[Judith Cummins in the Chair]
I beg to move,
That this House has considered the funeral plan industry.
It is a great pleasure to serve under your chairmanship for the first time, Mrs Cummins. I am grateful to the Chairman of Ways and Means, for her wisdom in selecting this afternoon’s debate; amid the noise and chaos that is the normal week in Parliament, she has provided a space to consider the needs and concerns of decent and often vulnerable people who are trying to do the right thing.
People who buy funeral plans are elderly, and they may be ill—perhaps terminally so. They may have struggled with the cost of a funeral when their spouse died, and they do not want to burden their children with the same anxiety. They may fear the shame of a local authority funeral—a pauper’s burial. These are people who have worked hard and saved hard, and they want some piece of mind at the end of life. They are not people who grab the headlines and demand the limelight or who, when something goes wrong, take to Twitter, call their lawyer or send emails in capital letters to their MP twice a day. They may even be quite reluctant to contact their MP, and if they do, it will be politely understated. For that reason it is all the more important that we are here today to ensure that their voices are heard in this place, and I am very grateful to all Members for attending the debate.
The funeral plan industry sees these people, who I think we can all agree are vulnerable, as a lucrative target market. Until now, it has certainly been a huge growth industry. Today, 1.6 million people hold a funeral plan, with 218,000 people taking out a new plan only last year and with over £4 billion in funds under management held in plans. There is huge trust placed in funeral plan providers by vulnerable people, yet this lucrative industry is unregulated.
Does the hon. Lady share my concerns about some of the practices and sales techniques that are used to get people to sign up to these plans? She has already mentioned that people are vulnerable, but when we read the small print in the glossy brochures that are provided, it is clear that these plans do not actually deliver what has been promised to many people.
The right hon. Gentleman is absolutely correct, and I will come on to some of those high-pressure sales techniques, which I very much hope the new regulatory regime will remove.
The Funeral Planning Authority held itself out as providing some form of oversight, giving itself a veneer of respectability as a quasi-regulator, but it was not, and we have to remember that the industry is entirely unregulated, despite any appearances to the contrary. The Minister rightly took steps some years ago to rectify that omission, and I pay tribute to him for that. Of course, there are good providers, such as Dignity and Co-op Funeralcare, which care about good governance and are working to ensure that this unregulated industry is brought within the perimeter of the Financial Conduct Authority by 29 July. However, that creates challenges for the industry, because some providers have not applied to be regulated and some have not been accepted for regulation, for good reason. There are concerns about where that will leave people who hold plans with those providers. I have had useful meetings with Dignity and the FCA, and I am grateful to them for their work in this area.
Let us make no mistake: as the right hon. Gentleman just alluded to, this is an industry with a record of using high-pressure selling techniques, such as cold calling, telesales and having a sales rep sit in someone’s kitchen until they sign on the dotted line. People sign up for some extraordinary fee arrangements, whereby 25% of the plan could be taken as commission. Then there is the use of intermediaries, such as will writers, to sell a funeral plan as if it were an add-on, when all people really wanted was a will. They are told that their money is held in trust and overseen by independent trustees, and that it will be ringfenced and invested in blue-chip equities, yet there is a complete lack of transparency as to how their money is invested. Then there is the playing on people’s fears, and I am afraid that even the more reputable companies tell people that a funeral plan is an essential part of end-of-life planning.
That brings me to the ironically named Safe Hands Funeral Plans, now in administration. While we can all agree that only a small number of providers pay scant regard to good governance, the industry as a whole has long known about these providers and their practices. I am sad to say that it knew about Safe Hands Funeral Plans and its methods, which were an open secret in the industry. As we move towards regulation, it was only a matter of time before any rogue operators would fail. A number of investigative personal financial journalists have covered this story, and I particularly pay tribute to Jeff Prestbridge for his sterling work in this area. I encourage him and others to keep up the campaign.
When my constituents, Don and Toni Haines, from Ketley in Telford, contacted me about their Safe Hands plan, sold to them by Equity Wills in Market Drayton, Shropshire, it did not take me long to see what had happened to the money supposedly held in trust for the benefit of plan holders. Yes, I am a chartered accountant and I specialised in insolvency, including administrations and liquidations, but even a cursory glance at note 8 on page 6 of the Safe Hands accounts, freely available to anyone online, makes clear that the company is entitled to receive any surplus declared following an actuarial valuation of the Safe Hands Plans Trust—the moneys held in trust for savers could be distributed to a director shareholder.
The surplus declared on the Safe Hands Plans Trust as at May 2020 was £2.4 million. In 2019 the surplus was £10.9 million. It is clear that moneys supposedly ringfenced for plan holders were distributed to director shareholders as a dividend. Did Equity Wills of Market Drayton tell Mr and Mrs Haines that this would happen if they bought a Safe Hands plan? Did Equity Wills check the Safe Hands accounting policies themselves before pocketing their commission? They did not even tell Mr and Mrs Haines they were buying a Safe Hands plan, so my constituents could not even check for themselves.
Digging a bit deeper into the accounts, which of course make full use of the small company exemption to file only limited information, we see that a loan of £3.5 million appears to form part of the assets of the trust, which are ringfenced for plan holders. This loan was advanced to a director of Safe Hands—a Mr Malcolm David Milson, and his wife. By 2020, he was no longer a director shareholder and the advances made to him were not recovered. In anyone’s book, this is clearly financial misconduct. The administrators believe that, out of a portfolio valued at at least £60 million, they can realise between only £10 million and £16 million, leaving plan holders with a return of between 10p and 20p in the pound—and we should not forget that that is after they have paid their 25% commission.
