§ 6.44 p.m.
§ Lord Young of Dartington rose to ask Her Majesty's Government what plan they have, in the light of what the Chancellor of the Exchequer has already said on the subject, for the reform of the building societies.534
§ The noble Lord said: I would not have tabled the Question had I not thought that the building societies were in need of reform. That is obvious. I should also, however, like to acknowledge the considerable services that the building societies have performed for owner-occupiers throughout this country. I believe that this service that they have performed—and will, I hope, perform in the future—could be even better if the societies were reformed, as the Chancellor of the Exchequer, at the annual dinner of the Building Societies Association in May last year, said was clearly needed. He called then for a major re-examination of the building societies and promised legislation on the matter in the next Parliament. That was on the perhaps rather strange assumption that he himself would be there in the next Parliament to be responsible for this kind of legislation.
§ Since last May, there has been something of a chilling silence—chilling, certainly, to me—on the part of the Government. We have not even had a Green Paper. I am sure that all now appreciate that there cannot be legislation in this Session on building societies. I hope, however, that the noble Lord the Minister replying to the debate will be able to add at least something to what the Chancellor of the Exchequer said nearly a year ago and give some indication of what is in the Government's mind.
§ The last two years have been an exceptionally eventful period in the history of this institution. It is just over two years ago that the National Consumer Council published a report called Building Societies and Consumers, written by Marianne Rigge, the director of the Mutual Aid Centre, and myself. In this report, we asked for, among other things, the abolition of the building society cartel so that there could be more competition between building societies. The response generally of the building societies to that report was that all the competition that was needed already existed. It was as fierce as it could possibly be. What unprophetic words these have turned out to be. Since then, the banks have entered upon the scene in strength. What was once fierce competition, if it was fierce at all, has certainly become fiercer, at least until the last few months.
§ The results of competition have, in my view, been wholly beneficial for the consumer, for all the people who want mortgages in order to buy their own houses. As much was acknowledged in an extremely interesting paper published recently in the New Law Journal by Mark Boleat of the Building Societies Association office, who contrasted the value to consumers of competition and regulation and concluded that competition, particularly that from the banks, had brought far more benefit to the consumer than regulation ever had or could, and even also some benefit to the consumers of banks, since it was, in his view, the competition from building societies that had led Barclays Bank to open its doors once again on Saturday mornings.
§ But this competition from the banks has abated. The demands on their funds for other purposes have increased. They have not withdrawn form the market but they are putting less funds into it. As competition has lessened, the old problems—the problems of mortgage famine and the like—are with us again. Therefore, on the argument that I have just 535 mentioned, the case for regulation is stronger than it was when competition was fiercer than it is now.
§ In my view, one problem will certainly not go away until there is new regulation, until there is the type of legislation which the Chancellor was envisaging. That problem is to do with the constitution of building societies, which are weakened by a fatal contradiction between the form and the practice. Building societies call themselves societies, but they are not; they are closed corporations. They refer to their borrrowers and their investors as members, but they give their members no rights. They are mutual organisations in law, and I am delighted that they are. I am delighted that the recent building societies' Spalding Report says that they wish to remain mutual organisations in law, but I am not at all delighted that they do not want to behave as mutual organisations in practice. If only they meant what they said about the value of the principles of mutuality, set out in the Spalding Report, one thing they would surely do is stop being so defensive and stop resisting every effort by ordinary Members to achieve election to the boards of directors.
The Chancellor himself drew attention to this failing when he said that:
The management of some societies are too fearful to the working of the democratic process.".
It seems that their self-perpetuating oligarchies are ready to go to almost any length to keep power in their own hands. This was illustrated just recently by what happened at the Nationwide Building Society when Mr. Punt, one of the doughty and growing band of building society reformers, not only had down a great many questions to the directors but also was making an effort—and he did very well—to get himself elected to the board.
The management of that building society sent a circular to all the offices asking as many staff as possible to attend. It instructed them not to wear the kind of clothing that would enable them to be recognised as members of the staff. The manager said:
If there is a 'demand' from other members of the society [at the meeting] for an indication of the number of staff present … members of staff should then ignore any such request.".
Then it goes on:
Staff should be asked to take care in any discussions or comments
that they make during the course of the meetings. Also, that informal meetings
could take place anywhere in the proximity of the AGM such as staircases, the foyer, toilets
et cetera. I quote again:
It should be remembered that it would be quite possible for Mr. Punt or one of his supporters to be standing within a yard or two of such a group …
If that is the principle of mutuality and not the principles by which the Militant Tendency is known, then I do not quite know where I am.
§ The Spalding Report, in the same sort of vein—but, of course, not in that kind of detail—said that the board is the proper body for carrying out a selection process for new board members. In my view—and this goes for the other people who are trying to secure reforms in the building societies—the impediments should be removed so that rank and file consumer members can have a fair chance of election. They are 536 the kind of people who could help ensure that all directors' interests—that is, the interests of solicitors, estate agents, surveyors and builders who benefit by commission or otherwise from being directors—should be recorded in the annual accounts; they are the type of people who could ensure that generally fuller information is given to members; that an end is called to any propelling of new borrowers towards endowment mortgages from insurance companies from which building societies get commissions; that the truth in lending exemption, which has been given to the building societies, should be withdrawn; that women should be treated as having equal rights with men in all relevant particulars; and that from the inside of building societies there should be a call for the abolition—at last!—of the building society cartel.
§ Such new people could help to make sure that the new legislation, when it comes—as I greatly hope it will come—will be acted upon in the spirit as well as to the letter. So could the appointment of a building society ombudsman, which unfortunately the Spalding Report specifically rejected. I appreciate that the noble Lord the Minister will not be able to cover all these issues; nor all the issues that will be raised by other noble Lords who will take part in the debate. But even so, I hope that he will be able to add at least something to what was said—and so well said—by the Chancellor of the Exchequer when he opened a new debate on a new phase in the history of one of the most important institutions in this country and one which, in my view, is very drastically in need of reform.
§ 6.56 p.m.
§ Lord Plummer of St. Marylebone
My Lords, the noble Lord, Lord Young of Dartington, has raised some very interesting points and, for the most part, it could be said some very critical points, in regard to the building societies. In view of his great experience in consumer affairs, I think it is important that we should study these very carefully. First, I should declare an interest in that I am chairman of a building society and I am also president of the Metropolitan Association of Building Societies.
My general impression of the criticisms which the noble Lord, Lord Young, brings forward is that while some might have been valid some years ago, changes have long since occurred which have largely met the points he makes. Under the pressure of intense competition, the building societies industry in recent years has undergone many changes, both in the structure of the building societies industry and in the management of individual societies. This undoubtedly will continue, and I emphasise that building societies are not fearful of reform, for it is they who are trying to bring it about.
