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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy and Northern Ireland Office (Lord Duncan of Springbank) (Con)
My Lords, with the leave of the House, I shall repeat a Statement made in the other place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy.
“With your permission, Mr Speaker, I would like to make a Statement on the Government’s actions to support customers of Thomas Cook.
As the House knows, Thomas Cook entered into insolvency proceedings on 23 September. This has been a hugely worrying time for employees of Thomas Cook and its customers, and the Government have done, and continue to do, all they can to support them. This has included the biggest peacetime repatriation effort ever seen in the UK, with around 140,000 people successfully flown home thanks to the efforts of my right honourable friend the Secretary of State for Transport and his department, and the Civil Aviation Authority. In BEIS, we have set up a cross-government task force, alongside local stakeholders, to support employees and supply chains.
However, I am sorry to have to inform the House that the official receiver has recently brought to my attention further impacts of Thomas Cook’s insolvency, which I wish to share with the House today. There is an important outstanding matter relating to personal injury claims against Thomas Cook companies, impacting customers who have suffered life-changing injuries, illness or even loss of life while on Thomas Cook holidays.
Thomas Cook took out insurance cover for only the very largest personal injury claims. For agreed claims below this figure, up to a high aggregate amount, it decided to self-insure through a provision in its accounts. As Thomas Cook has entered liquidation without ensuring any protection for pending claims, the vast majority of claimants who are not covered by the insurance, including customers who have suffered very serious injuries or loss of life, will be treated as unsecured creditors. This means that it is very uncertain whether they will receive any of the compensation that they would have ordinarily received against their claims.
This raises a potentially unacceptable prospect for some Thomas Cook customers, who face significant financial hardship through no fault of their own where Thomas Cook should rightly have provided support—customers who have already suffered life-changing injuries or illness and who may face financial hardship as a result of long-term loss of earnings or significant long-term care needs. This is an extraordinary situation which should never have arisen.
While the Government cannot and will not step into the shoes of Thomas Cook, we intend to develop proposals for a statutory compensation scheme. Any scheme must strike a responsible balance here between the moral duty to respond to those in the most serious financial need and our responsibility to the taxpayer. Accordingly, it will be a capped fund, sufficient to ensure that there is support for those customers facing the most serious hardship as a result of injuries or illness for which UK-based Thomas Cook companies would have been liable. We will develop the scheme to ensure that only genuine claims are provided with support. The scheme will not consider routine claims covering short-term problems. After the election, we intend to bring forward urgently the legislation necessary to establish such a scheme, and I am sure that any new Government will wish to do likewise.
I have also written to the official receiver to ask him to take this very serious matter into account as part of his investigation into the conduct of Thomas Cook’s directors relating to the insolvency.
I am sure the House will agree that it was important to act quickly today to give reassurance to those individuals and families who would otherwise be left with unfunded serious long-term needs or other financial hardship as a result of injuries or illness sustained abroad for which Thomas Cook would have been liable. The House will have the opportunity to consider the matter in more detail in the new Parliament.
I want to make it clear to all businesses that the Thomas Cook approach was unacceptable and that we will take steps to require suitable arrangements to be in place to ensure that it cannot be repeated. I have asked BEIS officials to urgently bring forward proposals for speedy action by the new Government in the new Parliament.
I am very grateful to the official receiver for bringing this matter to my attention and for all his efforts in this case. It is critical that we act to provide support to those who, through no fault of their own, have been severely impacted by the collapse of Thomas Cook. I commend this Statement to the House”.
Lord Stevenson of Balmacara (Lab)
I am very grateful to the Minister for repeating the Statement made in the other place. The collapse of Thomas Cook is turning into an issue that needs to be carefully reflected on. It is a tragedy that it happened at all, but the more information that becomes available about the actions of the directors, and the action that they should have taken but perhaps did not, the more we are concerned about it.
