Industrial and Provident Societies Bill

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Clause 2

Community benefit societies

Mr. Chope: I beg to move amendment No. 2, in page 2, line 28, leave out ', or is to be,'.

The Chairman: With this it will be convenient to take amendment No. 3, in page 2, line 29, after 'Act', insert

    'after the commencement of this Act.'.

Mr. Chope: The amendments would restrict the scope of the clause to new community benefit societies created after the ''commencement of this Act''. It would confine the provisions to what is already good current practice.

It might benefit the Committee if I rely on the excellent Library note that is available on the subject. It states:

    ''It is normal practice today for the registration authority to require that community benefit societies include in their rules a provision that neither the assets of the society nor its profits may be distributed to members. The expectation is that any profits will either be ploughed back into the society to develop its business or that they will be used for another purpose similar to the society's main object (such as philanthropic or charitable purposes). This accords with the principle under which community benefit societies are registered, that their business exists not primarily for those who are members of the society, but for the interests of society at large.''

That is normal practice in registering new societies. I do not believe that it is the practice for existing societies and is a condition for their continuing registration. There is no reason why the provisions of the clause, which I should like to amend, should not be restricted in that way. Otherwise, there is a restriction on the rights of societies to continue to operate under

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their rules. If a time comes when the registrar or Parliament wants to change that provision, they could, but it could also be changed back again.

This is a modest probing amendment, as I understand that the Government have concerns about clause 2, although not necessarily about subsection (1). I hope that we will be able to draw out the Government a little further.

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Chris Grayling: I shall follow up on the thoughtful amendments tabled by my hon. Friend the Member for Christchurch. On Second Reading, I raised my concerns about aspects of the clause with the hon. Member for Harrow, West. Some of those concerns are addressed by the amendments.

I fear that by enacting the clause as drafted, we would place undue constraints on organisations throughout the sector without full knowledge of the implications of those constraints. For example, two clubs might choose to merge, dispose of the assets of one of them and redistribute those assets to their members. Equally—I am thinking of the case of the Co-operative Society a few years ago—one can imagine that a mutual organisation could be liable to attack by corporate raiders. There are pros and cons on both sides of the argument.

If we set in stone provisions to constrain the actions of organisations, we will place undue restriction on their development, change or evolution. An organisation might, for example, wish to dispose of its assets and become a virtual organisation, or choose totally to restructure the way that it operates. The constraints in the clause could hinder its actions. It would be helpful if the hon. Member for Harrow, West could set out in detail how the provision will work, and how he will ensure that the Bill does not place on organisations constraints that might hinder their development in circumstances that we cannot yet foresee.

Mr. Thomas: I shall try not to stray as widely this time as I did before, Mr. McWilliam.

I endorse the remarks of the hon. Member for Christchurch, who quotes the excellent Library brief. He is absolutely right to say that it is common practice for sponsoring organisations to recommend to their member societies the use of particular rules in order to offer the type of protection that we are trying to put on the statute book. He will agree that protection is better if it is laid down in statute, rather than if it is provided under model rules. I draw his attention to the example of the Royal British Legion clubs, which were specifically attracted to clause 2. Although the Royal British Legion has the type of rules that the hon. Gentleman is talking about, it would prefer both new and existing societies to have the benefits of the statutory protection that the clause affords and that his amendment would take away.

The hon. Member for Epsom and Ewell (Chris Grayling) made some remarks about the breadth of the clause, which I shall try to address in the clause 2

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stand part debate. I accept that there are concerns about the breadth, but the specific worries that he raised are not justified because subsection (1)(c) allows enormous flexibility for community benefit societies that wish to dispose of assets.

I shall use again the example of a Royal British Legion club. If the club wanted to sell its main building, it could do that under the provisions of the clause. If the club wanted to sell part of its land, it could do that under subsection (1)(c). It could not distribute the cash that it received from the sale of the building to its members because the money must be protected for the benefit of the community.

Chris Grayling: May I take that example further? Let us suppose that a Royal British Legion club's membership tails off as veterans become fewer in number—that will be inevitable over the next few years. The club may become no longer viable as a result, and the members may decide to liquidate the club's assets and distribute them to the surviving veterans as a contribution. Would the clause prevent that from occurring?

