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Banking: Mutualisation

Volume 714: debated on Wednesday 4 November 2009


Asked By

To ask Her Majesty’s Government whether, in determining the future of banks in which they have a significant stake, they will consider the scope for mutualisation as part of a package of increased competition.

My Lords, the Government do not believe that it is in the public interest for the Government to operate banking services in the longer term. We therefore intend to return government stakes in banks to the private sector at the earliest and most prudent opportunity. Any decision will consider value for money to taxpayers, financial stability and protecting depositors’ money. Mutualisation would be considered with other options on this basis.

My Lords, I thank my noble friend the Minister for his sound Answer, so far as it went. Does he recognise that this is a unique if not historic opportunity for remutualising or mutualising a number of the failed financial institutions that the Government now own? Does he agree with the Oxford Centre for Mutual and Employee-owned Business, which reported at length in September? It recommended that the creation of a number of mutuals would enhance competition in the high street and encourage diversity, at little net loss to the taxpayer, and that such mutuals would be less risk-based than those institutions that were there before.

My Lords, I am of course grateful to my noble friend for his constructive suggestions. He will have appreciated from my reply that we are considering all these matters, but in due course. There is no question of decisions being taken in the very immediate future, because they are very important decisions to take. As I indicated in my original Answer, we take on board the arguments that he presents to the House.

My Lords, does the Minister agree that mutual status is no magic bullet, as we have seen from the disastrous financial failures that occurred in, for example, the Dunfermline Building Society, Equitable Life and the Presbyterian Mutual?

I agree largely with what the noble Baroness has said, although I prefer magic wands to bullets, which I always regard as being the silver kind when they are dangerous. However, I accept her point. Among the calamities that we had during that dreadful period a year to 18 months ago was, in fact, a mutualised society, the Dunfermline, which showed that the sector is not entirely proofed against difficulties. Nevertheless, I think that the House will recognise that a number of the casualties involved institutions that had been demutualised in recent times.

My Lords, I have been reflecting on the words of the noble Lord, Lord Myners, yesterday afternoon, when he said:

“There is nothing that I would like more than for a new mutual to be created”.—[Official Report, 03/11/09; col. 147.]

He said that he would like noble Lords to come up with constructive ways to do that. I suggest to the noble Lord—

Then I shall ask the noble Lord: would he like to look at the proposition that a mutuals’ mutual should be created? The existing mutuals—the 50 building societies and the very many mutual insurance companies—would be asked to put up some money for that mutuals’ mutual, which would also be backed by a government loan. That would then mean that the new mutual would, because of its size, be able to give services that the smaller mutuals cannot at present. Would the Government encourage that to happen?

My Lords, I am glad that my noble friend Lord Myners not only demolished the Opposition yesterday but encouraged constructive thoughts in other parts of House. He said that he wanted to see such thoughts and I am glad to receive them on his behalf today.

My Lords, would the Minister reflect on the fact that it was the Prime Minister’s decision to override competition policy and allow the purchase of HBOS by Lloyds—it is now having to be partially broken up—that contributed greatly to the mess that we are now in?

My Lords, the noble Lord underestimates the mess that we were in 18 months to two years ago, when there was a direct threat to Northern Rock’s depositors and a run on the banks of proportions that we had not seen for more than half a century. Of course dramatic measures were taken at that time, most of them opposed by the Opposition, either directly or through their showing scant regard for the constructive approach of the Government. I hope that the noble Lord would appreciate that we are in slightly better times today.

My Lords, the mutuals have a long tradition of success. The odd one has gone wrong, but on nowhere near the scale of the commercial banks that have gone wrong. Would it not help in seeking the future of mutuals to look closely at what happened in Holland, where the mutuals have done extremely well, and Canada, where they also play a major role?

My Lords, I am greatly encouraged to know that I have support from not only my Back Benches and the Liberal party but now, indeed, the Conservative Back Benches. Such constructive ideas will form part of the Government’s agenda.

My Lords, the noble Lord, Lord Myners, yesterday made it clear that, although he had looked at the possibility of remutualising parts of the currently largely nationalised banks, he could not find a way to do it. Would the Government therefore institute a formal broad-ranging review of other options that they could take—for example, the option promoted by my noble friend Lord Shutt—so that we and they could look across the piece at what could be done to promote mutualism in the financial services sector?

My Lords, the House will recognise that we have time on our side. We have no intention of selling, for example, Northern Rock in the immediate future, so we can begin to look at other constructive proposals. As my noble friend indicated yesterday, he looks forward to examining these matters.