There were 8,000 job losses. At the time it was widely reported that Ministers and BEIS officials had little or no discussion with the company before it entered liquidation. However, in the six days leading up to its collapse, government Ministers from Germany, Spain, Bulgaria, Turkey and Greece all made personal contact with the company with the aim of trying to rescue it. Reports from Unite the Union and Syndex have shown that £188 million would have been sufficient to prevent the collapse of the company. Yet we have heard that the Government have spent over £600 million —a lot more than £188 million—on compensation and the successful repatriation of the 150,000 stranded holidaymakers.
We have not had the benefit of a report from the BEIS Committee in the other place; it has not been able to complete its inquiry because of the Dissolution. However, I hope there will be more detailed investigations when we get back, and that we will get an idea of the proposals that might be necessary. Some issues include: audit quality problems, revealed by the fact that the auditors were not able to get to the bottom of this before the liquidation; the struggles that the auditors seem to have faced over how to value some of the financial instruments in the contracts; the fact that the same auditors had been around for far too long; and teams not using their own judgment but tending to accept what they were told by management, possibly because they were so conflicted by their having additional consultancy work. These findings have not been reported by Parliament but by the Financial Reporting Council, as I am sure the Minister is aware.
We have a bit of a mess here. Having said that, it is wonderful to hear that the Government have decided that the outstanding matter referred to in the Statement—the impact on customers who have suffered life-changing injuries or loss of income while on Thomas Cook holidays—cannot be allowed to pass. We will support that decision in any way possible if it is necessary to do so after the election.
The Minister mentioned in the Statement the success of the repatriation; we should perhaps record that too. He paid tribute to the Secretary of State, but the main burden of heavy lifting fell to the Civil Aviation Authority, which booked the planes and arranged the logistics so successfully that customers who could have been stranded for weeks, if not longer, got back within a few days of their original bookings. We should be very proud of that; the success of Deirdre Hutton and her team should be recognised.
On the substance of today’s announcement, it seems extraordinary that this should have been allowed to happen at all. The first question we need to ask is: how could it be that a company of such status and standing as Thomas Cook, which was in operation for nearly 200 years, let itself get into a situation where it deliberately insured itself against the tragedy and therefore abandoned its rationale for existing—the good care of its customers —as it went into liquidation? It is unlikely that any payments will be made to those who will be treated as unsecured creditors. We all know that. Compensation is going missing; the Government have recognised that this needs to be sorted out, and we are very grateful for that.
Can the Minister give us some idea of how this kind of situation will be prevented in future? Clearly, this was something that lay within the remit of the company’s own decisions. The fact that it had insurance cover for the very high end of the spectrum suggests that it was aware of the insurance requirement, but that cut-off is too high. Does the Minister have any ideas about how this might be addressed? I presume he is thinking about future legislation.
The statutory compensation scheme is a great idea and I am pleased that it is happening, but questions arise about how it will be financed and organised. Will it be based on ATOL and ABTA-type approaches or funded directly by the Government, or will some form of co-funding be laid against the other travel companies? If so, does the Minister have any ideas about this?
On the question of whether the official receiver would be passing on matters relating to the actions of the directors, that is clearly not a matter that we can deal with in this House. However, can the Minister say whether he has in mind that a criminal offence may have taken place? If so, it would be useful to know that this is the way the wind is blowing. If not—or if it is not possible to say—can he confirm that the legislation he is considering will ensure that companies trading on a near or actual insolvency basis will not be empowered to pay bonuses to themselves? We should be quite clear that that is what we are talking about at this stage.
I have one final question. Clearly the Government do not intend to become the lender of last resort for companies that get into trouble over travel arrangements, but this will possibly not be the only example of such things happening. Can the Minister offer some reassuring words about being prepared to look again at the wider context, should this turn out to be a more common issue? That would be helpful. Also, will this be a permanent arrangement, or just temporary until things become clearer?
