(6 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Jon Trickett (Hemsworth) (Lab)
I beg to move,
That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions to the Chancellor of the Duchy of Lancaster that the assessments of risks of Government Strategic Suppliers by Her Majesty's Ministers referred to in the Answer of 19 December 2017 to Question 114546 and any improvement plans which Crown Representatives have agreed with such strategic suppliers since 2014 be provided to the Public Accounts Committee.
Thank you for calling me to speak, Mr Deputy Speaker. My thoughts, and I am sure those of everyone in the House, have been with you during this very difficult time for you and your family.
Time is running on, and I am going to attempt to be brisk, but I am not going to be non-partisan, because the Government have been negligent in the exercise of their duty to protect the public purse. In the past two hours, the Government have attempted to pre-empt this whole debate by sending a letter to every one of us. The purpose of the letter is to attempt to whitewash the way in which the Government have conducted outsourcing, particularly in relation to Carillion. Those who have had the chance to study the letter will find the names of six companies that are going to take over the public sector contracts that Carillion was administering. I have only just had a chance to look at it myself, but that list is quite extraordinary. What a catalogue of failure!
One of the six firms donated money directly to the Tory party. Two of the firms are known for blacklisting workers. Amazingly, one of the firms is currently under investigation by the Serious Fraud Office for suspected offences of bribery and corruption. Another has previously been caught red-handed mispricing contracts, underestimating their eventual cost. As a consequence, £130 million was wiped off its share value. Another of the companies operates in the Cayman Islands and has been shown to use that location as a way of avoiding tax. Another of the firms is part of a group that has reportedly abused and exploited migrant workers in Qatar. My reaction to all that—I do not know whether it is unparliamentary—is to use three letters: WTF! What were the Government doing producing a list of that kind?
The truth is that, as it is now with this list, so it ever was with this Government. Back in 2017, while the Government were sleeping on the job, I submitted a written parliamentary question asking how many strategic suppliers had been rated either green, amber, red or black according to the severity of the risk posed by the supplier to the taxpayer. The Government’s reply was fascinating. They refused to tell us how many of the suppliers posed a risk, saying that that could prejudice the contractors’ commercial interests. I did not ask the identity of those contractors; I asked only for the number that posed a risk to taxpayer interests. So my question posed no commercial threat whatever to any company. The Government’s response illuminates their whole approach, which shows little regard for the needs of the taxpayer while paying far too much attention to protecting the commercial interests of their suppliers through every stage of the procurement process.
In the past few days, I have been approached by a whistleblower. He told me that the civil service had advised Government Ministers to insert into every outsourcing contract an indemnity clause whereby the supplier of the service would indemnify the taxpayer, should the company get into difficulty. Remarkably, according to my whistleblower, the Government completely ignored the risk and rejected the advice. It was even more remarkable to discover that Carillion’s contracts with its subcontractors insist on the inclusion of such clauses in their contracts. The company, which has now become the poster child for corporate recklessness, took more steps to protect its finances than the supposed custodians of the taxpayers’ money sitting in their comfortable ministerial offices.
Carillion not only issued a number of profit warnings over the past few months, as we all now know, but it was also targeted by short selling, which is also wicked. Short selling is a practice whereby so-called investors bet on the collapse of a share price. It is as if the Government accept that the serious business of financing large enterprise is nothing more than a casino, with people betting against the price of companies. One firm, BlackRock—remember its name—was shorting so much that at one stage it owned nearly 10% of the entire company. The fact that that happened is troubling, but we then discover that Mr Osborne, the former Chancellor of the Exchequer who signed off the Government deals with Carillion, is now being paid £650,000 a year by BlackRock. While it was common knowledge that Carillion was one of the most shorted stocks on the exchange, the Government, seemingly wholly ignorant of everything going on around them, continued to hand contracts to Carillion to the tune of billions of pounds.
Jon Trickett
I will give way to the hon. Gentleman, but I ask him to answer the following question. Does he believe it to be right and proper for the governing party to receive donations from a person who is currently exercising a supervisory public function as a Crown representative on the Government’s behalf? Does he think that that is right?
James Cartlidge
It is very kind of the hon. Gentleman to tell me what my question should be about, but I was going to ask him whether it is his policy to take all the contracts in-house.
Jon Trickett
I will get to that in due course. However, the hon. Gentleman did not defend the practice of Crown representatives handing money to the Conservative party. Not only is the Crown representative for the energy sector a Tory party donor, but that person donated £15,000 to the Prime Minister, who took the money.
Court testimonies submitted over the past few days as part of Carillion’s liquidation show that its key clients, lenders and insurers were already pulling out of the business and getting well clear of it months ago. The private sector clearly saw a fire, but the Government did not even detect smoke from a company that appeared to be then, and obviously is now, going up in flames. Perhaps that was why the Government failed to appoint a Crown representative for the three crucial months at the end of last year when it became clear that Carillion was in deep trouble and was issuing profit warnings left, right and centre.
Crown representatives are appointed to monitor, on behalf of the taxpayer, the contracts of key strategic suppliers to Government and to ensure that everything is running smoothly. I have already referred to one Crown representative, but the House may be interested to know about the backgrounds of some of them, because they are curious. A number of them—this is unbelievable—actually oversee contracts that relate to their own private sector work and yet they are appointed by the state to look after outsourcing on the public’s behalf. As I just mentioned, one of them donated £15,000 directly to the Prime Minister herself. I will use some strong language here: the ordinary man or woman in the street can draw only one conclusion, which is that this has been a complete racket.
Carillion posed a clear and present risk to the taxpayer, but not only did the Government fail to act, they had a cosy relationship with the key decision makers, some of whom were active Tory supporters.
The problem goes well beyond Carillion, so let me widen the argument. The Government have failed to think strategically about the risks to the economy, as well as the risks to the taxpayer and public services. The Government handed over 450 separate contracts to Carillion, which employed 20,000 workers and used 30,000 separate subcontractors. This was a major industry that had an impact everywhere in the country, yet the company was clearly deep in trouble for some time. Frankly, I have no confidence at all in the statement rushed out by the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster, the right hon. Member for Aylesbury (Mr Lidington) in the last couple of hours before this debate. The assurances in that document are pretty feeble. We want an absolute guarantee on behalf of the people employed directly or indirectly by the company that both their jobs and the services provided by the company will be protected.
Jon Trickett
I will give way but, in doing so, let me ask her the following question. [Interruption.] This is a debate.
The Lord Commissioner of Her Majesty's Treasury (David Rutley)
Well, let her ask you a question.
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. I have the greatest respect for the hon. Member for Macclesfield (David Rutley), but we do not normally have a Whip joining in. I am sure he will not be joining in again later. The hon. Member for Hemsworth (Jon Trickett) is giving way. Let him give way, and I am sure we can get on with the debate.
What I am bothered about is that a lot of people want to speak, so please let us not waste time attacking each other.
Jon Trickett
Thank you, Mr Deputy Speaker. This is not Question Time, and we are not the Government. This is a debate, and I am perfectly entitled to ask questions and to make points. Does the hon. Member for Redditch (Rachel Maclean) believe that companies with public contracts paid for by taxpayers’ money should pay tax in the United Kingdom, yes or no?
Rachel Maclean
The short answer is yes. The hon. Gentleman says that he has no confidence in this Government’s ability to award public sector contracts. Does he therefore have any confidence in the previous Labour Government, who awarded billions of pounds of contracts to private sector companies, and in Labour-run Leeds City Council, which did the same? Does he have no confidence in his Labour colleagues?
Jon Trickett
Carillion did not go bust eight years ago, when Labour was in power; it went bust last week. The fact is that the hon. Lady has not answered the central point, which is that 13 of the 20 biggest Government contractors have subsidiaries in tax havens—[Interruption.] And the Minister is prepared to defend it. It is outrageous. [Interruption.] Leeds City Council, in which I no longer play a part, did not hand over a contract to Carillion the other week.
Thirteen of the 20 largest Government contractors have subsidiaries in tax havens. Those companies are happy to take taxpayers’ money and make a profit, but it seems that they are not prepared to pay tax back, which is morally incorrect and should not be happening. In fact, it is a scandal.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
It is a pleasure to see you back in the Chair, Mr Deputy Speaker.
