In the beginning, building societies were invented by ordinary workers as democratic self-help organizations.footnote¹ The industrial revolution of the late eighteenth century brought a flood of workers into the cities—most of these to live in appalling conditions and at the mercy of their landlord and employer. The idea of the building society came from conversations in pubs and taverns when workers complained to each other about these conditions. The very first building society—founded in 1775—was named after the landlord of the Golden Cross Inn in Birmingham, where its members met.

At first they were building clubs, in which the members used their money to buy materials and their skills to build houses. These developed into ‘money clubs’—a simple savings society, to build decent houses. Each member of the society paid an agreed weekly amount into the society’s funds. When enough money had been saved, a house was built—with a ballot deciding which member would get the house. These societies were run by their members and were bound together by personal trust and a mutual self-interest—every member knew that their savings would help both themselves and their colleagues. The interests of the savers and the borrowers—the people who got the houses—were the same. Not surprisingly, the idea caught on, and by the end of the eighteenth century there were perhaps as many as fifty building societies in the Midlands, Yorkshire and Lancashire.

The British middle class watched these developments with some unease for they were independent working-class initiatives which could lead to economic advancement and then demands for political participation. It was the genius of the Victorians to find a way of channelling the building society movement into something more acceptable. At a time when trades unions and the Chartist movement posed a frightening political challenge to the established order, the rapidly growing Victorian middle class of professionals and clerics saw the potential for building societies to be part of a strategy to build a respectable—and non-threatening—working class. They found a perfect way of combining profit with virtue.

All of the original societies had been ‘terminating’ societies—when all the members had been housed, the society was wound up. The Victorians developed the idea further, inventing the ‘permanent’ society, which borrowed from the public at large and so ended the personal bond between its members. (The Leeds—one of the big names on the High Street today—used to be called the Leeds Permanent). The permanent society enabled the affluent Victorian middle class to earn a return on their savings whilst promoting the virtues of home ownership and thrift amongst the skilled working class—the ability to borrow was nearly always related to the previous savings record of the borrower. Aware of the connection of the old societies with the ale-house, many of the new societies were promoted by Christians and temperance campaigners—the original Abbey Building Society was started in London’s Abbey Road church. In sum,

the building society idea did not challenge any of the tenets dear to that [Victorian] society. It did not hand out charity, it encouraged self help. It provided no haven for the undeserving, it encouraged those who worked to be respectable. And it showed the outward and visible signs of grace because it made money safely for its supporters.footnote²

Because the societies were built on the reputation and ideals of their working-class forerunners and because involvement in them was seen as part of the middle classes’ philanthropic work, the new societies inherited the mutual structure of the first societies—they had no shareholders, no dividends, no highly paid directors. Full-time staff were employed from the ranks of the middle classes, skilled in the new professions such as accounting, but at modest wages and the directors were selected from the local aristocracy and professional and commercial classes.

Building societies were allowed to grow because they posed no commercial threat to established financial interests. In the Victorian age, banks were not remotely interested in small savings or in financing housing—they were predominantly interested in financing trade. The Stock Exchange was overwhelmingly concerned with financing imperial and overseas ventures. Building societies were never going to move into these areas as they were forbidden from doing so by Act of Parliament, which also helped ensure that people’s money was safe. But today building societies do pose a real threat to entrenched financial interests, and these interests have turned against them.