Skip to main content


Volume 454: debated on Wednesday 13 December 2006

Motion made, and Question proposed, That this House do now adjourn.—[Huw Irranca-Davies.]

The reality of 150,000 families—savers with the Christmas savings company Farepak, based in my constituency, which collapsed in October—coping with Christmas on around a sixth of their planned budget is just a week away.

In my first Adjournment debate on 7 November, I set out three complementary principles for the future of Farepak savers: to work for immediate relief for the savers; to secure an explanation and justice for the savers; and to get better regulation of the voucher industry. I am very grateful for being granted this debate, as it is time to look back at what has been promised, what has been delivered and what we can do to ensure that this never happens again.

The Minister took action and we now have a £6.8 million fund paying out to savers, hampers being delivered and an investigation into the disaster under way. May I take this opportunity to thank my right hon. Friend and his private office for setting up the response fund, for their tireless work in promoting the fund and for their leverage in persuading companies to contribute? I am proud of what has been achieved nationally, but also locally in my constituency.

The way the community in Swindon has come together to support Farepak victims has been a beacon to others. Through an initiative that came out of my meeting with Farepak agents on 17 October, customers were offered emergency loans by Swindon’s credit unions in time for Christmas.

I congratulate my hon. Friend on securing this debate. I would like to express the thanks of all my constituents for the admirable work that she has done to bring relief and justice for all the Farepak savers. It has been an exemplary instance of how Parliament can work effectively for constituents. We are very grateful to my hon. Friend. Does she agree that one good thing that might come out of this terrible situation is that it can encourage many people to see that a good and secure way of saving is with credit unions? My hon. Friend has done sterling work with constituents, and so have I. Is there a way in which we can build on this to encourage more people to save with credit unions?

I thank my hon. Friend, who is absolutely right. If there is a silver lining to the Farepak debacle, it is the fact that credit unions have increased massively. As a result of the work that I, my hon. Friend and other Members have done, more people are signed up with credit unions than ever before, which is excellent.

Other initiatives in my constituency include a Christmas party for the children of families affected by the Farepak collapse, including those in my hon. Friend’s constituency. It is organised by our local paper, the Swindon Advertiser—and we reckon that it is going to be a cracker! Farepak agents in Swindon are concerned that they have not yet received any vouchers from the Farepak response fund. None has reached Swindon, and I hope that the Minister will be able to confirm that all is going to plan and that every effort is being made.

As well as some 600 children in Swindon being affected, 90 staff lost their jobs at the Farepak headquarters and they must not be forgotten either. Even if no one had lost a penny in all of this, the loss of 90 jobs is a devastating blow at Christmas. I have been talking to some of the staff. In the past, they went to any length to make sure that Christmas was delivered to their customers—and the collapse of the company was shattering for each of them. To provide an example, on 19 October 2004, 400,000 gift vouchers were sorted and dispatched by people in my constituency. That gives an idea of the scale of the operations. The company's founder, Bob Johnson, was a huge public figure in Swindon—much loved and respected. He and his staff raised thousands of pounds for charity. If he were alive today, he would be deeply shocked at what has happened.

Of course, the Government will meet Farepak employees’ entitlement to statutory redundancy pay, arrears of pay, holiday pay and money in lieu of notice. Thankfully, Swindon has the highest employment rate in the south-west, so I hope that when the dust settles as many Farepak employees as possible will be back in work.

Why, with such a fantastic work force, should a successful business, such as Farepak, collapse in the first place? Each day, the outrage grows, as we know more and more about what went wrong at Farepak. We know that, as far back as February 2006, when Choice Gift Vouchers Ltd—a firm that Farepak relied on for credit—went into administration, Farepak’s parent company, EHR, was in big trouble. I have with me the Kleeneze plc annual report for 2005—the directors’ report from the group that included Farepak.

I, too, congratulate my hon. Friend on securing the debate. I have received a letter from Cameron Fyfe of Ross Harper—a very prominent firm of solicitors in Scotland—who tells me that it is possible to sue EHR’s directors personally and that, if that is unsuccessful, there is another way for Farepak victims to seek a court action against the directors. Suzi Hall, who has been central to the Unfarepak campaign, has agreed to take part in the test case. Would my hon. Friend join me in congratulating Suzi on the work that she has done and in wishing that initiative success?

