrew||Robinson, G. (Coventry NW)|
|Field, Frank (Birkenhead)||Rogers, Allan|
|Fields, T. (L'pool Broad Gn)||Ross, Stephen (Isle of Wight)|
|Fisher, Mark||Rowlands, Ted|
|Flannery, Martin||Sheldon, Rt Hon R.|
|Foot, Rt Hon Michael||Shields, Mrs Elizabeth|
|Foster, Derek||Shore, Rt Hon Peter|
|Foulkes, George||Short, Ms Clare (Ladywood)|
|Freud, Clement||Skinner, Dennis|
|George, Bruce||Smith, Rt Hon J. (M'ds E)|
|Gilbert, Rt Hon Dr John||Snape, Peter|
|Godman, Dr Norman||Spearing, Nigel|
|Hamilton, W. W. (Fife Central)||Steel, Rt Hon David|
|Hancock, Michael||Stewart, Rt Hon D. (W Isles)|
|Harrison, Rt Hon Walter||Stott, Roger|
|Hattersley, Rt Hon Roy||Strang, Gavin|
|Haynes, Frank||Thomas, Dafydd (Merioneth)|
|Heffer, Eric S.||Thompson, J. (Wansbeck)|
|Thorne, Stan (Preston)||Wilson, Gordon|
|Wainwright, R.||Winnick, David|
|Wallace, James||Wrigglesworth, Ian|
|Wardell, Gareth (Gower)||Young, David (Bolton SE)|
|Welsh, Michael||Tellers for the Noes:|
|Wigley, Dafydd||Mr. James Hamilton and|
|Williams, Rt Hon A.||Mr. John McWilliam|
Question accordingly agreed to.
Clause read a Second time, and added to the Bill.
New Clause 17
Transfers Of Business: Supplementary Provisions
' . — (1) Part 1 of Schedule (Transfers of business: supplementary provisions) to this Act shall have effect for imposing on a building society proposing to transfer its business to a company an obligation to issue statements to its members relating to the proposed transfer.
(2) Where application is made to the Commission for confirmation of a transfer of business to a company it shall, except as provided in subsections (3) to (5) below, confirm the transfer; and Part II of that Schedule shall have effect with respect to the procedure on an application for such confirmation.
(3) Subject to subsection (4) below, the Commission shall not confirm a transfer of business if it considers that—
(4) The Commission shall not be precluded from confirming a transfer of business by virtue only of the non-fulfilment of some relevant requirement of this Act or the rules of the society if it appears to the Commission that it could not have been material to the members' decision about the transfer and the Commission gives a direction that the failure is to be disregarded for the purposes of this section.
(5) Where the Commission would be precluded from confirming a transfer of business by reason of any of the defects specified in paragraphs (a), (b), (c) and (d) of subsection (3) above, it may direct the society making the transfer—
and, if the Commission is satisfied that the steps have been taken and the defect or defects has or have been substantially remedied, the Commission shall confirm the transfer; but, if it is not so satisfied, it shall refuse its confirmation.
(6) The steps that a society may be required under subsection (5) (a) above to take include the calling of a further meeting, securing the variation of the transfer agreement or securing the alteration of the approved protective provisions of the articles of association of its successor.
(7) A failure to comply with a relevant requirement of this Act or the rules of a building society shall not invalidate a transfer of the business of the society; but, if a society fails without reasonable excuse to comply with such a requirement, the society shall be liable on summary conviction to a fine not exceeding level 4 on the standard scale and so shall any officer who is also guilty of the offence.
(8) In this section "relevant requirement", with reference to this Act or the rules of a society, means a requirement of the applicable provisions of this Act or of any rules prescribing the procedure to be followed by the society in approving the transfer and its terms.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 18
Regulated Terms: Compensation For Loss Of Office, Etc
'(1) Subject to subsections (2) and (3) below, the terms of a transfer of business by a building society to the company which is to be its successor may include provision for compensation to be paid by the society or the company to or in respect of any director or other officer of the society for loss of office or diminution of emoluments attributable to the transfer.
(2) Any such provision must be authorised so far as the society is concerned as follows, that is to say—
(3) The Commission, with the consent of the Treasury, may by regulations authorise payments of compensation to directors or other officers attributable to transfers of business under section (Transfer of business to commercial company) subject to limits specified in or determinable under the regulations and the regulations may make different provision for different classes of person.
(4) Nothing in subsections (2) or (3) above prevents a director or other officer from receiving payments which, in the aggregate, exceed any limit applicable to him under either of those subsections if the excess payment is included in provision approved as required by subsection (2) (a) above; but if any payment is received which has not been authorised under paragraph (a) or (b) of that subsection it shall be repaid.
(5) The power to make regulations under subsection (3) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(6) In this section—
"compensation" includes the provision of benefits in kind;
"loss of office" includes, in relation to a director or other officer of a building society holding office in a subsidiary of that society or in an associated body by virtue of his position in that society, the loss of that office; and
"prescribed", with reference to limits on compensation, means prescribed by regulations under subsection (3) above;
and any terms of a transfer of business to which subsection (2) or regulations under subsection (3) above apply are regulated terms for the purposes of section (Transfer of business to commercial company).'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 19
Regulated Terms Etc: Distributions And Share Rights
'(1) Subject to subsections (2) to (8) below, the terms of a transfer of business by a building society to the company which is to be its successor may include provision for part of the funds of the society or its successor to be distributed among, or other rights in relation to shares in the successor conferred on, members of the society, in consideration of the transfer.
(2) The terms of a transfer of a society's business must—
(3) For the purposes of the liabilities assumed under subsection (2) (a) above by the society's successor, a member is a qualifying member if he held shares in the society on the day immediately preceding the vesting date and his qualifying shares are those held by him on that day.
(4) For the purposes of the rights conferred under subsection (2) (b) above on members of the society, a member is a qualifying member if he held shares in the society on the qualifying day and was not eligible to vote on the requisite transfer resolution, his qualifying shares are those held by him on that day and the relevant proportion is the proportion which (as shown in the latest balance sheet of the society) the society's total liability to its members in respect of shares bears to its reserves.
(5) For the purposes of the rights conferred under subsection (2) (c) above on former members of the society, a member is a qualifying member if he held shares in the society on the qualifying day, was eligible to vote on the requisite resolution and is a depositor with its successor.
(6) For the purposes of subsection (2) (c) above,—
(7) The Commission may, where it confirms a transfer of a society's business to an existing company, as it thinks fit having regard to what is equitable between the members of the society, direct that no bonus distribution of funds in pursuance of subsection (2) (b) above shall be made or that the amount distributed shall he such lesser amount as it provides for in the direction; and where the Commission gives a direction under this subsection no liability to make such a distribution shall arise or, as the case may be, that liability shall be discharged by payment of the lesser amount.
(8) The following restrictions apply to any distribution of funds, or any conferring of rights in relation to shares, in connection with the transfer of its business from the society to its successor where the successor is a company specially formed by the society, that is to say—
and it is unlawful for any distribution of funds to be made or right in relation to shares conferred in contravention of the provisions of this subsection.
(9) Where the successor is a specially formed company, the terms of the transfer must include provision to secure that the society ceases to hold any shares in the successor by the date on which the society is to dissolve.
(10) Any terms of a transfer of business to which subsection (2), (8) or (9) above apply are regulated terms for the purposes of section (Transfer of business to commercial company).
(11) In subsections (4), (5) and (8) above, "qualifying day" means the day specified in the transfer agreement as the qualifying day for the purposes of this subsection.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 20
Protective Provisions For Specially Formed Successors
'(1) No company specially formed by a building society to be its successor shall, at any time during the protective period,—
if the effect of the offer, the allotment or the registration of the transfer would be that more shares or debentures than the permitted proportion would be held by, or by nominees for, any one person (other than the society).
(2) The articles of association of the company shall include provision such as will secure that the company does not offer the public, allot or register transfers of, shares or debentures in contravention of subsection (1) above and no alteration in those provisions may be made by the company during the protective period.
(3) Any provision (including any altered provision) of the company's articles of association which is to any extent inconsistent with subsection (1) above shall, to that extent, be void; and any allotment or registration of a transfer of shares or debentures in contravention of that subsection shall be void.
(4) The Bank of England, if it considers it desirable in the interests of the depositors and potential depositors of a successor to do so, may direct by notice to the successor that this section shall cease to apply to the successor.
(5) In subsections (1) to (3) above—
"the permitted proportion", in relation to shares in or debentures of the company, is 15 per cent. of, in the case of shares, the company's issued share capital and, in the case of debentures, the total indebtedness of the company on its debentures, as the case may be:
"the protective period" is the period beginning with the date of the company's incorporation and ending five years after the vesting date; and
"transfer", in relation to shares or debentures does not include a transfer to a person to whom the right to any shares or debentures has been transmitted by operation of law;
and any expression used in those subsections and in the Companies Act 1985 or, as regards Northern Ireland, the Companies Act (Northern Ireland) 1960 has the same meaning in those subsections as in that Act.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 21
' .—(1) The Commission, with the consent of the Treasury, may by transfer regulations under this section, make provision regulating transfers of business under section (Transfer of business to commercial company).
(2) Transfer regulations may, in particular—
(3) The power to make transfer regulations is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(4) Any terms of a transfer of business to which transfer regulations apply are regulated terms for the purposes of section (Transfer of business to commercial company).'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 22
Cancellation Of Registration
'(1) Where the central office is satisfied, with respect to a building society—
the central office shall cancel the registration of the society.
(2) Where the central office is satisfied, with respect to a building society—
the central office may cancel the registration of the society.
(3) Without prejudice to subsection (2) above, the central office may, if it thinks fit, cancel the registration of a building society at the request of the society, evidenced in such manner as the central office may direct.
(4) Before cancelling the registration of a building society under subsection (2) above, the central office shall give to the society not less than two months' previous notice, specifying briefly the grounds of the proposed cancellation.
(5) Where the registration of a building society is cancelled under subsection (2) above, the society may appeal to—
and on any such appeal the High Court or the Court of Session, as the case may be, if it thinks just to do so, may set aside the cancellation.
(6) Where the registration of a building society is cancelled under subsection (2) or (3) above, then subject to the right of appeal conferred by subsection (5) above, the society, so far as it continues to exist, shall cease to be a society incorporated under this Act (and accordingly shall cease to be a building society within the meaning of this Act).
(7) Subsection (6) above shall have effect in relation to a building society without prejudice to any liability actually incurred by the society; and any such liability may be enforced against the society as if the cancellation had not take place.
(8) Any cancellation of the registration of a building society under this section shall be effected in writing signed by the central office.
(9) As soon as practicable after the cancellation of the registration of a society under his section the central office shall cause notice thereof to be published in the London Gazette, the Edinburgh Gazette or the Belfast Gazette according to the situation of the society's principal office, and if it thinks fit, in one or more newspapers.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 23
Loans For Mobile Homes (No 2)
' .—(1) Subject to the provisions of this section, a building society may make mobile home loans to individuals, whether or not they are members of the society.
(2) A mobile home loan is a loan secured by a mortgage of a mobile home, with or without other security.
(3) No such loan shall be made unless the building society, when it makes the loan, is satisfied that—
(4) The requirement in subsection (3) (d) above shall be treated as satisfied if the loan is made on terms that the other loan is redeemed or postponed to it.
(5) A building society shall not make a mobile home loan to an individual if the principal exceeds—
and if two or more loans under this section or this section and section 14 are made simultaneously by the society to the same individual they shall be treated for the purposes if this subsection as a single loan of an amount equal to the aggregate of the principal of each of those loans.
(6) The limit on loans to any one individual under this section is £10,000 or such other sum as the Commission may, with the consent of the Treasury, specify by order in a statutory instrument.
(7) Loans under this section constitute class 3 assets for the purposes of the requirements of this Part for the structure of commercial assets and accordingly the aggregate of the amounts outstanding in respect of—
counts in accordance with section 18 towards the limits applicable to class 3 assets under that section.
(8) The power conferred by this section is not available to a building society which does not for the time being have a qualifying asset holding, but the cessation of its availability does not require the disposal of any property or rights.
(9) The power conferred by this section on a building society, if available to it, must in order to be exercisable, be adopted by the society.
(10) An instrument containing an order under subsection (6) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(11) In this section—
"mobile home" has the same meaning as "caravan" in Part I of the Caravan Sites and Control of Development Act 1960;
"prescribed", in relation to descriptions of dependants of borrowers, means such as are for the time being prescribed in an order under section 12(1) as respects class 1 advances; and
"protected site" has the same meaning as in the Mobile Homes Act 1983.'.—[Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 24
Costs, Procedure And Evidence (No 2)
' .—(1) A tribunal may give such directions as it thinks fit for the payment of costs or expenses by any party to the appeal.
(2) On an appeal under section (Rights of appeal) (2) the building society in relation to which the determination was made, or upon which the requirement was imposed, shall be entitled to be heard.
(3) The Treasury may, after consultation with the Council on Tribunals, make regulations with respect to appeals under section (Rights of appeal); and those regulations may in particular make provision—
(4) A person who, having been required in accordance with regulations under this section to attend and give evidence, fails without reasonable excuse to attend or give evidence shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale.
(5) A person who intentionally alters, suppresses, conceals, destroys or refuses to produce any document which he has been required to produce in accordance with regulations under this section, or which he is liable to be so required to produce, shall be liable—
(6) The power to make regulations under this section is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.— [Mr. Ian Stewart.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 25
Limited Power To Anticipate Future Statutory Instrument Powers
'(1) This section has effect as regards any power conferred under ay provision of this Act on building societies or building societies of any description by—
and in this section "the anticipation date" is, in the case of an instrument falling within paragraph (a), the date on which either House approves the draft and, in the case of an instrument falling within paragraph (b), the date on which it was laid before Parliament.
(2) Every building society or, as the case may be, every building society of the description to which the instrument applies, has, as from the anticipation date, power, for the purposes of the power conferred by the instrument, to do such things, subject to subsection (3) below, as are reasonably necessary to enable it—
(3) Subsection (2) (b) above does not authorise a society—
and, in this subsection, "conditional", in relation to contracts with respect to the exercise of a power, means conditional on the power's becoming exercisable by the society.
(4) The power conferred by this paragraph, and activities carried on under it, for the purposes of an adoptable power are not be treated as included in, or in activities comprised in, that adoptable power for the purposes of paragraph 15 of Schedule 2 to this Act.'.— [Mr. Ian Stewart.]
Brought up, and read the First time.
With this it will be convenient to take Government amendments Nos. 383 and 384.
At the risk of tempting providence, I shall say that I hope and believe that this is a less contentious new clause than the one that we have just debated.The new clause and the related amendments are designed to make it clear that building societies are permitted to undertake preparatory work for the implementation of powers proposed under the Bill, since it received its Second Reading, and under subsequent statutory instruments with a comparable but more limited power of anticipation. Because of the way in which the vires of building societies are defined, I am advised that it is necessary to include a specific provision of this sort in the Bill.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 1
'Where a building society has more than fifty employees, one of the directors shall be an employee nominated as a respresentative of employees ("employees" representative) in accordance with the society's rules and to which Section 54 does not apply. The rules of the society may impose conditions for the re-election of the employees representative, reasons for disqualification and requisite nomination procedures. The Commission may make such transitional provisions as it considers expedient.'.— [Mr. Weetch.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.The text and scope of this clause make its aims and intentions clear and straightfoward. I hope that the broad aims of the clause will be supported by the House. The clause makes provision for at least one director on the board of directors to be elected by the employees of a building society, provided that society has more than 50 employees. We are talking about the principle of employee directors. Once that principle is grasped, the rest is administrative apparatus. Thus the new clause makes separate provision for this to be done outside clause 34 which lays down the main framework for elections to boards of directors. I should like to come to the brass tacks of the case. On many occasions hon. Members have paid tribute to the success of building societies in the cause of owner occupation and in terms of service to the public. I am certain that the Opposition will be supported by hon. Members in all parts of the House. A great deal of the success of building societies is due to the dedicated, efficient and conscientious service that their employees give to the public. Such service is to be found from the counter staff to the most senior levels of management. The skills and enormous experience of the people who work for the building societies would be invaluable in making the societies' services more available to the public. These are the people who do the day-to-day work and take the day-to-day decisions. They come face to face with the public every day, and they have a feeling for the local communities that they serve. It would be quite in character for building societies to be warmly receptive to the basic idea of this new clause. Building societies grew up as part of the self-help movement in Britain, and they still adhere to that principle. They are still described as mutual institutions. There was a great deal of reassurance in Committee that the building society movement, although there are changes taking place, still remains firmly part of the mutal framework of Britain. There could be no better demonstration of mutuality than the acceptance of the principle that employees should be elected to and serve the boards of directors of building societies. It has been said that building societies are entering a rougher and more competitive world. That is certainly true. But one thing is even more certain: that when the changes come the employees of building societies will be the first to take the flak. The new clause will enable employees to face those changes with a great deal more confidence. If takeovers occur and if opposed mergers are successful, there will be redundancies and unemployment, and those things will take place in the name of rationalisation. There will be difficulties, but if employees are directly represented on boards of directors they will be more confident in being able to face those problems and protect themselves. The best way to do that is to ensure that they have a say in strategic and policy decisions at director level. I move the new clause with some optimism but rather doubtful experience, because when I moved a similar clause on the Trustee Savings Bank Bill some years ago I lost. I hope for better luck this time. The case for the clause is strong. As I have said, building societies are mutual institutions, and I am seeking to establish a democratic and mutual principle. I have read briefs advancing the argument that there is no demand for employee participation at director level. The argument is that, because there is no demand, we ought not to do anything about it. If everything had to be created by demand, few political speeches would ever be made. The argument about demand is not one that politicians can accept. The idea of employee directors is good in principle, and I hope that the Government will accept it. The Opposition will certainly go into the Lobby in support of the clause because changes of this kind are long overdue, especially in mutual institutions. The staff of building societies have a fundamental interest in the future of their societies, and that should be recognised in the legislation. New clause 1 goes a substantial part of the way towards bringing that about. It is said that if building society employees are elected to boards of directors they will inevitably take a sectional view of the business of building societies. My answer to that is that building society employees, with their record of service to the public, are just as capable as anyone else of taking a broad rather than a sectional view. There is great strength in this clause. I hope that the House will accept it.
I support what has been so ably said by the hon. Member for Ipswich (Mr. Weetch). I am glad that the Government are paying much more attention to worker participation, profit sharing and employee share ownership. Surely the natural response to the new clause should be to accept it and agree that in future building societies should make provision for an employee director where the society directly employs more than 50 people. The arguments for that have already been advanced. We discussed it briefly in Committee, although we did not make much progress. I hope that today this proposal will be accepted, and that some thought has been given to it in the interim.A great change is coming to all building society operations, especially housing financing. Professions, of one of which I am proud to be a member, will have to take a rather different role. Much more commerce will be involved in professions such as chartered surveying and the law. There will be greater competition. Banks and building societies will vie with one another. Building societies can now set up commercial institutions and businesses. I entirely agree with the hon. Member for Ipswich that the employees of building societies, which may get very big—we shall have much bigger ones yet and probably very few of them—should have a firm stake in their company, with a director on the board. I hope that we shall have a positive response to the new clause. The time for such a move has long since passed.
