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10.17 am
Mr. Anthony Coombs (Wyre Forest): I congratulate my right hon. Friend the Member for Chelsea on bringing the Bill forward. I was delighted to hear both him and my hon. Friend the Member for Mid-Kent (Mr. Rowe) say that it is very important that when passing such legislation one does not throw out the baby with the bath water.In this instance, the baby is very significant, robust, healthy and perfectly legitimate. I have noted, for instance, that the direct selling or franchising industry of the kind that we are attempting to regulate has a turnover nationally of about £300 million. Not only does it provide additional income entirely innocently and helpfully for a large variety of people, whether they be students, wives--we ought to say spouses--or vicars, it provides a training ground for many people to develop gradually their entrepreneurial skills with minimum overhead and maximum back-up.
That is why the Direct Selling Association supports the Bill's principle but does not want it to become the trojan horse of a huge amount of regulation, which would become bureaucratic and stifling. That is one of my concerns about legislation that opens up new areas of activity to regulation. I am sure that although all of us present in the Chamber consider that the regulation would be helpful and not unduly constricting, and at the same time would protect vulnerable people, it might in other cases, in particular locations with particular trading standards officers, be highly oppressive in a way that I am sure none of us would want.
In nine years in the House, I have received but one complaint about direct selling organisations. People who are duped or feel that they have been wronged by such organisations may not be the type of people who want to admit it and go to their Member of Parliament to draw attention to what they regard as an unfortunate episode in their life. We should nevertheless take account of the lack of complaints and say that, although there may be a problem, that money circulation schemes may have to be better regulated and some people may well have lost money, the benefit of franchising and direct selling far outweighs the problems against which we hope to regulate today.
I have always believed that we should consider any type of regulation from two angles. We should protect vulnerable and innocent people. The trouble is that a person who complains that a trading scheme has gone wrong will always present themselves to the authorities as vulnerable, exploited and innocent, despite the fact that many people who enter such schemes are not innocent or gullible but greedy and seeking a quick return as much as the guy who set up the scheme. That may not be the easiest thing to admit in political terms, but in practice it is often the case.
Mr. Robathan:
I agree with my hon. Friend, but are not the advertisements very seductive nevertheless? Greed is a factor, but so is need, in whatever work we do, because we wish to make money for our industry. Perhaps some people are greedy, but I have cases of people who believed that they had found a good way to make money but were duped.
Mr. Coombs:
Of course that happens, which is why we are considering the Bill, but I am saying that any scheme of regulation should be considered against that proviso.
The deregulatory aspects are the other side of the argument about regulation. It is highly ironic that the document "Pyramid Selling and Similar Trading Schemes", produced on 16 March 1995, is--at least according to the Library brief--part of the Government's deregulation initiative. I should have thought that it was the major complaint of the majority of my constituents, including small companies and many people involved in business on a larger scale, that far from deregulation being the order of the day, despite many of the prognostications and pronouncements of Ministers, insidiously, gradually, their businesses are more and more overwhelmed with regulation, whether from Europe or from over-zealous civil servants locally or nationally. It should be our major preoccupation to reduce regulation and to produce regulations that are unlikely to be perverted in the way that I described earlier.
Significantly, in the past 15 years the United States of America has produced about 20 million jobs, mainly in the private sector, whereas in Europe the regulation effort may have reached its nemesis--about 8 million have been created, none of which has been in the private sector.
Mr. Rowe:
It may be worth pointing out to my hon. Friend that a substantial proportion of the direct selling companies that have found it useful to their business to enforce very much stricter controls are American.
Mr. Coombs:
I take that point. We would all welcome necessary regulation for properly run, sensible companies,
I am in favour of the Bill and of extending the number and type of schemes it encompasses and the type of advertisements it oversees, because naturally I want to protect people who are genuinely vulnerable in a way that is in the public interest.
I shall now discuss pyramid selling schemes. Inner Sanctum, which my hon. Friend the Member for Blaby (Mr. Robathan) may have mentioned earlier, was a scheme that, through an unauthorised Swiss bank Swiss Investment Bankers AEG, offered people wildly unrealistic deposit rates on their money. The bank was registered in a place called Melchizedek, which was purported to be a rock off the coast of south America, but in fact Melchizedek is an Old Testament priest or king of Canaan.
Obviously, it was a scam from the start and people needed to be protected against it. Although it claimed 7,000 members, no one got their money back. It was eventually wound up by the Department of Trade and Industry and the Bank of England, and so say all of us. That is the type of scam against which people should be protected.
The Bill widens the scope of existing regulation. It is important to ensure that those regulations are appropriate for overseeing the franchise and direct selling industry.
The consultation document issued by the Department of Trade and Industry, "Pyramid Selling and Similar Trading Schemes", suggested ways in which regulations and controls might be updated to protect investors. These included the requirement for information to be revealed to new participants in schemes so that they go in with their eyes open; information such as details of the promoter, his registered address, the assumptions on which advertised profit levels were based, information on the role of participants and their obligations, the terms under which contracts originally entered into could be cancelled without penalty, the length of cooling-off periods and the penalties that would apply to participants if a promoter terminated their contract unilaterally.
As my hon. Friend the Member for Mid-Kent said,it is extremely important that people who put a lot of money into schemes, whether it be in trading or in advance orders for goods and so on, should be protected by buy-back provisions. I believe that that was suggested in the consultation document. Equally important, at least for the first two weeks of someone's participation in a scheme, maximum levels of achievable turnover should be quoted. Otherwise people would be swept away with promises of massive future riches and make investments that were unsustainable for them and which could not be relied on in the future.
I want the Minister to reassure me that, in addition to extending the Bill's scope, he will consider the suggestions in the consultation document, which would result in such industries being better policed--better, not more oppressively--in a way that is likely to be accurate and relevant.
I shall briefly mention money circulation schemes. In the 1920s, one Charles Ponzi, an American "entrepreneur"--probably the wrong way to describe him--set up a money circulation scheme; a scam in which millions of people lost millions of pounds. A few years
ago the Caritas scheme, which my hon. Friend the Member for Blaby mentioned--based mainly in Romania and Russia--was wound up and 4 million people lost no less than £630 million.
There are also money circulation schemes, as my hon. Friend the Member for Blaby mentioned, which involve three levels and which give a return only when one person recruits six, and those six recruit another six. Before people make any money at all, they have to recruit216 people. Before those people make any money, 1,296 have to be recruited and before those people make any money, 279,936 people have to be recruited. Before those people make any money, 60 million need to be involved in the scheme--the population of the United Kingdom. Such schemes are scandalous and unrealistic. It is rather like riding a bicycle. One has to ride faster and faster and faster, otherwise one will fall off. People need to be protected from such schemes.
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