I thank my hon. Friend and congratulate him on his work. Suzi Hall has indeed done excellent work with I very much hope that some of my constituents can also get reparation from the directors.

The Kleeneze plc annual report provides the evidence that, even after the writing was on the wall for Farepak, directors were lining their pockets with £1 million in dividends. Page 25 shows that the EHR board voted to pay out a directors’ dividend in 2005. In February 2006, they were up against their overdraft and clearly could not afford to pay back Farepak customers and the bank. But in March 2006, they went ahead with the planned dividend payout of £1 million—money that the company simply could not afford.

The main villains in this pantomime benefited substantially. The Gilodi-Johnson family were the main beneficiaries, although Sir Clive Thompson, chairman of Kleeneze plc, enjoyed a £20,000 bonus. Now I learn from Sky News that another beneficiary, William Rollason, who was chief executive of the parent company, is being sued in Australia for negligence and breach of director’s duty. Interestingly, he is an old colleague of the right hon. Member for Witney (Mr. Cameron), from his days in public relations. I hope that the right hon. Gentleman can tell us where Mr. Rollason is hiding out, if he is still on his Christmas card list. The directors were paying themselves with Farepak savers’ money, while the fate of the company had already been sealed—and that was just the beginning.

I support the campaigners, such as Suzi, who picketed the annual Christmas drinks party of HBOS in the bitter cold on Monday. HBOS has said that some customers might take their business away from the group, and I can understand that decision. Many hon. Members have signed the early-day motion that calls for such action. The evidence keeps mounting, and I hope that the evidence will help us to achieve justice.

I am grateful to my right hon. Friend the Minister for telling the House that the Department of Trade and Industry has launched an investigation to discover what lessons can be learned from Farepak’s collapse and that he will look at whether we can change the law to give consumers additional protection. This complex issue will require some time to get right, so I am not calling on him to deal with it immediately, but I should like to ask him what progress he has made and when he expects to give us some answers for the future.

A good deal more comment has come from the House saying that something ought to be done, rather than what should be done. The options that have come forward are regulation by the FSA, insurance bonding, controls on internal parent company loans and lending, and encouraging people to stop using such clubs. If there is one single thing that could be shouted from the rooftops as a result of this episode it is that section 75 protection under consumer credit legislation for people who pay with cards has worked. The banks pick up the bill, which is all the more appropriate if we believe that banks do not always lend wisely to start with. That is why I start with the section 75 protection and will now move on to what improvements can be made to protect customers.

There is a wide variety of organisations that accept deposits for goods in advance. We are talking about everything from magazine subscriptions to holidays, soft furnishings, football season tickets, double glazing and kitchen units. Consumers are exposed to a potential Farepak-style loss every time they pay for goods or services and do not receive them immediately. Much of the focus of financial regulation relates to the way in which information is presented, the content of that information and the process by which products are sold.

That may be one aspect of what the FSA could regulate, but as well as mis-selling, the issue at Farepak was solvency. It is generally perceived that there is a public interest benefit in not letting banks become insolvent, because of the effect that that would have on the economy at large. Other sectors of the economy receive no such protection. I suggest that rules like those that cover the information contained on credit card statements—the health warnings box—could be applied to hamper or voucher contracts. The contracts could say something like, “Your money is not guaranteed.”

Attention should be given to finding a definition so that firms such as Farepak and the Park Group can be identified and treated differently from other companies. Perhaps laws could be passed that affect only Hamper Industry Trade Association members. At present, HITA is simply a trade body, but it could be upgraded. It is very much in the interests of remaining operators to have the sector regulated in some way to restore faith in the product. Thus, I believe that there is an open door here for scrutiny and review.

On insurance bonding, we know that the industry had a bond of £100,000, but that was simply a commitment of good intent by each member and was never intended as compensation. There are models for using insurance to limit financial risk—the airlines’ ATOL, or air travel organiser’s licence, scheme being the most obvious. The voucher business is a very low margin business and expensive insurance requirements could make it uneconomic. However, we should investigate a more comprehensive bond scheme for Hamper Industry Trade Association members.

Turning to controls on internal parent companies, and loans and lending, it seems pretty clear that HBOS’s actions determined the timing of the failure, as well as perhaps its likelihood. There has been much talk of ring-fencing, and I believe that it should be considered with regard to hamper companies.