The arguments have been extremely well and ably made by my hon. Friend the Member for Ipswich (Mr. Weetch), who has taken a close and active interest in the Bill and in the principle of worker representation on the board. I remember the discussions on the Trustee Savings Banks Bill, which he mentioned.It is important to put the principle into legislation. It is good to see the Government coming round to accepting some of the principles that we have argued for consistently, such as the ombudsman, which they have now accepted. I hope that this is another. It is right that there should be representation. Employees should have a channel of influence and the feeling of involvement that comes from it. They should be able to influence the organisation their way and advance their views. A legacy such as this has been conferred on much of West German industry, and it has worked extremely well. The form is peculiarly appropriate to building societies. As my hon. Friend the Member for Ipswich said, the new clause would extend the principle of mutuality. There has been a dramatic change in the nature of building societies from the small, intimate, almost paternalistic locally-based organisations at the beginning of the 1960s. There has been an enormous increase in the number of branches, but a rapid shrinkage in the number of building societies. Societies are now much bigger and employ far more people. There are problems of impersonality, remoteness and lack of contact which simply did not exist a couple of decades ago. In view of that change, we should provide the principle of employee representation in legislation. I should like it to be done voluntarily, but that has not happened. As building societies are becoming much larger financial institutions, employing large numbers of people, we should provide, through legislation, a channel which will ultimately be accepted enthusiastically. I hope that the Government will accommodate themselves to the arguments. It would be rather a shame if the Minister merely played a straight bat, which the smile lingering around his face shows he might be intending to play. I hope that he will accept the force of the arguments— building society employees do.
I have quickly removed the smile from my face, as I must advise the House not to accept the new clause. It is not that we have anything against the principle of employee involvement. We favour it and have taken several steps to encourage it, but I see no logic in applying the obligation just to building societies and not to companies and other organisations, and I am not convinced that the best way in which to promote employee involvement is to impose statutory obligations such as are suggested.The hon. Member for Ipswich (Mr. Weetch) rightly said that one of the strengths of the building society movement is its staff. They have strong roots in the local community and are popular. They have achieved that status without the benefit of the new clause. I did not follow the hon. Gentleman's logic which led him to believe that we must now impose a statutory obligation on building societies if that high reputation and commitment are to be maintained. We have heard no explanation of why such a requirement should be put on building societies but not on companies generally. If we make such provision, it should apply equally across the corporate sector. It is illogical to single out the building societies.
The Minister has accepted exactly this principle in regard to the ombudsman. We did not make that clause extend to every other organisation. Why cannot the logic of that principle be applied here?
There are ombudsman arrangements for other services. One of the reasons why we introduced an ombudsman service in the Bill was the feeling on both sides of the Committee that there should be a statutory ombudsman service. Such provision is unnecessary in other sectors, as there is already a voluntary service. If other parts of the private sector want to implement the ombudsman principle, the Government would be delighted and would not stand in the way of that being done. We do not accept, however, that the nature of building societies is so different from the rest of the corporate sector that we must single them out and impose on them a statutory obligation of an employee director.
My hon. Friend knows that I am a vice-president of the Building Societies Association. Can he confirm that there is another matter that ought to be considered? Not everybody accepts that the best way for the interests of employees to be considered is for one of them to be on the hoard of directors. The idea is not accepted unanimously by the trades union movement, for example.
Indeed. As I said earlier, there are two objections. The first is the somewhat narrow one that there is no reason to single out the building societies, and the second, more general one is whether, if one believes in employee involvement—which the Government do— this is the right way in which to proceed. Provisions consolidated in schedule 7 to the Companies Act 1985 require companies with more than 250 employees to report annually on the development of their arrangements for providing regular information to employees, for consulting them and for involving them in the company's affairs. Parallel provisions for building societies could be introduced by the commission's regulation-making powers. I am aware that the present chief registrar, as first commissioner, intends to recommend to the commission that similar provision should be made. Parity of treatment in that way seems entirely desirable.The Government do not believe that imposing statutory obligations on organisations to have employee representatives is the right way forward. As my hon. Friend the Member for Rutland and Melton (Mr. Latham) said, some trade union representatives do not believe that that is the best way in which to proceed. Employees and employers should work out between them arrangements which suit them best. We want to encourage that type of co-operation rather than impose a rigid statutory obligation which may not be appropriate. Building society employees can always put themselves up for election to the board. A retired employee of the Abbey National got himself elected to the society's board at its annual general meeting earlier this year. That is a perfectly legitimate avenue, which is open to building society employees, to secure representation on the board. The policy of encouragement will be applied as much to societies as to companies—the reporting requirement is evidence of that. For the reasons that I have given, the Government cannot support the case for the new clause.
I am completely unconvinced by the Minister's reply. Although I am saddened by his answer, I am not especially surprised by it. We are meeting the same stone wall on the Floor of the House as we met in Committee.The Opposition are not singling out building societies in this respect. By adopting this approach we did not intend to saddle all other corporate organisations with the same obligations. When I put this case, I tried to argue that building societies purport to be mutual institutions and that one of the definitions of a mutual institution is that the affairs of the society are under the control of its members at all times. We believe that new clause 1 is the most effective way to bring that to pass. We hope that the principle of industrial democracy, which we recommend in the clause, will become more widespread as the years pass. We believe that the building societies are a good place in which to make a start to achieve that industrial democracy.
Question put, That the clause be read a Second time:—
Division No. 204]
|Abse, Leo||John, Brynmor|
|Adams, Allen (Paisley N)||Jones, Barry (Alyn & Deeside)|
|Alton, David||Kaufman, Rt Hon Gerald|
|Anderson, Donald||Kirkwood, Archy|
|Archer, Rt Hon Peter||Leighton, Ronald|
|Atkinson, N. (Tottenham)||Lewis, Ron (Carlisle)|
|Bagier, Gordon A. T.||Lewis, Terence (Worsley)|
|Banks, Tony (Newham NW)||Litherland, Robert|
|Barron, Kevin||Livsey, Richard|
|Beckett, Mrs Margaret||Lloyd, Tony (Stretford)|
|Benn, Rt Hon Tony||McCartney, Hugh|
|Bennett, A. (Dent'n & Red'sh)||McDonald, Dr Oonagh|
|Bermingham, Gerald||Maclennan, Robert|
|Boyes, Roland||McNamara, Kevin|
|Brown, Gordon (D'f'mline E)||McWilliam, John|
|Brown, Hugh D. (Provan)||Madden, Max|
|Bruce, Malcolm||Marek, Dr John|
|Buchan, Norman||Marshall, David (Shettleston)|
|Caborn, Richard||Martin, Michael|
|Callaghan, Jim (Heyw'd & M)||Mason, Rt Hon Roy|
|Campbell, Ian||Maynard, Miss Joan|
|Campbell-Savours, Dale||Meadowcroft, Michael|
|Canavan, Dennis||Michie, William|
|Carlile, Alexander (Montg'y)||Mitchell, Austin (G't Grimsby)|
|Clay, Robert||Morris, Rt Hon J. (Aberavon)|
|Clelland, David Gordon||Oakes, Rt Hon Gordon|
|Clwyd, Mrs Ann||O'Brien, William|
|Conlan, Bernard||Orme, Rt Hon Stanley|
|Cook, Frank (Stockton North)||Park, George|
|Cook, Robin F. (Livingston)||Patchett, Terry|
|Corbett, Robin||Pendry, Tom|
|Corbyn, Jeremy||Penhaligon, David|
|Craigen, J. M.||Pike, Peter|
|Dalyell, Tam||Radice, Giles|
|Davies, Ronald (Caerphilly)||Randall, Stuart|
|Davis, Terry (B'ham, H'ge H'l)||Redmond, Martin|
|Deakins, Eric||Rees, Rt Hon M. (Leeds S)|
|Dewar, Donald||Richardson, Ms Jo|
|Dixon, Donald||Roberts, Ernest (Hackney N)|
|Dormand, Jack||Robinson, G. (Coventry NW)|
|Douglas, Dick||Rogers, Allan|
|Dubs, Alfred||Ross, Stephen (Isle of Wight)|
|Dunwoody, Hon Mrs G.||Shields, Mrs Elizabeth|
|Eadie, Alex||Short, Ms Clare (Ladywood)|
|Eastham, Ken||Skinner, Dennis|
|Evans, John (St. Helens N)||Smith, Rt Hon J. (M'ds E)|
|Ewing, Harry||Snape, Peter|
|Fatchett, Derek||Spearing, Nigel|
|Faulds, Andrew||Steel, Rt Hon David|
|Field, Frank (Birkenhead)||Stewart, Rt Hon D. (W Isles)|
|Fields, T. (L'pool Broad Gn)||Stott, Roger|
|Fisher, Mark||Strang, Gavin|
|Flannery, Martin||Thomas, Dafydd (Merioneth)|
|Foot, Rt Hon Michael||Thompson, J. (Wansbeck)|
|Foster, Derek||Thorne, Stan (Preston)|
|Foulkes, George||Tinn, James|
|Freud, Clement||Wainwright, R.|
|George, Bruce||Wallace, James|
|Gilbert, Rt Hon Dr John||Warden, Gareth (Gower)|
|Godman, Dr Norman||Weetch, Ken|
|Hamilton, W. W. (Fife Central)||Welsh, Michael|
|Hancock, Michael||Wigley, Dafydd|
|Harrison, Rt Hon Walter||Wilson, Gordon|
|Haynes, Frank||Wrigglesworth, Ian|
|Hogg, N. (C'nauld & Kilsyth)||Young, David (Bolton SE)|
|Holland, Stuart (Vauxhall)|
|Home Robertson, John||Tellers for the Ayes:|
|Howells, Geraint||Mr. Allen McKay and|
|Hoyle, Douglas||Mr. James Hamilton.|
|Hughes, Roy (Newport East)|
|Ancram, Michael||Hicks, Robert|
|Ashby, David||Hind, Kenneth|
|Aspinwall, Jack||Hogg, Hon Douglas (Gr'th'm)|
|Atkins, Robert (South Ribble)||Holland, Sir Philip (Gedling)|
|Atkinson, David (B'm'th E)||Howard, Michael|
|Baker, Rt Hon K. (Mole Vall'y)||Howarth, Gerald (Cannock)|
|Batiste, Spencer||Howell, Ralph (Norfolk, N)|
|Beaumont-Dark, Anthony||Hubbard-Miles, Peter|
|Best, Keith||Hunt, David (Wirral W)|
|Bevan, David Gilroy||Hunt, John (Ravensbourne)|
|Biffen, Rt Hon John||Irving, Charles|
|Blaker, Rt Hon Sir Peter||Jenkin, Rt Hon Patrick|
|Boscawen, Hon Robert||Johnson Smith, Sir Geoffrey|
|Bottomley, Peter||Jones, Gwilym (Cardiff N)|
|Bottomley, Mrs Virginia||Jones, Robert (Herts W)|
|Bowden, Gerald (Dulwich)||Kellett-Bowman, Mrs Elaine|
|Brandon-Bravo, Martin||Kershaw, Sir Anthony|
|Bright, Graham||Key, Robert|
|Brinton, Tim||King, Roger (B'ham N'field)|
|Brown, M. (Bhgg & Cl'thpes)||Knight, Greg (Derby N)|
|Bruinvels, Peter||Knowles, Michael|
|Bryan, Sir Paul||Knox, David|
|Buck, Sir Antony||Latham, Michael|
|Budgen, Nick||Lawler, Geoffrey|
|Carlisle, Rt Hon M. (W'ton S)||Lee, John (Pendle)|
|Cash, William||Leigh, Edward (Gainsbor'gh)|
|Channon, Rt Hon Paul||Lester, Jim|
|Chope, Christopher||Lewis, Sir Kenneth (Stamf'd)|
|Clark, Hon A. (Plym'th S'n)||Lightbown, David|
|Clark, Sir W. (Croydon S)||Lilley, Peter|
|Clegg, Sir Walter||Lloyd, Peter (Fareham)|
|Conway, Derek||Lord, Michael|
|Coombs, Simon||Lyell, Nicholas|
|Cope, John||McCrindle, Robert|
|Couchman, James||MacGregor, Rt Hon John|
|Cranborne, Viscount||MacKay, Andrew (Berkshire)|
|Currie, Mrs Edwina||Maclean, David John|
|Dorrell, Stephen||McLoughlin, Patrick|
|Douglas-Hamilton, Lord J.||McNair-Wilson, M. (N'bury)|
|Dunn, Robert||McQuarrie, Albert|
|Durant, Tony||Major, John|
|Dykes, Hugh||Malins, Humfrey|
|Eggar, Tim||Malone, Gerald|
|Eyre, Sir Reginald||Marlow, Antony|
|Favell, Anthony||Mates, Michael|
|Fletcher, Alexander||Mather, Carol|
|Fookes, Miss Janet||Maxwell-Hyslop, Robin|
|Forsyth, Michael (Stirling)||Mayhew, Sir Patrick|
|Forth, Eric||Mellor, David|
|Fowler, Rt Hon Norman||Merchant, Piers|
|Fox, Marcus||Meyer, Sir Anthony|
|Franks, Cecil||Miller, Hal (B'grove)|
|Fraser, Peter (Angus East)||Mitchell, David (Hants NW)|
|Freeman, Roger||Moore, Rt Hon John|
|Fry, Peter||Morrison, Hon P. (Chester)|
|Gale, Roger||Moynihan, Hon C.|
|Garel-Jones, Tristan||Neale, Gerrard|
|Gower, Sir Raymond||Newton, Tony|
|Greenway, Harry||Norris, Steven|
|Gregory, Conal||Page, Richard (Herts SW)|
|Griffiths, Sir Eldon||Patten, Christopher (Bath)|
|Griffiths, Peter (Portsm'th N)||Pawsey, James|
|Ground, Patrick||Peacock, Mrs Elizabeth|
|Grylls, Michael||Pollock, Alexander|
|Gummer, Rt Hon John S||Porter, Barry|
|Hamilton, Neil (Tatton)||Portillo, Michael|
|Hanley, Jeremy||Powell, William (Corby)|
|Hannam, John||Powley, John|
|Hargreaves, Kenneth||Prentice, Rt Hon Reg|
|Harris, David||Price, Sir David|
|Haselhurst, Alan||Proctor, K. Harvey|
|Hawkins, C. (High Peak)||Raison, Rt Hon Timothy|
|Hawksley, Warren||Rathbone, Tim|
|Hayes, J.||Renton, Tim|
|Hayward, Robert||Rhodes James, Robert|
|Heathcoat-Amory, David||Rhys Williams, Sir Brandon|
|Heddle, John||Ridsdale, Sir Julian|
|Henderson, Barry||Rifkind, Rt Hon Malcolm|
|Hickmet, Richard||Roberts, Wyn (Conwy)|
|Robinson, Mark (N'port W)||Thornton, Malcolm|
|Ryder, Richard||Thurnham, Peter|
|Sackville, Hon Thomas||Townend, John (Bridlington)|
|Sainsbury, Hon Timothy||Tracey, Richard|
|Sayeed, Jonathan||Trippier, David|
|Shaw, Sir Michael (Scarb')||Twinn, Dr Ian|
|Shelton, William (Streatham)||van Straubenzee, Sir W.|
|Shepherd, Colin (Hereford)||Wakeham, Rt Hon John|
|Shersby, Michael||Wall, Sir Patrick|
|Silvester, Fred||Waller, Gary|
|Sims, Roger||Wardle, C. (Bexhiil)|
|Skeet, Sir Trevor||Watson, John|
|Smith, Tim (Beaconsfield)||Watts, John|
|Spencer, Derek||Wells, Bowen (Hertford)|
|Spicer, Jim (Dorset W)||Wells, Sir John (Maidstone)|
|Stanbrook, Ivor||Wheeler, John|
|Steen, Anthony||Whitfield, John|
|Stern, Michael||Winterton, Nicholas|
|Stevens, Lewis (Nuneaton)||Wolfson, Mark|
|Stewart, Andrew (Sherwood)||Wood, Timothy|
|Stewart, Ian (Hertf'dshire N)||Woodcock, Michael|
|Stradling Thomas, Sir John||Yeo, Tim|
|Sumberg, David||Young, Sir George (Acton)|
|Taylor, Teddy (S'end E)|
|Temple-Morris, Peter||Tellers for the Noes:|
|Thomas, Rt Hon Peter||Mr. Archie Hamilton and|
|Thompson, Donald (Calder V)||Mr. Mark Lennox-Boyd.|
|Thompson, Patrick (N'ich N)|
Question accordingly negatived.
New Clause 2
Code Of Practice
'(1) The Commission shall, after consultation with the Lord Chancellor and the Director-General of Fair Trading, prepare, publish and administer a code of practice with regard to the provision by building societies of conveyancing services.
(2) The code of practice referred to in subsection (1) shall (inter alia) make provision for the manner in which and the standards to which conveyancing services shall be provided by building societies and shall in particular make provision for protecting persons for whom conveyancing services are provided by building societies from conflicts of interest that might otherwise arise in connection with the provision of such services.
(3) Notwithstanding any practice rule made by the Council of the Law Society under section 31 of the Solicitors Act 1974, a building society operating in accordance with the code of practice referred to in subsection (1) above may, subject to such terms and conditions as the Commission may state, provide conveyancing services generally, including the provision of such services to persons to whom advances are made under section 10 of this Act.
(4) A building society not operating in accordance with the code of practice referred to in subsection (1) above may provide conveyancing services, but only to persons other than those to whom advances are made under section 10 of this Act.'.— [Mr. Weetch.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to take Government amendments Nos. 409 to 412.