The building societies are indeed anxious to widen their activities in the housing market and it would be interesting to know what the Social Democratic Party will propose in its manifesto. For example, will it in fact support legislation which will increase the ability of building societies to become more directly involved in housing activity, or will it inhibit the ability of building societies to assist borrowers more easily?
I should like to comment on some of the points raised by the noble Lord. At the same time I should 537 also like to comment on some of the points which he made in his press release of 6th April, 1983, which prefaced this debate. First, in regard to cartels, the noble Lord argues that the cartel should be, to use his words, finally abolished, while also arguing that societies have become more competitive with each other, and that the banks and the TSBs have entered the mortgage market, although the banks, I would point out, have now retrenched very considerably.
Orderly marketing by building societies inhibits competition, and that, I submit, is its purpose. However, it is by no means clear that the abolition of the interest rate system would in fact benefit building society members. In a free system interest rates would move more frequently than they have done in the past. This could be detrimental to many borrowers, and of course costly to implement. It is for this reason that Governments of all political complexions have recognised the value of the system for recommending interest rates.
The noble Lord, Lord Young, also referred to self-perpetuating oligarchies. I should like to make a few comments in respect of this. It is true that included on the boards of building societies—and in his press release the noble Lord particularly criticised this fact—are surveyors, solicitors and builders. I myself am a member of the Royal Institute of Chartered Surveyors. Surely it is only natural that when building societies are involved in the property field their boards should have on them people who have expertise in property. I do not think their motives should be questioned in this way. In this respect, surely, the boards of building societies are a little different from the boards of other organisations.
§ Lord Young of Dartington
My Lords, would the noble Lord allow me to put a question and to make a clarification? I have no objection at all to surveyors and the like being members of boards of building societies. What I was objecting to was the fact that any commissions they receive because of work they do for building societies on whose boards they sit are not recorded, and particularly are they not recorded in the annual accounts of building societies. The Spalding Report discussed this matter and specifically recommended that there should not be recording of commissions received, and the like, in the annual accounts. This seems to me to be wrong. I was not objecting at all to the presence of these people on the boards.
§ Lord Plummer of St. Marylebone
My Lords, in 25 years of experience I have never met a situation such as the noble Lord describes. I think it would be true to say that Form AR 11, which has to be submitted to the registrar annually, clearly calls upon the members of boards to disclose anything of that nature. It is unfortunate that the noble Lord has totally failed to give any evidence of his serious allegation of vested interests influencing decisions. If he continues to make criticisms of that sort, he should bring forward facts.
The noble Lord, Lord Young, in his press release of 6th April, quoted the Building Societies Association as saying that the board,is the proper body for carrying out a selection process for new board members".538 But he failed to quote the remainder of the paragraph, which I should like to read and from which it will be seen that the noble Lord has not fully reflected what was in fact said by the association. The rest of the paragraph reads as follows:The practice often followed in building society boards, as in the boards of other organisations, is for directors to appoint people to fill casual vacancies, the members so appointed then standing for election at the next annual meeting. This is a proper course of action. Directors must choose people about whom they have been able to form a judgment and this is likely to mean people known to the board members. Boards generally (not just those of building societies) must be a team capable of arguing through and agreeing on corporate strategy. The board is the proper body for carrying out a selection process for new board members".I should like to emphasise that this process does not preclude the appointment to the board of ordinary members of a society, provided of course they have the support of their fellow members. The suggestion that legislation should give members the same rights as shareholders—and by this I presume is meant shareholder's of limited companies—is a little strange as, for the most part, building society members already have similar, if not better, rights. However, to suggest that members should have an unqualified right of access to the register of members and to circularise them if they wish—and it could indeed be for commercial purposes wholly unconnected with the society—would not be in the interests of members, especially given current concern about the confidentiality of data on computer files. I do not think that many members of building societies would be happy with a situation in which their names and addresses were given to third parties, and could be used for any purpose at all. The present law permits access to the register of members in certain circumstances, and in other cases the consent of the Chief Registrar of Friendly Societies is required. This is, I am sure, a perfectly reasonable protection for members of building societies.
I would submit that the suggestion that societies should consider the inclusion in their rules of a provision to allow members seeking election to the board of a society to submit an autobiographical note was not given in any "grudging" sense, as the noble Lord suggested in his press release. The building societies' report makes this quite clear.
The other point is to improve on the information given to members. If you walk into any society you will find that there is a plethora of information available to members. It is quite wrong to accuse building societies of being backward in giving information to their members. Societies produce information to more people than almost any other comparable institution. It hardly seems necessary to require societies to display information about lending criteria. You have only to walk into any building society office and you will find that societies already have comprehensive literature on the terms of their loans.
I think it would be true to say that those who are engaged in the day-to-day building society business find that building societies are anxious to provide more information than their members really want. The reason why annual reports are not so informative as they might be is because they have to be sent, at considerable cost, to a large number of people—something like approximately 25 million 539 people, it is calculated, many of whom, I think it is true to say, are not interested in receiving them. If the number of copies were reduced considerably the information given in the report could be increased.
The noble Lord said in opening that societies were in need of reform. The building society industry is not in any way complacent, but the changes suggested by the noble Lord, Lord Young of Dartington, are not well designed to improve the situation.
§ 7.10 p.m.
§ Lord Houghton of Sowerby
My Lords, I have said more than once before that I am a vice-president of the Building Societies Association and a candid friend of the building society movement. I claim that my thinking about building societies is a step ahead of most of those engaged in the daily practice of building society work. It is a long time since I was directly concerned with the management of a building society; and then it was quite a small one. Through this connection and others I have kept closely in touch with what is happening in the world of building societies.
There are 34 vice-presidents of the Building Societies Association; 10 of them are Members of your Lordships' House. So when one of them, like myself, gets out of step, he is not very conspicuous. It is like a marathon; we are all running together and sometimes a few get ahead of others. I am grateful to the noble Lord, Lord Young of Dartington, for raising this matter. I share the tribute that he paid at the beginning of his speech to what the building societies have done over the years. Don't I know! I have been a member of a building society for the whole of my adult life; my father before me, a founder member of a building society in the last century, as with the co-operative movement. This was the environment of my birth and upbringing so I have seen this movement grow over the years.
I am a little irritated by the way in which the present tycoonery of the building societies talk about the building society industry. It is a movement. I hope it will remain a movement. If they call it an industry, they know where they are going. They are walking straight into company law, straight into the City, straight into financial institutions instead of great social movements.
