Thomas Cook

Debate between Baroness Scott of Needham Market and Lord Rosser

Wednesday 25th September 2019 Lords Chamber

[Lord Rosser (Lab)]

My Lords, I thank the Minister for repeating the Statement made earlier in the Commons.

The collapse of Thomas Cook is a tragedy for the 178 year-old iconic business, its customers and its staff here and around the world—many of whom are still working to assist those who are seeking to return home to the UK. I note the inquiries that the Government have initiated. I have a number of issues to raise with the Minister about the background and lead-up to the demise of Thomas Cook.

Last year, the company was urged by its auditor EY to stop using an accounting method that could have been used to flatter its financial performance and, in the process, improve the pay of the top executives, since their bonuses were linked to performance. Given that the Government would have known that the collapse of Thomas Cook would involve taxpayers’ money to bring stranded passengers home, and since the Secretary of State said in his letter to MPs and Peers two days ago that,

“We have been contingency planning for some time to prepare for this scenario”,


what action did the Government take in the light of the auditor’s clear warning about the accounting method being used by Thomas Cook and its impact on flattering financial performance and improving the pay of the few at the very top?

The Times also reported the criticism, including from the Prime Minister, of the top executives of the company for paying themselves large sums of money—a combined total of more than £20 million over the past five years. The only people in Thomas Cook who seem to be coming out of this with plenty of money in their pockets would appear to be those who have been at the top of the company. In the light of the auditor’s concerns on the issue of accounting methods, what pressure, if any, did Ministers put on the directors of Thomas Cook to change their ways?

We certainly know of one area where the Government have done nothing. The previous Secretary of State had said that he would introduce a new levy-funded regime to keep bankrupt airlines flying temporarily, but no legislation has appeared. A review called for changes in the law to enable airlines to continue flying for sufficient time to enable them to repatriate their passengers. However, as I understand it, the Government have not even formally responded to this review. The Minister will know that a similar system exists in some other countries, including in Germany, where Condor, Thomas Cook’s sister airline, operates. I understand that the Government have provided funds to help that company survive. I note that the Minister is looking at whether it is possible for airlines to wind up in an orderly manner without a need for the Government to step in. However, the truth is that the Government have done nothing since the failure of Monarch Airlines two years ago, which the noble Lord, Lord Callanan, referred to earlier.

Regarding the Government’s approach over the demise of Thomas Cook, did the Government receive a request for financial support to help tide the company over for the next few months? If so, what exactly was the request, when was it received, what was the Government’s response and what were the reasons for that response? Is it the case that Thomas Cook had reached an agreement or understanding to secure around £200 million with the assistance of the Turkish Government and Spanish hoteliers backed by the Spanish Government but that, when the UK Government indicated they would not act to support a British brand, that effectively killed any such agreement or understanding?

What is the Government’s estimate of the final potential or likely cost to the taxpayer, both direct and indirect, of Thomas Cook’s demise? Can the Minister provide a breakdown of how that estimated or potential cost is made up?

We know that some will benefit from the misery of the 9,000 people losing their jobs in this country, as well as from the disruption and worry experienced by up to 150,000 Thomas Cook customers. For a start, people who have already lost their anticipated holiday due to the decision to let Thomas Cook go to the wall are likely to have to pay considerably more to book another one. The cost of flights is now reported as doubling or trebling—or, to put it euphemistically, as one airline did:

“Our pricing, as is common practice in the travel industry, is based on the principle of supply and demand. As supply reduces, an inevitable consequence is that prices increase”.


There is no doubt that the increased income for the other airlines who are now putting their prices up dramatically will be reflected in substantial increases in the bonuses of those in their boardrooms—paid for by people who had their anticipated holiday with Thomas Cook snatched from them. Do the Government find this acceptable, or do they intend to take any action to ensure that people who have lost their Thomas Cook holiday will be able to secure an alternative, equivalent holiday at no further expense to themselves?

With high streets up and down the country having now lost yet another major name, will the Government be taking any new action to assist our already pressured high streets?

We have also read in the press that international hedge funds which bet against Thomas Cook have made substantial profits from its collapse and the misery of staff and holidaymakers. Apparently, nearly 11% of the travel company’s shares were shorted ahead of its collapse. Hedge funds will also apparently benefit from credit default swaps as a result of the collapse, with payouts expected to reach £201 million. This seems a very similar figure to that which Thomas Cook was seeking and with which the Government declined to assist.

Coming back to the Secretary of State’s letter and his statement that

“We have been contingency planning for some time to prepare for this scenario”,


why is it, then, that some Thomas Cook holidaymakers and staff have apparently been locked out of, or even in, their hotel rooms until they have settled any outstanding bills? The Minister helpfully confirmed that the CAA has taken initial steps to resolve a number of incidents, but are the Government satisfied that this action will be sufficient to avoid any repeats in the days and weeks ahead?

The Government have indicated that they are seeking to help those made redundant to find other jobs. Bearing in mind that Thomas Cook shops are found throughout the country, including in areas where appropriate jobs are in short supply, what timetable have the Government set for finding suitable alternative employment for redundant Thomas Cook staff? Are they guaranteeing that that employment will be at least at or near their current salary levels? Will they ensure that all staff affected receive the compensation and other payments to which they are entitled in full and without employment tribunals?

Like the Minister, let me finish by paying tribute to the team at the Civil Aviation Authority and those in government departments for the work that they are doing to repatriate Thomas Cook passengers. They are displaying a sense of public service and duty. Just as in the case of Monarch Airlines two years ago, their hard work and dedication is highlighting that, when the private sector fails, the public sector has to step in to pick up the pieces.

[Baroness Scott of Needham Market (LD)]

My Lords, I thank the Minister for repeating that long but very useful Statement, and for the letter that was sent out to Members. I echo the thanks to the staff of airlines, customer services, ground crew and so on, who have done so much to restore some order to what could have been a catastrophic situation. Those thanks must especially go to the employees of Thomas Cook, many of whom are showing a degree of compassion and humanity towards their customers that is sadly lacking in the attitude of the directors.

Given what we know already about the state of Thomas Cook, can the Minister say more about how the Government are going to, and I quote from the Statement,

“seek to understand the failings of stewardship”?

I will not repeat the points made by the noble Lord, Lord Rosser, but these questions of governance and of the failings of governance are key, both to prevent this happening again and in protecting consumers in this sector and others.

I can understand why the Government were reluctant to go in with a classic bailout, but I wonder whether they ought to have thought more about whether it was possible to fund Thomas Cook for a few weeks, specifically to bring back those customers who were already abroad. Might that not have been more efficient than having to scrape around for aircraft wherever we could get them? I would like to know more about that.

I understand that CAA guarantees to hoteliers apply only to those passengers who have ATOL protection. There are 40% who do not have that protection, and we are hearing all sorts of stories about people being locked out of accommodation. Not everyone has the financial resilience to simply pay a bill on demand to a hotel, especially as they have already paid once for a holiday, so I would like to hear more about the 40% who are not covered.

The Minister may be aware that the vultures are already gathering, and there are stories emerging of scams where people purporting to be from Thomas Cook are offering refunds to get people’s bank details. Will she urgently consider a social media campaign to highlight the dangers of this and setting out exactly what people should do if they have been affected?