It is nice to see the Solicitor-General in his place. We have crossed swords on this matter before. There was a cold wind of conflict in Committee, but with the new clause I seek to bring a warm breeze of conciliation in an attempt to find a way through some of the difficulties. I hope that when the Solicitor-General replies in the euphemistic prose of the Law Officers he will express some sympathy for what we have to say.One of the great issues of contention in the Bill has been whether building societies should be able to offer conveyancing services to borrowers. To put it simply, is it safe to obtain a mortgage and a conveyancing service from the same society? The main lines of argument have been debated a number of times both in the Chamber and in Committee. I do not intend to cover the ground in detail again, as the main lines of the disagreement are well marked out. It remains our view that it is in the consumer's interest that building societies should be able to offer conveyancing services to borrowers. That is the principle of the argument and it is supported by the Consumers Association, the National Consumer Council and the Building Societies Association. In a Consumers Association survey in 1984, 81 per cent. of those interviewed said that they would be pleased to have building societies offering conveyancing services. Many thousands of owner-occupiers throughout the country would like to benefit from such services. It is not a matter of whether the Government or the Opposition want it. The consumer wants it. From the point of view of a consumer or free market society, the consumer is king, and if he or she wants the service that should be the deciding argument. I will lay out briefly the basic framework of the case. First, there is considerable consumer demand for such a service. Many owner-occupiers would welcome a conveyancing service as part of a one-stop shopping package for housing services. Secondly, there would be more freedom of choice for the consumer. That argument should appeal directly to the Government. At present, the consumer can choose an independent firm of solicitors. Shortly, he will be able to choose a firm of licensed conveyancers. The choice would be widened considerably if the consumer could use the same people through the medium of his building society. Thirdly, such a change could lead to lower costs. The conveyancing industry in this country has long resembled the putting out system in the 18th century. Year after year, thousands of documents asking ritual questions are shuffled out from small workshops and thousands of other workshops return the same documents with ritual answers. Building societies offer scope for change with economies of scale and a large throughput of conveyances and mortgages with beneficial effects in terms of lower costs. The main argument against the proposition has been that conflicts of interests will arise if the recipients of mortgage finance wish to use building society conveyancing services. I accept entirely that conflicts of interest may arise, but it is a quite different matter to suggest that they cannot be resolved, and we contest that argument at every stage. The new clause seeks to provide yet another guarantee against any possible mal-effects of the very occasional conflicts of interest that may arise. Under clause 33(1) a building society is expressly forbidden to make the use of any conveyancing or other service obligatory because the consumer is in receipt of mortgage finance. Unfair pressure of that kind will be illegal, and the consumer will be totally free to go elsewhere if he or she wishes. That is the ultimate protection in a free market. If one does riot want the service, one goes elsewhere. That-should be good enough for any of us. Moreover, the building societies will largely be using solicitors who have an established code of ethics and professional practice to deal with possible conflicts of interest. We are dealing not with fly-by-nights but with professional people who have accepted practices which are ethical. If conflicts of interests arise, therefore, we look to the professional standards of those involved to find ways out of the difficulty. As I understand it, the Law Officers Department says that that is not the position. We beg to differ and we are putting forward a code of practice as a constructive way out of the difficulty. I point out to the Solicitor-General that in the critical area of the mortgage deed and the terms of finance for the borrower, the same solicitor may already act for the building society and for the borrower in millions of transactions every year, and very few conflicts of interest arise. 7.30 pm At the end of the day it is an argument not about conflicts of interest but about which organisation is to take the biggest share of the conveyancing market when it is opened up to free competition. The legal profession is trying to protect an established service which has always borne heavily on the owner-occupier. To explain the basic principle of the clause, we are bending over backwards to meet every objection from the Lord Chancellor's Department. If the proposed code of practice is not right, we shall invite the Lord Chancellor to frame another. We cannot do more than that. The Solicitor-General may argue that it is impossible to frame any code of practice that would resolve conflicts of interest but we bee to differ. Conflicts of interest can be resolved.
The problem is that there is an inherent conflict of interest if somebody operates for a building society and also for the customer. In the code of practice it would be necessary to say that a solicitor, if he felt that there was a conflict of interest, should refuse to act for both parties. There could be a conflict of interest. Most of us believe that almost all societies are good and fair. But let us suppose that a society put some nasty clauses in its mortgage contract. Would a solicitor tell every customer about that? Would that society employ a solicitor who would tell customers about those nasty clauses? There would need to be a code of practice not for the solicitor but in regard to the mortgage contract. If we could get a sensible mortgage contract which we knew was decent, fair and above board, without onerous resettlement clauses and so on, we could say that that had got rid of the most important conflict of interest because the solicitor would no longer need to comment on the mortgage contract. That is the real conflict. I do not know how the hon. Gentleman's new clause would solve it.
I am grateful for the intervention, because it throws into sharp relief some of the issues that have to be debated. In the latter part of his remarks the hon. Gentleman may have pointed one way forward by proposing certain structural changes. Conflicts of interest do and will arise. Is there a way round them? The main consumer organisations think that there is, and they have put forward suggestions to the Lord Chancellor's Department. Perhaps we shall hear from the Solicitor-General about the to-ing and fro-ing that has been taking place. Consumer organisations and many members of the legal profession are confident that the conflict can be resolved.The new clause provides for discussions with the Lord Chancellor's Department about what should go into the code of practice in an attempt to find a way out of the difficulties. The Solicitor-General should accept that it shall not be illegal for a building society to offer conveyancing services to a recipient of mortgage finance. The number of conflicts of interest will be very small, and it should not be beyond the wit of hon. Members to find a way out of the difficulties. Therefore, the new clause is put forward in the constructive hope that the Government will consider the whole point and say that in principle we are right, but they will think about the detail and bring forward a solution at a later stage.
I speak with a feeling of resignation, because we have been over the ground so many times. The arguments that we have put forward are accurate. I do not want them to be devalued by repetition, but they have to be put forward.In attempting to stop a building society from doing conveyancing for people who are getting a mortgage from it. the Government are betraying the promises that were held out to me. It is being done on a specious pretext, in a strictly dishonourable fashion. That point has to be reiterated because of the way in which the Government have persevered in their position. The Bill allows building societies to provide conveyancing services, but the Lord Chancellor has said that the regulations under which a society will be allowed to do so will be so defined that a society will be able to provide conveyancing services only for the customers of other building societies and not for its own customers. The principle is being conceded, but at the same time the Government are specifying that it will be under rules that will make the practice so unattractive that building societies will not do conveyancing. It is a confidence trick to fulfil the principle in such a fashion. The Government are betraying the promises and pledges given to me by the Solicitor-General and reiterated in the House by the Prime Minister. There is no point in being mealy-mouthed about it. The Solicitor-General promised that building societies would be allowed to do conveyancing for their own customers, not for the customers of other building societies. It was clearly envisaged that that would be part of a comprehensive service provided by building societies. On the basis of those promises, I withdrew my House Buyers Bill early in 1984. It was clear from the Solicitor-General's speech in Committee that the promises were validly made. I do not think that he has been converted to believe that the promises were wrong or that the practice cannot be conceded. He has simply been overruled by the Lord Chancellor. That is a strong argument for getting rid of that medieval anachronism and having a sensible Minister of Justice answerable to the House. The Solicitor-General has been put in a difficult and embarrassing position. I sympathise with him, but at the same time he is betraying the promises that were held out to me. He may have been overruled by the Lord Chancellor and is not being allowed to fulfil those promises, but that was not made clear in Committee. He did not say, "I promise this but, of course, I cannot promise anything because my boss, the Lord Chancellor, can immediately tell me that black is white and I shall come to the House of Commons and say that black is white." Since the Solicitor-General made the promise to me, the Lord Chancellor has begun to use the conflict of interest argument as a way of resiling from the promise. That process is crude. It is clear that it is the Lord Chancellor and not anybody else who is doing this. Ministers in various Departments and former Ministers have said to me privately, "We know that you are right. It will come; do not get over-anxious and push it too far. It's Hailsham. We cannot do anything about it." Clearly the will of one man is being imposed in an area about which he has little background knowledge or information and for which he has no responsibility. He is arguing that customers of building societies should receive independent financial advice. That is a financial matter, not a legal one. At the same time, the Lord Chancellor is betraying the Government's policy on competition. We seek to extend the principle of competition through the new clause by allowing more organisations to compete to serve consumers. I should have thought that the whole Government. apart from the Lord Chancellor, were committed to that principle. That is the position, and it has been brought about by a dirty trick, a betrayal and by dishonourable behaviour by the Lord Chancellor. It is directly in his interests to behave in this fashion. It is possible that the income of solicitors will suffer if they lose conveyancing to building societies, but I do not think that they will. I believe that they will maintain a major share of this expanding and lucrative market. Why should house buyers subsidise the provision of other legal services by solicitors, as they are being asked to do? Secondly, if the income of the profession suffers, it is the Lord Chancellor's responsibility to make it good by improving and extending the legal aid scheme. It is not our responsibility to give solicitors a feather bed to rely on financially to protect their income from competition. The Lord Chancellor's financial interest is that he is responsible for the allocation of legal aid. He is having difficulty in providing legal aid on the level that he would wish because there is a power in the land superior to the Lord Chancellor — the Treasury — which is saying, "Thou shalt not hand out this money."
Is the hon. Gentleman aware that the provision of legal aid is achieved through a Vote which is not cash limited and which has been growing steadily since legal aid was introduced? Surely he is talking, not about the provision of legal aid as such, but about the fees payable to banisters under the scheme?
That is right, and the Lord Chancellor is in hot water with the profession over those fees. It is wrong that that influence on the Lord Chancellor should lead him to say, "I shall protect the legal profession from this competition which might affect its income because I cannot make as full provision as I should under the legal aid scheme." The Lord Chancellor has a conflict of interests which is resolved in favour of his profession— the legal profession. His motivation is extremely doubtful.The conflict of interest argument which has been advanced for not allowing building societies to provide conveyancing services for their customers is spurious. It is only an excuse, and that is widely agreed by most knowledgeable people.
I am a solicitor, and I have listened with interest to what the hon. Gentleman has said about a conflict of interests in the case of a solicitor acting for both a building society and a borrower. Does the hon. Gentleman think it would be a good idea for a solicitor to act for a client who is buying a house and for the builder who is selling the house? A great deal of money would be saved, but the Law Society does not allow that to happen because, in its wisdom, it believes that there will inevitably be a conflict of interests. If a solicitor acts on behalf of a builder, who may be an important client, he cannot pay proper attention to the individual who is buying from the builder. If a building society employed a solicitor to act for a purchaser, would that purchaser not he put in exactly the same position, and would that not be undesirable?
In answer to that I shall cite the reply of the BSA to the Lord Chancellor, who put forward the argument about conflicts of interest. The letter stated:
In other words, a conveyancer can act for both parties, in which case there is a conflict of interests, and the Law Society does not stop that. Where a conflict of interests is resolvable in favour of an extra fee for a solicitor, it is permissible, but where it is in favour of an employed solicitor, it is not permissible. The argument folds on that basis and on the reality that people face when buying houses. The Which? survey shows—this fact is demonstrable from all our experiences — that people go first to a building society and subsequently to a solicitor, whom they regard as a type of mechanic. He has a function, but it is less important than securing a mortgage. In most cases the terms of the mortgage are agreed before people go to a solicitor for the subordinate function of conveyancing. We are not talking about a world where people want or get independent financial advice. In most aspects of the transaction the interests of the lender and borrower are identical. People expect to receive advice as purchasers about the property, but not as lenders or borrowers. Indeed, solicitors are not qualified to give independent financial advice about a mortgage. They do not have the experience, they are not financiers and they are not answerable for their financial advice. It has been argued that people need independent financial advice about a mortgage, but the evidence from surveys is that they do not want it or receive it. Therefore, the conflict of interests argument is specious."the conflict of interest to which you refer arises regardless of the status of the conveyancer (i.e. independent or employed) if he has accepted instructions from both parties to the transaction. While in either case the ultimate paymaster is the borrower, in practice the only way of ensuring that a borrower receives totally independent advice is to incur the cost of separate professional advisers on both aspects of the transaction."
The problem is not advice on the mortgage as such in the conventional sense. Almost all building societies and banks charge almost exactly the same interest rate. The customer wants and needs advice on the clauses in the mortgage contract because it is like no other contract that any of us ever signs. It does not specify the price of the purchase, but says that the purchaser will be charged an interest rate such as the building society may care to choose at any time during the following 25 years.I am anxious that the hon. Gentleman should have his way on this matter, if we can resolve this issue. Some building societies are charging different rates for old and new borrowers, so there is no safeguard on interest rates. If we could get a code of practice which stated that building societies must charge the same rate to both existing and new borrowers, the client would have the safeguard of knowing that he was being charged the market rate. In that case, I would not mind if solicitors did not comment on the contract, except in so far as some societies build in onerous resettlement clauses so that if a customer does not like his interest rate which may have been pushed higher for existing borrowers, a customer is partially locked in because it is expensive to re-contract. If we can get round that problem, I would agree with the hon. Gentleman. I wish that he would comment on that because it is a conflict of interest for everyone who signs a mortgage contract, not only for a few.
That is a wide-ranging problem. It is a problem on which solicitors in independent practice do not give advice to their clients. Why, therefore, should that be singled out as an area in which only employed solicitors working for the building societies have to give advice and in which people are disbarred from turning to those employed solicitors by the conflict of interest in that area. That point is not valid because it applies to all solicitors. What might be valid in the hon. Gentleman's argument is that solicitors can advise on the terms of the mortgage. That is another point. But it is interesting to note from studies carried out by building societies of their customers —the Halifax building society surveyed its customers and, more importantly, its branches—that solicitors do not give advice on the terms of the mortgage. That is the important issue. It is so rare for advice to be given that, for practical purposes, it does not exist. That is another area where a conflict of interest is alleged, but which in practice does not worry people.I echo the remarks of my hon. Friend the Member for Ipswich (Mr. Weetch) that solicitors, whether employed or in private practice, are bound by the practice rules. Those practice rules can and should be used to obviate exactly the problems that have been held out as producing a conflict of interest. It is also important to emphasise that Ministers, especially the Lord Chancellor, have never specified what that conflict of interest is. We are asked to proceed on the basis of assertions and a specious argument which is never demonstrated and never proved. The Lord Chancellor never defines what he is talking about. Pressed to give a definition, he retreats into a cloud of gas and assertion which is never demonstrable. The practice rules will take care of the conflict of interest.
In Committee, the Solicitor-General defined the conflict of interest in reply to questions from me. He said that a very small conflict of interest was possible over title, but that in practice interest was almost the same for the borrower as for the lender so that it was not significant. But he thought that the serious conflict of interest arose on commenting on the terms of the mortgage. That is the conflict of interest upon which I keep inviting the hon. Member for Great Grimsby (Mr. Mitchell) to concentrate, because I believe that it is the sticking point for the Government. Much as I agree with everything that the hon. Member for Great Grimsby has said—I can see that he is upset about not getting the concession that he was expecting—I think that that is a genuine conflict which we must resolve. I have suggested some ways of doing it, but the hon. Member may not agree with those.
We are agreed that the terms of the mortgage are rarely queried by independent solicitors. Therefore, on the basis of a service that people do not receive, other people will be excluded from a service which would be beneficial, competitive and cheap. There is no more specious argument than that.On the conflict of interest, I rest my argument on the fact that solicitors do not give independent financial advice and are not qualified to give it. They are not legally responsible for any independent financial advice that they give. Indeed, independent solicitors often have a direct interest in channeling people to a building society with which they have some preferential financial arrangement. That in itself is a conflict of interest. Let us not give the impression that independent solicitors give independent advice and that that can be used as an excuse to say that people going to a building society should have independent advice. They will not necessarily get it from independent solicitors. The arguments about conflict of interest are specious. However, the Lord Chancellor stands bloody but unbowed at the end of the arguments still asserting what he cannot prove and will not demonstrate. He sits there like a garrulous Buddha making assertions about a conflict of interest which, for practical purposes, does not exist on any serious scale. The Solicitor-General made a charming speech in Committee, the gist of which was that this matter can be considered later. The message I received from that was that, in two years' time, when we have a sane or a different Lord Chancellor, the Government will fulfil the promises that they made. That is not good enough. We have a chance to do it now in the Bill, in terms which entrench the proposal by the building societies for a code of practice. I want a code of practice for the estate agency side of building societies. I certainly want it to be established for the conveyancing side of building societies. It is a chance to cover all the points that the Solicitor-General would want covered—even those points that the Lord Chancellor might want covered—in a clear and defined form which allows the solicitors to operate for the building societies. I shall not quote the code of practice, because it has been circulated to hon. Members, but it provides that the customer shall be warned off in certain circumstances, that the solicitor shall give a precise definition of the services that he provides, what he is doing and what he is not doing, that he shall specify the fees and the charges and that, in some cases, he shall not act. The suggested code of practice could be rewritten. It might be the basis for a better code of practice. It could be expanded and better defined. We are arguing simply that we should write it into the Bill so that we can set down a respectable and effective code of practice. The Lord Chancellor holds out some prospect of that in his letter to the building societies. I hope that it is not just a fob-off. He says:
He also stated that it might be possible"This need not be the end of the matter."
If the Lord Chancellor is of that opinion, we should be obliging him in the Bill by specifying a code of practice which can be worked out subsequently. I hope that we can pass the proposal, which concedes what the Lord Chancellor wishes, because it opens the way to the important principle of competition to serve the consumer. That is all that we are trying to get. Here is an expanding market in which house prices are increasing and in which the fees payable are increasing, in which much money is flowing into the market and in which we need competition to serve the consumer. We need competition for shares of that expanding market. It is wrong that solicitors should be feather-bedded by the exclusion of the competition from building societies in an area where, if building societies were allowed to operate, they could provide a comprehensive service such as solicitors should provide. Following the pattern of Scotland, English solicitors are setting up solicitors' property centres. I welcome that. It is a beneficial development and an important advance. I am glad to see solicitors competing for their share of the cake. I am sorry that the Law Society is so laggardly in its rules."to overcome the difficulties which concern me … The best way forward is to continue work on a code of practice in the context of work on those rules."
Is the hon. Member for Great Grimsby (Mr. Mitchell) interested in allowing only building societies to act for both parties, or is he in favour of banks also acting for borrowers? I remind him that there have been some unfortunate incidents involving banks. Would he be happier if consumers were represented by solicitors also acting for Johnson Matthey? Would he be happy for estate agents selling a house also to employ a solicitor to act for their purchaser? Would he be happy for solicitors to act for both parties? Would he be happy for licensed conveyancers to act for both parties? All those instances would save money, but they would not protect the public.