I want to ask questions rather than to make comments. Doctrinally I suppose I stand between the noble Lord, Lord Young of Dartington, and the noble Lord, Lord Plummer of St. Marylebone, who has been speaking with great knowledge of a practical association with the working of this movement. What I want to know is what is going on, because on 28th March 1983 in another place the Economic Secretary to the Treasury, in reply to a Question by Mr. Craigen, the Labour Member for Maryhill, said that he did not think a further independent inquiry was called for, but he said the,Government will ensure that a wide canvass of views from interested parties and the general public will be invited in advance of any future legislation". [Official Report, Commons, 28/3/1983; col. 70].I do not think that is good enough. If something is afoot, who is taking part in it? If preparations are being 540 made for legislation in another Parliament, who is doing it just now? What opportunities will there be for many of us with views and experience of sharing in this enterprise? Do we have to wait until there is some kind of white paper, green paper, or pink paper—no, blue paper is the thing now; the possible variation in the colour scheme is for a blue paper. If it does not come from this Government it will be a red paper or a pink one. Anyway, the production of a paper is the stage at which, apparently, we shall all be invited to give our views. I do not think that is good enough. I think the opportunity should be taken of going very much more deeply than the present review of building society work and management now being undertaken.
What is the scope of this review? I think the social, economic and financial aspects of building societies need to be studied and reported upon. Of course, the constitutional matters which are raised by the noble Lord, Lord Young, will figure quite prominently in this review. I fear that the review may go little further than constitutional matters. I think it should be much broader than that. On constitution, management, structure and democracy, such as it is, I think that the building societies are now far too important to go pedalling along on the penny-farthing constitutions that were designed for another age in entirely different circumstances.
When I first understood about building societies' they were different in character and their membership relationship was very different. The house in which I was born was bought through a building society; literally a society of builders, those who wanted to build their own houses. Out of the kitty, the pool of contributions, a lot was drawn so that the successful member could then build his own house. But now the building societies are mortgage brokers on a mammoth scale. I do not want to say that they are moneylenders. That would be disparaging, having regard to the general view about moneylenders, but building societies are financial institutions and mortgage brokers. We have to see how they fit into the concept of management and control of bodies and institutions of such size and importance. As an official of the Halifax Building Society asked to me once, what form of democracy is practical when one has 8 million members? What indeed?
Perhaps the voting membership and participation in the affairs of building societies is too easily and too cheaply acquired. When we all control an organisation, none controls it. That is the position of building societies. No one controls them. I have never yet seen any signs of affection between the board of a building society and its members. When I was chairman of a small building society I always looked with suspicion on the few who turned up to the annual general meeting. I thought they were not up to any good.
One of my building societies has its annual meeting next Monday. I can quite understand the look on the faces of the board if I turn up. They say, "What does he come for?" They might well ask because if I do turn up, then they will know. There will not be any large assembly of approving members who are anxious to move a vote of thanks to the board for their splendid services during the year.
541 The greatest assembly of members that I can recall in recent years occurred when a building society proposed to give a reasonable, but quite substantial, acknowledgement of the services of their president who had served them for many years. That was too much for the members locally. So many of them wished to come to pay tribute to the departing president that they had to go from the modest room in which the AGM was usually held and to rent a theatre. The president decided that, rather than be overwhelmed by this display of affection and generosity, he would reject the proposed gift, and save himself an awful lot of trouble.
That is when democracy in building societies can come to life. I think, frankly, that the qualifications for active participation by members in the affairs of the building society need to be thought about seriously. I ask the question: what are the claims of borrowers for membership of a building society? Even investing members, I think, can be required to possess some firm credentials. I would review the one-man, one-vote principle. I think that stake with stability might well be a firm basis upon which qualification for membership should be built, so long as it had limits to the acquisition of power within the building society and so long as both were reasonable as to stake and stability. That might be worth exploring. I certainly think that a person who joins a building society one day, puts some money into it and, two days later, draws it out, is scarcely entitled to become a member of that society. Indeed, the way in which building societies are lending themselves to a wide variety of banking transactions is asking for trouble in that particular way.
I now pass to the elections of boards of building societies. My noble friend Lord Young of Dartington referred to this and the noble Lord, Lord Plummer, commented upon it. We need reasonable opportunities for the exercise of choice and I am bound to repeat—I have it written down without any connivance with my noble friend Lord Young, that the boards of building societies are self-perpetuating oligarchies. Indeed, I believe that, at the present time, when I see the new appointments being announced to the building society boards, it is becoming a form of patronage—and there are no women, or very few of them, in it. I notice that two noble Baronesses are to speak in this debate. I hope that they will speak up in this atmosphere of chauvinistic government of building societies.
I accept fully what the noble Lord, Lord Plummer, has said about having quality on the board. You do need people with experience, character and reputation to take responsibility for the affairs of the board. They are handling very big assets indeed, and are responsible for important decisions on policy. Yet somehow members should have access. One wonders whether this is not the time to consider a two-tier board system for building societies—the supervisory board and the management board—or, at any rate, to have on the board members' nominees whose places are not filled when they become vacant by the patronage of the board but have to go to the vote of the members. To have two members on every board directly elected by members, never appointed by the board, might be a suitable compromise.
542 Certainly these are matters for consideration. I think that we have to get off the beaten track. I know that we should all like members on our boards and committees whom we like, trust and can get on with. But life is not like that all the time. You sometimes work with people you do not like and you have to get on with people you do not like, and it is probably a good thing to have somebody around who is going to question what you do.
My noble friend Lord Young mentioned directors' remuneration. I am not aware of any building society that fails to disclose fees paid to directors as well as directors' fees—by which I mean fees paid for services rendered. There may be some cases; the noble Lord, Lord Plummer, said that he was unaware of any. I see from the report of a building society of which I am a member, that they give directors' fees, and fees paid to directors for other services. What worries me is that the fees that they get for other services exceed the fees they get for being directors. I want to know what they are. They are not stated, but the total is stated. I think that disclosure of payments to directors should follow the pattern already adopted in company legislation. Indeed, the registrar has recommended that building societies follow that pattern. A number of them do so and I think that it should be made a statutory obligation, as in the case of joint stock companies.
Now, my Lords, I come to the question of the removal of limitations imposed on the scope of the activities of building societies. This is crucial. This is where the pressure is coming from. The boards of building societies want more elbow room. If they are going to compete, they want to be able to compete in a wider area of activity and initiative and to show their imagination as well as their management ability. I am bound to observe in passing that ambition always seeks to expand. Small is not beautiful in the building society movement any more. The pride now is in the reduction in the numbers of building societies and not in the expansion of the scope of new building societies. No, it is reduction—reduction!
We are getting to a monopolistic position in the building society movement, not because the numbers are yet very small but because there are some building societies gathering in strength and power in the building society movement and they will dominate all the rest of the societies befor very long. The question is this. Should building societies be given a much wider field of service in housing—as the noble Lord, Lord Plummer—has said; in home making; in fact in everything short of marriage guidance and family planning? Where do we stop? How far can we go?
