§ Motion made, and Question proposed, That this House do now adjourn.—[Charlotte Atkins.]
7.35 pm§ Mr. Peter Kilfoyle (Liverpool, Walton)First, may I say what an honour it is, Mr. Speaker, that you should choose to remain in the Chair for this Adjournment debate? May I take the opportunity to wish you and your wife a pleasant and relaxing summer break from your arduous duties?
I wish to raise the issue of the Accident Group, a personal injury firm that collapsed overnight on 30 May, sacking 2,700 people, many of whom were told by text message. The majority were left without salaries, and huge questions remain to be answered about the way in which the firm functioned. Why did directors continue to spend frivolously when they knew that the firm was in serious financial difficulty? It owed six months' national insurance payments. Why was there a deliberate board-level change in policy last year, which meant that the firm held on to millions of pounds that should have been paid back to the banks? Why did the company's sales reps deliberately target vulnerable, poverty-stricken people and entice them to fabricate claims, knowing that they were false? Why as yet is there no regulation of these so-called claims farmers, and why has no investigation been launched by the Department of Trade and Industry?
The Accident Group, which is known by the acronym TAG, was started by Mr. Mark Langford as a small personal injury claims firm in 1993. In 1999, after the Access to Justice Act 1999 created a market following the loss of legal aid, the company took off. In the new era of no win, no fee, TAG was responsible for the catch phrase, "Where there's blame, there's a claim," and stormed on to the scene, conquering 25 per cent. of the personal injury market in less than two years. The company claimed to be one of the fastest growing UK businesses, and reported an increase in turnover of 179 per cent. last year to £243 million. Based in Manchester, and part of the Amulet Group, the firm worked by asking the claimant to take out a bank loan to pay for a post-event insurance policy. That bank loan would pay for TAG's fees, and would be paid back to the bank from the damages won by the claimant in a case at least that was the theory.
If the claimant lost the case, the insurance policy would pay out, and the loan would be paid back anyway, leading the claimant to walk away and pay nothing—hence the claim, "No win, no fee". Claimants were sought by telesales, door-to-door canvassing, secondary selling—a claimant would be asked if they had a relative or friend who wanted to claim, or whether they wanted to make another claim themselves—and television and radio advertising. Teams of salesman even used to trawl for claimants on the streets in the centre of my own city of Liverpool. As well as a basic salary of £1,300 a calendar month, reps were paid £50 a claim for 33 per cent. of the claims that they wrote up. Until last August, that commission was paid regardless of whether a case was taken up or not. A salesman would find a claimant and get them to sign a form stating the nature of the injury and the cause of the accident. The details would then go back to the office, 404 where another part of the company called Accident Investigations Ltd., or AIL, would investigate the claim further to see if it had a chance of winning. Once AIL had decided to go ahead with the claim, it would be activated—a credit agreement would be signed by the claimant who would take out a bank loan from the Royal Bank of Scotland, which would cover TAG's £995 fees, AIL's £320 investigation fee, any medical fees—on average, about about £400—and other disbursements.
Once the loan had been taken out, the case would be passed to an independent vetting firm of solicitors, a Manchester-based firm called Rowe Cohen. The firm would in turn pass the case to one of a panel of 600 or 700 solicitors for a vetting fee of about £50 plus VAT. That solicitor would then take the case on for the claimant and deal directly with him or her. If the case succeeded in court or was settled for an agreed amount, the bank loan and the solicitor's fees would be paid out of the damages and the claimant would get whatever was left—in many cases, not very much. If the case failed after a court hearing, the insurance policy would pay out and the fees of all those involved in the case except the solicitors would be paid, and the bank loan would be paid back from that.
Sometimes claimants could not be contacted by the solicitor, or would not want to go ahead with the case, or it was found that the amount winnable in damages would not cover the costs of taking the case, or that the case was fraudulent. In an agreement drawn up between TAG, the insurance underwriters and the banks, if that happened after the loan had been activated and the case was less than nine months old and had had less than £55 of disbursements spent on it, it could be voided. That meant that TAG would pay back its £999 fee, AIL would pay back its £320 fee, the insurance company would pay back its premium, and the entire bank loan would be paid back as though nothing had ever happened. Everyone would go back to zero and the case would be binned. Seemingly, everyone was a winner, or at least not a loser.
