A Co-op Solution

Some of the readers of this blog might know that I am a member of the 2 great left of centre political parties in this great nation of ours.

They are the Labour Party, well it is a labour club blog, as well as the Co-operative Party a party that was founded in 1917 and has been working since then to advocate the Co-operative and Mutual agenda at the heart of the political agenda.

As part of that process last week the General Secretary of the Co-operative Party Michael Stephenson had the following article in the Guardian making the case for the mutualisation of the banking sector.

Of all the numerous and painful lessons of the recent collapse in the financial markets, one has been conspicuously missing from the flood of media analysis and commentary.

Bradford & Bingley's taxpayer-funded rescue ended all arguments about the potential benefits of demutualisation. As the last of the ex-building societies loses its independence, it joins other recent arrivals such as Northern Rock and Halifax as the latest addition to this run of corporate failure.

When the last Conservative government encouraged societies to demutualise through the 1986 Building Societies Act, it plundered generations of assets from mutual societies, replacing prudent mortgage providers with some of the worst culprits of casino capitalism.

Today we have a unique and unmissable opportunity to put that right. By recognising the enormous benefits of mutuality and taking action to allow societies to remutualise, we can return those institutions to their rightful position and bring stability and sustainability to the important work they can do for our economy and the millions of Britons who rely on them.

Cooperatives and mutual financial organisations differ from their plc competitors in one crucial respect: they exist to provide mutual self-help for their members rather than to generate profits for investors. These core values drive high standards of behaviour throughout the sector. The absence of external shareholders means there are no conflicts of interest between the claims of consumers and owners, leaving mutuals no incentive to exploit their customers for short-term gain.

In addition, the fact that these organisations operate democratic voting systems, on a one member one vote basis, allows them to take a long-term view of their members' interests. As we collectively count the costs of our financial institutions' previous short-term thinking, this approach to business should unquestionably be the future direction that we are looking for.

A starting point will be the future of Northern Rock and Bradford & Bingley. While the government was absolutely right to nationalise these as a short-term measure, any long-term solution for these companies should be based on some key principles.

• Taxpayers must not be out of pocket as a result of the change.

• Hard-working families and small businesses must be protected. This means the housing market should not be closed to first-time buyers, credit lines to small business should be extended and repossessions should only occur as a last resort.

• The institutions that emerge must be secure, responsible and add to the financial stability of the UK economy.

• And finally, these new organisations must continue to act in the long-term interests of their consumers.

That is why the Co-operative party is calling for the newly nationalised banks to be converted into mutuals. Mutual ownership is the best solution for ensuring a stable long-term future for these companies, and making sure that the risk taken by taxpayers will deliver for consumers in the long-term.

Building societies were founded with one purpose in mind – that of building houses for hard-working families and providing a safe place for them to deposit their savings. It is only fitting that the chief purpose of these businesses should be to do the same, particularly at a time when people are anxious about the security of their savings and will find it increasingly hard to get on the housing ladder.

This could be achieved in two ways. The government could give existing financial mutuals the right of first refusal when it decides to put the institutions it nationalised up for sale. This would maximise the opportunity for a strengthening of the existing mutual sector and help ensure a stability and continuity in the market.

Alternatively, the government could consolidate Northern Rock and its holding in Bradford & Bingley into one institution. When all debts are paid back, the institution could be converted into a building society. This should be straightforward, as the government already owns the share capital. The new body would operate in the same manner as any other building society.

Regardless of which option is chosen, the opportunity is there to rectify the mistakes of the past and deal with one of the major economic and social challenges of our time.