Is the review to assume—and I change now to another point—that we are to continue being a property-owning democracy with the financial help of the building societies and £2 billion a year of tax relief on mortgage interest? Is that how we are going to arrange the future of our home ownership? When tax gatherers complain about the black economy and the Keith Committee goes for the "moonies"—and I am referring to the moonlighters—do they realise the built-in injustices in the taxation system which lead a lot of people to regard it with contempt? Here is an area of injustice, if you like. The present methods of financing house purchase are open to the strongest criticism on grounds of equity in relation to other 543 people in our community. They are an absolute bargain, at the expense of the small investor and the taxpayer. I will not enlarge on that: I am just suggesting that we want to go further than merely to "dress up" the existing system and not attend to some of the underlying matters of great importance.
The tax relief on building society mortgage interest goes back to the beginning, when people had money charges on their income. If you borrow money—I emphasise "money"—it is limited in purpose now, but you can get relief on the interest. If you buy the house, you get it: if you go in for hire purchase of the furniture in it, you do not—because you are not borrowing money but acquiring the ownership of property on a payment system. If you pay rent, you get nothing unless you are poor. And what about the investor? He pays tax indirectly whether he is tax-liable or not.
Therefore I would ask: are all these within the scope of this review? The Building Societies Association have produced some evidence which is very important and interesting. I do not think it is bold enough by any means but I am not going to comment on it in detail. I wonder whether this review could be opened up. Can it not be made a full-dress affair, or at least not the sort of hole-and-corner survey of the situation which appears to be going on at the present moment? Building societies and local authorities between them are shaping the nation's housing policy today. Both have their origins and many of their methods way back in past social conditions. Both have their own limitations and restrictions and their inflexible elements. They are restricted in their competitive practices by the limitations imposed upon them. There are not many ways in which building societies can become really competitive one with another, when they are operating in the same restricted field.
I think that one of the chief problems underlying the system of house purchase and a property-owning democracy is that we are going to become a stay-put nation—"can't move, won't move!" Is industry to be brought to the people like Meals on Wheels? Is that how it is going to be done? I think that the housing programme of the future will have to be adjusted to the concept of a new Britain, with a new industrial pattern and a new map of industry in Britain.
Anyone who is going to play a part in this will have a very important role to fulfil. Can we not have building societies that build? Can we not have building societies that build to rent? Can we not encourage building societies to become not mortgage brokers only but building corporations, with far more influence upon prices and contracts? There is great scope here for imagination, but I do not see it coming out of the Department of the Environment. It will have to come from a body with eyes above the day-to-day work of the building societies, a body that can visualise Britain in the year 2000. What we want now is people who are young enough, imaginative enough and determined enough to become men of the year 2000. We want to hear more about where Britain is going to be in the year 2000, if we are spared a war in between.
I think I have said enough to show that we want more than a mere routine Whitehall updating operation: we want an inquiry into the work and 544 functions of the building societies that will be worthwhile and will set the pattern for many years to come.
§ 7.35 p.m.
§ Baroness Gardner of Parkes
My Lords, that was a very fascinating speech by the noble Lord, Lord Houghton, and to listen to his personal experience of building societies has really been quite an education to me. I should like to begin my comments by taking the final sentence of the speech of the noble Lord, Lord Young of Dartington: his remark that the building societies are one of the most important institutions in this country. I think that is highly significant, and I am surprised, in a way, that we have so few people taking part in this debate tonight. I think that can only be because this is the very beginning of this topic, and tonight we are airing it for the very first time. I have no doubt that when it gets to the point that legislation comes forward, we will have very wide interest shown, not only in this Chamber but throughout the country, in the changes which should be made in building societies, in their constitutions and in their powers.
I should like to comment on some of the points made by my noble friend Lord Plummer, and in particular I would take up his point about the abolition of a cartel. I think it is true to say that the interest rates would move more frequently if there were not the present guidelines on interest rates. I do not think that would be in the interests of those who borrow and who take up their mortgage, having worked out their budgets fairly carefully as to what they can afford to pay. If the interest rates were subject to wide differences and sudden changes, it would make life extremely difficult for people, and I accept the case that the cartel system has helped in that regard.
I am not in favour of a cartel in so far as it reduces competition, but I notice now—and here I speak as a typical small investor in a building society; I cannot declare any great interest such as being involved in the managementside of a building society, as some other speakers are able to do—that, as an investor, you can shop around and get a little bit better or a little bit worse interest in the various societies. Very many people I know spend their time—in fact, quite a number of retired people find this is one of the most interesting occupations—studying where they can get the best interest and the best deal from local building societies.
I should like to support the noble Lord, Lord Houghton of Sowerby, in saying that the building societies should really be, and indeed are, a great social movement. I think it is important, therefore, that they progress, so that in the year 2000, to which the noble Lord referred, they will be right up to date with what they are allowed to do and the way in which they do it. It is essential to have a review. The Question we are debating tonight speaks of "reform", and I would not quibble about the difference between the words which are used there and the term used by the noble Lord, Lord Houghton. But the whole subject should be under broad review so that the powers, duties and rights of the building societies which engage in various types of activity may be clearly considered.
The point about participation by members is an extremely difficult one, because the sheer volume of 545 membership—estimated to be in excess of 20 million people—makes it very difficult to circularise or contact these people by any means. Certainly, as someone who finds that a great deal of paper drops through her letterbox all the time, I know how many of these things are unread. Yet the cost of publishing over 20 million copies of annual reports, as is presently done—it is a legal requirement—must be a very big expense. If you are going to extend that and make even more information available in that form, it will be quite extravagant and wasteful, I think. If, on the other hand, there was some way in which an information register could be available, and if more detailed information could be sought out, that I would support.
I was delighted to hear the noble Lord, Lord Houghton, say that there are few women on the boards and that we should protest at that. I do, I suppose, register that comment; but if you look at the other side of it and see how many investors there are, I think you will find that the number of women is very great indeed. Many women look upon their building society account as their own little nest egg, their own little security for the future. It is perhaps something that their husbands do not even know they have. The fact that the interest is tax-paid means that it does not have to be declared to him, which has been of enormous benefit to women.
The noble Lord said that there are now so few building societies, but I notice that there are still 227, so it is not an inconsiderable number. But I would take issue with the noble Lord on the question of home ownership. I should like to see the absolute maximum home ownership in this country. I accept that there are times when people need to have short-term accommodation or flexibility, and I believe that building societies could play a great role in this.
I should like to see a reform which would enable societies to build property for assured tenancies. As your Lordships probably know, assured tenancies were brought in under the 1980 Housing Act. They do not give prolonged security of tenure, but a tenant would have accommodation available at a fair rent, and that is something that is desperately needed at the present time. The 1974 Housing Act virtually destroyed the private sector of rented accommodation, and the people who are discriminated against today, in terms of housing accommodation in this country, are the young British people wishing to marry. Many of them are not able to afford a home immediately; but with assured tenancies, under the control of reputable bodies such as building societies, they would have the option of renting something of that type until they were able to choose their own home to buy, or to raise a mortgage for something which they already had in mind but for which they needed more time to accumulate capital.
