Cicero Policy Briefer

Issue 11, April 2007

The Feeling’s Mutual: MPs turn out to extol the benefits of mutuality

By John Rowland

Bournemouth is a town that people associate with all sorts of things: retired people, the beach, conferences and stag nights. But what many people don’t associate with this town of 163,000 is financial services. Some of Britain’s best known financial services firms from Abbey Life to Standard Life have large offices perched just a few minutes away from the seven miles of Bournemouth Bay’s golden sands. And, unlikely as it might seem, this corner of Dorset is a bastion of mutuality too: the HQs of Portman Building Society and LV=, the UK’s third largest building society and largest friendly society respectively, are sited here. It is entirely fitting then, that Sir John Butterfill, Conservative MP for Bournemouth West, should be piloting his Financial Mutuals Arrangements Bill through Parliament.

Members of the Building Societies and Financial Mutuals group turned out to support the Bill in a notable show of cross-party bonhomie when it received its Second Reading—and thus its first debate—on 23 March.

The Bill is set out in three clauses, each of which addresses a different aspect of the regulation of mutuals.

• Clause 1—Increasing the proportion of funds that a building society can raise from non-members
  
  The Building Societies Act 1986 created the 50 per cent funding limit, which while adequate for now, is unlikely to be so in the future. Increasing the limit would allow mutuals greater access to capital markets than is presently possible and allow greater flexibility for the sector going forward. Sir John is seeking a 75 per cent limit, though the final level may well be decided by the Treasury through the issuance of regulations.
• Clause 2—Giving members pari passu rank with other creditors should the society be wound up
  
  This is essentially a corollary of the change in funding limits; since many consumers choose building societies because they regard them as safe and secure, it is prudent that they should be granted this extra protection should the society look to increase the proportion of funds it raises from capital markets.
• Clause 3—Addressing the transfer of engagement rules
  
  Currently it is not possible for a member of one mini-sector (such as building society, friendly societies or co-operatives) to amalgamate with a member of another mini-sector without one of them demutualising. This clause would allow mutuals to consolidate without demutualising, correcting what Labour MP Andrew Love argued was a patent unfairness under the current rules.

The prospects of the Bill reaching the Statute Book received a further lift when Economic Secretary of the Treasury, Ed Balls MP, lent the Government’s support to its objectives. However, the Treasury does have concern around Clause 3. Mr Balls said “in principle, we support the intention behind the clause, but it is undoubtedly the most challenging part of the Bill. There are still important legal and technical issues to be resolved.” The Government will therefore be tabling amendments when the Bill goes to Committee.

Though its passage through Parliament is by no means guaranteed, Sir John has got one step closer to the remarkable achievement of getting a fourth Private Member’s Bill enacted.

John Rowland can be contacted on +44 (0)20 7665 9530 or click here to email.