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Co-operatives, Mutuals and Friendly Societies Bill

Volume 728: debated on Friday 24 February 2023

Bill, as amended in the Public Bill Committee, considered.

Third Reading

I beg to move, That the Bill be now read the Third time.

The object of my Bill is to help ensure the best business environment for co-operatives and mutuals, and that means three things. First, we need a good policy understanding of the importance of mutual business, and that must stretch across Government to Ministers and officials. We recognise that it is always a challenge to get attention from a busy Department such as the Treasury, but well-informed and motivated Ministers and officials will give us a fighting chance. Co-operatives and mutuals are an important feature in a mixed economy when their different business purposes are recognised and allowed to flourish. Good policy is the foundation stone for that.

Secondly, on legislative reform, the Bill is part of making legislation on co-operatives and mutuals fit for purpose for a modern economy. Co-operative law was first introduced to this House in the 1860s, and formed the basis for co-op law in many countries around the world, but it has sadly not been kept up to date. We want to draw on the best practice in the world, which is why the idea of protecting assets for their intended purpose is so important.

Countries that have adopted such provisions have much more robust co-operative and mutual business sectors. The removal of the incentive to demutualise means that they can continue to grow in line with the interests of the members they serve. There is more to do on legislative reform, as my original Bill identified. We look forward to working with the Government to ensure that legal options are no longer a poor relation but match the standard of the best in the world.

Thirdly, we need regulators to appreciate the role of co-operatives and mutuals. We can have the best policy and legislation, but in practical terms, progress can be thwarted if regulators lag behind. They should no longer see their role as facilitating demutualisation, as they unfortunately did in the LV debacle. Instead, the true champions of consumers should be driving corporate diversity and choice. If there was one lesson to take from the global financial crisis, it was that we do not want all businesses following the same mistaken strategy. In that regard, diversity is strength, and regulation should take seriously its role in ensuring that co-operatives and mutuals are not ignored, or worse, homogenised into a single idea of business driven by shareholder-owned interests.

The Bill is one of a series of such private Members’ Bills over the last 20 years. I am proud to have played my part in bringing it to the House in the way that my predecessors did. There have been five Bills to modernise co-operative and mutual law, all of which have received Royal Assent. It is welcome that our efforts and endeavours have had the support of Treasury Ministers and from both sides of the House. This is one area in which there is genuine and lasting cross-party consensus. It is no less welcome that we enjoy today the support of His Majesty’s Government for this sixth such Bill. It is perhaps less positive that we have had to take this piecemeal private Member’s Bill approach to legislation, but I sincerely hope that the promised Law Commission review puts that right, and that a modern framework for business is established once and for all.

My Bill is about giving mutuals the option to maintain mutual capital for the purpose for which it is intended. There is a fundamental distinction between the rights of members of a mutual society and members of an investor -owned company. Members of a company—shareholders — have the right to a pro-rata share of distributed profits, or dividends, based on their shareholding, and to a pro-rata share of the underlying value of the company. The more capital they own, the greater their share of the profits and of the value of the company.

By contrast, members of a mutual society generally have neither of those rights because a mutual’s profits are not generally used as a mechanism for rewarding capital, and members of a mutual do not have any expectation of or entitlement to a share in the increased value of their society. As members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of the society exceeds the capital provided by members—otherwise known as capital surplus on solvent winding up—has no specific owner. It is effectively a legacy asset held by the society for future generations, enabling the society to provide for and invest in its future. That is a core part of the mutual’s identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations. The society was originally set up not to make capital surplus to reward members, but to provide goods and services for those who need them. That was its purpose, and it was the basis upon which previous generations have taken part in its trade.

Seen through the lens of investor ownership, a capital surplus is a tempting asset—a windfall of unearned profit that, were mutual members to be replaced by investor-shareholders, could be shared out among those shareholders. Capturing that asset is the usual incentive for a demutualisation, which is when a capital surplus or legacy asset is divided up between shareholders, when the mutual agreement between the former members, whereby they engaged in their society on the basis that they would not personally profit from its trade, is broken up. In short, it is when a mutual purpose for the common good is replaced by a profit-driven purpose for private benefit.

In UK law, there is no generic or principled recognition of the value to wider society of mutuality or the legacy asset of a mutual society. As a result, the ability to access legacy assets actively incentivises demutualisation. Provided that relevant formal procedures are completed, including securing consent from a statutory minimum threshold of members, a demutualisation cannot be stopped. The statutory minimum threshold has been changed from time to time for different types of mutual society to make demutualisation less likely, but these measures provide only partial protection. There is currently no statutory mechanism for ensuring that surpluses, which the previous generations never intended should be a private reward for anybody, remain committed to the wider public purpose.