The hon. Member for Redditch (Rachel Maclean) put a question to my hon. Friend the Member for Hemsworth (Jon Trickett) on local authorities. Does he agree that the reason local authorities are too often forced down the route of contracting out services is that the Government have starved them of funding for the past seven years, meaning that local authorities simply do not have the wherewithal to do the work themselves?
Jon Trickett
My hon. Friend makes a powerful and unanswerable point.
We want a categorical assurance that the jobs of the subcontractors and employees are protected and that the services will be sustained. Is it not clear that the Government played roulette with people’s livelihoods in the most reckless manner? The truth is that the Government have been so wedded to the dogmatic idea that the private is always good and the public is always bad that they never questioned the existing orthodoxy, even when the evidence was right in front of their nose.
Dr Huq
I echo the words of my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell): it is a pleasure to see you back in your place, Mr Deputy Speaker. I wonder whether my hon. Friend the Member for Hemsworth (Jon Trickett) shared my horror today at pages 4 and 5 of the Daily Mirror, which report:
“‘Greed and lunacy’ as Carillion paid shareholders £500m while pension…hole spiralled out of control.”
Surely any company of this magnitude should meet its statutory obligations before paying out dividends to shareholders.
Jon Trickett
My hon. Friend is absolutely correct. In the 16 years up to 2016, the dividends paid to shareholders increased every single year, while the pension pot and the conditions of work and the pay that the workers received was diminishing. By the way, Mr Deputy Speaker, I met a subcontractor of Carillion the other day, who told me that the company had a policy of not paying anybody in December, because on 1 January the bank wanted to look and see how much liquidity was left. Is that not shocking?
Maybe the Government’s devotion to outsourcing is the real reason why they have failed so monumentally in relation to Carillion. They had a blind assumption—and still have—that contracting out works efficiently, and that the market always knows best, which we know is not the case. If they do not learn from the repeated failures of outsourcing, there will be another Carillion around the corner, and then another and another. One needs only to look at companies such as Interserve and Mitie, which deliver public services, to see how fragile some of these Government contractors are.
Jon Trickett
I could stand here and reel off a long list of outsourcing companies that have been guilty of fraud, tax avoidance, blacklisting, failure to pay contractors, and even, shockingly, billing the taxpayer for tagging people who had died. They have presided over, and have been vehemently committed to, a failed and failing ideological project. That is my charge today.
My opposite number, who I am pleased to see in his place—the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster—has personally shown lots of enthusiasm for handing out Government contracts—
Jon Trickett
I am trying to make some progress. [Interruption.] Well, they will be glad that I am making progress, then.
In the Minister’s role at the Ministry of Justice, what did he do? He awarded a £25 million Government contract to G4S. But that company was under investigation for fraud against the taxpayer. He snuck out plans to privatise the collection of court fines, and he even proposed giving private companies the power to arrest our fellow citizens. His Department bailed out a private probation service with an additional £277 million over seven years, and he failed to deliver the promised £115 million that he said would be delivered by outsourcing two prisons.
We need to change direction. Let me briefly set out the case, because outsourcing of procurement has boomed under this Tory Government. It is now worth £242 billion. Nearly a third of public expenditure—of our taxes—is being put at risk by a Government who are blindly following a dogma.
To be clear, there never was a true market in outsourcing. It is an oligopoly. The course of action that the British Government set out on has led only to the creation of a handful of mega-corporations, almost too big to fail, and those corporations have penetrated nearly every aspect of the state, both central and local. This so-called market works well for a handful of companies making huge profits out of the taxpayer, but it is not working for anybody else.
We want the Government to see the facts as they are, not through the lens of a tired, stale, outdated, dogmatic view of the world. Jeremy Corbyn, our leader, commenting on the Carillion debacle—
Jon Trickett
Well, we still pay tribute to our leader, unlike some of the Government Members, who seem to be making up a point about it. Let us see how many of them—[Interruption.] My party leader said that we have now reached—
Jon Trickett
I am coming to an end. He said that we are now coming to a turning point, and he was right. He caught the mood of the country. The public are tired of outsourcing. They want democratically accountable, quality services, which are run effectively and efficiently in the interests of the public. Every poll we can look at shows the same thing: the people are completely disabused of this whole process. That is why the House of Commons must take up the task that the Government have failed to act on. Where else could we start but by referring the matter to our excellent Public Accounts Committee? That is what the motion recommends.
Jon Trickett
I will not—I am finishing. The Prime Minister and her Government have squandered taxpayers’ money on a failing dogma. They have run out of new ideas. They have proved unable to grasp the change that our country desperately needs. Even her own MPs agree. The right hon. Member for Mid Sussex (Sir Nicholas Soames) says:
“Where’s the bold and the brave?”
He is talking to the Prime Minister. He says, “it’s dull, dull, dull.” He is absolutely correct.
Sir Geoffrey Clifton-Brown
On a point of order, Mr Deputy Speaker. May I preface my remarks by saying what a pleasure it is to see you back in the Chair? The Opposition spokesman has referred to the “excellent” PAC. I am its deputy Chair, but he will not let me intervene. How can the debate be fair if he will not let me intervene?
Mr Deputy Speaker (Sir Lindsay Hoyle)
The hon. Gentleman knows that, from chairmanships in many other areas, that is not a point of order. It is up to the hon. Member for Hemsworth (Jon Trickett) whether he wishes to give way, as we will later find out when other Members want to intervene.
Jon Trickett
Thank you, Mr Deputy Speaker.
I say to my hon. Friend the Member for The Cotswolds (Sir Geoffrey Clifton-Brown), if I may call him my hon. Friend for a moment—we used to be pairs, back in the old days when pairing worked. I must not say this in front of any Whips, so I hope they are not listening: there were occasions when he and I arranged our escape plans to avoid some of those late votes. However, in this case he is entirely wrong. In any event, should he really speak on a motion that says that the matter should go to the PAC?
I was finishing my speech. “Dull, dull, dull!” With those words, I commend the motion to the House.
The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Mr David Lidington)
Mr Deputy Speaker, I take comfort in the fact that I can at least join the hon. Member for Hemsworth (Jon Trickett) in expressing a wholehearted welcome to you, Sir, on your return to the Chair of the House.
I want to start by addressing the motion and to make it clear that, if the motion passes, the Government will of course comply with the will of the House. The Public Accounts Committee, as the House will know, already possesses powers to require the Government to supply it with papers. Whether or not the motion passes, it is my intention to share with the Public Accounts Committee as much information as I reasonably can that will help it with its inquiries. I hope, too, that in debating the motion hon. Members on both sides will understand that the information cited in the Humble Address is highly commercially sensitive.
I agree that the Public Accounts Committee is a vital mechanism by which Parliament can hold Government to account, but the Government also have an overriding obligation to ensure that information is not placed in the public domain when that would be either improper or give rise to particular risk. There are important considerations not only for Government but for the House to consider about the impact of releasing the documents.
First, we must bear in mind the impact on markets, whether good or ill, of making such documents public. Because the information requested is highly commercially sensitive, if made public it could have damaging impacts not only on market confidence, individual suppliers and the Government’s ability to manage our relationship with those suppliers effectively, but more widely on the jobs of people employed by those companies—constituents of Members on both sides of the House—the delivery of public services and, potentially, the broader economy. We also need to act in a way that is consistent with our legal obligations and mitigate any litigation risks to Government. If the motion is passed, I will undertake to discuss in short order with the Chair of the Public Accounts Committee the best way to make information available to her and her Committee, while ensuring that those genuine risks are minimised.
In his speech, the hon. Member for Hemsworth asked several questions about the Government’s contingency planning ahead of what turned out to be the collapse of Carillion a couple of weeks ago, and he also asked about the role of the Crown representative. To be clear, a new Crown representative was appointed in October last year and started work in November. He was appointed just after the regular quarterly list of named Crown representatives was published. The new list, which will include the name of the new representative, is due to be issued imminently, so the House will then be able to see the name of the new Crown representative to Carillion, along with all the others.
There was a longer-than-usual delay in the decision on the new nominee because, in the wake of Carillion’s first profit warning in July last year, my predecessors rightly took the decision that, rather than a Crown representative who was experienced in finance, they wanted somebody who was experienced in the restructuring of corporations: it was apparent that Carillion would need to undertake some considerable corporate restructuring and refinancing if it was to get its house in order, as it was then confident of doing.