Let us call this what it is: theft. Anyone associated with this company should be disqualified as a director, along with anyone who signed off the accounts or certified the surplus. There is a duty of care to the vulnerable. As much as I admire what Dignity is trying to do, in the material that it circulated to Members it has not fully recognised or accepted that these people are vulnerable. It is important that that is acknowledged, and I am sure the Minister will do that in his response.
I am not somebody who uses exaggerated language, because it often diminishes the power of an argument, but what has been happening here is clear: it is what any accountant will call teeming and lading—in other words a Ponzi scheme. As long as the provider keeps selling to new customers to pay the maturing plans of existing customers, there is no problem, but if the music stops—as it did in this case when the provider was prevented from selling any new plans by the FCA as it moved to regulate the industry—the house of cards collapses, leaving vulnerable savers in this instance with 10p to 20p in the pound.
My fear is that Safe Hands plan holders will not be the only casualties. In fairness to Dignity, it has so far underwritten the plans that are now maturing and is working with the FCA to see how it can take plan holders on as clients. However, there is a big concern that its long -term proposal would require plans that are fully paid—we should not forget that most plans are fully paid—to make further payments to Dignity on the basis that people would at least be better off doing that than just having the 10p to 20p in the pound that the administrator would pay. That is not good enough.
The industry knows that nobody needs a funeral plan. Let us not pretend otherwise. A person can tell their children what they want when they die and put their monthly contribution into an ISA or bank account. Why risk it with a funeral plan? Why pay exceptional commissions? If their estate is valued at less than a few thousand pounds, the cost of the funeral gets the first call on the deceased’s assets. If there are no assets at all, the local authority picks up the cost.
I am very concerned that some industry lobbyists are seeking to water down the FCA regulatory proposals and are lobbying MPs to that end, and I urge the Minister and the FCA to stand firm. These are vulnerable savers and they must have the gold standard of protection. Watering down the proposed new regulatory regime for the industry would make it easier to become regulated. I understand that we do not want to exclude providers from regulation altogether, but it would be counterproductive. We have been there with the FPA, which, as we have seen, has provided no regulation whatever, just the veneer of regulation or some form of respectability.
Funeral plans are savings and investment products targeted at vulnerable people, and those savers should have at least the same level of protection as anyone else buying a savings financial product. There is a duty of care to protect the vulnerable from exploitation and mistreatment—I am sure the FCA and the Minister will agree.
Does the hon. Lady agree not only that it needs to be clear what people are purchasing, but that if the people selling the plans are receiving commission —in some of the examples I have come across, the third party selling them has been on commission—that should be clearly stated, too?
The right hon. Gentleman is absolutely right. The lack of transparency is a significant feature of where this industry has gone astray.
Protecting funeral plan holders from some of their loss, which is what is suggested, is not good enough, and nor should the industry expect taxpayers to bail it out. This is a problem of the industry’s making, and it needs to work together to find a solution. If the industry cuts plan holders adrift, it will have sullied its own reputation, creating longer-term consequences for itself.
This is also about accountability. The auditors, the actuaries, the trustees, the directors and the fund managers cannot just walk away from these vulnerable customers. Why should plan holders with fully paid plans have to pay more to save their funeral plan? It is no good saying that a Safe Hands customer’s loss would be less if they paid to switch to a Dignity plan than what would otherwise crystalise from a distribution from the administrator. That is no comfort to anyone. I welcome the steps that Dignity has taken to date, but it must consider whether it, with other reputable members of the industry, can go further.
I know that the Minister wants to do the right thing, and I know that the industry understands that if it wants to survive this financial shock—this battering to its reputation—it too will go the extra mile to do the right thing. The voices of people who work hard, save hard and trust others to do what they say they will do with their money are being heard today by the Minister loud and clear.
I hope the FCA will have no truck whatever with the view that these vulnerable saving plan holders should be treated less favourably than other plan holders. There must in all circumstances be a duty to protect vulnerable customers, a requirement to hold capital to be able to honour the guarantees that are given, and an industry compensation scheme for the plan holders who will be excluded from the financial services compensation scheme. This is an important point. Anyone who will lose out prior to 29 July will not be protected by the financial services compensation scheme. Those people must have a scheme that protects them from losses, and that must be a funeral plan industry scheme. I do not think it should be topped up by the Government. The industry got into this mess, and it needs to work together to get out of it.
I know that, sadly, this matter will not be at the top of the Treasury’s in-tray, at what is a challenging and difficult time for all Treasury officials. The Minister is one of my favourite Ministers, and I urge him to make sure that the little people do not end up at the bottom of the pile, and to consider that how we treat the vulnerable says much about our financial services industry as a whole—and, indeed, about our society.
We want to build a reputation for probity and integrity in the financial services sector. There are vulnerable people whose vulnerabilities have been exploited. We cannot just hope that they will not know that they lost the money; that, if they do know, they will not have the capacity to fight for themselves; or that they might die, leaving local authorities to step in. If we do that, we will damage not only the funeral plan industry, but the financial services industry. There are MPs across the House who will not let that happen—I am one of them. These individuals are the people we are all here to represent. I hope that the Minister will allow us all to be part of the solution.
It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank the hon. Member for Telford (Lucy Allan) for securing this debate.
As the hon. Lady said, this debate concerns some of the most vulnerable people in our society. Do I agree with what she said about whether we need funeral plans? No, we do not need funeral plans. However, there is a reason for them. There are generations of people—certainly in the community I grew up in—who feel a certain shame about leaving nothing for their funeral. As people become ill or grow old, it preys on their mind. They want to avoid the stigma that there used to be of the parish, as it used to be, or the local authority having to pay, and they do not want to be a burden on the loved ones they leave behind.
