Landmark reform on cards for co-operatives

Update on progress - 29 June 2023

• The primary legislation, which gives HM Treasury powers to create an optional ‘asset lock’ for co-operative societies through more detailed secondary legislation, has received Royal Assent and is now law
• HM Treasury will now create the detailed law through secondary legislation and Co-operatives UK will work with our members and partners to ensure this serves the needs and aspirations of the sector

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Sir Mark Hendrick, Labour and Co-operative MP, included this provision in his Private Members’ Bill which had a Second Reading in Parliament today. In a rare move, government has decided to take forward an element of Sir Mark’s Bill and adopt it as government legislation. The Bill will give co-operatives the option of legally guaranteeing that some or all of their assets are held in common and non-distributable among members. 

James Wright, Head of Policy and Development at Co-operatives UK, said: "We're delighted that a more focused Bill will now go through to committee stage. For many years we've lobbied for legislation that gives co-operative societies the option of legally guaranteeing that some or all of their assets are held in common and not distributable among members.

"It’s been a priority for our members and would create better conditions for investment, innovation and growth in many co-operative societies. I am thrilled to report that today in Parliament, government announced that it would be taking forward legislation to give co-operative societies this option."

The new Bill will create better conditions for investment, innovation and growth, by helping set the right boundaries and engage with the appropriate motivations of founders, members and investors. It will also prevent perverse incentives to destroy co-operative value through unnecessary demutualisation. And crucially it will provide co-operative founders with more optimal choices of legal form, enabling innovation and impact in the social economy.

Co-operatives UK worked with Mutuo to support the Co-operatives, Mutuals and Friendly Societies Bill. James added: "If this legislation does indeed become law, Sir Mark will have played an instrumental role in giving co-operatives the more enabling legal framework they deserve. 

"As a member of the Bill team alongside partners from the consultancy Mutuo, I am delighted to have been part of this. Co-operatives UK has been working with HM Treasury over many years to make the case for this reform in particular.

"Credit must also go to various people in the sector who agreed to speak to HM Treasury officials in recent weeks, to help them understand the case for this particular reform. These conversations have proven invaluable. So, thank you!"

The benefits

The accumulation and re-investment of ‘common capital’ is a key feature of co-operatives. Most co-operative societies include non-distributable capital provisions in their rules. But rules-based provisions fall short of the permanent legal guarantee sought by many co-operative founders, investors and policymakers.

This new legal tool will help set the right boundaries and engage with the appropriate motivations of founders, members and investors. It will also prevent perverse incentives to destroy co-operative value through unnecessary demutualisation. Crucially, it will also provide co-operative founders with more optimal choices of legal form, enabling innovation and impact in the social economy. 

In real terms we will see:

• Community ownership of local assets that make fuller use of co-operative business models to encourage local trade, for example by having a stronger ‘member offer’ for local people using the asset
• Housing co-operatives able to hold high-value property and expand without worrying about future members succumbing to perverse incentives to demutualise
• Worker and multi-stakeholder co-operatives able to grow and take on investment with greater assurances that co-operative purpose and culture will be protected long-term
• Consumer co-operatives having a legal guarantee that future members will not seize commonwealth built up over generations for their own short-term personal gain
• The co-operative society form being even more suited to co-operative buyouts of existing businesses

What next 

Co-operatives UK remains in close contact with HM Treasury on this. James said: "Our priority is to ensure that as government takes this Bill forward, the details address the real-world needs and aspirations of the sector."

The trade body will be organising an online meeting next month (November 2022) for members who want to find out more and feed into the process. The next stage of the parliamentary process is the Commons Committee, where government and a small group of MPs will work on the detail of the Bill, with input from sector representatives.

If members would like to discuss the new Bill contact James Wright.