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Michael tries to explain to his father the contradictions involved in being a Scouse Chinese. Harry finds out the truth about Billy's Christmas present. Jimmy and Sinbad become lumberjacks.
It is Christmas Day on the Close, and Terry and Sue end up with more dinner guests than they are expecting. Tracy invites Barry to a party, and Jimmy and Sinbad's present for Billy results in a cold, dark Christmas for Katie.
When Michael and Stephen are reconciled, Alison feels isolated. Katie tells her mother about the bullying. The Christmas tree has to be returned.