At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. That leaves mutuals vulnerable to those simply aiming to liberate the legacy asset, share it out among those they choose and convert the business into an investor-owned company. That has resulted in much of the UK building society sector being lost, and their businesses then either failing or transferring to non-UK ownership. That has been bad for mutuality, and bad for the economy with the damage it has caused to corporate diversity. Demutualised former building societies were mostly absorbed into the banks that failed in the financial crisis.

Legislation is needed to help UK mutuals to preserve their legacy assets for the purpose for which they were intended: to maintain and encourage greater corporate diversity and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions that have a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval. That will be even more important if the legislative reforms for co-operative and community benefit societies I have explained are taken forward. To optimise the successful implementation of new legislation, properly recognising legacy assets for the benefits they bring will be an important ingredient for building confidence.

Many jurisdictions have acted to preserve mutual ownership by ensuring that the assets may be used only for the purpose they were intended. That ensures they cannot be distributed to members or third parties, thus disincentivising demutualisation. Mergers, dissolutions and transfers of business are still permitted, so this arrangement does not hamper the evolution of a business in any way. Ideally, such measures would be universal, but in some legal traditions that is considered problematic, as it arguably alters the ownership rights of members retrospectively. It is not desirable to cut and paste legislation between different traditions, so solutions are required that respect the political culture of different legal frameworks. To deal with this, simple legislation can be introduced in common law jurisdictions that would give every mutual the right to choose a constitution that preserves legacy assets for the purpose they were intended. My Bill does that.

My Bill disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purposes for which they were intended. It will empower mutual members to decide what should happen to assets on a solvent dissolution, and it will match the best legislation in many countries around the world.

My Bill would introduce a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets, or the capital surplus, would be non-distributable. It would detail precisely the destination of any capital surplus on a solvent winding-up and would outline the procedures necessary to include such provisions in a mutual’s rules. It would make statutory provision for the relevant rules to be unalterable. It defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. It would introduce new provisions to maintain the destination of the capital surplus and ensure that where a mutual’s rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company will also include a provision to transfer the capital surplus, as provided by the rules in the event of a solvent winding-up.

That is my Bill, Madam Deputy Speaker. I thank the Minister and his team for their co-operation and help in bringing it forward.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on his Bill’s successful Committee stage and on its reaching Third Reading today. Mutuals and co-operatives are not an insignificant sector of our economy: across the UK, the industry comprises more than 7,000 co-operatives, employing some 250,000 people with an annual turnover close to £40 billion. The sector is not standing still; it is growing, with more co-operatives forming despite the very challenging circumstances caused by the covid pandemic.

Perhaps nothing highlights the purpose of the Bill better than mutual insurers and friendly societies, the origins of which stretch back to the late 17th century. In 1703, the Amicable Society, chartered by Queen Anne, was set up to provide support to widows and children in the event of the policyholder’s death. Such organisations spread rapidly across the country. As the industrial revolution took hold in our towns and cities, mutual insurance and friendly societies acted as a social safety net for their members in case they were injured in what Blake described as the dark satanic mills. Thankfully, we have moved very far from those working conditions, but that does not mean that we no longer require mutual societies. The development of the sector continued for much of the 19th and 20th centuries. Many of the UK’s now well-known insurance companies began as mutual societies; there were then the various amalgamations, mergers and takeovers to which the hon. Gentleman referred.

There are 50 financial mutuals currently operating in the UK. According to the Association of Financial Mutuals, they represent 30 million members and write £20 billion of premiums annually; as I said, the sector is not at all insignificant. Many farmers in my constituency have policies with their local NFU Mutual, and people can remember the days of the man from the Pru—it was frequently a man—coming round to collect membership subs. Mutuals take many different forms. The Hughenden valley community shop in my constituency is a fine example of such an organisation today; it does a tremendous service to people in the area, and was particularly welcome during the pandemic.

In the insurance market, mutualisation is no longer the norm in the UK. Many of the well-known mutual assurance societies of old have been demutualised. The Prudential, Aviva—previously Norwich Union—and Scottish Widows were all mutual insurance societies, but are now fully commercial entities or subsidiaries of larger financial institutions. While I in no way criticise the work of those commercial entities, fully commercial organisations with shareholders have different priorities from mutual organisations, as the hon. Gentleman pointed out. There is absolutely room for both in our economy.

Mutuals now represent just 7.9% of the insurance market in the UK, according to the International Cooperative and Mutual Insurance Federation. That is far below the market influence that such organisations have on the continent: the market share is 58% in France, 60% in the Netherlands and 46% in Germany. There is scope for mutuals to grow again in the UK, and I welcome any comments from my hon. Friend the Minister about how we can increase competition in the insurance market to ensure that mutuals can compete with their commercial rivals

On the specifics of the Bill, although I appreciate that it does not represent the full proposals that the hon. Gentleman wished to bring before the House, he should be congratulated on and pleased with what he has achieved in securing Government support for this important piece of legislation. As my hon. Friend the Minister said in Committee, we should not let the perfect be the enemy of the good.

