Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120-139)


6 JUNE 2007

  Q120  Chairman: What you can do is send us a copy of that when you have got it done properly. [1]

  Mr Stewart: Yes, we will do.

  Q121 Chairman: Is that okay?

  Mr Houghton: I think the issue has been making sure that all the legal side has been watertight.

  Q122  Chairman: Of course, okay. Last December the OFT concluded that putting Trust Accounts in place would be unattractive to agents and costly to consumers because you have agents in use. How much will the Trust Accounts cost and how will these costs be met?

  Mr Stewart: We estimate that the initial set-up costs of the Trust Accounts will be in excess of £100,000. We obviously have not finished the process yet so we are still yet to accumulate the final cost bill. There will be some administration costs associated with the running of the Trusts and administering the process so far, but we hope they will not be too significant.

  Q123  Chairman: Will the establishment of the Trust Accounts affect your ability to benefit from the interest earned on these accounts?

  Mr Stewart: No, they will not be because we are entitled to the interest earned on the Trust Accounts.

  Q124  Chairman: When do you expect the new Christmas Pre-payment authority to become operational?

  Mr Houghton: The company has actually been formed now. We have three independent directors identified, so we anticipate a meeting shortly. We have actually formed the company.

  Q125  Chairman: Do you have Derek Walpole?

  Mr Houghton: Derek Walpole, Suzy Hall and we have a prospective candidate, who is a chartered accountant.

  Q126  Chairman: But not named yet.

  Mr Houghton: He is named, a guy called Graham Parrott.

  Q127  Chairman: How will the Authority be funded and what proportion of the funds will come from the Park Group?

  Mr Houghton: The Authority will actually be called an Association now, for legal reasons, and it will be funded by the members. Currently it is a company limited by guarantee and there are currently two members—that is Park Group and Variety Christmas Club.

  Q128  Chairman: You have 90% of the market, have you not, effectively yourselves?

  Mr Houghton: Effectively we will be funding the majority of it, yes.

  Chairman: Peter Viggers.

  Q129  Peter Viggers: You use agents to make collections; what are the costs and benefits of your reliance on agents? How many customers per agent, on average?

  Mr Woods: The average is about four customers per agent; we have 104,000 agents this year.

  Q130  Peter Viggers: What commission do you pay and do you make it clear and overt?

  Mr Woods: Yes, we make it very clear. Every agent is given a guide which details how the commission rates are structured and it varies by product category, but on average it is probably about 4% on vouchers and somewhat higher if they order other product.

  Q131  Peter Viggers: Every agent is given a commission statement, what about the customers?

  Mr Woods: Customers do not get paid commission.

  Q132  Peter Viggers: No, but they pay it. Do customers know how much commission they are paying?

  Mr Woods: Customers do not pay commission; we pay commission to the agents for collecting the money and sending the orders in.

  Q133  Peter Viggers: So the customer indirectly pays the commission?

  Mr Woods: No, the customer pays the agent and we pay the agent commission.

  Mr Houghton: Just to clarify, the majority of our sales are voucher sales and we sell vouchers a pound for pound and the commission comes out of the margin that we make.

  Q134  Peter Viggers: Yes, but the person who is making the payment is the customer; does the customer know how much he is paying to you indirectly by way of agency commission?

  Mr Woods: I guess probably not unless they send for an agent pack, in which case they will get the leaflet that explains what agents' commissions are.

  Q135  Peter Viggers: I am sure there is nothing to hide here. The fact is from what you say that the customer does not know when he is approached by an agent with a view to becoming a customer, is the customer told how much commission the agent will be paid?

  Mr Woods: I would guess not. The agent and customer relationships tend to be very close. Our agents are not cold callers. The four customers will probably be friends, family or work colleagues and, being honest, I guess they are probably not interested in what commission the agent earns at all. But they could find out what our commission structure is very simply by either logging on to the website or sending off for a recruitment pack.

  Mr Houghton: If a customer trades for themselves—and an increasing number of people actually order for their own consumption—they do earn a commission themselves as well. So it is obvious from the literature that we have, if they read it, that there is a commission available and they can trade for themselves. When you look at the TV adverts that we make we invite people to join rather than to become an agent, so the average commission is actually about 4% and it is close to that for people who trade for themselves as well.

  Q136  Peter Viggers: But just to underline the point which I think is clear already, the arrangements tend to be quite close and quite friendly between families or neighbours or friends and the customer, when approached by an agent, does not know the amount that the agent will be receiving as a result of the customer signing up.

  Mr Houghton: I cannot confirm; I do not know.

  Q137  Mr Love: Can I turn to the interest payment that we commented on earlier? It has been suggested to us that people who take part in Christmas savings schemes are not particularly concerned about not receiving any interest. What is your own experience of that? I start with you, Mr Houghton.

  Mr Houghton: I think the level of interest they can actually earn is relatively small by saving with a bank or a building society. Actually if they do it through an agent the agent actually does all the work for them, so they see it as a small price to pay for the service of somebody coming round to collect the money on a weekly basis, meet and have a chat, go and pay the money in for them and when we deliver the goods they see them deliver the goods.

  Q138  Mr Love: Do your agents report back to you any demand from their customers or their friends for some form of interest payment?

  Mr Stewart: Nothing at all.

  Mr Woods: No.

  Mr Houghton: We have regular panel meetings and questionnaires to check on customer satisfaction.

  Q139  Mr Love: Is it a similar experience in relation to other pre-payment schemes or is it in relation to interest? Do you provide interest in any other of the pre-payment schemes and, if you do not, is there any feedback from that?

  Mr Houghton: We only operate the one.

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