§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Arbuthnot.]
§ 10.6 pm
§ Mr. Austin Mitchell (Great Grimsby)
I wish to describe an appalling incident—the collapse of Land Travel, which was Bath-based and one of the biggest coach tour operators in the country. It left debts of millions of pounds, 2,500 people stranded on coach tours, and 40,000 people with lost deposits. The incident affects many hon. Members. In Grimsby, a party of 20 men, women and children from Dunlop Oil Marine who were travelling to Paris and Eurodisney had their tour cancelled hours before departure. They lost £2,000, the money that they paid for a trip down the Seine, and the money paid for their entrance to Eurodisney.
This appalling failure is an example of the Government's do-nothing regulation. They fail to regulate holiday travel and the company sector. They fail to intervene to protect the consumer. The Government believe in a hands-off approach unless they want to ram-raid the coal industry, when they suddenly take a hands-on approach. The Government intervened in the Land Travel affair only when the chairman of Boston Conservative club complained about the terms of the trip on which his members were being sent.
Opposition Members have been asking for more than a decade for the proper regulation of the holiday market. We have been asking for the protection of investors' funds and holidaymakers' funds, and for bonding to insure against failure. Only now, after all those years of pushing for proper bonding and protection, have the Government been prompted into action by a European Community directive. It is disgraceful that the Government took so long to do so. Even now they are providing only the minimum, with a scheme which has no central licensing, no proper control and no proactive intervention and which will not provide effective protection.
On the issue of the protection of holidaymakers I have two questions for the Minister. What took so long? Can the Minister guarantee that the new system will prevent people from losing money in future as they did in the Land Travel incident? Will it provide protection in all circumstances? The travel trade is in for a rough time. Things will be extremely difficult and there will be more company failures and problems.
This brings me to company regulations and the sector generally. In the case of Land Travel, all the warning signs of disaster were present. The travel trade expected imminent collapse. The company had been run irresponsibly and had been facing chronic problems since 1983. It was not paying its bills. It had been prosecuted by trading standards officers. My hon. Friend the Member for Edinburgh, South (Mr. Griffiths) supplied the Government with a list of 18 warning signs that something was going drastically wrong. That was well before the collapse, but the Minister and the Department did nothing.
I should like to pick out just two areas of failure. First, the accounts of Land Travel were persistently late. They were late in 1983, 1984, 1987 and 1988, and in 1989 and 1990 they were illegally late—and the Government still did nothing. Accountancy research shows a close correlation between the lateness of accounts and companies 1106 collapsing. It is a warning sign that something is going disastrously wrong, yet the Government do nothing and feel no responsibility even to enforce reporting requirements. Why was nothing done while it was becoming the company's habit to put in late accounts?
The second major area of failure concerns the continual qualification of the accounts by the company's auditors. In 1986, 1987 and 1988, Shaw and Company expressed serious reservations. As for the 1990 accounts, Price Waterhouse reported debts of £2.1 million, of which £1.5 million was not recoverable. It refused to approve the accounts and was of the opinion that the company was not a going concern. If Price Waterhouse had taken a full-page advertisement in Accountancy Age and screamed the news from the top of one of the minarets of BCCI it could not have done more to draw attention to the imminent failure of this company.
Why did the Government take no notice when all this evidence was pouring in? What are qualifications on accounts for? Who is supposed to act on them; who is supposed to invigilate them? Why does nothing happen when accounts are qualified in this way?
§ Mr. Don Foster (Bath)
As the hon. Gentleman will know, Land Travel's headquarters were in my constitu-ency. Many hon. Members will know that many people in my constituency have suffered because of the collapse of the company—not only customers but employees of Land Travel.
I hope that the hon. Gentleman shares my pleasure at the fact that a number of former employees of Land Travel who were in no way implicated in the collapse have formed a new company, Tours Direct, which I hope will provide a good service. I am sure that the hon. Gentleman shares my considerable concern at the fact that the former managing director of Land Travel, Mr. Valere Tjolle, made no attempt to answer creditors at the creditors' meeting or subsequently. Although we welcome the inquiry that Baroness Denton has set up, because of the possibility that it will find the Government culpable and hence make possible compensation for those who lost out, there should also be a detailed inquiry into the company's trading practices so that lessons can be learned which will benefit other similar companies and prevent similar collapses. I assure the hon. Gentleman of my full support for his remarks.