Lastly, there is the option of encouraging people to stop using these clubs. I am grateful to the Economic Secretary to the Treasury for lending his expertise to the consideration of this issue and asking the chair of the financial inclusion taskforce to look into why people opt to use hamper schemes and similar vehicles. I am sure that the report will find that there is more to attract savers to a voucher scheme than the financial aspects. The network for such schemes is often based around family and friends. The schemes offer social inclusion, as well as financial inclusion. This sector is not motivated by interest earned on deposits, or tax breaks. With voucher schemes, people can see what they are saving for, and they cannot spend what they have saved until the vouchers are delivered in October, before Christmas.

I talked to Claire Whyley from the National Consumer Council today and I am pleased to announce that it has funding from the Joseph Rowntree Trust for a group of organisations, led by the personal finance research centre, to develop a model of not-for-profit doorstep lending. If successful, that model could also be used to provide a safe and secure model of cash-collected saving for people on low incomes. I congratulate the partners and ask the Minister to look closely at the model that they produce. The National Consumer Council also agrees that we should not rush, because we need to get the legislation right for that small group of savers on low incomes.

In closing, the fact that the House—and particularly Mr. Speaker—has taken so much interest in this matter demonstrates that the people who saved with Farepak have not been forgotten. Far from it—their plight has touched the whole House. Along with our friends in the media, who helped us to run such a good campaign, we hope that we have been able to do as much as possible so that those people can have a very happy Christmas.

I congratulate my hon. Friend the Member for South Swindon (Anne Snelgrove) and her colleagues who are with her this evening on obtaining a further debate on this issue. Since the devastating collapse of Farepak, my hon. Friend has resisted grandstanding on this matter. She has worked with me to highlight the plight of the victims and, more importantly in the short term, has taken practical measures to ensure that they are helped.

I know that Mr. Speaker himself is keenly interested in what is happening. He has apologised to me personally for not being able to be present for the debate. I thank him for that, and I know that you are also interested in the matter, Madam Deputy Speaker. Indeed, the situation has touched most hon. Members because of the range of individuals and communities throughout the country who have been affected by the collapse.

I said in the Westminster Hall debate on 7 November that this was one of the areas in which Members of Parliament could really make a difference. Although Ministers are not technically responsible for every single company that collapses—nor can they be—there are occasions when one’s instinct should take one to the right place, and when rather than playing safe and washing one’s hands of a situation, one should take responsibility to try to help out. That is why I have tried to keep the House up to date on developments through my answers to written and oral questions, the written statement of 30 November and the letter that I sent to all hon. Members on 7 December. I welcome this opportunity to report on what has happened so far and to take stock.

When I heard of the collapse, I immediately contacted the administrators to assess the extent of the problem caused by the company going into administration. It was apparent that more than 100,000 people had lost out, and lost out seriously. The estimate of the administrators was that only a few pennies in the pound were likely to be recovered and that, with the best will in the world, it would still take months to get to the point of a payment. The outlook for the families and the prospects for their Christmases were bleak indeed.

There was an urgent need to find a means by which some form of practical assistance could be delivered in time for Christmas. I discussed that with the British Retail Consortium, which agreed to attempt to put together a good-will gesture supported by donations from its member businesses. However, it subsequently came to the view that there were too many serious practical difficulties in the way of its organising a workable and timely form of assistance, so it asked me to think again.

Those difficulties were very real. The company had no record of its customers, only its agents. It had no information on what individual customers had ordered. There were no vouchers ready for distribution. The cessation of trading created a tangle of legal claims that had to be sorted out. The company had ordered only some of the food items needed to make up the hampers. There were also legal issues relating to the ownership of the agent list and the hampers. Despite those difficulties, the BRC still expressed a willingness to help, which set in train the decision to examine how we could get over those hurdles and find a way forward.

