Select Committee on Treasury Written Evidence


Supplementary memorandum submitted by the Office of Fair Trading

INTRODUCTION

  1.  OFT gave oral evidence to the Treasury Select Committee on 6 June 2007[21] about its work following the collapse of Farepak. The purpose of this memorandum is to clarify issues raised by the Committee.

REGULATION OF HAMPER SCHEMES

  2.  The Committee asked why we advised the DTI in December 2006 that putting trust accounts in place to protect consumers prepayments in the hamper scheme industry would be "unattractive to the agents and costly to consumers". The Committee also queried our advice that consideration should be given to banning the hamper scheme business model.

  3.  In preparing our advice for the DTI we gave careful consideration to the feasibility of hamper scheme companies putting in place some form of pre-payment protection. We based our assessment on our experience of prepayments issues in relation to our Consumer Codes Approval Scheme (CCAS) together with what we learned from the hamper scheme industry when preparing our advice.

CCAS

  4.  The CCAS criteria require that a code of practice shall address protection of deposit or prepayments as appropriate to the sector. Since the scheme's inception in 2001 our discussions with code sponsors have shown this to be one of the most difficult criteria to meet. This was confirmed in a consultation exercise in 2005 when business and code sponsors highlighted the difficulties including the level of costs involved to put protection in place and possible increased prices for consumers. Although we have retained the criterion we now take a risk based approach when deciding whether all deposits/prepayments need to be protected. We assess the level of financial detriment or inconvenience which would be caused if the goods or services are not provided.

Views of the hamper industry

  5.  We thought it likely that hamper scheme companies would be faced with similar difficulties to code sponsors but would also have the additional problem created by their business model which requires access to working capital throughout the year. This was confirmed when we met with the Hamper Industry Trade Association (HITA) in November 2006, including representatives of the Park Group, and discussed the possibility of prepayment protection. At that time Park was trying to find a suitable insurance scheme but this was proving difficult. Park said pre-payment protection was costly and under their business model they needed access to money to purchase products, run promotions, pay VAT bills etc at certain points throughout the course of the year. Limiting access to working capital threatened the viability of the hamper scheme.

  6.  We considered the views of HITA together with what we already knew from our consultation on CCAS and concluded that it was highly unlikely that the industry would be able to put satisfactory levels of protection in place voluntarily. Statutory protection, for example as part of the FSA regime, would present similar problems in terms of finding suitable trust or insurance arrangements but would also bring additional administrative burdens. In contributing to our advice to DTI the FSA said it was not obvious that the hamper scheme business model, such as that used by Farepak, would be sustainable under such a regime. We concurred with that view and, given that the informality of the schemes is an important part of their appeal, believed prescriptive regulation would be unattractive to both agents and consumers.

Banning the business model

  7.  These factors also lead us to conclude that banning the hamper scheme business model should be presented to DTI as an option. This business model places all the risk on consumers in the event of company failure and, following Farepak, may be viewed as unacceptable. On the evidence available we did not feel satisfactory voluntary arrangements were likely and considered sector specific regulation to be both unattractive and problematic. There were likely to be issues relating to the definition of the product to be regulated to avoid unintentionally catching other types of scheme. Where a business model is unlikely to be sustainable once regulated, and the risks to consumers remain high without satisfactory protection, we believed the option of banning the model should form part of any discussions.

CONSUMER EDUCATION CAMPAIGN

  8.  Following the announcement by the Treasury on 28 March 2007 that OFT would be given £1 million for a consumer education campaign the Committee asked OFT to provide a breakdown of cost figures for how the money will be spent. These are included below. The Committee also wanted to understand why greater use was not being made of national advertising in the campaign.

Action for Christmas 2007

  9.  We consulted key stakeholders to develop messages and tools to explain the various savings options and launched the "Save Xmas" campaign on 1 June to raise awareness of the issues for those who had not yet made their savings decision for Christmas 2007. We published a leaflet on 20 July which highlights the short-term savings options available to consumers. The design has been commissioned specifically to appeal to the target audience and the content of the leaflet is at the level necessary to explain how to start making choices in this market. This has been verified by a focus group that we commissioned. The more in-depth consumer education programme for the longer term and publicity targeted at savers for Christmas 2008 is designed to provide the reach and depth of communication that the situation requires.