§ Mr. Mitchell
I agree with what the hon. Gentleman says about an inquiry. The one that we have is pathetic and inadequate; it should be more substantial and more effective.
As for former employees—whom are company accounts for? Employees cannot rely on them, consumers cannot rely on them, so whom are they intended to inform? Why does no one see to it that action follows when accounts are seriously amiss?
If the Government claim that people should have known from the accounts that something was wrong, why do not they require travel companies to display their latest profit and loss accounts and most recent bank statements in the office, just as banks are required to display them, and have been since 1879? During proceedings on the Companies Act 1989, we pressed for severe fines for late accounts. Nothing was done; the Government turned down the idea and refused to do anything about it. I have pressed in articles and in parliamentary questions to the 1107 Minister that the DTI should examine samples of accounts, that he should look at accounts qualified by the auditors and ensure some sort of enforcement procedure so that companies legislation requirements are complied with at Companies house. The answer was always no. The Government do not want to know or to do anything.
Alarm bells should have rung at the Department. Bills were unpaid, the company was trading insolvent, it had a series of fines under trades description legislation and massive debts. But the Government turned a Nelsonian eye to all that, and no one else was responsible for doing anything about it. Why was the company left in that situation?
We need a new Companies Act to provide for proper regulation in this area. There is no point in relying on the requirements for directors, because directors can be crooks. I do not say that that was the case in this instance, but it is curious that a director paid himself £463,000 in four months just before the company went bankrupt. There is something funny there.
Why did not the Government put in DTI inspectors and stop this company trading before all those people lost so much money? The Minister has the powers and can act on substantial information, and the state of the accounts was that substantial information. He should have acted. He had been continuously warned and all the symptoms of disaster were there.
I conclude with two questions to the Minister. Why, after all that time and all the warnings, did he or the Department not act; and, having failed in a pathetic, inadequate fashion, why does he argue that he does not now owe compensation to the people who have lost money? He does.
§ Mr. Gordon Prentice (Pendle)
I shall concentrate on one aspect of the matter, the role of the insurance company, General Accident.
This whole affair is a story of fraud and deception in which thousands of people, including many of my constituents, had their holiday dreams shattered. People such as Mr. and Mrs. Dalby of Carleton Road in Colne lost £500 of their hard-earned money. They were conned into believing that the holidays that they were buying were comprehensively insured and underwritten by one of the insurance giants, General Accident. The price of the holiday specifically included insurance cover, but we now know that the policies were not worth the paper on which they were written.
The travel insurance document, which had the General Accident logo prominent on the cover, gave the appearance of solidity and reliability. Nowhere in the small print did it even suggest the possibility of the company folding. That was not listed in the scheme of general exclusions which included war, invasion, rebellion and so on.
Land Travel required that all its customers be comprehensively insuredfor their own benefit and to avoid expense and disappointment".However, 24 hours before the collapse of Land Travel became public knowledge, General Accident, in a nifty piece of footwork, withdrew all its insurance cover. One of my local papers, the Lancashire Evening Telegraph, was told by General Accident four days ago that it withdrew following a lengthy dispute with Land Travel and not 1108 because of any prior knowledge that the firm would collapse. If General Accident expects us to believe that, it must think that we all have pointed heads.
I have several questions for General Accident. What is its responsibility to the thousands of people who paid Land Travel in good faith and on the strength of the General Accident connection? Is that insurance company prepared to underwrite any old fly-by-night operator? What checks did General Accident run on Land Travel? Did it check at Companies house? Does it still underwrite holidays from firms that are trading outside the ABTA umbrella? When did the company first realise that Land Travel was going down the tube, and does it take any responsibility for the misery that has been caused to so many of my constituents?
To date, the silence of General Accident has been deafening. I want a statement from that major insurance company; and, what is more to the point, I want my constituents to get their money back.
§ Mr. Nigel Griffiths (Edinburgh, South)
It is our contention that the previous Minister with responsibility for consumer affairs, the hon. Member for Gainsborough and Horncastle (Mr. Leigh), failed, in 1991, properly to investigate a grave complaint about Land Travel. His failure permitted the company to continue to trade when it was, in effect, insolvent until its collapse a year later robbed 40,000 people of their holidays and holiday payments.