Baroness Randerson (LD)
My Lords, I thank the Minister for repeating the Statement. It raises some very serious issues. I echo the concerns of the noble Lord, Lord Stevenson, and his inquiries about how Thomas Cook came to be in this very risky situation—risky for its customers. Is it because the law simply has no coverage of this area for companies? In other words, do we need to start absolutely from scratch in terms of legal requirements for companies? Or is it that Thomas Cook actually cut corners and could potentially be judged to be on the wrong side of the law in due course?
It is absolutely appalling that people who have suffered very serious injury, and indeed died, as a result of incidents when they were customers of Thomas Cook could find themselves in this very difficult position. We all know that when a company goes into liquidation, it takes years to sort it out, even in the best of circumstances. As it stands, who has priority as creditors for Thomas Cook? In addition to that, what are the Government’s plans for plugging the gap that clearly exists in this situation after the election? The Government are looking to add a capped fund. Of course, that means there will be people who remain badly out of pocket. They will not be compensated as they should be when things have gone wrong. The official receiver is conducting an inquiry into the situation for Thomas Cook. Can the Minister explain how long it is likely to take for the inquiry to report?
I want to raise one or two other issues of concern, following the demise of Thomas Cook. They are not of the order of magnitude of what was in the Minister’s Statement, but they are still serious. The CAA has done some amazing work to repatriate so many people. I know that CAA staff were literally sleeping in the office, because they were being called on to work such long hours. This is the second time in as many years that they have had to do this job and they are clearly getting quite practised at it. It is not acceptable that staff are being put under such huge amounts of stress. Are the Government considering additional resources for the CAA so that staff are not put under quite so much pressure when this happens again, as it almost certainly will?
There are still almost 2,000 Thomas Cook customers who paid by direct debit and have yet to receive their refunds. The original promised date for refunds was 14 October. These customers are a small percentage of the total, but this is a bad time of year for people to be owed money—significant amounts of money. I would like an explanation from the Minister as to whether the Government or any agency are able to provide support to those who are now having to fill in forms. There might well be vulnerable people who find this process extremely complex and our experience is always that the most vulnerable people find it most difficult to complete bureaucratic processes such as this.
Finally, the Government promised a review of insolvency legislation following the Monarch financial crash, the purpose of which was to enable companies to continue to trade long enough to bring customers home so that that responsibility did not fall on the Government again. It has happened again, and I would like to follow up with the Minister whether that work is still ongoing and whether the Government intend to introduce a change to insolvency rules to clarify that situation.
Lord Duncan of Springbank
I will begin at the beginning, if I may. The viability or long-term prospects of Thomas Cook are on many people’s minds. Of course, the question is: could the Government have intervened in such a fashion that could have saved Thomas Cook? I fear the answer is no. The more investigations are undertaken by the official receiver, the more we begin to recognise the scale of the debt Thomas Cook was sitting atop—£1.9 billion, which is an extraordinary amount of money.
I appreciate that when an institution of such age falls, there are always questions about whether more could have been done. I suspect that more could and should have been done by the directors themselves. I hope that the official receiver’s investigation will reveal exactly where the fault-lines lay when it sets out how this went forward. I do not have an answer for the noble Baroness, Lady Randerson, about when we will be able to expect that; I am afraid that it will rest in the hands of the official receiver, but I would like to think that it will not be long delayed. We deserve an answer to that. A significant amount of public money has already gone into the various elements of this process, with more yet to come. I would like to get to the bottom of that question because we need to understand exactly what has gone on.
I welcome the support of both noble colleagues this afternoon for the issues we have had to take forward on the wider repatriation and so forth. If I might draw it down to the compensation scheme, clearly that will have to be done after the election. I welcome the commitment from the other side that we would stand united in moving forward with this, irrespective of the outcome of the election. It is important for the victims to hear that loud and clear. At present, we anticipate that that money will be met primarily and solely through a government fund. It will not come through ATOL, which has a number of restrictions placed on it that will not allow it to compensate in this regard. The wider question as to how we are in a position to do so and identify will be important. We will make sure that very clear instructions will be on BEIS’s website, but also on that of the official receiver and so on, for those who are, in essence, the unsecured creditors, because they are in many respects often at the very back of the queue during a liquidation. In this case—the official receiver has already identified this to us—we want them to be aware of the situation, with very clear guidance on what they have to do next to be prepared.