In answer to that valid point, I must say that I am in favour of maximum competition and of people competing to serve the consumer comprehensively. The proposal for banks to do conveyancing came not only from me but from the Government. It was the Government's proposal that banks and building societies should be allowed to do conveyancing using employed solicitors for the range of property, registered and non-registered. My Bill restricted it to registered property. In this instance, we are talking only about building societies.The principle of competing to provide a comprehensive service is valid. I should like solicitors to provide a comprehensive service through their property centres and estate agents through having employed conveyancers. Building societies should provide a comprehensive service by entering all aspects of house provision. I must emphasise that that is important, as it stops the drift of building societies into becoming big financial institutions. If the road to provide a comprehensive service to the house buyer is barred by the Government or the Lord Chancellor's whim, they will be forced much more in the direction of financial institutions and away from the prime and original purpose, which is service to the house buyer. That is what I want to see. Therefore, I want comprehensive competition. I do not see why building societies should have to face it with a ball and chain tied round their leg by Lord Hailsham when the solicitors can provide property centres, and the estate agents can do conveyancing. 8 pm The costs of conveyancing have come clown substantially with the advent of competition. However, it is a rich market and I want to keep the pressure up. The consumer has no responsibility to provide, in any guaranteed way, an income to the legal profession for other aspects of legal business. There is every reason for expanding competition. What we are arguing for today will undoubtedly come. Even Lord Hailsham cannot hold back the tide of progress for ever. We should take the opportunity to allow competition on a sane, sensible and regulated basis which takes care of so many of the unrealistic fears which have been voiced by Lord Hailsham. This is an argument on which right and honour are entirely on the side of the change we are proposing in this new clause. It is not right for the Government to behave in this fashion. It is dishonourable to betray the word they gave me as a Back Bencher. There are other important issues at stake. All the opinion polls show that people want the building societies to be able to provide a comprehensive service. The consumer organisations, which are there to protect the consumer and speak for them, want it and they say chat there is no problem. The building societies want it and can provide economies of scale and can use their computers and provide the kind of comprehensive service that the house buyer wants. Real competition and a genuine improvement in the range of choice to the consumer requires that comprehensive service. I can see no logic in the Government's position if they refuse the proposal.
It is unfair of the hon. Member for Great Grimsby (Mr. Mitchell), in his undoubted enthusiasm and sincerity, to say that the Lord Chancellor is guilty of just a whim. I believe that when the Government gave the pledge they meant to honour it and they have now looked into the problem in more detail and it has turned out that serious problems are involved.As the hon. Member for Great Grimsby knows, in principle I am strongly in favour of what he wants, but I have bumped into the conflict of interest. I should like to explain briefly why solicitors have never looked at mortgage contracts in detail, although they should. Perhaps the hon. Member for Great Grimsby will ponder on the fact that until recently we had a cartel of building societies of which many people disapproved. I did not disapprove because, since they were mutual friendly societies and non profit making, it was fine by me if they jointly set the interest rate. If they had been using the cartel to stuff up the interest rate to make vast profits and had been profit maximising plcs, then, of course, I would have been against the cartel. However, a cartel operating in a mutual society movement is nowhere near as bad as a cartel in a profit maximising environment. The solicitors were faced with the fact that the building societies were a cartel. They fixed a common interest rate and, crucially, until recently building societies always charged the same interest rate for their existing borrowers and their new borrowers, which was the cartel rate. Therefore, why should a solicitor bother to look at a contract where the interest rate was set to suit the market at the time? Even if the contract said that the borrower would be charged such rate as the building society may choose from time to time, in practice, every solicitor knew that that meant the borrower would be charged at the cartel rate. Therefore, solicitors got used to not bothering too much about the mortgage contract. Incidentally, given that the suppliers of mortgages have been praised by all parties in the House while they have been mutual societies operating specifically to help home ownership, there was probably little need for the solicitors to feel that they were dealing with a bunch of crooks who might be trying to rip off the customer. However, we are now introducing a Bill in an age when the cartel has gone and where a number of building societies, I am sad to say, have started the practice of cutting the interest rate for new borrowers only and leaving it up for existing borrowers. That means that one could be heavily penalised in a way that is not specified in the contract. It should be pointed out that the contract does not safeguard a borrower from building societies charging two different interest rates. I would prefer the Government to have a mortgage Bill that stopped that nasty practice. In addition, we should get rid of onerous resettlement clauses. If one is locked in by the higher interest rate for the existing borrower and there is also a big penalty for settling early, one cannot re-contract and become a new borrower at a lower rate with a different society. If we got rid of those practices, I would go all the way with the hon. Member for Great Grimsby and say that I could not care less whether solicitors looked at the mortgage contract. However, we do not have those safeguards. I have suggested to the building society movement that it should have a code, of practice on mortgages. If the movement produced such a code, I do not believe that the Solicitor-General would now be having to get up to make the speech that we all know that he is about to make. He said in Committee that the only major conflict of interests that needs to be resolved is the mortgage contract. The hon. Member for Great Grimsby and the hon. Member for Ipswich (Mr. Weetch) cannot get away with saying that that is a minor conflict or that it relates to only a few borrowers. In the new competitive environment that we are creating, where the mutuality and charity status of the movement may become a more bracing and competitive attitude, we cannot be sure that mortgage contracts will always be as if they were guided by a cartel in a charity or mutual type movement. We are going into a different world. Whatever solicitors have done in the past, they must start looking at the mortgage contracts that they are letting their customers sign. The Lord Chancellor is not asked to do what the hon. Member for Great Grimsby says and ask what solicitors are doing—we all know that they have not been looking at mortgage contracts. The Lord Chancellor's job is to ask what they should be doing. They should be looking at the mortgage contracts and they should not operate where they have a conflict of interests.
The hon. Gentleman is saying that there is an argument for requiring solicitors in independent practice to give financial advice to customers who come to them to arrange conveyancing. That is not being proposed. His argument put forward on the differential interest rate is valid whether employed solicitors do conveyancing or not. Therefore, it is irrelevant to his point.
I agree that it would be nice to get rid of the dual interest rate problem and the onerous resettlement clauses whether or not building societies do conveyancing. However, my point is still valid. Suppose all building societies had identical contracts, which I am not proposing, which had been scrutinised by the Lord Chancellor, the commission and every consumers' association and had been declared marvellous contracts and we knew that they would always charge the same interest rate, none of us would want the solicitor to bother to read the mortgage contract. Because there is a possibility of nasty clauses turning up in the mortgage contract, I believe that the Lord Chancellor has to say that it is the solicitor's duty to look at the contract, not in order to give financial advice, but to give legal advice to tell borrowers what the contract legally locks them into. At the moment, borrowers are locking themselves into a 25-year contract which does not specify the price they will pay. I do not believe that any of us should allow that. I should be delighted if the Government would take action to make each institution charge old and new borrowers the same interest rate and not have onerous resettlement clauses. Therefore, if people were ripped off they could re-contract at low cost.I shall read part of the Building Societies Association's code of practice which is fairly hilarious. All hon. Members have received immense help from the Building Societies Association. As a result of its advice, the Bill has been dramatically improved. The following part of the association's code of practice makes the Lord Chancellor's case far better than I am able to do:
If a conflict of interest is not of a minor nature, the association's view is that its own solicitors should not act for the client. We are not talking about a minor conflict of interest. We are talking about a 25-year contract that people sign to purchase probably the most expensive object they will ever buy. Some people spend nearly half their annual income on mortgage repayments. We cannot say that there is no conflict of interest when a solicitor says, "Sign this contract which has been dished out by my employer. The contract is perfectly all right, but it does not specify the interest rate and it has a few onerous resettlement clauses which I shall not mention, because my employer would fire me if I did so.""If the conflict of interest is in respect of a matter which, in all the circumstances, is not of a minor character, the employed conveyancer shall forthwith cease to act for the client."
I thank the hon. Member for Ipswich (Mr. Weetch) for his kind welcome to me in the debate. I return the compliment by saying that we have crossed swords on the topic on a number of occasions, but I have always welcomed and admired not only the dexterity of his attacks but the unfailing courtesy in which they have been expressed. I am grateful for the manner in which he moved the new clause. We are on interesting ground, but it is ground that has been thoroughly surveyed in Committee. Therefore, I believe that my response to the debate can be more succinct than otherwise would be necessary and courteous.The Government's amendments are further positive evidence of the fact—as the Lord Chancellor, myself and other members of the Administration have repeatedly asserted—that the Government are strongly in favour of legislative progress towards integrated house buying services, subject only to the proper and sensible safeguarding of the customer against becoming the victim of a serious conflict of interest. What distinguished the speech of the hon. Member for Ipswich from the much longer speech of the hon. Member for Great Grimsby (Mr. Mitchell) was that the hon. Member for Ipswich acknowledged that a conflict of interest can arise. I found it hard to discern in the speech of the hon. Member for Great Grimsby any recognition of that fact. When there is a conflict of interest with a solicitor offering services to a customer of his employer, there is a divided loyalty. 8.15 pm The Government's amendments are designed to bring the sole practitioner within the scheme of schedule 17, whereby the Lord Chancellor may make recognition rules in respect of those to be permitted to carry out conveyancing services. Under the Bill as drafted, the sole practitioner was omitted. That point was raised by the hon. Member for Isle of Wight (Mr. Ross) in Committee, and I promised that the matter would be considered. I am glad to say that the amendments are the result, and I hope that they find favour with the House. I can offer the House further evidence and confirmation of the Government's policy in favour of moving towards integrated house purchase services. In December last year, we announced that consultations were to take place on the questions whether conveyancing services might be provided by subsidiary companies to lending institutions, and whether estate agents should be permitted to offer a combined house purchase and conveyancing service to vendors. Those consultations are now complete. In consequence, the Lord Chancellor has decided in principle that, subject to satisfactory safeguards, both subsidiary companies and estate agents should be allowed to offer conveyancing services. The nature of the safeguards that will be needed will be considered carefully by him when he makes the recognition rules under the provisions of schedule 17. The kind of provision that might feature is a code of practice to prohibit preferential pricing arrangements of the kind so vividly alluded to by my hon. Friend the Member for High Peak (Mr. Hawkins), who knows so much about the subject and speaks without being vulnerable to the charge that he is yet another lawyer out to protect his cosy monopolies. The new clause requires the commission to prepare, publish and administer a code of practice to cover the provision of conveyancing services by building societies, to be made after consultation with the Lord Chancellor and the Director General of Fair Trading. Societies operating in accordance with such a code would be able to provide conveyancing services to their borrowers. I take minor issue with the speech of the hon. Member for Great Grimsby. On more than one occasion he spoke of the code. The new clause does not specify a code. No doubt, the hon. Gentleman had in mind the revised code already alluded to which was offered to the Lord Chancellor by the Building Societies Association. I shall say something about that in a moment. The new clause does not specify a code. It makes provision for a code to be provided by the Building Societies Commission. I turn to the draft code that was kindly provided to the Lord Chancellor by the chairman of the BSA last month. It is a revision of a code which was first put forward in the middle of last year. I shall quote a passage from a letter that the Lord Chancellor sent to the chairman, Mr. Cox, on 16 May, because it succinctly says what I wish to say in answer to the debate. The letter states:
"The adoption of a suitable code of practice may well be the best way of avoiding problems of conflicts of interest. I have seen your code and, while I think there is much to praise and a clear determination to protect the public, I am not at present satisfied that it yet overcomes the inherent problem of a conveyancer serving two masters.
The Lord Chancellor in his letter to the chairman made the point that my hon. Friend the Member for High Peak has just made. He said:I believe that it is somewhat unrealistic to expect a conveyancer to give advice in the best interests of both parties. The relationship between borrower and lender is one in which the interests of both can all too easily be at odds. Where this happens, both require an advisor who can tell them what they ought to do, not one who is 'impartial' or who is giving one party advice which is entirely against the best interests of the other. The code seems to leave the clients without an advisor at the one point in the transaction where. if a conflict does arise, he most requires this service."
"The distinction between a 'major' and 'minor' conflict is, moreover, somewhat puzzling. It is not clear what is 'major' and what 'minor' or, indeed, who should take the responsibility of advising the borrower on such [natters. There seems to me scope here for delay and complexity.
In that passage from the Lord Chancellor's letter, the House will be unable to recognise the machinations of an unscrupulous protector of his profession's cosy monopolies which were conjured up by the hon. Member for Great Grimsby. If I did riot know the hon. Gentleman as well as I do, and if the House did not know the amiable way in which he invariably addresses it, I should feel, on behalf of my noble Friend the Lord Chancellor, a certain fleeting resentment at some of the expressions that the hon. Gentleman applied to him. But I let that pass. From the passage that I have read from the Lord Chancellor's letter to the chairman of the BSA, it is plain that the Lord Chancellor is motivated by one concern alone —that the Government's desire to enlarge competition should not be fulfilled at the expense of the proper interest of the customer in not becoming the victim of a serious conflict of interest. In view of what has been said, I feel obliged to cite again some of the examples that I gave in Committee of where the need for separate advice may arise in practice. I used examples that were provided by the chairman of the Luton and Dunstable Law Society, including one involving mortgage terms. One example given by the Luton and Dunstable Law Society was as follows:I am sorry to write in such terms, but I think you appreciate the difficulties I have over this. I do not at present think that this code does overcome the problem of a conflict of interest. I should make it clear, however, that this need not be the end of the matter. Clause 101 and Schedule 17 of the Building Societies Bill are deliberately drafted in wide and flexible terms. No amendment to the Bill would be required to enable a code to be used if it proves possible to overcome the difficulties which concern me. All that would be needed would be an amendment to the recognition rules. The content of these rules is very far from settled and I am sure the best way forward is to continue work on a code of practice in the context of work on those rules."
In other words, in this case the life assurance company had an open-ended ability to charge what it liked. I happily believe that the number of such instances would be small although not negligible, but the customer must be protected from the divided loyalty of the solicitor or licensed conveyancer who is employed by the building society or bank. It is not a matter of conjuring up fantasies. We must have regard for what happens in real life. In Committee, I also referred to a letter published in the Daily Mail from a manager of a branch of Lloyds bank. He said:"That draft mortgage Deed contains a provision that the loan of £86,250 would carry a rate of interest of either …
(i) a rate of interest higher by 6 per cent. than the base lending rate from time to time of the National Westminster Bank plc or (ii) the rate notified in writing by the company to the borrower." — [Official Report, Standing Committee A, 20 February 1986; c. 479.]
"I am the manager of a small branch of Lloyds. In the past five years I have seen the job changing from that of a general financial adviser to that of a salesman of Lloyd's products.
This is not to say that I doubt their worth, but increasingly I have difficulty in giving impartial advice when I am all the time looking to achieve business targets.
That would be just as true- of a solicitor employed by a building society that is in competition with others.So far I think I have been able to achieve a happy compromise, but as I am under increasing pressure to sell 'in-house' products, especially insurance, the impartiality is bound to disappear. By far the worst aspect of this is that the financially less aware will have nowhere to go for advice which will be truly impartial—everyone will have an axe to grind."
As my hon. and learned Friend knows, I entirely agree with the point about the conflict of interest over a mortgage contract. But does he agree that we could get rid of that conflict of interest by having a code of practice on what mortgage contracts should contain?
That is an interesting suggestion. It falls outside my exceedingly limited field of ministerial responsibility, but I shall ensure that it is passed on and considered in the right quarter. However, I agree that that is where the conflict of interest principally arises.There is great merit in the way in which the Bill is formulated. Schedule 17 empowers the Lord Chancellor to do three things: to make rules for the purpose of recognising institutions as being suitable to undertake the provision of conveyancing services and to recognise institutions under those rules; to exempt them from the present restrictions on persons who can undertake conveyancing; and to impose conditions on those institutions with which they must comply to remain recognised. Following our consultation, we felt that we could not in all conscience sweep under the carpet serious warnings about a conflict of interest and legislate as though that consultation had never taken place. That would have been dishonourable.
Will the Solicitor-General give way?
I shall give way in a moment. The hon. Gentleman took me to task for having said to him in February 1984:
It is abundantly plain, and must have been at the time, that if that consultation threw up advice to the effect that it was impossible to overcome conflicts of interest in all circumstances where the solicitor's employer was lending money, it would be dishonourable to proceed."We will shortly issue a consultation paper on how best to ensure that conflicts of interest and anti-competitive practices do not arise when solicitors employed by banks, building societies and other organisations are permitted to undertake conveyancing for their employers' customers. We hope to bring forward legislation permitting building societies to offer the service next Session." — [Official Report, 17 February 1984; Vol. 54, c.347.]
It was also dishonourable for the Government to say that they hoped to bring forward legislation. The intention was clear. Can the Solicitor-General cite any instance of a conflict of interest that was not known at the time that he promised me that building societies would be allowed to do conveyancing through employed solicitors?
It was our intention to introduce legislation. We are not sufficiently arrogant about our confidence in our right thinking to say that, whatever consultation throws up, we shall not be influenced by it. We live and work in the hope that we may be able to overcome these difficulties. The Lord Chancellor's letter makes that clear. Meanwhile, the task is to press ahead with the hard work on the rules, consulting the BSA and others, with a view to bringing them into force with the minimum delay.Although I regret not being able to commend the new clause to the House, I hope that my explanation—which has taken longer than I intended because I felt obliged to answer the points raised—will lead to the motion and clause being withdrawn.
