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Christmas Savings Schemes (Regulation)

Volume 470: debated on Wednesday 23 January 2008

I beg to move,

That leave be given to bring in a Bill to make provision for the regulation of Christmas savings schemes; and for connected purposes.

I am introducing this Bill as a result of the Farepak collapse, which in 2006 wiped out the Christmas savings of at least 122,000 small savers in this country. I am pressing for light-touch regulation for similar schemes, so that in future all savers’ money is protected by law. Currently, the only bodies that do not regard as savers those who use Christmas savings schemes are this House, the Government and the financial services regulators in this country. In contrast, the people who offer the schemes market them as saving for Christmas, and crucially, the people who put their money in them regard themselves as savers just as much as those who save with building societies such as Northern Rock do. It flies in the face of social justice that this House should protect one set of savers and not the other.

In my first Adjournment debate, on 7 November 2006, I set out three complementary principles for the future of former Farepak savers. The first was to work for immediate relief for the savers. The second was to secure an explanation and justice for the savers. The third was to get better regulation of the voucher industry.

My right hon. Friend the Member for Makerfield (Mr. McCartney) introduced a voluntary regulation scheme, and it is to his credit that that was in place to protect savers for Christmas 2007. However, as memory fades and we move further away from the Farepak collapse—already 18 months have passed—the likelihood increases of new schemes that decline to join the voluntary scheme, or of existing schemes withdrawing from it. It is therefore the right time to move forward with proper long-term regulation, and I am very grateful for being granted the opportunity to present this ten-minute Bill.

At the time of the crisis, my right hon. Friend the Member for Makerfield, in his role as a Minister at the then Department of Trade and Industry, set up a charity fund that paid £6.8 million to savers at the national level. I was very pleased to be able to co-ordinate action to help savers in my constituency at the community level; many hon. Members on both sides of the House did the same in their areas. People in Swindon will always remember the success of that collective action as a reminder of how people get together when the going gets tough.

However, all our constituents are still waiting to receive the small amount of money left in Farepak after the collapse. I again urge the liquidator to hasten her work to bring a conclusion to this phase of the collapse and to bring closure for those affected. A gap of £29 million that has been lost to the Farepak savers remains. We know how Farepak savers were affected because of the excellent Unison-sponsored report that I helped to launch in the House last November. It found the following: women, particularly those on low incomes, were disproportionately affected by the Farepak collapse; Farepak customers were being ‘prudent savers’, using Farepak as a way of managing their low household incomes; and the victims of Farepak want justice, demanding adequate compensation for their plight and enhanced regulation, and demanding that those responsible be held accountable for the harms that have been committed.

Shortly after that launch, my hon. Friends the Members for North Ayrshire and Arran (Ms Clark), for Workington (Tony Cunningham), for Livingston (Mr. Devine) and for Bridgend (Mrs. Moon) joined me for a meeting with our right hon. Friend the Prime Minister, who undertook to examine the regulatory framework for the prepayment industry to see whether anything more could be done to give Christmas club savers protection in future. He gave a commitment to come back to us on all the issues we raised on behalf of those affected by Farepak, and we look forward to hearing from him.

Christmas 2007 could have been a tragedy for two other groups of people, because Northern Rock ran into trouble in September last year—we all know the outcome for thousands of investors, savers and employees—and Travelscope, the tourism company, went into administration just before Christmas, affecting 40,000 holidays and putting 250 jobs at risk. The Government have rightly acted swiftly to protect Northern Rock savers and investors. Travelscope customers’ money was already protected by the arrangements in place to cover what happens when airline companies or tour operators go bust. The air travel organiser’s licence model is based on primary bonds provided by banks and insurance companies, backed up by a common fund, the air travel trust fund, managed by the Civil Aviation Authority. All those people were safe, unlike the Farepak savers.

I am proposing that the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 1995 can be the model for regulation of the Christmas club and prepayment sector, and there are people in the sector who welcome that idea. I am happy to report to the House that last week I sponsored a briefing on the Post Office’s new Christmas club. That product is due to come to market in the next couple of weeks. The Christmas club is the Post Office’s response to the challenge laid down by Brian Pomeroy in his report on the Farepak collapse. The report suggested that the Post Office would be the ideal institution to produce a Christmas savings product, owing to the extent of its network and the trust that consumers have for the Post Office brand. Such a product will also give local post offices another product to offer customers, and will hopefully help keep open branches such as Guildford Avenue and Wescott Place in my constituency, which are currently threatened with closure.

Funds in the Post Office scheme will be locked away until 1 November 2008. The Christmas club card could then be used as a prepaid debit card with retailers signed up to the scheme or exchanged for gift vouchers at post office branches. I welcome this innovative product, because unlike hamper companies, the Post Office’s product will be governed by strict e-money regulations. That is because it is based on a pre-paid card system. Money will be held in a protected account under the control of the Bank of Ireland, and the funds will be accessible only to club members.

The Post Office has told me that it would welcome regulation, and that its business model would be viable were this House to legislate in this area. The short-term steps the Government took to provide protection for customers’ payments have been good, with existing companies putting in place ring-fenced trust accounts supervised by a new trade association—the Christmas Prepayment Association.

The companies in the hamper industry have introduced new safeguards for consumers’ money in the form of independently controlled, ring-fenced trust accounts. The trusts will safeguard customers’ money should a company go bust. Although such measures are welcome, they are only short-term steps, so I welcomed last November’s confirmation from the Department for Business, Enterprise and Regulatory Reform that, for the longer term, the Government have received advice from the Office of Fair Trading and the Financial Services Authority on the regulatory framework. They will consider that further in the light of the Companies Investigation Branch inquiry into the activities that brought about the collapse of Farepak and its parent company, European Home Retail. That is good news, and I hope that the Government will consider giving the green light to this ten-minute Bill.

My intention is that regulation will place future Christmas club savers on a par with savers using other financial products. It will close the loophole that currently exists, and enable Government to look at ways of closing the £29 million gap for the 122,000 people who lost their money with Farepak. It is the only solution, because without regulation we cannot be assured that something this devastating for low-income families determined to keep out of debt will not happen again.

Question put and agreed to.

Bill ordered to be brought in by Anne Snelgrove, Chris Bryant, Lorely Burt, Ms Katy Clark, Michael Connarty, Mr. Jim Devine, Mrs. Madeleine Moon, Mr. Lindsay Hoyle, Bob Russell, Martin Salter, Bob Spink and Mr. Mark Todd.

Christmas Savings Schemes (regulation)

Anne Snelgrove accordingly presented a Bill to make provision for the regulation of Christmas savings schemes; and for connected purposes. And the same was read the First time; and ordered to be read a Second time on Friday 25 April, and to be printed [Bill 58].