I should draw your Lordships’ attention to one simple fact: there will, of course, be an interregnum between the point at which I make this Statement and when we can create such a scheme post the election. There will need to be clear guidance to help direct people towards other sources of government support during this difficult intervening period. The guidance should reveal exactly what that is. Once we pass through the storm of the election and return, the question will be how to design the programme so that it can be quickly instituted and implemented. It will need primary legislation, so we will have another opportunity to come back to and explore this.
It will necessarily be a capped scheme. The noble Baroness is of course right that some people will not receive compensation. To some degree that is inevitable depending on the severity of the situation we face. We wish to ensure that those whose experiences are the most severe are fully compensated through this approach. Those who are experiencing other elements of that compensation will not be able to secure it; it will be judged on severity. We will have a chance to look at the criteria when we return. It begs a bigger question which we need to look at: who else is doing this and how safe are they? In the next Parliament, we will need to look very carefully at this whole story to see whether lessons can be learned. The ability to self-insure but not then ring-fence the funds from which that insurance can be drawn is wrong and is creating the very problems that we are seeing here. We will need to revisit this; that will be right and proper. I do not wish to prejudge exactly how we will do it, but it will be through primary legislation. We will need to act very carefully to avoid a situation, in the ever-volatile travel sector or elsewhere, where individuals who are due significant compensation for serious injury or loss of life are placed in a predicament where they are wondering whether that money will continue to come towards them. That would be wrong. I hope that we can do something about that. The official receiver will look into how on earth Thomas Cook, a company of such standing, could reach the predicament that it found itself in. That will involve looking at the question of bonuses and each of the other elements within the wider director’s role. We will need to be cognisant of what that will be. Once we receive that report, we will need to be alert to what it might mean for a wider question going forward, regarding legislation that may be required elsewhere.
On the question of support for the CAA staff, there is indeed no doubt that they have gone above and beyond. I will commit now to look what they need and how to be helpful. I will talk to my colleagues and the Minister at the Department for Transport to understand better how we may be able to afford that. The question of the nature of the forms will, I fear, be a perennial one. There are, necessarily, bureaucratic elements, much as I would wish to say otherwise. The guidance that we issue must be as clear as we can make it, and we must ensure that those who are experiencing any difficulty in completing those forms can secure the assistance that they require. I will take that away and give it some thought, to ensure that no one is, through the bureaucratic challenge, unable to access necessary funds in this situation.
I think I have covered all the issues; if I have not, I hope that noble Lords will alert me, and I will be very happy to write to them directly.
Lord Birt (CB)
My Lords, the collapse of Thomas Cook has had tragic ramifications for many parties, none more so than the group that the Minister identified in his Statement. Can he tell us what value the official receiver has placed on the category of obligation that he has outlined in respect of personal injury? He talks of an uncapped fund: how are the Government going to establish the quantum of that cap?
Lord Duncan of Springbank
It is an important question to understand. The notion of a cap is to look at it the other way around. We need to look at the definition of the challenges which are being experienced and let those be the criteria by which the ultimate cap is established, because the important thing is to work out who falls into the category of those severely injured, incapacitated or who have lost life. That would be assessed first, and will ultimately determine the cap, but it cannot be open-ended, because by its nature it must balance out the needs of taxpayers alongside our commitment to those who have suffered through this. Regarding the wider question of the evaluation, if the noble Lord will allow me, I will write to him specifically on that point, as I am not clear on the answer.
Lord Mackay of Clashfern (Con)
Can my noble friend tell us the nature of the liability that was not covered by insurance? People need to know that; after all, some will be going on their Christmas holidays in circumstances such as this, and some may be going earlier for other reasons. We need to know exactly what gave rise to this uninsured liability. I do not know whether Thomas Cook did, but most travel agents require you to have travel insurance. This must be some kind of claim outside the scope of ordinary travel insurance. If there is an identifiable category that is apt to recur, people need to be warned of it.