However, I must give credit to BBC Radio—a much-maligned part of our media, but I have great respect for it, and for no programme more than "You and Yours", which investigated the company and revealed several anomalies. Panel firms of solicitors would pay, as I said, £50 to take on a case on the basis of information provided by TAG, yet once taken on, the standard of cases passing through the vetting solicitors Rowe Cohen was found to be so bad that one panel firm said to the programme's researchers that out of 1,200 cases offered by TAG, only 150 were of sufficient standard to be pursued. The rest were exaggerated, embellished or simply fraudulent. That raises serious questions about the effectiveness of the procedures of Rowe Cohen.
TAG sales representatives were told to get four claims a day, but because of the commission basis were encouraged to get as many as they could. Sources in the company revealed that as the company grew, the reps became less and less concerned with the validity of the claims, and in numerous cases not only knew the claims to be fraudulent, but set up the situation for the fraudulent claims to be made. I emphasise that not all TAG sales reps were unscrupulous—not at all. Indeed, some claim that they raised their concerns about methods with the company, but were ignored.
405 We must be aware of the structure above the reps. Managing the sales rep was a supervisor. Above him or her was a first line manager, then an area manager, then a regional manager, then a divisional manager, and ultimately the cost centre manager. They were all paid commission on a sliding scaled based on the reps' performance at the bottom of the heap. It was like an inverted form of pyramid selling. Some reps would knock on doors after a bus crash and recruit claimants by getting them to sign forms and filling in the details later.
One man said that a visit from a TAG rep resulted in a claim for industrial deafness while working at the Ford Motor Company, another claim for vibration white finger caused by operating a kango hammer while working for Cruden, and a third claim for injuries after being involved in a bus crash, but the man remarked that he had never worked for Ford or Cruden, and had never travelled on a crashing bus. The rep had told him—a vulnerable single father of four—that he would get his money anyway. I should point out that Arriva and two other bus companies are investigating 400 such allegedly fraudulent claims.
Other reps would wait for vulnerable people outside jobcentres, then lead them round a corner before talking them into claiming that they had tripped over a paving stone, conveniently photographing them at the scene as part of the claim. One rep would use a series of five potholes successively, enticing cars full of passengers to them, then persuading the driver to claim, falsely, that he had driven over the pothole. The driver and passengers would all be written up for non-existent whiplash injuries.
Cleaners were the easiest, one rep said, because any woman who worked as a cleaner could be convinced that she had a work-related injury. People working as security guards and office workers were also easily persuaded. Effectively, anybody who worked could fall into the scam. One lady alleged that she had been approached in the street and that a fraudulent claim was written up in her name despite her asking otherwise—and the rep still received the commission.
One of the reps has gone on record as saying that he used to stand outside Liverpool prison in my constituency waiting for prisoners to be released, after which he would talk them into claiming that they had a bad back that had been caused by sleeping on lumpy mattresses. I did not know that it was possible to sue the Prison Service for that. Hundreds of such claims went through the system. No claims ever reached the prison, but the point is that the reps were paid their commission. The rep also talked about persuading a woman who broke her leg on an ice rink to sue on the basis that the signs saying "Danger—Slippery Surface" were not visible enough. It was not seen as relevant that the woman was wearing ice skates at the time.
Much of the documentation that has become available reveals that a large number of claims submitted to the company were false and known to be so by the reps. However, until last August, when the rules changed, they retained their commission. The reps' explanation is simple. They were under enormous pressure from the company to hit claims targets. They say that four claims a day was their standard target. As 406 I mentioned, when a case was no longer active, it could be voided and the moneys taken out and paid back. On average, in 2001–02, 15,000 cases a month were activated. Loan amounts could vary, but they included that standard fee of £995 for TAG and £320 for AIL. A loan of about £1,500 was the norm.
For months, out of 15,000 cases activated in a month, 2,500 to 3,000 cases were voided—a rate of about 13 or 15 per cent. Consequently, the moneys were paid back. For TAG alone, the total would be £2.5 million to £3 million a month, and for AIL, which was wholly owned by TAG, it would equal about another £1 million. That was quite normal in the business.