Crown representatives are experienced board-level executives—they are not civil servants—who work on a part-time basis in the Cabinet Office to advise on commercial matters with suppliers and sectors. They help the Government to act as a single customer, but they do not advise suppliers on their finances or future business strategy. In the course of normal events, they do not have access to privileged information. Given the hon. Member for Hemsworth’s remarks, I should make it clear that Crown representatives are not politically appointed. They are contractors assigned to companies where they have knowledge of the sector and where there is no conflict with other concurrent roles that the individual man or woman may have. They have no authority to take procurement decisions.
Gareth Snell
Does the Minister agree that, even if it is within the letter of the law, the perception of people who have donated money to a political party subsequently getting a paid Government position looks bad and undermines the integrity of the work they are trying to do?
Mr Lidington
As I have already said to the House, these are not political appointments so there is no political intervention in them. It is quite right that donations to all political parties are made public. That is what the House has voted for and embodied in legislation, and it makes the situation clear to everybody.
Let me turn to Carillion’s liquidation. Along with all my fellow Ministers and, I believe, the whole House, I recognise that the collapse of Carillion has caused huge anxiety for the people who work for Carillion companies, the people in Carillion pension schemes, the suppliers and subcontractors and, of course, the people who use the public services provided by the company’s workers.
I reiterate the priorities that have animated the Government throughout the process. They have been: first, to make sure that public service delivery continued without interruption, which has been the case, as no public bodies have reported any major service disruptions; secondly, to reassure the workers employed on public service contracts that they will continue to get paid for their work; thirdly, to make sure that the right support is in place for pensioners; and fourthly, to protect taxpayers from an unacceptable bail-out of a public company, the risk of which is rightly borne by the shareholders and the banks that have lent to it.
The situation today is that the official receiver is now effectively running Carillion, and in the course of time his investigations will show exactly how the company ran into trouble. Although Carillion was under some financial pressure from three UK public sector construction projects—two hospitals and a road scheme in Scotland—it is already clear from the company’s statements to the stock market and from information that has become public since the liquidation that the problems it faced lay largely in its overseas construction projects and in the level of financial risk that it took on.
Within days of the first profit warning in July 2017, the Government retained legal and accountancy support and started an intense period of contingency planning. Preparing these plans involved considerable effort by officials from right across Government. The Department of Health and Social Care co-ordinated a similar exercise for NHS bodies, including trusts, and the Ministry of Housing, Communities and Local Government worked with local authorities that had exposure to Carillion. The key aim of all these contingency plans was to ensure that public services were kept running safely and smoothly in any possible scenario. The solution had to be specific to the contract in question, had to be affordable and had to be capable of being executed, if necessary, at short notice.
As a result of that planning, the work covered by the service contracts has continued with minimal disruption: the school meals have been served, the hospitals have been cleaned and the maintenance staff have continued to go about their work. With regard to the construction contracts, some infrastructure work, such as that on the Aberdeen bypass, now continues uninterrupted. Other construction sites where work has paused have been put into a safe state so that work can be resumed quickly. The official receiver is working hard to resume work on these sites at the earliest possible date. This work requires customers to find new project management firms that can oversee the completion of their projects.
John Spellar (Warley) (Lab)
I thank the Minister for giving way and for the information that he is providing to Members of Parliament. The Midland Metropolitan Hospital has a site management in place and a series of contractors. Given that those contractors are now locked out of the site, they will be going off to undertake other work, so increasing costs will have to be borne. There will also be disruption to the work from the delay on an already delayed hospital, which has nothing to do with the workforce.
Mr Lidington
The right hon. Gentleman makes a perfectly serious and reasonable point. It is crucial that we do all we can within our power to minimise the impact of delay on the public sector construction contracts, and to retain the knowledge held by the Carillion staff employed on those contracts who, in most cases, are undertaking a project management role, managing the work of a number of different subcontractors. In particular, the development of our future hospitals must continue. This is something that the Minister of State, Department of Health and Social Care, my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay), is working on day by day.
Mr Lidington
May I come to discussing the particular hospital that the right hon. Gentleman cited?
We are working with the official receiver to ensure that Carillion construction staff working on the Royal Liverpool Hospital, the Midland Metropolitan Hospital and the Southmead Hospital in Bristol continue to be paid. This allows for a more orderly timeframe for the discussions to take place between the private finance initiative contractor and the lenders to ensure that new contractors can replace Carillion and that the work can resume at the earliest possible date.
I say to the right hon. Gentleman that we know that we have a lot of work still to do. We have, for example, to find alternative suppliers both for those hospital contracts and for other contracts, but I regard the hospital contracts as a particular priority. The exact structure of those contracts and the extent to which they are nearing completion obviously varies depending on which hospital contract one looks at. The precise solution will differ from Liverpool to Bristol to the west midlands. I assure him that we regard getting on with that job as a very high priority indeed.
Liz Twist (Blaydon) (Lab)
The Minister is talking about health contracts. Some years ago, I was involved in negotiating one of those contracts with Carillion at South Tees Hospital. As I understand it, those contracts have now been transferred and sold to Serco by Carillion. Serco has seen its own profit warnings raised. What steps will he take to ensure that we do not find ourselves in a similar position in future? These are staff providing vital health services that are an integral part of the hospital, and it is really important that we take preventive steps.
Mr Lidington
It is the statutory responsibility of the official receiver to ensure that contracts previously held by Carillion are transferred as quickly and in as orderly a fashion as possible to alternative contractors. In respect of the public service contracts, the Government are ensuring that payments are made for the continued delivery of those services while that process continues. It would be irresponsible of a Minister to be drawn into speculating about the situation of any named company, but I just say that the company that the hon. Lady mentioned has not issued any profit warnings. I am sure that the official receiver will be going about his job in a responsible fashion.
There have been questions, not least from the hon. Member for Hemsworth, as to why we continued to award contracts to Carillion even after the first profit warning on 10 July last year. It is important to put it on the record again how Government procurement works. When Government advertise opportunities, bidders go through a formal process, which may involve negotiations, and then submit a bid. These bids are looked at on a basis of equality between competing bidders. They are scored formally for quality and price against a published set of evaluation criteria, and the contract is then awarded to the highest-scoring bid. It would be a major legal risk for the Government, having published criteria, then to seek to exclude any bidder from a contracting process on the basis of other, somewhat arbitrary, criteria.
Chris Stephens
I thank the Minister for explaining the process. Given the concerns raised by the shadow Minister, will he confirm that there is no testing of whether a company is engaging, or has engaged, in the practice of blacklisting?
Mr Lidington
The issue of blacklisting is itself a matter of debate internationally about how the various criteria for blacklists are being drawn up. We have a set of criteria that are published in respect of each and every bid that is submitted for a contract being let out to the private sector.
Several hon. Members rose—
Mr Lidington
Carillion announced that it had won eight public sector contracts after its first profits warning in July last year. Three of those, for facilities management for defence establishments, were awarded before the profit warning, but Carillion chose to make the announcement some weeks later. Two out of the remaining five were awarded by HS2 Ltd. Those contracts were awarded to a joint venture including Eiffage—a major French construction firm—and Keir, as well as Carillion. The three companies bid together as a consortium, and as a result all shared responsibility for completing the work. After the profit warning, we asked the board of each of the partners for written assurances that if one partner failed, the other partners had a contractual obligation to pick up the work. Those assurances were given. Since the announcement of Carillion’s liquidation, both Eiffage and Keir have confirmed that the contracts will continue uninterrupted, and the former Carillion employees working on the contracts have been offered jobs with one of those other partners.
Several hon. Members rose—
Mr Lidington
As a further assurance following the announcements of the profit warning, external due diligence was commissioned by HS2 Ltd. This revealed that at the time of award in July last year, Carillion did have the financial capacity to continue with its part of the contract. HS2 let the two contracts to the joint venture because it was confident that the joint venture arrangements were robust, as has proved to be the case.