Lord Duncan of Springbank
The noble and learned Lord raises a point the sad answer to which is straightforward: in this regard Thomas Cook did not set out categories but quantums. Any bills above a particular quantum would be met by the wider insurance, if they were particularly high, but those which fell below, it self-insured. The law allows it to self-insure, so the problem we have now is that, while I wish I could identify individual instances where this could be done, sadly that is not possible. This is why in the new Parliament we will have to look at this very carefully, to ensure that we have an answer to the very question that the noble and learned Lord asked. If we do not do that, of course people will be travelling without the confidence that they are insured when they believe that they are.
Lord Vaux of Harrowden (CB)
My Lords, as someone who was caught up in the Thomas Cook situation, I add my commendation to the CAA for the work that it did; it was remarkably smooth. Is it not possible that some of these people may have a claim against not only Thomas Cook but the ultimate hotel or travel provider, or wherever the accident happened? If that is the case, what help can the Government provide to those people to make that claim, rather than the original Thomas Cook claim?
Lord Duncan of Springbank
The noble Lord is right that there are issues around more than just the component parts of the holiday because, as an entity, Thomas Cook is not just a single company. It has different named brands that sit underneath that name. The important thing for us here is that this will be through those who have booked a holiday with Thomas Cook, and have experienced severe injury and so forth as a consequence of that booking. In many instances, these are historic payments that will be halted because of the situation. They are not ongoing future payments, although some fit into that category. What is important here is that the manner in which Thomas Cook sought to address those questions will have been part of the initial settlement that Thomas Cook reached. The question we are then taking on is: how do we compensate and match a measure of the liability that was experienced? It will be done through the criteria that we set in primary legislation, which we will afford your Lordships an opportunity to examine in greater detail.
Lord Cormack (Con)
Is my noble friend aware that we will take great encouragement from the fact that he is involved in helping to solve this very difficult problem? We are all grateful to him for the way in which he led on the Northern Ireland Bill, which has just gone through the other place and is now the law of the land. He has shown commendable leadership and initiative. We have been glad to give him support and I hope that he will be reassured that we want to do the same for the expeditious legislation that will be necessary at the beginning of the new Parliament.
Lord Duncan of Springbank
The noble Lord is very kind and generous. A number of your Lordships were involved in the Bill on historical institutional abuse. It is now the law of the land, and we can all take heart from that. I will be as diligent in this regard as I can be and will do all I can in the new Parliament, if I am spared, to do this.
Lord Faulkner of Worcester (Lab)
My Lords, can I raise a subject which I am sure is not in the Minister’s brief and on which I therefore do not expect a reply this evening? Perhaps he will look into this and write to me. It is on the question of the Thomas Cook archives. Thomas Cook was a company founded in 1841, originally to take temperance supporters on holiday by train in the Midlands. It grew very rapidly into the world’s leading travel company and pioneered journeys to places such as Khartoum, to help with the evacuation, as well as holidays to Switzerland and all sorts of other places. The Thomas Cook archive is priceless. It is based in Peterborough and everything in it needs to be preserved as part of the history of the industry. It is indeed a company that for many years was state-owned, after the nationalisation of the railways in 1948. So could the Minister look into the question of the Thomas Cook archive? I will be happy to send him a letter that Sir Peter Hendy has sent to the chairman of the Business Archives Council, in which he lists the case for this archive to be preserved. It is really worth doing.
Lord Duncan of Springbank
The noble Lord is of course correct that I do not have before me the answer to that particular question. But I recognise that the archives of Thomas Cook, stretching as far back as they do, will be absolutely invaluable to understanding the evolution of our country and how Thomas Cook began to show the world to the people who travelled. So I look forward to receiving the letter that the noble Lord will forward to me. I will, in due course, respond directly and place a copy of that letter in the Library for all to see with regard to the historical archive.