I would take issue, again, on the point that creating home ownership is producing a stay-put nation. In fact, I take exactly the opposite view. Nothing has locked the people of this country more securely into one place than the fixed council tenancy, which was not exchangeable or transferable to any other part of the country. Home ownership gives flexibility. It is your right to leave that home, to sell it or to let it to someone else for a time. Home ownership gives 546 flexibility and mobility, which the present council rented system does not.
So I should like to see building societies continuing to promote as much home ownership as possible, as well as building for assured tenancies. At the moment, they do not have the legal right to do these things. Some building societies are embarking on new venturesome projects, but there is a slight doubt about whether or not they are right in doing so. This point should be clarified, and it should be established that they are able to play an active part in the housing market,
I would now bring to your Lordships' attention maturity loans—we cannot get away from jargon, whatever we are speaking about—and these are important for building societies in the future. I did not know what maturity loans were, so I asked, and it turned out that they are interest-only loans. These are to help the older person, perhsps the older homeowner, who not only cannot finance the necessary repairs or improvements to the home but lacks the confidence or the mental skill to organise someone to come and do the work. I know that it is being done in a small way by some building societies, but it would be most valuable for societies to lend on an interest-only basis to older people and to have the facilities to enable these people to have their homes repaired or improved.
It is not always entirely a matter of money. Many elderly people have a fear of some stranger coming into their house, and perhaps they worry about what might be done to the property. The confidence and trust that the people of this country have in the building societies would go a long way to helping people in that category. I should like to see people being able to feel that they can go to a reputable building society and know that they have available the services and the expertise, and can have explained to them how to apply for grants, because many people would be eligible for them but are not even aware that they can claim.
I should like to point out that the concern of most people today—and I speak from experience as a dentist who has discussed this with my young patients—is not the interest rate that they will be charged, but whether they will get a mortgage. That is their first concern. It is only after they have found that they can get a mortgage that they look at the rate, and ask how that will fit in with their finances. The rate is of secondary importance to the availability of the funds.
It is interesting to know, too, that the Building Societies Association has an officer who is willing to receive details of any overall problems. That is extremely important. Just as we can write to the Law Society if we are unhappy with our legal advice, in the same way we can write to the Building Societies Association. I am quite sure that it is in the consumer's interest to have yet one more tier in an overall association that can bring influence to bear on the societies.
I did not go into detail on the assured tenancies because I thought that I had said enough. But in those cases landlords have to be approved by the Secretary of State, and therefore it is quite a specific field. Banking is another field that building societies are 547 going into. As has been pointed out tonight, the challenge has come to the building societies from the banks, and I think that the building societies are now responding to that challenge and saying, "We should like to have banking rights and banking facilities".
The atmosphere in a building society in your High Street is very friendly and co-operative, and many people find it easier to go there. I know so many people who have building society accounts but who would never dream of having bank accounts. They might consider the Post Office Savings Bank, but beyond that there would be no thought of any bank, because banks are somehow frightening to them. People who have always been paid in cash and have had their housekeeping in cash are quite well geared to thinking in terms of building society accounts.
The whole banking world is changing, and, very shortly, the building societies will have to be able to use credit transfers and other means that are common in the banking world if they are to give their investors and customers the best of what they require, to which they are entitled. They are competitive institutions and, as I said at the beginning of my speech, if you do not like your building society you move off to another. That is what investors do. They vote with their feet, and that, in itself, is a great consumer protection. I should like to see the building societies considerably reviewed, with changes that will bring forward new and imaginative ways, such as co-ownership or equity sharing, when people cannot afford to buy a house in the first instance. That must apply to many young people today. Under equity sharing, a young couple would buy just part of the property. As time went by and their income increased, they would be able to buy more of the property. This would help more young people in the early stages.
There are so many ways in which the building societies can and, I believe, will help the people of this country. In the past they have enjoyed the confidence and trust of the people of this country, and I am sure that they will continue to do so, but they must not be frightened of reform. Reform must be considered fully and carefully. New powers must be given to the building societies at the same time as any injustices which now exist are removed.
§ 7.51 p.m.
§ Baroness Burton of Coventry
My Lords, it seems to me that tonight we have had a good, mixed bag of speakers. I can only hope that from our various remarks the building societies will draw some encouragement and that they will take to heart what we say, though I am afraid that some of our remarks may not be acceptable to all of them.
We have heard a great deal tonight about the consumer interest. I was particularly glad that this Question was put down by my noble friend Lord Young of Dartington. He has done as much, if not more, for the consumer interest as anybody in this country. We have heard a good deal recently about the consumer interest. There was a debate not so long ago on the nationalised industries and the consumer interest. The Water Bill has been before this House three times and we spoke about consumer councils. 548 Tonight the consumer interest has been mentioned several times. I want to say something about the consumer in so far as the building societies are concerned. Many of us are consumers in relation to building societies.
First, perhaps I may pay a tribute to what the building societies have done. They have done a great service to many millions of owner-occupiers, but because of their importance and their very large organisation I believe that the time is now ripe for us to look at their future development. When I realised that the Chancellor of the Exchequer thought that the time had come to look at this matter, I hoped very much that the initiative taken tonight by my noble friend Lord Young would lead to some enlightenment from the Government. Yesterday, as probably other Members have done, I obtained a copy of the speech given last May by the Chancellor of the Exchequer to the Building Societies Association. I spent last night reading it and trying to learn something from it.
In general terms, the Chancellor of the Exchequer said he hoped that new legislation would be based on what he described, and what my noble friend Lord Young also described, as a major re-examination of building society matters. However, as I looked on, I noticed that the Chancellor went further. He said he thought that the managements of some building societies were too fearful of the working of the democratic process. The noble Lord, Lord Plummer of St. Marylebone, with his very considerable experience, took leave to doubt that statement. I am hoping that the noble Lord, Lord Plummer, will agree, perhaps reluctantly, that there is something in two matters I want to mention later.
I believe that some building societies have been self-perpetuating. I do not mind whether or not one uses the term "oligarchy", but that is the term I have written down here. My experience has been that building societies have tried to fend off ordinary members and to retain power in their own hands. That may not be true of all building societies but it is true of some. I have felt for a long time that directors should not be able to choose themselves and their successors.
I do not know whether the noble Lord, Lord Plummer, recalls a television programme last year which illustrated the problems faced by somebody who was trying to secure election to the board of a well-known building society. There was more than one episode of this television programme. I watched it. Every possible obstacle that could be put in the way of this person who wanted to stand for election was raised. I did not know the person concerned, but I thought that anybody less determined would have given up long ago. In the end, he won election to the board. If the Minister so wishes, I can give him the details later. I would rather not give them here. Strangely enough, last year, quite by chance, I met this person who had been elected to the board. I said to him, "I can't think why on earth your face is familiar to me". Then it dawned on me. No such obstacle should have been put in his way.