What is sickening about this scandal—and it is a scandal—is that these individuals have been taken advantage of by a company that knew what it was doing. Like the hon. Member for Telford, I have been contacted by a number of people about Safe Hands Funeral Plans. Having looked at it in detail, it is clear to me that it knew what it was doing. Frankly, it was a scam. Why would someone invest unless they thought that their assets would grow over time and that their investment was guaranteed? But it took profits out, and the only way to plug that hole, as the hon. Lady said, was by recruiting more individuals.
Having spoken to people, I have learned of the scandalous hard sell used to very vulnerable people. It is no good criticising those people and saying that they should have asked questions. A lot of them do not have extensive experience of the financial sector. They might have a bank account; they might save for a pension or have a small pension. What they have not done is look at investments and other areas. They have been taken advantage of.
I agree with the hon. Lady that those individuals did what they thought was the right thing to do, and they should be commended for that. However, they have been left in a position where they are potentially receiving only 10% to 20% of the money they paid in. An Adjournment debate was granted on Safe Hands Funeral Plans on 12 May, but there have since been some updates. When the average funeral costs more than £4,000, and people paid in that money, that return will not go any way to covering the cost of a funeral. Are these people in a position to replace that loss by taking another plan out or saving in another way? No, they are not. The company should be called out, which is what the hon. Lady has done, for the way it has acted.
I heard from one of my constituents, who said:
“I am a 70-year-old pensioner, and a few years ago my wife persuaded me to take out a funeral plan in order that close family relatives were not burdened in any way upon end of life. My plan was fully paid up.”
“We bought 2 funeral plans several years ago from Safe Hands Funeral Plans. We have just received a letter from the Administrator saying they have stopped trading and it seems our funeral arrangements are now at great risk. We were assured our money was safe and money was held in a trust so there was no risk. We are 75 years old and did the right thing we thought.”
They were lied to. I will come on to regulation in a moment, but could the Minister look at whether criminality has taken place in what Safe Hands has said and done? My constituents were assured that their money was safely put away. It clearly was not if directors were taking money out of the system.
Like the hon. Member for Telford, I think that the Minister tries very hard in a very difficult Department. I have had dealings with him on numerous Committees. He likes to do the right thing within the constraints of the system of that body we call the Treasury. I welcome the moves that have been taken in the Financial Conduct Authority’s new regulations, but there are outstanding issues that he needs to pin down.
Nobody should be able to sell a funeral plan without being regulated in any way—that should be a given. As the hon. Member for Telford has said, numerous companies clearly are not going to meet the test because they were never set up to do so, and she has referred to Ponzi schemes. We need a scoping exercise to see what level of scandal this is going to be. It is not going to be on the same level as the Horizon scandal involving postmasters and postmistresses—the hon. Lady and I also got involved in that. It could, however, be huge if companies go unregulated because they do not pass the test, with some ending up insolvent.
The FSCS is vetting funeral plan providers to see if they are fit and proper. Of the 75 funeral companies on its radar, only 32 have been authorised, while 20 indicated that they either do not intend to apply or have yet to seek authorisation, and 13 other providers, including Safe Hands, have withdrawn their applications. If we are not careful, those 13 cases could lead to more scandals similar to Safe Hands. There are also others. If companies are not in the scheme, they should cease trading or not be allowed to sell these plans; otherwise, vulnerable people will be taken advantage of.
We can do all the advertising and awareness raising we want, but the hon. Lady is right to say that this is not a generation of people who are on the internet. They are recommended these things through what they consider to be trusted third parties, and no matter what kind of information campaign we undertake, it is not going to get through to them. The way to stop the problem is to take the rogues out of this industry altogether through regulation.
Before I sit down, I would like the Minister to address the regulation information available on the FCA website. It states only that companies that do not sign up to new regulation
“might not be authorised by 29 July 2022 and will need to stop selling and carrying out funeral plans in the UK by that date.”
Can we have an assurance that any company that fails to sign up will not be able to provide funeral services after that date?
I would like to finish on the issue of Safe Hands. There needs to be a day of reckoning for the directors of that company. They knew exactly what they were doing. I think there is a case to look at whether criminality took place. As the hon. Member for Telford said, there is no way that the business model stacked up, even if looked at with a cursory glance.
I welcome what the Government have done so far, but will the Minister make sure that the regulation is watertight? His Department also needs to look at the extent to which other companies are going to fall over, because Safe Hands is potentially the first of quite a few. Also, what information can the FCA put out? I accept that this is a very difficult audience to get through to, but questions should be asked when people are signing up to these things. There are alternative ways of saving for their funerals. These types of plans might seem attractive to people when they are given a glossy brochure and sales patter, but sadly they will leave too many people who have worked hard and tried to do the right thing in a very precarious position. In addition to not having the comfort of having paid for their funeral, they may well now be out of pocket by several thousand pounds.
It is a pleasure to serve under your chairship, Mrs Cummins, and I congratulate the hon. Member for Telford (Lucy Allan) on securing this important debate on an issue that I agree needs far more attention. I am surprised that there are not more Members present, but I am delighted that we are able to debate these issues. Although they are important for the Treasury, they also go well beyond its remit and are relevant to other Departments, including the Department for Work and Pensions. There needs to be a much more joined-up approach, but I thank the hon. Lady for bringing to the attention of the House the issues raised by the collapse of Safe Hands. The issues apply to funeral plans generally and wider still to the subject of funeral poverty. I will talk about all of those issues.
I want a society in which everyone can provide a dignified funeral for their family and friends without fearing how they will pay for it or going into debt afterwards. I pay tribute to Quaker Social Action and its Down to Earth campaign for all it has been doing on funeral poverty. I am a member of the all-party parliamentary group on funerals and bereavement, and pay tribute to all the funeral directors who have been working so hard throughout covid, in really difficult and constantly changing circumstances, to provide a crucial service at a time of great need, tragedy and bereavement for so many constituents across the country.
