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Gordon Banks (Ochil and South Perthshire) (Lab):
Many people in my constituency have been affected by the collapse. One agent has lost £11,000 and is still waiting for a reply from the administrator. Another has
lost £18,500, and I know of individual savers who have lost between £150 and £450 each.
I want to comment briefly on the role of individuals, and of the directors in particular. Although I go along with the administrators applauding the Government and the action that they have taken under the Companies Act 1985, we have to be sensible. Disqualification of directors is not what we are talking about. We have heard a lot of things today, and the disqualification of directors is not the end result that we are looking for. I am told that the administrators have realised £2.5 million and I call on the administrators to ensure that that money goes not to the preferred creditors, but to those who were the savers and the backbone of the industry. Clackmannanshire council and the Alloa and District Round Table are each putting in £5,000, and they are calling on industries and businesses in Clackmannanshire to do the same, so that Farepak savers there can have at least some sort of Christmas.
My last comments are to do with the role of the Hamper Industry Trade Association. We know that it has five members, including Farepak, and that it has a voluntary and unenforceable code of practice, with a bond of £100,000. HITA called on its members to give due attention to safeguarding their customers money. I wrote to HITA on 25 October and received a reply from the secretary. He wrote that the collapse was extremely unfortunate but that he is on holiday from 2 November until the 12th. On behalf of a number of my constituents, I invited him to meet hon. Members at the House. He refused to do so, but although others have had a part to play, HITA and its member organisations should be called to the House to explain their role, so that Members can explain it to those who have lost their money.
Nia Griffith (Llanelli) (Lab): It is incomprehensible to me how a company that takes in money a considerable time before it has to deliver the goods to its customers can get into such a mess. Constituents of mine put it bluntly; they call it theft. I have three questions for the Minister.
First, will my right hon. Friend update us on the latest prospect of immediate help for those who have lost money? Secondly, I understand that the Hamper Industry Trade Association has stressed that the situation is by no means a reflection on the Christmas savings industry as a whole. I am afraid that the public will judge it as such, and that may lead to a considerable future loss of confidence in the trade, even among companies that act honourably.
The Farepak collapse also raises the question of what sort of protection is available to those saving with hamper schemes. Anyone saving with a bank or a credit union is covered by the financial services compensation scheme, which compensates 100 per cent. up to £2,000 loss and 90 per cent. for the next £33,000. The hamper industry, like other industries that collect savings a long time in advance of delivery, clearly needs to have a similar protection scheme to safeguard its customers. We need proper regulation, together with realistic bonds, in order to provide proper protection for savers and to ensure that nothing like this can happen again.
Miss Anne Begg (in the Chair): Order. Everyone has been extremely well-disciplined, and I am sorry to the remaining Back Benchers who wish to speak, but we now come to the Front-Bench speeches. I ask the Opposition Front-Bench spokesmen to be brief in order to allow the Minister the maximum time.
Lorely Burt (Solihull) (LD): I shall be very brief, Miss Begg. We have had an excellent debate, and I congratulate the hon. Member for South Swindon (Anne Snelgrove) on initiating it. The issue has touched the hearts of hon. Members and of people throughout the United Kingdom.
I shall focus on how the problem arose. The industry is unregulated. It falls within the retail sector, not the savings sector, but in principle it operates in a similar way to credit unions. The hamper industry depends on each company fulfilling its part of the bargain.
In February this year Family Hampers went bust. The system allowed customers to pay in their savings, the company would bank the money and vouchers were issued to customers by a separate voucher company. The company then invoiced the Christmas club, and the shops invoiced the voucher company. When Family Hampers went bust, Choice Gift Vouchers went into administration.
The major store groups decided that they had had enough of thatthey were £55 million out of pocket. They decided that there should be no more credit and that vouchers should be purchased up front. That led to a funding crisis at European Home Retail, the parent company, and its shares were suspended in August. However, EHR was using Farepak to fund its own deficit, and each month the customers savings were being raided like a piggy bank.
Why was that company not put into administration until October? HBOS was still raking in savers money to fund the EHR overdraft. The worst thing, however, is that earlier in October the non-Farepak rump of EHR was sold off for £34 million in cash. Where has that money gone? How is it possible to drain a subsidiary of cash and then sell it, leaving tens of thousands of people being owed money?
Annette Brooke (Mid-Dorset and North Poole) (LD): Does my hon. Friend agree that our constituents, particularly the vulnerable and those who have behaved responsibly, have suffered through the actions or inaction of those with responsibility; that, first and foremost, we must put together a package to rescue them before Christmas; and that the other actions that need to be taken must then kick in quickly?