Rachel Maclean (Redditch) (Con)
The Minister is outlining very coherently the rigorous process that has to be gone through to deliver quality public services on behalf of the taxpayer. Does he recall that it was a Conservative Government who introduced the Public Services (Social Value) Act 2012, which required Ministers to look at a wide range of factors and also to think about social, environmental and economic benefits for consumers and the taxpayer?
Mr Lidington
My hon. Friend is exactly right. The tests we routinely apply take account of quality, not just cost, in assessing bids. I am sure there will be lessons that we want to examine, particularly as we learn about what happened to Carillion from the official receiver. It is interesting, as my hon. Friend points out, that it was a Conservative-led Government who put in place arrangements that had not been so made during the 13 years of a Labour Administration.
Several hon. Members rose—
Mr Lidington
The remaining three announcements concerned contracts with Network Rail. These were not new awards or new contracts, but variations to contracts that had been let three years earlier—in 2014. Two were for electrification work and, in a similar construct to the HS2 work, were let to a joint venture between Carillion and an electrification specialist, SPL Powerlines. One contract variation, for civil work in connection with the London to Corby upgrade, was let directly to Carillion. That is the only public sector contract, post the July 2017 profits warning, that was neither a joint venture nor something already decided and awarded before the profits warning was issued. Network Rail judged in this case—
Mr Kevan Jones (North Durham) (Lab)
On a point of order, Madam Deputy Speaker. I am aware that it is up to the Minister whether he gives way, but would it not be courteous to the House if he actually indicated that he was not going to take any interventions, because he just seems to be reading his speech—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. That is not a point of order, and I am not going to spend any time on it because a lot of people want to speak. There is no more courteous a Minister in this place than this Minister.
Mr Lidington
I am grateful to you, Madam Deputy Speaker. I have given way a number of times already, and I want to make some progress. I certainly intend to give way again, but I am conscious that we have finite time available for the debate, and the time taken up by taking interventions is speaking time taken away from Back Benchers.
Network Rail judged in this case that Carillion was best placed to do the work, because it had been engaged on the project for three years already and had completed all the design work successfully. By agreement with the official receiver, former Carillion employees and suppliers continue to work on these rail projects, and today they are progressing as planned.
Since the liquidation on 15 January, the Government have responded promptly and appropriately, supporting the official receiver to manage the liquidation. We have also made funds available to allow an orderly wind-down of the company’s affairs. It is worth my explaining that this company was in such trouble that it could not even fund its own administration. If the Government had not stepped in and agreed to cover the costs of the official receiver, there would have been a real threat to public services in schools, hospitals and prisons. Staff would not have come to work last Monday, as they would not have been paid.
Nick Smith (Blaenau Gwent) (Lab)
I thank the Minister for giving way—at last. In his letter today, he refers to an investigation into the conduct of Carillion’s directors. Is the chair of Carillion, Philip Green, still an adviser to the Government on corporate responsibility?
Mr Lidington
No, and he ceased to be an adviser after the Prime Minister took office.
Mr Pat McFadden (Wolverhampton South East) (Lab)
The Minister mentioned that the Government are funding the cost of the liquidation. What is the Government’s estimate of that cost?
Mr Lidington
It is not possible to give an estimate because that will be a net figure that has to take into account both the willingness of joint venture partners to step forward and take over the projects in which they were involved—that seems to have been the case—and the speed at which the official receiver is able to find alternative contractors, or in-house contractors in certain cases, to take on the provision of particular public services. Our overall estimate can be only quite an uncertain estimate at this stage, but we are confident that it will in any case be very significantly less than if we had had to cope with the costs of an unplanned, unmanaged liquidation, had the Government not stepped forward and agreed to pay for the official receiver’s administrative and legal costs. Because of the funding we have provided, we have kept those public services running, and that has also provided a breathing space for private sector customers such as the Nationwide building society to continue receiving services while they decide how to react to the crisis.
Mr Jim Cunningham (Coventry South) (Lab)
The partners are going to take over the work, but who will fund it—the partners or the official receiver?
Mr Lidington
I am not sure whether the hon. Gentleman is referring to the partners involved in the special managers at PwC or to Carillion board members.
Mr Cunningham
I am referring to Carillion’s partners who were involved. They have an undertaking to take over the work, but who will pay the costs?
Mr Lidington
Administrative costs fell to the official receiver in the short term. With the HS2 contracts, for example, there was an obligation on the partners to step forward and meet the Carillion’s obligations at the cost that they, collectively as a consortium, had negotiated and agreed with the Government. That contract was with the consortium as an entity. I hope that answers the hon. Gentleman’s question.
Nationwide building society has since offered jobs to 250 Carillion employees and contracts to the subcontractors that employ a further 1,500 people. In total, more than 90% of Carillion’s private sector facilities management service customers have indicated that they will provide funding through the official receiver to maintain interim services while new suppliers can be identified to deliver them, ensuring the retention and employment of staff on those contracts.
Eleanor Smith (Wolverhampton South West) (Lab)
TUPE does not apply when a company goes insolvent, but given the way in which Carillion collapsed, should not the Government make an exception and allow TUPE to apply to private sector employees?
Mr Lidington
PwC, as the special managers working with the official receiver, is looking at such cases to see whether it can offer arrangements whereby workers are no worse off than they were under the terms of their Carillion employment. The hon. Lady and I met yesterday to talk about the constituency concerns that she and other parliamentary colleagues have about the Wolverhampton headquarters. The alternative of a chaotic, unmanaged collapse and liquidation of Carillion would have been far more difficult for the workers concerned, because the liquidator in those circumstances would have had a statutory obligation to terminate all contracts and lay off all workers straight away, not to continue with the provision of public services. That would have been more costly not only for the individuals involved but, obviously, for the public purse.
I welcome the initiative taken last week by the Construction Industry Training Board to help the 1,400 apprentices employed by Carillion. Those apprenticeships were primarily in bricklaying, carpentry and joinery—skills that the country vitally needs to build homes and solve our national housing shortage. To date, the CITB has matched 400 of those apprentices with new employers, and it continues to assess the large number of industry offers it has received to find placements for the remaining Carillion apprentices.
Unfortunately, there will be some redundancies as a result of this company failure. That is why Jobcentre Plus mobilised its rapid response service, and it stands ready to support any employee, at any stage, who is affected by this announcement. I am aware, too, that a significant number of small and medium-sized businesses—either suppliers to or subcontractors of Carillion—will be affected by this collapse because Carillion owed them money. We are doing what we can to keep continuity on service contracts for those companies, and as I said earlier, we are having some success, particularly on the facilities management side.
In addition, we are looking to restart work on construction sites at the earliest safe moment. My right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy, with the assistance of my the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Burton (Andrew Griffiths), who has responsibility for small business, has personally led efforts to do what we can to mitigate the risks to subcontractors and suppliers through a taskforce to monitor and advise on mitigating the impacts of Carillion’s liquidation on the sector through practical measures that will help SMEs and employees alike. My right hon. Friend has met the banks, and I join him in welcoming their undertakings to take special measures to help those affected, including overdraft extensions, payment holidays and fee waivers.
Sir Geoffrey Clifton-Brown
My right hon. Friend said in his letter to all colleagues that the Government was providing £1 billion-worth of funding to small and medium-sized enterprises, which is a useful start to keep some of them in business. Can he give any indication how that £1 billion is likely to be distributed?
Mr Lidington
The Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Burton (Andrew Griffiths), may be able to say more when he responds to the debate, but that help will involve things such as credit facilities and loans to enable those companies to trade their way through this period of difficulty, particularly until there is greater certainty about what happens to the contracts on which they were engaged.
Kirsty Blackman (Aberdeen North) (SNP)
I understand that some subcontracts have not been automatically rescinded as result of the process that is under way, so organisations such as county councils and so on cannot provide a new contract. I would appreciate it if the Minister looked into that.
Mr Lidington
If the hon. Lady writes to me with details, I will ensure that she receives a response from the appropriate Department. When I spoke to the Insolvency Service and PwC yesterday evening, they were able to say that some companies in the Carillion group appeared to be solvent. Those companies will still be able to continue trading, and that may be the case with the contracts that were brought to her notice.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Will the Minister explain the advice he would give to SMEs subcontracted by Carillion in cases where Carillion services have been brought in-house to a local authority and where invoices have been unpaid? Should they apply to the official receiver for payment?
