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Friday Volume 593 6 March 2015 No. 120 HOUSE OF COMMONS OFFICIAL REPORT PARLIAMENTARY DEBATES (HANSARD) Friday 6 March 2015 £5·00 © Parliamentary Copyright House of Commons 2015 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 1189 6 MARCH 2015 1190 House of Commons Mutuals’ Deferred Shares Bill [Lords] Consideration of Bill, not amended in the Public Bill Committee Friday 6 March 2015 The House met at half-past Nine o’clock Clause 2 PRAYERS RESTRICTION ON VOTING RIGHTS 9.45 am [MR SPEAKER in the Chair] Sir Tony Baldry (Banbury) (Con): I beg to move Jonathan Evans (Cardiff North) (Con): I beg to amendment 1, page 2, line 14, leave out clause 2. move, That the House sit in private. Question put forthwith (Standing Order No. 163). Mr Speaker: With this it will be convenient to discuss amendment 2, in title, line 3, leave out from “shares;” to The House divided: Ayes 0, Noes 41. end. Division No. 169] [9.34 am Sir Tony Baldry: I should make it clear at the outset AYES that the Bill is an extremely valuable and useful one. Tellers for the Ayes: The House is grateful to my hon. Friend the Member Mr Christopher Chope and for Cardiff North (Jonathan Evans) for promoting it Jonathan Evans here. The Bill started in the other place, where there was a comparatively short debate on Second Reading and NOES no Committee stage. I believe that, because time was short, the Government Minister said to the Bill’s promoter, Baldry, rh Sir Tony Johnson, Joseph Lord Naseby, “If you agree to certain amendments, we Bingham, Andrew Jones, Susan Elan Boles, Nick will support the Bill. If you do not, we will not support Leadsom, Andrea it.” Lord Naseby, being a very wise former Deputy Bone, Mr Peter Leslie, Chris Speaker of the Commons, agreed to the amendments Bottomley, Sir Peter McFadden, rh Mr Pat and came to a sensible compromise. The Bill came to Brake, rh Tom Murrison, Dr Andrew Brazier, Mr Julian Newmark, Mr Brooks the House of Commons and was debated in Committee, Brennan, Kevin Penrose, John which was skilfully navigated by my hon. Friend, because Brokenshire, James Perry, Claire he managed to persuade the Chair to have one debate Brown, Lyn on all the clauses. There was no reference whatever to Rees-Mogg, Jacob Campbell, rh Mr Alan clause 2 during the debate. Sawford, Andy Elliott, Julie The reason I tabled amendment 1 as a probing Eustice, George Selous, Andrew Field, Mark Slaughter, Mr Andy amendment is that there is potentially a conflict in the Fitzpatrick, Jim Swayne, rh Mr Desmond Bill. The Bill seeks to help mutuals to raise further Freeman, George Swire, rh Mr Hugo money, funds and solvency. On the other hand, it says Garnier, Mark Vaizey, Mr Edward that however much anyone invests in a mutual, they will Gwynne, Andrew Webb, rh Steve get only a single vote. I will describe this in more detail Hancock, rh Matthew Young, rh Sir George in a second, but the European Union Commission has Hands, rh Greg proposed a statute for European mutuals. Under that Heath, Mr David Tellers for the Noes: proposed European law, members of a mutual would Hollobone, Mr Philip Mr David Evennett and have more than one vote, and decisions would be made Jenkin, Mr Bernard Mr Ben Wallace by a majority vote. The potential conflict is this: how do we encourage people to invest in mutuals but at the Question accordingly negatived. same time tell them that, however much they put in, they will get only a single vote? Mutuals are an important part of what is known more broadly as the social economy, which staggeringly accounts for 10% of all European undertakings—the amount undertaken by mutuals in the UK is less than the amount undertaken by mutuals in other EU member states. Mutuals have been described as voluntary groups of persons whose purpose is primarily to meet the needs of their members rather than to achieve a return on investment. All hon. Members will recall mutuals in their constituencies that go back to the 18th or 19th centuries—they would have been set up in workplaces or neighbourhoods to provide sickness help, funeral cover and various reliefs of that kind, some of which were overtaken by the Beveridge report and the welfare state. There has always been a sense of each person making a contribution and getting something out. 1191 Mutuals’ Deferred Shares Bill 6 MARCH 2015 Mutuals’ Deferred Shares Bill 1192 [Lords] [Lords] [Sir Tony Baldry] sector, but it is predominantly attuned to for-profit companies, and it is widely acknowledged that the rules Mutuals were put into difficulty because of the so-called do not always recognise the specific position of other solvency II directive, which