The changes proposed by the Bill will allow the Treasury to bring forward regulations to allow members of the society to choose to adopt legal restrictions, with the effect, as has been outlined, that the assets would be limited to specific purposes in line with the objectives of the mutual society. That will bring in a new degree of parity. At present, of course, the restrictions for mutual organisations are voluntary and based on the vote of the membership. As many hon. Members have noted in the Bill’s previous stages, that raises the possibility that restrictions could easily be removed in future, which would ultimately make it easier to demutualise.

The Bill will permit those mutuals that wish to remain mutuals a greater degree of certainty in protecting their legacy assets in future. It will also remove some of the financial incentives of demutualisation. Notwithstanding those potential advantages, I am particularly pleased that it is an opt-in system, because it is not for the state to dictate how such societies should operate; that should always be for their members. We should enable the possibility, rather than obliging any organisation to behave in a specific way. I commend the hon. Gentleman for bringing forward the Bill and I hope to see it on the statute book shortly, following its successful passage in the other place.

I, too, commend the hon. Member for Preston (Sir Mark Hendrick) on his strong advocacy for co-operatives and mutuals, and on the progress that he has made with the legislation. I am delighted that the Bill has been supported by hon. Members on both sides of the House at all stages.

Mutuals and co-operative societies are distinctive organisations in that they are owned by and run for the benefit of their members. Whether employees, suppliers or the community and consumers that it serves, those who are actively involved in the business control decisions, rather than outside investors. Mutual ownership therefore helps to ensure that decisions are focused on the long-term sustainability of the business. Profits are not distributed among members but returned to the community, so such organisations provide a legal structure designed for social enterprise.

Indeed, co-operatives spring from local communities. They are bottom-up, grassroots organisations that are set up to provide goods and services for those who need them. Clearly, mutuals play a hugely important role in our local areas for education, engagement, charity and, fundamentally, the financial services that they offer. They provide a way for communities to come together to solve problems.

I have always been a strong advocate for the social enterprise movement in this country. Social businesses, including those that are community owned, are responsible for job creation in areas of deprivation—jobs that last and provide the crucial spirit of enterprise and innovation that our left-behind areas need. That makes the growth of co-operatives in the UK an integral part of the levelling-up agenda.

In 2021, co-operatives were five times less likely to permanently close than other UK businesses, and they were significantly more likely to tackle other important projects, such as decarbonisation, technology and the current cost of living challenges. Co-operatives have been incredibly resilient in the face of the pandemic, with the sector growing by an impressive £1.1 billion in 2020, despite the economic challenges resulting from national lockdowns.

On Second Reading, it was good to hear hon. Members acknowledging the start of the co-operative movement, so it would be remiss of me not to mention its history in Stoke-on-Trent. One of the earliest co-op traders was a potter called James Colclough, who opened Stoke-on-Trent’s first co-operative store, and the Birsle Co-operative Society was founded in north Stoke-on-Trent in 1901. It became one of the most successful mutual commercial enterprises that Stoke-on-Trent has known.

Originally, there were 200 members who each subscribed four shillings and promised to make those four shillings into £1 as soon as convenient. In the first balance sheet issued by the society in 1901, the amount of share capital plus interest was £175. By 1932, the amount of share, loan and bank capital of the Burslem and District Industrial Co-operative Society was £1,209, and it had 50,000 members and 112 shops.

This Bill is important to ensure that co-operatives and mutuals continue in the modern era. The increase in legal certainty that wealth built up over time will not be squandered by future members for short-term personal gain will encourage confidence, reassuring investors. This legislation is needed to help UK mutuals preserve their legacy for the purpose for which they were intended, which is making sure that additional available capital surplus can then be re-invested in economically, environmentally and socially productive enterprises. We should not allow capital to be blown at the whim of speculators and investors. It is important to lock capital in the places where it belongs for the benefit of the people it was invested for.

In the UK, the sector is relatively small compared with some European economies. Less than 1% of businesses in the UK are co-operatives. Germany’s co-operative economy is four times larger than the UK’s, and France’s is six times larger. Clearly there is some work to be done here, but this Bill provides an opportunity to rediscover and promote the co-operative model. I do not know if Members have seen the film “Bank of Dave”, but it is the very inspirational story of a gentleman from Burnley who set up a bank for the benefit of the community. I have been campaigning for this sort of thing in Stoke-on-Trent, because I think that a financial model enabling people to lend to each other, but also for them and community charities to benefit from the profits, is one we should all be looking at.

