Industrial and Provident Societies Bill

House of Commons, 19 April 2002.

New Clause 1 — Power to modify, etc. to assimilate to company law

Gareth Thomas (Labour, Harrow West)

I beg to move, That the clause be read a Second time.

Michael Martin (Speaker, Glasgow Springburn)

With this it will be convenient to discuss amendment No. 4, in clause 3, page 3, line 35, leave out clause 3.

Gareth Thomas (Labour, Harrow West)

I am grateful that so many Members have chosen to be present this morning hopefully to complete the House of Commons stages of the Bill—I emphasise the word "hopefully".

The new clause and amendment No. 4 would replace clause 3 as it emerged from Committee. If the House will bear with me, I shall explain the effect of the new clause, and then set out the reasons for tabling it. New clause 1 narrows the power to amend industrial and provident society law by statutory instrument to assimilate it into company law to circumstances in which changes have already been made to company law. However, it broadens the range of sections that can be changed in that way while, as in the version presented on Second Reading, protecting those provisions that are central to the nature and identity of an industrial and provident society and which distinguish such societies from companies.

Subsection (1) of new clause 1 makes only one change to the text of the current clause 3(1). It limits the circumstances in which the Treasury would be empowered to use the statutory instrument procedure to amend industrial and provident society law to assimilate it into company law to times when there has been modification of company law. It does that by removing the words

"at any time, whether or not",

which appear in clause 3 before the reference to modifications of company law. The equivalent line in new clause 1 gives power only on any modification of company law.

That change makes the original version of clause 3(2) as it came out of Committee unnecessary, as it promoted the possibility of any historical modifications of company law being read across into industrial and provident society law almost immediately if the Government were so minded.

Subsection (2) of the new clause performs the role of the current clause 3(3), as amended in Committee, in that it deals with the provisions that can be amended by statutory instrument under subsection (1) of new clause 1. In that subsection, what can be modified by statutory instrument is described as "the relevant statutory provisions". Subsection (2) of the new clause defines those relevant statutory provisions by referring to the Industrial and Provident Societies Acts 1965 to 1978, and excluding those sections that define the nature of an industrial and provident society or that are essential to the nature of such societies. It differs from the version approved in Committee, which provided a list of those sections that could be amended rather than allowing amendment to any section other than the ones listed.

I would not want the House to run away with the idea that whole new areas of change are possible as a result of this slight change in approach. That would be a misplaced concern, as I shall show later.

A choice of sections to be excluded from the power by subsection (2) of the new clause was made on the following basis. Section 1 of the Industrial and Provident Societies Act 1965 defines the essential nature of industrial and provident societies as either co-operatives or community benefit organisations—bencoms as they are commonly known. They are excluded from change by subsection (2)(a).

Subsection 10(1), sections 16 to 18 and section 56 of the 1965 Act provide powers needed by the Financial Services Authority, as the regulator with which societies are registered, to vet rule amendments, to refuse, cancel or suspend registration of a society or its rules, to deal with petitions for winding up, and to ensure that the requirement that the society must be a co-operative or a bencom is adhered to. As a result, they are excluded from this power by subsection (2)(b), (c) and (g).

The other excluded sections provide specific and well-tried procedures for mutuals, building societies and friendly societies, and now for industrial and provident societies. Sections 23 to 27 of the 1965 Act deal with people nominating others to receive on their death property up to a limited value that they hold in a society, such as shares or loan stock. Sections 50 to 54, subsection 55(b) and sections 58 and 59 deal with reorganisations or dissolutions of societies by transfer of engagements, amalgamation or conversion to a company using procedures that are cheaper and easier than those otherwise available. They are excluded by subsection (2)(d), (e), (f), (h) and (i).

Subsections (3) to (6) are much the same as subsections (4) to (7) of the version of clause 3 that emerged from Committee. The limits of the power conferred to new statutory instruments are set out in subsections (3) and (4). Subsection (5) provides for the use of the affirmative procedure for any statutory instruments made under that power. Subsection (6) defines the key terms "modification" and "statutory provisions". Some minor alterations to the wording of subsections (1) and (2) have been made to accommodate the changes made to the previous version of the clause.

I have introduced the new clause, because, as I acknowledged in my response on Second Reading and in Committee, concerns were raised by hon. Members on both sides of the House about the breadth of the previous two versions of the clause, despite the provision for the use of the affirmative procedure and my willingness to include a defined list of sections that might be amended. Since Committee, I have also benefited from further advice and assistance on the technical issues and on some drafting problems that emerged.

Several points were highlighted. I was advised that the interpretation of the word "modification" in the earlier version of clause 3 was open to dispute. It was suggested that, when linked to a list of sections that might be modified, it might be possible to achieve only minor changes; for example, if the Treasury were minded to use statutory instruments in future, they would not deal with capacity issues for societies, or with problems in the ability of their committee or officers to contract for them or to apply rescue regimes for insolvent societies. Such avenues are available to companies and would represent a sensible modernisation of the industrial and provident society legal form.

In essence, the list agreed in Committee was too narrow. The latest advice is that it would not allow us to introduce additional concepts in industrial and provident society law, such as the possibility of using statutory instruments to deal with capacity problems. It would allow us only to modify existing concepts in the law. Members will recall that that gives rise to particular problems, as industrial and provident society law has not been substantially amended for an extremely long time—unlike the law for companies, with which many hon. Members will be familiar, and for friendly and building societies.

That situation is inadequate, as several of the sensible amendments that could be made to assimilate industrial and provident society law with company law would involve the introduction of additional concepts to I and P law, which have been incorporated in company law during the past 20 to 30 years. For example, company law was changed in 1989 so that third parties lending money have sensible protection if the company acts ultra vires.

In Committee, I used a rugby club as an example. A rugby club that is a company and uses company legal form borrows money to modernise its social facilities—perhaps for that glorious time when Wales again beat England in the Six Nations, which will happen fairly soon—[Laughter.] I cannot understand why that remark provokes such mirth. The provision of such social facilities may not be covered by the club's constitution, but if it is a company, the bank's investment is protected. On the other hand, if the club used the industrial and provident society legal form, the bank's investment might not be protected. The bank could lose its investment even though it had done nothing wrong.

I am advised that, technically, the reform in respect of capacity introduces an additional concept in industrial and provident society law. The current clause 3 would prevent that sensible reform, which is already standard for most other legal forms—certainly for companies and for friendly and building societies. The new provision could be implemented by statutory instrument, if the House and the Government are so minded, should an opportunity arise at a later stage when company law is amended.

Phil Hope (Labour/Co-operative, Corby)

My hon. Friend is over-optimistic in his remarks about the Welsh rugby team.

Is my hon. Friend satisfied with the amendments that have been tabled, and can he explain what he expects from the House as regards the point that he is making?

Gareth Thomas (Labour, Harrow West)

I am advised that these relatively minor amendments will help us to achieve a sensible modernisation of the industrial and provident society legal form. Some aspects of the I and P legal form differ from the company model. None of the changes is especially radical; they have been included in company law and friendly society and building society law for a long time. Sensible reform has not been possible in a number of areas thus far, so the sum of those parts means that when people have to decide which legal form is most appropriate for their community business they are put off using the industrial and provident society legal form. The new clause offers the possibility of achieving modernisation further down the line through those sensible changes, if the House is so minded.

New clause 1 overcomes the problems that I outlined because it gives a wider definition of the relevant statutory provisions. In the light of that, I hope that the House will support the change. By way of reassurance, I remind the House that during the debate on clause 3 in Committee, we discussed what could not be changed under industrial and provident society law. I highlighted aspects that could not be changed under clause 3 and, rightly, they cannot be changed by new clause 1 either. Hon. Members will see that certain key provisions of industrial and provident society law cannot be changed under new clause 1 without primary legislation. To the ultra-critical eye, those provisions might seem relatively narrow; they are listed in subsection (2)(a) to (i) and represent the fundamental differences between companies and industrial and provident societies.

It is worth reminding the House that under new clause 1 the power to amend those parts of industrial and provident society law that can be amended arises only as and when company law is amended in the future. In practice, therefore, only those parts of I and P law that are also covered by company law would be capable of amendment. In Committee, I referred to several sections of the Industrial and Provident Societies Act 1965 that could not be changed. For those Members who want to follow that discussion, it can be found at column 14 of the report of Standing Committee G on 13 February.

I referred to sections 11, 21, 14 and 44 of the Act. None of those sections could have been amended by clause 3 as it emerged from Committee, and it will not be possible for any of them to be amended if the House is minded to accept new clause 1. It remains the case that under new clause 1, the aspects of those sections that have no parallel in company law would be incapable of change.

In the same part of the debate in Committee, we also touched on the Treasury consultation document that was published back in May 1998, which consulted the industrial and provident society sector about a series of possible changes to industrial and provident society law. It heralded the possibility of change to registration procedures. That would require primary legislation. It could not be changed by the previous version of clause 3; it cannot be changed by new clause 1. As I said in Committee, that Treasury consultation document also talked about the possibility of changing the statutory definition of eligible societies that was contained in the 1965 Act. That would have required primary legislation, so it would not have been covered by clause 3 as it emerged from Committee. It still requires primary legislation, so new clause 1 cannot change that situation either.

In short, I recognise that the new clause, by reverting to a wider definition of the relevant statutory provisions that can be amended by statutory instrument, appears to widen the powers of the Executive. I know that there is widespread concern in the House when the possibilities of such powers are touted. As a widening of powers in the definition of relevant statutory provisions seems sensible to achieve what we set out to do, I consider it appropriate to narrow the circumstances so that those powers can be used only after company law has been amended. I believe that that is a balanced approach, and it is used in friendly society and building society law. Section 104 of the Building Societies Act 1986 and section 102 of the Friendly Societies Act 1992 have similar provisions. As those two forms of mutual have that facility in place already, I hope that the House will be minded to recognise that a similar provision is appropriate for the industrial and provident society sector too.

I understand that change to company law is on the agenda, so further progress to modernise the industrial and provident society legal form is possible soon. The Enterprise Bill proposes modifications to corporate insolvency law and director disqualification provisions, which could sensibly be read across into industrial and provident society rules.

More important, perhaps, I understand that the company law review is complete and that legislation to put into effect some of its recommendations could come before the House during this Parliament. In those circumstances, I hope that the House will feel that the new version of clause 3—new clause 1—provides an acceptable compromise between the need for assimilation of industrial and provident society and company law in many areas, such as insolvency, capacity, audit exemptions—which my hon. Friend the Member for Edmonton (Mr. Love) flagged up in Committee—and other aspects of corporate governance and, of course, legitimate concern in the House not to give excessive powers to the Executive.

I therefore commend the new clause to the House.

Dawn Primarolo (Labour, Bristol South)

I shall briefly express the Government's support for new clause 1 and amendment No. 4. I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on his excellent, detailed explanation of the provisions. The Government are keen that industrial and provident societies should benefit from a measure that would make it possible to update their legislation in line with company law. The Building Societies Act 1986 and the Friendly Societies Act 1992 contained similar powers and we welcome the opportunity to create the means of levelling the playing field among these different types of mutual organisation in this regard.