In December 2002, that rate dropped overnight to 300 voided cases a month. That meant that only £300,000 was being paid back to the bank. The figures show that that went on for some time. Indeed, it continued from December 2002 until about the following April, when the number of voided cases suddenly leapt back up to 2,900. I am told that that came out of a row between a TAG director, Maria Berry, and Anthony Denison of Rowe Cohen, which made it clear that there was a problem for the company. In May 2003, the figure dropped back to 258.
Then came the magical date of 30 May this year. There had been a deliberate change in policy at boardroom level, which meant that staff were being ordered not to void cases, as keeping cases alive for longer meant that the money would not have to be paid back to the bank, despite the company knowing that the case was dead. If the case was kept alive for longer than nine months, according to the agreement drawn up between the banks, TAG and the underwriters, when it failed, the underwriters would have to pay out on the insurance policy to refund the bank loan. That meant that TAG would keep the money from the bank loan.
When the void rates dropped, staff questioned what was going on and were told by the directors, "Needs must: this is the way in which we must proceed." On the day before the company went into administration, one staff member was told to void 9,000 cases in one day. However, as the firm's accounts were frozen the very next morning, it still is not known, as far as I am aware, whether the money—approximately £9 million—was paid back to the bank.
Last autumn, the new insurance underwriters insisted that the rules should change. That meant that sales reps were paid only when a case was activated, which improved the quality of the cases taken on. However, it was too late, as the cases written up in 2001–02 had done serious damage to the company. So many cases had failed and the insurance premiums were increasing at such a rate that TAG's fees could not cover them. The outcome was inevitable.
Two meetings of TAG workers were held in Manchester and Liverpool. I mention this point en passant, as I think that it is important that we get it on record, as 2,700 people lost their jobs. It emerged that former members of staff were having difficulty in claiming jobseeker's allowance and were being told by jobcentres that not enough class 1 national insurance payments had been made on their behalf. Examination of wage slips showed that national insurance had been taken from salaries, and sources within the company 407 confirmed that no national insurance payments had been made to the Contributions Agency after December.
It is important to note that the Inland Revenue says that payment of tax can be deferred, with agreement, but the Contributions Agency says that national insurance "cannot under any circumstances" be deferred. Further inquiries revealed that TAG owes a grand total of £11.1 million in national insurance. I may be mistaken, but I believe that the directors of the company will be personally liable for that money. Remember, too, that the workers will be out of pocket. Not only have they lost their jobs and salaries, but for much of 2003 even the promised commission has not materialised. On 30 May, most of the work force were alerted that their May salaries would not be paid. Some were e-mailed; many were texted. What a way to lose a job in the 21st century.
The last national insurance contributions were paid in December 2002, but the directors of the company continued to spend. Sources within the accounts department say that £420,000 was spent on a Christmas party for the staff that month. The directors went to Barbados with their families at a cost of £42,000. In March, a number of directors went to Barcelona to watch Manchester United play—on the company, of course—and in April the firm spent £70,000 on a new public address system to pipe soft music around the buildings. The executive car fleet contained one £225,000 Bentley, two Ferraris, one Aston Martin V8 Vantage, one £54,000 Range Rover, a Mercedes SLK and, for the poor relations, a Beetle for their exclusive use.
Former accounts staff say that directors were warned repeatedly that they were spending too much, but those warnings were ignored. The staff believe that the company was being mismanaged and trading improperly. Certainly, evidence from former workers suggests that the directors knew that the firm was in serious financial difficulty, yet continued to spend. At the beginning of 2003–1o and behold—the directors began to buy their own cars from the company; it would be interesting to know if that was at a very reduced rate. Staff were told to sit on invoices and not to pay anyone until at least three letters of complaint were received, or the creditor went as far as threatening a county court judgment. Mysteriously, bits of furniture started to be removed without warning or explanation, and problems over unpaid commission began to emerge.
The Accident Group went down owing millions of pounds. PricewaterhouseCoopers, the firm of administrators, is trying to untangle the mess. There are still approximately 250,000 ongoing cases, some of which are undoubtedly fraudulent, but many of which are genuine. They have been taken up by a firm called Lawcall. The Department of Trade and Industry has said that it is in touch with the administrators, that it will consider the merits of an investigation based on the information that it receives, and that the administrators have agreed to send it a copy of their report once it is complete. Meanwhile, Mr. Langford still retains assets in excess of £40 million, including a £3.5 million home in Cheshire. The sad outcome of the story is that there is still no regulation for claims farmers such as the Accident Group.