Mr Lidington
The practical advice I would give is to go to the website operated by special managers on behalf of the official receiver. There are links for the various categories of people affected, so those SMEs should follow the one for suppliers or subcontractors for advice and frequently asked questions. If they have specific concerns there is an email link to make direct contact with the special managers. That is the best way forward, because every case is slightly different.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I hesitate to interrupt the Minister, but there has been some consternation about the taking of interventions. The Minister has been quite generous in doing so. Twenty people wish to speak in the debate. There is an hour and 31 and a half minutes left. Members will also wish to hear the winding-up speeches. Some people have been sitting patiently in the Chamber all afternoon. The prospective limit on speeches at the moment is three minutes, but it is likely to go down, and some people will not have an opportunity to speak at all, so let us allow the Minister to say what he has to say.
Mr Lidington
Thank you, Madam Deputy Speaker. I will try to make progress.
Her Majesty’s Revenue and Customs will provide practical advice and guidance to those affected through its Business Payment Support Service. That may include help such as agreeing instalment arrangements, suspending any debt collection proceedings and reducing payments on account.
I should say a brief word about the concerns of members of Carillion’s defined-benefit pension schemes who, understandably, are seriously worried at this time. Existing pensioners will continue to receive their pensions at agreed levels, but the significant funding deficit in Carillion funds will mean that some future pensioners will see their pensions reduced. At present, seven Carillon schemes, covering 6,000 members, have moved to the Pension Protection Fund assessment period, which occurs automatically when a sponsoring employer becomes insolvent. The remaining 21,000 members are in schemes that have at least one sponsor not in insolvency and are therefore not in the PPF. When a scheme moves into the PPF, the worst-case scenario is that the fund ensures that all pensions in payment continue to be paid at 100% of their value, and people who have benefits in such schemes for the future will receive those benefits at 90%, at least, of their expected value, subject to an overall ceiling on the amount that any individual can receive from a pension.
The Prime Minister restated on Sunday that the Government will shortly consult on tough new rules to tackle the behaviour of executives who try to line their own pockets by putting their workers’ pensions at risk—behaviour that she rightly labelled
“an unacceptable abuse that we will end”.
The official receiver has also taken immediate action to stop severance and bonus payments to former Carillion directors.
My right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy has written to the Insolvency Service and the official receiver asking that their statutory investigation into the conduct of Carillion’s directors is fast-tracked and extended in scope to include previous directors. He has also asked the Financial Reporting Council to conduct an investigation into the preparation of Carillion’s accounts past and present as well as the conduct of the company’s auditors. I can assure the House that no payments have been made to board directors or the former directors who had severance agreements since the date of liquidation. Directors with such severance agreements became unsecured creditors from the moment of liquidation.
Finally, in his opening remarks the hon. Member for Hemsworth touched—probably more than touched—on the overall questions about the outsourcing policy of this and other Governments. It is worth pointing out that outsourcing, whether in construction or the provision of services, is something that successive Governments—Labour, coalition or Conservative—have been doing since the 1990s. The services provided to the public sector by private companies include IT, back-office services, facilities management and other business services, such as running call centres. In many cases, those services have now been delivered by private sector companies for 10 or 20 years, and many have built up specialist expertise, skilled staff and investment to deliver public sector contracts.
This is a matter not just of cost, but of quality and innovation. If we look at a project such as Crossrail—the largest infrastructure project in Europe—that railway will open on time and on budget later this year. To deliver that project on time and within budget, Network Rail and Transport for London work with a huge range of private sector companies—including Costain, BAM Nuttall, Balfour Beatty, Morgan Sindall and others—and use their specialist expertise, which is something, frankly, that civil servants are not trained to have.
I could list a long catalogue of examples of such successful use of private sector companies to deliver capital investment into our hospitals, schools and transport infrastructure and successfully to deliver the provision of public services in all aspects of the public sector. What I found to be such a pity about the hon. Gentleman’s contribution was that he resorted to ideology, instead of looking at the people—our constituents—who actually use the services and who benefit from the better value for money and innovative quality that private sector contractors are able to bring, and have brought successfully, to that work.
Not only that, but in an enchanting display, the hon. Gentleman disavowed his party’s entire history of 13 years in government. Let us not forget that the majority of outsourcing in the NHS took place under the Labour Governments between 1997 and 2010, as part of an initiative that was championed, in particular, by the current Mayor of Greater Manchester.
Let us look at what the Labour party has said since it left office. The shadow Communities and Local Government Secretary praised Carillion as an example of “good public procurement practice”, and the shadow Foreign Secretary praised it for offering apprenticeships to her constituents. The shadow Housing Secretary has said that PFI helps to deliver better and more cost-effective public services, and the shadow International Trade Secretary described it as
“a staggering investment in the future of…children and…excellence”.—[Official Report, 15 November 2002; Vol. 394, c. 308.]
The shadow Northern Ireland Secretary said PFI provided “good value for money”. [Hon. Members: “When?”] It is very interesting that Labour Members feel they have to conform with the new dear leadership that the hon. Member for Hemsworth wanted to celebrate, but they should have the courage of the convictions they expressed when in office and since about the value of a proper constructive partnership between the public and private sectors in the interests of the constituents we are sent here to represent.
The shadow Health Secretary says that NHS experts accept that only a “handful” of PFI contracts are causing hospital trusts a significant problem. Labour council leaders in Manchester, Birmingham and Hounslow have praised public-private partnerships for delivering growth and urban regeneration in their areas. For all the denunciations of Carillion, one third of the contracts that the state sector still had with it at the time of its liquidation were awarded by the Labour Governments of the early 2000s—Labour Governments in which the hon. Member for Hemsworth served as Gordon Brown’s right-hand man in No. 10 when that outsourcing work was at its zenith.
The Government are committed to ensuring that the public sector continues to benefit from the best of private sector innovation and skills. We do not put ideology first; we put the service user and the citizen first. That is the policy that the Government are committed to and which we intend to continue.
Kirsty Blackman (Aberdeen North) (SNP)
On behalf of the Scottish National party, I will start by talking about all those affected by the collapse of Carillion, not just those directly employed by it but those who have pensions, having previously been employed by it, those who are subcontractors or are employed by subcontractors and those who are receiving services provided by Carillion that have been stopped overnight and now are being provided by somebody else or by some other vehicle.
I want to talk a bit about what the Scottish Government have done to ensure that in Scotland our constituents and those living around the country receive a continuing service in the aftermath of the collapse of these contracts. The Scottish Government have set up helplines for employees of Carillion and its subcontractors. In addition, Skills Development Scotland is speaking to apprentices concerned about the future of their apprenticeships. The biggest Carillion project in Scotland that we know about, and which the Secretary of State mentioned earlier, is the Aberdeen bypass, on which project Balfour Beatty and Galliford Try are subcontractors. Because of how the contract was written, they are jointly and severally reliable for the delivery of the project, which means that there is no risk to the project and there will be no additional cost to the taxpayer from its continuation. I say that just to reassure my constituents, in particular, who are desperate to see this bypass, which, as many have said many times, is already 40 years too late—but at least we are getting there. We are pleased to hear that that contract will continue, and hopefully those who are working on it in Aberdeen and the surrounding areas will be reassured. It is estimated that the project will generate more than £6 billion of additional income for the north-east: it is a major infrastructure project.
We do, however, feel that serious questions must be asked of the UK Government about the decision to continue awarding contracts to Carillion. The Scottish Government have not awarded it any contracts since the first profit warning was given in July last year. Since the warnings, both the UK and Welsh Governments have agreed contracts with the company. In the days after the first warning, the UK Government awarded contracts worth £2 billion, including the huge High Speed 2 and Ministry of Defence contracts. At the time, the then Transport Secretary said that he hoped Carillion would overcome its problems. He said:
“My wish is that Carillion get through their current problems but we’ve made sure that it’s not an issue for these contracts.”
I hope that that is the case. I hope that people will continue to be paid, and continue to be able to deliver the work.
After the third profit warning, the UK Government’s Education and Skills Funding Agency awarded a £12 million school building contract to Carillion, and the Welsh Government went ahead with a contract for work on two junctions on the A55. The questions that we must ask are these: if rigorous processes were in place, why did Carillion continue to be awarded contracts, and what other firm has continued to be awarded contracts despite not being in a position to deliver on them?
