Andreas Whittam Smith: Why I mourn the loss of these building societies

In their original form they were the creations of public spirited people
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The Independent Online

I regret that another batch of old building society names, Abbey, Alliance & Leicester and Bradford & Bingley, will shortly vanish from high streets. They will be replaced by the red and white flame logo of their new owner, the giant Spanish banking group, Santander.

These former mutual organisations sprang out of the wonderful self-help movement of the 19th century. Only late in their histories did they convert themselves into what turned out to be singularly unsuccessful shareholder-owned banks. In their original form, they were a response by public-spirited people to the might and crushing power of the Industrial Revolution. They were shelters, if you like, so well constructed they lasted 150 years.

Their disappearance gets to me because I retain a strong faith in the power of the individual to act. Had our mid-19th century ancestors been told that one day an American politician would run for the White House with the slogan, "Yes, we can", they wouldn't have been the slightest bit surprised even though at the time few of them even had the right to vote. Yes, they would have thought, that is our guiding principle, too.

To see the extent of their activity, as an example look at what was going in Leeds in the 1830s and 1840s. Out of dozens of ventures, I pick out a few names at random. There was the Stranger's Friend Society, the Child Bed Relief Society, the Leeds Public Dispensary, the Infant School Society, the Leeds Guardian Society (for prostitutes) and, finally, the Leeds Union Operative Land and Building Society which survives today as part of the Leeds Building Society.

Does the notion of self-help any longer retain its power to move individuals to form new mutual organisations? Three types of mutual organisation continue to offer financial services. There are building societies making home loans, friendly societies providing savings and insurance services and credit unions supplying simple banking facilities. Of these only the last is attracting new entrants.

Each credit union has a "common bond" which determines who can join it. The common bond may be for people living or working in the same area, people working for the same employer or people who belong to the same association, such as a church or trade union. The Police Credit Union, for instance, has 16,000 members. In Lambeth, a "Savings and Credit Union" is opening soon and will offer secure savings and affordable loans to anyone who lives or works in the London borough.

The further question is whether the mutual organisations that remain, of which Nationwide is probably the best known, do in fact offer something special derived from their mutuality? From the outside, this is not immediately apparent. Generally speaking mutuals transact business on the same terms as their shareholder-owned competitors. While they have the advantage of having no shareholders to whom dividends must be paid, the downside is that without shareholders, they lack a ready source of fresh capital.

Nonetheless, there is in my view a difference and it arises from the time lags inherent in the financial services industry. Buyers of, say, self-employed pension schemes, life assurance contracts, even home loans, cannot discover for a very long time whether they have made a wise purchase or not. With home insurance, you may never find out if you are lucky enough never to make a claim.

This is radically different from all other products. As soon as you start driving your new car or operating your new mobile phone, you swiftly become aware if your money was well spent. That is rarely the case with financial products where the time lag between purchase and use gives space for bad practices to flourish. For instance, many of the payment-protection insurance policies that banks foisted on to their customers were rip-offs.

The Financial Ombudsman Service upholds a very high proportion of the complaints in this area. My argument is that mutuals, having no conflicts between the interests of customers and shareholders to resolve, are more worthy of trust. But then I would say that, wouldn't I? For I am the chairman of the Children's Mutual, a friendly society that specialises in children's saving. It was founded in Tunbridge Wells in 1881 and is still expanding strongly.