My hon. Friend was very careful, particularly in his last few sentences, in delicately explaining to the House that the scope of the proposed power, as originally drafted, for industrial and provident societies would have been much broader than that for friendly and building societies. In particular, it would have allowed the Treasury to amend industrial and provident society legislation at any time, independently of any modification of company law provisions. The version of clause 3 that was substituted in Committee is broader still.

Some hon. Members might be surprised to hear a Treasury Minister explaining to the House that such a power is considerably wider than would normally be conferred on any Minister or Department. Obviously, the movement realised that it could perhaps benefit more speedily from modifications to legislation under such an enabling clause. Although we support that sentiment in principle, we need to ensure that subsequent secondary legislation is enacted with the appropriate checks and balances that Parliament would normally expect for such delegated powers.

My hon. Friend's amendments will bring the powers to update industrial and provident society law into line with those applicable to other mutual societies. I believe that they are appropriate amendments, which will level the playing field for industrial and provident societies and create a mechanism whereby we can ensure that the societies do not fall behind any important developments in the framework of company law that are also relevant to the societies.

I thank my hon. Friend for being ever vigilant on the power of the Executive and congratulate him on his presentation thus far of this important Bill. I have no hesitation in supporting the amendments on the Government's behalf.

Gareth Thomas (Labour, Harrow West)

I am grateful to the Paymaster General for those comments. As I said in Committee, I can see no logical reason to oppose giving the Treasury additional powers, given the quality of its performance since May 1997. However, I have been advised that such an ambitious provision might offend against the constitution—

Steve Pound (Labour, Ealing North)

A trifle.

Gareth Thomas (Labour, Harrow West)

In reality, it is not such a trifle. It is important that we seek to achieve modernisation of industrial and provident society law in the appropriate constitutional way. As I said, there is the possibility of company law reform. Fairly soon, the prospect of change to company law through the Enterprise Bill holds out genuine prospects for further change to industrial and provident society law. I am delighted that the Government feel able to support new clause 1 and I again commend it formally to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 2 — Channel Islands

Gareth Thomas (Labour, Harrow West)

I beg to move, That the clause be read a Second time.

Compared with new clause 1, new clause 2 constitutes a minor and less fundamental change. It refers solely to the Channel Islands, where a slightly different legal jurisdiction applies that the Bill does not currently recognise, and which, I am advised, we should mention. The new clause will confer the power to make orders, and follows closely section 75 of the Industrial and Provident Societies Act 1965. It will ensure that industrial and provident societies in the Channel Islands can enjoy the advantages of the Bill, while acknowledging that the islands' unique constitutional position must be respected in the usual way by allowing for application of the legislation with appropriate adaptations by order. On that basis, I commend it to the House.

Rob Marris (Labour, Wolverhampton South West)

Given that we have just had a debate about whether powers should be wider than is necessary, could my hon. Friend clarify the meaning of the word "supplementary" in the context of subsection (2)?

Gareth Thomas (Labour, Harrow West)

rose—

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

Order. The hon. Gentleman will presumably deal with that point when he sums up, rather than in an intervention.

Dawn Primarolo (Labour, Bristol South)

The Government support the new clause, which will allow the provisions in the Bill, or any order made under it, to be extended to the Channel Islands. In practice, no such extension would be made unless the relevant authorities wished it to occur. Existing industrial and provident societies legislation either applies to the Channel Islands with modification, or can be applied by Order in Council. It is therefore right that the Bill should enable the provisions to be extended to the Channel Islands, and I can confirm to the House that we have consulted the relevant Channel Islands authorities, which are content for this provision to be included in the Bill. I therefore urge the House to support it.

Gareth Thomas (Labour, Harrow West)

I am once again grateful to my hon. Friend the Paymaster General for her remarks. Given the interest of my hon. Friend the Member for Wolverhampton, South–West (Rob Marris) in the new clause, perhaps I should set out what it will achieve in a tad more detail than I had intended.

The new clause is necessary because the Channel Islands constitute separate legal jurisdictions, and, as the Paymaster General stressed, in applying the Bill their authorities need to be consulted. It is therefore crucial that the new clause be included in the Bill. For example, under the new clause the Channel Islands co-operative society—a member of the co-operative union with which I consulted before Second Reading—can benefit from the protection afforded by the Bill's provisions, and, if the House is so minded, from modernisation of the industrial and provident society legal form further down the line, as statutory instruments are, hopefully, introduced.

In subsection (2), the word "supplementary" simply refers to necessary provisions in Channel Islands legislation that are additional to, rather than a replacement for, current rules. I hope that I have answered my hon. Friend's query in a sufficiently effective manner, and that the House will support new clause 2.

Question put and agreed to.

Clause read a Second Time, and added to the Bill.

New Clause 3 — Annual fees

Greg Knight (Conservative, East Yorkshire)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss new clause 4—Financial Services Authority: fees to be charged in respect of industrial and provident societies—

'Paragraph 17 of Schedule 1 of the Financial Services and Markets Act 2000 is amended by inserting after sub–paragraph (2)—

"(2A) Any fee charged in respect of functions carried out by the Authority under the Industrial and Provident Societies Acts 1965 to 1978 shall be fixed in a manner which has regard to the financial circumstances of the society or proposed society which is to pay it including their turnover, profitability and scale of operation and in no circumstances will the fee charged where an existing society's turnover was less than £1,000,000 in its last year of account or where a new society is applying for registration exceed the fee chargeable in respect of the equivalent function by the Registrar of Companies.'.

Greg Knight (Conservative, East Yorkshire)

As the Order Paper reveals, I have registered an interest, although I should tell the House that I am erring on the side of caution as I may not actually have an interest to declare. I have no idea whether Bridlington Conservative club, of which I am a paid-up member, is registered under the Industrial and Provident Societies Acts. From time to time, I also give advice—usually on entertainment matters—to various working men's clubs, some of which may well be registered under the Acts. Moreover, I am joint chairman of the all-party group on non-profit making members' clubs. Those facts may or may not amount to an "interest" in the parliamentary meaning of the word, but I feel it proper that I place them on the record at the outset.

In the history of civilised trading, the concept of limited liability is long established and well known. Those organisations that trade for profit—there is nothing wrong with that—usually form themselves into limited companies, thus enabling their liability to be limited to the value of the shares held, or to the extent of the guarantee given. The annual cost of maintaining such a company on the register, whatever the turnover, is £15, which has to be paid when the company files its annual return.

Other organisations, many of which are non-profit-making members' clubs, may decide to register under the Industrial and Provident Societies Acts. As their name suggests, such clubs are run not for profit but for the benefit of their members. In many areas, they are the heart of their local community. They often encourage, and sometimes sponsor, the participation of members and their children in sporting events, or the development of their musical skills. They are often the backbone of many underprivileged and deprived areas.

For many years, those organisations paid no annual fee to remain registered under the Industrial and Provident Societies Acts, but approximately six years ago an annual fee of £25 was introduced. Hon. Members may find it odd that a fee greater than the filing fee for a fat cat-led limited company was introduced, but it was. Now, however, an outrageous situation is developing. Moves are afoot to charge those organisations approximately £200 a year for the privilege of remaining registered under the Acts. That is unjustified and unfair, coming as it does at a time when the very existence of many clubs is in doubt.

I do not know how many right hon. and hon. Members have read an article in this week's edition of The Stage—the headline of which is "Epidemic of CIU club closures"—which states:

"Working men's clubs—one of the largest sources of work for British light entertainers—are closing at the rate of 85 a year, it has been revealed.

Kevin Smyth, general secretary of the powerful Club & Institute Union, told The Stage that a total of 425 member venues have shut during the last five years. And since its high point in 1974, the CIU has seen its total number of affiliates"—

affiliated clubs—

"drop by nearly one third—from 4,000 to 2,700.

The scale of the problem could be even larger because CIU sites account for fewer than half those listed by the 5,500-strong Committee of Registered Clubs Association—whose members also include political or Service clubs such as the Royal British Legion."

So the situation is dire among non-profit-making clubs. Under my new clause, I seek only to give clubs and other organisations registered under the Industrial and Provident Societies Acts parity with profit-making trading companies, and I hope that I will have the support of the whole House.

Christopher Chope (Conservative, Christchurch)

I very much support what my right hon. Friend the Member for East Yorkshire (Mr. Knight) has said in moving new clause 3. Indeed, I also supported it by putting my name to it on the amendment paper. New clause 3 very much supports points that I made on Second Reading. To save me from restating all the interests that I declared then, I formally put on record the fact that I still have those same interests.

On Second Reading, a number of hon. Members on both sides of the House expressed concern about the fees. I think that the hon. Member for Corby (Phil Hope) was the first person to raise the issue in that debate, when he said that there was no provision relating to fees in the Bill. Well, thanks to my right hon. Friend, there will now be scope to include the fees, so I hope that the hon. Gentleman will support the new clause, as he suggested on Second Reading that he would support such a provision.

Similarly, the hon. Member for Wolverhampton, South-East (Mr. Turner), who is not in his place, spoke eloquently on Second Reading about the burden of fees on small clubs. I hope that what he said, which was widely supported at the time, will also be reflected in support for the new clause among those on the Government Benches because it must surely accord with common sense.

Andrew Love (Labour/Co-operative, Edmonton)

I should say at the outset that I sympathise with the hon. Gentleman's arguments, but those at the Financial Services Authority say that the charges simply reflect the costs that arise from that section of their organisation. How do we respond to that?

Christopher Chope (Conservative, Christchurch)

The hon. Gentleman makes a fair point, but I submit that we should ask ourselves why the costs to the FSA of regulating clubs should be 10 times as high as the costs to Companies House of regulating companies. There must be something very odd about the FSA's fee structure or about the way in which those at the FSA allocate their costs across their organisation if they can come up with the conclusion that it costs 10 times as much to obtain an annual renewal for a club compared with the annual renewal for a company. That is the point.

Like several other regulatory authorities, the FSA is self-financing; it sets fees to cover its costs. It has enormous scope to limit costs in areas where there is no need for great regulation. Given the very large number of clubs, I am amazed that it should be reasonable to charge each of them up to £200 for the privilege of renewing their membership every year. It would be different if they wanted to change their rules, as that would incur a lot of costs, administration and so on.

If the clubs just want to obtain annual renewals in the same way as companies obtain annual renewals from the Registrar of Companies, the point that my right hon. Friend makes in his new clause is absolutely in accordance with common sense. Unless the House uses such opportunities to take control over those self-financing regulatory authorities, we will cede to them the power to impose burdensome charges on clubs, which they cannot afford to bear.

Mark Hendrick (Labour/Co-operative, Preston)

Does the hon. Gentleman agree that that figure was probably plucked out of thin air?

Christopher Chope (Conservative, Christchurch)

I am sorry, but I do not understand the hon. Gentleman's reference to a figure plucked out of thin air.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

My hon. Friend is referring to the increased fees.

Christopher Chope (Conservative, Christchurch)

It is a fact that there is a threat of increased fees of £200. There is no doubt that that is the reality of the FSA's proposal. If the hon. Member for Preston (Mr. Hendrick) is suggesting that the FSA perhaps reached that conclusion on the back of an envelope and produced a nice round figure, I am unable dispute the point.