Therefore I wonder how many boards of building societies put the same obstacles in the way of other people. I do not know whether the noble Lord, Lord Plummer, can tell me whether or not the boards of some building societies afford fewer obstacles, or give 549 a little more encouragement to people who wish to stand for election. The impression I gained from this television programme was that you had to persevere; you had to refuse to take "No" for an answer; and you had to be prepared to be put to a great deal of expense in order to get your material over to the electorate.
The House will probably know—certainly the noble Lord, Lord Plummer, will know—that the Director General of Fair Trading recommended to the Minister for Consumer Affairs that the present exemption of building societies from the advertisements and quotations regulations made under the Consumer Credit Act should be discontinued. Although this is short notice, I am wondering whether the Minister can tell us tonight if that recommendation is likely to be accepted by the Minister for Consumer Affairs and by the Government. If the Minister can do so, it will be of great interest. Because of the close competition in which the building societies are now engaged with the banks I should have thought that they ought to be required to inform potential borrowers, who are consumers in every sense of the word, of the annual percentage rate of interest on mortgages calculated in the way that the law in general now requires.
The House may wonder why I now go back to 21st November 1958. I go back to that date because it was the day on which I achieved fame in a cartoon in the Daily Express. The subject was the granting of mortgages to women. It was not alleviated by the statement that some societies required a woman to provide a male guarantor. Nor was the position improved when a spokesman for the Building Societies Association said that women were discriminated against simply because they were reckoned to be less creditworthy. I take considerable umbrage about this because a very well-known building society turned me down for a mortgage. As a member of the House of Commons and of Parliament, I should not have dared to default. But could I get a mortgage? No. I got one eventually from a smaller society but not from a large one. This gave me first-hand information about building societies.
In 1958, the then Minister of Housing and Local Government—the House will, I believe, be pleased to hear this—was Mr. Henry Brooke, now Lord Brooke of Cumnor. He could not believe what I told him, so I went to see him and took various cases to him. Obviously I was not the only one. These ċases were incredible. Though I am tempted to do so since I have taken much less time than anybody else, I shall not weary the House by going into those cases now. When I saw Mr. Henry Brooke we went through everything. I would not have been silly enough to take him anything that was not foolproof. I had no need to do so: one does not have to embroider if the case is good. Mr. Henry Brooke, as he then was, saw the building societies. The position improved, but not all that quickly—indeed, most reluctantly in some quarters.
I know that 1958 is a long time ago. I know also that, as the noble Lord, Lord Plummer, said, times have changed. Many examples—some of them quoted by my noble friend Lord Young—are no longer relevant. However, though 1958 was a long time ago, the Chancellor of the Exchequer, speaking 24 years on, 550 told the Building Societies Association in a speech last May that:One line of criticism concerns the service you provide to borrowers".An example given by the Chancellor of the Exchequer was:a reluctance to recognise that the head of a household can be female as well as male".It looks to me as though, from the viewpoint on democracy and from the viewpoint on equal treatment of men and women, we still have a long way to go. I hope that it will not be another 25 years before we reach a further improvement in that stage.
The noble Lord, Lord Plummer of St. Marylebone, told us that building societies are not complacent but they do not believe that some of the changes and reforms proposed now should be made. I hope that the noble Lord will be able to agree—and I hope even more that his noble friend Lord Trefgarne will be able to agree—that the two reforms I have mentioned are still very relevant. The first is that the chance of being elected to the board of a building society, if one is good enough, should be made much easier for people to achieve—alternatively, that every conceivable obstacle should not be put in their way if they wish to stand. Secondly, the building societies should take the words of the Chancellor of the Exchequer to heart and accept that the head of a household can be female as well as male. I hope very much that the initiative shown by my noble friend Lord Young of Dartington will produce some enlightenment from the noble Lord the Minister.
§ Lord Plummer of St. Marylebone
My Lords, before the noble Baroness, Lady Burton of Coventry, sits down, I believe she has drawn me to my feet and so I will confirm to her quite seriously that I truly believe there should be equal opportunity for people to become directors of societies. A proper channel for this must be worked out. As regards who should be head of the household, I am absolutely amazed that this problem should exist; certainly it never exists in my own society.
§ 8.2 p.m.
§ Lord Marshall of Leeds
My Lords, may I first apologise for not being in my place when the noble Lord, Lord Young of Dartington, opened this debate? Perhaps I may also say, however, that I had the advantage of reading the press release that was put out by the Mutual Aid Centre on Wednesday, 6th April, outlining the seven point charter for building society reform of which the noble Lord, Lord Young of Dartington is a part author and on which, no doubt, he has spoken this evening. Secondly, I declare an interest, as being a director of a building society.
I am always surprised that a movement which has helped so many people has so few friends on certain occasions when the future of the movement is being debated publicly. The seven point charter is, in my view, rather typical of those many modern day reformers who would wish to change—generally for the worse—any organisation or institution which is evidently and universally successful and which, in the case of the building society movement, is performing and has historically performed an outstanding role in 551 the field of house purchase and owner occupation. I am certainly proud that 58 per cent. of the people of this country are occupying homes which one may describe as being in owner-occupation.
The technique of these so-called reformers is to make a series of allegations in order to make appropriate the opportunity to thrust forward their own patent medicine which, although designed to cure toothache, ends up by paralysing the patient permanently. This is something we should bear in mind. The seven point charter is something with which I beg to differ, and I should like to speak particularly about the first of the seven points.
Boards of building societies are little different from the boards of many other companies and organisations. The noble Lord, Lord Young of Dartington, has in my view failed to give any thorough-going evidence of the rather serious allegation the document contains of "vested interests" influencing decisions. The noble Lord describes the Building Societies Association as saying that the board,is the proper body for carrying out a selection process for new board members".The remainder of the paragraph to which this sentence is the conclusion I will read to your Lordships in a moment, when it will be seen that the noble Lord, Lord Young of Dartington, has not fully reflected that which was said. I intend to be tedious for a moment and to read out what was said:The practice often followed in building society boards, as in the boards of other organisations, is for directors to appoint people to fill casual vacancies, the members so appointed then standing for election at the next annual meeting. This is a proper course of action. Directors must choose people about whom they have been able to form a judgment and this is likely to be people known to the board members. Boards generally (not just those of building societies) must be a team capable of arguing through and agreeing on corporate strategy.Now here is the phrase which the noble Lord, Lord Young, quoted:The board is the proper body for carrying out a selection process for new board members.This process does not preclude appointment to the board of ordinary members of the society. The suggestion that legislation should give members the same rights as shareholders (presumably of limited companies) is a little strange as, for the most part, building society members already have similar if not better rights than shareholders of companies. However, to suggest that members should have an unqualified right of access to the register of members and to circularise them if they wish—perhaps for commercial purposes wholly unconnected with the society—would not be in the best interests of members, especially given current concern about the confidentiality of data on computer files.