I should declare my interest in the debate. I am a practising solicitor, and, although I do not engage in much conveyancing, I obviously have an interest in the matter.It is extraordinary that more of my professional colleagues have not spoken in the debate. Apparently none served on the Committee, and that was also extraordinary. As a profession, I believe that we have much to be proud of, and that is at the heart of this debate. The problem is that the consumer is in danger of being sacrificed on the altar of competition. The hon. Member for Ipswich (Mr. Weetch) said that the consumer was king and that if he demanded it he should have the right to have it. I shall explain why that is a strange proposition. Principally, we are concerned about conflicts of interest. The hon. Member for Great Grimsby (Mr. Mitchell) belittled this concept and seemed to be saying that conflicts of interest can be got round, avoided or somehow rubbed out. That cannot be true. They cannot be overcome simply. Warning consumers that conflicts of interest exist does not mean that they will go away. No amount of warning in this day and age is sufficient for the majority of consumers. They want to buy a house and they have set their heart on one. They want as large a mortgage as they can possibly get, possibly more than they can afford, and warnings will not prevent them from going ahead with the transaction. 8.30 pm Perhaps the most vivid example is the conflict of interest between banks and customers on the making of wills and the appointing of executors. Surely no customer would appoint a bank to be an executor if he knew how much it would cost—it is usually 5 per cent. of the assets in the estate. Despite that, time after time, perfectly straightforward estates are complicated by the involvement of banks and the extortionate—there is no other word for it — charges that banks make for the administration of wills. Competition is there to serve the consumer, and it is the Government's responsibility to see that that is the case and that competition does not become a god in its own right. The hon. Member for Great Grimsby said that my profession has been featherbedded against competition from building societies. To give him some credit, his initiative in the House Buyers Bill has made a fundamental change in the profession. Solicitors engaged in conveyancing are not featherbedded against competition from their own colleagues, and we are not afraid of competition from building societies. I doubt whether building societies will do conveyancing for less than solicitors are prepared to charge, and this is one of the sectors in which the consumer will be duped. He will be offered a package of an all-in loan which will cover his costs, and he will not know what the costs are. By the time that he has finished paying for the conveyancing, he will have paid many more times what he would otherwise have paid. Another charge made by the hon. Member for Great Grimsby is that solicitors are not liable for advice that they may give on financial matters. Nothing can be further from the truth. We are men of affairs and give advice to clients on the full range of aspects of house buying, and we are liable personally for that advice. If it turns out to be wrong, we are personally liable to reimburse the client. Various uncomplimentary statements have been made about my noble Friend the Lord Chancellor. My hon. and learned Friend the Solicitor-General has already rejected them, as we must. My noble Friend has a tremendous record of looking after the profession, and he is the last man who would stand in the way if he believed that what was proposed was right. It has been alleged that solicitors are simple mechanics in the matter of house transfer, but this is inaccurate. A solicitor advises as to the suitability of the property for the buyer. He advises as to the terms of the contract, and all the flak that has been thrown at my profession about sending out inquiries that do not mean anything before contract is largely unfounded. The solicitor advises as to the financial aspects of buying a house, on the terms and on the cost of the mortgage. There can be no question of the enormous institutions that building societies are becoming giving the detailed personal independent advice through their employed legal people that is offered by independent solicitors. How can a solicitor employed by a building society, who has his business targets, possibly have the time, patience, inclination or financial incentive to give independent advice to borrowers? All these are major matters, and even if the building societies' code which would make it necessary for the building society solicitor to send the customer elsewhere were to be implemented, as my hon. Friend the Member for High Peak (Mr. Hawkins) suggested, that would be unlikely to happen. How can the building society solicitor become involved with the detailed administrative arrangements of a house purchase and sale transaction? He will not have the time and inclination. All that he will be interested in is processing as many loans as possible in as short a time as possible. The borrower, the consumer, will be the sufferer. We should protect the independence of the legal profession. It is a vital institution in any civilised society. In-house conveyancing does not cost the public any more. It is probably already costing the consumer a great deal less than he would pay a building society if the new clause were adopted. There is some pressure on me to sit down, so I shall end my speech by saying that I wholeheartedly support the anxieties of my noble Friend the Lord Chancellor about conflicts of interest and that I agree with the provisions of schedule 17. They will bring a tremendous wind of change to the profession, and the prospect of that has already brought some improvements to the profession. The Law Society has done its best, but it cannot keep things in the same way as they have always been. It has tried to do that, and that has been its failure. We have to admit that. The consumer must be protected, and it is the Government's responsibility to provide that protection. It is clear that the hon. Members for Great Grimsby and for Ipswich will not provide it.
Parts of the debate have been entertaining. I thank the Solicitor-General for his reply, although I am not sure whether to glean any comfort from it. I never am when I have replies from lawyers. Such replies are like mounting the Alexandine steps, which, as hon. Members will know, are a mirage. They appear to be going upwards, but when one treads on the steps one finds that they are, inevitably, going downwards. I suspect that that is what has happened in this case.The new clause will not do anything revolutionary. Solicitors conveyance property, and in a short time licensed conveyancers will be doing so as well on their own account. Suddenly, it is said that if we put the same class of person behind a building society plate glass window the whole conveyancing world will collapse because of the conflicts of interest that are not capable of being resolved. I reject that argument. The Government have created a new competitive world in financial institutions. I am glad to see it, because it could have done with some more competition, goodness knows. Building societies are in a new competitive world. If they engage in ripping off the consumer through conflicts of interest, they will not survive in the new competitive climate. That, at the end of the day, will be the answer to the problem. Conflict still remains. I do riot accept the Solicitor-General's reply, however hard he tried to bring some comfort to us. Therefore, I shall divide the House.
Question put, That the clause be read a Second time:—
The House divided: Ayes 114, Noes 225.
Division No. 205]
|Abse, Leo||Callaghan, Jim (Heyw'd & M)|
|Adams, Allen (Paisley N)||Campbell, Ian|
|Anderson, Donald||Campbell-Savours, Dale|
|Archer, Rt Hon Peter||Canavan, Dennis|
|Ashton, Joe||Clarke, Thomas|
|Atkinson, N. (Tottenham)||Clay, Robert|
|Bagier, Gordon A. T.||Clelland, David Gordon|
|Banks, Tony (Newham NW)||Clwyd, Mrs Ann|
|Barron, Kevin||Conlan, Bernard|
|Beaumont-Dark, Anthony||Cook, Frank (Stockton North)|
|Beckett, Mrs Margaret||Cook, Robin F. (Livingston)|
|Benn, Rt Hon Tony||Corbett, Robin|
|Bennett, A. (Dent'n & Red'sh)||Craigen, J. M.|
|Bermingham, Gerald||Cunningham, Dr John|
|Boyes, Roland||Dalyell, Tarn|
|Brown, Gordon (D'f'mline E)||Davies, Ronald (Caerphilly)|
|Brown, Hugh D. (Provan)||Davis, Terry (B'ham, H'ge H'l)|
|Buchan, Norman||Deakins, Eric|
|Caborn, Richard||Dewar, Donald|
|Dixon, Donald||Marshall, David (Shettleston)|
|Dobson, Frank||Martin, Michael|
|Dormand, Jack||Mason, Rt Hon Roy|
|Douglas, Dick||Maxton, John|
|Dubs, Alfred||Maynard, Miss Joan|
|Dunwoody, Hon Mrs G.||Michie, William|
|Eadie, Alex||Mitchell, Austin (G't Grimsby)|
|Eastham, Ken||Morris, Rt Hon J. (Aberavon)|
|Evans, John (St. Helens N)||Nellist, David|
|Ewing, Harry||Oakes, Rt Hon Gordon|
|Fatchett, Derek||O'Brien, William|
|Faulds, Andrew||Park, George|
|Fields, T. (L 'pool Broad Gn)||Patchett, Terry|
|Foster, Derek||Pendry, Tom|
|Foulkes, George||Pike, Peter|
|George, Bruce||Radice, Giles|
|Gilbert, Rt Hon Dr John||Redmond, Martin|
|Godman, Dr Norman||Rees, Rt Hon M. (Leeds S)|
|Hamilton, James (M'well N)||Roberts, Ernest (Hackney N)|
|Hamilton, W. W. (Fife Central)||Robinson, G. (Coventry NW)|
|Harrison, Rt Hon Walter||Rogers, Allan|
|Hogg, N. (C'nauld & Kilsyth)||Short, Ms Clare (Ladywood)|
|Holland, Stuart (Vauxhall)||Skinner, Dennis|
|Home Robertson, John||Smith, Rt Hon J. (M'ds E)|
|Hoyle, Douglas||Spearing, Nigel|
|Hughes, Roy (Newport East)||Strang, Gavin|
|Janner, Hon Greville||Thomas, Dafydd (Merioneth)|
|John, Brynmor||Thompson, J. (Wansbeck)|
|Jones, Barry (Alyn & Deeside)||Thome, Stan (Preston)|
|Kaufman, Rt Hon Gerald||Tinn, James|
|Leadbitter, Ted||Wardell, Gareth (Gower)|
|Leighton, Ronald||Weetch, Ken|
|Lewis, Ron (Carlisle)||Welsh, Michael|
|McCartney, Hugh||Wigley, Dafydd|
|McDonald, Dr Oonagh||Wilson, Gordon|
|McKay, Allen (Penistone)||Young, David (Bolton SE)|
|McWilliam, John||Tellers for the Ayes:|
|Madden, Max||Mr. Frank Haynes and|
|Marek, Dr John||Mr. Mark Fisher.|
|Alton, David||Dorrell, Stephen|
|Amess, David||Douglas-Hamilton, Lord J.|
|Ancram, Michael||Dunn, Robert|
|Ashby, David||Durant, Tony|
|Aspinwall, Jack||Dykes, Hugh|
|Atkins, Robert (South Ribble)||Favell, Anthony|
|Atkinson, David (B'm'th E)||Fenner, Mrs Peggy|
|Baker, Rt Hon K. (Mole Vall'y)||Field, Frank (Birkenhead)|
|Banks, Robert (Harrogate)||Fletcher, Alexander|
|Batiste, Spencer||Fookes, Miss Janet|
|Best, Keith||Forsyth, Michael (Stirling)|
|Biffen, Rt Hon John||Forth, Eric|
|Biggs-Davison, Sir John||Fox, Marcus|
|Blaker, Rt Hon Sir Peter||Franks, Cecil|
|Boscawen, Hon Robert||Fraser, Peter (Angus East)|
|Bottomley, Peter||Freeman, Roger|
|Bottomley, Mrs Virginia||Freud, Clement|
|Bowden, Gerald (Dulwich)||Fry, Peter|
|Brandon-Bravo, Martin||Galley, Roy|
|Bright, Graham||Garel-Jones, Tristan|
|Brinton, Tim||Gow, Ian|
|Brittan, Rt Hon Leon||Gower, Sir Raymond|
|Brown, M. (Brigg & Cl'thpes)||Greenway, Harry|
|Bruce, Malcolm||Gregory, Conal|
|Bryan, Sir Paul||Griffiths, Sir Eldon|
|Buck, Sir Antony||Griffiths, Peter (Portsm'th N)|
|Budgen, Nick||Ground, Patrick|
|Carlile, Alexander (Montg'y)||Grylls, Michael|
|Cash, William||Gummer, Rt Hon John S|
|Channon, Rt Hon Paul||Hamilton, Hon A. (Epsom)|
|Chope, Christopher||Hamilton, Neil (Tatton)|
|Clark, Hon A. (Plym'th S'n)||Hancock, Michael|
|Clark, Sir W. (Croydon S)||Hanley, Jeremy|
|Clegg, Sir Walter||Hannam, John|
|Conway, Derek||Hargreaves, Kenneth|
|Cope, John||Harris, David|
|Couchman, James||Haselhurst, Alan|
|Cranborne, Viscount||Hawkins, C. (High Peak)|
|Hawksley, Warren||Percival, Rt Hon Sir Ian|
|Hayes, J.||Pollock, Alexander|
|Hayward, Robert||Porter, Barry|
|Heathcoat-Amory, David||Portillo, Michael|
|Heddle, John||Powell, William (Corby)|
|Henderson, Barry||Powley, John|
|Hickmet, Richard||Prentice, Rt Hon Reg|
|Hicks, Robert||Price, Sir David|
|Hind, Kenneth||Proctor, K. Harvey|
|Hogg, Hon Douglas (Gr'th'm)||Raison, Rt Hon Timothy|
|Holland, Sir Philip (Gedling)||Rathbone, Tim|
|Howard, Michael||Renton, Tim|
|Howarth, Gerald (Cannock)||Rhodes James, Robert|
|Howell, Ralph (Norfolk, N)||Rhys Williams, Sir Brandon|
|Howells, Geraint||Ridsdale, Sir Julian|
|Hubbard-Miles, Peter||Rifkind, Rt Hon Malcolm|
|Hunt, David (Wirral W)||Roberts, Wyn (Conwy)|
|Hunt, John (Ravensbourne)||Robinson, Mark (N'port W)|
|Jackson, Robert||Ross, Stephen (Isle of Wight)|
|Jenkin, Rt Hon Patrick||Ryder, Richard|
|Johnson Smith, Sir Geoffrey||Sackville, Hon Thomas|
|Jones, Gwilym (Cardiff N)||Sainsbury, Hon Timothy|
|Jones, Robert (Herts W)||Sayeed, Jonathan|
|Kellett-Bowman, Mrs Elaine||Shaw, Sir Michael (Scarb')|
|Kershaw, Sir Anthony||Shelton, William (Streatham)|
|Key, Robert||Shepherd, Colin (Hereford)|
|King, Roger (B'ham N'field)||Shersby, Michael|
|Kirkwood, Archy||Shields, Mrs Elizabeth|
|Knight, Greg (Derby N)||Silvester, Fred|
|Knowles, Michael||Sims, Roger|
|Knox, David||Skeet, Sir Trevor|
|Lang, Ian||Smith, Tim (Beaconsfield)|
|Latham, Michael||Spencer, Derek|
|Lawler, Geoffrey||Spicer, Jim (Dorset W)|
|Lawrence, Ivan||Stanbrook, Ivor|
|Lee, John (Pendle)||Steel, Rt Hon David|
|Leigh, Edward (Gainsbor'gh)||Steen, Anthony|
|Lennox-Boyd, Hon Mark||Stern, Michael|
|Lester, Jim||Stevens, Lewis (Nuneaton)|
|Lewis, Sir Kenneth (Stamf'd)||Stewart, Ian (Hertf'dshire N)|
|Lightbown, David||Sumberg, David|
|Lilley, Peter||Taylor, Teddy (S'end E)|
|Livsey, Richard||Tebbit, Rt Hon Norman|
|Lord, Michael||Temple-Morris, Peter|
|McCrindle, Robert||Thomas, Rt Hon Peter|
|McCurley, Mrs Anna||Thompson, Patrick (N'ich N)|
|MacGregor, Rt Hon John||Thornton, Malcolm|
|MacKay, Andrew (Berkshire)||Thurnham, Peter|
|MacKay, John (Argyll & Bute)||Townend, John (Bridlington)|
|Maclean, David John||Tracey, Richard|
|McLoughlin, Patrick||Trippier, David|
|McNair-Wilson, M. (N'bury)||Twinn, Dr Ian|
|McQuarrie, Albert||van Straubenzee, Sir W.|
|Madel, David||Wainwright, R.|
|Major, John||Wall, Sir Patrick|
|Malins, Humfrey||Wallace, James|
|Malone, Gerald||Waller, Gary|
|Marlow, Antony||Walters, Dennis|
|Mather, Carol||Wardle, C. (Bexhill)|
|Maxwell-Hyslop, Robin||Warren, Kenneth|
|Mayhew, Sir Patrick||Watts, John|
|Meadowcroft, Michael||Wells, Bowen (Hertford)|
|Merchant, Piers||Wells, Sir John (Maidstone)|
|Meyer, Sir Anthony||Wheeler, John|
|Miller, Hal (B'grove)||Whitfield, John|
|Mills, lain (Meriden)||Winterton, Mrs Ann|
|Mitchell, David (Hants NW)||Winterton, Nicholas|
|Morrison, Hon P. (Chester)||Wolfson, Mark|
|Moynihan, Hon C.||Wood, Timothy|
|Neale, Gerrard||Woodcock, Michael|
|Newton, Tony||Yeo, Tim|
|Norris, Steven||Young, Sir George (Acton)|
|Page, Richard (Herts SW)|
|Patten, Christopher (Bath)||Tellers for the Noes:|
|Pawsey, James||Mr. Donald Thompson and|
|Peacock, Mrs Elizabeth||Mr. Peter Lloyd.|
Question accordingly negatived.
New Clause 26
'A building society shall not seek to lend money to a member where that member has sought a loan from another lender or finance broker and where that lender has sought the society's permission to register a second charge with the Land Registry.'.— [Mr. Shersby.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss new clause 27—Prohibition on second charge—
'A building society shall not place a restriction in its mortgage deed which prevents its member from obtaining finance from another source without first obtaining the society's consent.'.
First, I declare an interest. I am vice-president of the Corporation of Finance Brokers.My purpose in moving new clause 26 is to draw attention to what many finance brokers consider to be an anti-competitive practice arising from an abuse of a dominant position by some building societies which require their borrowers to covenant within the mortgage deed not to enter into any further borrowing which requires the security of a charge upon the property without first obtaining the consent of the society in writing. To enforce that covenant societies then apply to the Chief Land Registrar for a notice of a restriction to be entered into the register of title relating to the property. The result of that restriction is that the societies are contacted and given early notice of a borrower's intention to seek a loan elsewhere. Building societies defend that practice by claiming that such a requirement enables them to encourage borrowers to explore their existing financial commitments and to exercise restraint if it seems likely that they may over-commit themselves. All that would be laudable were it not for the fact that building societies are themselves entering into the personal loan and second mortgage market. In fact, the finance brokers are aware of many instances where an approach to a building society seeking consent to a second charge immediately results in that society calling in its borrowing member and persuading him or her to take a loan by way of a further advance or a second loan from the society itself. That practice is seen by finance brokers as poaching. It makes use of the stranglehold which societies have, due entirely to the covenant in the mortgage deed. It also arises from the dominant position of a society and allows it to make a further advance at little or no cost whereas the information about the availability of further advances is often communicated to the consumer by means of an advertisement paid for and placed in the newspapers by a finance broker. It can be argued that would-be house purchasers should read and agree to the restrictive covenant when they sign the mortgage deed. Perhaps solicitors should advise their clients on that point rather more effectively than they now appear to do. That point was touched on in the previous debate. The fact of the matter is that most house purchasers do not read the fine print in the mortgage deed. I have often wondered whether there should be a requirement to put such a restrictive covenant in bold type in red ink, rather like those warnings that we have all seen on hire purchase contracts. However, hire purchase contracts are rather different from mortgage deeds. Most house purchasers only sign one mortgage deed in their life, or perhaps two or three at comparatively long intervals. The effect of the restrictive covenant is, in the view of most brokers, to interfere with the borrower's freedom of choice and to influence the borrower in such a way that he feels obliged to take a loan from a building society. That occurs when the borrower is suddenly informed that the society is aware that a loan has been sought from another lender. The borrower can even be called in to discuss the matter with the manager or some other official of his building society. The borrower may then be told that the society can refuse to allow the registration of a second charge, but if he or she would care to take a further advance from the society then, of course, the request can be accommodated over perhaps a 15 or 20-year term, if desired. What of the claim that societies are protecting their members from over-committing themselves? Let us suppose that the society refuses either to agree to a second charge or to make a further advance. What happens then? The answer is that the borrower can borrow unsecured from another lender, for example, a high street money shop. In that case he could find himself paying high interest rates ranging today from 35 to 44 per cent., or in the case of a conventional hire purchase finance agreement on, say, a three-year-old car a borrower would commonly today be paying around 30 per cent. At the very worst a borrower could go to a loan shark charging horrendous rates of interest. That compares with about 18 to 19 per cent. APR for loans arranged by members of the Corporation of Finance Brokers who adhere to a code of practice which ensures that they not only bear in mind the interests of their clients, but exercise the utmost integrity in dealing with their affairs, have regulations governing advertising and ensure that money is not spent before a loan is made. I am sure that my hon. Friend the Economic Secretary will agree that there is much to be said for secured loans at reasonable rates of interest and subject to respectable conditions. Such a position can obtain only if there is free and fair competition between societies, the banks and other established finance houses and the brokers who place business with them. In the Green Paper which preceded the Bill it was made clear that competition in the provision of financial services is one of the desired objectives. But does the dominant position of certain building societies, which makes it virtually impossible for any other lending source to secure their loan, really add up to competition, or is it really a restrictive or anti-competitive practice? My hon. Friend the Economic Secretary to the Treasury has indicated in correspondence that he understands that on the whole it is the exception rather than the rule for a borrower to need the society's consent to a second mortgage, and that it is relatively unusual for consent to be refused. That may be so if the borrower really persists, but he will obviously feel inhibited from so doing. One building society which I understand directs requests from borrowers to the provision of a loan by the society is the Nationwide, which is one of the largest societies in the country, and there are others. I ask my hon. Friend the Economic Secretary to consider whether the Nationwide is observing the policy of greater competition that the Government advance. 9 pm These matters are of great importance to all members of the public who want to be sure that they have a free and fair choice of financial services in a competitive market. My new clauses are designed to put down a marker and to engage the attention of my hon. Friend the Economic Secretary, to whom I pay tribute for his constant interest in and wise advice on these matters. I know that he is not convinced that an absolute statutory bar on restrictions on the taking of a second charge or the making of an advance when approached for permission to make a second charge is the right way forward. I share his dislike of more and, perhaps, unnecessary restrictions in a rapidly changing mortgage market, but I have sought to indicate that there is a problem and where that problem lies. I was glad to learn from my hon. Friend the Economic Secretary, in a letter that he wrote me yesterday, that he has arranged for information that I sent him to be provided to the Office of Fair Trading. I am glad to know from him also that the OFT is now to undertake some more general inquiries into the incidence of the practices which I have described and their effects on competition. I hope that all these inquiries can be completed quickly and that everything will be done to ensure free and fair competition, coupled with adequate protection for consumers against excessive interest rates that are often charged on unsecured loans.
