Mutuality must not be left to die

By Melanie Bien

Good news for mutuality last week as both the Chelsea and Port- man building societies successfully rejected members' resolutions to change the rules. Chelsea rejected a demutualisation resolution, while Portman turned down calls for directors to be more open and for salaries to be decided by members.

Good news for mutuality last week as both the Chelsea and Port- man building societies successfully rejected members' resolutions to change the rules. Chelsea rejected a demutualisation resolution, while Portman turned down calls for directors to be more open and for salaries to be decided by members.

Once again, mutuality is in the spotlight. Nor is it likely to dim as the Government publishes its study into the future of co-operatives this week. And in a fortnight, a Treasury select committee inquiry will start looking into Equitable Life's problems.

Hopefully, a new report from the Centre for Business Research (CBR) at Cambridge University will be given due consideration by the Government. It argues that mutuality is worth saving, not least because without it, many ordinary investors who need a choice of long-term, low-risk savings plans for their pensions or life assurance are likely to lose out.

The windfalls that members get when a mutual becomes a plc are attractive, of course. But the research argues that, for a mortgage payer, "the typical period after which demutualisation would be seen to be a disadvantage was four years". In other words, after four years mortgage payers would have paid back any windfall they may have received, in the form of interest on their home loan. Considering that a mortgage typically has a 25-year term, that's a lot of money.

The problem is that savers with the minimum £100 in an account - most of whom will be opportunist windfall hunters - would be little affected by poor rates of interest. They could simply move their cash elsewhere.

So what's the solution? The CBR believes the Government must act now to modernise mutuals before they are killed off. Critics of mutuals argue that without the threat of hostile take- overs or demutualisation, societies lack accountability. But there are better ways of overhauling the governance of mutuals than unleashing the carpetbaggers. Mutuals need a supportive legal and institutional environment.

Pre-emptive action is vital because some mutuals have let the side down. There are good and bad mutuals, just as there are good and bad plcs. But some have been very bad, which is why the whole idea of mutuality is under fire.

Undeniably, some have been arrogant. Standard Life springs to mind. Even the biggest can fall: when Equitable Life admitted defeat and closed its doors to new business, it felt like the final nail in the coffin of mutuality. If the UK's oldest and most revered mutual could not make it, what chance did the smaller fry have?

But mutuals can be efficient at delivering particular types of long-term financial services: home loans, pensions and life insurance. As the state plays less of a role in providing pensions, a good choice of investments is essential. So it's up to the state to ensure that continues. There are 68 building societies left; 12 years ago there were 130. Abbey National, Halifax, Alliance & Leicester, Woolwich, Northern Rock ... the list of ex-mutuals trails on. The survivors need help before it's too late.

* m.bien@independent.co.uk