May 2010

A new government- a new dawn for mutuality?

bigben2It might be difficult to agree with this question in light of the announcement by the coalition Government that payments to the Child Trust Fund- a market dominated by mutuals- would cease by the end of the year. However the last time there was a coalition government in the UK the mutual sector played a predominant role in helping people plan for the future and to protect themselves against future uncertainty.

The history of the Welfare State and the role of mutual insurers and friendly societies makes interesting reading in today’s context. According to Frank Field, the Labour MP who has been drafted into the coalition government as ‘poverty tsar’:

“The 1906 landslide victory of the Liberal Government was not based on a programme of welfare reform. Indeed, it did its best not to discuss it. But reform came. In order to protect the friendly societies a non-contributory, means-tested old age pension was introduced for those of 70 or more. At the time average life expectancy for men was 48 years!”

Indeed, whilst national health and a limited form of unemployment insurance were introduced by the 1911 Act, with contribution and benefit levels laid down by Parliament, friendly societies and mutually-owned bodies operated the scheme. It wasn’t until 1945 that a fully functional Welfare State, operated by the State, was introducedi.

The current government last week published its programme, based on a foundation of “Freedom, Fairness, and Responsibility”- all notions close to the mutual business model. The programme includes the following commitments:

  • “We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.
  • We will support the creation and expansion of mutuals, co-operatives, charities and social enterprises, and enable these groups to have much greater involvement in the running of public services.”

These statements offer hope of renewed commitment to mutuals, and the latter in particular provides an interesting resonance with the way the welfare state was operated before 1945. Certainly mutuals have proven expertise in providing high standards of service and of developing innovative products that really meet customers’ needs. And there are really good examples in healthcare and the child trust fund of mutuals delivering products and services at very low cost- lower certainly than proprietary organisations, but also intuitively cheaper and more efficiently in some areas than public services.

Many of our products already complement public services or work alongside welfare benefits- and as organisations, mutuals are better incentivised to encourage policyholders to make adequate provisions and to lead healthy lifestyles, and to support claimants in getting back to work or otherwise making their claim reasonable.

Conversely mutual insurers and friendly societies manage massive sums of money for the benefit of their customers, but they have little ability currently to invest that for the public good.

I conclude that there is a real opportunity for mutuals to find ways to embrace the proposals from and challenges of the new government. This means we might ourselves seek to identify ways in which we can become more involved in supporting the welfare state as well as government savings policy. The Budget on 22 June will be framed by the financial climate and fiscal deficit, and is expected to present some tough decisions and unwelcome risks for some mutuals. This week’s unwelcome announcement on the Child Trust Fund is a very clear example of that. But there will also be some opportunities- and AFM will be writing to the Chancellor with our thoughts on what the Budget must achieve.

Perhaps that might even reflect on the role played by mutuals a hundred years ago and the possibility for modern mutuality to echo this- I welcome thoughts from readers of their ambition to take mutual provision to the next level.

Martin Shaw, Association of Financial Mutuals

To read more on the history of the Welfare State I can recommend an article by Frank Field MP on the BBC website:

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