I was able to announce to Parliament on 7 November that my private office and I had held talks with the Family Fund, a registered charity with 30 years’ experience of helping disadvantaged families. From those discussions, a dedicated voucher fund, the Farepak Response Fund, was born. I am grateful for the assistance of the Charity Commission and Companies House for enabling all the legal paperwork needed to establish the charity to be completed in a matter of days, rather than weeks or months. The fund has since received donations amounting to more than £6.8 million. Some £340,000 came from individual donations, a substantial number of which were eligible for gift aid. The Family Fund, with the aid of Park Group, has now sent out those donations in the form of vouchers. Park Group itself donated more than £1 million to the fund, and, at its own expense and using its expertise, ensured that vouchers were printed and distributed to agents throughout the United Kingdom.

I noted what my hon. Friend said about the situation Swindon and I give her a commitment that I will check that as a matter of urgency. However, the first packets were sent out on 5 December and I understand that all the packages have now gone out for delivery, a week in advance of the target date of 18 December.

We have appointed the firm of accountants Grant Thornton. It has kindly agreed to audit the accounts for a nominal fee of only £1, which is purely for legal reasons. Once the audit is completed, in addition to the normal filing with the Charity Commission, I will place a copy of the accounts in the Library of the House for hon. Members’ consideration.

An even more complicated problem was what to do with the hampers. A solution was found only last week. Let me make it clear to the House that the hampers are not the wicker baskets that we perhaps imagine. Farepak customers could make a variety of choices about items for the table on Christmas day. In practice, the hampers came as boxed packages, not baskets, and a number of packages would make up the particular hamper that had been ordered. They held the sort of things that we would all usually have on our table on Christmas day and Boxing day. Some 8,000 agents had sent in orders. Farepak had ordered packages to be made up for some of the orders, but not all. It had expected to complete the orders closer to Christmas, but went insolvent first.

Some 19,000 packages had been made up and were deliverable, and they were held in a warehouse in Wakefield in west Yorkshire. In addition, there was a quantity of frozen food in another warehouse that is under different ownership. The Family Fund has not been able to find a practical way of delivering that frozen food, so the administrators are seeking to sell it off for the benefit of the creditors. As for the non-frozen packages, the fund has been offered free delivery by Home Delivery Network Ltd, which is one of the few companies with a distribution network spanning the country, and it can deliver directly to all agents in England, Scotland, Wales and Northern Ireland.

This is the busiest time of year for logistics companies—they are delivering a parcel every 17 seconds—so I am grateful that the company was able to offer its assistance. It is not only delivering the hampers, but sending a letter to every agent, explaining how the good-will gesture was distributed. As with Pawsons, a small family company that warehoused the hampers, Home Delivery Network Ltd provided all its labour and logistics free of charge. That service would otherwise have cost the companies concerned about £500,000—money that would have had to come from the fund. The lorries started rolling yesterday, and the first agents and customers got their hampers yesterday and today, ahead of schedule. Over the next few days, all 19,000 hampers will be distributed in England, Wales, Scotland and Northern Ireland.

I stress that it has not been possible to send to each agent exactly what was ordered, or even a proportion of what was ordered, as there are simply not enough packages, so the agents will simply select from what is available. The distribution of the packages will provide more value for the families than any available alternative would have done. I re-emphasise that the hampers are in addition to the vouchers already sent out. It is important to remember that the money used to purchase the hampers goes back into the administrators’ pot, and will be distributed back to the creditors—the Farepak families.

If we had not acted, the families would have been hit with a double whammy: they would not have received the goods for which they had paid, and the administrators would have gone on paying for storage—a cost that would have come out of the funds that are eventually to go to the families. The administrators might even have had to pay for the eventual disposal and destruction of the goods, and again, those costs would have come out of the money that is to go to the families.

The easy thing would have been to leave the hampers where they were; it was more difficult to find a way of making better use of them, but in taking that difficult decision, we did what was right for the families. I am pleased that we were able to find a way to take that action. There are many other channels through which direct and indirect assistance is reaching the families. The administrators have already refunded payments received after 13 October, and they are applying to the court for a ruling that all payments received between 11 October, when the company ceased trading, and 13 October, should be returned in full, too. That would enable the return of perhaps a further £500,000, directly to the Farepak agents. We must wait for the court’s decision on that.

As my hon. Friend the Member for South Swindon said, some agents have obtained credit card refunds under the terms of the Consumer Credit Act 1974, or debit card refunds under the terms of the issuing bank’s policy on charge-backs. I should mention that the banks think that not all agents who are in a position to seek a refund have done so. They tell me that although more than 24,000 payments were made using such cards, so far only 14,000 repayments have been requested, and those repayments total £2.5 million so far. I urge all agents who paid by credit card to contact their banks and seek a refund as soon as possible.