Funeral poverty is when the price of a funeral is beyond a person’s ability to pay. It is estimated that 9% of people in the UK are in funeral poverty, so this issue affects people in all of our constituencies, but I agree with the hon. Member for Telford that we do not hear from those constituents very much. At a time of bereavement, writing to their MP about the issues they are facing is not the first thing people think of. Many people are suffering in silence, but there is so much more we could be doing to support them in their time of need.
The UK Government are legally bound by international law to respect, protect and fulfil their citizens’ right to the highest attainable standard of mental health. They cannot claim to be upholding that obligation when so many bereaved people in this country experience a significant toll on their mental health because of worries about funeral costs—worries that drive them to buy funeral plans, worries that drove those who have suffered from the Safe Hands scandal. People want to do the right thing. They do not want to be a burden to their loved ones; they want to make sure they are providing. Funeral plans, but also the high cost of funerals in general, are not enabling them to do that.
According to SunLife, funeral prices have more than doubled since 2004. The average cost of a basic funeral is now £4,056, but it is higher in London, and in other places it is considerably higher. It is a huge amount of money. In 2022, SunLife found that 17% of families experienced notable financial concerns when paying for a funeral. Those who struggled had to pay an average of £1,800. Taking on debt in different forms featured highest in how that group made up the costs. For example, 27% of people borrowed from a friend or relative, 22% maxed out a credit card, 17% paid the funeral director in instalments, and 10% borrowed money from a loan provider, such as a bank or a loan shark. Some 16% have had to sell belongings to pay for the funeral of their loved ones. Rightly, those people want to do the right thing. They want to have the most dignified funeral and ensure that they are saying goodbye in the best way, so it is understandable that they want to pay for a funeral plan, but surely there should be another way.
There are three key factors behind the rise in funeral poverty. The first is that the funeral industry is unregulated, meaning that prices can vary dramatically from one funeral director to the next. Until the recent legal order from the Competition and Markets Authority, funeral directors did not even have to display their prices to customers, and many are still failing to comply with the order, eight months on. I have done my own research and gone on the websites of funeral directors to try to compare prices, and it is really hard to do. If someone goes into a shop, they are not told, “Go and pick up whatever you want. Get the right thing and off you go, but we’re not going to tell you what the price is.” At a time of bereavement, when people do not want to be shopping around, they often rely on a word-of-mouth recommendation from someone who has used a funeral director in the past. People need more information, but it is just not there, or it is not easy to find. The CMA recommended that the Government establish an inspection and registration regime for funeral director services, but the Government have said that they will only take a co-regulatory approach with the industry, so people cannot be guaranteed what service they will get when they choose their funeral director.
Secondly, there is limited public awareness of the price differences. Many bereaved people in a state of grief will not shop around, as I have said; they will opt to get organised as quickly as possible. Thirdly, existing Government support is inadequate, and it has been for a long time. This is where the Treasury comes front and centre. In 2020-21, an average award from the funeral support payment in Scotland, and from the funeral expenses payment in the rest of the UK, was only 44% of the average cost of a basic funeral. The application process for the funeral expenses payment is complex and confusing. In the same period, only 68% of applications were successful.
The DWP established the FEP in 1989 to cover the cost of a basic funeral for those who cannot afford one, and the number of applications is rising. In 2020-21, the average award was £1,838, which falls way short of the average cost of a funeral, leaving a shortfall of thousands of pounds. Many people on low incomes, such as students and low-paid workers, are not eligible for the FEP if they are not on certain in-work benefits, and working out who is eligible and who is not is very confusing. The claimant, and often family members, need to be on certain benefits to apply, and the application process can be complex and confusing. At a time when bereaved people struggle to absorb information, they are least able to work out very complex financial procedures. The eligibility criteria need to be simplified to allow payments to reach more people.
I have in front of me a table showing the applications and awards for social fund funeral expenses payments. In 2010-11, there were 69,000 applications. By 2019-20, the figure had gone down to 37,000 applications, rising to 47,000 applications the next year. That is not an indication of less need, but of how the fund is failing people who are most in need. Despite improvements, processing times still mean that grants are often paid after a funeral has happened, resulting in people needing to commit to a funeral without knowing whether it will be funded, and without the means to raise the funeral deposit. They still have to sell their belongings, or go to a loan shark or relatives, to get the money up front, because they do not know whether they will get the funeral expenses payment afterwards, so it really defeats the point.
The FEP is made up of two parts: the cemetery or crematorium fees and doctor’s fees, and an amount towards other funeral expenses, including the funeral director’s fees. The “other funeral expenses” element of the funeral expenses payment was increased from £700 to £1,000 in April 2020—the first increase since 2003—but it still falls far short of the money needed. Accessing public health funerals, which is another option that has been mentioned already, is really difficult and has high levels of stigma. People do not feel that a public health funeral is an acceptable and dignified send-off for their relatives, but that could really change if we wanted.
What needs to happen? We need to increase the amount of the FEP and FSP to cover the actual cost of a basic funeral. We need to revise the eligibility criteria for the FEP to enable more people to access it, along the lines of the much more flexible and inclusive FSP brought in by the Scottish Government. We need to establish an independent inspection and registration regime for the funeral industry, as recommended by the CMA, leading to full-scale regulation and price controls for funerals. The prices cannot just keep on going up exponentially. We need to create statutory minimum standards for public health funeral provision. The current guidance is just that—only guidance—and it is not being followed by a significant number of local authorities.