Members of building societies would certainly not be happy with a situation in which their names and addresses were given to third parties and could be used for any purpose at all. The present law permits access to the register of members in certain circumstances, and in other cases the consent of the Chief Registrar of Friendly Societies is required. This is a reasonable protection for members of building societies.
Why all the kerfuffle (if I may use that time-honoured word) about people trying to force their way 552 on to the board of a building society? Do we ever hear about, or would the noble Lord, Lord Young of Dartington, like to ask the Mutual Aid Centre to undertake research into, the difficulties of forcing one's way on to the board of a joint stock bank or on to the board of Imperial Chemical Industries? We never hear anything like that. If the noble Lord wishes to intervene, I shall sit down.
§ Lord Young of Dartington
My Lords, I was just slightly puzzled because the noble Lord, Lord Marshall of Leeds, came in late and we have already heard all of this read out from end to end by the noble Lord, Lord Plummer of St. Marylebone. I was only thinking that the noble Lord was not making a very good case for the societies in which he believes.
§ Lord Marshall of Leeds
My Lords, if the noble Lord will be patient, I have only one more point to make, and that concerns the fourth point of the seven point charter of which the noble Lord, Lord Young of Dartington, is joint author. This, in my submission, is wide of the mark; it is the interests of building society directors. I attended this morning the annual general meeting of my own building society, and I was amazed to see that the members sitting in the audience were told, among other things, that I was a director of a philosophical and literary society, a company limited by guarantee. I was amazed to see they were also told that I was a director of the University College Buckingham Limited, a company limited by guarantee. This was knowledge which was superfluous, but I did not mind that my interests, commercial as well as non-commercial, were being disclosed to the members in annual general meeting.
So I do not think it is fair, even in the slightest way, to criticise in a rather smeary way the marvellous work which building society directors perform. And I may say this, that what has been proposed by the association goes far beyond the requirements for ordinary commercial companies. I end by saying this. The building society movement is not afraid of change, it is not afraid of reform. It had its last Act of Parliament in 1962. It would welcome fresh legislation because it would welcome a wider discretion to update its methods, to serve the public and go on serving the public in the same way as it has done for the past 150 years.
§ 8.12 p. m.
§ Lord Ponsonby of Shulbrede
My Lords, I should like to start, as other noble Lords have started, by thanking the noble Lord, Lord Young of Dartington, for introducing this debate this evening. Indeed, as has already been pointed out, it is very appropriate that he should introduce this debate in view of the tremendous role which he has played in the growth of the consumer movement over the past 30 years. I should tell him that, as a member myself of the Consumers' Association almost since its foundation, I feel that there is some point in filling up the annual ballot paper which is sent to me, and that there are changes from time to time in the executive of the Consumers' Association. However, I feel very much less enthusiastic about filling in my annual ballot form for the Co-operative Permanent Building Society, now renamed the Nationwide Building Society, to which I have 553 belonged for a similar length of time. The noble Lord, Lord Young of Dartington, spoke of the difficulties of individual members becoming board members, and indeed he described—in an hilarious way I thought—the problems which faced a particular member of this society in recent times.
Building societies began as local mutual aid societies and local people were very much involved, as has been graphically described by my noble friend Lord Houghton of Sowerby. But over the years the process of amalgamation has led to a gradual demise of the local society and the creation of larger and larger national societies divorced from the people who first started them. As the noble Lord, Lord Houghton of Sowerby, also said, building societies are a movement and not an industry and he spoke most eloquently of his involvement.
The constitutions of building societies, friendly societies, were designed in a very different age when people within a locality could express themselves, control a particular local society and could control how it worked. The situation now is very different, and one asks oneself what can be done. A possibility, I suppose, would be that the Registrar of Friendly Societies should have the power to appoint one or more independent members of the board of each building society, which would do something to introduce new life on to the board of a particular society. Another thought would be whether there ought to be statutory limitations on who can serve on the board of a building society, as there are for voluntary housing associations. My noble friend Lord Houghton of Sowerby suggested a two-tier system, a supervisory board of management. Indeed this would be rather like the Consumers' Association, where there is a double category of membership, and if you pay that £1 or so extra you have your right to vote; so you actually have to pay and to show an interest in order to take part.
The noble Lord, Lord Marshall of Leeds, tried to draw a comparison between the management of building societies and the management of large public companies. Large public companies have also developed into perpetual oligarchies. This, I think, was particularly so in a period about 10 years ago. But those oligarchies have been rather saved from becoming too perpetuating by the growth of pensions funds and other forms of public investment. Indeed, it is in recent times that those funds have started to exercise some form of supervision over the vast public corporations and to force those corporations to disclose information, for example about the perks which directors of those corporations receive.
One asks oneself—although it might be almost heresy to make the suggestion—whether the situation within a building society of there being a single vote for each shareholder is the right constitution for a friendly society of the type that a building society now is. The noble Lord, Lord Young of Dartington, spoke of the ability of a friendly society to pack its meetings with members of the staff, who, as small investors in a building society, would of course rank equally with every other member of that society. As one who has been involved in a friendly society, I can tell your Lordships I know that it is only too possible to do that. One wonders in the circumstances whether there 554 might be some merit in relating the votes of individual shareholders to the amount of shares they hold in a building society. It would certainly stop the situation which the noble Lord, Lord Young of Dartington, outlined.
The noble Baroness, Lady Gardner of Parkes, (who is not in her place now) called for a review, and I am sure it is right that there should be a review. This debate has concentrated, quite rightly, on this most controversial aspect of the work of the building societies, because it is one to which there is not a ready answer. I have made a number of suggestions as to how one might solve this particular situation of a building society being responsible to its members and not being a self-perpetuating oligarchy. That is something on which one would like to see further research.
But the problems of the building society movement are wider than this. The noble Lord, Lord Young of Dartington, called for the abolition of the cartel. He pointed out that competition between building societies was not as fierce as it had been in recent times because there was now a mortgage famine. The Building Societies Association's own report was much more concerned with their own development as financial institutions. That report pressed for the freedom of the societies to establish, acquire or invest in a bank, insurance company, property company or hire purchase company. It suggested powers to offer estate agency, surveying and conveyancing services. It suggested abolition of the special advance procedure and the limit of £60,000 on loans.
These proposals would no doubt make the big building societies into even greater monolithic organisations. As noble Lords will know, there have been problems with some of the smaller building societies over the past few years and one fears that the lifting of restrictions could create further problems unless the management problems are resolved. Therefore, I think that the fact that this debate has concentrated so widely on the management issue is something of great importance because it is essential that public confidence in the building society movement should be preserved.
One must pay tribute to what the building societies have achieved and I think that these are problems which the association should look into very carefully. We all await with interest the reply from the noble Lord, Lord Trefgarne.
§ 8.22 p.m.
