The Government has rejected all but one proposal put forward by the Treasury Select Committee regarding demutualisation.
In response to the Committee’s July report, the Government has decided against primary legislation to increase the say borrowers have in mutual conversions and to put an end to ‘carpet-bagging’.
The Select Committee called for the voting thresholds for savers and borrowers to be aligned and for the rules governing turnout for savers to apply to borrowers as well. At present, a conversion proposal requires the support of 75% of savers on a 50% turnout, but only the support of 50% of all borrowing members who vote.
It also proposed that windfall payments be made available only to savers and borrowers who have been members for at least two years, to limit the scope for carpet-bagging.
The Government, however, has vetoed both proposals. On providing an equal mandate for savers and borrowers, it said: “Borrowers are only around one-seventh of the membership. They already have an effective veto under the current regime if at least half of those who vote, do so against conversion. To raise thresholds further would unduly increase the rights of pro-mutual members at the expense of pro-conversion ones.”
It also refused to reinstate the two-year rule for windfalls, arguing that it would only be the assigned charities that would suffer. It said: “A number of societies have established their own charity schemes requiring new members to assign future windfalls to charity…
“The only effect of restoring the two-year rule would be that these charity schemes would no longer benefit from the assigned distributions… If ‘carpet-baggers’ joined societies with a view to a windfall profit, many would have joined some time ago.”
The Government has agreed, however, with the Select Committee’s proposal that the number of members required to propose motions or call meetings be increased under secondary legislation. The Building Societies Commission has therefore been asked to consider amending these rules.
In response to the Government’s rejection, Bob Goodall, co-ordinator of the Save Our Building Societies Campaign, said: “We are disappointed that the Government is not at this time able to support primary legislation to protect societies. For a start, borrowers really should be given the same rights as savers in any vote for conversion.
“Increasing the numbers needed to call meetings is fine, but it is too late. Carpet-baggers will still get the numbers they need. They are more organised than ever before.”