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Mr. Dover: Is there anything that we can do to stop such practice, or is it totally impossible under present legislation? So many companies fail and then resurrect themselves within a day or two; that is not in the interests of our constituents.
Mr. Page: My hon. Friend is straying from the Bill and moving to general legislation. Under general legislation, we have the power to disqualify directors if they are found to be operating companies fraudulently, but the Bill will, in particular circumstances, be able to deal with the situation that my hon. Friend describes.
The Bill is needed so that it is possible for action to be taken against those who exploit people who may be financially naive--those who persuade others to part with considerable sums of money by promising them riches if they can persuade others to do the same.
Mr. Robathan:
I have not been out to place a bet on Young Hustler, although I recommend it.
My hon. Friend is explaining how penalties can be invoked. Will he confirm that someone who contravenes the Bill's provisions could go to gaol? In view of that, does he think that just over one hour on Second Reading and less than two hours on Third Reading is too long, which is what the Opposition seem to think? Curiously, they believe that even to discuss the matter is unreasonable.
Mr. Page:
I shall resist my hon. Friend's invitation to get involved in a party political controversy, but I confirm that someone could go to prison if he contravened the Act. In view of the misery that some people cause by their activities, that is perfectly justifiable.
As I was saying, the Bill does not seek to move responsibility for enforcing the controls under part Xl of the Fair Trading Act. That will remain the burden and responsibility of the Department of Trade and Industry. The Bill will not place extra work on trading standards departments. In fact, as has already been intimated, we expect the cost of taking action under the Fair Trading Act to be less than the cost of using the existing, less appropriate powers.
Enforcement of the Bill is expected to cost £200,000 a year at today's prices. That is nearly 25 per cent. less than the current annual cost of investigations, under the Companies Acts, of unscrupulous promoters and the submission of petitions to wind up these companies under the Insolvency Act. We also expect a reduction in the cost of handling inquiries from the public on whether particular schemes are subject to the provisions. I hope that that is of encouragement to my hon. Friend the Member for Mid-Kent.
The Bill is prudent. It seeks to widen the coverage of the existing controls under the Fair Trading Act only so far as necessary to protect the public from the risks associated with trading schemes.
In pyramid scams, very little may be provided other than money. The Bill provides for a wider definition of "goods" so that, for example, it covers money. It also lists
the ways in which members of trading schemes may earn income and it then applies the controls to schemes in which members expect to earn income in one of the listed ways, and in which goods--as defined by the Bill--or services are provided by the promoter, whether to members or to others introduced by members.
Furthermore, the Bill provides power to widen further the coverage of the controls by disapplying altogether the qualifying criteria relating to goods and services. If in the event it were to prove necessary, we would not hesitate to use that power if the criteria relating to goods and services would otherwise protect pernicious schemes from prosecution.
The Bill also provides powers to exclude prescribed schemes from all the controls under part Xl of the Fair Trading Act. That makes it possible to take out from those controls any type of scheme for which the Secretary of State is convinced that the controls are not required for the essential protection of the members of those schemes. I hope that that is of some comfort to my right hon. Friend the Member for Chelsea. The Bill provides powers that will address all the concerns expressed by the British Franchise Association Ltd. The greatest danger to the public is from schemes to which they are lured by promises of riches from the recruitment of others.
From our consultation, we have concluded that franchisees do not need the protection of the Act if their expected income comes entirely from their sales to third parties. We therefore intend to use the power to exclude prescribed schemes by excluding franchise schemes with only one person benefiting from the recruitment of others to the scheme.
The franchise schemes that we intend to exclude from those controls are at present subject only to the recruitment offences. That is because the existing powers provide for the regulations to apply differently to different types of trading scheme. The power is used at present to exempt two types of scheme from all the regulations. The exempt types of scheme are those in which only one participant in the UK can benefit from the activities of others, and those in which the financial benefits are no more than £30 in respect of the introduction of other participants.
Some hon. Members have mentioned chain letters, and harked back to their schooldays. We also intend to exclude simple chain letters from the controls under part Xl of the Fair Trading Act. No doubt hon. Members have come across chain letters at various times. Some involve sending books, postcards, and other items to those higher on the list; others involve sending money; and others bring promises of bad luck to those who break the chain. The latter types may involve offences under the Lotteries and Amusements Act 1976 or the Malicious Communications Act 1988.
Under the Bill, many chain letters will become subject to control under part Xl of the Fair Trading Act. It is clear that the most basic examples are not detrimental to the public. We therefore intend to use the power to exclude prescribed schemes, to exclude simple chain letters. The controls will apply to any chain if anyone can benefit from it throughout its existence. For example, the controls--including the recruitment offence--will apply to any chain in which new members send money to a central organiser who takes a cut before passing the money down the rest of the chain.
The Bill also seeks to widen the controls over the promotional material used to recruit new members.It would make it possible for the regulations to apply to all forms of promotional material. Videos, recorded messages, the Internet and so on are now commonly used to attract potential members, but at present the controls apply only to documents.
The Government welcome the extension of the regulation-making powers to include other media. It is right to look ahead and it is right that all promotional materials should be treated equally under the regulations and that those considering joining a scheme are provided with the protection that we consider necessary, regardless of the form of the promotional material.
On Second Reading, my hon. Friend the Member for Beckenham asked whether the control over promotional material is best achieved by statute or through the Advertising Standards Authority. The Government prefer self-regulation where it is effective. The present Pyramid Selling Schemes Regulations therefore do not apply to advertisements that form part of a newspaper or magazine, and we intend to continue that exclusion in the trading schemes regulations. However, much of the promotional material for trading schemes is privately produced and distributed. Regulation is needed to ensure that promotional material does not deceive, whether by including misleading information or by excluding essential details.
In deciding to support the Bill, we have been greatly influenced by the consultation that we held last year over the legislation controlling pyramid selling and similar trading schemes. Widening the coverage of the controls under the Fair Trading Act was only one of the proposals in that consultation. A summary of the results is in the Library of the House.
We sent out more than a thousand consultation documents. Some 256 responses were received, of which 40 were from promoters and their representatives, and173 were from consumer organisations and members or ex-members of trading schemes, including those who belonged to schemes operated by companies that the Department had wound up.
I shall not go through all the comments that we received from the organisations, but they gave encouraging endorsement to the proposals in the Bill. Comments received included:
The list of complaints and the support for the Bill are there for all to see.
The consultation not only addressed the coverage of the controls. It also proposed trading schemes regulations to replace the Pyramid Selling Schemes Regulations 1989 and the Pyramid Selling Schemes (Amendment) Regulations 1990. Those regulations relate to the promotional material aimed at potential recruits to trading schemes and to the contracts between a scheme's promoter and its members.
The present regulations are not ideal, as my hon. Friend the Member for Chorley (Mr. Dover) pointed out. In some respects, the apparent protection to members of
requirements that are costly to promoters is considerably greater than the actual protection provided. In the light of our consultation, we intend to overhaul the regulations so that they provide more effective protection to members and potential members of schemes at no greater cost to schemes' promoters.
"To allow these schemes to continue is to condone trickery."
"I was promised large tax free earnings. All I had to do was bring in as many as possible friends, relations, business associates."
"It is about time 'money games' were outlawed because they are 'scams' and give our industry a bad name."
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