Luke Graham (Ochil and South Perthshire) (Con)
I am pleased about some of the measures that the devolved Administrations have taken. If Carillion had been of such concern, however, would not Scottish National party Members have mentioned it more than twice in the last six months of 2017? Moreover, the Scottish Government have put £5.7 billion into 82 projects through Carillion. This should not be a criticism only of the UK Government. The problem exists in all the devolved Administrations, and we must all work together to fix it.
Kirsty Blackman
As I have said, the Scottish Government have not awarded any contracts to Carillion since the first profit warning. Yes, the SNP has raised the matter twice in the House. Given that the contracts that have been awarded since the profit warning have not been awarded in Scotland, it is amazing that the SNP is standing up for Members’ constituents throughout the United Kingdom.
Let me say some more about what the Scottish Government are doing and the direction that they have taken, particularly in relation to private sector contracts. They have said that they will use private sector partners only when that is the best way in which to support public services, which is why fewer Carillion contracts have been awarded in Scotland than elsewhere. In 2008, the Scottish Government stated their intention to phase out private contracts relating to, for example, those providing services in hospitals. As a result, all cleaning in NHS hospitals is now carried out by in-house workers. We in Scotland have also announced our intention to build a publicly owned competitor to bid for the ScotRail franchise.
We support the continued use of procurement processes to ensure that the Scottish Government can continue to seek the living wage. We have made it as clear as possible that those who are contracted to provide public services for private companies must pay the living wage, and, wherever possible, the Scottish Government have taken action to ensure that that happens. I hope that the UK Government will follow suit. They talk about what they describe as the national living wage, which people cannot actually live on, but I am talking about the real living wage. To provide that for all public sector workers and all those who are contracted to provide public services would be an incredibly important move, which would help to deal with the wage stagnation that we have seen in recent years.
The hon. Member for Hemsworth (Jon Trickett) mentioned blacklisting. We have argued against it on a number of occasions, both in the House and elsewhere. We have made it clear that it is completely unacceptable. Companies should not engage in the practice, and the Government and other organisations should make that plain to them. They should treat companies that apply for contracts differently if they are proved to have engaged in it.
As I have said, the UK Government need to look at all their contracts. They need to assess the financial stability of all the organisations that provide vital public services, especially those in the private sector.
I cannot believe that the directors of Carillion sat in board meetings looking at the accounts and believed for so long that the company was solvent. I do not understand how the directors could genuinely have believed that, because it is so clear to everyone—now that the profit warnings have been issued, the accounts are being discussed and the company is in liquidation—that the position was totally unsustainable for quite a long time. I do not understand how the position was reached where the directors were not taking their responsibilities seriously, taking decisions and making changes—actually saying to the Government, “Sorry, but we can’t bid for these contracts, because we don’t think we are in a position to deliver.”
The Minister talked about the processes whereby services are outsourced and contracts granted to private sector companies. Whatever the process gone through, it was clearly not rigorous enough. In future, a more rigorous process must be applied. Carillion employs 19,000 people; we think about 1,000 of them are in Scotland. That is a significant employer to collapse. We do not want smaller employers that may not have so many public sector contracts but are in financial difficulties to fall too, in a domino effect. It is incumbent on the Government to check that the private sector companies that have public sector contracts can deliver those contracts, so we do not end up again in a situation where people are scrambling.
Patrick Grady (Glasgow North) (SNP)
My hon. Friend makes some important points. Do not the Government need to send a strong signal to public sector bodies that are issuing contracts that best value does not necessarily or always mean the cheapest? The problem is that companies undercut each other because they think that is how to get the contract, and the local authority thinks it has to take the cheapest, rather than the best value that will deliver the best quality service.
Kirsty Blackman
I agree. As a local authority councillor, I worked under the best value regime looking at contracts and tenders. I judged them, not just on the best price, but on best value and the quality of service provided, and whether the companies would be able to deliver what they said they would when they tendered for a contract. Something has gone wrong in the system. I do not know if that is because of Tory austerity, which has resulted in a squeeze on contracts in the public sector and a drive to ensure that contracts are awarded to the cheapest bids, rather than those that provide best value. Given the collapse of Carillion, the Government need to look carefully at the reasons behind awarding all those contracts to ensure that this can never happen again.
I see you shoogling in your seat, Madam Deputy Speaker. I will just take another minute. The Public Accounts Committee warned of the risks of contractors paid from the public purse becoming too big to fail; unfortunately, the Government did not heed the warning and continued to award the contracts. I think—I hope—the Minister would agree with me that it is disgraceful that the contracts were awarded and Carillion continued to line the pockets of its shareholders despite not being in a position to fulfil the contracts. Clearly there are major structural issues with the awarding of contracts. I hope that this is the beginning of the UK Government looking seriously at the matter and making proper changes to ensure that these events can never happen again.
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. There is now a time limit of three minutes.
Mr Marcus Jones (Nuneaton) (Con)
I start by saying that I am disappointed by the motion before the House, not just because there is clearly a mechanism through the Public Accounts Committee to scrutinise these matters, but because there are tens of thousands of people involved and politics should not be put before people. Regrettably the whole cut of the Opposition’s spokesman’s jib was ideological—private bad, public good. That is not the debate that we should be having. We should be debating what will happen to the people affected by the situation and what went wrong with Carillion. We need to hold the people involved to account and discuss how we can help those who have been affected. We also need to talk about how we can provide and sustain the important public services and projects involved in this situation.
The Government’s initial response has been positive. Working with the official receiver, as well as with a number of Carillion’s joint venture partners, the banks and finance providers, public service providers and the trade unions, they have ensured the continuity of the vast majority of services and projects. We should not forget, however, that we need to keep the dialogue going to ensure that services are maintained for as long as possible and that there is a soft landing for most of those contracts. If there is not, we risk losing more jobs.
In the short time available, I want to mention pensions. It is good to see that there is protection for the vast majority of the workers involved in this case, but it is clear that Carillion was not putting as much into its pension deficit as it should have been, and we need to look at pensions in the context of public procurement. We also need to look at small and medium-sized enterprises. The Government have a strong target of a third of public sector contracts going to SMEs, and we should ensure that that happens so that we have a more diverse sector. We should also ensure that big companies such as Carillion do not keep small companies to 120-day payment terms. We should do more to ensure that small companies and the people who work for them are protected, that services are maintained across the piece and, importantly, that workers are supported throughout this problem.
Emma Reynolds (Wolverhampton North East) (Lab)
When the news broke last week that Carillion was going into liquidation, it was a dark day for the company’s 20,000 employees across the UK, including the 450 people at the company’s headquarters in Wolverhampton. Many others are affected across the west midlands region, including those who were working on the Midland Metropolitan hospital site, the many small businesses in the company’s vast supply chain and the many subcontractors who have not yet been paid and who probably will not be.
I welcome the assurances last week that the 450 people at the company’s headquarters will be paid until the end of January, but many of them are now worried about what will happen on Thursday next week. Perhaps the Minister will be able to give us some clarity about that. After all, those people have mortgages to pay, family budgets to plan and meals to put on the table.
The Government still have serious questions to answer about their handling of this matter. Why was the Government’s Crown representative absent from August to November last year? Surely that was a crucial period for the company, and the Crown representative should have been overseeing its 450 Government contracts. Why did the Government continue to award contracts after the company’s first profit warning? How many people will ultimately stand to lose their jobs? How much will the collapse of Carillion cost the taxpayer?
The directors of the company have serious questions to answer, too. It was clearly wrong that the senior management were being paid big salaries and bonuses while racking up debts of more than £2 billion. Only a year ago, the then chief executive, Richard Howson, received a pay package of £1.5 million a year. I was taken aback by the media reports that the remuneration arrangements were amended to prevent the clawback of salaries and bonuses. When I raised this matter with the Chancellor of the Duchy of Lancaster last week, he assured me that the official receiver had the power to impose penalties on the company’s directors. I hope that such penalties will be imposed.
Many experts believe that it would be difficult—and, possibly, legally expensive—to prove either “wrongful trading” or a breach in the duties of the directors. It seems more likely that Carillion’s senior management will be let off the hook, as so many directors of failed banks were following the financial crisis. Surely this has to change. We need stronger penalties for directors who breach their duties. I hope that lessons can be learned about public procurement, and that urgent reforms will be made to corporate governance to prevent those at the top of failing companies from lining their pockets and simply walking away when the companies collapse.
