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The Co-operatives, Mutuals and Friendly Societies Bill 2022-23 was introduced in the House of Commons on 15 June 2022 by Sir Mark Hendrick MP. The Bill would give mutual businesses (which are owned and run for the benefit of members or communities) the option of ensuring that, in the event of the business being wound up, any capital surplus could only be used for specified purposes. This would allow such entities to guarantee that they could not be turned into commercial companies.

The second reading of the Bill took place on 28 October 2022, and committee stage on 30 November 2022.

The Bill is a Private Member’s Bill, a type of bill introduced by backbench Members of Parliament.

The Treasury produced explanatory notes for the Bill.

What are mutuals?

The term “mutual” refers to organisations whose members have democratic control of their business. They are owned by and run for the benefit of members or the wider community. They include:

Members can include customers, employees, suppliers, and residents.

Mutuals are not owned by shareholders and profits are reinvested in the organisation or among the membership.

How important are mutuals to the economy?

Co-operatives UK, a network of co-operatives in the UK, said there were over 7,200 co-ops in the UK in 2021. They employed 250,000 people. Combined turnover stood at £39.7 billion.

In 2017, mutuals represented an estimated 11% of the UK’s insurance market, compared with 52% in France and 47% in Germany.

The UK has a smaller mutual sector than some European economies, though recent analysis by Co-operatives UK argues that the UK sector has been largely resilient to the Covid-19 pandemic. The number of co-ops grew by 1.2% from 2020 to 2021, with 197 established and 107 closing.

Co-operative and mutual networks, such as Mutuo and the All Party Parliament Group (APPG) on Mutuals, argue that the restrictions on the sector’s access to external finance limit its growth. Unlike commercial companies, mutuals largely depend on bank borrowing and their own income. They are unable to sell shares without losing member control.

The Bill

As introduced in June 2022, the long title of the Bill indicated it would cover four areas. These included making provisions about the how some mutuals were taxed and making changes to other legislation on some types of mutual.

But the Bill published on 26 October did not include all those purposes. Instead, focused on one of them. It had one operative clause that would give the Treasury the power to make regulations to allow co-operatives, mutuals and friendly societies to opt to restrict what would happen if they were to close down.

This focus aims to reduce incentives for demutualisation, which is when members sell their interests, and the entity becomes a commercial company owned by shareholders rather than by members.

A second clause sets out the Bill’s short title.

Second reading

During its second reading, Sir Mark – and all contributors – lauded the role of mutuals in the economy and the value of the Bill in protecting their ethos. The Government supported the Bill and it was passed without division.

Public Bill Committee

The Public Bill Committee agreed three amendments without division. One of these aimed to resolve a potential loophole arising from the wording of some mutuals’ purposes. The Economic Secretary set out plans to further review legislation that supports the mutual sector.

Recent issues affecting the sector

Supporters of the Bill have cited the threatened demutualisation of insurer Liverpool Victoria (LV=) in 2021 as a reason why new legislation is needed. LV=’s management argued its sale to Bain Capital was needed to help the business grow, but not enough members backed the proposal.

In 2015, a Private Member’s Bill to allow mutual insurers to issue deferred shares to raise capital was passed as the Mutuals’ Deferred Shares Act 2015. The Government supported the Bill after its amendments were accepted.

The Act specifies that holders of deferred shares are entitled to only a single vote, regardless of the number of shares they own. It states the investment cannot be repaid unless the society is wound up or a regulator has given consent.

However, a required statutory instrument to implement the Act has not been made due to concerns that issuing them will alter the tax liability of mutuals.

Recent debates on reforming mutuals

In 2020, a Private Member’s Bill sponsored by the Labour MP Anna McMorrin, the Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill, sought to allow co-operatives and community benefit societies to gain powers to raise finance by issuing redeemable ‘green’ shares to external investors. Any capital raised would have had to be invested in an environmentally sustainable manner.

The Bill included safeguards to prevent this approach from leading to demutualisation. The sponsor of the Bill withdrew it after second reading.

Steve Baker (Conservative) led a debate on mutuals in December 2021. He argued they should become part of the Government’s levelling-up agenda.

In June 2022, the Chair of the APPG on mutuals, Gareth Thomas (Labour) also called on the Government to support the expansion of the sector.

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