On 14 August 1991, the then Minister received a letter from the Boston Conservative club. It had examined Land Travel's books, which revealed many adverse financial factors about the company, including £560,000 of debts, an illegal failure to file accounts and the fact that it was not a member of ABTA and therefore held no insurance to protect its customers in the event of collapse.
The hon. Gentleman made only the most superficial check, confirmed that the accounts had not been filed within the legal time scale and took no further action. In fact, his Department then lost that letter. If the then Minister had only used his powers, and had the inspectors spent only a few hours investigating the company's accounts, they would have found all the warning signs. Serious reservations were expressed by the auditors from 1983 onwards, and the latest accounts showed the company to have £1.5 million worth of irrecoverable debt. There was a whole host of other adverse financial factors. Had the Minister acted then, inspectors would have wound up the company.
The then Minister's inaction had devastating consequences on 40,000 people, including church groups, school parties, social clubs and many families and individuals who had booked holidays with a near-bankrupt company that the Minister failed to investigate.
Some 101 Members have signed early-day motion 562, which calls for an inquiry into the Government's handling of this matter, not just into the loss of that letter—the inquiry mentioned by the hon. Member for Bath (Mr. Foster)—and to consider compensation. The only person involved in this sorry saga who did not lose is the hon. Member for Gainsborough and Horncastle, yet he has not had the courtesy to come here tonight to explain his inaction. He should resign without delay, and his successor 1109 should ensure that there is an independent investigation into this fiasco. If not, the Opposition will continue to press for justice for the victims of this company's collapse.
§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton)
I shall beguile the hon. Member for Great Grimsby (Mr. Mitchell) by informing him that this is the first time that I have spoken from the Dispatch Box, and the first time that I have made a speech in the Chamber since June 1990, when I pointed out the circumstances in which the exchange rate mechanism would collapse. I am not sure that I shall carry him much further with the speech that I shall now make.
I recognise that many hon. Members are greatly concerned about the collapse of Land Travel and I congratulate the hon. Gentleman on securing this Adjournment debate. In the nine years that I have been in the House, I have never been successful in securing such a debate, but I am sure that, when I return to the Back Benches in due course, I will have more success.
The hon. Member for Great Grimsby has raised an important and topical subject, and if I do not agree with all that he has said, I still congratulate him on the force with which he has, as usual, made his case. I also congratulate the other hon. Members who have participated in the debate. I shall begin by speaking about the general issue of regulation of the travel industry and then deal with the specific issue of Land Travel.
The package travel industry is unusual in that it commonly requires payment in advance—usually some weeks in advance—of the full cost of the package that the customer has purchased. The customer is accordingly more than usually dependent upon the skill, the honesty and, above all, the solvency of his supplier. At the same time, there is vigorous competition in the package travel industry. That is not a bad thing. As the Minister responsible for competition, I think that it is a good thing. It means that the customer is getting a good deal.
We should not lose sight of the fact that package holidays in the United Kingdom offer value for money as good as any in the world. However, the keenness of competition in the industry means that firms must work to narrow margins. This inevitably increases the risk of companies finding that they have over-committed themselves and cannot continue.
If a company becomes insolvent in the middle of the holiday season, customers who have paid for their holidays but have not received them are likely to lose their money. The sums of money involved are likely to be substantial, at least to the individuals concerned. People may save all year for their holiday, and if they lose their money they may be in no position to buy another. So I fully accept the importance of the issue that has been raised.
The need to protect consumers in this situation has long been recognised, and was tackled by a combination of both Government regulation and private sector initiative. On the Government side, there came into being the air travel organisers licence system, under which all purchasers of air charter seats are protected by the 1110 operators being required to take out a compulsory bond for which, if the bonding level proves inadequate, there is the air travel trust fund in reserve.
For the private sector, a number of trade associations from the travel industry, notably the Association of British Travel Agents, set up their own customer protection schemes. The ABTA scheme was particularly comprehen-sive, in that not only did ABTA give an undertaking that no customer should suffer loss as a result of failure of a member, but, because for overseas travel ABTA operators are permitted to sell only through ABTA retailers and vice versa, the coverage of that membership has become extremely wide. It now encompasses the great majority of travel agents and operators who sell through travel agents.
