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Banking Bill

I shall be coming to that point, but my hon. Friend has identified a good and close parallel. To paraphrase the manager of the then Halifax building society, offer people a sufficient amount of money and you can convince them of anything. In circumstances that had never been seen before, building society members stood to receive windfalls for doing little more than turning up and voting. Unsurprisingly, that led to significant numbers of speculators opening an account for the minimum necessary amount, gaining voting rights and thereby shamelessly manipulating society votes in favour of demutualisation. Even at the time, the benefits were questionable. On the basis of a projected pay-out of £2,000 per head, Bradford & Bingley members voted for conversion, but in reality the average conversion turned out to be worth less than one third of that, at £650. Customers with modest savings doubtless benefited from the effort-free handouts on offer, but those with more substantial sums invested were trading short-term gains for long-term losses. In many cases, people with their life savings invested in mutual institutions would have made far more in interest alone over the past 10 years than the few hundred pounds that they walked away with at the time. When they lost their mutual status, the building societies lost their ability to offer higher interest rates, and they also lost their security. However, the incentives for senior managers were never in doubt. The pay increases that come with executive management of investor-owned rather than mutual companies guarantee positions in the newly created and higher-status organisations. The urge to increase the business rather than improve the service, as well as profit-linked salaries and a generous dollop of testosterone, all help to drive executive enthusiasm for conversion. We can still feel the power surging through the boardrooms of the former building societies 10 years ago, even though we are 10 years on. In the case of the Cheltenham & Gloucester takeover by Lloyds, as it then was, sweeteners included share options for the chief executive worth four times his salary, as well as cash payments to the chairman, the chief executive and their families totalling nearly £100,000. The figures from the demutualisation vote of Bradford & Bingley in 2000 paint a picture that was replicated in many conversion votes throughout the '90s. The following is a direct quote from the paper to which I referred earlier:"““the legislative requirements on voter turnout and voting support required for investors were set at higher thresholds than those for borrowers. In the case of investors, turnout and support requirements were 50 per cent. and 75 per cent. respectively, while in the case of borrowers there was no turnout requirement and only support by a majority vote was required for a conversion resolution to pass. Although the high thresholds set for investor members were intended to provide protection for the borrowers, in practice they may also have made it more likely that investors would vote, so tilting the outcome in favour of conversion…although overall the vote was in favour of conversion (62 per cent.), 60 per cent. of borrowers who took part voted in favour of the society remaining mutual. The result did not pass the statutory hurdle for conversion decision to go ahead; it was the board””—" what a surprise—"““which took the decision to initiate conversion proceedings on the basis of the result.””" I would like to see an opportunity for re-mutualisation. Mutual savings organisations are owned by their members. Members have a vote, and so a voice, in decision making. The company is incentivised to work for the interests of its members, not its shareholders, and still less its financiers. We must not forget that mutuals can often offer better savings and borrowing rates. They are an investment for the long term. They offer security and dependability. According to two independent surveys in the late 1990s, mutual building societies consistently offered the best loans over a variety of payment periods. The surveys found that nine of the 10 cheapest lenders in the UK were mutuals. Another survey shows that the cheapest 30 lenders throughout the 1990s, and the 10-year period in question, were all building societies. There is evidence, cited in the paper that I mentioned, that demutualisation exacerbates financial exclusion. The total number of building societies has fallen from more than 200 to fewer than 60 in the past 25 years. Financial institutions were merged or taken over, and their branches rationalised in the drive for efficiency. The recognisable, reliable and—above all—reachable branches that served many of the poorest and most vulnerable in communities across the country, including in North-West Leicestershire, have disappeared in the stampede towards petty pecuniary advantage. That was not just morally wrong, but largely mistaken. Work done during the height of the fad for demutualisation showed that building societies have tended to operate with greater efficiency and higher and less volatile profitability than commercial banks. It is surely no coincidence that credit unions have increasingly filled the gap left by the evisceration of mutual institutions. The need for stable, low-interest loans never went away, even during Labour's years of record economic growth and reinvestment in infrastructure and public services. The reach of mutuals is still short, however, and the respite that they provide to struggling families will be stretched in what will no doubt be a discontented winter. I close my remarks with a point made by the finest and greatest of the post-war Labour Prime Ministers, Harold Wilson. He said that our party"““is a moral crusade or it is nothing.””" For 10 years, we have helped to foster the best of times; we must now reach out to the most vulnerable among us in the worst of times. We in this House, whose job it is to take time to consider such matters, owe it to those in this country whose primary concern is to feed, clothe and support our families, to do whatever it takes to help them to achieve financial inclusion and security. Back in the year 2000, my party's Government, who have had so many remarkable successes, singularly failed on a number of occasions to show the leadership necessary to stem the tide of carpetbagging and demutualisation. A number of Members of this House were gravely concerned at the predatory actions of well-organised groups of carpetbaggers, stalking the mutual sector for easy pickings from which almost effortlessly to extract profits. The Prime Minister was asked whether he shared many of the concerns of my hon. Friend the Member for Leyton and Wanstead (Harry Cohen) about the behaviour of carpetbaggers. The obvious moral odiousness of that behaviour presents a significant threat to the ability of building societies to provide resources for affordable housing to those on low incomes.