§ Lord Trefgarne
My Lords, may I join with every noble Lord and noble Baroness who has spoken tonight in expressing my thanks to the noble Lord, Lord Young of Dartington, for raising this matter. We have had an interesting and, if I may say so, well-informed debate on this important subject. Before replying to the particular points that have been raised I must pay tribute to the activities of the building society movement over the past 200 years. Its contribution to the spread of home ownership has been immense, and it has, over the years, encouraged thrift as well. Indeed, the building societies have had an incalculable effect upon the social evolution of this country, and a not inconsiderable effect upon my own social evolution since I, too, have the benefit of the 555 services of one of them. They have grown to a position of great significance in people's lives and in the country's financial system. They now hold over half of personal liquid savings. Over five million people are buying their homes with the assistance of building societies. The total assets of the movement exceed £70 billion.
It is right, therefore, that they should be a matter for wide discussion, and the Government therefore welcome this debate today. Indeed, it comes at an opportune moment. In a speech to the BSA last year, already widely quoted tonight, my right honourable friend the Chancellor of the Exchequer indicated that there was a growing feeling that the time was ripe for a wide-ranging review of the building society legislation. The Building Societies Association has recently published a report making a range of interesting recommendations about the future powers and constitution of buildings societies. The Government recognise the strength of the case for new legislation in the course of the next Parliament; but final decisions about whether in fact to introduce it, and on its contents, have not yet been taken. Indeed, they depend on a number of events outside our control.
The case for new legislation rests on the changes that I have already mentioned in the scale of building societies, and the changes in the markets in which they operate. The legislation on which they are based is largely over a hundred years old, being based on an Act of 1874, although there have been some minor changes and consolidation since then.
The noble Lord has drawn attention to the need to protect the consumer. But we should not underestimate the reforms which the forces of competition can help bring about in this area. Building societies have in recent years benefited not only from strengthened competition from national savings but also from the vigorous re-entry of the banks into the mortgage market.
Perhaps I can briefly draw your Lordships' attention to just how much progress there has been since the original report of the noble Lord, Lord Young, Building Societies and the Consumer, was published in February 1981. That report recommended that building societies make valuation reports available to potential purchasers. Buyers are now frequently able to see a copy of the building society valuation report. The report suggested that societies abandon the practice of charging a penalty for early redemption of mortgages. Such penalties are now much rarer than they once were. The report called on the Building Societies Association to set up a compensation fund for the protection of investors. The BSA announced last year the setting up of a voluntary scheme for the protection of depositors and shareholders.
Finally, the report asked that building societies help the elderly by making greater use of mortgage annuity schemes. One at least of the very largest societies now offers such a scheme. It may be that the noble Lord's report has played some part in hastening these developments. I think, however, he would agree that the principal agent for change in all this has been competition. Whatever now happens—and there is, of 556 course, evidence of some falling away in the willingness of the banks to offer mortgages—I am confident that these benefits will remain.
The forces of competition are, of course, buttressed by the powers provided to the Office of Fair Trading to control anti-competitive practices. Discussions last year between the Office of Fair Trading and the Building Societies Association have gone a considerable way to provide house purchasers with a wider and freer choice of insurance company. In his recent charter the noble Lord endorses the recommendation made by the Director General of Fair Trading that the present exemption of building societies from the advertisements and quotations regulations, made under the Consumer Credit Act, be discontinued. The Government are studying the Director General's report and hope to consult interested parties shortly. I am sorry that I cannot go further. I know that was a point raised by the noble Baroness, Lady Burton, but I hope that she will be aware that the Government are at least considering that point very carefully and actively.
I reaffim, therefore, this Government's belief that healthy competition, as supported where necessary by the watching brief given to the Office of Fair Trading, is and will remain the best friend of the consumer. We are nevertheless prepared to consider amendments to the law on this matter, as on others where we are convinced that changes are necessary. The noble Lord has put forward a number of suggestions for improving the information which is available to borrowers. We shall look at his proposals carefully. When and if we come to draw up new legislation we will probably need also to consider other matters such as, for example, the likely impact of changing technology.
We already have automatic cash dispensers. The clearing banks are studying the feasibility of systems for electronic fund transfer at point of sale—direct debiting from the shop check-out. Electronic money transmission may change very profoundly the way we handle money. One building society has already made a first move in this direction by offering Prestel sets to some of its members. If nothing else, we must ensure that the legislation enables societies to compete in this new world.
Furthermore, many societies are keen to take new initiatives in housing. My right honourable friend the Secretary of State for the Environment has said that he welcomes this and is encouraging such developments. New forms of ownership and tenancies are being developed, and new ways of financing home ownership. It is right that building societies should play a full part in this, as they have in the past. Again, we need to look at the legislation to see if there are the appropriate powers. I am certain that those sentiments will find an echo with the noble Lord, Lord Houghton of Sowerby.
I now return, however, to the area on which the noble Lord, and indeed others, concentrated in their speeches: the accountability of building societies to their memberships. This is a question that has given rise to a good deal of comment over the last couple of years or so. It is one to which my right honourable friend the Chancellor of the Exchequer drew attention when he addressed the Building Societies Association. On that occasion he suggested that some societies had 557 been too defensive. His words have been quoted at least once during the course of this debate. They should be ready to justify their policies to their members and to answer for what they have achieved. The Government hope that the societies will have taken note of these comments, and have been looking again at their practice in this respect to see what improvement they can make.
As well as encouraging good practice, however, the Government need to consider, as part of their overall review, how far the current legislative framework for accountability is right. Building societies are not companies. They do not have equity shareholders; but most of their investors are members with the right to elect the boards, generally on the basis of one man, one vote. Most boards of societies would agree that they have to be answerable to their members. But this does pose a dilemma. It is essential that individual building society members should be able to receive sufficient information, to question the policies of their society and to put themselves forward as candidates for election to the board. That should not be discouraged or obstructed in any way. But at the same time very many members do not take a close interest in the running of their society. The two largest societies each have about 8 million share accounts. There are therefore potentially formidable administrative costs for societies in disseminating information and arranging elections. Therefore, while there must, yes, be proper democratic accountability, there is a balance which needs to be struck. The Government will be considering whether the balance struck in 1960 still gets it right.
The noble Lord, Lord Houghton of Sowerby, asked me how we proposed to go about this consultation. I am not in a position to say precisely what colour of document will be published for the benefit of the noble Lord, and indeed of all your Lordships and of all those who care to study it; but the Government will most certainly be wishing to consult just as widely as possible before reaching conclusions on this matter. Of course in that context the debate which your Lordships are having tonight will be of particular value.
My Lords, as I said at the beginning of my speech, the building society movement has made an invaluable contribution to our national well-being. It is right for that to be acknowledged. It is also right to expect societies to continue to adopt and respond to changing circumstances. This has always been one of their strengths. I am sure they will rise to the challenges of the present day.