Target audience and strategy

  10.  The campaign is targeted at people who lost money when Farepak collapsed as well as people on low incomes who find it difficult to fund Christmas without saving throughout the year. Low income consumers are often hard to reach through conventional channels so, for example, we believe that while national advertising can help raise awareness it will have limited impact and relatively little long term effect. The campaign therefore includes an innovative programme using a range of delivery methods to help a specific sector of the population gain the skills they need to understand their options for short term savings.

  11.  We believe we will get best value from the £1m funding, and make a lasting impact, by channelling information through local communities rather than spending most of it on advertising. Our experience in education work shows consumers assimilate information most effectively when it is delivered face-to-face by someone they know and trust. This route is more likely to reach people and enable them to take the time to understand the options and ask questions. The main part of this work is to provide films, leaflets and support to enable community workers to deliver the message.

  12.  We are also making best use of existing networks such as those available through the DWP's "Now Let's Talk Money" campaign, the network of Citizens' Advice providers, day centres, tenant groups, Sure Start venues and other local groups. We have involved those working on related initiatives in both developing the materials and the delivery, thereby ensuring the project benefits from work already done across government. The campaign is an innovative method of encouraging people to gain the skills they need to make the best choice for them in the market and is intended to embed skills for the long term which can be useful in different situations. In this way consumers can develop skills to discriminate between options for short term Christmas saving and other events. The materials we have produced will also be available in the community and are likely to remain effective and deliver results for a longer period than a more traditional advertising campaign.

  13.  In order to get the most out of the budget, the work is concentrated on particular regions and nations. [22]Each will be dealt with separately and the consumer education work will be supplemented by advertising and PR to raise awareness. We launched in Scotland on 27 July and further regional launches will take place sequentially until the end of the year. At the end of 2007 and the beginning of 2008 this long term work will be supported by advertising and media work across the UK to highlight options to people when they are deciding how to save for Christmas 2008.

ACQUISITION BY PARK GROUP PLC OF HOME FARM HAMPERS LIMITED

  14.  The Committee was interested to know the outcome of our consideration of the acquisition of Home Farm Hampers Limited by Park Group plc. On 23 August 2007 we announced that this merger had been cleared and would not be referred to the Competition Commission.

COST DETAILS FOR THE "SAVE XMAS" CONSUMER EDUCATION CAMPAIGN

Phase One START UP (MAY/JUNE 2007)
Activity/Sector Projected cost
Video news release £12k
Celebrity£8k
Launch logistics (case studies' travel, staging, catering, media pack etc) £4k
Campaign concept (plus design for initial materials) £14k
Print production and web production£11.5k
Distribution via intermediaries/partners £17k
Research—focus group and behavioural aspects of consumer behaviour in this market £25k
Travel to make contacts with stakeholders and networks £2.5k

Total spend for phase one
£94,000


Phase Two DEVELOPMENT OF TOOLKIT AND ROLL OUT IN SCOTLAND (JULY/AUGUST 2007)
Activity/SectorProjected cost
Development of education DVD£23k
Development/ customisation/design of print materials £10k
Production of radio ad (artist fees, recording and editing) £10k
Outdoor advertising creative£10k
Research—audience testing and pre/post evaluation £40k
Roll out in Scotland—production and distribution costs (radio airtime, toolkit, film) £150k
Total spend for phase two£243,000


Phase Three REGIONAL ROLL OUT (JULY—DECEMBER 2007)
Activity/SectorProjected cost
Customise toolkit (film, print) for each region and distribute £70k
Welsh translations£8k
Radio advertising, production and airtime for all regions £175k
Outdoor advertising production and schedules £150k
Total spend for phase three£403,000


Phase Four NATIONAL CAMPAIGN (DECEMBER 2007/JANUARY 2008)
Activity/SectorProjected cost
Radio advertising£150k
Outdoor advertising£100k
Total spend for phase four£250,000


GENERAL EXPENDITURE
Temp contract staff£10k
Total campaign expenditure£1,000,000


  Please note that the Save Xmas consumer education campaign is subject to continuous assessment and evaluation to ensure objectives are being met and lessons are learned as the campaign progresses. All projected costs are therefore subject to change. For example, the research commissioned to assess the impact of the Scotland pilot may provide new variant indicators. The development and implementation of these may affect the current projected costs for subsequent phases.

August 2007



21   Ev 27-33. Back

22   Scotland, Northern Ireland, Wales, NE, NW and Midlands. Back


 
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