I just want to thank the hon. Member for Preston for giving us the opportunity to discuss these issues today. There is clearly a significant appetite for reforms of the mutuals sector, and I look forward to hearing about its success following his Bill.

It is a pleasure to follow my hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon). I join her in congratulating the hon. Member for Preston (Sir Mark Hendrick) on bringing forward this important Bill, piloting it through its stages so far and, indeed, securing the important cross-party support that he has secured for this Bill. Co-operatives play a vibrant part in our economy, as others have said. They bring greater choice to consumers and greater choice to people who need the goods and services that they put together. I hope I maintain the spirit of cross-party support for the Bill when I say that the co-operative movement is part of a vibrant free market economy in the United Kingdom, and we should celebrate that.

As my hon. Friend the Member for Aylesbury (Rob Butler), my constituency neighbour, commented, the more we can drive the ability for co-operatives to compete with their commercial counterparts, the stronger our economy overall can become. I particularly endorse the point he made about the importance of this being an opt-in Bill. It is not the state dictating or this House setting out a “how it must be” clause for co-operatives, friendly societies and so on to operate; it is something about which those organisations must make an active choice for themselves.

To go to the heart of the Bill—this is why I believe it to be an important Bill that, as the hon. Member for Preston said, brings the legislation up to date and moves the sector forward from its legislative origins all those decades, if not centuries, ago—the very hub or core of the co-operative movement is about people doing something because they want to create a better society, a legacy and, indeed, something lasting. When organisations fail or are forced into some form of closure we can see that that legacy can be lost all to easily if there is no protection around the assets. That is why I believe it to be so important, and as my hon. Friend the Member for Aylesbury indicated, this is no small undertaking. The helpful House of Commons Library paper on this details how 7,200 co-operatives were employing 250,000 people across this country. That is no small thing; that is a significant part of our economy, stretching across 14 million members. My hon. Friend mentioned the Hughenden valley community shop in his remarks, and that is a wonderful example from Buckinghamshire. A simple search of the Co-operatives UK website indicates just how far reaching co-operatives, mutuals, and friendly societies are in my constituency.

The Buckinghamshire Community Energy company works across the whole county. It is registered in my hon. Friend’s constituency at Stoke Mandeville, but it enables schools, public buildings, and businesses across the county of Buckinghamshire to cut their carbon emissions. The wonderful Brill Village Community Herd, and the 335 square miles of the Buckinghamshire constituency that I am fortunate enough to represent, is without question the most beautiful part of the United Kingdom. Indeed, Brill common, which the Brill Village Community Herd serves, is among the top most picturesque parts on top of that. The work it does is so important to maintain not just the village of Brill, but the picturesque countryside, nature, and biodiversity of Buckinghamshire.

The Buckingham Rugby Union football club exists on this model—an important community asset. I was lucky enough to speak at its President’s Lunch the other week. Buckingham has had a poor season so far and they have not yet won a match. They were playing a team from the constituency of my right hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), but unfortunately there were no careless mistakes in the match, which led to Buckingham losing again. Nevertheless, it is an important asset. We have the Cuddington Allotment Society, the Kimble Allotment Society, Long Crendon Community Social Club, the North Marston community shop, Ickford village association shop—so many organisations, including Westbury community shop and café, Wing Allotment 1972 Society, the Royal British Legion, Winslow Rugby Union Football club, and Twyford village stores.

I am learning a great deal about the hon. Gentleman’s constituency that I was not previously aware of, so I think him for that. I recognise what he is discussing because I, too, have such cases in my constituency. I wanted to ask about the building societies that we still have, and the diversity of our financial services sector. If we had retained more of the mutual building societies in the ‘70s, for example, would we still have had the same financial crash in 2008?

On the point about high street banks, it is noticeable across the Buckinghamshire constituency that in 335 square miles there is only one high street premises left standing, which is the Nationwide in the town of Princes Risborough. I do not share the hon. Gentleman’s projection that we would not have had the 2008 crash had we not seen the demise of so many building societies, as many other factors were at play there. Indeed, a note highlighting one of those factors was left by the former Labour Chief Secretary to the Treasury for the incoming Government in 2010. [Interruption.] If he would like another bite, I would be delighted.

Perhaps the hon. Gentleman could be more precise about the point I was seeking to make, which was whether we would have been more financially resilient in the financial services sector, and the public’s money more secure, had we had a greater diversity and spread of those sorts of institutions in our economy, as perhaps they have in France.

I am grateful to the hon. Gentleman for his clarification. I believe that for a successful economy, there does need to be that diversity and spread of different models and different institutions—fully commercial enterprises, co-operatives, friendly societies and mutuals. As a committed free marketeer, which I accept the hon. Gentleman perhaps is not, those are the building blocks for a successful economy, and I certainly would not seek to diminish the role of building societies and mutuals in securing that diverse, successful and buoyant economy. We can certainly find some common ground there.