called for increased solvency company forms such as mutuals. margins, but there are differences between different Within the framework of completing the internal financial services providers. Smaller and medium-sized market, with a view to allowing the free movement of mutuals are often focused on one risk or cover one people, goods, services and capital with equal terms of homogenous group. As a consequence, they have more competition between different sectors and legal forms difficulties in acquiring risk capital compliance with the in the same markets, way back in 1992, the European solvency II rules. That has significant consequences for Commission proposed regulations for a European mutuals them and can result in their dissolution. As I understand statute, together with statutes for co-operatives and it, the Bill seeks to deal with that conundrum in the associations, in order to improve the legal embedding of solvency rules. the social economy in the European Community. Each The basic principles behind the solvency II directive, draft regulation was supplemented by a directive on the which was adopted in 2009 and came into force in 2013, involvement of employees. In the opinion of the are that insurance institutions in Europe should be Commission, mutuals, like other organisations within based on a better risk assessment, better spreading of the social economy, should have been able to take risks and better financial foundations so as to improve advantage of the single market in exactly the same way the stability of the market and reinforce consumer as other companies, without having to discard their protection—all sensible stuff. The main innovation specific characteristics. It was considered that a European introduced by the directive is that in establishing an statute would help mutuals overcome the legal and improved foundation for the insurance sector, the directive administrative difficulties hampering their cross-border concerns more than only the capital solvency requirements and transnational activities and co-operation in the as they existed at the time, and it also lays down rules on internal market. the whole organisation of insurance takings in Europe. Returning to my amendments, the draft regulations Within the European Union, it also concerns the taking were revised in 1993 and a statute proposed for European up and pursuit of self-employment activities—the direct mutuals, including provisions for members of a mutual insurance and reinsurance, the supervision of insurance to have more than one vote and for decisions to be and reinsurance groups and the reorganisation and taken by a majority vote. I would be interested to hear winding up of direct insurance undertakings. from my hon. Friend the Member for Cardiff North and the Minister how they see this circle being squared— Jonathan Evans (Cardiff North) (Con): For the avoidance there is the perfectly understandable desire to get more of doubt, I should call attention to my interests in this money into mutual societies so that they can meet the respect. I am the chairman of a regulated insurance solvency requirements, but how can that be done if company, but it is not a mutual company. I was on the those who invest substantial amounts get only a single board of a mutual company but not since I have been a vote? Given the history and record of mutual societies Member of Parliament. in this country, would it not be more sensible to use My right hon. Friend mentions solvency II, but it is European-wide legislation that would enable UK mutuals important to remember that that is an effort by Europe to work and win business elsewhere in Europe, without to catch up with a regime that has already been in companies having to go through the rigmarole of setting operation in the United Kingdom for 10 years or so. up joint stock companies to act as a bridge between The issue that he has outlined in relation to better risk other mutual societies in other member states? assessment is something that our regulators required companies to do a decade or more ago. Europe is Jonathan Evans: Having spoken to my right hon. catching up in that regard. Friend the Member for Banbury (Sir Tony Baldry) earlier, I know that he is a friend of the mutuals sector Sir Tony Baldry: I have no doubt that Europe is and that his aim is not to undermine the intention of seeking to catch up with the United Kingdom in many the Bill. instances, but in reality the Bill is trying to square the circle of how mutuals manage to cope with increasing Sir Tony Baldry: I come to praise my hon. Friend’s solvency requirements, whether imposed by domestic Bill, not to bury it. legislation or by EU directives.