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Baroness Cumberlege moved Amendment No. 69:

Page 16, line 37, leave out ("Subsection (1) applies") and insert ("Subsections (1) and (1A) apply").

The noble Baroness said: I have just spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 3, as amended, agreed to.

Baroness Miller of Hendon: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Proceeds of Crime Bill

Brought from the Commons; read a first time, and to be printed.

Building Societies (Commercial Assets) Order 1995

7.23 p.m.

Lord Henley rose to move, That the draft order laid before the House on 9th March be approved [13th Report from the Joint Committee].

The noble Lord said: My Lords, as the House will be aware, the Government recently completed their review of the Building Societies Act 1986. My honourable friend the Minister of State at the Treasury announced on 24th February our intention, when a suitable opportunity arises, to replace the current prescriptive legislation governing societies' powers with a more flexible framework and to introduce a package of measures to improve societies' accountability to their members.

At the end of the first stage of the review of the 1986 Act the Government announced three specific measures to extend societies' powers by, first, increasing from 40 to 50 per cent. the limit on funds they can raise in the wholesale market; secondly, allowing them to own general insurance companies writing buildings and contents insurance and mortgage payment protection policies; and, thirdly, allowing them to make loans to businesses without the security of a mortgage on land.

The first of these measures is to be implemented shortly through an order under the Deregulation and Contracting Out Act. The second will be made, once the details have been finalised, by an order under the Building Societies Act. The third is the subject of the order before the House today.

The order allows societies to lend to bodies corporate, including companies and public authorities, as well as to unincorporated entities such as business partnerships, clubs and associations. Societies will be able to provide business finance, conventional loans and overdrafts, as well as the purchase of debt securities and the acquisition of loans or debts owing to third parties. The power to lend unsecured to business is to be restricted, for the time being, to societies with assets above the qualifying asset holding of £100 million. However,

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when the conclusions of the recent review of the Act are fully implemented, the qualifying asset holding will be abolished and any society will be able to do business lending provided the activity is permitted by its memorandum and it has satisfied the Building Societies Commission on prudential grounds.

If Parliament approves the order, two further orders will be made under the Building Societies Act following the negative resolution procedure. These will allow societies to do business lending through subsidiaries and to offer certain banking services, such as the provision of guarantees, to business customers.

The order represents the first step in implementing the outcome of the Government's review of the Building Societies Act. It opens a new and important business opportunity to societies, while introducing competition to an area which has until now been dominated by a few large institutions. This change has been welcomed by societies, and the details of the order have benefited from consultations with that sector. I commend the order to the House.

Moved, That the draft order laid before the House on 9th March be approved [13th Report from the Joint Committee]. —(Lord Henley.)

Lord Graham of Edmonton: My Lords, on behalf of my noble friend Lord Williams of Elvel, I rise to give a welcome to the order. As my honourable friend in another place, Mr. Alistair Darling, said when this matter went through the Second Standing Committee, in general we support the thrust of what the Government are doing in respect of the building societies movement. I doubt whether there are any Members of the House who have not had direct personal dealings with building societies. I happen to be a vice-president of the Building Societies Association, as indeed are other noble Lords. However, that does not mean that we can claim that we are more knowledgeable than others but that we are friendly to the Building Societies Association.

Can the Minister satisfy me that the purpose of the package of measures is to improve societies' accountability to their members? What are the grounds for feeling that they ought to be more accountable to their members? I shall not raise any of the big issues of mergers and the manner in which shareholders have been dealt with. However, the Minister will recall that the purpose of the package is to improve societies' accountability. Therefore, there must be some question marks against the current state of accountability.

The measure is designed to extend societies' powers. As a layman, I am somewhat puzzled because it allows a building society to make loans to businesses without the security of a mortgage on land. Of course, one associates land with a building society and assumes that land is the safest form of asset against which a loan can be secured.

I plead ignorance; but am I right in believing that that is part of the thrust of turning a building society into a lending institution and in effect extending the scope to allow a building society to do much more than it did before the changes were brought about?

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The Minister also told the House that for a short time the ability to operate under this order is to be restricted to societies with assets above the qualifying asset-holding figure of £100 million. Can the Minister tell the House how many societies that covers? Does that figure cover the bulk of them? The noble Lord also told us that the activities had to be in accordance with the memorandum of the building society and that the Building Societies Commission had to vet that on prudential grounds. Can the Minister give one or two illustrations of what would be held as "imprudential" grounds?

Apart from those matters, we on this side of the House recognise that, among the many institutions which affect the lives of ordinary people, building societies are very precious. They play a very important part in the business life of the community and, as I said earlier, in the domestic life of so many people. Anything which the Government say is desirable to make building societies more accountable and responsible, we on this side of the House warmly welcome.

Lord Henley: My Lords, I am most grateful to the noble Lord for his general welcome of this order. He asked a number of questions, some of which I shall answer and others which I shall write to him about in due course, if he prefers.

First, as regards accountability, I believe the important thing to remember is that it is for the building societies themselves to decide. A number of societies are obviously hoping to adopt that power at their next

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annual general meeting. It will be for them to consider exercising that power thereafter. It will be a matter for the annual general meeting to decide whether the building society should extend into that field.

Secondly, the noble Lord asked, in a sense, about the riskiness of this venture and whether building societies should be allowed to lend when there is not the security of land. I appreciate the noble Lord's concern, but I believe that that is something which the building societies themselves must consider. If they believe that they can make a profit from lending to businesses, that will obviously be in the members' interests. As I said earlier, the power to make a business loan must be adopted by a vote of members at the annual general meeting before the society can make use of that facility. Obviously, if members feel that it is not in their interests for the society to use that power, they would vote against its adoption.

The noble Lord also asked about the number of building societies with assets of over £100 million. I am advised there are about 50 building societies above that qualifying asset-holding level and something of the order of 30 below that. Finally, the noble Lord asked about the role of the Building Societies Commission. Obviously, it will be for the commission to advise whether or not these matters are prudent. I would prefer to write to the noble Lord about that in slightly greater detail. Again, I thank the noble Lord for his general welcome for this order.

On Question, Motion agreed to.

        House adjourned at twenty-six minutes before eight o'clock.

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