Having highlighted the wealth of friendly societies, mutuals and co-operatives across my constituency and their value to the United Kingdom economy, let me say that this Bill is a welcome bringing up to date of the legislation. I look forward to hearing my hon. Friend the Minister confirm the Government’s full support for the Bill as it passes Third Reading and goes to the other place. I hope to see it receive Royal Assent before too much longer.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) on bringing this Bill before the House, and also congratulate my hon. Friend the Member for Buckingham (Greg Smith) on listing pretty much every business in his constituency during his speech, which is quite the feat.

This is a really important Bill, and I want to cover some of the key points that make it so important, some of which have already been mentioned by other hon. Members and hon. Friends. It proposes a way for co-operatives, friendly societies and mutual insurers to grow and develop their organisations while maintaining their commitment to member ownership and control. That is important, as it will enable co-operatives to compete on a more even playing field with their corporate counterparts and increase their impact across all sectors.

The current legislation that governs the raising of capital by co-operatives is, as we know, somewhat inflexible. The Bill would enable co-operatives to raise more money by issuing equity shares that are repayable at the option of the society, rather than being withdrawable at the option of the members. By introducing repayable shares, the Bill would enable co-operatives to raise amounts in excess of the current £100,000 holding limit for withdrawable shares. It would also provide legal certainty as to whether co-operatives can choose to repay non-withdrawable shares. Those changes have the potential to lead to large, capital-driven co-operative societies raising millions of pounds or more each year in equity, which could then be used to invest in important initiatives, tackling issues such as decarbonisation, technology, and the current cost of living crisis. The Bill would enable co-operatives to secure increased investment while retaining their democratic structures and ensuring they work in the interests of their members, something that I know is of great importance to the hon. Member for Preston.

We need to talk about co-operatives and about the British co-operative movement, starting with its history. In 1844, on the other side of the Pennines, the Rochdale Pioneers founded the modern co-operative movement to provide an affordable alternative to poor-quality and adulterated food and provisions, using any surplus to benefit the community. That was the start of the modern co-operative movement; as my hon. Friends the Members for Aylesbury (Rob Butler) and for Buckingham mentioned, the movement has grown substantially since then, with 7,200 co-operatives employing 250,000 people, 14 million members, and a combined turnover of just under £40 billion. That is how big the modern co-operative movement has grown.

When we talk about the co-operative movement, people mainly associate it with retail. I have many retailers in my constituency, in Dewsbury, Mirfield, Kirkburton and Denby Dale. We have a large Co-op in Mirfield; we have a smaller one around the corner from me in Dewsbury, on Leeds Road, as well as one in Skelmanthorpe and one in Shepley. Those Co-ops are an important community asset for the larger towns and the small villages in my constituency. One thing I do have a quandary about is that in 2015, the Co-operative Group decided that it would carry on financial contributions to the Labour party, so that always puts me in a difficult position when I go into a Co-op retailer. Having said that, the lure of French grain vodka and the pork and chorizo pies far outweighs that concern, so I am happy to go in there, hold my nose and buy those items.

I take issue with my hon. Friend the Member for Aylesbury, who mentioned the man from the Pru. Many years ago, I was the man from the Co-op. Co-op Insurance Services provided an essential route to plan for funeral costs for people who were less wealthy, in a fairly similar fashion to the man from the Pru—but I have to say, I prefer the man from the Co-op, as I was at the time. The Co-op had penny policies. We would go around as financial services reps and collect pennies from people in their houses, which would provide for their funeral costs in the future. That has obviously expanded now, but people were literally giving me a year’s worth in advance—I would get 52 pence. If they were particularly well off, they would give me 10 pence a week on a four-weekly basis, which was £52 for the year.

That was really essential, and it shows that the co-op movement was providing funeral services for people and offering affordable burial costs, which, as we know, are really expensive. Co-op Insurance is now a multibillion-pound business that provides pensions, investments and essential services. There are various parts of the Co-op, such as banks, funeral services, which I have already mentioned, and travel services. This demonstrates the importance of the co-operative movement—despite, obviously, its association with the Labour party.

In conclusion, I commend the hon. Member for Preston for introducing this very important Bill, and I wish him the best of luck with it.

I begin by warmly congratulating my hon. Friend the Member for Preston (Sir Mark Hendrick) on his important Bill, which receives its Third Reading today. My hon. Friend has worked tirelessly to build cross-party support for the Bill, the success of which has been evident today. I also congratulate him on securing Government backing for this legislation, and for that support I extend my thanks to the Minister.