Just imagine, if you will, Mrs Cummins—I hope I can recruit a lot of people to my campaign with this—that if someone wanted to organise a funeral for their loved one, they could go to their local council website and easily find a well signposted package for a highly dignified but affordable funeral, available to all and negotiated with local funeral directors. That would give everyone the option of not feeling the pressure to get a funeral plan, but also not having to spend ever-increasing amounts on expensive funerals. In fact, that could be the norm. It would have to be negotiated with local councils, and it could be done with the Government, local councils and industry working together. That would be a paradigm shift and would be fantastic. I would definitely opt in for that kind of funeral—one that is affordable, but dignified.
I welcome the regulation of prepaid funeral plans, but we need the Financial Conduct Authority to be proportionate in its approach to that regulation. Does the Minister know how many consumers will be left without a funeral plan should their firm not qualify for the upcoming regulation? Will the Government put in place a financial support package to protect consumers should their plan provider fail to achieve FCA authorisation?
The Safe Hands collapse must be a wake-up call, not only for the industry but for Government. I hope to see a wholly different approach, with the Government and industry working together. Funeral cost options are not clear, fair or competitive, and they take advantage of people at their most vulnerable time. Many funeral plans are ripping off people who want to do the right thing and not be a burden to their loved ones. Grief is a human right, not a luxury.
It is a pleasure to serve under your chairmanship, Mrs Cummins. I congratulate the hon. Member for Telford (Lucy Allan) not only on securing this debate, but on the manner in which she has pursued this issue on behalf of her—and all of our—constituents.
Funeral plans are something that I have always tried to avoid considering, in the normal run of things. We have heard all about the hard sell that can go on, whether through the glossy brochures or the sales patter. However, the soft sell can be every bit as pernicious. Without being flippant, I gave an interview to a TV company that is, it is fair to say, a considerable way down the electronic programme guide from the BBC or ITV. While I was waiting to see when I would come on, it seemed that just about every other advert between programmes was for burial or cremation.
Clearly, an awful lot of marketing effort was going into that, and it was going straight into people’s homes uninvited. I was struck by the techniques—the soothing music, the images of sunsets and the reassuring voices talking about giving you and your loved ones peace of mind. Every heartstring was pulled about the inevitability of requiring a funeral, the reassurance that you would give your loved ones by taking responsibility in this way—you would be taking the worry out of things for yourself and your family—and the fact that it was all so incredibly easy, if only you phoned the 0800 number scrolling along the bottom of the screen. Clearly, that works; as we have heard, the industry is worth £4 billion.
I would like to dwell a little on the scandal of Safe Hands, which seems to have operated thoroughly dishonestly, exploiting that desire among very vulnerable people who did not wish to be a burden. Safe Hands had 47,000 customers and was supposedly operating a ringfenced trust fund in order to protect customer investments and guarantee that paid funeral whenever the time came. Instead, it has seen funds misappropriated, with a £2 million surplus being paid out to the company and another £2 million paid in shareholder dividends, in one particularly egregious set of transactions. I can only begin to imagine the distress that the collapse of this company has caused, not only to those who had invested their money in this plan and expected their family to have those end-of-life burdens eased, but also to those who had invested in similar, more reputable schemes.
The hon. Member for Telford has already filleted that company’s accounts far more cleanly than I could ever hope to, but I think it is worth dwelling on the fact that the private equity bank company used two fund managers to invest customers’ money, one of which has gone into liquidation. It has about £4 million in cash, as well as shares listed in UK firms, which can be sold. A significant proportion of that money went into high-risk investments—often offshore—and some £60 million of the trust assets were in those high-risk investments. Now the administrator, FRP Advisory, is saying that a more reasonable valuation would be somewhere between £10.6 million and £16.1 million, which means that customers might only expect to get, at tops, about one fifth of their investments back. That means that with the average cost of a funeral hitting about £3,000, customers may only get about £600 back.
From 29 July, the industry is to be regulated—in a financial sense, at least—by the Financial Conduct Authority. That is a very welcome and long-overdue measure. As has been said, a funeral plan is not in itself necessary to pay for a funeral. It is no more and no less than any other kind of financial savings product, and it ought to be regulated in exactly the same way, with the same level of transparency expected over fees, commissions and how it operates. Those who administer it should have the same amount of accountability, the same amount of due diligence should be expected and we should have the same solvency expectations as we would for any product of a similar nature.
While the regulation from 29 July is highly welcome, there is a danger to it coming in. As we have heard, 75 companies are on the radar, and slightly fewer than half have submitted an application to be authorised that is still current. Some 20 have indicated that they do not intend to apply or have yet to start the process of seeking that authorisation, and 13 have withdrawn from the process entirely. First, we need to make sure that as many as possible come under the umbrella of that regulation from 29 July. We need assurances for people who have funeral plans in those unregulated companies that their investments can be protected and that the products deliver what people were promised when they signed on the dotted line.
We also need to make sure that we are doing something for those who will inevitably be left high and dry. Dignity, one of the UK’s largest undertaking firms, has for the next six months agreed to provide funerals for Safe Hands customers on a not-for-profit basis, and it will thereafter look to offer plans to surviving customers. That is good, but we need to recognise the very real danger of market failure and other providers not stepping up. I am uncomfortable about that. We need to make sure that there is some form of safety net so that those customers are protected as far as is reasonably possible.
The hon. Member for Putney (Fleur Anderson) highlighted eloquently and knowledgably the issues around funeral poverty and how families can be pushed into debt at a time of enormous distress. Such families may, with the best will in the world, not be the most financially savvy, and in that time of grief they are that extra bit vulnerable, especially given the emotional distress and the timeframes involved in arranging a funeral. As a result, they may find themselves being pushed into choosing options that are not the best for them and that they would not take if they had a full gamut of advice available to them. It risks placing them in the hands of the unscrupulous and making poverty deeper than it needs to be.
