13 November 1997
SPEECH by the ECONOMIC SECRETARY to the treasury AT THE BUILDING SOCIETIES ASSOCIATION ANNUAL LUNCH
Introduction
Thank you for inviting me to speak to you today. Perhaps I can begin by setting out my credentials. Although my involvement with some of the issues I deal with as Economic Secretary does not date back much beyond last May, my involvement with building societies, and with mutuality in general, goes back much, much further. Coming from where I do, it could not be otherwise.
Mutual societies - both building and friendly - and cooperatives formed an essential part of the environment in which I grew up and they - along with credit unions, which are particularly strong in Scotland - are equally important to the constituents I represent today. In Airdrie, even the local bank is a mutual!
So I know from practical experience the benefits that mutuality brings and the quality of service and commitment that societies offer to their members.
In particular, smaller societies provide a regional focus with high level finance jobs in their headquarters outside the City. They have a unique understanding of their markets, and are highly valued in their locality. And because they are closer to their members, they understand their needs and outlook.
In the last few months, I have become even more aware of how widespread the contribution of mutuals is to the UK economy, through the competitive products offered by mutual insurers and friendly societies and through the competitive rates which building societies offer for savers and borrowers. I have also seen that affection for societies, and their mutual principles, extends well beyond the communities in which I have lived and worked, to cover all parts of our country.
But equally I could hardly have failed to notice that the movement also feels itself under attack. And as most of you will know, the BSA has been pressing me hard to introduce secondary legislation to strengthen further the considerable degree of protection that societies already have from the so-called carpetbaggers, and other perceived threats.
There can be no doubt that the recent spate of conversions and takeovers has been a considerable blow to those committed to mutuality. And the blow has been all the harder because those societies that have left the sector in recent years have done so not because of carpet baggers and hotly contested take-over battles, but because their Boards have recommended the change as being in the former societies' interests, and their members have accepted their advice.
So it is not the carpetbaggers who have orchestrated this change, but people who, a couple of years ago, would have been sitting next to you at this lunch and clapping loudly when mutuality was praised.
I think I need to make that point, because from what I hear there is a feeling abroad that the threats to the future of building societies are very largely external, and that the response is mainly someone else's responsibility. That may be comforting for some, but in the end it is a dangerous and an unnecessarily dispiriting doctrine.
Mutuality does have a future. Millions in this country do believe in it. And it is worth fighting for. But you have to be in the front line. No one can do it for you.
There has never been a better time for societies to set out their case - not just with words, but with products, rates and qualities of service that plc's will be hard pressed to match. I know some of you have started doing this, and others will claim to have been doing it for years. But there is a new element - the 1997 Act - which has given societies greater powers and greater commercial freedom than ever before.
1997 Act
This is an Act which the Labour Party helped get onto the statute book when in opposition. It has given you the ability to compete freely in offering the services which your members demand. It sweeps away the restrictions on commercial freedom that had been holding back development, and which had artificially disadvantaged societies compared to banks and other providers of financial services. It removed the qualifying asset threshold, so that there is no longer a distinction between the powers of smaller and larger societies. So the challenge, for societies, is to make the most of those new powers, combined with the unique benefits that their mutual status brings, to compete even more effectively in the market place than in the past. This is not just good news for societies. It is good news for anyone with money to save or invest, and those looking for affordable mortgages. And, as the Economic Secretary to the Treasury, I should perhaps declare an interest: it is good news for the economy as well.
The Act also strengthened supervision, so that these new powers would not put at risk societies' longstanding reputation as a safe place to invest money, which has benefited so many savers, and particularly the smaller savers, over the years. And when the functions of the Building Societies Commission are transferred to the Financial Services Authority, the stability of the sector will continue to be in safe hands, as the FSA can draw on an even wider range of skills and knowledge. The reform also brings societies into the heart of the financial services sector.
The final, and equally important element, in the Act was to give members a greater say in how their societies should be run, so as to underline the mutuality ingredient at the core of the sector.
This is a balanced Act: more powers, matched with improved supervision and greater accountability. As you know, the third and final Commencement Order was made earlier this month. So the Act is fully in place. Societies now need to get on and exploit its potential to the full.
Now let me say something about the BSA's proposals. As I have made clear to many of you on numerous occasions, they do raise difficult issues of principle, because they risk upsetting the careful balance introduced by the 1997 Act, by restricting the crucial third element of accountability. In essence, they seek to protect mutuality, by threatening to undermine the basic principles on which it is based - societies owned by, and run for, their members.
You only have to read the business pages of any newspaper on any day to see that an element of tension between the owners and managers of any organisation is normal and, indeed, healthy. As a Member of Parliament, and a Minister in the Government, I think I can claim to know a thing or two about accountability myself.
So, if some of you were expecting a dramatic announcement today, I am afraid that you will be disappointed, because there is nothing dramatic that the Government can - or should - do. But, as I have also told many of you before, I have been keeping the situation under careful review, and there is one item which some societies have put to me that does go with the grain of Parliament's thinking by ensuring that at least half the members of the society turn out and vote when a change of status is in prospect. So I have decided to increase the threshold on turnouts on conversions from 20 to 50 per cent (so that they are the same as on takeover votes). I know this is less than the BSA and many of you want, but as I said at the outset, the issue that societies face is not really one of external threats and Government responses, however tempting it might be to think that it is.
Now is the time to draw a line under the 1997 Act and the recent spate of conversions and takeovers, and to look to the future. Since I took office, the talk has been about defending mutuality. Now is the time to get out from behind the barricades and start promoting mutuality. Societies are not helpless. They are effective, efficient and much respected organisations which should have the confidence to put forward the case for mutuality to their members and the public more widely. I think that one of the reasons why certain members have been able to create the difficulties they have is that they are part of a relatively small number of people - as surveys have shown - who actually understand what mutuality is, even if they are bent on destroying it. The more people who know and understand the benefits of mutuality, the less likely they are to be seduced by the arguments for conversion or takeover.
You have a lot going for you. When the Nationwide Board stood out against the carpetbaggers, they won the day by a considerable margin. In a different - but not unrelated context - when the Coop Board took on Mr Regan, they saw him off.
Mutuality does have a future, if you have the commitment to give it one.