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Building Societies

Volume 709: debated on Wednesday 25 March 2009


Asked By

To ask Her Majesty’s Government what plans they have to support and develop mutual building societies.

My Lords, the Government are committed to developing the mutuals sector. They supported a Private Member’s Bill, which will, among other things, facilitate transfers between one type of mutual and another. This has recently been implemented for building societies.

In addition, building societies are eligible for assistance under the Government’s recapitalisation and credit guarantee schemes, and the Banking Act 2009 contains provisions which will help building societies to access liquidity support and ease legislative restrictions on their business.

My Lords, I am grateful to the Minister for his Answer, but may I press him on one point? Is it fair that the mutual societies, which on the whole have conducted themselves in a fairly cautious and risk-free way, should be required to pay such large contributions to the Financial Services Compensation Scheme to make up for the failures of Icelandic banks and similar institutions? Is this consistent with the Government’s support for the mutual societies?

My Lords, the right reverend Prelate is not the first to make that point to the Treasury. The allocation of constituencies through the Financial Services Compensation Scheme was the subject of consultation and the current arrangement was welcomed by the building society movement. However, it is based on retail deposits and it is recognised that this means that a heavy burden is falling on building societies. The Financial Services Authority is consulting on the proposals for allocation although I do not think that an announcement is imminent.

My Lords, does my noble friend agree that the demutualisation of building societies was a major contributory cause of the crisis in the banking sector, that in most cases where greed motivated demutualisation the relevant demutualised societies collapsed, and that we now need to see the Government’s promise put into practice so that we can re-establish a wide range of mutual societies to strengthen the regional base of our financial services?

My Lords, there is a great deal in my noble friend’s comments with which I agree. The demutualisation of building societies, approved, supported and encouraged by the members of those societies, has had regrettable conclusions. I, for one, regret that mutuals are less significant in the financial services sector, both in insurance and in banking, than they were originally. Mutual building societies exhibited a sense of community responsibility, attachment to their geography and, above all else, prudence and responsibility which is so different from the greed and self-serving motivation of those who have led some of our banks which have got into so much difficulty. I deeply regret the fact that the prudence of building societies did not remain in the ascendancy and instead became subservient to those who led our banks so monstrously badly.

My Lords, given the noble Lord’s support for the concept of mutuality, will he consider remutualising all or part of Northern Rock?

My Lords, it is too soon to consider that issue but I very much welcome anything that can be done to encourage the co-operative movement, the credit union movement and mutuality. If, out of this disastrous affair, which has afflicted a small number of our major banks, some opportunity for promoting mutuality can be identified, I would be the first to endorse it.

My Lords, I welcome very much what the Minister has said about the mutual sector, particularly his desire to support it, but is it not rather unfortunate that in recent months a mutual society has collapsed because of the current financial problems and has not had any significant help from the Government? I am referring of course to the Presbyterian Mutual Society which, alone among all the financial institutions in trouble in the United Kingdom in recent months, has received no help at all from the Government. I wonder what it is that the Government do not like about it; is it perhaps because it is in Northern Ireland?

My Lords, I think that the reaction from noble Lords would affirm the fact that this has nothing to do with the location of the society. Discussions are continuing with the Presbyterian Mutual Society and I am very aware of the concerns that have afflicted that particular society. The Financial Services Authority and the Treasury are in continuing discussions in respect of the Presbyterian. I do not think that it would be appropriate for me to say anything further at this stage.

My Lords, when the Minister answered the right reverend Prelate, he said that he was not the first to make the point about the unfairness of the depositors’ protection scheme. Why can the Government not come forward with a new proposal? As I understand it, the Government have lent the money. This money is going to be paid back. It will be paid through higher mortgage payments by people who have mortgages with building societies and lower interest payments for people who are depositors with building societies. Why do the Minister and the Government not come forward with an alternative proposal that is fairer? Why do they keep hiding behind consultations and the FSA and not actually come forward with a policy that is fair?

My Lords, we as a Government think that consultation is the right way to proceed. It is entirely consistent with mutuality, which is members expressing views having appraised themselves of the situation. The Financial Services Authority is consulting, and we shall await the outcome of that consultation. The Financial Services Compensation Scheme is administered by the FSA and it is a structure that was endorsed when the Financial Services and Markets Act was passed by Parliament.

My Lords, may I ask a question that is slightly wider than the original Question? It relates to credit unions. Does the noble Lord agree that the time is now very ripe indeed for the fullest consideration to be given to government assistance to credit unions, bearing in mind that there is ample evidence that more and more people are all the time falling into the clutches of loan sharks?

My Lords, the Government are already giving considerable support to credit unions, and I believe that I evidenced that in my answer to an earlier question.

My Lords, will my noble friend give further thought to credit unions, particularly in Northern Ireland, where there have been some serious difficulties? I do not expect him to have the answer now, but will he agree to look at the position there? They are certainly working under serious constraints and are not able to work as competitively as credit unions either in Britain or in the Republic.