Greg Knight (Conservative, East Yorkshire)

I did not understand the hon. Gentleman's intervention either. I am not sure whether he was seeking to be supportive and helpful to my case in suggesting that the FSA had plucked the figure out of thin air, or whether he was accusing me of having plucked it out of thin air.

Mark Hendrick (Labour/Co-operative, Preston)

indicated dissent

Greg Knight (Conservative, East Yorkshire)

The hon. Gentleman shakes his head and I am delighted that he corrects that last point. On Tuesday this week, I spoke to an FSA employee, who confirmed that the fee is likely to be about £200 a year. My hon. Friend is absolutely right to say that that fee will not be charged for changing the rules, but simply for the annual renewal of registration.

Christopher Chope (Conservative, Christchurch)

I am grateful to my right hon. Friend for making that clear. The hon. Member for Harrow, West (Mr. Thomas) has arranged a meeting with the FSA on Monday next, but my fear is that if we do not take the opportunity presented to us today to control the fees that the FSA can charge, it will deploy the same arguments as those that it has used in correspondence—it will say that it needs to impose those costs to meet its own internal charges.

Rob Marris (Labour, Wolverhampton South West)

I am sure that many of my hon. Friends are sympathetic to the hon. Gentleman's concerns, but I wonder whether he can clarify a technical point. Off the top of my head, I can think of four types of limited companies: public limited companies, companies limited by guarantee, private limited companies and a different type of private limited company, such as C&A was, that does not have to disclose as much information. However, the new clause seems not to differentiate in that way. Perhaps he can explain how it would operate if it were included in the Bill.

Christopher Chope (Conservative, Christchurch)

I understand that the fee to register a small company is £15 a year and that the fee to register a new company is £20. My right hon. Friend's new clause would limit the annual renewal fee to £15 for small clubs and industrial and provident societies in the same way as it is limited to £15 for small companies. Obviously, if the fee for the renewal of company registrations were to rise from £15 to £20, the fee that the FSA charges for the renewal of industrial and provident societies' registration could also rise.

On Second Reading, I referred to a letter that I received from the Village Retail Services Association—ViRSA—which is the organisation that deals with small rural communities that wish to revive or resurrect their retail facilities. As is stated in column 1149 of the Hansard report of that debate, I said that Mr. Peter Jones, the director of ViRSA, gave some examples of the cost of the fee structure for those very small organisations.

A couple of hundred pounds is probably more affordable for a club with a large turnover than for a small village shop co-operative, where every penny counts. So the new FSA fee structure will affect not only clubs, but a lot of smaller industrial and provident societies with very small turnovers. The FSA has expensive premises in one of the most expensive capitals in the world and has extremely well paid staff.

Andrew Love (Labour/Co-operative, Edmonton)

The hon. Gentleman refers to the FSA, but surely it will argue that, because industrial and provident societies are more complex than companies and because there are not as many such societies as companies, we cannot make a direct comparison between the fees charged for the two groups. How do we respond to that criticism?

Christopher Chope (Conservative, Christchurch)

I am not sure that the FSA has made that criticism. There are large numbers of industrial and provident societies, but that does not mean that they should face their current cost structure. For example, there is no reason why the FSA should not set up a subsidiary in a part of the country where the costs of staff and premises are much lower. It could have a regulatory regime that is funded at a level of expenditure that is more consistent with those whom it seeks to regulate.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

Will the hon. Gentleman extend his thesis a little further and recognise that, although London is a relatively high-cost area, the FSA is also profligate? That forms most of the problem. If the FSA were to set itself up in the west midlands—in Birmingham or Wolverhampton—it would find that people work efficiently, effectively and economically. It would not be as profligate as it is in London. He may agree that there is a total disconnection between what happens in London where the high rollers pay whatever they want for whatever they want and other areas of the country where reality has to break out from time to time.

Christopher Chope (Conservative, Christchurch)

I agree with the hon. Gentleman, but I would not limit the areas to the ones that he specified. I would certainly include Christchurch, Ferndown and Verwood and other parts of Dorset. Ministers have referred to costs elsewhere, but the costs of employing people in Dorset are significantly lower than the costs of employing people in London. The wages and salaries that secretaries command in Christchurch, which is just under 100 miles from London, are significantly lower than the salaries that can be commanded in London. However, there is no reason to suppose that the efficiency of secretaries in Christchurch is any less than that of those in the City of London. In fact, I suspect that it is much higher, partly because they enjoy a much better quality of life.

John Butterfill (Conservative, Bournemouth West)

Does my hon. Friend agree that, just as there is great variety in the type of societies that are the subject of the Bill, there is much greater variety in the type of company? Small companies that perform local community functions can be set up as limited companies and the range extends through to medium-sized companies and huge corporations. Complexity is not an issue. There is much greater variation between types of company than there can possibly be between the societies that are the subject of the Bill.

Christopher Chope (Conservative, Christchurch)

My hon. Friend makes an excellent point. We are talking about the simple process of registration. It costs the same to register a child irrespective of the complications of the parentage, and it should cost the same to register a company or an industrial and provident society. It is a straightforward issue of equity and getting control over the costs of the regulatory authorities.

The FSA has deployed the argument that, under the previous regime, the Registrar of Friendly Societies received a cross-subsidy from the Treasury. If that is so, one of the consequences of the new clause is that it would allow the FSA to put a good case to the Treasury if it had one. However, I am sceptical about the need for the FSA to be subsidised beyond the income that it would receive if it charged a fee for registration in line with the fee for the renewal of company registration. That is why I am an enthusiastic supporter of the new clause moved by my right hon. Friend the Member for East Yorkshire (Mr. Knight). Although the gap may be tenfold at the moment, if things carry on as they are, the annual registration fee for friendly societies may be £500 or £1,000 in two or three years' time when people are trying to expand that sector. That would be a crippling burden on this important part of the community.

I hope that the Paymaster General and, more importantly, the House will accept the new clause. It would provide reassurance to all the small clubs and societies that feel insecure because of the threat of increased burdens and costs of regulation.

Adrian Bailey (Labour/Co-operative, West Bromwich West)

I wish to speak to new clause 4, which is in my name and that of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase). However, consistent with the declaration that I made on Second Reading, I must make it clear that I have a long association with the co-operative movement. It employed me for many years before I came into the House. I am also proud to declare that I am a member of the Labour and Co-operative group.

New clause 4 is a probing amendment that is designed to consider the arguments and raise the issue with my hon. Friend the Paymaster General, so that we can clarify ministerial thinking. I shall not press the new clause to a vote.

We have much sympathy with the comments made by the right hon. Member for East Yorkshire (Mr. Knight) and the hon. Member for Christchurch (Mr. Chope). The issues that they raised are seriously regarded in the co-operative movement and are a source of great concern to those who wish to set up new co-operative or community-based organisations. The difference between a company and a co-operative in the fees charged by the FSA for registration is undoubtedly a serious disincentive. The issue needs to be considered and the hon. Gentlemen were right to raise it in their discussion of new clause 3. However, I do not think that they have considered the full implications of their new clause.

The FSA's argument has been well rehearsed. It is a self-financing organisation and, if the fees charged to industrial and provident societies were reduced, it would have to compensate for the loss of that financial stream by increasing levies on other forms of companies. It is also maintained that, because of the complexity and the need to monitor continually the rules for industrial, co-operative and provident societies, the individual societies that have registered require a higher level of scrutiny and supervision from the FSA than is required of individual companies. That, of course, results in greater expense.

However, if new clause 3 were accepted, there would be an enormous and unintended windfall for some of the larger co-operative and mutual organisations. For example, the Co-operative Group, which controls the Co-operative Insurance Society and the Co-operative Bank, would receive an enormous windfall if its registration fees were reduced. The FSA would have to make up that enormous financial deficit from other sources.

If we looked at the range of other major co-operative retailing organisations and housing co-operatives, much the same would be true. That is basically the reason for this new clause. It is designed, first, to provide a mechanism by which organisations considering setting up a business along co-operative lines would not be deterred by the initial level of registration fees. It is also designed to ensure, however, that there is a level playing field between those larger co-operative organisations and companies and, to provide fairness to the FSA, to ensure that financial difficulties would not be incurred as a result of potential changes in income stream. I stress that I shall not press this new clause to a vote.

John Butterfill (Conservative, Bournemouth West)

Although I do not have a direct interest to declare, I am a vice-chairman of the all-party group on building societies and financial mutuals, and I have a long history of supporting mutual activity in this country. Unless we include measures such as the new clause, we are in danger of putting obstacles in the way of mutuality, which the Government would not intend and which would compound the already difficult position in which mutuality finds itself in the United Kingdom.

In many ways, it is curious that, although this country was the cradle from which mutuality sprang, it has been less successful here than it has, for example, across the Atlantic in Canada and in the United States. It may be that Governments there have created a more benign environment in which mutuality can flourish. That is what this Government—perhaps of all Governments—should be doing in relation to this new clause and this Bill. It seems absolutely extraordinary that we should suggest that mutual societies of this nature should pay fees that are substantially higher than those paid by companies that are largely set up to make profits.

One of the things that we need to do in this country is to encourage people to work together in their communities for their mutual benefit. That is precisely what these societies do. Similarly, in relation to savings organisations, it is important that we encourage mutual savings organisations to flourish. Building societies used to perform that function as the principal providers of mutual savings. I regret, however, that the activities of the carpetbaggers and other very greedy people have meant that the building societies movement in this country has been significantly diminished. The friendly societies have not taken off as we would like, and mutual savings organisations of all types have found it difficult to set themselves up. The Government should be assisting them and providing financial support for this type of activity. If the Government are serious about dealing with the problems of financial exclusion, which I believe that they are—at least, they have that intention—it is essential that they should do that.

First, I do not believe that it is necessary for the FSA to provide for the level of charges that has been mooted simply to have an annual renewal of registration. We return to the argument that, if the Department of Trade and Industry can do it for £15, why cannot the FSA? It may be that the DTI is subsidising the costs of companies, in which case we must ask why that should be the case, and whether it is right that companies should be subsidised by the DTI. If the DTI is not subsidising those companies, however, we must ask what is the difference with the FSA. It is up to the FSA to make a case and to say, "We need this level of charge." If they genuinely need such a level of charge, it must be right for the Government to consider a Treasury subvention to support it. Given that the Government must believe that this is a correct thing to do, it must equally be right for the Government to consider the possibility of subvention to support this type of activity. I very much support the new clause.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I have always been associated with the co-operative cause, but, for the avoidance of doubt, may I once again declare an interest in that the co-operative movement supports my constituency party financially each year.

Having said that, it is once again a pleasure to follow the hon. Member for Bournemouth, West (Mr. Butterfill), whose measured tones bring a much-needed insight to these debates. I fear that I cannot be as calm, as collected and as incisive. I believe that we are dealing with an unintended consequence—the people who have drafted the regulations for the FSA and industrial and provident societies have been unaware of the effect that their drafting would have on an important part of the social economy as a whole.

