Business, Innovation and Skills

Baroness Clark of Kilwinning Excerpts

Tuesday 20th December 2011 Commons Chamber

[Katy Clark (North Ayrshire and Arran) (Lab)]

It is a pleasure to follow the hon. Member for Fylde (Mark Menzies), who, of course, comes from my constituency.

I also welcome the opportunity to raise a very timely issue: the collapse of the Farepak Christmas savings club. It has been raised in this Chamber on many occasions, because more than five years ago, on 13 October 2006, the company collapsed and as a result 120,000 people lost some £38 million. Very few of those people have received a penny back from Farepak as yet, although the administration has continued.

Hon. Members will remember that a response fund was set up at the time of the collapse, to which the people of this country gave very generously and as a result of which some Farepak victims got some money. The reality is, however, that Farepak has still not paid out in any way to the 120,000 individuals or to their families. The Government are well aware of the background. Last week, the Minister for Further Education, Skills and Lifelong Learning responded to the debate on the subject secured by my hon. Friend the Member for Newport East (Jessica Morden), and said that the current situation was completely unacceptable and that the whole matter had taken far too long to sort out. Members on both sides of the House would accept that the length of time it has taken to resolve the matter is not acceptable. We must see whether there are lessons to be learned.

I would argue that the 120,000 people who saved with the Farepak Christmas savings club did so responsibly, so I ask the Government to look again at what they can do to ensure that those affected receive full compensation for what they lost. In my constituency, hundreds of families were affected and for many of them Christmas that year was destroyed. In particular, I pay tribute to my constituents, Louise McDaid and Jean McLardy, who both live in West Kilbride and who, along with others, set up the Farepak victims committee, which has been campaigning for the past five years for justice for the Farepak victims. It has become clear over those years that the sector is poorly regulated and that individuals who pay for items in instalments do so with very little protection. The Farepak victims are unsecured creditors, which meant that when the company went bust they went to the bottom of the pile.

The reaction five years ago was the setting up of a voluntary organisation, the Christmas Prepayment Association, which provides should a company that is a member go bust. Many prepayment companies, however, are not members of the scheme and there is no requirement for them to belong to it. Indeed, some of the biggest players in the sector, such as Tesco and Asda, are not regulated by the voluntary scheme and the association covers only Christmas clubs, whereas many prepayment organisations are not geared towards Christmas.

Many Farepak customers are very upset about how the administrators, BDO, have handled the administration, about the lack of information available to them as creditors and about the deal that I believe was done with some of the ex-directors of Farepak to pay a total of only £4 million in compensation of the £32 million that was due. As was widely reported recently in the press, BDO has incurred expenses in excess of £8.2 million in administration of the scheme, whereas it has managed to get only £5.5 million for the victims. I tell all hon. Members that there are serious issues about whether that mechanism should have been used to resolve the situation. Until recently, the victims were told they could expect 15p in the pound back, but now it is not clear whether they will receive even that limited amount. An application has been made for disqualification orders to be taken against the directors, but as yet we still have no indication of whether there are likely to be any prosecutions in the criminal courts.

I believe that the case of Farepak highlights important failings in the regulation of the prepayment industry. That applies not just to Christmas savings clubs but to many situations where individuals pay for things in instalments, and, of course, it is people on modest incomes who do that. Most people who pay up in this way often reasonably expect that the sums they pay will be ring-fenced and put in a separate account and that they will have priority if the organisation goes down. Today, I ask the Government, five years after Farepak, to look into what can be done for the Farepak victims as well as at the wider issues of the prepayment sector, and to come back with proposals to ensure that the sector is better regulated so that we can give proper protection in the future.