Alex Chalk (Cheltenham) (Con)
In the time available to me, I want to say a few words about a business in my constituency—a subcontractor that has been dealt a hammer blow by Carillion’s collapse—and to make three points. First, I will identify the human impact, which is perhaps taken as read but bears repetition. Secondly, I want to shine a light on the fact that the collapse has exposed market abuse by the big players against small businesses, which we need to look at. Thirdly, there is the potential to recover the situation, so I want this to be a constructive contribution.
My constituent Josh Lee is the director of Larc Construction and his business partner is James Crisp. Both of them are former soldiers and saw action in Afghanistan—in the Parachute Regiment and the Royal Anglian Regiment respectively. One of them was blown up for his troubles but, happily, he recovered. Larc Construction, which is a small contractor, won a contract with Carillion in July 2017 to provide service trenching and ducting at the Midland Metropolitan hospital in Birmingham. As one of the smallest contractors—here is the rub—making its way in the construction world and seeking to establish its reputation with a new client, it did everything that could reasonably be expected of it. It completed its work on time and to a high standard and helped out with additional jobs on site and so on. What is more, to establish its credentials further, it agreed to Carillion’s request to delay the drawdown of its monthly invoice payments for 120 days, because Carillion wanted it to do that to prove that it was creditworthy. The irony is overwhelming.
The upshot is that Larc Construction has been paid for its work to the end of October, but is now owed £200,000. That is not profit; it needs that money to settle its own invoices. If it does not receive a significant proportion of the money by the end of the month, there is every chance it will have to fold, putting colleagues, some of whom are former comrades, out of work. To make matters worse, Larc is in a Kafkaesque situation whereby its plant and machinery, which is costing £1,500 a week to rent, is currently impounded on the site. It cannot get it back so is unable to return it to the hirer to at least defray some of the ongoing costs.
If Mr Lee and Mr Crisp can somehow get through this month and pay their bills, they will survive. It may be that they will have to forgo every last penny of profit from the first half of their contract, but if they can get into a position to be able to continue with the second half—I am delighted that the Government have indicated that they want people to be able to do that—they will at least remain in business. They may end up doing the whole project at cost, but at least they will be able leave the site this year in charge of a going concern and with an enhanced reputation as a contractor that has completed a professional job in difficult circumstances.
Mr Lee and Mr Crisp are not the moaning type, and they are not interested in retribution. They just want a bit of help to be able to carry on trading. I will be grateful if the Minister indicates what support could be provided, and I am grateful to those Ministers who have taken calls on Saturdays to help me with this problem.
Mr Pat McFadden (Wolverhampton South East) (Lab)
Carillion’s problems have been well trailed: major construction projects running over budget and leaving the company with losses; a huge pension deficit; and work done overseas for which it has not been paid. All that ultimately led to the company’s creditors losing confidence and its collapse into liquidation.
As has been said, the corporate headquarters is in Wolverhampton, where it employs some 450 people. What reassurance can the Minister give to the staff at the HQ, who have been described as the nerve centre of the company? I understand the implications of an insolvency, but an assurance that they will be employed until the end of the month is not good enough when there is only one week of the month left. The staff need more than that.
There are other critical questions about pensions, subcontractors and those who were charged with the stewardship of the company, but in the two minutes I have left I want to concentrate on the collapse itself. Court documents filed by the chief executive last week show that Carillion was engaged in a desperate effort to keep open lines of credit with its banks. From the outside, it is of course difficult to judge whether those efforts may have borne fruit or whether they were always a lost cause. In any case, the liquidation has decided the outcome. However, those discussions involved not just Carillion and the banks; the Government were involved, too.
What exactly did Carillion ask the Government for in the days running up to liquidation? In what form was that help asked? Was it a loan, or was it the underwriting of activities in case cash-flow projections did not materialise? How did the Government take the decision to refuse these requests? Which Ministers were involved, and what was the process for ultimately saying no? Crucially, when the decision to refuse was taken, was any comparison made between the likely cost to the public purse of keeping the company going and the cost of turning down the request for financial help and seeing the company collapse?
Much has been said about the wrongness of using public money to bail out companies. Company failure is, of course, an inescapable feature of any market economy, but in this case the taxpayer was not free to walk away, as we have seen and as has been confirmed. The taxpayer is paying the costs of liquidation.
We want answers to those questions, if not today then certainly in the Select Committee inquiries that follow.
Bim Afolami (Hitchin and Harpenden) (Con)
In the time available to me, I will make a couple of points that have not yet been fully brought out in this debate.
My first point is about the action and place of KPMG, Carillion’s auditors. Roughly 40% of Carillion’s balance sheet is intangible assets, largely made up of goodwill. I am a member of the Public Accounts Committee, and I see fellow members in the Chamber; I hope we will get a chance to ask questions about why KPMG did not impair the goodwill on the balance sheet when it was fully aware of the group’s difficulties.
Indeed, many questions have been brought up on both sides of the House about using the private sector in outsourcing the delivery of public services in general. For what it is worth, it seems straightforward to me that using the private sector to provide public sector contracts works best when there is a proper market and competition in the service, so that we can get private sector dynamism and innovation—the things the Minister talked about in his speech. It also works best when the difference between a good service and a bad service, or between good performance and bad performance, can be fully measured on a quantifiable basis.
Will the Minister give a bit more detail on the Government’s view about the role of public and private sector interaction? It is incumbent on the Government to defend the principle of using private involvement to deliver services for the public, because the Opposition’s view is clear: they believe we should nationalise or renationalise everything. When we add up the £55 billion to nationalise energy, the £86 billion to nationalise water, the £5 billion to nationalise Royal Mail and the £30 billion to nationalise the private finance initiative, that is roughly the defence budget and the NHS budget combined—for ideological reasons alone.
I ask the Opposition these questions, if I am permitted to do so. Where is the evidence that nationalisation will mean that services are better or cheaper to run? Why would a state-run monopoly always inherently perform better than a competitive market in this instance? Why, indeed, is it better for the British taxpayer, rather than a private company, to take all the financial risk?
The Opposition claim that somehow the bad bankers and rich fat cats have got off scot-free. The shareholders have lost money, the bondholders have lost money, the bankers have lost money and the British taxpayer—
Mr Deputy Speaker
Order. Mr Afolami, please let us not test the patience of the House. A lot of people want to speak.
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
It is good to see you back in the Chair, Mr Deputy Speaker.
I will focus on the impact of Carillion’s collapse on the completion of the new Royal Liverpool Hospital. I am extremely concerned about subcontractors that have not been paid for work done, apprentices uncertain of their future, pensions at risk and the prospect of workers losing their jobs. However, in the short time available I will focus on the importance of securing a date for the completion of the new Royal, where 90% of the £365 million contract has been completed. I am told that the “hospital company”—the private finance initiative company set up to build the hospital—can appoint a contractor to complete the job, and that the cost will be met from insurance, but no date has yet been given.
There is an added complication. The hospital company is owned by PIP Infrastructure Investment Ltd and Carillion Private Finance (Health) Ltd. Carillion Private Finance (Health) Ltd is controlled by Carillion Private Finance Ltd and is a “subsidiary undertaking” of Carillion plc, and Carillion plc is one of the Carillion companies that is in compulsory liquidation. What does this complex web mean for the appointment of a new contractor and the completion of the hospital?
When I raised this issue in the House previously, I was told by the Minister that the matter could be dealt with simply and that it was for the existing hospital to resolve, but that is not the case. Assurances that the hospital will be completed are simply not enough. I want firm dates for when a new contractor will be appointed and when that new hospital will be open for business. As a matter of urgency, the people of Liverpool need the services that the hospital will provide. Carillion’s collapse must not leave Liverpool in the lurch. I call on the Minister to give the answers, and to give them now.
Luke Graham (Ochil and South Perthshire) (Con)
I am conscious of time, so I will keep my points as succinct as I can.