My father and I, for more than 70 years, have been members of working men's clubs. In my opinion, working men's clubs have always been pleased to pay their way, and have always met the costs of their organisation in an honourable fashion. A burden is being imposed on clubs and on small societies and community groups. I am proud to be associated with several community groups that have registered their organisations in a proper and legal way—companies limited by guarantee and so on—and they will find themselves burdened with an excessive cost of filing each year for re-registration.

This is not necessarily the appropriate Bill in which to introduce this new clause. However, this is an opportunity to say to the Minister, loudly and clearly, that something has to be done to right this wrong—for that is what it is. Whether it is an unintended consequence or not, those who drafted the legislation are disconnected from the everyday experience of ordinary people helping our society and our communities at the micro-level. Those people help to build up the feeling of solidarity in society, and they must not be treated in this way.

I accept that this new clause will not find favour with the Minister at this time, but she must ensure that the protestations that we have heard today are taken forward and dealt with appropriately and effectively. We must receive an undertaking today that that will be done.

Gareth Thomas (Labour, Harrow West)

I have considerable sympathy for the comments made by the right hon. Member for East Yorkshire (Mr. Knight) and by my hon. Friends the Members for West Bromwich, West (Mr. Bailey) and for Wolverhampton, North-East (Mr. Purchase), and for the broad thrust of the comments made by the hon. Members for Bournemouth, West (Mr. Butterfill) and for Christchurch (Mr. Chope).

As has been indicated, this issue was raised on Second Reading, and my hon. Friends the Members for Corby (Phil Hope) and for Stroud (Mr. Drew) also highlighted their concern. The hon. Member for Christchurch was good enough to give me the opportunity during his speech on Second Reading to place on record my concern about these fees. During the consultation that I have undertaken in preparation for this Bill, and during discussions prior to this stage of deliberations on it, a number of sponsoring bodies of industrial and provident societies made representations to me about the level of fees. The WI Country Markets, the Village Retail Services Association, to which the hon. Member for Christchurch referred, the committee of registered clubs, which a number of my hon. Friends flagged up, and the Rugby Football Union are worried about the high cost of the registrations charges. I share the general view that the Financial Services Authority needs to act speedily to reduce the fees that it intends to charge from 1 July. As the hon. Member for Christchurch said, I have organised to see the FSA on Monday, partly as a result of discussions with him and the sponsoring bodies. I invite all hon. Members who are concerned to speak to me later. They are more than welcome to attend the meeting.

Although the reference to companies in the new clauses is illuminating in that it allows us to highlight the substantial difference between the charges for the registration of companies and of industrial and provident societies, it is slightly confusing. There is no monitoring regime for companies like that traditionally carried out for industrial and provident societies by the registrar of friendly societies. One reason for the monitoring is that industrial and provident societies hold community or even possibly public assets. The comparison with companies is inappropriate because the regulator has a more active role in approving changes and in monitoring the work and operation of the industrial and provident societies.

It is worth explaining to my hon. Friend the Member for West Bromwich, West and the right hon. Member for East Yorkshire that prior to the FSA taking over responsibility for regulation, fees for the registration of new rules or amendments to the constitution of industrial and provident societies were higher than the comparable charges for companies.

Greg Knight (Conservative, East Yorkshire)

The hon. Gentleman is right that the fees were higher, but those organisations paid an annual fee of £25. Most right hon. and hon. Members would regard that as a reasonable amount. To go from £25 to £200 in one leap is surely most unreasonable.

Gareth Thomas (Labour, Harrow West)

I strongly share the right hon. Gentleman's view. He is right to make that point and I have profound sympathy with it. I think that we both want the same outcome. Unlike him, however, I do not think that the Bill is the appropriate vehicle for that change, which is why I have set up the meeting with the FSA to press the case.

Greg Knight (Conservative, East Yorkshire)

The hon. Gentleman says that the Bill is not the right mechanism to resolve the problem. May I draw his attention to the long title of the Bill of which he is the promoter? It refers to

"the Industrial and Provident Societies Act 1965 to be amended so as to bring it into conformity with certain aspects of the law relating to companies".

That is precisely what my new clause would do.

Gareth Thomas (Labour, Harrow West)

I understand the right hon. Gentleman's point. The fact that the Speaker has allowed the new clause to be discussed suggests that it is relevant. However, a system of financing is in place for the FSA, and it is in that context that it is appropriate to consider the sums that are charged for the registration of industrial and provident societies.

John Butterfill (Conservative, Bournemouth West)

Does the hon. Gentleman accept that the FSA is circumscribed by the legislation that established it? The worry is that unless we use the Bill to change the way in which the charges are made and give the Government a basis on which they can vary the charges, they may find that although they are sympathetic to the case, they have no mechanism to make that change short of introducing primary legislation.

Gareth Thomas (Labour, Harrow West)

I do not accept that legislation constrains the FSA from changing its fees. That is why it is appropriate for us to address the problem by holding direct discussions with it.

There is another reason why the new clause is inappropriate other than the need to introduce a stronger regime for monitoring industrial and provident societies than we have for companies. We need to recognise what my hon. Friend the Member for West Bromwich, West said about how industrial and provident societies vary enormously in size, turnover and assets. It is appropriate for some industrial and provident societies, such as the larger co-operative retail organisations, to pay higher charges because it often requires more work to monitor them than it does to monitor the smaller organisations, such as social clubs.

Christopher Chope (Conservative, Christchurch)

Surely the annual return that is sent to the FSA to continue an existing registration does not require monitoring. All that is needed is a tick in the box and continuation of the registration.

Gareth Thomas (Labour, Harrow West)

I have considerable sympathy for the concern about the huge hike in the cost of the annual return. Nevertheless, the direct comparison with companies is unfortunate. Perhaps a more flexible wording of the new clause would have been more appropriate, and I accept that my hon. Friend the Member for West Bromwich, West attempted to introduce that greater flexibility in new clause 4. We need to remember that because industrial and provident societies hold assets for the community, the regulator has to take a greater interest in them, so a more appropriate regulatory structure needs to be in place. That inevitably costs more than the regulatory regime for companies.

I accept that there is no justification for the huge hike in the charge, but I encourage hon. Members who are tempted to accept the new clauses to understand that the best way forward is to deal with the FSA face to face in order to make it clear that hon. Members on both sides of the House have huge concerns about the issue.

Dawn Primarolo (Labour, Bristol South)

I congratulate all hon. Members who have participated in this important debate on putting before the House some of the clear issues that relate to the fees charged. Although I will explain why the Government do not think that the Bill is the appropriate way to address the problem, we do not want to undermine the important points made about some sections of industrial and provident society legislation.

The Government are well aware of the concern that has been expressed by some in the movement about the fee structure that is being developed by the FSA in relation to its duties under the relevant industrial and provident societies Acts. This debate takes forward many of those issues.

I stress that the final level of the fees that will apply over the coming year has not been finalised, and the FSA's consultation with the movement has only just drawn to a close. I note what my hon. Friend the Member for Harrow, West (Mr. Thomas) said about his meeting with the FSA on Monday. The figures proposed in the FSA's consultation document are illustrative, as is often the case with such documents, and we have heard other figures quoted publicly in connection with the matter.

The FSA ensures that registrations conform to the legislation and that any changes to societies' rules, registered offices and so on are appropriate. In discharging its obligations as the regulator, the FSA has to take account of the tremendous variations across the movement. Hon. Members have demonstrated the range of societies and clubs that can fall within this category. In the event of mergers or windings up, the FSA must ensure that the relevant legislation has been respected. It also ensures that societies submit regular accounting returns.

The transfer of functions from the Registry of Friendly Societies to the FSA occurred in December 2001. It worked to the benefit of societies in that it permitted access both to a pool of experienced former registry staff already working in the FSA on building society and friendly society regulations and to a broader range of expertise. It is important to balance the mix between obligations on regulators, access to expertise and costs to societies.

I do not believe that it is appropriate to make a straight comparison between the fees payable by societies and those due from companies. Although I accept that valuable points were made in the submission, it is not comparing like with like. Registration obligations on the Companies House registrar are less onerous than the equivalent obligations on the FSA. It is inappropriate to link fee levels for societies with those of companies, as the new clause proposes.

John Butterfill (Conservative, Bournemouth West)

Of course it is right that mutual societies dealing with the funds of their members should be properly regulated, but does the Paymaster General agree that it is equally right that companies that can hide behind the benefits of limited liability, leaving behind creditors littered all over the place, require an even greater degree of regulation?

Dawn Primarolo (Labour, Bristol South)

It is somewhat unusual to hear a Conservative Member, even one as knowledgeable as the hon. Gentleman, pressing the Government on the need for greater regulation of companies, but I shall take his point in good faith and resist any further jibes. I promise never to quote his suggestion. [Interruption.] No, perhaps I will not make that promise.

The hon. Gentleman is concerned about appropriate regulation and safeguards. The basis of the current debate about the mutuals—how to devise appropriate legislation to deal with protection—applies equally to companies.

Andrew Love (Labour/Co-operative, Edmonton)

Will my hon. Friend give way?

Dawn Primarolo (Labour, Bristol South)

In a moment, when I have finished this point.

There has been a great deal of discussion about reviewing company law and how to modernise it, and I understand that a report is due soon. We have to strike a balance between appropriate safeguards and allowing these organisations, which have different structures and fulfil different obligations, to develop and expand. The Bill is about mutuality, the industrial and provident societies and how to assist their growth and development.

Andrew Love (Labour/Co-operative, Edmonton)

Although my hon. Friend says that a direct comparison cannot be drawn, does she accept that there is considerable evidence, especially from the worker co-operative sector, that some small organisations are choosing to register as companies rather than industrial societies because of the differential, and will she bear that in mind when considering the matter in the future?

Dawn Primarolo (Labour, Bristol South)

That is indeed an issue of which we must be aware, as we must be aware of the differences between companies that choose to be incorporated and unincorporated and of the different structures that are available to companies, societies and clubs in providing safeguards for their members or shareholders while allowing the development of their organisations.

New clause 3 raises the broader question of what type of registration procedures are appropriate for industrial and provident societies. Through changing the relevant Acts, the FSA could be required to undertake fewer checks and verifications during the registration process. However, that may not be in the best long-term interests of the movement, especially as recognition of and confidence in the society organisational form needs to be enhanced, not reduced.

I thank my hon. Friend the Member for West Bromwich, West (Mr. Bailey) for the way in which he presented his arguments. I hope that the House will be seen to have paid proper attention to the issues, although we may not necessarily agree that the Bill is the appropriate way to advance them.

New clause 4 would link the level of fees charged for carrying out regulatory functions to the size or profitability of the society's operations. New clauses 3 and 4 demonstrate the complexity of the sector, in that it was necessary to try to find an approach that would not cause problems elsewhere. I appreciate and am sympathetic to their underlying rationale, but we must take other factors into account.

The FSA has been developing the fee structure, following consultation with interested parties, including all sponsoring bodies, trade associations and principal legal advisers to the sector. Three separate consultation papers have been issued and workshops have been held to hear the movement's views. The FSA has considered various options. One was to base the fee structure on size. However, the size profile of societies is heavily biased, as many hon. Members have pointed out, towards smaller societies, so the burden on the larger societies would be unreasonable. For example, the FSA estimated that if a larger society were to pay an annual fee of £10,000, the fee payable by other societies would reduce by about £1. That is unacceptable.