I hope that the Government will resist these clauses. The hon. Member for Uxbridge (Mr. Shersby) has presented them as measures that are in favour of competition, but they are far from that, because they seek to exclude building societies from that competition. The hon. Gentleman mentioned one society. I understand that only one society has a prohibition rule that means that the society's consent is required. The building societies have nothing to fear from this issue going to the Office of Fair Trading.The hon. Member for Uxbridge has talked about people being driven into the hands of loan sharks who charge interest rates of 35 per cent to 40 per cent., but I suggest that the new clauses would do just that. A borrower from a building society is as much a member of the society as a lender, and he is proud to be a member. The building societies have a tremendous record of looking after their members. If a borrower needs extra finance, it is fair for the society of which he is a member to discuss the matter with him. The society will probably say, "Let us examine your financial affairs. Is the best way of solving your financial difficulties the granting of an extra loan? Shall we extend your mortgage? Shall we transfer more money to your mortgage? What is the problem? Can we help you?" That is all that societies do. The Building Societies Association has informed me that over the years it has had complaints from mortgage brokers and finance companies, but apparently it has never had a complaint from a borrower. The hon. Member for Uxbridge said that the new clauses will act in defence of the borrower and in the interests of competition and fair trading, but apart from the many drafting defects—for example, unregistered land is not covered and there is reference to unsecured loans—I object to the principle which lies behind them I said, I hope that the Governent will reject them. They will prevent building societies from assisting their members and assist others to lend money.
I support the argument that has been advanced so eloquently by my hon. Friend the Member for Uxbridge (Mr. Shersby). I do not pretend for one moment to be an expert on building societies, but I support my hon. Friend because I have received representations from my constituency which I have passed on to him and to which he has responded. I believe that he is highlighting a problem, about which I understand he has had considerable correspondence with the Treasury, especially my hon. Friend the Economic Secretary, and that the Treasury recognises that there could be a problem.
the right hon. Member for Halton (Mr. Oakes) will admit immediately that in introducing the new clauses my hon. Friend said that he had tabled them as markers in the hope that the problems might occur and the concern that has been expressed by constituents to individual Members will be taken fully into account by the Treasury.I make these remarks with deep interest because the headquarters of the Cheshire building society are in my constituency. It is an excellent society. I have never had a single letter or word of complaint about its practices, and I commend it for the excellent service that it gives to people not only in my constituency but over a wider area. After considerable research over many months, my hon. Friend the Member for Uxbridge has presented an excellent case to the Treasury. I hope that my hon. Friend the Economic Secretary will give an understanding and sympathetic reply. I doubt very much whether my hon. Friend the Member for Uxbridge intends to press the new clauses to a vote, but he hopes that an area that is causing concern can be taken fully into account by the Treasury. I hope that assurances will be given from the Treasury Bench.
I compliment my hon. Friend the Member for Uxbridge (Mr. Shersby) on a well-argued case, and on the manner in which he put it forward. My hon. Friend the Member for Macclesfield (Mr. Winterton) has just supported him. Equally, the right hon. Member for Halton (Mr. Oakes) asked us to resist the new clauses. In fact, it would not be wise to put them on the statute book.I listened to my hon. Friend the Member for Uxbridge with considerable interest and a good deal of sympathy because the matter that he raised is a cause for concern and, as he mentioned, we have been in correspondence about it. I have also had a letter from the hon. Member for Thurrock (Dr. McDonald)—only in the past 48 hours, so I hope that she will forgive me for not having replied, but perhaps I can do so now. One of the basic themes of the Bill is competition. By letting societies offer a wider range of services, we hope that they will be able to respond positively to the competition that they now face in their traditional markets, and to introduce new competition elsewhere. The line between legitimate competitive activity and abuse of market position can be very fine. We need to be vigilant in making sure that one does not turn into the other. I do not believe that the abuse described by my hon. Friend the Member for Uxbridge is very widespread, but it seems to come close to the line of what is acceptable and possibly even to cross it. I do not think that an absolute statutory prohibition of the sort that is suggested in the new clauses would be the best way to proceed, so I hope that my hon. Friend will not press the new clauses. However, I am glad to have the opportunity to comment on them because I believe that the situation that he has outlined needs further investigation. As my hon. Friend mentioned, I have passed to the Director General of Fair Trading the papers that he sent to me, and his office is now to undertake more general inquiries into those practices to see whether further action under the competition or fair trading legislation would be appropriate. I hope that, pending the outcome of that investigation, any building society that might be tempted to poach business in that way—to put it crudely, to trade off the efforts of others — will recognise the distaste that is felt in the House for such behaviour. I should add that if that were to become a matter for legislation, which at this stage I do not accept it will, it would be for competition legislation, not for legislation relating to regulation or consumer protection. I shall ensure that my right hon. Friend the Secretary of State for Trade and Industry, who is responsible for those areas, is kept fully informed about it. In view of that, I hope that my hon. Friend will feel able to withdraw his new clause, but in doing so will be satisfied that we are taking action on the point that he has raised.
I am grateful to my hon. Friend the Economic Secretary for his sympathetic and understanding reply. I am glad that he recognises that there is a problem in this area, and I am grateful for the action he has taken in referring the matter to the Director General of Fair Trading and for drawing to the attention of our right hon. Friend the Secretary of State for Trade and Industry the matter of the competition legislation.In the light of his satisfactory reply, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
The Building Societies Commission
I beg to move amendment No. 1, in page 2, line 14, leave out 'and'.
With this it will be convenient to take the following Government amendments: Nos. 2, 3, 8 to 11, 38 to 53, 389 to 395, 54, 55, 57, 61, 79 to 83, 415 to 418, 396 to 399, 84, 111, 124, 126 to 130, 132 to 134, 137, 138, 141, 142, 144, 145, 147, 149, 150, 419, 158, 206 to 209, 402, 212 to 214, 216, 219, 221 to 226, 228, 231 to 233, 236 to 238, 244, 245, 247 to 250, 256 to 260, 262, 268 to 271, 273, 274, 276 to 289, 301 to 305, 309, 330 to 332, 334 to 336, 338 to 340, 405 to 408, 342 to 344, 355 to 373, 404, 374 to 380, 382, 387 and 388.
The Government have taken the opportunity during the interval between Committee stage and Report to refine the drafting of the Bill and the 176 amendments bear testimony to the energy and dedication of the draftsmen.
Amendment agreed to.
Amendment made: No. 2, in page 2, line 16, at end insert 'and'. — [Mr. Ian Stewart.]
Establishment, Constitution And Powers
Amendments made: No. 3, in page 4, line 24, leave out from beginning to end of line 29 and insert
'to them advances secured on land for their residential use.'.
No. 4, in page 5, line 28, at end insert 'and'.
No. 5, in page 5, line 30, leave out from `resolutions;' to end of line 31.
No. 6, in page 5, line 37, at end insert—
'() In this Act, except sections 10 to 13, "land", in the expression "advance secured on land", means land in the United Kingdom, and in so far as land in other countries or territories is, under any provision of this Act, land on which advances may be secured, land in that other country or territory.'
No. 7, in page 5, line 37, at end insert—
'(9) Any obligation imposed by this Act or the rules of a building society to give or send notices or other documents to members is subject to paragraph 13A of that Schedule. —[Mr. Ian Stewart.]
Power To Hold Land Etc, For Purposes Of Its Business
Amendments made: No. 8, in page 5, line 40, leave out from 'may to end of line and insert
', otherwise than by acquisition, provide itself with premises'.
No. 9, in page 6, line 4, at end insert—
'(3A) A building society may exercise the powers conferred by subsections (1) and (2) above as regards premises situated outside, as well as premises situated within, the United Kingdom'.
No. 10, in page 6, line 5, after 'acquisition', insert 'or provision'.
No. 11, in page 6, line 7, leave out
'premises may be acquired and held'
'society may acquire or otherwise provide itself with and hold the premises'. —[Mr. Ian Stewart.]
Power To Raise Funds And Borrow Money And Limit On Non-Retail Funds And Borrowing
I beg to move, amendment No. 12, in page 6, line 27, leave out 'or loans'.
With this it will be convenient to take the following Government amendments: Nos. 13, 15, 16, 25 to 31, 34 to 37, 85, 87, 88, 92 to 98, 103 to 105, 112, 140, 146, 239, 307, 308, 310 and 381.
What my hon. Friend the Under-Secretary of State for the Environment has said about his amendments goes for my amendments as well.
Amendment agreed to.
Amendments made: No. 13, in page 6, line 40 leave out
'or otherwise lent to'.
No. 14, in page 7, line 1, after 'subsection'. insert
No. 15, in page 7, line 7, leave out 'or otherwise lent to'.
No. 16, in page 7, line 18, leave out 'or otherwise lent to'.
No. 17, in page 7, line 23, at end insert—
No. 18, in page 7, line 31, leave out 'and'.
No. 19, in page 7, line 33, after first 'subsection', insert `subsections (4A) to (4D) above'.
No. 20, in page 7, line 33, after 'and', insert '(c) make'.
No. 21, in page 7, line 34, leave out 'provisions as appear' and insert ' provision as appears'.
No. 22, in page 8, line 25, at end insert—
'(11A) The prescribed amount for the purposes of subsection (4B) above is £50,000 or such other amount as is for the time being substituted for it by order of the Commission made with the consent of the Treasury'.
No. 23, in page 8, line 26, leave out 'or (11)' and insert '(11) or (11A)'.
No. 24, in page 9, line 3, leave out 'and'.
No. 25. in page 9, line 13, leave out 'or other loan to'. — [Mr. Ian Stewart.]
Proportion Of Liabilities To Be In Form Of Shares
Amendments made: No. 26, in page 9, line 16, leave out 'or otherwise lent to'.
No. 27, in page 9, line 22, leave out 'or loans'.
No. 28, in page 9, line 29, leave out 'loans and'.
No. 29, in page 10, line 9, leave out 'loans or' — [Mr. Ian Stewart.]
Initial Authorisation To Raise Funds And Borrow Money
Amendments made: No. 30, in page 10. line 20, leave out 'or otherwise borrow'.
No. 31 in page 11, line 38, after first 'the', insert 'issue of shares'.
No. 32, in page 12, line 9, after second 'time' insert
'(and notwithstanding any pending appeal)'.
No. 33, in page 12, line 16. at end insert—
'(9A) On granting authorisation to a building society under this section the Commission shall inform the central office of the fact and the central office shall record that fact, and the date on which the authorisation was granted, in the public file of the society.'.
No. 34, in page 12, line 18, leave out 'or otherwise borrows'.
No. 35, in page 13, line 3, after third 'the', insert `qualifying'.
No. 36, in page 13, line 9, after second 'the', insert `qualifying'.
No. 37, in page 13, line 10, at end insert '; and
"qualifying deferred shares" means deferred shares other than deferred shares which, by virtue of regulations under section 43(5), are not included in capital resources aggregated with reserves for the purposes of the first criterion in subsection (3) of that section.'.
Advances Secured On Land
Amendments made: No. 38, in page 13, line 19, leave out from 'land")' to end of line 20 and insert 'secured by'.
No. 39, in page 13, line 37, at end insert
'and a reference to the land which is to secure an advance or on which an advance is secured is a reference to the estate or interest or the heritable security which constitutes the basic security.'.
No. 40, in page 13, line 37, at end insert—
'(2A) The power to make an advance secured on land includes power, subject to the restriction imposed by subsection (2B) below, to make, as a separate advance, an advance which is to be applied in or towards payment of the deposit for the purchase of the land (in this Part referred to as "an advance for a deposit for the purchase of land.")
(2B) The restriction referred to is that an advance for a deposit for the purchase of land must not exceed 10 per cent. of the total amount to be paid for the purchase of the land.'.
No. 41, in page 13, line 38. leave out 'as made on the security of and insert
'for the purposes of this Act as secured by'.
No. 42. in page 14, line 31, at end insert 'and'.— [Mr. Ian Stewart.]
I beg to move amendment No 414, in page 14, line 35, at end insert—
The purpose of this amendment is to deal with the growing market and to ensure that the borrower's interests are protected. When I raised this issue on Second Reading, the Minister said that it would be up to the'(6A) A building society, once it has advanced money on the security of an equitable interest in land in England and Wales or Northern Ireland, may not sell on that loan without the express permission of the borrower which shall be obtained according to a code of practice which shall be agreed between all the building societies and which shall have received the approval of the Commissioners.'.
I think that he said that because he did not actually hear what I said. I hope that it was for no other reason. Of course, I was talking about the growth of the secondary mortgage market and urging that the borrower's interests there should be protected. Since Second Reading and our debates in Committee, I know that the Minister has taken a great interest in this issue and has encouraged his hon. Friend the Minister for Housing, Urban Affairs and Construction to propose the need for a code of practice. A draft code of practice has been drawn up by the Building Societies Association. I hope that a final draft will be forthcoming. It is worth saying something about the need for protection as this is a new market in the United Kingdom. It has attracted interest in United Kingdom mortgages from investors as far afield as Canada and Japan. Part of the attraction lies in the fact that, at the moment, the rate of default is extremely low, although that rate has increased partly because of increasing unemployment and partly because of the continuing high rate of divorce. 9.15 pm Like many other newspapers, The Times recently carried an article on the growth of the secondary mortgage market, which said:"borrower to ensure that the terms of a second mortgage were suitable." [Official Report. 19 December 1985; Vol. 89, c. 602.]
That is vital. I am sure that we have all corresponded with a building society about a mortgagee who is in arrears and been able to negotiate different terms for repayment to tide the borrower over a period of difficulty. That has often been easy because the branch is local and the manager knows the borrower. If mortgages are sold on and can be purchased by a foreign investor or a large finance company, however, that relationship may no longer exist. It does sometimes. It depends on what type of arrangements have been made by the purchaser of bundles of mortgages. The matter requires a code of practice even more now than when we raised the issue in Committee and on Second Reading. Since then, the Government have announced that, for the first six months in which somebody is in receipt of supplementary benefit, payment of mortgage interest by the DHSS will be halved. The Opposition have had much to say about that. Just when people need most help and have very low incomes— they can build up substantial mortgage arrears over only six months— mortgage interest payments are halved. They may be unable to make up those arrears easily, even when the DHSS restores full interest payments if they continue to be in receipt of benefit. Bearing in mind the Government's change of policy, a proper code of practice is even more necessary. That is another issue on which consumers support the need for a code.The Times article says that the fears of a new breed of ruthless investor entering the market who is willing to foreclose at the drop of a hat"To reassure borrowers the new market will have to develop guarantees that the responsibility for, say, setting interest rates and foreclosing on people who do not repay will remain with an identifiable lender and not be sold along with the underlying asset."
The Government are pursuing a voluntary code. That is an important step forward. The amendment proposes that the code should be compulsory and be agreed between the Building Societies Commission and the building societies. That would ensure that nobody could escape from the obligations, in a changing market, that they have taken on towards a borrower. It would also ensure that borrowers' interests are properly protected, even when their mortgages are sold in the United Kingdom or to foreign investors. The matter is one of social concern. We must ensure that borrowers' interests are protected, especially when they hit hard times. They must be able to continue to deal with the person who gave them the mortgage."were highlighted when Barclays canvassed the opinions of its borrowers on the sale of their mortgages and received an unequivocal thumbs down to the idea late last year."
In asking the House not to accept the amendment I do not want it to be thought that I ant in any way unsympathetic towards the remarks of the hon. Member for Thurrock (Dr. McDonald). There is a fair degree of unanimity between us. However, as she would be the first to recognise, the amendment would apply only to building societies. As she said, it is not necessarily the building societies which are likely to abuse the ability to transfer a mortgage. She referred to a new type of ruthless investor coming to the market who might foreclose more easily than building societies. The amendment would not cover the new ruthless investor.I am convinced that we need a broader approach to the problem which covers all people who loan on mortgages, rather than just building societies. I am therefore not convinced that the amendment represents the best way to proceed. The hon. Lady may have seen a speech which my "ion. Friend the Minister for Housing, Urban Affairs and Construction made on 8 May. My hon. Friend said that he had great reserations about the selling of existing mortgages unless the borrower gives explicit consent to the sale. He also said that he did not necessarily feel that: the Building Societies Bill was an appropriate vehicle for changes, because any code of practice would apply to all those in the mortgage market, not just the building societies. He went on to say that the Government would be examining with interested organisations the appropriate arrangements to protect the legitimate interests of borrowers while enabling innovation in the mortgage market to bring the full benefit of additional funds for home ownership and wider choice in the types of loan. Since making that speech, my hon. Friend has asked his officials and officials at the Treasury to discuss the matter with representatives of all those involved in the mortgage market. These discussions have covered the steps that need to be taken to protect the borrowers' interests. My hon. Friend hopes shortly to make an announcement which will be of considerable interest to the hon. Member for Thurrock and to the House as a whole. The Government share the anxieties of the hon. Lady that ordinary borrowers should be protected in the market in which they play an active part but over which they have no control. We do not believe that it would be helpful to tackle the problem piecemeal. The mortgage market is no longer the exclusive preserve of the building societies. We are at present actively pursuing an initiative which will cover the whole market and examine the need to protect borrowers in the many different areas of the market. Against that background, I ask the hon. Lady to await my hon. Friend's announcement, which he will make shortly, and not to pursue the amendment.
Primary And Secondary Advances
Amendments made: No. 43, in page 14, line 45, at end insert
'and when an advance may, for those purposes, be treated partly as a class I advance and partly as a class 2 advance'.