Does the hon. Lady agree that all hon. Members must raise awareness of savings and loans facilities and the security provided by the credit unions
in supporting people who are in financial crisis? We are not aware of what the Minister will say, but we can at least direct our constituents toward credit unions.
Lorely Burt: The hon. Lady makes an extremely important point. the last thing that we want is for people to be driven into the hands of the loan sharks. I know that the Minister is meeting representatives of the Office of Fair Trading and the Financial Services Authority. Will he look into the possibility of making regulations to offer savings hampers customers the same protection as the credit unions customers?
Mr. John Leech (Manchester, Withington) (LD): Does my hon. Friend agree that, in a sense, this fiasco is in the best interests of the hamper industry, because many people will now be wary of saving in that way?
Lorely Burt: Yes, my hon. Friend makes an important point. The reputation of the hamper industry has been gravely damaged. Regulation would greatly strengthen its reputation, and its ability to deal properly with the money that people entrust to it.
Will the Minister investigate the actions of HBOS? It continued to accept £1 million a month of savings from Farepak, knowing that the company was insolvent. Will he also look into the claims of organisations such as the Hamper Industry Trade Association, which purport to offer protection through a bond until something goes wrong? The British Retail Consortium initially offered to make a goodwill gesture but it seems that its Christmas good will has run out. Indeed, several hon. Members have alluded to the cruel irony that, having made the offer, it has now withdrawn it.
Miss Anne Begg (in the Chair): Order. I have to tell the House that the heating cannot be adjusted because of the works outside. Although it is not normally in order for hon. Members to remove their jacketsit is a convention of the Chamberit will be acceptable on this occasion.
Mr. Mark Prisk (Hertford and Stortford) (Con): I, too, add my commendations to the hon. Member for South Swindon (Anne Snelgrove). She has been leading on this issue in parliamentary questions, in her constituency, and now here. That is very much to her credit.
Many questions have been asked and issues raised, and I am sure that the Minister will want to respond to them in full. I shall attempt to rattle through them; I shall therefore take no interventions.
One issue that arose in debate was the advice given to Farepak agents holding customer payments not yet paid into the companys account. My understanding is that they had been advised that the money should be returned to the customers. Will the Minister confirm that the administrator has indeed given that advice? As the hon. Member for South Swindon said, the Hamper Industry Trade Association Ltd is reported to have referred to a bond against deposits for member companies.
Does the Minister agree that such an offer is largely meaningless in a case of such scale and calibre?
The collapse of Farepak has left many families facing a bleak Christmas. They tried to do the right thing by saving for the festivities, but now they are completely out of pocketin some cases, to the tune of hundreds of pounds. We do not know the exact number of customers. Some reports suggest that about 120,000 are affected. Indeed, the total amount lost is not clear. Estimates vary between £27 million and £40 million. What we do know is that those people have been robbed of their Christmas.
The collapse seems to have come without any warning to the customers or to the 25,000 or so agents who acted for Farepak. Marisa Cavarra, who was an agent for Farepak in the vale of Glamorgan, told the BBC:
We had no indication that anything like this was about to happen. I paid my money last month and there were no warnings that there were problems.
The lack of forewarning is especially concerning given that the parent company, European Home Retail, had its shares suspended three months previously, back in August. Will the Minister ask why it took so long for administrators to be appointed after the shares were suspended and why, as several hon. Members mentioned, payment reminders were sent out to agents during that period?
The absence of information is not the principal concern, however. When one looks at the accounts, one sees that Farepaks finances looked good. It received a clean audit, had assets of £3.6 million and last year had a profit of £1.6 million, so what went wrong? Where did the families money go?
There have been reports, notably in The Sunday Telegraph, that there were significant cash transfers between the parent company, EHR, and Farepak, with the former using the large cash balances of the latter to pay off its overdraft with the group bank, HBOS. Let us be clear: group-wide money management is fairly routine for many companies and is not, of itself, illegal. However, when that money is the savings of individuals, there is a serious problem if those deposits are not secured appropriately.
In 2000, EHR bought a book and toy firm called DMG for £35 million. Apparently, the purchase proved to be a financial disaster and after several asset write-downs, the firm managed to sell DMGfor just £4m. Several analysts have suggested that that episode in particular is the reason why the firm found itself owing millions to its bank. That is when, the reports suggest, the large cash transfers between Farepak and its parent company began in earnest. Someone decided to raid the piggy-bank.
Given that, can the Minister confirm that his Departments inquiry will specifically consider that aspect of the case and the actions of those responsible for the financial management of the firm, including the advisers and the bank? Equally, I wonder whether he can comment yet on the advice that he received from the Insolvency Service, which he sought on 19 October.