But its coverage is not complete. In particular, it does not embrace all the many small—and some not so small —operators that deal directly with the public. Some of these operators are covered by other voluntary schemes. But I fully accept that many are not, and, as we have seen in the recent unfortunate case of Land Travel, this can mean substantial numbers of people being left without compensation in the event of an insolvency.
This is a clearly an unsatisfactory situation. The problem of the solvency of package tour operators is not of course unique to the United Kingdom and the Commission of the European Communities for which I know the hon. Member for Great Grimsby (Mr. Mitchell) harbours warm feelings, took the lead in preparing and submitting to the Council of Ministers the draft directive on package travel. The United Kingdom Government fully supported the broad thrust of the package travel directive, and it was adopted unanimously by the Council of Ministers in June 1990. It is required to be adopted in the law of member states by the end of this year. The draft directive throws its net very wide. It includes, for example, business packages, packages organised on a voluntary basis, and packages which do not involve travel. It requires member states to have measures requiring sufficient evidence of security for the refund of moneys paid over for a package.
The package travel directive does, however, do much more than require organisers or retailers of packages to have security for pre-payments. It requires them, for example, to have in place arrangements for repatriation should this prove necessary. It regulates the content of brochures and specific information that must be given to the customer before he enters into a contract.
I do not have time to give way. It is important that we place the example that hon. Members have raised and our concerns about it in the context of both the legislation that is about to supervene and the present situation.
The directive regulates the contents of brochures and specific information that must be given to the customer before he enters into a contract. It regulates the content of the contract, and requires that the customer be given a copy. It restricts the extent to which operators may impose surcharges after the contract has been concluded. It lays down requirements regarding the performance of the contract, notably in requiring that the operator accepts strict liability for its performance.
§ Mr. Hamilton
The hon. Gentleman knows that there is a limited time for me to reply. I wish to respond to the issues that have been raised by hon. Members in the—
§ Mr. Eric Clarke (Midlothian)
On a point of order, Madam Speaker. What does the Minister's reply have to do with the 40,000 people who have lost their money?
§ Mr. Hamilton
I remind the hon. Member for Midlothian (Mr. Clarke) that the debate is about regulation of the travel industry and Land Travel. I am referring to the regulation of the travel industry, which includes Land Travel. I shall take up the instant case that the hon. Gentleman and others are concerned about.
The package travel directive regulates the content of the contract, and requires that the customer be given a copy. It restricts the extent to which operators may impose surcharges after the contract has been concluded. It provides protections which have not been available in the past but which will be available in future to prevent situations arising in which, in some circumstances in the past, customers have lost money. In future, it will provide some protection for them.
It means that the operator will no longer be able to blame, for example, an hotel if a promised swimming pool does not materialise. Many of the requirements—for example, the giving of accurate information and proper performance of the contract—are already part of United Kingdom law, but others go further. The creation of a body of regulation aimed specifically at the package travel industry will, I am sure, do much to raise the standards of all operators towards those that are already observed by the best.
Implementation of the package travel directive has been thoroughly discussed—
§ Mr. Hamilton
I apologise. I shall not be able to answer the specific points on Land Travel if I continue to give way to hon. Members—[interruption]—or if I am forced to do so on points of order.
The position is that the consultation period ended last week, and we will now go ahead and finalise the implementing regulations which we hope to lay before Parliament in time for them to be debated before the Christmas recess.
I shall not attempt to describe here the many points of controvery that have arisen during the discussions on the implementation of the directive. We have listened, I hope with an open mind, to a wide variety of views. Inevitably, the decisions that we have taken have not pleased everybody. Some wanted us to go further in implementing regulations than the strict requirements of the directive. Except in the important area of surcharges, we have generally resisted that pressure. Others sought exemption from the requirements of the directive altogether, and we have had to explain that that is not within our power.
There is, however, one important issue which I would like to deal with specifically—the question whether the requirements of the directive regarding protection against insolvency should be enforced by the setting up of a compulsory licensing authority, to which the hon. Member for Great Grimsby referred. That was urged upon us by 1112 both consumer interests and the main trade associations involved in the industry. They pointed to the successful example of the ATOL system in the case of travel by air charter, and suggested that it be duplicated by a parallel authority for non-air charter packages.
