Measures intended to prevent another Farepak scandal, in which 126,000 low-income households lost their Christmas savings last year, were announced by the Government yesterday.

Money deposited with Christmas hamper schemes would be ring-fenced in trust accounts and the system monitored by an industry trade association, the Department of Trade and Industry said.

However, the DTI stopped short of statutory regulation of the industry, which takes regular deposits from customers in return for merchandise or vouchers before Christmas.

Ian McCartney, the Industry Minister, said that the money would be ring-fenced so that it could not be swallowed up among other debts if a company or its parent collapsed.

“The collapse of Farepak caused untold stress and financial worry for thousands of families. Many of these people were among the most vulnerable consumers and I am determined they must never be left unprotected again,” he said.

The new independently controlled accounts would be run in a similar way to the scheme that protects National Lottery money in the event that Camelot failed, the DTI said.

Money taken in would be held in a trust account managed by an independent board of trustees. It would be handed to hamper company directors only to purchase Christmas merchandise.

On paper, Christmas hamper schemes are unattractive: they offer no interest on money pledged up to nine months in advance, there are large penalties for early redemption and they are not secure. Yet 700,000 families a year are estimated to save this way, liking the financial displine it imposes and the home delivery.

Brian Pomeroy, the chairman of the Financial Inclusion Taskforce, said that the schemes were valued by many low-income households, but more needed to be done to protect customers.

In his newly published review of the industry, commissioned in the wake of Farepak, he also recommended that the Post Office and credit unions should be encouraged to compete in this market.

Farepak customers were left with almost nothing after Farepak used their money to lend to its parent company, European Home Products, which went bust. They lost about £35 million, an average of £277 each.

Charitable donations have compensated them about 17p in the pound so far. From the liquidation they are expected to receive another 5p in the pound in due course.

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