As we have heard during debates on the Bill, including today, Members across the House see the huge value of co-operatives, mutuals and friendly societies. There are now over 7,000 co-operatives operating in the UK, with a combined turnover of almost £40 billion, and almost 235,000 people earn their livelihoods directly through co-operatives trading in a range of different sectors.

Co-operatives have proven resilient in the face of hardship. Despite the covid-19 pandemic and the economic challenges resulting from the national lockdowns, the co-operative and mutual sector grew by an impressive £1.1 billion in 2020. The resilience of co-operatives is also evident in the higher levels of productivity that can result from employee ownership. In the United States, for instance, the National Centre for Employee Ownership tracked the performance of more than 57,000 firms and reached the conclusion that employee ownership can greatly improve a business’s productivity and its chance of success. However, despite the fantastic contribution that co-operatives and mutual societies make to society and the economy, outdated legislation has prevented the sector from reaching its full potential in the UK.

Given their unique structure, co-operatives, mutuals and friendly societies are often excluded from traditional investment methods. Today, less than 1% of businesses in the UK are co-operatives. By comparison, as another hon. Member mentioned, Germany’s co-operative economy is four times the size of that of the UK. In Emilia-Romagna, Italy, co-operative enterprises generate close to 40% of GDP, and the province has the lowest socioeconomic inequality of any region in Europe.

Sadly, as we know, the sector is under threat from demutualisation. There was celebration across the co-operative movement last year when members voted to reject the controversial takeover of the insurer Liverpool Victoria by the private equity firm Bain Capital. I want to take this opportunity to recognise the work of my hon. Friend the Member for Harrow West (Gareth Thomas) and other in this House in protecting the mutual status of that historic firm.

My hon. Friend just cited statistics about Germany and Italy, but does he agree that one of the interesting things is the culture of mutuals and co-operatives? Their thinking on financial investment and return is much longer term, and that is surely to the benefit of investors.

My hon. Friend is absolutely right to point out some of the wider benefits of employee ownership and involvement, including longer-term thinking, greater investment and greater productivity. It is a real showcase for the value of co-operatives, friendlies and mutual societies, which Members from across the House have come together today to recognise.

Demutualisation remains a real and present threat to the sector. The provisions in the Bill are crucial as they will help to ensure that mutual capital is maintained for the purpose for which it is intended. Beyond this Bill, we believe that further support, such as giving co-operatives more freedom to issue perpetual capital to fund investment, would help to secure the future of the sector. We recognise that today is a significant, important step forward, and we are very pleased to give this Bill our full support.

It is always a pleasure to follow the hon. Member for Ealing North (James Murray). Today of all days, our thoughts are with the Ukrainian people. To that end, I also extend my thanks to the financial sector, which, through the provision of basic bank accounts, has ensured that more than 70,000 people and families who have come and made their home here are able to receive income, send money and pay for goods.

I congratulate the hon. Member for Preston (Sir Mark Hendrick) as his Bill reaches this important milestone. Its aims are as laudable as his long-standing advocacy for the sector. I also thank my team of officials, on his and the House’s behalf, for their work on taking this important reform forward—Joshua Grey, Logan Cuthbert, Lucy Alawi-Yates, Emma Kavanagh, Alanna Barber and Harriet Hill.

We are all aware—this has frequently arisen in discussions about this Bill—of the UK’s special place in the history of the mutual movement. We heard that again this morning from many hon. Members of this House, including my hon. Friend the Member for Aylesbury (Rob Butler). My hon. Friend the Member for Stoke- on-Trent Central (Jo Gideon) raised the Burslem and District Industrial Co-operative Society. My hon. Friend the Member for Buckingham (Greg Smith) reminded us of the importance of the co-operative movement in the free market movement, and mentioned the Buckinghamshire Community Energy co-operative and the Brill village community herd. We cast new eyes on my hon. Friend the Member for Dewsbury (Mark Eastwood) as we look at him as the man from the Co-op, come to collect, not spend his penny.

We have heard of how communities came together over a century ago, pooling their resources to meet their shared needs and face their common challenges. The hon. Member for Preston, of course, appreciates the unique history and impact of mutuals, not least because of the constituency he represents. The north of England is widely recognised as one of the birthplaces of the modern co-operative movement. It was in 1844 that a group of 28 artisans working side by side in the Rochdale cotton mills first came together. Their objective was to consolidate their scant resources so that they could assure access to better quality food and goods that their community had been excluded from.

The Rochdale co-operative movement was based on principles of openness and democratic control—one member, one vote. In that way, the 28 Rochdale pioneers shared in the profits that their custom generated, and triumphed over the poverty that had been blighting skilled workers at the time.

