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Events
Speech
BSA Annual Lunch 2006 - Speech by Ed Balls MP, Economic Secretary to the Treasury
Opening Comments It is a pleasure to be here in Kensington today, for the Building Societies Association’s annual lunch. I have a double interest in this sector. Not just as the City minister, leading on financial services in government – but also as the first ever co-operative party MP in the Treasury to have ministerial responsibility for financial services including the mutual sector. It is a responsibility I take very seriously. Since my appointment last May I have made it my business to engage with each part of the mutual sector. I have met with nearly all the major players in this sector: the Building Societies Association, Co-operatives, credit unions, the Mutual Insurers. I will complete a ‘full house’ by meeting the Friendly Societies later this month and by addressing the Regional Assembly of the European Cooperative movement in Manchester tomorrow. For years, commentators have talked of the decline of the mutual sector in financial services. But the evidence is that the sector is in robust health – and is set to expand further in the months and years to come. The mutual sector has over 25 million members. Building Societies control assets of some £285 billion, with 19% of retail deposits and around 37% of cash ISAs. Added to this, building societies hold the majority of the cash-based Child Trust Fund accounts, around 440,000 in total, with 12,000 accounts opened in September alone. And friendly societies and other financial mutuals are also major players in the Child Trust Fund market. Building societies are leading the sector in responsible lending and product innovation. Co-operatives are enjoying a period of sustained growth. Mutual insurers and friendly societies are delivering high value services and products. And new mutuals are being established in exciting new sectors: Football Supporter Trusts and NHS Foundation Trusts have already contributed over half a million more mutual society members. This is an industry that is vital to the British economy, and vital to the daily well being of literally millions of people. And it is a sector that is also flourishing in Europe encouraged by the renaissance of mutuality in the UK. So today I would like to celebrate the unique strengths of the mutuals sector. I will talk about how the mutual sector has come to play such a vital role in our financial services industry, the special characteristics that make mutuals ever more relevant to today’s modern financial services world, and the areas where Government can help the sector to continue to play an enhanced role in the future. History: Re-birth of Mutuality Many people mistakenly believe that the mutual movement had its origins with the Rochdale Equitable Pioneers, 28 men and women who came together out of a sense of community and solidarity to begin the cooperative movement in Britain in 1844. But as with many things, it turns out the Romans got there first. The Romans had mutual insurance societies to provide for death and retirement as early as AD 203. Later, in medieval times, the guilds provided similar services to their members. Craft guilds established standards for the production of goods and labour practices and fixed sale prices right up until the 17th century, when the last surviving guild is recorded. Friendly societies as we know them also developed during the 17th Century, mainly to provide sickness and death benefit. They had a tradition, which they continue today, of providing additional care outside the strict terms of the contract in cases of particular need. This is the first hint history affords us of what makes mutuals special – 400 years of caring for and being trusted by both individuals and local communities. In the years that followed, mutuals were seen in some quarters as subversive organisations promoting trade unionism or other supposedly radical ideas; indeed the Government responded by passing the Corresponding Societies Act of 1797 and the Combination Acts of 1799 and 1800 to prevent societies from administering oaths. The late 18th century also saw the passage of the first Friendly Societies Act, allowing societies to incorporate for the first time. One of the earliest records of the Treasury’s involvement with the mutual sector came in 1829 when, in response to cases of fraud, the Treasury appointed John Tidd Pratt as the first Registrar of Friendly Societies, tasked with ensuring that societies complied with legal requirements and that members’ interests were served. He remained in post until his death in 1870. And while the Treasury has not managed quite such dedicated individual service since then, its relationship with the mutual sector has remained strong to this day. As the mutual sector flourished amid the changes of the late 18th and early 19th centuries, it gave rise to productive and consumer co-ops, including the North of England co-operative society, first registered in 1863, which was to expand and grow to become the Co-operative Group of today. From small beginnings, and based on the belief that by pooling resources and ensuring everyone benefited they could build a stronger and fairer business. The Co-op Group it is now a family of businesses including Co-op food, the Co-operative Bank and the CIS. Together they account for more than £7 billion annual turnover, and have more than 3.6 million members. In the early 20th century, the Co-operative Party was born, initially concerned almost exclusively with the trading and commercial issues of the cooperative movement. But since the 1930s it has widened its emphasis, seeking recognition for co-operative enterprises, the social economy, and advancing support for cooperatives and cooperation across Europe and the developing world. A series of legislative changes strengthened mutuals further in the last century, starting with the formalisation of legislation for credit unions with the passage of the Credit Unions Act in 1979 – the last Act of the Labour Government of the time. Other mutuals Acts followed:
Yet in the 1980s and 1990s it seemed that mutuals were in decline. Despite this enhanced legal framework, the de-mutualisation of Abbey National in 1989 appeared to confirm the view that mutual building societies would be unable to compete with the commercial banking sector. Between 1989 and 2000, nine societies converted into banks, and “carpet bagging” became an issue of growing concern. Starting with the passage of the 1997 Building Societies Act, the Treasury has aimed to put mutuals on a more equal footing with proprietary companies. Over a decade, the Government has introduced nearly a dozen legislative changes covering issues from accounting requirements to electronic communications, including amendments to the law affecting conversation. We have also been pleased to support the three Private Members Bills that updated Co-operative legislation. And this year we enacted Statutory Instruments to further update regulations governing cooperatives. Our aim has not been to give mutuality a privileged position, but to allow building societies and mutuals to compete on a level playing field, and to remove artificial restrictions that do not provide any benefit to members. For example, the 1997 Act withdrew the tortuous list of permitted building society investments. And credit unions have been given greater borrowing powers, more flexibility in their membership, or ‘common bond’ requirements and the ability to provide larger loans over longer periods, and to offer ISAs. This year we doubled the credit union interest rate ceiling, which has enabled credit unions to offer higher risk loans to sections of the community, whose only other recourse might well be illegal lenders. Read the full speech by downloading the text in PDF format (see link below) Full text |
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