Farepak was one of many Christmas-club companies, which tend to target those on lower incomes and which bank the money on their behalf, usually in return for vouchers that are redeemed in stores such as Woolies or
Argos. The more people save, the more vouchers they get. That savings model has been around a long time and typically means that the retailers are extending a lot of credit to the voucher company while it in turn is cash-rich. To be fair, the activity has been around a long time and has, for many lower-income households, been a good informal way to save. As hon. Members said, there is a personal touch to that form of saving, not least because it is often family members who act as agents for the firm. Perhaps most important, that form of saving has helped people who would otherwise never have saved money to start that vital habit.
Therefore, if there are remedial measures to be taken beyond this one business, we need to be careful not to destroy the whole market and, with it, the opportunity that many families have to save. Amid the understandable clamour for regulation, the Minister must notI am sure that he will notlose sight of the facts of the case and who is responsible. Given that, will he confirm that his inquiry will include the whole EHR group of companies, its directors, its managers and its advisers? Can he say whether the inquiry will extend to the pensions of the work force and to how many of them have lost all or part of their entitlement? Can he confirm that it is his intention to make public the full results of the inquiry? The families affected deserve to know exactly what happened and who is responsible.
The sudden demise of Farepak has caused great heartache and financial lossvery often, for people who can ill afford to lose any money. As hon. Members have said, it will mean that for thousands of families Christmas will be bleak. The Minister was very quick in responding to the situation, which is to his credit, but what is important now is that the facts are clearly established about Farepak and EHR and that any proposed actions focus on the specific circumstances. If people have failed in their duties, they must be held to account.
It is far too early to say whether this case shows that there is reason to believe that regulation must be imposed on the industry, but once the inquiry is concluded and, we hope, its results published, we shall be able to judge whether Farepak is an isolated case or whether there are wider lessons to be learned. I am sure that, if there is a case for sensible action beyond the circumstances of this case, the Minister will want to return to that issue. Meanwhile, I am certain that the families will want to hear what progress he has made and what news, if any, he has for them about his Departments inquiry.
The Minister for Trade (Mr. Ian McCartney): Good morning, Miss Begg. I thank all right hon. and hon. Members for participating in what has been a passionate and sometimes genuinely angry debate. People should be angry about the situation that we are discussing. This is one of those areas in which Members of Parliament can, I hope, make a difference.
First, I shall put on record the basic facts of the case. Then I shall talk about what I have been doing and the proposals for a way forward, and give some information about the administration, the investigation and the regulatory framework.
I want to give a commitment. It would not be prudent to answer all the questions that have been asked here today, and I shall explain why. An investigation is going on, and I want to ensure, as the Minister, that I act appropriately, so that if at any later date there are further investigations, inquiries or, indeed, charges, no one can put up a slick lawyer or barrister in the High Court and use what I have said in the House to allow someone to avoid a proper inquiry. It is important that I give as much information as I can, but I also ask hon. Members to trust me. At each stage, I will come back to the House, in a forum such as this or in other forums, to keep hon. Members fully up to date on the inquiry, the investigation and the appropriate action that will need to be taken later.
Like other hon. Members, I was appalled when I heard about what happened. It took me back 35 years to the time when I was a 20-year-old with two children. We paid for our Christmas by joining a hamper club, a Christmas club. That was what a young family did. My parents and grandparents did it before me. It was part and parcel of the community in which I was brought up and it remains part and parcel of that community. These things are deep in the psychology of the community. This is about self-opportunity in saving and ensuring that every member of the family does as well as they can at Christmas. People save throughout the year. It was passed on from generation to generation that that was what we did. That is why the events involving Farepak are so appalling and why I took the action that I did. I know from personal experience what it would be like to be affected by such events.
I shall recap briefly on the basic facts of the case so that everyone is clear about them. Farepaks main business was essentially a Christmas club. The company took payments during the year, mostly through a network of agents, and delivered in return either vouchers redeemable in a range of stores, or a hamper. Some 10 to 15 per cent. of the business involved hampers. Some 80 to 85 per cent. was done through vouchers. The vouchers would have been sent out about now, the hampers nearer Christmas, and the rest of the industry is currently doing exactly thathon. Members may be asking what is happening with other companies.
It appears that this company had some 26,000 agents. We are trying to identify, through the administrator, how many of those are active agents. That work is ongoing. The number of customers is uncertain, because the relationship was always with the agents, not the customer base. The company itself had no direct information, but it appears that there are probably in excess of 100,000 customers. That is an estimate from the administrator. The situation has affected whole families and whole streets in communities up and down the country. The total amount due to those customers is not known, but we have heard that many individuals are owed hundreds of pounds and some, at least, are owed thousands.
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