Over the last few years, the Scottish Government have taken steps to try to assist with funeral poverty. They have been working to help people with funeral costs, including through the funeral support payment, which is one of eight social security benefits that have been devolved. That should be seen in the context of a wider set of actions that have been set out in the Scottish Government’s funeral costs plan, which is designed to reduce funeral poverty and help people to manage and mitigate the overall costs.
Social Security Scotland delivers the funeral support payment. It supports eligible individuals in receipt of low income benefits with a payment to help cover funeral costs. It is a one-off payment that helps to cover any reasonable burial or cremation fees and some travel costs, and it includes a standard flat rate of £1,000 when the client does not have a funeral plan.
That still leaves a great deal to be done. I am very attracted to the idea, which the hon. Member for Putney mentioned, of having a go-to section that does not direct people in any particular way but offers signposts to the various available funeral options. I think that has a great deal of merit, because simply knowing that there is a place where they can go to get information would give people a great deal of comfort in the time of their greatest distress.
This has been a useful and timely debate, but it is one that we will need to revisit, not just in terms of the impact of regulation and the benefits that that will bring, but because we need to consider the impact of companies that, for whatever reason, do not end up under the FCA’s regulation. Beyond the finances, we need to take a close look at a whole range of practices to ensure we protect the most vulnerable people in society, whether they are people taking measures to pay for their funerals in advance or relatives left behind at a time of great distress and vulnerability. I am sure that the hon. Members for Telford and for Putney will continue most ably to focus Members’ attention on that as we move forward.
It is a pleasure to serve under your chairmanship, Mrs Cummins. I congratulate the hon. Member for Telford (Lucy Allan) on securing the debate. She set out some important issues in her opening speech. I thank my right hon. Friend the Member for North Durham (Mr Jones) and my hon. Friend the Member for Putney (Fleur Anderson) for sharing their constituents’ stories and for their work in this area, which they have been doing for some time.
Many examples that hon. Members cited were extremely worrying and were distressing for those concerned. Funerals are clearly important and sensitive moments for families as they say goodbye to their loved ones. They should not be moments where families have to worry about money. As the hon. Member for Telford and my hon. Friend the Member for Putney pointed out, not many families would have reached out to their MPs during their moment of grief for further assistance in this matter.
That is why the collapse in March of Safe Hands, a prepaid funeral plan company, has left its 45,000 customers in such a distressing situation. Those customers have now been told they will lose up to 90% of the money they had invested in their funeral plans. In many cases, this will see them lose thousands of pounds. It appears that in the case of Safe Hands, customers’ money was invested in high-risk investments, as well as being distributed to directors in loans and dividends. Will the Minister set out the facts, as he understands them, about this particular case?
It is very welcome that Dignity, one of the UK’s biggest undertakers, has agreed to provide funerals for Safe Hands customers on a not-for-profit basis for the next six months. I echo what the hon. Member for Telford said about thanking Dignity for its work in this area.
As we have heard, the collapse of Safe Hands comes at a critical moment for the funeral plan industry, which will come under the remit of the Financial Conduct Authority from 29 July this year, so I welcome the opportunity to debate the industry and press the Minister on the steps the Government are taking in this area. I do not intend to speak for long, but I have a number of questions for the Minister about how Safe Hands’s collapse was allowed to happen and how we can be reassured that the action the FCA is taking will be sufficient.
First, when did the Government begin to assess the significant risks in the prepaid financial plan sector? Fairer Finance has said that Safe Hands’s collapse was on the cards for some time. Indeed, its managing director has written that firms such as Safe Hands were playing fast and loose with clients’ cash, and other hon. Members have also raised that point. Does the Minister think the new system of regulation was too slow to be developed and introduced, particularly given that the risks were known for some time?
Secondly, does the Minister think there are systemic risks in the sector, rather than just problems with individual firms? Thirdly, will he tell us about the work he is doing with the FCA to protect people who have plans with companies that do not become authorised with the FCA or merge with another firm? Of course, we welcome the FCA’s regulation—recent events have shown how necessary it is—but we must be reassured that the process of moving to the new system does not put more people’s money at risk. When I last checked, 14 firms had withdrawn their applications for FCA regulation, four firms had not made any application at all, and 16 firms intended to transfer their plans to another provider. As my hon. Friend the Member for Putney said, the customers of all those companies need clarity and certainty about what will happen to their plans and money.
I want to end by making a slightly broader point about consumer protection and regulation. Clearly, the Treasury cannot underwrite every single financial product in this country, but that is exactly why consumers deserve robust regulation of the industries concerned. It is increasingly clear that the Government are too often willing to leave individuals to fend for themselves in self-regulated markets, rather than take action to protect consumers. For instance, why have they delayed the insolvency and audit reform Bills that are needed to regulate those sectors properly? Why has the Digital Markets, Competition and Consumer Bill been published only in draft form, with no clear timetable for it to become law? Finally, and most relevant to this debate, why did it take the Government so long to regulate the funeral plan sector properly? The customers of Safe Hands with prepaid funeral plans deserve answers to those questions; I hope the Minister is able to provide an answer.
It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank hon. Members who contributed to the debate: the hon. Members for Putney (Fleur Anderson) and for Gordon (Richard Thomson), the right hon. Member for North Durham (Mr Jones), and of course my hon. Friend the Member for Telford (Lucy Allan), who has professional experience in this domain and used her accountancy and forensic skills to examine some of the issues relating to Safe Hands. They are very relevant to some of the things we need to discuss this afternoon. I know she cares deeply about these matters, and I will try to attend to the points that have been made during the debate.
That people care so much about funerals is not particularly surprising. No one needs to explain to me the important role they play in celebrating the marking of a life and helping bereaved families and friends say goodbye to their loved ones. I have said previously that no one nearing the end of their life, or their families, should be consumed by money worries relating to the cost of their funeral. The hon. Member for Putney raised a number of issues about the broader nature of support for funeral provision. I will probably not be able to attend to them this afternoon, but I note those points and I will try to secure an answer for her.