408 I should like the Minister to respond to one or two brief questions. Is there any way in which the DTI or its sister Departments can help those employees? Will the directors be held to account? Given the advice that employees receive in Europe, can he confirm that there, this could not have happened without dialogue, notification or consultation with the work force? Are the Government thinking along the lines of providing an appropriate regulatory regime for claims farmers to preempt the chances of such a travesty ever happening again?
§ Tony Lloyd (Manchester, Central)I congratulate my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) on raising this subject. It is an enormous scandal for a company to operate, and cease to operate, in such a way. The company was based in my constituency and I pay tribute to my hon. Friend the Member for Manchester, Blackley (Mr. Stringer), who also took an interest in pursuing the issues.
We must establish whether the company deliberately chose to withhold national insurance payments. That is tantamount to fraud. If that genuinely happened, we should ask serious questions about whether criminal proceedings are possible against those responsible, because they have robbed their employees. It is as simple and crude as that.
When the company went down, I asked officials in the Department of Trade and Industry to take a close interest in the matter. I hope that my hon. Friend the Minister can say exactly how the Department has stewarded the process. It is important to note that PricewaterhouseCoopers, the receivers in the case, have asked for the industrial tribunal process to be deferred. That may be in the interests of the receivers and the asset base, but it is not in the interests of the employees. Will my hon. Friend look into that to ensure that the employees are given every protection? They have received no protection or consideration from the company.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)I begin by expressing my good wishes for your recess, Mr. Speaker. I am sure that it will be a well-earned rest.
I congratulate my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) on securing the debate. I thank him for detailing the circumstances that surrounded the announcement of the redundancy of the former employees of the Accident Group, and the company's operation. I appreciate the significance of the closure for Liverpool, Walton, where First Advance Ltd., part of the group, was based. I also acknowledge the anxieties of my hon. Friend the Member for Stretford—I am sorry, I mean my hon. Friend the Member for Manchester, Central (Tony Lloyd); the reference to Manchester United threw me. I acknowledge his anxieties about the redundancies. I shall endeavour to answer the points that have been made, but the issues are serious and I want to respond to some of them in due course. I hope that my hon. Friends accept my sincerity.
I have every sympathy with the staff who worked for the companies in the Accident Group and lost their jobs. As my hon. Friend the Member for Liverpool, Walton 409 said, it appears that news of the administration order and the likely loss of jobs was sent by text messages and e-mails to staff before the appointment of the administrators. They planned to hold meetings at the various work sites to let staff know what was happening. However, probably as a consequence of the text messages and the e-mails, few employees turned up for work. Several members of staff received notice of the proceedings through a voicemail message, which had been prepared for those who were off site and not expected in the office.
It is regrettable that staff did not receive information at the planned meetings, at which they would also have been given information about their redundancy. Whenever redundancies have to be made, it is in everyone's interests that they be handled sensitively. Too often we hear of employees discovering out of the blue—sometimes even over the radio—that they are to be dismissed. People deserve better treatment.
However, as my hon. Friend said, the administrators wrote to the staff on 30 May 2003, the day of their appointment, to explain about the administration order, the need for the redundancies and the statutory assistance available to employees from the redundancy payments section of the Insolvency Service.
My hon. Friend asked what the Government were doing for the former employees of the Accident Group. Former workers may be eligible for payments of unpaid wages, holiday pay, payment in lieu of notice and redundancy pay from the national insurance fund. All those payments are subject to statutory limits. I assure hon. Members that the redundancy payments office in Birmingham is working hard to ensure that all workers receive the full statutory amount to which they are entitled as speedily as possible. Claim forms have been issued to former employees, and most have been returned to the Birmingham redundancy payments office via the administrators.
The administrators have provided details of the group and confirmation and information about all individual former employees. By last weekend more than 1,000 employees should have received their payments. The Birmingham office aims to arrange payment for a similar number this week.
