Mutuals are fighting back

The tide may be turning against carpet-baggers as societies woo new customers, says Dan Gledhill

It used to be said there was no such thing as a free lunch, but the wave of demutualisations in the past few years has put paid to that idea. Thousands of investors, who carpet-bagged conversion after conversion, have gorged themselves on the fruits of their windfalls. All they had to do was deposit as little as pounds 100 with the relevant mutual society and wait for the thousands to roll in. And anyone hungry for yet another course has the likely demutualisation of the Bradford & Bingley - among others - to look forward to.

But this gratis greedfest has left a bitter taste in the mouth and now the leftovers of the mutual sector are fighting back. Some customers of converted building societies, such as the Halifax and Abbey National, complain they are being penalised by the need of their banks to satisfy greedy shareholders. Many have voted with their feet by pocketing their windfalls and promptly taking their business back to remaining mutuals like the Nationwide and Britannia.

Elsewhere, the head of the John Lewis Partnership has mounted a spirited defence of the department store group's mutual status in the face of workers baying for pounds 100,000 windfalls that demutualisation could bring. Could it be that the AA, which last week was sold to Centrica, will go down as the last great demutualisation?

The evidence is strong that, in spite of all the defections, the mutual sector is in rude health. That was the conclusion of Charles Leadbeater and Ian Christie, members of the left-wing think-tank Demos, who recently published a book called To Our Mutual Advantage. They estimated that organisations owned by their members had a combined annual turnover of pounds 25bn and employed 250,000 people. The sector encompasses activities as diverse as child care and Neighbourhood Watch, but it is in the arena of building societies where the arguments for and against mutuality have been propounded.

It is a debate where the pro-demutualisers have held sway. Since 1989, when Abbey National set the ball rolling, a series of building societies have surrendered their mutual status. Those 10 years have provided ample opportunity for the benefits of demutualisation to be identified, but the signs point the other way. Figures from the Building Societies Association suggest mutuals are increasing their share of mortgage lending.

David Holmes, a spokesman for the mutual Yorkshire building society, says: "We decided demutualisation would mean mortgage rates going up and savings rates going down because when you float you have to pay out pounds 35 in every pounds 100 in dividends."

Brian Davis, chief executive of the Nationwide building society, says: "We're picking up a lot of business because we can offer lower prices, but there's more to it than that. Our motivation is not to be money-grabbing. Unlike plcs, we don't get patted on the back by shareholders if we make more money."

It is not an argument which the convertors would accept but the mutuals are eager to ram it home. On Friday, the Nationwide threatened to sue Barclays unless it rescinded a plan to charge the customers of other banks pounds 1 for using Barclays cash machines. Nationwide was fighting this cause for its members, the mutual proclaimed, unlike Barclays which only cares about shareholders.

Just a publicity stunt, maybe, but the Nationwide's stance reflects the growing confidence among mutuals that they are winning the argument. This is bolstered by knowing mutuals are no longer sitting ducks. Like several other building societies, the Nationwide has created a charitable foundation so that would-be carpet-baggers would have to give their demutualisation windfalls to charity. Nationwide's status has been strengthened by the adoption of higher voting thresholds.

Mr Davis, who carries the baggage of the Nationwide's 150- year history, is conscious of the burden of posterity. Mutuals exist not just for the benefit of current members but also for future ones, so the moral justification for one generation cashing in at the ex-pense of the next is questionable.

"It makes you wonder if you can join an organisation by depositing pounds 100, then get it back plus pounds 1,000, when the fact is that it destroys that organisation and deprives your kids of it," he says. "I can see why people are tempted, but you shouldn't just destroy it for a one-off gain."

History is preying on the mind of Sir Stuart Hampson, who took over the top job at John Lewis from a member of the founding family. Sir Stuart's commitment to public service is evident in his defence of the group's unfashionable structure. "Being a partnership means that you offer something different in terms of employing your partners," he says. "They are not mercenaries, but citizens."

Despite last week's announcement of a 22 per cent profits slump, he believes that the company is well-served by worker ownership: "Customers see the involvement of our staff and feel there is a quality of trust and integrity, fairness and care."

His argument seems to be prevailing. Paul Fineman, who works for Peter Jones in London's Sloane Square, has tabled a resolution about John Lewis's structure at tomorrow's meeting of the company's central council, but the signs are the status quo will be endorsed. Not even the lure of pounds 100,000 windfalls for each of John Lewis's 40,000 staff would appear to be enough to persuade them.

It may be that the resurgence of the mutual is a dead cat bounce. Normal service may be resumed next year when members of the Bradford & Bingley decide its future. But there are signs that the remaining mutuals will be ready for the next onslaught.

Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
Arts and Entertainment
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
The image released by the Salvation Army, using 'The Dress'
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable