HC Deb 16 January 1985 vol 71 cc486-92

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]

2.43 am
Mr. Austin Mitchell (Great Grimsby)

The subject for my Adjournment debate is simple. Selling home improvements has become a high-pressure business, with high pressure at the door, through advertising in magazines and all the other advertising techniques. People offer guarantees. On double glazing, the guarantee can be for five years; on damp proofing it can be for 10 to 15 years; and on house extensions it can be for 10 years.

Such guarantees are a big inducement. They are featured prominently in many advertisements. I have one for Wallguard damp protection products with a huge "Stop it" guarantee for 30 years which claims that Wallguard unconditionally guarantees the treatment carried out to eliminate rising damp for 30 years. That advertisement appeared in the Sunday Express colour magazine on 2 December, 1984, and that same week Wallguard went into liquidation. Thereby hangs my tale.

Not only are many of the guarantees vague; they suffer from limitations of cover. People are guaranteed in the sales talk that there will be no condensation if double glazing is installed, and when the guarantee arrives it does not cover condensation. People suffer from exclusions of liability for consequential losses. If the damp coursing does not work and the whole room has to be redecorated or replastered, often that is not covered by the guarantee. Some of the guarantees are unenforceable without the assistance of a good lawyer, and all of them are only as good as the company that offers them. They are meaningless with a bad company that does not live up to its obligations; they are all right in the case of a good company. But they are all useless if the company goes bust, because they give the holders no right and they give the holders no claim, and as creditors the holders have no status. The guarantees effectively die with the company. But the problems caused by inadequate workmanship or faulty goods linger on.

Therefore, the question is: how can we guarantee the guarantees? It is an important question to anybody who wants to improve his own house. This is a £3,000 million a year business. I suppose we all want to improve our houses. Indeed, one of the most striking features of the past 15 years has been the great surge of home improvement. At times it seemed that the hills were alive with the sound of hammers as home improvement went on. It makes life better, it makes life more comfortable, and it improves the housing stock of the country. It is, indeed, a national service. I should have thought, therefore, that a Government who proclaim their commitment to home ownership would want to safeguard that business and the guarantees that are an essential part of it.

The business is highly competitive and has brought in sharp operators—in some respects cowboys. Guarantees are needed against their inadequacies. Home improvements last for years; the householder is guaranteed that they will live up to the claims made for them. He needs guarantees to give him peace of mind. But what happens if the company goes bust?

There have been several examples in recent months. One of them was Monarch Home Extensions, Peterborough-based, which was offering 10-year guarantees on its work. Another was Coldshield Windows, a big name in the business, which was offering five-year guarantees on its double glazing. There was Mulberry Home Extensions. There was Wallguard Damp Treatment, which I have already mentioned and which was offering a 30-year guarantee. The last three, Coldshield, Mulberry' and Wallguard, were taken over by the Hawley Group in September 1984. The intention then was said to be to combine Coldshield with Alpine, which the Hawley Group already controlled. but in fact all three companies were liquidated in December. A number of householders—it might be as high as 2,000—holding guarantees for work done by those companies were left with worthless guarantees. They had trusted the reputation of the company, they had taken the guarantee, and they were left with no redress or stake; they were not even told, in many cases, that the company which offered them the guarantee had gone into liquidation.

The Hawley Group was happy to take on those companies earlier in the year. It has a similar business, Alpine Double Glazing, so that it can absorb sales money and take on uncompleted business, but it does not feel any compulsion to take on the guarantees offered by the companies that it took over. The Hawley Group is a big group—its turnover in the first six months of 1984 was £119 million — but it has nothing to spare for the guarantees of people who had had work done by the companies that it took over last year. It has just taken over four United States companies concerned with cleaning and landscaping for a first payment of £4.4 million, but there is nothing to spare for the guarantees issued by Coldshield, among others.

The merger makes good business sense, but it does not make good business sense to take on the obligations of the companies that are taken over and then liquidated. For example, there were obligations to old couples with badly fitted double glazing and people with damp courses that were not working properly. That has happened not only with the companies that I have quoted but with a whole range of companies. I have a letter from Mr. Donald Livingston of Largs in Scotland, who says: Having 25 years experience in the Aluminium Window Industry and a former member of The Aluminium Window Association I am disgusted with the present state of affairs in the Replacement Window Industry. Mr. Livingston writes: The main problem lies in the installation of replacement windows. Old windows are ripped out and new ones installed and with timber facings, beading etc., fitted internally, the customer cannot see if the job has been 'botched'. Poor external mastic painting eventually leads to water penetration. Mr. Donald Livingston includes in his letter a cutting from the Sunday Post with a customer complaint to the newspaper. Mr. D. Jenkins writes: Last April, we decided to have double glazing by Alva Glen Windows, Ltd. After the fitting in July, we've had leaking frames, seals incomplete, dust and debris in the sealed glass, etc. They came three times to rectify the faults, which are still there. I've heard they're in financial trouble. The newspaper replies, somewhat tersely: Afraid you're right, Mr. J. Firm in liquidation. Will send address which should be helpful. I wonder whether it was. That is the sort of thing that is happening all too often and for which, if the firm goes out of business, the customer has no redress.

Therefore, the guarantee is not what it is supposed to be—something to give the customer peace of mind and confidence in the installation. It is not rare, because over a score of companies, many small, have gone bust in the past few months, some this week. The problems they face are the recession, and the facts that the trade is overcrowded and has probably' peaked. and that VAT was imposed on home improvements in June. The situation will get worse now that interest rates have risen by 2.5 per cent. because that will be a bitter blow to a business that has become intensely, almost hysterically, competitive.

The extent of that competition is shown by the increasing hysteria of many of the advertisements, which say, "35 per cent. off', "One third off', "Save up to 40 per cent." Those cries reveal a business in a frenetic state of competition. A business that depends, as this one does, on credit, will be hard hit by a 2.5 per cent. increase in interest rates. Something needs to be done, and done soon if the industry is, as I have prophesied, facing severe problems.

I have some suggestions. My Adjournment motion refers to home improvement grants. I approached the matter in that way, frankly, because in an Adjournment debate one cannot propose legislation. I suggest that the firms carrying out home improvements that qualify for grants be required to offer enforceable bonded or insured guarantees that will live on if the firm goes out of business and that those guarantees should be satisfactory in terms of the Office of Fair Trading criteria set out in its documents. That is essential, as I know from bitter personal experience of trying to get redress against a firm the work of which was inadequate, which had been done in my own home, on a home improvement grant. The firm went into liquidation. The council obligingly offered that I could sue it to get redress but then told me that that would probably cost more than the cost of the work in the first place. That is the first avenue of approach.

The second approach is to ask the Newspaper Publishers Association to modify its code of conduct and ensure that the guarantees that feature so prominently in advertisements—for example, a guarantee of 30 years issued in the week that the company went into liquidation—are enforceable and will live on. It should ensure that the newspapers do not go in for the practice of accepting advertisements from firms known to be in difficulties, which offer long-term guarantees that they cannot fulfil.

Thirdly, we can legislate so that, if a firm takes over after a company has been liquidated, it also takes on the liability of that company's guarantees. In this way, if a firm which offers guarantees goes into liquidation, those guarantees can be enforceable subsequently and the people who hold the guarantees will have a claim against the company. We should legislate to ensure that the guarantees are valid, bonded or covered by insurance.

Fifthly, the trade associations have a role. A responsibility falls on the trade associations for the different sections of the home improvement industry. There should be an industry bonding scheme. In the instance of Coldshield, the Office of Fair Trading has already drawn up a code of conduct in the cowboy country of double glazing in conjunction with the Glass Glazing Federation, yet the only responsibility that the Glass and Glazing Federation had when Coldshield collapsed, leaving tens of thousands of customers with worthless guarantees, was to say that, when people had put down the money and not had the order fulfilled, the federation would get another firm to put it in, an effort which was not much use.

The inadequacy of that effort contrasts with the Guaranteed Treatments Protection Trust which was set up recently by the British Wood Preserving Association and the British Chemical Dampcourse Association Ltd. to stand in place of any member contractor who ceases trading leaving unexpired long-term guarantees so that the guarantee through that organisation becomes a secured promise. We should commend and encourage that kind of industry effort as an important way of dealing with the problem.

The aim of responsible and respectable trade associations should be proper bonding in a trade association registered with the Office of Fair Trading so that it is known that the bonding is acceptable and those bonds will live on. This could bring some order and sense into what is still cowboy country and ensure that firms behave responsibly and are prepared to offer guarantees which can be enforced and which they can live up to. That is essential in an industry where conditions are becoming increasingly tougher.

In many respects, the tale of house improvements guarantees is a sorry one. I do not say that everybody with a guarantee should immediately reach for the panic button. Some progressive firms offer effective guarantees, and most guarantees are reliable as long as the firm survives and can be prodded by publicity, legal action or some other kind of pressure into honouring the guarantees. The problem is that not all firms are like that and that few guarantees are bonded or insured. Several firms have got into difficulties and other firms may well be threatened in the near future in the present tough conditions that industries are experiencing — a situation that has been made tougher by the Government's action on interest rates.

It is no use saying: let the buyer beware. I agree with the Office of Fair Trading that it is necessary to educate the consumer to know what rights he has under the guarantee. The consumer must be protected. That entails using the leverage of improvements grants to impose conditions, prodding the trade associations into effective action and enacting legislation to give rights to the guarantee holder. Providing a guarantee is a direct contract between the customer and an authorised insurer. Alternatively, it should be properly bonded in the industry.

There should be a concerted effort to ensure that guarantees mean something instead of being merely a means of conning the consumer into making long-term purchases, which all these items are. Guarantees should be a discipline on an industry which certainly needs one. It is in the interests of the reputable firms in the industry to control the cowboys and to make sure that all firms live up to standards and compete on the basis of satisfaction to the customers.

Home ownership is important and should be encouraged. Home improvement must also be stimulated. To do that the Government have a responsibility to act on the guarantees offered in the industry.

2.59 am
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Alex Fletcher)

I am grateful to the hon. Member for Great Grimsby (Mr. Mitchell) for raising and drawing attention to this subject. There cannot be any hon. Member who over the years has not heard complaints from constituents who have had a great deal of their savings or time and effort wasted by cowboy builders or so-called guarantees or commitments which were not followed through when things went wrong with the business. I am sympathetic, to say the least, and anxious to see what solutions can be found.

The industry is extremely diverse, ranging from the one-man business, and indeed the moonlighter, to very substantial firms, and it is not easily organised into a system of trade associations which could achieve the kind of self-regulation that one would like. I emphasise selfregulation and shall return to it in more detail later.

As the hon. Gentleman knows, the industry generally and the home improvements sector have been studied by the Director General of Fair Trading. In June 1983 the Director General produced a major report on the subject with a large number of recommendations, including cooling-off periods, written contracts, a general duty to trade fairly, encouragement of warranty schemes and standard contract terms. I assure the hon. Gentleman that the recommendations are being very seriously considered by my colleagues at the Department of the Environment. Indeed, I believe that the matter was debated in the House about a year ago.

In a home improvement transaction, as in any other, the primary responsibility must rest with the purchaser—the home owner—to satisfy himself that he is getting the best possible job done. The Office of Fair Trading has provided very useful guidance on this, including an invaluable checklist of seven golden rules for home improvements.

It is always worth choosing a reputable builder and taking full advantage of the schemes increasingly being offered by the construction industry to improve its services. One must, of course. look behind the schemes. I hope that the publicity provided by this debate and the hon. Gentleman's interest in these matters will be further warning to consumers not to take advertisements, such as the one to which he referred, at their face value. I do not know whether it would be practicable for newspaper publishers to try to impose some discipline among themselves to look into such schemes, but the hon. Gentleman's suggestion is certainly worth following up with the Director General, with whom I believe the hon. Gentleman is in correspondence.

The hon. Gentleman particularly mentioned dampproofing. I believe that he mentioned the joint guarantee scheme offered by the British Chemical Dampcourse Association Ltd. and the British Wood Preserving Association, under which member firms offer an independent insurance scheme to clients on payment of a small premium, providing a 20-year back-up guarantee intended to cover situations in which individual contractors go out of business. That appears to be an ideal type of scheme, in that it is independently covered by the insurers and will take effect in cases of insolvency.

I was very pleased, just recently, to learn of the launch of the new guarantee scheme of the Building Employers Confederation by my hon. Friend the Parliamentary Under- Secretary of State for the Environment. As he said on that occasion, the irresponsible section of the industry has fed Esther Rantzen with a rich and steady diet—which, alas, means that much of the industry is tarred withthe same brush.

My hon. Friend also pointed out then that repair, maintenance and improvement is becoming an increasingly important part of the construction industry work load. Ten years ago repair and maintenance made up only 28 per cent. of all construction work: last year, it had increased to about 40 per cent. The business is expanding.

It is normal in such circumstances for people to look to the Government to provide some form of statutory regulation or licensing for firms in the industry. I do not believe that that would be the right answer. I doubt the practicability of such a scheme. I cannot think of an industry that would be more difficult to organise in such a way than the building industry. That is why selfregulation seems to me to be the only way forward.

That view is shared by the Director General of Fair Trading, who has actively pursued a policy of developing codes of practice for many sectors of industry. He has, for example, helped in the formation of a code of practice by the Glass and Glazing Federation which covers, amongst other things, double glazing, to which the hon. Gentleman referred.

There are other schemes. The Building Employers Confederation guarantee scheme was a major step forward in changing the image of the industry and helping to restore confidence to those who have suffered in the past. There are also schemes operated by the Federation of Master Builders, the plumbers and the roofing contractors. The schemes offer varying degrees of guarantee.

Looking to a wider front, I know that the hon. Member is generally concerned about the situation of guarantees and what happens when companies go out of business; and I know he is concerned about other companies assuming responsibility for guarantees and for passing on information to guarantee-holders.

The Government's proposals for the reform of the insolvency legislation—a major Bill received its Second reading in another place on Tuesday—will provide an additional degree of protection for consumers, especially through the wrongful trading provisions, which are aimed at directors of businesses who, knowing that they have become insolvent, continue to undertake obligations that they cannot meet.

Mr. Austin Mitchell

Would it not be possible to table amendments to the Bill giving rights to guarantee-holders? They have a financial stake in the company that goes out of business, so their rights should be recognised in any insolvency proceedings.

Mr. Fletcher

Yes; but the liability would be a contingent liability. It would not be a liability that an official receiver or liquidator could take into account. That would be the difficulty. Only if the guarantee-holder had to call in another contractor to do the work, or incurred some other expense, might he rank as a creditor.

I do not, therefore, think that the hon. Gentleman's suggestion is a practical one. We can, however, make directors act more responsibly, and minimise loss and damage, through provisions such as the wrongful trading provisions. Where they wilfully took on obligations that they knew that they could not honour, directors would effectively lose the protection of limited liability. The hon. Gentleman must agree that that is a step in the right direction.

The problems that have been identified, particularly in the Director General's home improvements report, can best be overcome by voluntary controls on the part of the industry and by greater care on the part of members of the public as these problems are increasingly brought to their attention and they become much more suspicious of guarantees.

As the hon. Gentleman will know, many people—including myself—have bought television sets and paid the extra £25 for a five-year guarantee, only to find that they have become responsible for insurance, having contracted with perhaps an authorised company that is not authorised in that line of insurance. I should add that that was before I took on my present responsibilities. That might be more luck than good thinking, but I had better put it on the record.

The hon. Gentleman will know from the letter that he has received from the Director General of Fair Trading that consumer guarantees are the subject of a discussion paper which was published in August last year. It makes preliminary recommendations that guarantees should be clear and comprehensive, have standard terminology, that, as will almost invariably be the case with construction guarantees, they are for more than one year and that they should take the form of a direct contract of insurance between the purchaser and an authorised insurer so that, in the event of the contractor's insolvency, the consumer will be protected. The consumer will be a party to the insurance contract. I am sure that is a desirable objective.

There are bound to be difficulties for some companies in obtaining insurance cover. That gives the consumer the opportunity to test the company with which he is proposing to do business. There is nothing wrong with that. The trade associations might have some supporting authority or insurance companies might make it clear that a scheme is approved. That could provide real protection. I should encourage the industry to consider such schemes as the Director General is developing.

It is argued that home improvement grants should be linked to long-term guarantees. However, only about 10 per cent. of home improvement and repair work involves home improvement grants. Of some £8 billion-worth of work carried out last year in repairs, maintenance and improvements, only £900 million was given in grant. Therefore, linking the grant with consumer protection would leave the vast bulk of home improvement work unaffected. I understand the hon. Gentleman's reasons for advancing that argument, but that approach would not tackle the scale of the problem.

During the past year, the Government have been carrying out a thorough review of private sector housing improvement policies, including the home improvement grant system. We hope to publish our proposals shortly in the form of a consultation document. The question of guarantee or warranty schemes, and their application to home improvement work, will be covered.

The aim is, in due course, to introduce legislation to simplify the present grant system and to ensure that the money which is available for grants is spent where it is most needed and does good. We have considered measures to ensure that work financed with the aid of a grant is carried out by reliable contractors to a good standard. The hon. Gentleman will tell me to get into that and define a reliable contractor. He is one who is properly and adequately insured—

The Question having been proposed after Ten o'clock on Wednesday evening and the debate having continued for half an hour. Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at thirteen minutes past Three o'clock.