This is part of our shared UK history, and there are even earlier examples of self-help co-operative organisations lifting communities above their common challenges. The Fenwick Weavers’ Society was the result of a collective decision by a group of weavers in Fenwick, Ayrshire, to form a society. The group’s 1761 foundation charter sits in the National Library of Scotland. Its formation was a response to a period of rapid flux for the textile industry in the mid-18th century, and its members came together to set a fair price for their work and guarantee a sustainable future for their trade.

Today the nation, communities and people face different challenges, having come through a global pandemic while a war in Europe rages on and inflation, although coming down, continues to make everyone poorer. That is why our Prime Minister has set this Government five clear challenges, the first of which is to halve inflation in order to give respite to businesses, ease the cost of living for households and give people financial security. The second is to grow the economy, and in doing so to create better-paid jobs and spread opportunities across the length and breadth of the country. That is doubtless at the heart of the co-operative movement. Fourth, fifth and sixth are to cut our national debt, to cut NHS waiting lists, and to pass new laws to stop small boats so that ordinary workers in this country get the fair deal that they deserve.

As Members will know, the first seed of the original mutual movement lives on in our modern mutuals sector, which consists of diverse, commonly owned and democratically controlled enterprises that exist to provide vital services to their members—a genuinely diverse part of our wonderful United Kingdom financial services sector. According to one recent analysis, the UK mutual insurance sector served 32.3 million policyholders and collectively employed 26,400 people in 2021. Another form of mutual organisation that continues to thrive and deliver value to society is the co- operative, which, as we have heard today, operates across all industries and in many constituencies including my own, in sectors from farming to retail to housing. Owned and controlled by members close to them—whether they are workers, shoppers, suppliers or co-residents—co-operatives give people a stake in how they are run. Analysis by the trade body Co-operatives UK found that this sector was worth nearly £40 million to the UK economy in 2021.

Because of their ownership model, mutuals are uniquely invested in doing right by their members rather than in gaining short-term profit at all costs. That makes them key partners in many of the Government’s policy priorities, such as the financial inclusion agenda that is so important to me. It is no coincidence that financial mutuals lead the way in many of the low-cost product offerings, such as affordable healthcare solutions or investment products at price points that—if not quite a penny a week—encourage the financial participation of a broader swathe of society.

Modern mutual banks, invested in the success of their local economies, are able to leverage locally based decision making to ensure that their services reflect the needs of the communities they serve. They are a real asset in our mission to level up and spread economic activity across the regions. I would like to see more mutual organisations of every type, and I am very open to proposals such as those in the Bill, which the Government are proud to support. I am very open to ways in which we can tailor our regulatory structure to promote the growth and, indeed, the new formation of mutuals across our financial sector. This is a real form of diversity.

Mutuals are a big deal in the here and now. In many cases they rest on the legacy left behind by others—the successive generations of memberships who paid into the pot, as the hon. Member for Preston reminded us. They did so on the presumption that that surplus would be held in common, without personal entitlement, to support their peers in times of need, for the betterment of society and for future generations. That is why I have always been receptive to the view expressed by Members on both sides of the House that these funds should remain in mutual hands for the purposes originally intended.

I support actions to secure our mutuals heritage, which is why the Government are pleased to support the hon. Member’s Bill. The Bill applies to co-operatives, friendly societies and bodies corporate that carry on the business of mutual insurance, and it aims to equip those mutual entities with a stronger option in law, an asset lock, to restrict the use of surplus funds for their chosen purposes. By permitting a stronger lock in law for those entities that wish to adopt it—and I am sure many will—the Government aim to provide the sector with an additional deterrence against demutualisation.

Will my hon. Friend say a little more about the significance and importance of the opt-in, as opposed to compulsion?

My hon. Friend, as well as being a doughty champion for the co-operative movement in general, is right to emphasise the voluntary element. It is right that those membership organisations that wish to use the lock have the architecture within the Bill to do so, but it is not the business of Government to interfere with the strategy, desire or, in some cases, need of those in the mutual sector to consolidate or raise capital through other means by taking all those options off the table with a mandatory asset lock.

That approach is typical of this Government. My hon. Friend will understand, as an experienced man of business, that our principle is to allow people to regulate and conduct their affairs in the way they feel best serves their needs. As he knows, we have heard very clearly that the mutual sector likes this architecture and will benefit from it. In that context, it is right for the Government to support the Bill.

As my hon. Friend says, it is important that the Government are in favour of the mutual movement, yet last year Liverpool Victoria was at risk of being taken over by private equity. Does he think we have the right balance between the free market being at liberty to appoint capital as it thinks best and the Government’s objective of supporting the mutual movement and allowing it to grow?

My hon. Friend raises a point we have discussed a number of times during the Bill’s progress. It is a poster case for the need to provide some sort of protection. Without getting into the details of that case, Liverpool Victoria clearly continues as a mutual to this day, after deciding not to accept those offers. It is probably right that people were able to make those offers, but it is equally right that members were able to determine the outcome for themselves.