In addition, there is no consistent relationship between the size of a society's operations and the amount of work that it generates for the FSA. That is linked to the points made by hon. Members about complexity, accountability and the desirability of structures in industrial and provident societies. If the FSA charged on the basis of transactions, that would lead to exceptionally high costs for individual transactions such as rule changes. That would discourage good governance and we should not inadvertently, for motivations that I quite understand, include something in the Bill that would do that.

A link between size and fee levels for societies could also create unintended effects. For example, it could lead to charitable housing associations and registered social landlords, which are among the largest societies, effectively subsidising the cost of smaller societies such as private members-only clubs or societies set up to benefit members. That would clearly cause problems in the different structures. It would be perverse and go against the idea of a more equitable distribution of costs.

Christopher Chope (Conservative, Christchurch)

Does the hon. Lady accept that under the proposed fee structure, small organisations that do not change their rules each year will be subsidising and cross-subsidising those that choose to change them because they did not get them right in the first place? How can that be equitable?

Dawn Primarolo (Labour, Bristol South)

I am trying to explain to the House the complexities of the issues involved, the diversity of the sector, and the importance of striking the right balance and considering the necessary scope of work. The number of industrial and provident societies has been broadly stable between 1996 and 2000, but the amount of their assets has increased, from approximately £41 billion in 1996, to £61 billion in 2000.

I have been doing my best to show the House that the sector is very broad and that there is not just one simple answer. As hon. Members have said, there is a difficult balance to strike. Therefore, the FSA needs to assess all the issues; all hon. Members who have spoken this morning believe that fees need to be part of that assessment and the eventual balance reached.

I understand that the FSA, along with many in the movement, prefers an approach based on a flat-rate fee, as the hon. Member for Christchurch said. That will inevitably affect some societies unfavourably, but equally it must be appreciated that some societies will gain from such a move. We need to find out which is the most equitable solution and ensure that it is delivered.

We also have to consider those societies that are active in updating and developing their governance structure. That is precisely what the Bill is about. For example, I understand that the proposed periodic fee would cover all registration transactions undertaken by a society in a year. A society could, for example, adopt a completely new set of rules and have them registered for free by the FSA. The former registry would have charged £800.

As I have continually tried to stress, it is necessary to strike a balance here. The FSA has worked hard and will have to continue to work hard to build a consensus around its proposals. I believe that at this stage it is not appropriate to legislate in the rigid fashion suggested by the new clause.

As I have said, I am sympathetic and I understand clearly the points made by my hon. Friends. I have tried to show the complexity of the area. I am sure that there will be ongoing discussions between the clubs and the FSA. Those discussions, I sincerely hope, will reach a solution.

Dennis Turner (Labour/Co-operative, Wolverhampton South East)

I welcome the Minister's remarks. She understands the dilemma that clubs are facing. The immense frustration felt has been echoed around the Chamber. My hon. Friend has met the FSA, and is meeting it again on Monday. Would she be prepared, if it is felt necessary, to meet the Working Mens Club and Institute Union to discuss some of the anomalies that we talked about this morning, in the hope of getting justice for the clubs of this country?

Dawn Primarolo (Labour, Bristol South)

Normally this subject area would fall within the remit of the Economic Secretary. However, both the Economic Secretary and I are always pleased to receive representations and see delegations. I am sure that, if my hon. Friend thought it appropriate, either one of us would do our best, as we try to do for all Members, to accommodate those representations.

I hope that I have given the House an explanation of why the Government do not support the new clauses. I hope that they will not be added to the Bill, but also that the House is sufficiently reassured that the Government have taken note not only of the representations, but of this debate.

Greg Knight (Conservative, East Yorkshire)

We have had a very interesting debate, and I am grateful for the support expressed for my new clause by hon. Members on both sides of the House. I am particularly grateful for the comments of my hon. Friends the Members for Christchurch (Mr. Chope) and for Bournemouth, West (Mr. Butterfill), who made a very powerful case for the new clause.

This really comes down to the fact that, once a year and for a fee of £15, Companies House, in respect of each limited company registered with it, examines the company accounts and the annual return form that a director or secretary of the company has to submit. The FSA says that, in future, it will charge £200 to examine similar forms and accounts submitted by clubs and other organisations that, under the Industrial and Provident Societies Acts, come within its remit. Clearly, there is something wrong with the FSA's system, because in each case accounts are prepared. The FSA does not have to put together those accounts; organisations submit them in a recognised form. I do not, therefore, feel that the size of the proposed fees can be justified.

The hon. Member for West Bromwich, West (Mr. Bailey) made, if I may say so, a rather strange speech, appearing to speak against his new clause. Either the Whips did a little arm-twisting earlier today, or his heart was not in the arguments in the first place.

The hon. Member for Harrow, West (Mr. Thomas) reminded us that this issue was raised on Second Reading. He said that swift action is needed, but pinned his hopes on a meeting he has pending with the FSA. If what the FSA is telling the Working Men's Club and Institute Union—the CIU—is anything to go by, I would advise the hon. Gentleman not to raise his hopes too high. A member of the FSA has advised the union that if clubs do not like the fee, they can deregister—an outrageous piece of advice, given that deregistering means that clubs would lose their limited liability. If a club that had deregistered got into trouble, the working people running it would find that their homes, cars and other assets could be seized. Deregistering is not an option for clubs.

When the hon. Member for Wolverhampton, North–East (Mr. Purchase) rose, my optimism increased. He is an important Member of Parliament and Parliamentary Private Secretary to the President of the Council and Leader of the House of Commons, so when he said that he supported the measure I thought that meant that the Government were on side—there spoke the PPS to the Leader of the House. Then along came the Paymaster General to pour cold water on everything that her hon. Friend had said.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I do have some independence of mind, which does not always accord with Government policy.

Greg Knight (Conservative, East Yorkshire)

I applaud the hon. Gentleman's independence on this matter: may we see much more of it.

I strongly advise the Paymaster General not to enter any working men's club in Bristol in the near future, because if its members have read her speech I doubt that she will receive a warm welcome. The hon. Member for Wolverhampton, North-East says that something has to be done, and he is right. I am extremely disappointed that, although she expresses sympathy, the Paymaster General has declined to give a commitment to consider the issue. To be fair, she said that she would be happy to meet a delegation from the CIU or some other source, but she gave no commitment to the House that she would examine the matter with a view to righting the clear wrong.

Something has to be done, and my new clause is a vehicle to do it. I hope that the House will approve it.

Clause 1 — Requirements for conversion of a registered society into a company

Gareth Thomas (Labour, Harrow West)

I beg to move amendment No. 2, in page 1, line 7, leave out "subsections (2) and" and insert "subsection".

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following amendments: No. 3, in page 1, line 8, leave out subsection (2).

No. 1, in page 2, line 27, leave out Clause 2.

No. 6, in clause 2, page 2, line 40, after "cannot", insert—

'save with the written consent of the Financial Services Authority'.

No. 7, in page 3, line 34, at end insert—

'(6) In exercising its discretion as to whether to give its consent under paragraph (c) of subsection (1), the Financial Services Authority shall have regard to the following matters:

(a) the purpose or intention of the society's members evidenced by the rules of the society and, in particular, by the inclusion of the provisions referred to in subsection (1);

(b) the interests of the community for whose benefit the society was registered and its successors;

(c) whether the whole or any part of the value represented by the assets of the society should be dedicated to the continued benefit of the community; and

(d) whether the transfer of engagements, amalgamation or conversion referred to in paragraph (c) of subsection (1) is necessary in the interests of the viability of the industry business or trade carried on by the society.'.

No. 5, in title, line 5, leave out from "company;" to "and" in line 7.

Gareth Thomas (Labour, Harrow West)

I introduce the amendments in my name with some reluctance. I believe that the debates on clause 2 on Second Reading and in Committee have established the importance of ensuring that assets originally dedicated to a community, not to a society's members, should remain dedicated to that purpose. Following the discussions I have had, I believe that there is now strong sympathy for that position.

Our debates on the clause have also highlighted the importance and value of the community benefit form of industrial and provident society as a vehicle for the pursuit of public interest aims. I have already referred to the benefit of having a regulator, in the form of the Financial Services Authority, to ensure that any society registered under the legislation remains either a co-operative or a community benefit organisation.

Without that safeguard in industrial and provident society law, there would be little to stop the conversion of a co-op from a non-profit vehicle to a company operating for the benefit of its members, shareholders or whatever. Generally, the Registrar of Companies does not police such matters; rightly, he has no duty to do so where a company structure is used. The courts exist as a possible forum for enforcing provisions in company constitutions to protect assets, but unfortunately that would be an expensive and cumbersome process, and only complex structures involving trust arrangements, and a number of other corporate vehicles, can achieve such aims if the industrial and provident society structure is not used.

In comparison, industrial and provident society legislation provides a relatively cheap and effective means of establishing and maintaining social enterprises that operate in the interests of people other than their owners. Clause 2 would have bolstered and improved that system, but even without it, the House should recognise that the industrial and provident system still has great advantages.

Clause 2 and the debates that surrounded it have played their part in the wider process. I understand that the performance and innovation unit in the Cabinet Office has been working on such issues as part of an examination of social enterprise for the Government. I welcome the fact that that work is taking place.

In that spirit, I also commend the judgment of my right hon. Friend the Secretary of State for Trade and Industry in giving a Minister specific responsibility for this sector when she took up her post. The performance and innovation unit report is imminent, and when it appears the whole question of legal structures for social enterprise will be considered across Government Departments, so it seems appropriate that the issue of asset locking should be taken out of the Bill at this stage and examined as part of that wider discussion.

During our deliberations in Committee, my hon. Friend the Economic Secretary to the Treasury highlighted a number of technical issues that would have remained if clause 2 had stayed in the Bill. What she said is recorded in column 11 of the Hansard report of Standing Committee G for 13 February. Those technical issues need to be sorted out, so it is right to take clause 2 out. I hope that the performance and innovation unit report, and the consideration of it across Departments, will address those issues.

On that basis, I commend the amendments to the House. As I said, I do so with some reluctance—but I feel reassured that the issues will not drop off the agenda, and I am delighted by the work being done within Government. It is sensible that the issues raised by clause 2 should be considered as part of that general discussion rather than remaining in the Bill.

Andrew Love (Labour/Co-operative, Edmonton)

I should like to speak to amendments Nos. 6 and 7, which are probing amendments designed to increase the flexibility of clause 2. I shall try to set out their context.

There are two classes of industrial and provident societies: bona fide co-operatives, and societies for the benefit of the community, which have a much wider role in society and operate not just for the benefit of their members. Indeed, their prime consideration is the community interest. When registering, all industrial and provident societies must give reasons for registration as an industrial and provident society; that touches on the previous debate about why there are different charges and why there is an onus on the Financial Services Authority to provide proper regulation of industrial and provident societies.