I appreciate that the limits on payments in the statute generally mean that payments do not fully cover the total amount that employees are owed by their former employers. However, my hon. Friend may be pleased to note that this Government have regularly reviewed and increased the statutory limits, most recently in February this year to £260 a week for a maximum of eight weeks. There might be some staff who have not yet lodged a claim with the redundancy payments office. Detailed information about who is entitled to payments and what and how much they are likely to be entitled to can be found on the Insolvency Service website at www.insolvency.gov.uk under "Information about redundancy matters". Alternatively, anyone who has been made redundant and needs advice or information about their entitlements or their claim can phone the redundancy payments telephone helpline on 0845 145 0004. All calls to the helpline are charged at local rates.
410 The administrators have a duty under the Company Directors Disqualification Act 1986 to report to the Secretary of State on the conduct of the company's directors. The report is due approximately six months after the date of the insolvency. The Secretary of State then has a discretionary power to apply to the court for a disqualification order to be made against some or all of the directors. If such an order were to be obtained, it would run for between two and 15 years, and contravention can result not only in criminal sanctions but in the director becoming personally liable for the debts of any new company to which they are subsequently appointed.
My hon. Friend the Member for Liverpool, Walton raised a point about Europe. Looking further ahead, last week we announced proposals for implementing the information and consultation directive. This is designed to promote ongoing dialogue with employees on business issues that affect them. I am pleased that we were able to agree with the CBI and the TUC a framework for implementing the directive in the UK. We hope that the new legislation will help to deliver a "no surprises" culture that will benefit not only employees but the businesses for which they work. My hon. Friend is right to say that implementation of the directive would mean that such a case could no longer arise.
I know that my hon. Friend is concerned about the activities of the Accident Group and related companies, and that there have been calls for a code of conduct for that type of business. The Government are aware of the concerns about the activities of such companies, especially in relation to some companies' marketing methods. However, provided that they and similar intermediaries act responsibly and with probity, they can expand access for people with good claims, and provide helpful claims management services to solicitors.
Any improper, misleading or dishonest conduct towards consumers—or, indeed, in respect of any other aspect of a company's business—would of course be of great concern. The marketing and sales activities need to be performed to the highest possible standards. The maximum effort needs to be made to ensure that consumers understand the nature of any agreement that they might be asked to enter into, what liabilities they might have under that agreement, and what, if anything, it will cost them.
The Department for Constitutional Affairs is working with a range of organisations including the Law Society, the Association of Personal Injury Lawyers, the General Insurance Standards Council, consumer groups and other organisations, including claims management companies, to encourage high and common standards in accident compensation, including a voluntary code of practice. There is already considerable activity in the personal injury industry to improve and set standards and to draw up codes of practice for intermediaries. There are a number of initiatives at various stages of development, demonstrating the clear desire on the part of most intermediaries to bring about a step change in behaviour.
The Government favour a voluntary approach and a degree of industry self-regulation, rather than new formal regulation. There is already regulation of most elements in the package of legal and financial services 411 provided by claims management companies—for example, by the Law Society, the General Council of the Bar, the General Insurance Standards Council and, from 2005, the Financial Services Authority. However, it is clear that there is a regulatory maze in relation to legal services, and the Department for Constitutional Affairs has already announced plans to review the legal services regulatory framework. The scope of this review and the mechanism for carrying it forward will be announced in the summer.
Job losses are always a matter of great regret, and the Government were sorry to learn of the closure of the Accident Group. It is particularly unfortunate when redundancies occur suddenly and without prior consultation. Our proposals for implementing the information and consultation directive will do much to help to end that sort of business culture. However, as I have explained to the House, a range of measures both practical and legislative are in place to assist employees who are made redundant. They cannot, of course. completely make up for employees' loss of a job through no fault of their own. However, I am satisfied that those measures represent an appropriate response by the Government to what is bound to be a regrettable situation for all those concerned.
I undertake to look at all the issues that have arisen from the closure of the company, and at all the surrounding issues that need to be dealt with. I shall get back to my hon. Friend in due course, and I shall meet him when I can, to ensure that such an occurrence does not happen again.
§ Question put and agreed to.
§ Adjourned accordingly at five minutes past Eight o'clock.