As I hope my hon. Friend recognises, the tapestry of the Government’s financial regulation role and the needs of a vibrant and competitive market occupies all my waking hours. It is a difficult task to calibrate, but we are greatly assisted by the presence on these Benches of so many colleagues with so much experience to offer. It is always a joy to receive representations on behalf of the myriad parts of the sector, all of which we are trying to help grow and deliver jobs across the economy. As I never fail to remind the House, two thirds of jobs in the financial services sector are outside London and the south-east. The sector touches communities across the country, as we have heard again today.

By permitting a stronger lock in law for those entities that wish to adopt it, the Government are aiming to provide the sector with an additional deterrent against demutualisation. It will empower mutuals to continue the legacy left by previous generations of members to deliver in service of their members and wider society. However, the Government are not seeking just to play defence on the mutual model; we want to advance the interests of the sector and to grow diversity so that we have a rich financial services sector that has all sorts of forms of ownership within it.

As the House will be aware, we are taking action to support credit unions, which are another type of member-owned, democratically controlled financial institution. This Bill does not apply to credit unions, but through the Financial Services and Markets Bill we are seeking to promote that sector. As the latest Prudential Regulation Authority data shows, there are 249 credit unions in Great Britain, representing more than 1.4 million adult and child members. There are exactly 650 constituencies; would it not be wonderful if every one of them had a thriving credit union? That is a vision for us to hold in mind.

As the Financial Services and Markets Bill makes its way through the other House, we are making a number of important amendments to the Credit Unions Act 1979 to allow credit unions to offer a wider range of products and services. Where they decide it is in their interests to do so, they will be able to offer hire purchase agreements and conditional sale agreements, and to distribute insurance products to their members. Those are all ways in which they can increase their utility to their members, and improve their own scale and financials, which is one of the challenges that they have had. We will also allow them the option to lend to and borrow from other credit unions on a short-term basis, which will sometimes allow them to manage their liquidity better. Again, that will improve the strength and resilience of the sector. That delivers on interests that were raised with the Government by the sector.

The Financial Services and Markets Bill also gives the Government a new power to allow credit unions to offer further products and services in the future through secondary legislation. The message is that the door is ajar. If we hear representations from the sector about more ways in which this Government can be on its side, it should keep pushing, because we will have the ability through secondary legislation to do that.

Additionally, the Government are taking forward a programme of work to ensure that building societies, mutual savings providers and mortgage lenders have a modern and fit-for-purpose legislative framework that promotes opportunities for growth. We have concluded our consultation on the Building Societies Act 1986. As was announced in the Edinburgh reforms package, the Government will in due course bring forward legislation to amend that Act. That will give building societies further flexibility in raising wholesale funds and help to modernise corporate governance requirements, enabling building societies to compete on a more level playing field with retail banks and, again, to promote competition and diversity of provision within the financial services sector.

We are not stopping there. The Government are committed to the health and prosperity of the mutuals sector, and we recognise the valuable contribution mutuals make. It is a matter of record that I believe we need to go further to cement a modern and supportive business environment in which mutuals can thrive. That is why we continue to have active discussions with the Law Commission on options to proceed with reviews of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching those reviews in the next financial year. Work is ongoing to define the terms and scope of the reviews, which includes close engagement with the sector, and I expect to be in a position to provide an update with more detail very soon, particularly as I know that many Members here today have a keen interest in that work. Clearly, that is something we wish to see move forward and I am sure it will. As such, I can confirm that a core aim of the reviews will be to focus on dysfunctions in the law that result in those organisations being unnecessarily impeded or facing additional time, expenditure or opportunity cost.

In conclusion, the prospects for mutuals are bright. I am delighted that we have been able to make progress on this important Bill today. I commend the cross-party spirit in which the hon. Member for Preston and the Opposition have worked closely with the Government and officials. I am very happy to commend support for this Bill.

With the leave of the House, I wish to thank all my friends and colleagues in the House for their support of my Bill. I also thank the variety of Treasury Ministers who, due to a number of reshuffles, have been able to work with me on the Bill from last year to now, including the hon. Member for North East Bedfordshire (Richard Fuller) and the current Economic Secretary to the Treasury. My thanks go out to all the Treasury civil servants who are present in the Chamber today. I wish to thank Peter Hunt and Mark Willetts at Mutuo for their help and advice in drafting the Bill, and also the Co-operative party, which has supported me throughout the whole of my political career, stretching back to the 1980s when I was in local government, the 1990s when I was in the European Parliament, and since 2000 when I entered this House.

Finally, I wish to thank in advance my noble Friend Lord Kennedy of Southwark for agreeing to take my Bill through the other place.

Question put and agreed to.

Bill accordingly read the Third time and passed.