Consumer Guarantee Protection (Hansard, 19 June 1985)

§ Mr. Michael Hirst (Strathkelvin and Bearsden)

I beg to move, That leave be given to bring in a Bill to oblige traders offering long-term guarantees when providing goods or services to make suitable arrangements to ensure that such guarantees remain effective in the event of the trader ceasing to trade. Adam Stewart is a retired constituent of mine and he and his wife like nothing more than to sit in their home and admire their garden. Some months ago they succumbed to the blandishments of a salesman from Coldshield Double Glazing and spent a lot of their life savings installing double glazing in their home, largely relying upon an assurance they were given by the salesman of a five-year guarantee for the work.

After installation of the windows, problems emerged and Mr. Stewart spent several frustrating months trying to have the work put right. Alas, in the meantime Coldshield went into receivership and Mr. Stewart discovered to his alarm and anger that his guarantee was worthless. By the time he contacted me, nothing could be done to help him.

Many hon. Members will be uncomfortably aware of similar cases and will know of the heartache, worry and financial loss experienced by people who discover that they hold worthless guarantees. Hon. Members will have experienced the frustration of writing impassioned letters to the Director General of Fair Trading, to the Minister with responsibility for consumer affairs and to the receivers or liquidators of companies, only to receive sympathy but no recourse for our hapless constituents.

The spate of insolvencies in recent years has left millions of people unprotected against defective goods or workmanship in relation to double glazing, dry rot and dampness eradication, loft conversion, servicing of domestic appliances, rustproofing, and so on. The extent of the problem is confirmed by a Which? report stating that, of 850 wood preservation firms surveyed, 600 had ceased trading two years later.

A company does not have to go into insolvency for the consumer to discover that his guarantee is ineffective. The small print often excludes apparently reasonable grounds for a claim.

These are not isolated occurrences. According to the receiver to whom I wrote on behalf of aggrieved constituents, the recent collapse of Coldshield has left tens of thousands of people with worthless guarantees. Wallguard was advertising 30-year guarantees for its damp treatment the week that it went into receivership. Servis washing machines, Multi Guarantee, Mulberry home extensions and countless other failures tell a tale of misery for people who paid good money in the hope and expectation that the work done was properly guaranteed.

The impressive growth of home ownership in recent years has been comfortably outstripped by the growth in home improvements, and many people have spent a great deal of money improving their homes—an objective that we all regard as thoroughly desirable. The private sector home improvement market is estimated to be worth about £6 billion per year. Inevitably, however, the cowboys have come in looking for the potentially rich pickings. Due to their ability to undercut reputable traders by accepting cash payment, the cowboys are believed to command about 40 300 per cent. of this lucrative market, with disastrous results for penny-wise, pound-foolish, home improvers who give their business to cowboys.

The guarantee is used as a hard marketing tool in advertising literature and in the sales pitch of high pressure salesmen. Purchasers believe, usually reasonably, that they are buying peace of mind and that the guarantee that comes with the goods or services gives them the right to have defective work put right during the guarantee period. Few customers are aware of the terms of the guarantee. Often they do not see the terms before they are committed to buy or the work is executed. Frequently, the guarantee turns out to be heavily qualified, excluding consequential loss, often non-transferable in the event of sale and containing other unnecessarily restrictive conditions.

A parliamentary answer last November to my hon. Friend the Member for Congleton (Mrs. Winterton) revealed a sharp increase in the number of complaints referred to the Office of Fair Trading in relation to construction, double glazing and home insulation. With complaints running at almost 50,000 per annum, the Office of Fair Trading is understandably worried about the problem and its discussion paper confirms its concern about the imperfections of guarantees and the position of holders of worthless guarantees.

In fairness, I should point out that a number of trade federations have made efforts to ensure better standards of workmanship and better guarantee cover, but despite the many worthwhile initiatives traders can still offer guarantees which mean virtually nothing in practice.

The purpose of the Bill is to simplify and strengthen the meaning of the term "guarantee" and to oblige traders who offer guarantees in excess of one year to make suitable arrangements to ensure that those guarantees remain effective throughout the entire period in the event of a firm ceasing to trade. Such a guarantee would be effected either by direct insurance between the consumer and an authorised insurer or by an approved trade association scheme or indemnity scheme which, one hopes, would have an independently insured backstop. The use of the word "guarantee" would be outlawed in all other circumstances. I must stress, however, that nothing in the Bill in any way affects the existing statutory rights of consumers under the Sale of Goods Act or the Supply of Goods and Services Act.

Most importantly, my proposals do not depend upon statutory regulation or the licensing of individual firms, nor are they designed to protect people from their own wilful stupidity. People will still be free to deal with the firm of their choice, whether it is a cowboy firm or a reputable company. Firms unable to offer a guarantee would confer on consumers no guaranteed rights and they would trade with them at their own risk. With proper publicity and the education of consumers in the risks of trading with a non-guarantee company, it is to be hoped that there would be a significant reduction in complaints of the sort which have been aired in Esther Rantzen's programmes or which have appeared on the consumers' problem pages in the tabloid newspapers.

An indirect benefit of the Bill would be encouragement for trade federations, membership of which would presumably enable a trader to obtain more competitive terms for guarantee provision. Building societies and banks also have a part to play, as much home improvement work, which is the source of so many complaints about worthless guarantees, is financed by them. They should,

301 if only to protect their underlying guarantee for the loan, require the borrower to use a trader offering a proper guarantee.

It is not my intention that those guarantee requirements should inhibit the small trader or the new entrant to the industry. These people would still have every opportunity to develop their businesses. I am sure that many of them grow from small beginnings by operating locally and enjoying personal word-of-mouth recommendations.

I accept that there would be an extra burden in arranging guarantee insurance, but that would be a small price to pay for the extra business which would be forthcoming from those seeking the security of a guarantee.

People may well ask whether the result of the Bill would be yet another step along the road to the nanny state. I remind the House that deposit taking, credit sales and hire purchase, and the operation of banking and insurance, are already subjected to stringent statutory control. The clients of lawyers, accountants and stockbrokers have the security of an indemnity fund. Holidaymakers are protected by a Government-funded scheme. I am looking not for Government funding but for a legislative framework to ensure that a guarantee is in reality what it purports to be.

Question put and agreed to.

Bill ordered to be brought in by Mr. Michael Hirst, Mr. Spencer Batiste, Mrs. Virginia Bottomley, Mr. Hugh Brown, Lord James Douglas-Hamilton, Miss Janet Fookes, Mr. Charles Kennedy, Mr. Austin Mitchell, Sir Hector Monro, Mr. Stuart Randall, Mr. James Wallace and Mr. Gordon Wilson.