View from City Road: Ducking the important issues

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The Independent Online
Either there was a misunderstanding about the intention of yesterday's consultative paper from the Treasury on the Building Societies Act, or the Government has in effect washed its hands of wholesale reform - at least for the foreseeable future. Nobody was looking for anything as ambitious as a white paper but there was a widespread expectation of something green, bordering on the white. What we actually got barely deserves the description of discussion document. In just 16 hastily assembled pages, it poses a series of well-aired questions on a range of well-aired options for change.

The thorny issue of takeovers in the sector is ducked in just one sentence; 'it is not proposed as part of this exercise to examine the takeover provisions of the Act', the document states in a missive that will allow the present ludicrous and apparently arbitrary system to continue, a system which allows some members to benefit from a takeover and others not.

Admittedly, the Government would have been ill-advised to have proceeded without a full period of consultation (comments on this document are being asked for by 9 November) but something a little bolder and more focused might have provided a better framework for debate. Reaching a consensus on building society reform is going to prove hard enough, without this kind of muddled thinking.

The document begins by outlining the reforms proposed in the first part of the review, which was published earlier this year. These have already proved something of a damp squib. The majority of building societies have rejected the most important of them - that they be free to lend to the corporate sector. It is easy to see why this might be attractive to the Government, which sees building societies as much more natural, user-friendly lenders to the community than banks; less easy to see why building societies themselves would want to do it. We'd have to be mad, has been the almost universal response.

The document then goes on to deal with accountability. The Government, it seems, would be grateful for views on such issues as - er - 'is there currently a shortfall in accountability to members?' More helpfully, it asks whether the appointment of members' representatives to boards would improve accountability, and if so, on what terms they should be elected. Finally, it deals with the more radical options for change, such as whether societies should be given full banking status without restrictions.

Don't hold your breath on any of this, however. There's scope for a bit of tinkering at the edges on accountability, but the rest would require primary legislation. 'This would have to await a suitable parliamentary opportunity,' the document warns. Nicely played off into the long grass, sir.