26 June 2008
Speech by the Economic Secretary to the Treasury, Kitty Ussher MP to the Co-operatives UK Conference: Legislating for Co-operative Growth, Blackpool
1. Good morning everyone, it's great to be here in Blackpool at the Co-operatives UK Conference - and thank you, Pauline, for the invitation, as well as for everything that you do to represent the Co-operatives sector.
2. It's a sector that certainly deserves a strong voice, making sure that everyone knows about the important contribution you make to the British economy - and I want to come on to talk about that in just a moment.
3. But I hope you won't mind if I start with a personal reflection first.
4. Tomorrow it will be a year since the new Prime Minister rang to ask me to serve as his Economic Secretary.
5. It was a job that I'd always dreamed of - and despite some of the rather challenging times over the last year, I'm still absolutely delighted to be doing it.
6. Not just because of the important work that we are doing to bring stability to the banking sector, in the national interest, against a background of global economic difficulties. Not just because of the crucial need to do more in the area of financial inclusion and helping all people make the most of the money that they have.
7. But also, and in particular, the opportunity to take forward the work that my predecessor had started to do more to realise the potential of the co-operative sector.
8. Because I'm proud to be a member of the co-operative party, and have always thought of myself as a co-operatist, So it really was a dream come true to be handed the opportunity on a plate to do something about it.
Importance of mutuals sector, and Co-operatives
9. This is a sector that has, for me, always stood out.
10. Not just because of its long history - with friendly societies dating back to the seventeenth century, and the Co-operative movement to the 28 men and women of the Rochdale Pioneers in 1844.
11. At least that's the official history - there's an alternative version circulating around my constituency up the road from Rochdale in Burnley that proves beyond doubt that it actually all began there. Others say it was actually the Romans.
12. But also because mutuals have some unique qualities. Without shareholders, the benefits of efficiency and innovation can be passed directly to members - and mutuals' financial products are consistently in the 'best buy' tables.
13. And their values - like honesty, and social responsibility - mean that mutuals inspire a sense of trust and loyalty that you don't always get from other models of ownership; they create a sense of community, helped by the fact that they serve markets that others often ignore.
14. Proof, if any were needed, that social justice and economic efficiency can go hand in hand.
15. Of course, Co-operatives represent a major part of the mutuals sector, and of the contribution that they make to our economy, and to our society.
16. And there are now over 4,300 Co-ops in the UK, owned by over 11 million people - one in five of the British population.
17. Together, they create and sustain nearly 200,000 jobs, and contribute £27 billion in turnover, and £8.5 billion in assets to the UK economy.
18. And like other mutuals, they work where other organisations won't, in a vast range of different parts of the economy, and right across the country.
Support to the mutuals sector, and obstacles remaining
19. This is a sector that is doing a huge amount of good, and making a huge difference - but I think that you and I share the feeling that there's even more potential to be unleashed; and that Co-ops can achieve even more if they're given the chance.
20. My vision is of a thriving, dynamic mutual sector existing alongside and providing a real alternative to traditional forms of company ownership.
21. Over the last ten years, the Government has tried to help you to do that, by removing artificial restrictions, and trying to ensure that you can compete on a level playing field.
22. But it's also become increasingly clear that to make common ownership a genuine alternative to the company form, and to get the thriving, growing, dynamic mutual sector that I want to see, and that I know you want to see too, we need to update the legislation that governs Co-operatives and Credit Unions in particular.
23. Just over a year ago - before we had a new Prime Minister, and before I dared to think that I might be doing this job now - your 2007 Conference was in full swing, down in Brighton.
24. And one of the things that I'm sure you were talking about was the launch, just a couple of days before, of a document asking for your views on the legislative restrictions preventing Co-ops and Credit Unions from competing with companies.
25. That document followed informal consultation over the previous six months or so; and in December last year, we then published a further document setting out some options in more detail.
26. The aim of that consultation process has always been clear: to free the Co-operatives and Credit Unions from the outdated, overly restrictive legislative framework that they've suffered from for too long, and to liberate them to compete fairly and effectively with companies.
27. And I'd like to thank all of you, including Co-operatives UK, who took the time to get involved in that process - we received nearly 200 responses to last June's consultation, which I think shows your commitment to helping the sector grow.
Legislative process
28. The responses that we had were unanimous in agreeing that the legislative framework for mutuals needs updating.
29. And when we published the more detailed proposals in December, we said that we would legislate where possible to do what was required.
30. What I can do, here in Blackpool today, is explain how we will take that forward. Much of what we need to achieve can be done by a so-called Legislative Reform Order.
31. These Orders can be used to remove legislative burdens - and because they can amend primary legislation, they are capable of achieving large-scale reforms.
32. And combined with other secondary legislation that we plan to bring forward, we think that we will be able to address around three quarters of the issues that you identified as being important to allow the sector to flourish. The remainder can be packaged up by our lawyers into a relatively small bill that can either be ready to go when parliamentary time allows, or be added into a wider piece of legislation, if an appropriate vehicle can be found.
33. But whichever way we do it, we need the legislation to achieve three things.
34. First, to enable the sector to grow in economic terms.
35. Second, to help increase your efficiency and ability to compete, by removing red tape.
36. And third, to level the playing field with companies, so that the choice of different forms is driven by principle, and not by regulation.
37. Let me talk about each of those in turn - starting with the measures we want to take to make easier for cooperatives to grow and realise their economic potential.
Making it easier for mutuals to grow
First of all, we intend to increase the £20,000 limit on withdrawable share capital in line with inflation. We can do this through an order under the Industrial and Provident Societies Act 1975. Societies wishing to have higher transferable (non withdrawable) risk taking share capital should be able to issue this without limitation, and we intend to abolish the limit through the LRO.
38. I know that these are issues that are important particularly to the agricultural sector, and we have been keen to take action where it is possible to do so.
39. In a similar vein, I am pleased to clarify the position on nonuser investor members. When we consulted, we believed that legislation was needed to allow their participation. We now agree that is not the case. I have discussed with the FSA the safeguards they have in place to prevent non-user members acting in concert to force a demutualisation, a concern that many of you have expressed. I have been assured that the FSA can prevent such a course of action. So much-needed investment can be raised without putting at risk the principles which lie at the heart of your organisations
40. Taken together these two measures will I hope make it easier for co-operatives to expand and grow in a dynamic way.
Cutting red tape
41. Our second aim, cutting red tape, is designed to free the sector from unnecessary and in many cases completely out of date statutory burdens.
42. It is completely insane in the modern world, for example, that electronic communications between societies, members and the statutory authorities should be prohibited. We'll be sorting that out for a start with an order under the Electronic Communications Act 2000.
43. And we'll use the LRO to give societies the flexibility to choose their own accounting year ends and I'm also delighted to be able to announce today that we will abolish the onerous requirement to have interim accounts audited.
Levelling the playing field
44. Thirdly, as I've said, we want to provide a more level playing field between co-operatives and companies. Not only will this allow co-operatives to compete more effectively but it will also make it more likely that individuals trying to decide what company form to use, will go for a co-operative if they don't feel it will hold them back.
45. So we will, where possible, ensure that company law acts in the same way on the co-operative sector as it does on conventional companies.
46. We can, and will, use secondary legislation to:
- Allow directors to give a service rather than a personal address
- Give the same statutory definition of the duties of co-operative officers as exists for duties of company directors
- Align the requirements to notify changes of officers with those of directors
- Align the application of company rescue and administration regimes
- Align the guidance on service contracts, property transactions and loans between co-operative officers and company directors.
47. In addition we want to align the minimum age for being a co-operative officer with the minimum age for being a company director, ie 16. And we will ensure that young people under the age of 16 can be members of a society, without the need for special provision in the society's rules.
48. We can also make it easier through secondary legislation for a society to vote for dissolution, without the need for three quarters of the membership to sign an instrument. This, too can be achieved through the LRO.
49. All of this can be done through secondary legislation.
Need for primary legislation
50. We will consult on the legislative reform order in the next few weeks with a view to introduction early next year. The orders required to facilitate electronic communications and the assimilation of company law will be consulted on later this year to bring into effect later in 2009.
51. So I hope, that by this time next year, the vast bulk of what you have told us we need to do will either be law or be about to be law.
52. By all means invite me to your congress next year and hold me to that!
53. But there will be some issues remained. In particular, I know that the term 'industrial and provident society' doesn't really mean anything to people outside this room - and so we would like the change that through primary legislation when an opportunity arises.
54. We also want to use primary legislation to give powers to the registrar to strike off companies that are no longer in business, and to distribute their assets according to their objects. Primary legislation is also required to apply the provisions of the Company Directors Disqualification Act to the special circumstances of the mutual sector.
55. So as I have said we will take steps now to prepare for primary legislation so that as and when an opportunity arises, we will be ready to take it forward.
56. Even after that point there may be a case for a consolidation bill that brings all the relevant legislation under one roof. I will therefore suggest that the Law Commission have a look at this since there is a straightforward procedure by which parliament can act on their recommendations in this area.
57. Finally, a word on the registrar. I have been discussing this with the FSA and can say that they have already given a great deal of thought to how they can improve their registration service. We have confirmed with them that we do not intend to consult on the registration function as part of our review, giving them the certainty they need to plan for the future.I am sure you will hear more about this soon.
Conclusion
58. So, in conclusion, I hope you feel this is progress. We in government can say without hesitation that we want to empower your sector and see it grow.
59. We are committed to freeing the mutuals sector from some of the frankly non-sensical, outdated restrictions that you face - and we can do that. We want to give you the chance to compete more fairly and freely with companies so that common ownership becomes a genuine alternative to the company form, which has been one of my main objectives over the past year.
60. But we can't achieve any of this without working together. I'm very grateful to all of the members of the Working Group that we've set up to help us with our work on and Co-operatives, Credit Unions legislation, including you, Pauline, and also Helen Barber, Co-operatives UK's Head of Legal Services and Deputy Secretary.
61. That Group will have an important part to play as we move forwards, and I know that Co-operatives UK will continue to represent the Co-ops sector clearly, fairly, and passionately - and rightly so.
62. We're very grateful to you for that. And I'm very grateful too for the huge amount of good work that all of you do, day in and day out, at Co-ops across the country.
63. As I've said, I think this is a unique sector, with great qualities - but also huge potential to do more.
64. We all want to see to see Co-operatives, and the rest of the mutual sector, expand, develop and grow, and to make even more of a difference to people across Britain.
65. And by freeing the sector from the restrictions that it's faced for decades, we have the chance to make that happen. So, let's work together - and let's turn that chance into a reality.
66. Thank you for listening.