After a great deal of thought, we rejected that solution because, though we recognised that there were arguments in its favour, it would have meant the creation of a body which would have been both expensive and bureaucratic. The parallel with the ATOL system is misleading. ATOL holders are a fairly small group of companies of broadly common structure and purpose, though they do of course vary greatly in size. The number and variety of those that would have been embraced by a licensing system for packages not covered by the ATOL system would have been very much greater. The average size of operators would also have been very much smaller.
We concluded that the expense and burden of a licensing system would far outweigh any advantages that it might bring, bearing in mind that, ultimately, the bearers of the expense would be the purchasers of the package holiday. That remains our view. It needs to be remembered that the entire cost of a licensing body would necessarily have fallen on those regulated by it, and that the cost would have to be met before, and in addition to, the cost of providing security for pre-payments.
The Government's aim is to reduce the burdens upon industry, not to increase them. We aim to encourage consumer choice, not to restrict it. We aim to encourage enterprise, not to block it with bureaucratic hurdles. For all those reasons, we reject the hon. Gentleman's licensing solution, though we recognise and respect the genuinely held views of those who have argued otherwise.
That brings me finally to the case of Land Travel. Land Travel was not a member of ABTA or of any other trade association. It had no security for the payments made to it and, when it became insolvent, many customers lost their money. I recognise that it is small consolation to those who lost money as a result of Land Travel's collapse that the package travel directive to be implemented shortly should reduce such instances in future.
The hon. Gentleman argued that, because the Department of Trade and Industry had in its possession certain information regarding Land Travel, it is in some way responsible for Land Travel's collapse and should therefore pay compensation to those who lost money. I must make it clear that, much though the Government regret the loss that many people have suffered, and we all have constituents in that position, they do not consider that there would be any justification for paying compensation from public funds.
The hon. Gentleman's argument betrays—if I may say so for such an expert in company law—a misunderstanding of the role and responsibilities of my Department towards the corporate sector. In the first place, whatever we may do, it is not in our power to prevent companies from becoming insolvent. The Department of Trade and Industry has in any event no general monitoring role in relation to companies. We do have certain powers of investigation to which the hon. Gentleman referred, when we have good reason—for example, evidence of fraud or misconduct—but the availability of those powers cannot prevent insolvencies occuring and is not intended to.
In view of the allegations made by the hon. Gentleman I propose to set out the facts in some detail. In August 1991, my hon. Friend the Under-Secretary of State for 1113 Technology, the Member for Gainsborough and Horncastle (Mr. Leigh) had forwarded to him a letter from the Boston Conservative club. The letter drew attention of the fact that the company's 1988 accounts showed that the company had an excess of liabilities over assets and complained that more recent accounts ought to have been filed. Land Travel's 1988 accounts were not qualified by the company's auditors. The letter was referred to Companies house to answer as a late filing complaint, and Companies house said in reply that the accounts up to March 1990 had been filed and placed on the public record.
It is a requirement of the law that company accounts should be filed with Companies house within the prescribed period, but Companies house is not responsible for scrutinising accounts beyond ensuring that they meet the main statutory requirements—such as including a profit and loss account, balance sheet, reports by directors and auditors, and so on.
The hon. Member for Great Grimsby asked whom the accounts are intended to inform. The purpose of filing accounts is to inform the shareholders and the general public of the company's financial position. In recent months, we introduced a system of fines for failure to satisfy the obligation in the Companies Act 1989 to file accounts within 10 months from the end of the company's 1114 financial year. The responsibilities of Companies house are limited to ensuring that accounts are filed in a form that appears to comply with statutory requirements and that they are filed in due time.
Companies house has neither the means nor the power to examine company accounts and thus perform the functions that the hon. Member for Great Grimsby invites. If we were to impose that obligation, Companies house would have a large compliance burden, which would prejudice the proper performance of all the functions it has performed hitherto.
Companies house can and does take action against companies that fail to meet statutory requirements, but that is all. It is for company shareholders and creditors to take such action as they may see fit, on the basis of information contained in the accounts.
I regret very much the loss suffered by many who could ill afford that loss as a result of Land Travel's collapse. The Government are addressing the gap in consumer protection that the collapse highlighted, and we hope that the regulations that we shall shortly lay before Parliament to implement the package travel directive will serve to prevent a repetition of that regrettable occurrence. However, the Government cannot—
§ The motion having been made after Ten o'clock, and the debate having continued for half an hour, MADAM SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at twenty-four minutes to Eleven o'clock.