Last week saw a useful step forward in the law relating to cooperatives and credit unions, but we need to use our time in opposition to map out a comprehensive legislative foundation for mutual organisations…
A welcome theme running through The Purple Book is the need to stimulate the use of cooperatives throughout the British economy. As Tristram Hunt and John Woodcock argue, the cooperative ethos provides a welcome contrast to the shareholder-return model of corporate governance, prioritising not only the financial bottom line but solidarity, accountability and responsibility in employee and consumer relations. And cooperative ideas are relevant not just to providing alternatives to the shareholder-return dominated private sector; as Steve Reed and Paul Brant suggest, they are also highly applicable in the public sector. Making public services more responsive to the requirements of local communities is vital to sustain public confidence in local government spending. The Tory answer to the crisis of confidence is privatisation. As Reed and Brant point out, that creates ‘a more polarised and less fair society as the poorest, whose needs are less attractive to a profit-driven market, are left behind’.
Incubating more cooperatives across the economy is a progressive proposition, but there are significant practical barriers to be overcome. One of the most striking is the condition of the body of law relating to the cooperative sector, which is outdated and far from comprehensive.
The main statute relating to cooperatives is the Industrial and Provident Societies Act 1965, the registration vehicle for cooperative societies, community benefit societies, and credit unions – all of which are, in technical terms, ‘industrial and provident societies’. Specific provisions relating to credit unions are contained in the Credit Unions Act 1979. The basis of the legislation across the sector is now decades old and this creates problems that go deeper than an attachment to quaint terminology.
This state of affairs took an upturn last week with the parliamentary approval of the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011. The LRO, which will come into effect in January, makes some welcome changes to the governance and financial arrangements of IPSs: for example, credit unions will be able to admit corporate members and members from a wider geographical area; and the restriction on the maximum holding of non-withdrawable shares in an IPS has been removed.
The LRO is, of course, a Labour measure, with its legislative origins dating back to a review started in 2007 to provide the mutual sector with a cost-effective legislative framework. It was needed because, as the explanatory memorandum accompanying the LRO concedes, ‘the existing legislation governing societies is not geared for running modern organisations, is inflexible and hampers their ability to serve their members.’
The coalition government was slow to secure legislative approval for the LRO, and has yet to implement the other key piece of legislation passed during the final months of the Labour government: the Cooperative and Community Benefit Societies and Credit Unions Act 2010, originally introduced as a private member’s bill by Malcolm Wicks MP. This Act updates the sector’s terminology by providing that societies wishing to register under the 1965 Act will in future be registered as either cooperative societies or community benefit societies – both more recognisable (and modern-sounding) brands than the industrial and provident society.
The substance of the Act goes further by, for example, giving the Treasury powers to apply to IPSs, with appropriate modifications, company law relating to company names, the dissolution and restoration of societies to the IPS register, and company investigations. Importantly, it also enables provisions corresponding to building society law to be made for credit unions, which will help them to keep pace with their expanding membership and operations.
The Act has sat unimplemented on the statute book for over 18 months. Now that its sister LRO has been approved there is no reason to delay implementation further.
We have to recognise, though, that as useful as the LRO and the 2010 Act are, a thorough reform and consolidation of the law relating to cooperatives is long overdue. John Woodcock argues in The Purple Book that, ‘Labour in opposition should work with its sister organisation the Cooperative party to re-examine comprehensively whether further legal or cultural steps are needed to genuinely level the playing field and produce a significant change in [cooperatives’] viability and existence’. He is right. In its third term the Labour government passed the longest act ever passed by parliament: the Companies Act 2006, at 1,300 sections, was a comprehensive restatement (if not reform) of the law relating to companies. If we are to inject more cooperative working into the private and public sectors, comprehensive law reform for cooperatives is crucial. Without it the sector will continue to be held back by outdated and restrictive legislation, and cooperatives will not be able to play the bigger role in delivering the better economy that we need.
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Richard Stevens is a solicitor and a Labour and Cooperative party councillor on Oxfordshire county council
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Photo: Duncan C