The FSA gives societies guidance on the registration criteria, which range from a desire to operate mutually under a one member, one vote constitution to business reasons. The important point, however, is that societies must be able to demonstrate their reasons to the registrar. Although there is a safeguard for industrial and provident societies, community benefit societies are vulnerable to asset stripping, and that is particularly true of those that have unclear rules on such circumstances. Someone could therefore exploit a loophole to achieve conversion to a limited liability company, with the assets falling into the hands of a restricted group of members.

The Royal Automobile Club operated under slightly different rules, but everyone was amazed to discover what happened to all the so-called members who signed up with the RAC and built it up over a long period. When its assets were distributed, the members of the best swimming club in London were the net beneficiaries, receiving £35,000 each, which was unfair then and is unfair now. Against that background, we need to protect industrial and provident societies.

Housing associations are safeguarded by the Housing Corporation, because public assets are involved, but if a housing association dispensed of its public assets it could convert for the benefit of a limited membership.

In my probing amendments, I wanted to test the Government's attitude to entrenching assets in an industrial and provident society. Governments of all persuasions, as has been said on numerous occasions in the past 10 to 15 years, have always resisted attempts to entrench assets, as is reflected in clause 2. However, in France, for example, AXA, a well-known brand name in this country and Europe, can be characterised as an industrial and provident society. There are other major examples of what we would consider industrial and provident societies throughout Europe, although that does not apply to every type of organisation. In this country, charities are perhaps the most prominent example of organisations that simply cannot change their charitable status. Everyone accepts that that is appropriate in the circumstances.

Meg Munn (Labour/Co-operative, Sheffield, Heeley)

Does my hon. Friend agree that people who set up a community benefit organisation often do not think about what might happen subsequently? The danger is that they might not be clear about how the rules will apply if the organisation changes in a particular way? As he graphically illustrated with the RAC, unintended consequences might result. There is a genuine need to provide protection for organisations that seek to benefit the community and are not established to provide benefits, profits or surpluses for individual members.

Andrew Love (Labour/Co-operative, Edmonton)

That is exactly the case that I am trying to make. Societies are often established with proper constitutions, but without thought about what will happen. I know that it is not possible, but if we interviewed people who originally set up many mutual organisations that have since been demutualised, we would discover that that eventuality was the last thing on their minds. Assets that have been built up over generations for mutual benefit should not be given to a limited number of shareholders who benefit from demutualisation. My amendments therefore seek to provide long-term protection.

Credit unions are another form of organisation with entrenched constitutions, perhaps because the Credit Unions Act 1979 was very much based on the Irish experience and did not sufficiently take into account the norms of British jurisprudence. However, it was decided that credit unions cannot convert in the same way as building societies or other mutual organisations. As my hon. Friend the Member for Harrow, West said, some discussions with the Government on public interest companies have covered the possibility of introducing legislation to entrench other forms of organisation. In principle, if the arguments are strong enough, there is no reason why entrenchment should not take place, which is why amendments Nos. 6 and 7 provide a flexible response to asset locking while allowing the FSA to use its experience and expertise to make the final decision. If, under clause 2, a society entrenches its assets, and if there is a move in future to convert the society, it will be for the FSA to sanction the decision.

Greg Knight (Conservative, East Yorkshire)

How does the hon. Gentleman envisage the FSA assessing the interests of the community under amendment No. 7? For example, does he envisage the FSA conducting a poll or seeking to take evidence from all members of the organisation to see whether a certain view is held by the whole membership? Or does he see the FSA going beyond the members of the organisation to ascertain the answer?

Andrew Love (Labour/Co-operative, Edmonton)

I was going to come on to the issues that the FSA will need to take into account but, of course, the community interest is an extremely important consideration for community benefit societies. The FSA will have to have a way of taking the temperature of a community that may be badly affected. If the FSA had taken the temperature of RAC members when the RAC was demutualised, I strongly suspect that there would not have been support for the cause espoused by the limited number of members who benefited from demutualisation. However, it will be for the FSA to make the final decision to sanction demutualisation. We accept that there will be problematic cases, such as those involving declining memberships.

Concern has been expressed about the inability of certain credit unions to turn themselves into commercially viable organisations; the same is undoubtedly true of a number of industrial and provident societies. Their original purpose may have ended, or the community that they represented no longer exists in the same form; or they may simply need a business rescue and restructuring. There will therefore be circumstances in which it will be appropriate for the FSA to sanction change.

John Butterfill (Conservative, Bournemouth West)

I am listening carefully to the hon. Gentleman, and I agree with everything that he has been saying. Does he agree that where assets have been built up over many years, there is an intergenerational responsibility, and that in principle it is wrong that, for financial gain, one group of people, at one snapshot in time, should enrich themselves at the expense of the continuation of activities? Only where there are circumstances that the hon. Gentleman has been describing, when such activities can no longer reasonably be continued, should the FSA agree.

Andrew Love (Labour/Co-operative, Edmonton)

That point is included in my amendments. The FSA will need to take into account what will happen to the assets of the society in such circumstances. Intergenerational issues will indeed be important; also important will be whether assets are distributed on the widest possible basis to the community or are restricted to only a few people. We know that although the community benefits from the activities of community benefit societies, their membership is normally restricted. There may be only a few people. All these issues need to be taken into account.

There are various important considerations, including the original purpose of the society as written into its constitution by its members on its formation. Another important consideration is the interests of the community. In addition, there are the assets. There may also be business reasons. We understand that sometimes the safeguarding of jobs and the continuation of the organisation may necessitate change. In those circumstances, that should be allowed.

The purpose behind the amendments is to ensure flexibility when problems arise. We cannot foresee all circumstances. One of the major concerns of government has been that to entrench for ever does not allow for unforeseen circumstances. The amendments will provide the flexibility that will safeguard the community benefit that the societies offer, and demutualisation where that is appropriate.

Many people will ask, "Why are we giving this power to the FSA?" We have discussed the duties that the authority has to undertake and whether costs will be increased. The authority already has considerable experience in this area. For example, it has a statutory duty to ensure that all industrial and provident societies are either bona fide co-operatives or community benefit societies. I say to those who think that that may be a theoretical issue that the largest retail co-operative society in the 1980s—it had a turnover of hundreds of millions of pounds and more than 50,000 employees—was deemed by the registrar not to be a bona fide co-operative. It needed to decouple itself from its wholesale organisation so that it would continue to be registered as a society.

If the registrar can take important decisions of that nature—it was supported by all genuine co-operators as being in the best interests of the industrial and provident society movement—that experience can be used to ensure that societies are maintained for community benefit but that demutualisation can be allowed in appropriate circumstances. There is inflexibility in having entrenchment without safeguards.

Greg Knight (Conservative, East Yorkshire)

The discretion that is provided in amendment No. 7, which is given to the FSA, is not absolute. The authority will have to take into account certain factors, which the hon. Gentleman has explained. As there is not absolute discretion, is there not a risk that we might see a plethora of court cases, with aggrieved parties challenging whether the FSA had acted properly and whether it had given due weight to certain matters? Would not absolute discretion have been a better way forward?

Andrew Love (Labour/Co-operative, Edmonton)

There is considerable discussion about public interest companies that will be formed under Companies Acts procedures. The only means of challenge will be through the courts, with all the delay and expense that that involves. One of the great advantages of the process that I am advocating is that it will, in most instances, preclude recourse to the courts. There will be streamlining and it will be possible to use procedures with ease. In extremis, however, the courts may have to be used—for example, where it is felt that the FSA has not reflected properly the legislation that is on the statute book. We cannot have it all ways.

We have not gone for an absolute power. We want to increase flexibility, so the FSA should be able to make a decision within the broad parameters set out in the amendments.

We want to strengthen the protection of industrial and provident societies. We recognise that that will be achieved only by providing flexibility to the FSA, which is both independent and, we hope, objective when dealing with these matters. If it can adjudicate in circumstances where there is difficulty, that should provide the protection that the Government require, so that we do not entrench for all time where the circumstances are not supportive.

Dawn Primarolo (Labour, Bristol South)

The Government support amendments Nos. 2, 3, 1 and 5. My hon. Friend the Member for Edmonton (Mr. Love) said that amendments Nos. 6 and 7 are probing amendments. I shall explain why the Government want to resist his amendments. I hope that, on that basis, he will feel able to withdraw them. If not, he must know that the Government do not support them.

On Second Reading and in Committee, the Government indicated that while we can see potential benefits in enabling community benefit societies to dedicate their assets to the benefit of the community, we were concerned about how that might work in practice. The right hon. Member for East Yorkshire (Mr. Knight) touched on one of many possibilities in this fraught area. That being so, I shall not speak at length.

Legislation that irrevocably commits assets to the benefit of the community must not have unintended effects. Asset lock-in would be a crucial decision for an individual society, and we must also take a view of the effect on the sector as a whole. For example, it must not reduce the flexibility of the sector to allow it to consolidate and grow.

One way to ensure continued flexibility within the sector and make provisions to deal with exceptional circumstances for individual societies would be through powers to reverse or amend asset lock-in in special situations. However, we think that this would raise further questions about defining any circumstances where the asset lock-in might be reversed—for example, who might exercise these powers and how they might be enforced.

The hon. Member for Christchurch (Mr. Chope) asked in Committee about the rights of members. The adoption of an irreversible asset lock-in rule by an existing society, without unanimous vote, could unwillingly deprive some of those members of rights in a way that might be incompatible with article 1 of the first protocol to the European convention on human rights. The right hon. Member for East Yorkshire might not have referred specifically to that, but he mentioned the possible range of involvement of the courts where somebody disagreed with a decision.

The performance and innovation unit is currently considering the organisational forms of social enterprise, and we look forward to considering its further analysis of the provisions that might help the sector to grow and thrive.

Provisions such as asset lock-in need detailed consideration. That is why I agree with the four amendments tabled by my hon. Friend the Member for Harrow, West (Mr. Thomas) to remove the clause and references to it elsewhere in the Bill. In principle, clause 2 has some attractions, but, in its present form, it does not fully resolve the issues of which we are aware, nor have we consulted widely to make sure that there are no other implications that would need to be considered.

Amendments Nos. 6 and 7 were tabled by my hon. Friends the Members for Edmonton and for Bristol, North-West (Dr. Naysmith). The possibility of allowing the Financial Services Authority to arbitrate on whether a society that had adopted an asset lock-in rule should still be allowed to convert to or merge with a company without such a rule is an interesting proposal. I see that, as my hon. Friend the Member for Edmonton pointed out, that might provide useful flexibility where a society was encountering financial difficulties. For example, the FSA could permit a society to merge with a local company or restructure in some way under company status and thereby avoid having to cease its activities.

Government officials examined such possibilities during their work with advisers assisting my hon. Friend the Member for Harrow, West in an attempt to address the Government's concerns about the clause. However, I do not consider that the two amendments would be sufficient to resolve the issues that have been discussed during the passage of the Bill.

In addition to the points that I have already raised, there are other issues that we would need to consider—for example, whether the FSA should be able to prevent a society from adopting an unalterable asset lock-in in the first instance; whether there should be circumstances in which a society could reverse such a rule once adopted; and whether all societies or bencoms should be able to adopt this irrevocable rule in their constitutions.