Safe Hands’s going into administration will naturally be very upsetting for its customers and their families, and those consumers will, of course, be anxious to know who will look into the behaviour of the company and its directors. A number of points have been raised about that, particularly by the right hon. Member for North Durham. Within three months of any administration, the administrator must report to the Insolvency Service on the conduct of the directors prior to the company’s failure. In addition to the Adjournment debate and some of the points made during that debate two Thursdays ago, more points have today been made, helpfully putting on the record some of the concerns about those behaviours. When that administration process has concluded, those matters will obviously be there to be taken up. I understand that, where there is misconduct that shows people to be unfit to be a director, they may be disqualified from acting as a director for up to 15 years where that is in the public interest. Separate criminal investigations may also be undertaken in any administration where evidence of criminality is uncovered. However, it is only right that at this stage we await the outcome of the administration process.
As hon. Members will be aware, and as has been mentioned this afternoon, Dignity, one of the UK’s largest funeral plan providers, stepped in to provide funerals for Safe Hands customers, following the firm’s entering administration. I have met with Dignity myself, in the Treasury, and I know that my hon. Friend the Member for Telford has met with Dignity as well. I am very pleased that Dignity has now agreed to do that—at no additional cost to plan holders—for a further six months.
Although the Financial Conduct Authority does not yet regulate funeral plan providers, it is currently going above and beyond its legal duties by helping to support the industry and administrators as they look to find a longer-term solution for Safe Hands customers. I am hopeful that customers will not need to wait too much longer before they see further progress on a longer-term approach. The example of Safe Hands clearly demonstrated the need for a better-regulated funeral plan market, because although the sector provides a valuable service, we must ensure that the situation that has developed for Safe Hands customers is not repeated. That was the purpose of the work that has been done.
The Minister is making very important points, so I am grateful to him for giving way. He is talking about the Safe Hands plan holders and arrangements for them. A question that has come up today is what provision will be made for the plan holders who will be within unregulated products after 29 July, because it does appear likely that a significant number of plan holders will be holding a plan that is not backed by any form of compensation scheme or regulation.
Going forward, people either are regulated—those who are going on the journey into regulation by the end of July go under FCA regulation, and it will be keeping an eye on their selling practices—or become an appointed representative of a bigger, regulated firm, which keeps an eye on them, and then the FCA keeps an eye on it. Many firms, most firms—I think it is in the order of 67 firms—are going through the journey into regulation. There will be smaller firms that decide not to go on that regulatory journey, and either they will become authorised under the appointed representative regime or they will wind down, and return the funds to their customers.
Those are the two options. The FCA is working with the industry to smooth that journey. The House passed a statutory instrument to ease that process of transition. But those are the options available. Of course, we are midway through that journey, but what this afternoon’s debate has shown is the imperative of the industry working to sort out some of the issues that have been laid bare by the Safe Hands experience. I think Safe Hands is an exception, but it is a pretty awful experience for those customers. My belief is that this process of regulation will give clarity to the situation, going forward, in terms of who is regulated, how they are regulated and what being under regulation, either as an appointed representative or directly from the FCA, means. The FCA will be responsible for communicating that.
I thank the Minister for his explanation. My fear and, I think, that of the hon. Member for Telford (Lucy Allan) is that there may well be other companies like Safe Hands out there that will not go down either of those routes, so I am interested to know what the timescale will be on that. In relation to Safe Hands, he talked about the administrators. What powers does the FCA have if it finds, in those smaller companies, clear scams? I would use the word “scams”, because that is what I think Safe Hands clearly was. What powers does the FCA have then to force the closure of those schemes?
As I said, it is difficult to be precise in all circumstances because every situation is different. The purpose of giving the FCA that authority is that it has the powers to fine, regulate and insist on certain levels of transparency. Ultimately, if firms that go into regulation do not align with those expectations, the FCA has the power to wind down those firms—in extremis. At this point we are at the start of the journey. The conversations I have had with Dignity—
I will certainly give way to the right hon. Gentleman in a moment. Dignity has set up processes to ensure that they continue to comply with those regulations. Those firms that do not choose to be regulated, or do not choose to go under the appointed representative regime, will be obligated to wind down those plans and return those funds. Forgive me; I cannot give absolute clarity on the detail of that process, but I am happy to engage with the right hon. Member for North Durham beyond this Chamber to give him more clarity.
I appreciate that the Minister has been very helpful with what he has described. However, my fear is that some of those small companies may keep trading and taking money off people when we know that they are not being regulated. Are we going to get to a date beyond which, to sell a funeral plan, a company has to either be covered by the FCA or go down the route just described? That will then give assurance to customers that at least there is some protection. I am not going to ask the Minister what that date is, but we do need some indication.
My understanding is that the intention is for that process to commence at the end of July. In terms of the transition and the guidance to customers, I would need to refer to the FCA on that. I shall write to the FCA and make that letter available to the House of Commons, so that people can be clear about what the situation is.
Among the questions that the hon. Member for Erith and Thamesmead asked me was one about the Government’s actions to this point. We have taken action and we did legislate to bring providers and intermediaries within the regulatory remit of the FCA. That means that from 29 July, funeral plan providers will be subject to robust and enforceable standards on the sale of their plans. In future, consumers will have greater clarity and understanding of what is covered by their funeral plans, and will not be exposed to misleading or high-pressure sales tactics—an issue raised by the right hon. Member for North Durham. For the first time, funeral plan customers will also be able to take advantage of a redress scheme provided by the Financial Ombudsman Service, and benefit from the protection of the financial services compensation scheme. That reflects the point about this being a financial services product, raised by the hon. Member for Gordon. Indeed, we have seen a massive growth in that over the period between 2016 to 2019—a growth of, I think, 175%.
