Thomas Cook

Baroness Scott of Needham Market Excerpts

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?

[Baroness Vere of Norbiton]

I thank both the noble Lord, Lord Rosser, and the noble Baroness, Lady Scott, for their thoughtful questions and comments about this difficult situation.

The noble Lord, Lord Rosser, talked about the various reviews that the Government will make sure are undertaken as a matter of great urgency. He also mentioned the accounting methods and the comments from EY. Thomas Cook of course uses IFRS, the standard accounting rules. Those are used in 125 countries and have been adopted by the EU. Some people will push those to the absolute limit, and maybe Thomas Cook did, but we cannot say for sure. Once we have got to the stage where the repatriation has finished successfully and everyone is home, we certainly will look into all sorts of things, including its application of the various accounting rules. The official receiver will review all payments made to the board and creditors in the lead-up to the date when the board declared the company insolvent. The official receiver is able to recall payments if it feels that they were not made in the right course of business.

The noble Baroness, Lady Scott, mentioned governance, which is really important as well. I hope that when these reviews have been finished, we will take away a number of lessons from them. The travel industry has always operated in the way it does. The issue now is that some of these organisations are very large, and when the worst happens it has a very significant consequence. Therefore, we as a Government need to think about the long-term future for aviation and travel organisations when they become insolvent.

This brings me on to the second major area commented on by the noble Lord, Lord Rosser: the airline insolvency review, which we asked Peter Bucks to undertake after Monarch. He submitted his report to the department in May this year. It is a long report; I am sure the noble Lord has read it. It has many different proposals—it was one of my responsibilities as the former Aviation Minister to go through it and see how we were going to take these various things forward. None of the things in it is easy, simple or without risk. There was a possible levy on passenger tickets but, as noble Lords will know from the repatriation today, simply having the money is only one thing—one has to have the aircraft.

That was the second thing that might be suggested: some sort of special administrative regime for an organisation. Again, that is quite complicated. I think we have one for energy companies and one for universities, but they are very difficult to put in place and require primary legislation. We are looking at that as a matter of urgency. The noble Lord also suggested looking at financial instruments. Again, we have been looking into that, at how they might either help or hinder—they might speed up a company’s demise.

I believe the German Government have been able to provide a bridging loan. I understand that Condor is in a different financial situation from the Thomas Cook Group as a whole, and maybe it is viable in the longer term. I very much hope that it is. However, we received a request from Thomas Cook for government support. I do not recall the date of the letter—it was possibly Friday. I will have to write to the noble Lord with all the details on what we received at what point and the reasons we decided to decline. I suppose one of the most obvious reasons was that Thomas Cook has until very recently been losing about £250 million a month, so it was not entirely clear to us that £250 million would be a good and viable long-term solution for a company which was clearly being weighed down by an incredible amount of debt.

The final cost of the repatriation is not known at this moment. I mentioned that it was £50 million for Monarch; this is at least twice the size and much more complicated. It is a fast-moving situation, but of course we are striving to keep costs to a minimum and are in open discussions with a number of third parties with which we will look to reach an agreement over future financial support.

With regard to the industry taking advantage, I agree with the noble Lord that this is very disappointing indeed. We do not expect anybody to take advantage in a difficult situation. On the flip side, I am very pleased by the support that we are being given by certain airlines—for example, BA and Virgin, which have both been offering rescue fares to people in places where we do not have repatriation flights.

Obviously, we have done a significant amount of contingency planning. We knew what our plan was for the hotels, but until the event actually happened we could not put that plan into place. The letters went out to 3,000 hotels; imagine you are a hotel far away and you get a strange letter from the British Government saying, “It’s okay, we’ll pay the hotel bill”. It just took a while for the message to get through. We used our diplomats and consular staff to get out there and talk to the hotels. We also went straight in at ministerial level, saying to Tourism Ministers, “Please can you speak to the hotels to make sure that people are not thrown out of them?”

The noble Baroness, Lady Scott of Needham Market, also talked about what we called when doing contingency planning “keep the fleet flying”, which would of course seem obvious to anyone—they are planes, why can we not get them up in the sky? We really tried to look into that, but we need the legislation for that to continue, because operating an airline is not as simple as having a pilot and putting a plane in the sky. Unfortunately, one needs many indemnities and certificates, but we hope to be able to put something in place which would allow the fleet to continue to fly so that, should this ever happen again, that would be the most obvious way of sorting it out.

Those passengers not guaranteed by ATOL may well have other routes that they can use if they pay by credit or debit card or through travel insurance. If there is one other thing that has come out of this, it is that many people go on holiday nowadays and do not think about travel insurance or what might happen if the travel company goes into liquidation. People might want to think differently how they protect themselves when they go abroad.

I was appalled to see the scams too, people saying on social media that they are getting telephone calls from people saying that they can get their money back. We are working on it and the CAA will be putting out some stuff—it might already have gone out—making sure people are aware that there are scams out there. The good thing is that social media is doing its own thing. People who are not connected are already saying, “Beware, there are some very dodgy people out there”.