Funeral Plan Industry

(Limited Text - Ministerial Extracts only)

Thursday 26th May 2022 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

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.

[Lucy Allan]

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.

[John Glen]

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.

[Mr Kevan Jones]

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?

[John Glen]

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—

[Mr Jones]

Will the Minister give way?

[John Glen]

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.

[Mr Jones]

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.

[John Glen]

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.

[Lucy Allan]

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.

[John Glen]

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.

[Lucy Allan]

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.

Resolved,

That this House has considered the funeral plan industry.