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Farepak

I, too, add my commendations to the hon. Member for South Swindon (Anne Snelgrove). She has been leading on this issue in parliamentary questions, in her constituency, and now here. That is very much to her credit. Many questions have been asked and issues raised, and I am sure that the Minister will want to respond to them in full. I shall attempt to rattle through them; I shall therefore take no interventions. One issue that arose in debate was the advice given to Farepak agents holding customer payments not yet paid into the company’s account. My understanding is that they had been advised that the money should be returned to the customers. Will the Minister confirm that the administrator has indeed given that advice? As the hon. Member for South Swindon said, the Hamper Industry Trade Association Ltd is reported to have referred to a bond against deposits for member companies. Does the Minister agree that such an offer is largely meaningless in a case of such scale and calibre? The collapse of Farepak has left many families facing a bleak Christmas. They tried to do the right thing by saving for the festivities, but now they are completely out of pocket—in some cases, to the tune of hundreds of pounds. We do not know the exact number of customers. Some reports suggest that about 120,000 are affected. Indeed, the total amount lost is not clear. Estimates vary between £27 million and £40 million. What we do know is that those people have been robbed of their Christmas. The collapse seems to have come without any warning to the customers or to the 25,000 or so agents who acted for Farepak. Marisa Cavarra, who was an agent for Farepak in the vale of Glamorgan, told the BBC:"““We had no indication that anything like this was about to happen. I paid my money last month and there were no warnings that there were problems.””" The lack of forewarning is especially concerning given that the parent company, European Home Retail, had its shares suspended three months previously, back in August. Will the Minister ask why it took so long for administrators to be appointed after the shares were suspended and why, as several hon. Members mentioned, payment reminders were sent out to agents during that period? The absence of information is not the principal concern, however. When one looks at the accounts, one sees that Farepak’s finances looked good. It received a clean audit, had assets of £3.6 million and last year had a profit of £1.6 million, so what went wrong? Where did the families’ money go? There have been reports, notably in The Sunday Telegraph, that there were significant cash transfers between the parent company, EHR, and Farepak, with the former using the large cash balances of the latter to pay off its overdraft with the group bank, HBOS. Let us be clear: group-wide money management is fairly routine for many companies and is not, of itself, illegal. However, when that money is the savings of individuals, there is a serious problem if those deposits are not secured appropriately. In 2000, EHR bought a book and toy firm called DMG for £35 million. Apparently, the purchase proved to be a financial disaster and after several asset write-downs, the firm managed to sell DMG—for just £4m. Several analysts have suggested that that episode in particular is the reason why the firm found itself owing millions to its bank. That is when, the reports suggest, the large cash transfers between Farepak and its parent company began in earnest. Someone decided to raid the piggy-bank. Given that, can the Minister confirm that his Department’s inquiry will specifically consider that aspect of the case and the actions of those responsible for the financial management of the firm, including the advisers and the bank? Equally, I wonder whether he can comment yet on the advice that he received from the Insolvency Service, which he sought on 19 October. Farepak was one of many Christmas-club companies, which tend to target those on lower incomes and which bank the money on their behalf, usually in return for vouchers that are redeemed in stores such as Woolies or Argos. The more people save, the more vouchers they get. That savings model has been around a long time and typically means that the retailers are extending a lot of credit to the voucher company while it in turn is cash-rich. To be fair, the activity has been around a long time and has, for many lower-income households, been a good informal way to save. As hon. Members said, there is a personal touch to that form of saving, not least because it is often family members who act as agents for the firm. Perhaps most important, that form of saving has helped people who would otherwise never have saved money to start that vital habit. Therefore, if there are remedial measures to be taken beyond this one business, we need to be careful not to destroy the whole market and, with it, the opportunity that many families have to save. Amid the understandable clamour for regulation, the Minister must not—I am sure that he will not—lose sight of the facts of the case and who is responsible. Given that, will he confirm that his inquiry will include the whole EHR group of companies, its directors, its managers and its advisers? Can he say whether the inquiry will extend to the pensions of the work force and to how many of them have lost all or part of their entitlement? Can he confirm that it is his intention to make public the full results of the inquiry? The families affected deserve to know exactly what happened and who is responsible. The sudden demise of Farepak has caused great heartache and financial loss—very often, for people who can ill afford to lose any money. As hon. Members have said, it will mean that for thousands of families Christmas will be bleak. The Minister was very quick in responding to the situation, which is to his credit, but what is important now is that the facts are clearly established about Farepak and EHR and that any proposed actions focus on the specific circumstances. If people have failed in their duties, they must be held to account. It is far too early to say whether this case shows that there is reason to believe that regulation must be imposed on the industry, but once the inquiry is concluded and, we hope, its results published, we shall be able to judge whether Farepak is an isolated case or whether there are wider lessons to be learned. I am sure that, if there is a case for sensible action beyond the circumstances of this case, the Minister will want to return to that issue. Meanwhile, I am certain that the families will want to hear what progress he has made and what news, if any, he has for them about his Department’s inquiry.