Mr. Thomas: The hon. Gentleman is right. The clause would prevent the assets—the cash in the bank—from being distributed to the members of the society. However, it would not prohibit the members from giving the money to the Royal British Legion charity or giving it for another community-benefit purpose. The key to the clause is that it protects assets that may have built up over many generations from being given to only the members who are around.

I recognise that there are further worries about the breadth of the clause, and I shall allude to them during the stand part debate. However, I tell the hon. Gentleman that the clause offers flexibility for how a community-benefit society may act. It is designed to prevent assets built up over generations from being distributed to people who happen to be members only at a specific time.

Ruth Kelly: I shall make some of my broader comments during the stand part debate. The hon. Member for Christchurch made some interesting suggestions when he moved his probing amendment. There is a case for examining the amendments in detail.

The clause's provisions state that we should be aware of proprietary claims of society members. If an irrevocable rule on asset lock-in featured in a society's constitution from the outset, its members and future members would be aware of their rights. However, the adoption of an unchangeable asset lock-in by an existing society, without a unanimous vote, could unwillingly deprive some members of rights. That could invoke article 1 of the European convention on human rights.

The question of when a society may take advantage of such lock-in provisions is important, but I am not sure whether the amendment would address that concern. It would prevent existing societies from adopting the clause's provisions, but it would not prevent a new society from adopting those provisions

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after its first registration. Property rights could come into play at that time. We should consider such issues seriously during our debate.

Mr. Thomas: I recognise the worries that have been expressed by the hon. Members for Christchurch and for Epsom and Ewell and the Minister about the clause, and the potential attraction that the amendment of the hon. Member for Christchurch offers. I recognise that there are other concerns about the breadth of clause 2, and I undertake carefully to examine the point that is addressed by the hon. Gentleman's amendment. I will propose amendments to clause 2. If they fail to satisfy the Government and Opposition Front Benches, it might be appropriate for discussion of the clause to be delayed.

Ruth Kelly: I look forward to co-operating with my hon. Friend in future discussions of these issues.

Mr. Chope: This has been a useful debate.

I am a member of a Royal British Legion club. My hon. Friend the Member for Epsom and Ewell said that it is inevitable that Royal British Legion clubs will go out of business. I do not share his pessimism. There continue to be service men who are eligible to join Royal British Legion clubs, and most of the clubs—such as the one in Christchurch—offer associate membership, so that people who have not served in the armed forces can enjoy their hospitality, and cheap and good beer.

The Minister does not think that my amendments go far enough, because they do not cover the situation that she described of a new society whose assets are subsequently locked in, against the wishes of its original members. I am grateful to the hon. Member for Harrow, West for saying that, in the light of our debate, he will consider what to do. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: I suppose that, as a matter of principle, I should declare that I am a member of the Crawcrook Royal British Legion club.

Mr. Chope: I beg to move amendment No. 4, in page 2, line 37, leave out paragraph (b).

The Chairman: With this it will be convenient to take the following amendments: No. 5, in page 2, line 40, leave out paragraph (c).

No. 6, in page 2, line 47, leave out 'paragraphs (a) to (c)'.

Mr. Chope: Amendments Nos. 4 and 5 propose to leave out paragraphs (b) and (c) of subsection (1), and amendment No. 6 is consequential upon that.

Paragraph (b) introduces the entrenchment of rules. I agree with the Minister that that undermines the sovereignty of members. No Parliament can bind its successors, so why should one group of members of a community benefit society be able to bind its successors for all time, and curtail their freedom of choice to reach a different view? If the regulator or the registrar adopts a policy on public interest grounds,

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he—or a subsequent regulator or registrar—can change it. That must also be the case with regard to members of a society: they should be able to reach a different conclusion in different circumstances that we might not be able to foresee now. That is why I am concerned about the entrenchment provision in paragraph (b).

Paragraph (c) is the most severely restrictive part of the clause, because it restricts flexibility and undermines a provision in the Industrial and Provident Societies Act 1965. It entrenches assets, and that is unacceptable for the reasons that have been adduced in our debate. I hope that the hon. Member for Harrow, West, will adopt a similarly flexible approach to these amendments as he did to previous ones.

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Prepared 13 February 2002