No. 44, page 15, line 8, after 'security', insert
`(after deducting from that value any mortgage debt of the borrower to the society outstanding under a mortgage of the land);'.
No. 45, in page 15, line 10, leave out 'by the borrower'
`which is to secure the advance is outstanding'.
No. 46, in page 15, line 11, leave out 'is outstanding'.
No. 47, in page 15, line 34, leave out `by the borrower' and insert
`which is to secure the advance is outstanding'.
No. 48, in page 15, line 35, leave out 'is outstanding'.
No. 49, in page 15, line 38, at end insert—
(5A) An advance for a deposit for the purchase of land is also a class 1 or class 2 advance according as it is made with a view to the making of a class 1 or class 2 advance secured on the land.
(5B) Advances which would be class 2, and not class 1, advances by reason only that the extent of the residential use of the land is not as to satisfy the requirement in subsection (2)(b) above shall be treated as class 1 advances if and to the extent prescribed by an order under section 12(5A).'. —[Mr. Ian Stewart.]
Class I And Class 2 Advances: Supplementary Provisions
Amendments made: No. 50, in page 17, line 35, leave out '(2)' and insert '(3)'.
No. 51, in page 17, line 36, at end insert
, under section 31 of the Tenants' Rights, Etc. (Scotland) Act 1980 or under Article 156 of the Housing (Northern Ireland) Order 1981'.
No. 52, in page 17, line 38, at end insert—
(5A) The Commission, by order in a statutory instrument, may, as respects advances to be secured on land which is to any extent to be used for the residential use of borrowers or persons who are dependants of theirs for the purposes of section 11(2)—
(a)require so much of the amount to be advanced as is determined by or under the order to be treated as a class 1 advance; (b)specify the circumstances in which and the conditions subject to which advances are to be so treated; and (c)make such incidental, supplementary and transitional provision as the Commission considers necessary or expedient.
No. 53, in page 18, line 24, at beginning insert 'basic'. — [Mr. Ian Stewart.]
Security For Advances: Valuation And Supplementary And Related Provisions
Amendments made: No. 389, in page 19, line 21, after 'land', insert
'and any factors likely materially to affect its value or saleability'.
No. 390, in page 19, line 22, leave out 'land'.
No. 391, in page 19, line 40, after 'any', insert 'director, other officer or'.
No. 392, in page 19, line 45, after 'any', insert 'director, other officer or'.
No. 393, in page 20, line 8, after 'any', insert 'director, other officer or'.
No. 394, in page 20, line 12, after 'any', insert 'director, other officer or'.
No. 395, in page 20, line 30, at end insert
'and, for its purposes, a person shall be taken to have a financial interest in the disposition of any land if, but only if, he would, on a disposition of that land, be entitled (whether directly or indirectly, and whether in possession or not) to the whole or part of the proceeds of the disposition.'.
No. 54, in page 20, line 32, leave out from beginning to 'supplementary' in line 34. — [Mr. Ian Stewart.]
Power To Lend To Individuals Otherwise Than By Class I Or Class 2 Advances
Amendments made: No. 55, in page 20, line 42, leave out from 'that' to end of line 4 on page 21 and insert
'an advance for a deposit for the purchase of land shall, if the purchase is not completed within the period of six months beginning with the date of the advance, be treated after the end of that period as a loan under this section and shall accordingly cease to be a class 1 or class 2 advance'.
No. 56, in page 21, line 4 at end insert—
'(2A) Mobile home loans do not constitute loans under this section.'.
No. 57, in page 21, line 8 after '(4)', insert
'Subject to subsection (5A) below'.
No. 58, in page 21, line 16 after 'section', insert
'or this section and section (Loans for mobile homes)'.
No. 59, in page 21 line 18 after 'as', insert
', in the case of loans under this section.'.
No. 60, in page 21, line 20 at end insert
'and, in the case of loans under this section and section (Loans for mobile homes), as made on different occasions such that loans under this section precede those made under that section.
(4A) Subsection (4) above shall have effect (subject to subsection (5A) below) in a case where a building society has made a loan undersection (Loans for mobile homes) as if it precluded a building society from making a loan to an individual under this section if the principal exceeds—
(a) the limit referred to in paragraph (a) of it; or (b) the balance referred to in paragraph (b) of it; or (c) the balance remaining after deducting from the limit imposed by or under subsection (6) of that section the aggregate of any sums outstanding in respect of loans made under that section and under this section by the society to that individual.'.
No. 61, in page 21, line 24 at end insert
'(5A) The limit on loans to any one individual under this section does not apply to an advance for a deposit for the purchase of land which has come to be treated as a loan under this section and accordingly no account shall be taken of it for the purposes of subsection (4) above.'.
No. 62, in page 22, line I leave out from beginning to end of line 17.
No. 63, in page 22, line 19 leave out 'or (11)'. [Mr. Ian Stewart.]
Power To Hold And Develop Land As Commercial Asset
Amendment made: No. 64, in page 22, line 38, after 'land', insert 'in the United Kingdom'. [Mr. Ian Stewart.]
Part Iii Power To Invest In Subsidiaries And Other Associated Bodies
Amendment made: No. 65, in page 24, line 2, leave out from 'may' to end of line 9 on page 25 and insert—
and in this section "invest" means the exercise of any of the powers conferred by paragraph (a) and "support" means the exercise of any of the powers conferred by paragraph (b) above.
(1A) A building society may invest in or support the following bodies corporate (referred to as "qualifying bodies") but no others, that is to say—
(1B) A designation order may—
(1C) Subject to subsection (1D) below, a building society shall not invest in or support a qualifying body so as to enable that body on its own account, in the United Kingdom, to—
but, subject to that, it may invest in or support a qualifying body so as to enable that body to carry on any activity which it is within the powers of the society to carry on but, subject to subsection (1D) below, no others.
(1D) In the case of a qualifying body designated, or included in a description of bodies designated, by a designation order a building society may also invest in or support it for such purposes as are permitted by or under the designation order.
(1E) Subject to subsection (1F) and (1G) below, a building society shall not invest in or support a qualifying body whose objects enable it—
but this does not imply that it is unlawful for the society to complete the performance of any contractual obligations lawfully incurred in providing a supporting service.
(1F) Subsection (1E) above shall not operate so as to restrict a building society's powers under this section in relation to a corresponding European body.
(1G) Subsection (1E) above shall not prevent a building society from investing in or supporting a qualifying body—
(1H) For the purposes of any power conferred by this section a body corporate is "linked by resolution" to a building society if the board of directors of the society has passed a resolution making that power exercisable in relation to that body and the resolution is in force.'.
No. 66, in page 25, line 10, leave out from first 'in' to `is' in line 12 and insert
'or support a corresponding European body'.
No. 67, in page 25, line 14, at end insert
; but the cessation of its availability by virtue of this subsection does not require the disposal of any property or rights.'.
No. 68, in page 25, line 22, leave out `(5) (b)' and insert `(1H)'.
No. 69, in page 25, line 24, after '4', insert (3)'.
No. 70, in page 25, line 29, leave out '(5) (b)' and insert '(1H)'.
No. 71, in page 25, line 31, after '4' insert `(3),'.
No. 72, in page 25, line 33, at end insert—
'but subject to subsection (9A) below.
(9A) No rescinding resolution shall be registered without the consent of the Commission.'.
No. 73, in page 25, line 38, leave out 'at any time'.
No. 74, in page 25, line 40, leave out '(4) (c)' and insert `(1A) (c).
No. 75, in page 26, line 1, at end insert—
"`company" means a company within the meAning of the Companies Act 1985 or the Companies Act (Northern Ireland) 1960;'
No. 76, in page 26, line 5, at end insert—
'"deposit" and "deposit-taking business" have the same meaning as in the Banking Act 1979;
"industrial and provident society" means a society registered under the Industrial and Provident Societies Act 1965 or, in Northern Ireland, the Industrial and Provident Societies Act (Northern Ireland) 1969;'.
No. 77, in page 26, line 7, leave out from beginning to end of line 12.
No. 78, in page 26, line 18, leave out from 'one' to end of line 19 and insert
`to which the society is linked by resolution;'.—[Mr. Ian Stewart.]
Commercial Asset Structure Requirements For Building Societies
Amendments made: No. 79, in page 28, line 5, leave out from beginning to 'not' in line 7 and insert
`direct that subsection (2) or (3) above shall have effect during the currency of the order as if such percentage as is specified in the order were substituted for the percentage specified in that subsection'.
No. 80, in page 28, line 10, leave out from 'may' to end of line 12 and insert—
and any reference in this Act to a limit for a class of commercial assets shall, if a limit is in force under subsection (4) above for any sub-class of class 3 assets, be construed as including a reference to the limit for that sub-class.
(5A) No order under subsection (4) above shall prescribe as a limit for a sub-class of class 3 assets a percentage of total commercial assets less than the percentage in force immediately before the making of the order for that sub-class or, if the subclass is created by the order, for class 3 assets generally.'.
No. 81, in page 28, line 35, leave out 'and'.
No. 82, in page 29, line 9. leave out from 'limits' to first 'the' in line 10 and insert
'in force under this section'. — [Mr. Ian Stewart.]
Amendment made: No. 83, in page 29, line 37, after `scale', insert 'of the business'— [Mr. Ian Stewart.]
Power To Hedge Asset Position
Amendments made: No. 415, in page 31, line 13 after 'may', insert
'effect contracts of a prescribed description'.
No. 416, in page 31, line 15, leave out from 'business' to end of line 17.
No. 417, in page 31, line 25, at end insert 'and'.
No. 418, in page 31, line 27, leave out 'financial futures contracts and'.
No. 396, in page 31, line 30, after '(3)', insert
'Except as provided under subsection (3A) below,'.
No. 397, in page 31, line 33, at end insert—
`(3A) The Commission, with the consent of the Treasury, may by order provide that subsection (3) above shall not have effect, as regards prescribed powers, in relation to prescribed descriptions of building societies.'.
No. 398, in page 31, line 37, leave out '(2) above' and insert
'(2) or (3A) above—
(a) includes power to make such transitional provision as the Commission considers necessary or expedient, and (b)'.
No. 399, in page 32, line 2, leave out 'above' and insert
'or (3A) above, as the case may be'. —[Mr. Ian Stewart.]
Power To Levy Contributions And To Borrow Money In Event Of Insolvency
Amendments made: No. 84, in page 34, line 2, after '1985', insert
'or section 258 of the Companies Act Act (Northern Ireland) 1960.'.
No. 85, in page 35, line 9 leave out 'or otherwise lent to'.
Payments To Investors
Amendments made: No. 86, in page 36, line 14, leave out 'three quarters' and insert '90 per cent. '.
No. 87, in page 36, line 33, leave out
'or otherwise lent money to'.
No. 88, in page 36, line 37, leave out 'or otherwise lent to'.
No. 89, in page 36, line 40, after 'instrument', insert—
'(a) amend subsection (2) above so as to substitute for the percentage for the time being specified in that subsection such other percentage as may be specified in the order; and
No. 90, in page 36, line 43, leave out from first 'order;' to end of line 45.
No. 91, in page 36, line 45, at end insert—
'(6A) No order shall be made under subsection (6) above unless a draft of it has been laid before, and approved by a resolution of, each House of Parliament.'.
No. 92, in page 37, line 5, leave out 'or loan'. — [Mr. Ian Stewart.]
Liability Of Insolvent Society In Respect Of Payments By Board
Amendments made: No. 93, in page 37, line 43, leave out 'or loans'
No. 94, in page 38, line 10, leave out 'or loans'.
No. 95, in page 38, line 23, leave out 'or loans'.
No. 96, in page 38, line 27, leave out 'or loans'.
No. 97, in page 38, line 29, leave out 'or loan'.
No. 98, in page 38, line 33, leave out 'or loans'.— [Mr. Ian Stewart.]
Repayments In Respect Of Contributions
Amendments made: No. 99, in page 40, line 23, leave out 'received' and insert 'retained'.
No. 100, in page 40, line 24, leave out from 'amounts' to 'those' in line 25 and insert
'not exceeding the contributions due from'.
No. 101, in page 40, line 28, leave out
and if the Board does so'
'(4A) If the Board makes appropriations under subsection (4) above,'
No. 102, in page 40, line 30, after first 'societies', insert
'in or towards discharge of its debts to them'. —[Mr. Ian Stewart.]
Amendments made: No. 103, in page 41, line 31, leave out
'or otherwise lent money to'.
No. 104, in page 42, line 4, leave out 'or otherwise lent to'.
No. 105, in page 43, line 14, leave out 'or loans'.— [Mr. Ian Stewart.]
Powers To Provide Financial Services Or Services Relating To Land
Amendment proposed: No. 424, in page 43, line 40, after 'Part', insert '1A or' — [Mr. Donald Thompson.]
With this it will be convenient to take the following amendments: Government No. 425.No. 106, in clause 33, page 45, line 3, leave out 'a class 1' and insert 'any'. No. 107, in line 6, at end insert—
No. 108, in line 18, at end insert—'(1 A) Where, in relation to subsection (1) above, any insurance or other financial services are provided other than by the Society or its subsidiary, the Society or its subsidiary may not make any charge or increase in the mortgage rate in respect of that service.'.
No. 109, in line 19, leave out 'or (2)' and insert '(1A), (2) or (3A)'. No. 110, in line 24, leave out '(2)' and insert '(1A), (2) or (3A)'. Government Nos. 311, 312, 426, 313 and 314. No. 315, in schedule 8, page 182, line 30, at end insert—'(3A) Where a Society or its subsidiary offers to provide a service in relation to an advance to any person, the Society or its subsidiary shall inform that person in writing that he is free to make his own arrangements to obtain that service.'.
Government Nos. 316 to 320, 403, 428, 322 and 323.8A. The power to provide insurance services is available only to a Building Society or its subsidiary which is for the time being registered or listed under the Insurance Brokers Registration Act 1977.'.
I begin by declaring an interest as parliamentary adviser to the British Insurance Brokers Association, a body of which I hope the insurance subsidiaries likely to be set up as a result of this legislation will in due course become members. In the meantime, the purpose of amendments Nos. 106 to 110 and amendment No. 315 is to establish a basis for the insurance services likely to be provided by the insurance subsidiaries stemming from this legislation that is as fair as can reasonably be attained.The effect of amendment No. 315 is that building societies wishing to become insurance intermediaries would have to be registered or listed under the Insurance Brokers Registration Act, which would require them to observe the standards laid down in that Act, to which those now trading under the title of insurance brokers have to subscribe. Paragraph 4.16 of the Green Paper, Cmnd. 9316, made the following proposal:
Paragraph 4.19 stated that those new activities"Any further exterision of building society activities … would need to be subject … to the standards of behaviour expected of the insurance services industry."