Some employers have aided affected employees, and are paying back employees’ losses in full. Donations from individuals will be eligible for gift aid, and that will add a further £50,000 or so to the fund. There are local initiatives in many parts of the country, and help in kind has been offered from many sources, particularly in providing logistical and distribution services. Without those services, we would not have been able to do what has been done, and we would have had to pay for similar services using the money collected for families. Uniquely, every pound donated to the fund will be delivered to the Farepak victims. Contrary to what some sceptics alleged four weeks ago, the fund has not paid out huge sums in administration and other costs.

Turning to the investigation, the first issue is to establish what happened. Given the extent of public concern, we decided that an investigation should begin straight away, and the companies investigation branch of my Department is investigating the circumstances surrounding Farepak’s collapse. Depending on the investigation’s findings, a report may be passed to appropriate regulators or prosecuting authorities.

My hon. Friend may have some important information, including a letter that he believes was distributed to agents and which could be vital to the investigation. I urge him to ensure that he passes it on to the companies investigation branch as a matter of urgency.

I will certainly do so. How far has the investigation progressed, and when will it be completed? Will it look at the role of HBOS, which appears to have acted as shadow director from February this year?

I will write to my hon. Friend, and my reply will be consistent with the answers that I have given him in recent discussion in the House and with other written replies.

The administrators will report separately to the Secretary of State any findings of misconduct, and those findings will be considered alongside the report by the companies investigation branch. If he concludes that anyone is not a fit person to be a director, he may seek their disqualification for up to 15 years. Members should be aware that if a company is liquidated, and there is evidence of wrongful or fraudulent trading, the liquidator can ask the court to declare that those responsible should make a personal contribution towards the company’s assets. That is important, given what my hon. Friend the Member for Livingston (Mr. Devine) said about the letters that have been sent by solicitors. Hon. Members should not advise people who can little afford legal advice—in fact, they can access it only if it is free—to spend money on such advice until the administrator and the companies investigation branch have completed their inquiries.

As I have said before, I am not going to speculate on the reasons why Farepak failed, or on the culpability of its directors or any organisation associated with the collapse. If, as a result of the investigation, charges are brought, I would not want a clever lawyer to get someone off the hook because of any comments that I have made in the House or elsewhere. The Farepak victims deserve justice, and I would not want to be the person who denied them that. We will learn lessons from the collapse, and do what we can to ensure that something similar does not happen again. First, we will look at the regulatory framework. I have asked the Office of Fair Trading to work with the Financial Services Authority and my officials to look at the regulatory framework in which Farepak operated, and to consider options to address any issues that are raised. I expect to receive their preliminary views shortly.

Secondly, we will look at the wider implications of the Farepak collapse. I will work with my hon. Friend the Economic Secretary to the Treasury, who has asked Brian Pomeroy, chairman of the Financial Inclusion Taskforce, to look at why people were using Farepak and other savings clubs, and whether their savings needs might not be better met by mainstream financial products and, indeed, by the methods suggested by my hon. Friend the Member for North Swindon (Mr. Wills). I will contribute to the review, and the taskforce will report to my hon. Friend the Economic Secretary at about the time of the Budget. The investigators will produce a report on their inquiry. I can assure hon. Members that it will not take years, but it will take some time to ensure that there is a proper investigation, rather than a knee-jerk reaction.

Finally, I thank my hon. Friend the Member for South Swindon for thanking me. The people we should be thanking are not those whom I have mentioned but the agents, who lost everything. They were victims, as they lost their business, hampers and perhaps even the friendship of others. In the past five weeks, they have worked without any pay or hope of getting any money back to deliver vouchers and, now, hampers. They are the real Father Christmases, not me. I thank hon. Members for saying so, but it is a bit of an embarrassment. All that we have done is to try to help a little in very difficult circumstances, and I want to thank everybody who helped to make a contribution. We have moved from phase 1, which is to help people. The second phase is to investigate—

The motion having been made after Seven o'clock, and the debate having continued for half an hour, Madam Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at eleven minutes to Eight o'clock.