If it were necessary to wind up a society that had such a rule, would the FSA be the best authority to authorise the conversion or transfer, or should some other authority or even the courts take a role? Bearing in mind the discussion that we had in a previous debate about the cost of fees to the FSA, it is odd that the amendment would put greater obligations on the FSA.

I say to my hon. Friends the Members for Edmonton and for Bristol, North–West, as gently as possible and with the best of intentions, that although we appreciate their intentions, the Government believe that their amendments would not be sufficient or a substitute for a more detailed consultation and consideration of such powers. I sincerely hope that having had the benefit of putting—

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Will the hon. Lady give way?

Dawn Primarolo (Labour, Bristol South)

No, I am about to conclude my remarks.

I support amendments Nos. 2, 3, 1 and 5, and hope that my hon. Friend the Member for Edmonton will be satisfied with having his comments on the record, in the knowledge that the matter needs and will receive further consideration and consultation. He can look forward to returning to the matter at some future date.

Gareth Thomas (Labour, Harrow West)

I am grateful to my hon. Friend the Minister for her comments in support of my amendments. I commend the speech of my hon. Friend the Member for Edmonton (Mr. Love) and the amendment tabled by him and my hon. Friend the Member for Bristol, North-West (Dr. Naysmith). It is an ingenious device that would provide additional flexibility and improve clause 2 as it emerged from the Standing Committee. Nevertheless, as the Minister says, there are still issues that need to be resolved, and it is appropriate that that should be done in the context of the performance and innovation unit report and considered across Government. I hope that my hon. Friend the Member for Edmonton will withdraw his two amendments and instead support mine.

Amendment agreed to.

Clause 2 — Community benefit societies

Clause 3 — Power to modify, etc, to assimilate to company law

Title

Gareth Thomas (Labour, Harrow West)

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

The Bill emerges from Report significantly improved and achieves two things: first, it places co-operatives registered under the industrial and provident societies legislation in the same position as building societies by ensuring that on that most crucial decision whether or not to convert to a company, there is substantial democratic participation. Members can still change the structure of their organisation, but only on a 50 per cent. turnout and the 75 per cent. vote in favour which was already provided for in law, mirroring the existing provision in building society law.

Secondly, the Bill permits the use of statutory instruments when company law is changed in future to assimilate industrial and provident society law with company law, to deal with the discrepancies on, for example, insolvency procedures, capacity rules, accounts and audit and other aspects of corporate governance which meant that industrial and provident society legal form lagged considerably behind that of the company model and the friendly society and the building society model.

Although that can happen only when changes to company law are enacted, following our deliberations in Committee and in the Chamber today, it is possible for any part of the industrial and provident societies legislation from 1965 to 1978 to be changed, except those parts that are central to the nature of industrial and provident societies or to facilitating the processes that they carry out.

It is important that the co-operative and social enterprise sector is allowed to develop freely and that artificial obstacles such as the lack of a modern legal form are not put in its way. The uneven playing field with companies in the areas that I mentioned and the difference from building societies and other mutuals on demutualisation were serious problems, which have exercised members of the co-operative movement for a considerable time.

The Bill, although modest, allows both issues to be resolved, and should play a small but important role in encouraging the use of industrial and provident societies, so facilitating the development of co-operatives and of businesses with community benefit aims. That can only benefit our economy and the development of communities that are both enterprising and caring.

I pay particular tribute to the sponsoring bodies that I consulted and with which I worked to bring the Bill to its present stage: WI Country Markets, the Committee of Registered Clubs, the Village Retail Services Association, the Rugby Football Union, the Welsh Rugby Union, the United Kingdom Co-operative Council and the Co-operative Union. They have all been extremely helpful and positive about the Bill and I welcome that.

During the Bill's passage, a number of issues have been raised that still need to be resolved, of which asset lock-in, which we were discussing only a short time ago, is a key one, as is the issue of fees for registration, which I hope will be sorted out shortly.

On the eve of the private Member's ballot in July last year, a former Minister said to me in passing that hon. Members who were lucky enough to secure a private Member's Bill opportunity tended to become obsessive about the process. Hon. Members will recognise that I am the exception to that rule, but nevertheless I have at times come close to being obsessed and I am grateful for the considerable support that I have had in avoiding falling into that trap from parliamentary colleagues, particularly members of the co-op group.

I am grateful for the support that the Bill has had at all stages from Treasury Ministers, and the helpful advice that we have received from their officials. When I heard that the hon. Member for Christchurch (Mr. Chope) was to lead for the Opposition, being aware of his two-hour speech on the High Hedges Bill, I did not immediately feel delight, but I am grateful to him for the way in which he has engaged with me and with the issues, and we have a better Bill as a result of those cross-party discussions. I am also grateful for the contributions of the hon. Member for Twickenham (Dr. Cable) who leads for the Liberal Democrats for approaching the Bill in the same spirit.

I am grateful, too, for the support from the co-operative movement. The Bill puts in place a number of provisions for which that movement has long campaigned to have included in legislation. In particular, I am lucky enough to chair the Co-op party and I pay tribute to its members who have been assiduous in lobbying Members of Parliament on the Bill. I also pay tribute to its staff who have been extremely helpful during the Bill's passage.

I pay tribute to three people in particular who have worked closely with me on the Bill. Mr. Ian Snaith, the guru of co-operative law, passed me a great tome on industrial and provident society legislation to read on the beach during the summer. I am extremely grateful to him for his support and advice, but he will understand when I say that I will be delighted never to have to look at that particular tome again.

I also pay tribute to Mr. Cliff Mills from Cobbetts, the lawyer who has worked closely with me on the Bill. He has almost convinced me of the worth of the lawyers as a profession, but not quite. He has been extremely kind, generous and supportive and without his advice the Bill would not have reached this stage.

Finally, I pay tribute to my friend the general secretary of the Co-op party, Peter Hunt, who has been an extremely loyal supporter during the Bill's passage. However, in saying those words, just in case lightning should strike twice when the private Member's Bill ballot is drawn next year, I warn him that I will not be in a position to meet him.

I am grateful for the support of hon. Members in making the time to be here on Friday. I know how difficult that can be on occasion. I hope that the House agrees that the Bill has been significantly improved and is worthy of a Third Reading so that it can be passed to the other place for consideration.

Greg Knight (Conservative, East Yorkshire)

I am disappointed that what could have been a great Bill is only a fair Bill following the defeat of new clause 3. The Paymaster General needs to appreciate the great debt of gratitude that she owes to her Whips Office, because during discussions inside and outside the Chamber on the Bill several Labour Members have told me that they supported new clause 3 but had been advised not to vote for it. Therefore, I warn her that if the issue is not satisfactorily resolved, it will return.

I congratulate the hon. Member for Harrow, West (Mr. Thomas) on steering the Bill this far. A private Member's Bill is a fragile vessel indeed and he has done well to reach Third Reading. I wish him the best of luck in his forthcoming meeting with the FSA. I hope that he will relate the growing concern in all parts of the House on the issue of fees and that his meeting will ultimately help to resolve that outstanding matter.

Gareth Thomas (Labour, Harrow West)

I invite the right hon. Gentleman to speak to me after today's proceedings and to take part in that meeting.

Greg Knight (Conservative, East Yorkshire)

I respond in the spirit in which the hon. Gentleman made the offer. I shall speak to him when our proceedings have concluded. I wish the Bill well.

Andrew Love (Labour/Co-operative, Edmonton)

I warmly welcome the Bill and I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas), not least on maintaining a sense of humour throughout the proceedings up to Third Reading.

It is well to remind the House that the industrial and provident society sector consists of something approaching 9,000 different societies with total assets of around £61 billion. It is a substantial sector of the economy. Perhaps even more important than that are the sector's unique structures, which can be summed up as an attempt, through constitutional means, to combine the efficiency necessary to survive in a competitive environment with the need for community involvement and, in many cases, democratic accountability. That is no mean feat.

We have an enormous diversity of organisation. We all know the tremendous work done by the housing associations, not only in building houses, which is their primary function, but, if one considers how they have evolved during the past five years, in becoming increasingly involved in community issues with regard to poverty and deprivation. That is a step that I welcome. We also have the old retail shops, agricultural co-operatives and, as many hon. Members have said, there are the different clubs, ranging from Conservative clubs through to trades and labour clubs. That is perhaps the only way in which the two sides come together, which attests to the diversity and warm fellowship within the movement.

I want to comment briefly on two important issues.

Linda Gilroy (Labour/Co-operative, Plymouth, Sutton)

Does my hon. Friend agree that, having listed the existing mutual models that will be grateful for the Bill, new generations of social entrepreneurs will also be grateful as they develop new and lasting models based on the Bill?

Andrew Love (Labour/Co-operative, Edmonton)

I wholeheartedly agree with my hon. Friend, not least because, in the mutual movement, we tend to look back, and it is most important that we look forward. I hope that the Bill is a contribution to that. This is the first legislation on industrial and provident societies for 30-odd years. There have been numerous Companies Acts during that period, so a Bill that provides for updating industrial and provident society legislation without the need for primary legislation, is a welcome measure. Industrial and provident societies face hurdles. They do not have a level playing field with their company competitors, but the Bill will help to create one.

In the past 15 years, demutualisation of societies has been seen as the honest and correct thing to do, as there have been windfall benefits for everyone and no down side. The Bill recognises that that is not the case. More importantly, it exposes what has happened as a result of demutualisation. The original clause 1—it may be clause 2 under the revised numbering—recognises that we must create a level playing field for industrial and provident societies, otherwise they, like other mutuals in the financial services sector such as building societies and mutual insurers, will be overtaken by events, as has happened in years past. The debate about whether organisations should demutualise was overtaken by the question of how much money individual members would receive, regardless or whether such a move was to the benefit of the society.

Almost all the arguments used by the managements of the organisations that demutualised are now either bankrupt or do not apply. There is concern that some of those organisations, having demutualised, will now be gobbled up by other financial services companies or banks, and will no longer be able to offer the services that they provided when they were mutuals.

We must try to create a more level playing field for industrial and provident societies. The court case involving the Co-operative Wholesale Society shows the need to do that. Two of its most senior executives have been found guilty and will be sentenced in the near future. That is an object lesson for us all, and shows what can happen inside large organisations with significant assets that many people would like to get their hands on.

I strongly welcome the Bill, because it moves towards a level playing field for industrial and provident societies. We need to take further steps, and my hon. Friend the Member for Harrow, West listed some of them. This is a most welcome measure, and I commend it to the House.

John Butterfill (Conservative, Bournemouth West)

I endorse the warm welcome that the hon. Member for Edmonton (Mr. Love) has just given to this excellent Bill. I share the regret of my right hon. Friend the Member for East Yorkshire (Mr. Knight) that we have not adequately tackled the issue of charging by the Financial Services Authority. I hope that the proposed meetings will bear fruit, because the will of both sides of the House has been clearly expressed.

I also understand why the Paymaster General felt unable to accept amendment No. 7, which was tabled by the hon. Member for Edmonton. That was a little disappointing, but there is clearly a need to consult further. I hope that that consultation will lead to a successful conclusion on the important issues that were raised in that amendment.