which for insurance broking currently takes the form of the Insurance Brokers Registration Act 1977. Regrettably, that proposal has not been translated into the Bill. In the meantime, the conduct of insurance subsidiaries of building societies in so far as it relates to life and investment assurance is being taken care of as the Financial Services Bill proceeds through the House, but other insurance in which the building societies have traditionally dealt — for example, householders' comprehensive, buildings and contents and related forms of insurance—will remain unregulated unless amendment No. 315 or something very similar is absorbed into this Bill. A concern that I have frequently heard expressed is that because building societies have a high reputation among the public there may be a tendency to assume that as there is undoubted expertise in house purchase and mortgage arrangement in the smallest branch office of a building society the same level of expertise will be available on insurance matters, but that does not necessarily follow. It is questionable how much training building society managers can claim in this area. From my own experience, I know that in a number of areas building society managers are not always able to assist in the way that could reasonably he expected of people registered under the Insurance Brokers Registration Act. It is a question not just of arranging an insurance and choosing the correct market, but of dealing with claims as and when they arrive. Under the present set-up, building societies cannot necessarily be expected to have that expertise. 9.30 pm If the amendment were acceptable to the Government, the insurance subsidiaries of building societies would have to register under the 1977 Act and be prepared to conform to its standards. That would be a means of directing to the consumer an implication of competence which would greatly strengthen consumer protection. In regard to amendment No. 106, clause 33 prohibits a building society from making the provision of a primary advance conditional on the use by a borrower of other services by the society. The effect of the amendment would be to extend that prohibition to any advance or loan. The provision in clause 33 that a building society cart no longer insist on the borrower insuring his house through the society does not go far enough. The prohibition should apply also to second mortgages. For example, under the Bill as it stands, if a borrower obtained an unsecured loan of, say, £5,000 to buy a car, the society could insist that he insured that car with an insurer of its choice through its insurance department or subsidiary. This is an area of possible conflict to which the House should give attention in the discussion of this part of the Bill. The reason for amendment No. 107 is to prevent a building society charging the borrower when he wishes to make his own arrangements rather than use the services offered by the society. Following pressure by the Office of Fair Trading, building societies permit the use of the client's own insurance intermediary, but one of the less reputable practices of many building societies over the past few years has been to charge for the privilege. Some extremely well-known societies do so. For example, the Cheltenham and Gloucester charges £25 to enable a borrower to make his own insurance arrangements. The Newcastle charges £25. The Portsmouth charges £15 per annum and if a borrower insists on making his own insurance arrangements it increases the mortgage repayment rate. The Skipton charges £25. The Town and Country charges £23. Many hon. Members will question the morality of having to pay for the privilege of seeking the best insurance market for one's personal insurance needs. The effect of amendment No. 108 would be that a building society would have to make it clear, whether in the application form or elsewhere in its literature., that the borrower is free to make his own arrangements for insurance or other financial services, if he so wishes. No doubt some societies draw that freedom to the attention of borrowers, but a great many do not. I have with me literature from the Halifax, the Abbey National, the Nationwide and the Cheltenham and Gloucester, and none of it states clearly and specifically that there is no obligation to place the insurance relevant to a mortgage through the agency of the building society. As we come close to the end of the consideration of this important legislation in this Chamber, the House should give its attention to these extremely important matters. The Government may have better ideas about how to achieve the same objective. I hope that the Minister will recognise that what is sought by insurance intermediaries is fair competition. It would be an exaggeration if I said that existing insurance intermediaries welcomed the prospect of building societies engaging in their sphere of commercial activity, but if there is to be such competition —as must be accepted—it should be fair. I hope that I have been able to draw to the attention of the House a few areas in which I contend that the competition is not fair. Therefore, I hope that my hon. Friend the Minister will be able to indicate to me that he is prepared to accept the amendments or in some other way to achieve the objectives that underlie them."would be subject to the regulatory regime for the particular service",
Before I deal with the amendments of my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) I shall deal briefly with Government amendment No. 311, which gives the building societies wider powers to set up and run personal and money purchase occupational pension schemes. The amendment gives effect to the proposals which my hon. Friend the Economic Secretary to the Treasury outlined on 7 May, and will ensure that building societies can play a full part in the provision of personal pensions.Amendment No. 315 requires building societies or their subsidiaries to register under the Insurance Brokers Registration Act 1977 and to become subject to regulation by the council. My hon. Friend's amendment recalls one which he tabled in Committee on the Financial Services Bill. That amendment would have required all insurance agents who sold general insurance, other than company representatives, to register with the Insurance Brokers Registration Council. I hope that my hon. Friend will not be greatly disappointed when I say that the Government are no more disposed towards amendment No. 315 than they were to that amendment, for much the same reasons. We start from the general proposition that there should be no prohibitions restricting competition by limiting those who can take up any given area of commercial activity. Nor should we impose statutory burdens on businesses, unless there are good reasons for them. A case must be made for the sort of changes that my hon. Friend proposes, and the Government believe that the case has not been made. As my hon. Friend recognised, in the case of life assurance, building societies, like other intermediaries, will be regulated under the legislation. I do not think that there is a point between us there. On general insurance, the original proposals in the Green Paper have not been implemented. The larger societies may well choose in future to form subsidiaries, registered with the IBRC, as the clearing banks have done, but to require such registration does not seem justified, and the Financial Services Bill Committee was not persuaded that there were problems in general insurance which could be solved only by statutory regulation. Still less am I aware that there is a real problem with the building societies. As my hon. Friend will know, we are promoting talks within the industry with a view to improving self-regulation on the basis of consensus. We are not persuaded that all insurance intermediaries should have to register with the council, nor do we think that the building societies should be singled out and made an exception to that view. That would be to discriminate unfairly against them. The building societies probably could not qualify. They would not necessarily have qualified or experienced insurance brokers on the board, so they would have to set up subsidiaries to register. That may be possible for larger building societies, but for smaller and medium-sized societies there would be considerable trouble and expense in dividing operations in that way. Some may simply decide not to offer insurance services, which would be disappointing, because competition would be reduced and the consumer would be deprived of a convenient outlet for an important service. Neither consequence would be welcome to the Government, which is why we are inclined to resist amendment No. 315. Amendment No. 106 seeks to extend the prohibition on tying services from cases where the societies are making a class 1 advance to cases where they are making any category of advance. As my hon. Friend knows, clause 33(1), which prohibits services from being tied to a class 1 loan, was the subject of a great deal of debate in Committee. The provision was inserted to buttress the general competition and fair trading legislation in view of the dominant position of building societies in the first mortgage market. In Committee it was argued strongly that it was discriminatory to apply prohibitions to building societies and not to other mortgage finance institutions. My hon. Friend's amendment would extend that disparity of treatment to cover services related to any loan, not just a loan on a first mortgage. I do not think that this extension can be justified in its sole application to building societies where they do not have the dominant position in respect of second mortgages or unsecured lending. If one went down that path, it would be discriminating against building societies entirely without grounds for doing so. For that reason, the Government are not disposed to advise the House to accept the amendment. While it is important that first mortgage borrowers should be protected by an anti-tying provision, I can see the force of the argument that it is wrong to provide a statutory obligation of that sort only in respect of building societies. My hon. Friend has said that he is prepared not to bring into effect this provision if societies adopt an effective code of practice which contains such an obligation. In a recent speech to the annual conference, the chairman of the Building Societies Association said that the association was now prepared to consider such a code of practice if the clause were not activated. The Government welcome that statement. The terms of such a code might be a more appropriate place for these additional protections, and I hope that the societies and the BSA will now give the matter full consideration. I am sure that they will bear in mind what my hon. Friend has said. Amendment No. 108 would require a society to point out in writing to a borrower that he can make his own arrangements to obtain a service in connection with a loan. That might be a little bureaucratic. It would impose a requirement applying, not just in connection with a first mortgage loan, but with any advance. It would involve a society in the rather cumbersome and costly process of writing to any borrower to whom it wished to provide a service. Again in Committee there was a complaint that the existing provisions unjustifiably discriminated against societies and this would be a further step in what would be regarded as discriminatory treatment. Therefore, the Government are not minded to accept this amendment either. My hon. Friend mentioned a number of societies which imposed charges on their members where they decided to opt out. I am sure that his listing of the societies will have had a salutary effect on injecting a greater degree of competition. I do not think that it would be right to ban that sort of charge. There are cases where a society would face additional administrative costs through a borrower going elsewhere and some charge would be legitimate. For example, if a borrower insured the property with an outside insurance company, the society, as lender, would have to check the policy to safeguard its security. That would be an extra expense for the society, and it seems legitimate for that extra cost to be reflected in the charges that it makes. The answer to my hon. Friend lies in an increasingly competitive mortgage market where building societies have to react to competition and remove these discriminatory charges. Indeed, removal of the differential on endowment mortgages is a recent example of such competition working and of the building societies removing a differential charge. Therefore, I hope that my hon. Friend will not find it discourteous if I advise the House to reject his amendments. I feel that he may have been aware in advance that the Government were not able to go down this path.
It comes as no major surprise that the eloquence to which my hon. Friend the Parliamentary Under-Secretary paid due testimony did not persuade him to accept even one, let alone the total number, of the amendments that I tabled. At least in this respect the Government are proving consistent, because that was the response I received when I proposed a similar amendment in Committee on the Financial Services Bill. Nevertheless, I am mildly encouraged by one or two of the remarks made by my hon. Friend in asking the House to reject the amendments. I cannot but feel that when he tries to justify the imposition of a charge by a society for allowing a consumer freedom of choice to arrange his insurance in the best market available he is flying in the face of the competitive society about which I believe he and I are united in many other respects.I hope that my hon. Friend is right that the names of the societies that I read out—by no means an exhaustive list—will be shamed into accepting that the borrower must be given a far greater freedom of choice without the imposition of a charge. I am fortified in the knowledge that when the Office of Fair Trading has turned its attentions to this matter in the past it has considered that to be an anti-competitive practice. If I have achieved nothing more this evening, I hope that I have moved closer to the time when there will be greater freedom for a borrower to arrange his insurances in the best available market without the imposition of a charge. 9.45 pm Before I finally accept defeat, I wonder whether my hon. Friend can say something about Government amendments Nos. 312 and 316. They are not entirely clear in their import. Can my hon. Friend say whether I am correct in suspecting that the amendments are calculated to enable building societies to move into commercial insurance, as distinct from covering domestic arrangements, such as the contents of a house, a house, and even a motor car that is purchased by way of an unsecured loan? I do not suggest that the Abbey National or the Halifax will be prone to go into the aviation or marine markets once the legislation appears on the statute book. In the interests of achieving the fair competition to which I referred and to which my hon. Friend responded, it would be helpful if we were a little clearer in our minds that the area of insurance activity that it is envisaged the building societies will move into more forcefully than they have done in the past is that part of the insurance market that relates primarily to what I shall call domestic risks. Perhaps my hon. Friend can clarify the meaning of amendments Nos. 312 and 316, and confirm that the area of insurance activity he envisages is as I have suggested.
I hope that I can give my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) the assurances that he seeks. Amendment 312 involves no change in policy. It simply clarifies what is involved. It does two things. First, it makes it clear that building societies can act as agents either for the person seeking the insurance or the person providing it. In other words, the society can act either as an independent broker or as a tied agent for a company. Under the requirements that will be imposed for financial services authorisation, it will be necessary for building societies to make it clear in which capacity they are acting.Secondly, the amendment makes it clear that building societies can offer advice. Many society customers will be looking to the society for advice on their insurance needs, whether the society is an independent intermediary or a tied agent. Schedule 1 to the Financial Services Bill provides separately for the function of advising on investment business and arranging for its provision it is advisable for consistency and the avoidance of doubt to make it clear that the power available to building societies extends to both. Amendment No. 316 provides that a society's insurance services must be provided primarily, rather than exclusively, to individuals and corporate borrowers within class 2. We do not see that as a means for building societies dramatically to change the nature of the insurance business. However, a building society may acquire an insurance broking business which has some small business customers on its books. That would not be possible without the amendment. Likewise, someone with a building society loan on his house, who arranged the insurance on it through a society, may wish to arrange insurance in respect of his business. Instead of forcing societies to turn people away, which would make little competitive sense, it would be sensible to give them the flexibility to have a small amount of corporate business on their books. That is why the Government have responded in that way. In the light of what my hon. Friend has said, I accept that we need to watch to ensure that the nature of the amendment is not abused and that the building societies do not move to commercial insurance broking in a big way.
My hon. Friend's comments were helpful as far as they went. My hon. Friend used the word "small" twice in his response to my concerns about amendment No. 316. He talked about small business customers and later a small amount of corporate business. I am not aware that the word "small" can be defined in legislation. Indeed, it has clearly not been defined in the Bill. What would my hon. Friend consider to be a small business? What would he consider to be a small amount of business insurance in relation to the total that a building society's insurance subsidiary might transact?
In seven years as a Minister I have learnt not to give off-the-cuff advice on rather complicated legal questions. But the commission set up to monitor the building societies and the use of the powers will no doubt be interested in what my hon. Friend has said and will keep a close watch on it.The legislation says that the societies' insurance services must be provided primarily rather than exclusively to individuals and corporate borrowers within class 2. We want the building societies to continue to provide a personal service to people who buy their houses, but, affixed to that, those people may run small businesses and may want to take out their insurance with the building society that insures their home. Without the amendment, building societies would not be able to offer that service. It is sensible to make that exemption, and that is the object of the amendment. I am reluctant to go further than that, but the commission and the Government will be keeping a watch on this provision to ensure that it is not abused.
The House has been debating Government amendment No. 424, so there is no need for the hon. Member for Brentwood and Ongar (Mr. McCrindle) to withdraw his amendments which have been spoken to but not moved.
Amendment agreed to.
Amendment made: No. 425, in page 44, line 21, at end insert 1A'.— [Mr. Ian Stewart.]
Prohibition On Linking Services
Amendment made: No. 111, in page 45, line 27, leave out subsection (6).— [Mr. Ian Stewart.]
Powers In Event Of Breach Of Limits On Certain Assets And Liabilities
Amendments made: No. 112, in page 45, line 38, leave out 'or otherwise lent to'.
No. 113, in page 46, line 4, at end insert—
'(the limits referred to in paragraphs (a), (b), (c) and (d) above being referred to in this section as "the relevant statutory limits")'.
No. 114, in page 46, leave out lines 12 to 16 and insert—
(3A) For the purpose of applying the relevant statutory limits as directed by subsection (3) (a) above—
and section 75(4) shall apply in the event of a default in complying with this provision as it applies in the event of a default in complying with subsection (2) of that section.'.
No. 115, in page 46, line 19, leave out paragraph (a) and insert—
'(a) within the period of six months beginning with the date of the direction, to submit to its members for their approval at a meeting or by ballot the requisite transfer resolutions for a transfer of the business of the society to a company under section (Transfer of business to commercial company); and'.
No. 116, in page 46, line 23, at end insert 'or ballot'.
No. 117, in page 46, line 28, leave out paragraph (b) and insert—
'(b) within the period of six months beginning with the date of the direction, to submit to its members for their approval at a meeting or by ballot the requisite transfer resolutions for a transfer of the business of the society to a company under section (Transfer of business to commercial company);'.
No. 118, in page 47, line 7, leave out subsection (7) and insert—
'(7) Where a meeting or ballot is held, in pursuance of a direction under subsection (4) or (5) above, for the purpose of voting on the requisite transfer resolutions, then—
(a) if the resolutions are agreed to and the confirmation of the transfer by the Commission is obtained, the society shall proceed under section (Transfer of business to commercial company) to transfer its business to a successor company; (b) if either resolution is disagreed to, the society shall notify the Commission of that fact as soon as it is practicable to do so.'.
No. 119, in page 47, line 33, leave out from `to' to end of line 34 and insert
'submit to members the requisite transfer resolutions.'.
No. 120, in page 47, line 36, leave out from 'or' to end of line 37 and insert
`submit to members the requisite transfer resolutions,'.
No. 121, in page 47, line 41, leave out paragraph (e) and insert—
'(e) to agree to the requisite transfer resolutions submitted to the members in pursuance of subsection (4) or (5) above, or'.
No. 122, in page 48, line 1, leave out paragraph (f) and insert—
'(f) where it has agreed to the requisite transfer resolutions to proceed under section (Transfer of business to commercial company) to transfer its business to the successor company,'.
No. 123, in page 48, line 6, at end add—
'(11) In this section "confirmation", "the requisite transfer resolutions" and "transfer" have the same meaning as in section (Transfer of business to commercial company).'.—[Mr. Ian Stewart.]
Powers In Event Of Breach Of Limits On Assets Or Liabilities Or Abuse Of Purpose Of Building Society
Amendments made: No. 124, in page 48, line 33, leave out first 'business' and insert `action'.
No. 125, in page 48, line 34, at end insert—
'(3A) Where the High Court makes an order under subsection (2) above, the Commission shall give a copy of it to the central office and the central office shall keep the copy in the public file of the society.'.—[Mr. Ian Stewart.]
Power To Determine Building Society's Powers
Amendment made: No. 126, in page 50, line 32, after `exercise', insert or purported exercise,'.— [Mr. Ian Stewart.]
The Determination: Notification, Effect, Appeal
Amendments made: No. 127, in page 51, line 22, leave out 'materially'.
No. 128, in page 52, line 16, leave out 'or wrong'. — [Mr. Ian Stewart.]
Power To Make Prohibition Orders
Amendments made: No. 129, in page 52, line 44, leave out 'by means' and insert
'or otherwise in its possession by virtue'.
No. 130, in page 52, line 44, at end insert—
'(2A) A disposal of assets in pursuance of a prohibition order shall vest the assets in the transferee but without prejudice to any claim against the society by a person who had an interest in the assets.'.
No. 131, in page 54, line 3, at end insert—
`(10A) The requirement of subsection (10) is satisfied by serving a copy on each director whose appointment has been officially notified and the non-receipt of a copy by a director or the chief executive does not affect the validity of the direction.'.
No. 132, in page 54, line 4, after '(11)', insert
`Subject to subsection (11A) below,'.
No. 133, in page 54, line 5, at end insert—
'(11A) The Commission may suspend or revoke a prohibition order so far as it relates to an asset the disposal of which appears to it, on the application of the society, to be impracticable.'. —[Mr. Ian Stewart.]
Power To Direct Application To Renew Authorisation
Amendments made: No. 134, in page 55, line 18, leave out third 'the' and insert 'any'.
No. 135, in page 55, line 43, at end insert
'except where section (Rights of appeal) (4) applies'.
No. 136, in page 55, line 43, at end insert—
'(7A) If the Commission refuses to grant authorisation to a building society under this section it shall inform the central office of the fact and the date on which the current authorisation of the society expires; and the central office shall record that date in the public file of the society.'.—[Mr. Ian Stewart.]
Imposition Of Conditions On Current Authorisation
Amendments made: No. 137, in page 56, line 40, leave out '(6)' and insert '(6A)'.
No. 138, in page 57, line 26, leave out 'but it' and insert '(6A) The Commission'.
No. 139, in page 57, line 32, after second 'time' insert
'(and notwithstanding any pending appeal)'. — [Mr. Ian Stewart.]
Revocation Of Authorisation
Amendments made: No. 140, in page 58, line 3, leave out from 'raise' to end of line and insert
'funds or accept deposits of'.
No. 141, in page 58, line 8, leave out 'and annual business statement'.
No. 142, in page 58, line 28, leave out paragraph (d).
No. 143, in page 59, line 18, at end insert—
'(8A) Where a society's authorisation is revoked under this section, the Commission shall inform the central office of the fact and the date on which the revocation takes effect and the central office shall record that date in the public file of the society.'. —[Mr. Ian Stewart.]
Amendments made: No. 144, in page 59, line 28, at end insert
'expired under section 39(7) or'.
No. 145, in page 59, line 29, leave out '(3) (c) or (d)' and insert 'or (3) (c)'.
No. 146, in page 59, line 33, leave out 'or otherwise borrow'.
No. 147, in page 60, line 1, leave out third 'the' and insert 'any'.
No. 148, in page 60, line 37, at end insert—
'(8A) On granting reauthorisation under this section, the Commission shall inform the central office and the central office shall record that fact, and the date on which the reauthorisation was granted, in the public file of the society.'.—[Mr. Ian Stewart.]
Supplementary: The Criteria For Prudent Management
Amendments made: No. 149, in page 61, line 11, after `(3)', insert
`For the purposes of this Act'.
No. 150, in page 61, line 26, at end insert 'in their respective positions,'.— [Mr. Ian Stewart.]
Powers To Control Advertising
Amendments made: No. 151, in page 63, line 34, leave out 'giving of the'.
No. 152, in page 64, line 16, leave out from 'and' to 'does' in line 19 and insert
'the non-receipt of a notice of the direction by a director or the chief executive.'.
No. 153, in page 64, line 27, leave out from beginning to 'and' in line 31.— [Mr. Ian Stewart.]
Powers To Avoid Apparent Association With Other Bodies
Amendments made: No. 154, in page 65, line 5, leave out 'investment'.
No. 155, in page 66, line 3, at end insert—
'(6A) Any direction under subsection (2), (5) or (6) above shall be given by the Commission by notice served on the society.'.—[Mr. Ian Stewart.]
Powers To Obtain Information And Documents Etc
Amendments made: No. 156, in page 67, line 7, at end insert—
'(2A) Where the Commission has grounds under section 45(1) for giving a direction to a building society under subsection (2) of that section in relation to another body corporate this section also applies to information, documents or other material, or explanations of matters, which relate to the business of that other body'.
No. 419, in page 68, line 23, leave out from `exceeding' to 'for' and insert '£200'. — [Mr. Ian Stewart.]
Inspections: Supplementary Provisions
Amendment made: No. 157, in page 79, line 17, leave out 'forward' and insert `send'.— [Mr. Ian Stewart.]
Chief Executive And Secretary
Amendments made: No. 158, in page 80, line 27, at end insert—
'(2A) The offices of chief executive and secretary of a building society may be held by the same person.'.
No. 159, in page 80, line 38, leave out from first 'the' to 'in' and insert
'date on which he become, or ceased to be, chief executive; and the central office shall record the person's name and the date on which he began to hold, or, as the case may be, ceased to hold office.'.—[Mr. Ian Stewart.]
Directors: Elections And Retirement
Amendments made: No. 160, in page 81, line 23, at end insert
'but cannot be required to cast all or any of his votes'.
No. 161, in page 81, line 24, after 'subsections', insert `(4B),'.
No. 162. in page 81, line 26, at end insert—
'(4A) The rules of a building society may require its directors to retire at a prescribed age without eligibility for re-election or reappointment; and, if the age so prescribed is no greater than the age which is the normal retirement age for the purposes of this section, subsection (5) below shall have no application to the directors of the society.
(4B) If the rules of a building society make the provision authorised by subsection (4A)