That is why we are doing it. We want to ensure that there is proper regulation that is meaningful and give consumers real assurance around what protections exist. It is also about proportionate regulation. Across my brief as Economic Secretary, I want to be able to boost competition and protect consumers. That is exactly as it should be. That is what drives me in the other areas of regulation that I am looking at, such as buy now, pay later. At the same time, the Government very much recognise the impact of the change that regulation represents for providers. That is why we introduced a transition period before the new rules came into effect—to give businesses the chance to prepare and adapt.
A key priority has been to minimise any disruption to customers resulting from the transition to regulation. The FCA has therefore said that providers who decide not to obtain authorisation, or cannot obtain it, should either wind down before the regulation comes into force or transfer their plans to a provider that will operate under the new rules. The Government recently laid a supplementary statutory instrument to make such transfers easier. That is in line with my responses to earlier interventions—I am glad my speech is in line with my head.
We are aware, of course, that when we bring a sector into regulation for the first time, some providers may be unable to meet the authorisation threshold. That point has been raised with me in representations from my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and representatives of the industry. The inability to meet those new standards due to issues with conduct, business models or trust arrangements does not mean that the regulation is at fault. Rather, the regulation is acting as a cleansing agent, weeding out unsustainable practices and preventing future consumer detriment.
Some Members have asked whether the Government are likely to compensate Safe Hands’s customers. I do not think it would be appropriate for us to set the precedent or expectation that the Government will use taxpayers’ money to compensate consumers for the misconduct of unregulated firms. The Government’s role is instead to ensure that appropriate regulation is in place to guard against such failures. However, the action of Dignity to take a lead as one of the biggest industry players, to make provision for an initial six months and develop a transition option for those who unfortunately are victims of the Safe Hands situation, is very welcome, and I call on others in the industry to follow Dignity’s example. We do not anticipate that there is something else on the scale of Safe Hands out there; we can never be sure—I do not have a crystal ball. Nevertheless, it is incumbent on the industry to continue to work with the regulator to find enduring solutions for as many people as possible.
There is no doubt in my mind that, by acting to protect consumers through a robust regulatory framework, we are doing the right thing. There was a consensus across the House: it was not just this Government, but Members from the Scottish National party and the official Opposition, who called for this action three or four years ago. A well-regulated market will also promote effective competition and do the right thing by consumers over the long term. As I have said, Safe Hands customers have been assured that they will be covered for at least another six months, and I implore others in the industry—other market participants—to take further action to protect consumers of firms that will not become authorised. Taking such action is good for consumers, but also for the reputation of the funeral plans sector. To that end, the Government and the FCA will continue to work closely with each other and the sector to ensure that the shift to regulation is as smooth as possible. That is what funeral customers deserve, and it is what they have a right to expect.
I will reflect on this debate, and if there are any matters that I feel I have not adequately dealt with, I will write to Members and publish a copy of that letter for the House to see.
I am very grateful to all Members who have attended today’s debate. I know we are competing with the platinum jubilee address to Her Majesty; in fact, the Member who has just sat down in the main Chamber, the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier), is the Member who secured the Adjournment debate on this topic two weeks ago. There are many Members from across this House who would have wanted to be here, making some of the points that have been so ably made by other colleagues.
I am particularly grateful to the right hon. Member for North Durham (Mr Jones). He spoke about the abuse of trust, and a day of reckoning coming for those people who engage in these types of activities. He is absolutely right: financial misconduct is something we cannot tolerate when it targets the most vulnerable in our society.
I also pay tribute to the hon. Member for Putney (Fleur Anderson), because I met somebody the other day who told me that she is almost as good as her predecessor. [Laughter.] That is a very fine compliment to her, because I worked closely with her predecessor for many years. The hon. Lady was absolutely right to talk about dignified funerals: that is a vital issue, and I am pleased that she has also highlighted the issues of anxiety, worry, stress, and all the other things that happen in this market where these selling techniques are used. Both the hon. Member for Putney and the right hon. Member for North Durham talked about people wanting to do the right thing, and we as parliamentarians are here to promote that, support those people and ensure that those who do the right thing do not get penalised by people seeking to exploit them. That is why this debate has been so important.
I am grateful that the hon. Member for Gordon (Richard Thomson) talked about people who are selling peace of mind, because that is exactly where things have been going wrong. We all crave peace of mind, and if somebody is going to sell it to me in a bottle, I am going to pay for it. Taking money from people by creating fears and then not delivering on promises is a disgraceful abuse.
I am grateful to the Minister for everything he has said today, and have absolute confidence that this is something that will stay in his in-tray—somewhere in the middle of his in-tray, perhaps—and continue to have his close attention. The FCA is doing a great job, although it needs to recognise that it was maybe a bit slow to the party. These things have happened on the FCA’s watch.
I would respectfully say that in the end, this has to be the responsibility of Government, because we mandated the FCA to do this. The Government must take responsibility, not the FCA, but my hon. Friend is absolutely right that it is now incumbent on the FCA to get this right, and I believe it will.
I thank the Minister for that point. The FCA always talks about things being within or without its perimeter, and I sometimes wonder how a savings product targeted at the most vulnerable could ever have been without its perimeter. I agree that it was the Government—and, in fact, the Minister—who made sure that this issue came within the FCA’s auspices, and it is now working constructively with industry players and Members of Parliament, which is extremely important. I will continue to champion the interests of vulnerable people whose vulnerabilities have been exploited, and I know many others will join me in doing so. Mrs Cummins, thank you very much.
Question put and agreed to.
That this House has considered the funeral plan industry.