Anthony Hilton: It's time for mutuals to stage a comeback

It was not all bad news this week.

One of the key developments was the approaching success of the Co-op Bank in its efforts to buy 600 branches which Lloyds has been forced to sell on competition grounds. Assuming the deal clears its last regulatory and financial hurdles, it will, when combined with the existing franchise of The Co-operative bank and what was the Britannia Building Society, be big enough to create a meaningful fifth force in UK banking.

But it is about more than this. The deal amounts to one of the most significant extensions of mutual ownership seen in this country for many years.

This is significant. At a time when shareholder-driven business is reeling from self inflicted wounds, mutuals – which are owned by and accountable to their customers –have been seen by many as part of the solution.

This alternative way of owning and financing companies is naturally far more inclusive and might therefore be more successful at engaging the public and restoring trust and confidence.

This is certainly the case across the Continent where mutuals play a huge part in the provision of consumer financial services. And, indeed, it was the case here until the 1980s and 1990s when almost all the big building societies were sold or brought to the stock market so customers could cash in on the value accrued by previous generations. It may have seemed a good idea at the time, but as Vince Cable said in a speech to Centre Forum earlier this month: "The destruction of the British building society movement ... was one of the great acts of economic vandalism of modern times."

There is a powerful view that the time is right for expansion to restore mutuals to at least some of the position they had in this country until the 1980s and which they still enjoy in most countries in Europe. But by definition, mutuals are financed by their customers so they start small with almost no capital. This is totally against the regulatory philosophy of our times which equates safety with capital backing, and the wave of financial regulation which is designed for shareholder-owned companies creates all sorts of very real obstacles.

Government, however, has said warm things about mutuals, so the point is understood.

Whether that actually translates into a willingness to create a legal framework which helps then to make a comeback is unfortunately another matter.

But the time is surely right and it would be a huge, lost opportunity to put the customer at the heart of financial services if the Government's warm words turn out to mean nothing.

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