All change!

Movement leaders back Treasury plans to give mutual sector a boost

Pauline Green welcomes the new proposals

May 05 2009

Restrictions over co-operatives and credit unions are set to be lifted under Government reforms.

After almost a year of consultation, the Treasury has issued a proposed Legislative Reform Order (LRO) with an intention to change the law that governs Industrial & Provident Societies and credit unions in Britain.

Government proposals for co-operatives include removing the requirement on societies to have interim accounts audited, bringing them in-line with plcs; modifying the rules on share capital, including removing the £20,000 limit on transferable shares; giving societies the flexibility to choose its own year ends and modifying the provision on minimum age for membership of an IPS and minimum age for becoming an officer of an IPS.

Dame Pauline Green, Chief Executive of Co-operatives UK, who sat on the Treasury reform group to help push through these changes, told the News: “We’re delighted that the Government has set out its intentions to update the legislation which governs IPSs and credit unions and we whole heartedly welcome its proposals.

“The co-operative sector badly needs modern legislation which reflects today’s commercial realities and which will allow us to compete on a level playing field with other forms of business.”

The proposal to remove the burden of having to audit interim accounts is set to save co-operatives tens of thousands of pounds each year. Commented Dame Pauline: “The requirement to audit interim accounts imposes a costly burden on societies, and puts them at a competitive disadvantage when compared with companies. Co-operatives UK and its members have been lobbying for the removal of this requirement for many years, so we are pleased with the Government’s proposal, which will save societies a great deal of money.”

Dame Pauline also said the removal of share capital rules will allow IPSs to expand: “In addition, current rules on share capital are unduly restrictive. For co-operative societies with high capital investments, such as agricultural co-operatives, and others wishing to use share capital as a means of raising finance, restrictions on shares inhibit productivity. Modifying the rules will create much needed scope for societies to raise capital, provide further investment opportunities and increase the potential for the development of new markets.”

Another proposal outlined the lifting of the minimum age restriction to become a member of a co-operative, which will allow under 16s to join societies. However a society can stipulate in its rules a minimum age to become a member. The changes will also allow anyone over the age of 16, previously 18, to become an officer of a co-op, which includes duties such as committee member and trustee.

Credit unions have also received a boost under the reform announcement. If all proposals are adopted into legislation it will allow companies to become members of credit unions and rules around the common bond that allows members to join a union will be adjusted so more members can be part of the credit union movement.

Mark Lyonette, Chief Executive of the Association of British Credit Unions, who represented credit unions on the reform committee, said: “We are delighted the Government has listened to our calls to increase the limit for a common bond to two million people for geographical common bonds only and not to impose a numerical limit on common bonds which only cover people with an employment or associational link. This will enable credit unions to meet the needs of many more people.

“We are also very happy that the Government has decided to allow credit unions to choose whether to offer ordinary shares or deferred shares to corporate bodies. This means that companies and social enterprises, as well as unincorporated bodies and partnerships, will be able to become full members of credit unions, allowing large numbers of organisations to benefit from credit union services for the first time.”

The next step is for the Government to publish a draft LSO, which will then be scrutinised in Parliamentary committees and then going before the Houses of Commons and Lords as a vote on a resolution. Co-operatives UK is hopeful the LSO will be in force by the end of this Parliamentary session in July.

Ian Pearson, Economics Minister, said: “The Government is keen to see the financial mutuals sector grow, both to better serve their members and communities; and to offer many more people the opportunity to become members. We recognise that a tangible way in which Government can assist the sector is to ensure it is subject to an up to date legislative framework and not constrained by outmoded statutory restrictions.

“The Government believes that mutuals legislation should be comparable to that applied to other types of institutions, helping to enhance competition in the modern economy.

“I am pleased to see the changes we have proposed to deliver using a Legislative Reform Order, and confident that when they are adopted will help to support a vibrant and self-sustaining sector, offering high quality services to its members and communities. Economic Secretary to the Treasury.”

The Government’s response to the consultation on the Legislative Reform Order can be found at: www.hm-treasury.gov.uk.