1. I am writing about the Co-operative and Community Benefit Societies and Credit Unions Bill, which will not now be able to complete its passage through Parliament.

2. I believe that this Bill contains measures which are essential to help industrial and provident societies and credit unions to thrive, and to bring much-needed diversity to the provision of financial services. The Government would strongly support the reintroduction of this Bill, amended as necessary to meet the concerns expressed by your Committee.

The Clauses

3. In examining the Bill, the Committee expressed a general concern that clauses 4, 5 and 6 of the Bill confer inappropriate general powers on the Treasury.

4. Clause 4 of the Bill enables the application of certain provisions of company law to industrial and provident societies. The applicable provisions cover investigations, company names and dissolution and restoration to the register. Application of provisions of company law on investigations is needed to improve corporate governance of industrial and provident societies by the Treasury giving the FSA (as registrar of industrial and provident societies) powers to investigate industrial and provident societies greater that it currently has and similar to the wider powers that the Secretary of State for Business, Innovation and Skills has to investigate companies. Application of legislation concerning company names would allow the Treasury to introduce provisions that deal with issues such as similarity of the name to other names, or to names giving a misleading indication of the activities of a society. Finally, application of provisions of company law concerning dissolution and restoration to the register would enable the Treasury to introduce procedures that could deal more efficiently with cancellation of defunct societies from the register and related issues.

5. Clause 5 enables the application of building societies legislation to credit unions. Safeguards within the provision are intended to prevent the application of building society law that would modify the constitution of credit unions. For example, amendments may not be made, using this route, to alter registration as a credit union, amalgamations and transfers of engagements, or the conversion of a credit union into a company. The powers granted by clause 5 would enable the Treasury to help credit unions law to keep pace with credit unions' expanding membership and operations by mirroring provisions of building society law. The Treasury considers that it would be appropriate to apply a number of provisions of building society law to credit unions as those provisions are tailored to deal with issues specific to deposit-taking institutions.

6. Clause 6 of the Bill provides for consequential amendments that may be needed in connection with changes in legislation introduced by other clauses in the Bill.

7. It may be of assistance to the Committee if I explain something of the background to the Bill. The Bill is a significant part of a programme to amend and update mutuals legislation and complements other measures being introduced by means of a Legislative Reform Order (LRO). Finding time for a full programme Bill to amend legislation affecting cooperatives and credit unions has not been possible, however the measures introduced in both the Bill and the LRO have been subject to public consultation and in detail with a working group of representative experts from the sector—so that the legislation reflects the needs and wishes of the sector as far as possible.

8. The Delegated Powers Committee did not share the same general concern. They were content that the Treasury had made out the case for making these detailed technical amendments by subordinate instrument, having obtained the approval of Parliament both for the principle of what is proposed (in the Bill) and for the resulting amendments (by affirmative resolution). They concluded (11th Report para. 8) "we do not suggest that the delegation is inappropriate bearing in mind the precedents". The Treasury remains of the view that, for the reasons stated in its memorandum to the Delegated Powers Committee, this is a proper and practical way of proceeding.

The Committee's Concerns

9. I move to the specific concerns raised by the Committee in relation to clauses 4(7) and 5(3) of the Bill. The Committee considers that these provisions, as drafted, potentially create the ability for Treasury to create new criminal offences by order or to increase existing penalties. As I confirmed to the House during the second reading of the Bill, it has never been the intention of the Treasury to create new offences or increase penalties.

10. However, the Government understands the concerns of the Committee and has considered, in conjunction with Parliamentary Counsel, how best to make amendments to clauses 4 and 5 that will address these issues. The Treasury plans to include in clauses 4 and 5 provisions to the effect that regulations made under those clauses can only create criminal offences (a) in circumstances corresponding to an offence in the legislation being applied and (b) subject to a maximum penalty no greater than is provided in the corresponding offence. I attach an amended version of the Bill containing the proposed changes at clauses 4(7) and 5(1)(inserted section 23 A(3)(b)).

11. In relation to clause 4, the Committee raised the point that there is no express duty on the Treasury to consult before making regulations under the provision. In drafting the Bill, the Treasury did not see the need to specify a duty on the face of the Bill, given its obligations under the Better Regulation Executive Code of Practice on Consultation. In order to meet the Committee's concerns, the Government is nevertheless content to amend clause 4 to include an express duty to consult, like the one provided in clause 5. (See clause 4(8) of the attached amended Bill.)

12. In relation to clause 6, which confers power to make consequential amendments, the Committee take the view that the power is open to the same criticism as the substantive powers in clauses 4 and 5. However, in the view of the Treasury, this power is in line with current practice.

13. Powers of this kind to tidy up the statute book are commonplace. In the Acts passed so far this session alone there are more than 20 examples[12].

14. Another issue is that clause 6 is relevant not just to clauses 4 and 5, but also to clause 3 which "re-brands" industrial and provident societies as cooperative or community benefit societies. There are 811 existing statutory references to industrial and provident societies (more than half in primary legislation, the rest in secondary legislation) that will need amendment in consequence. It would simply not be practical to deal with all this in the Bill.

15. In summary, the Treasury considers that it would be right to make amendments to the Bill covering the Committee's concerns over criminal offences and a duty to consult when bringing forward regulations under Clause 4.

16. The Treasury considers that this, combined with the fact that any regulations made under the Bill would be made under the affirmative resolution procedure and would be the subject of detailed consultation, will ensure that all suitable checks and balances are in place to avoid the danger of any potential abuse.

4 November 2009