Having said that, I think that this is a worthwhile Bill. It has been clear from the debate that much of the important fabric of our society is represented by industrial and provident societies. Without their activities, our communities would be deeply impoverished. The strengthening of those societies through this legislation was long overdue. I join in the congratulations given to the hon. Member for Harrow, West (Mr. Thomas) on bringing this measure before the House.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I apologise on behalf of my hon. Friend the Member for Twickenham (Dr. Cable), who has been forced to leave me in charge of the Third Reading speech for the Liberal Democrats. He has given me some speaking notes, and I am delighted to echo his support and that of my party for this welcome measure. I pass on his congratulations to the hon. Member for Harrow, West (Mr. Thomas) on bringing it forward and on steering it through the House so well. I had a visit from his hon. Friend the Member for Harrow, East (Mr. McNulty) and, given the number of other Bills on the Order Paper, I assure the House that I shall keep my remarks brief.

I also believe that mutuals play a strong and important role for many of our constituents. They play an active role in making our communities that much richer, so it is important to bring the legislation that applies to them up to date.

Many people in the House and outside believe that this sector can play a much larger role in future. The many social entrepreneurs that are around and many people working in the public service and the private sector want this model adopted by their organisations—either existing or new ones. The Bill is welcome because it brings the law up to date and provides a mechanism for the legislation to be updated more frequently and more easily.

My hon. Friend the Member for Twickenham believes that the limitation that the Bill puts on carpetbaggers by ensuring that a democratic process applies to industrial and provident societies is an important step forward. I agree with him and with the hon. Member for Edmonton (Mr. Love) that more work needs to be done on entrenching the assets in these organisations. I was pleased to hear from the Paymaster General that the performance and innovation unit is actively considering that issue, and that consultation will take place in due course.

I am pleased that the fairly new social enterprise unit in the Department of Trade and Industry is contributing to that work, and is examining not only new ways of reforming industrial and provident society legislation, but new artificial identities that could be developed in the framework of industrial and provident society or company law.

We could go back to that creative stage in the Victorian era when new artificial identities were established to ensure that the economic and social objectives of society could be met by legal entities. We commend the Government on that work, and encourage them to go further.

I end by again congratulating the hon. Member for Harrow, West on his Bill.

Dennis Turner (Labour/Co-operative, Wolverhampton South East)

My remarks will be brief as time is limited. Our thanks to my hon. Friend the Member for Harrow, West (Mr. Thomas) have already been put on record, but it would be remiss of us not to mention that his conduct and approach to the Bill since its inception have been admirable. On behalf of Co-operative MPs—I declare an interest as a member of that group—I express our appreciation of the way that my hon. Friend has approached the Bill. He thanked legions of people in his contribution, so it is appropriate for us to thank him for giving his private Member's slot to this extremely important Bill.

For several years, the co-operative movement wanted to introduce such a measure, but we always found that parliamentary and Government time were taken up with so many pressing issues for our country that there was no opportunity to initiate modernising legislation for our co-operative enterprises and societies. An opportunity has been presented through the good offices of my hon. Friend in giving us this private Member's Bill. The measure is moving towards the statute book and hon. Members have told us of the benefits that it will bring.

I want to comment briefly on the remarks of the right hon. Member for East Yorkshire (Mr. Knight) and the hon. Member for Bournemouth, West (Mr. Butterfill) about the difficulties for clubs in respect of fees. The comments of the Paymaster General show that there is an anomaly that must be addressed and resolved, but it would have been unfair for that to impact on the Bill. We know that there must be serious discussion of the problem of the FSA and fees, and I am grateful to the Paymaster General for telling us that she is prepared to listen further to our arguments and to resolve the problem.

The matter must be resolved. The present situation is unjust for co-operative societies, as well as for working men's clubs, Labour clubs, Liberal clubs and Conservative clubs—thousands of clubs throughout the country with thousands and thousands of members. They feel disadvantaged and badly treated by a decision that was not originally theirs. They did not choose to move away from the Registrar of Friendly Societies; it was the result of legislation passed in this place. As a consequence, the societies were harshly treated as regards the fees that they have to pay. The FSA has said that it will do its best to reduce the fees, but the anomaly will remain. I urge colleagues vigorously to pursue the matter with Ministers so that we can find a solution.

I remind the hon. Member for Christchurch (Mr. Chope) that I described the Second Reading as a happy parliamentary occasion; there was unanimity as to the desirability of the benefits that would flow to many thousands of people. We have also seen that today.

Before the introduction of the Bill, we shared the views of that wonderful philosopher Omar Khayyam. He said:

"Ah love! could thou and I with Fate conspire

To grasp this sorry Scheme of Things entire,

Would not we shatter it to bits . . . and then

Re-mould it nearer to the Heart's Desire!"

That is what we have done today. We have remoulded the Bill nearer to our heart's desire and that of many thousands of people. We should give thanks for having been able to do that.

Christopher Chope (Conservative, Christchurch)

The final part of the contribution of the hon. Member for Wolverhampton, South–East (Mr. Turner) must have been the result of his drinking from one of those bottles of special real ale with which he was presented by the Campaign for Real Ale—

Dennis Turner (Labour/Co-operative, Wolverhampton South East)

Not this morning.

Christopher Chope (Conservative, Christchurch)

The hon. Gentleman referred to the fact that the promoter of the Bill, the hon. Member for Harrow, West (Mr. Thomas), had dealt with it admirably. I would like to add that the hon. Gentleman has done so in an exemplary fashion. Indeed, if other Members who introduce private Member's Bills use his experience and follow his example, they will do extremely well. He realised that in order to get a private Member's Bill on to the statute book, one must be clear about one's objectives; one must be prepared to listen to points of view from both sides of the House; and one must conduct oneself with good humour and keep in touch with people who have expressed an interest in the subject. He has done all those things. From the moment at Second Reading when I first expressed misgivings about clauses 2 and 3, he went out of his way to try to accommodate my concerns.

I am only sorry that now, at Third Reading, the Bill completely lacks the content of the original clause 2, because although I had reservations about it—as did the Government—the clause could probably have been amended to make it acceptable if work had been done on it earlier. I share the frustration that the hon. Gentleman must feel that although, having managed to secure his place in the ballot, he chose and identified his piece of legislation very early, Treasury officials did not get to grips with the detail of the Bill until the eleventh hour. If more thought had been put into it earlier, we might have been able to progress clause 2. The hon. Gentleman also understood the concerns that were expressed about clause 3; as a result, the latest version is a great improvement on the original.

I hope that the hon. Member for Wolverhampton, South-East and others will not rue the day that they chose not to support my right hon. Friend the Member for East Yorkshire (Mr. Knight) in his new clause 3, which would have produced a better Bill. Their decision is understandable if—as might be the case—they were threatened that if the Bill was amended in that way it would not receive Government support at Third Reading, but let us hope that Labour Back Benchers' faith in their Government will be fulfilled and that there will be a significant reduction in the fees that clubs and industrial and provident societies are charged. I have my doubts about that, but time will tell whether I and my right hon. Friend the Member for East Yorkshire are right or whether Labour Members were right to put their trust in the Government.

I congratulate the hon. Member for Harrow, West on the Bill. I and my party support its Third Reading and hope that it passes through the other place without significant—or perhaps any—amendment, because if it is amended, it may encounter difficulties in terms of time in the House and fail to reach the statute book.

Dawn Primarolo (Labour, Bristol South)

I echo the comments made by the hon. Member for Christchurch (Mr. Chope) congratulating my hon. Friend the Member for Harrow, West (Mr. Thomas) on the excellent and dedicated way in which he has guided the Bill through the House.

The quality of debate on Second Reading, in Committee and in the Chamber today has been high. That shows that at last, after a very long time—stretching back beyond even the stewardship of the Labour Government—we are on the verge of fulfilling the desire of the industrial and provident societies to reform themselves and update their legislation. The House has recognised the significant part that industrial and provident societies play in the wider mutual sector and how much positive will there is among Members of Parliament to ensure that we maximise the benefits that those societies can offer to their members.

There are currently just under 10,000 industrial and provident societies in the United Kingdom, with assets totalling over £60 billion. They, with other classes of mutuals in the United Kingdom—building societies, friendly societies and credit unions—form a distinct and important part of the economy, and the Government believe that mutuals of all kinds should have an opportunity to develop and play an important role in offering consumers choice and innovative services. The mutual advantage—not having external shareholders to satisfy, so that organisations can concentrate on providing goods and services for their members and for the wider community—makes mutuality a distinct and potentially very useful alternative model for business, as hon. Members have said. We believe that mutuality has a great deal to contribute, now and in the future, offering particular benefits to individual members and to the communities in which they are based. It is because we recognise the value and potential of mutual societies that we have recently been involved in several initiatives to help them maximise the benefits that they can offer to their members.

I realise that some people are disappointed that changes made during the Bill's passage through the House make it less ambitious than they would have preferred, but it is important that there should be time to consult and to consider its detail. Despite that disappointment, and in addition to recognising the hard work of my hon. Friend the Member for Harrow, West, those who supported and advised him, and the Treasury officials who have stood ready at all times to give the advice that they are required and able to give—private Member's Bills are dealt with in a different way from other Bills—we should not underestimate what the Bill will achieve in its current form.

A more robust demutualisation procedure should bring more confidence in, and strength to, the society form. The ability to update industrial and provident society legislation through secondary legislation will ensure that the legal framework for societies need never fall further behind the framework applying to companies. Over time, the Bill's provisions will have a much more profound effect. They will allow industrial and provident legislation to catch up in areas deemed appropriate, thereby helping to create a genuinely level playing field with companies and across the mutual sector.

During the Bill's passage, we considered several other provisions that are not current features of it. Although, for differing reasons, it has not been possible to accept them, the debates and the analysis undertaken have served a useful purpose. For example, we have been able to explore areas in which the movement might benefit from an updating of its legislation. We have also examined the issues surrounding asset "lock-in" and why it may be advantageous to certain parts of the movement, and what issues need further consideration. We have discussed at length fees, the relationship of all societies to the Financial Services Authority, and particular problems with fee levels that have been identified in certain areas.

The performance and innovation unit has undertaken its own analysis of the legal framework of the social enterprise sector, and it hopes to report later this year. Whatever its conclusions, I believe that the discussions and the work that we have undertaken during consideration of the Bill have given us a much better idea of how to help the movement grow, and of how we might take forward any recommendations that the performance and innovation unit makes. The Government believe that, where appropriate, it is essential to help industrial and provident societies to operate on a level playing field with companies and other mutuals. The Bill provides an important stepping stone towards achieving that aim.

Once again, on behalf of the House I congratulate my hon. Friend the Member for Harrow, West on introducing this very useful Bill. I am delighted to hear that his reading matter will now move on from the Industrial and Provident Societies Acts. Perhaps he will read the Red Book and the Budget papers, before finally alighting on something a little lighter. I recommend the Harry Potter novels, for example, which provide amazing relaxation. My congratulations are sincere. In terms of the procedures of the House, the difficulties associated with private Member's Bills are enormous. He has done an excellent job and this is an excellent Bill. The Government certainly want to see it on the statute book.

Question put and agreed to.

Bill accordingly read the Third time, and passed.