Don't let mutuals perish

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The timing could not be better: no sooner has Scottish Widows sold out to Lloyds TSB than the remaining mutuals get a chance to save themselves.

Starting next week, a Treasury select committee will spend the summer investigating mutual organisations (meaning they are owned by their members). The committee wants to find out if mutuals bring benefits to customers that they don't get from non-mutuals and if there is a case for legislation to protect them.

This is a last-chance lifeline for mutuals. They are gloomy about their future unless the Government changes the law to hold-off cash-rich predators and individual carpetbaggers.

After hearing the evidence on both sides, the committee will report in September. It may make recommendations for new legislation or it may simply suggest the market be allowed to take its course. Either way, there is no obligation on the Government to take any notice of the findings.

So why do mutuals need protecting? I believe it's a matter of keeping real choices for customers. A mutual doesn't have to please its shareholders. If you are a with-profits policyholder at Scottish Widows, for example, you may be delighted with the windfall but not so pleased that 10 per cent of all future profits on your fund will now go to Lloyds TSB shareholders.

Many of those eager to embrace the market argue that the likes of Scottish Widows are giants, far removed from the ideals of a local society set up to offer self-help at low cost to its members. Fine, but what's wrong with a big mutual? The building societies have proved they can offer very competitive mortgage and savings rates, and they still embrace a wider range of customers than a streamlined bank geared to maximise profits. The exclusion of the poor and elderly from mainstream financial services is a growing problem, and the loss of mutuals as a credible force will only make it worse.

The think-tank Demos has just released a report suggesting that mutuals of all sorts have a bright future. Although many of its ideas concentrate on grass-roots organisations such as credit unions, Demos makes the point that in many continental countries the members and executives of mutual banks are stopped by law from benefiting financially in the event of a conversion.

If the top executives at our ex-mutuals had been prevented from making personal fortunes through their actions in converting or courting a takeover, how many mutual financial companies would we still have now? It's an intriguing question, and one which the Treasury select committee may care to put to Christopher Rodrigues, chief executive of the Bradford & Bingley. He has been called to give evidence on the building society's planned demutualisation.