I echo the words of other hon. Members: obviously, the collapse of Carillion has impacted many small companies and individuals, and I ask Ministers to focus their efforts on supporting smaller companies throughout the supply chain, and please to put the full weight of Her Majesty’s Government behind the Department for Work and Pensions, the Department for Business, Energy and Industrial Strategy, and UK Finance to ensure that support is provided to those most in need.
I was disappointed that the debate was led off by the hon. Member for Hemsworth (Jon Trickett) with “WTF”. I have been in the House for only seven months, but I am pretty sure that, on an issue as important as the collapse of a major company, our constituents expect a little better—especially when there were only five mentions of Carillion by Labour Members in the last six months of 2017, so they were not exactly ringing the bell.
Taking issue with the hon. Member for Aberdeen North (Kirsty Blackman), I do not think it is time for gloating by the SNP either, when just last year 7,000 students across 17 schools in Edinburgh could not return to school as a result of the failure of contracts overseen by the devolved Administration.
Carillion’s demise was the failure of a company, but there were other actors, and as my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) mentioned, one of the key issues was the failure to axe the auditors. The auditors had been the same since 1999, and in 2016 they gave Carillion a clean bill of health. Auditors’ accounts are needed by the market, by Ministers and by individual investors throughout the United Kingdom and internationally. We need to look at the fact that not only had the auditors been sole incumbents since 1999, but that that was so in the face of Financial Reporting Council guidance issued in 2013 that auditors should be rotated by major companies, and a 2016 EU law, which I hope we will be keeping, making the rotation of auditors mandatory to ensure that companies are properly scrutinised and that objectivity is kept.
I am a member of the Public Accounts Committee. We will be discussing the collapse of Carillion and carefully considering our next steps. Government papers provide insight, but it is my view that, actually, an independent National Audit Office report would be far more illuminating. Perhaps, rather than using acronyms such as “WTF” and trying to score party political points, we could use this opportunity to walk across the House, get central and devolved Administrations working together, make sure we address the audit issue, make sure we do the proper inquiries to address the concerns of our constituents and make sure this kind of failure does not happen again.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
I shall be quick. I will focus my comments specifically on workers who find themselves potentially in limbo. In particular, I want to follow up the point made by my hon. Friend the Member for Wolverhampton South West (Eleanor Smith) on TUPE arrangements. The Government made changes to employment law in the previous Parliament so that it now takes two years to accrue proper employment rights—redundancy protections in particular, but also rights such as holiday pay. When the Minister winds up the debate, will he guarantee the continuation of the service protections that so many workers may rely on when companies take on existing workers or the public sector takes on contracts previously held by Carillion, so that, should the worst happen and those workers find themselves facing redundancy at some point, they will get a payment that recognises the service they previously gave, rather than the new terms and conditions they might find themselves on?
I will touch briefly on a situation arising in Stoke-on-Trent. The city council is working on a programme to outsource to a company a number of its soft-facilities management arrangements, particularly on housing and housing support services. Will the Minister please address the fact that, across the country, local authorities find themselves having to look at outsourcing options as a way to provide public services because of the chronic and long-term underfunding they have received? Local authorities do not make those choices willingly; they do so because they are dealing with budget deficits that need to be addressed, and often the short-term solution is to enter into contracts that on the date of entry save money, but, with inflation uplift, cause them to have greater budget deficits over time. Will he please talk to his colleagues in the Department for Communities and Local Government—or whatever it is called now—to ensure that local government is properly funded? We could prevent future outsourcing.
Finally, when the Minister talks to those groups of workers who are looking at what their options are, rather than going down the line of a state monopoly and nationalisation or that of a private sector contract, will he please give genuine thought to a solution whereby workers could form new worker-led co-operatives to take on that work? One of the problems with outsourcing is that we lose accountability and the people who use the services cannot genuinely help to drive what they should look like. I would be grateful if he addressed those three points.
James Cartlidge (South Suffolk) (Con)
May I add my comments to those welcoming you back to the Chair, Mr Deputy Speaker? I want to return to the comments of my hon. Friend the Member for Cheltenham (Alex Chalk), who reminded us of the potential human cost of such collapses. That is why we should all be concerned about them. However, so far, the Government have handled the situation well and—touch wood—it appears as though things are continuing as well as could be expected.
On that front, I would highlight three positives: the way public services have continued, which is of huge importance to our constituents; the way joint venturing has protected taxpayers and reduced the potential harm of the situation; and—we have not heard this yet—let us not forget that earlier today we saw in the labour force survey that we still have record employment. We also have record levels of vacancies. Therefore, although it is worrying what may happen to people, including my hon. Friend’s constituents, we could not ask for a better situation in which people might be out there looking for work, because a huge amount of work is available in construction and other parts of the economy. We have a strong job-creating economy and we should remember that real positive.
On the broader points, pensions are a particular concern for me. My hon Friends the Members for Hitchin and Harpenden (Bim Afolami) and for Ochil and South Perthshire (Luke Graham) referred to the auditors, but we should not forget the pension trustees. Up to the general election, I was on the Work and Pensions Committee, and in December 2016 we published a report on the new powers of the Pensions Regulator, given what had happened at BHS. I fear that that could happen again at other companies. We really need to look at pension scheme oversight so that schemes are not abused, as might have been the case at this company.
There is a real challenge for this country in all aspects of pensions policy. Not just in the context of this company, but in terms of the forthcoming White Paper, which I strongly welcome, we must have a joined-up look at this issue and consider how we support overall investment and the economy—we do not want to denude that—and ensure we have effective oversight of pensions so that people do not lose their pensions when companies go under and we do not pass the burden on to the taxpayer.
There are many other issues to look at, but, given what could have happened, so far it has gone reasonably well—[Interruption.] Opposition Members are laughing, but I would have loved to see some of those hon. Members, who have almost no business experience between them, in charge of this situation. It has been well handled, and let us hope that that continues.
Ged Killen (Rutherglen and Hamilton West) (Lab/Co-op)
In 2014, Keith Cochrane was appointed to the joint management board of the Scotland Office to advise on strategic and operational issues in that Department and on the efficient delivery of ministerial priorities. As well as that, Mr Cochrane was a member of the Government’s network of non-executive directors. According to media reports, a Government source described Mr Cochrane as having undertaken, since he joined that board and that network,
“a significant programme of engagement with Lead NEDs from across UK Government departments.”
The source also said:
“Since Keith Cochrane’s appointment the visibility of the Non-Executive Board Members has increased considerably, especially across Government.”
Not only was Mr Cochrane a key adviser to the Secretary of State for Scotland and others across Whitehall, but during his three-year term as a management director and non-executive director in Government he was also on Carillion’s board, and he was latterly its chief executive officer. The long and short of it is that Mr Cochrane advised on Government policy while Carillion was being offered large and lucrative contracts in Scotland and throughout the UK. For many at home watching our proceedings, it will look like just another example of the cosy cabal that the Government are routinely guilty of entertaining.
It has been suggested that Mr Cochrane asked the Government to consider a bail-out for Carillion. As a high-level adviser to Ministers and to Whitehall, Mr Cochrane enjoyed premium access that would simply be unavailable to someone from any other company. Small business owners who face lost contracts, unpaid bills and the prospect of having to lay off staff never had the kind of access to or voice at the Government table that Mr Cochrane had. Unlike him, they will not receive £750,000 in pay while their company goes under, or £300 for every high-level meeting with Ministers.
I welcome today’s announcement that Keith Cochrane will step aside temporarily, but will the Minister tell the House whether the Government will renew his membership of the joint management board and the network of non-executive directors when his three-year term expires this year? Will the Government provide details of the number of meetings Mr Cochrane had with Ministers responsible for issuing contracts to Carillion and of whether he ever raised the prospect of a bail-out of Carillion with Ministers or Whitehall officials?
Rachel Maclean (Redditch) (Con)
In this country, we have high-quality public services, but the reality is that they are expensive. I am afraid the simplistic statements offered in the Labour party manifesto, suggesting that just a few rich people could pay for everything that our voters demand, do not stand up to the light of day.
The private sector has a role to play, but it must be managed properly. In my area, PFI contracts were awarded under the previous Labour Government to build a new hospital in Worcester that serves the people of Redditch. It provides much-needed health services, but it has been troubled by the financial obligations arising from the financing deal. Lessons must be learned. The awarding of large-scale public sector contracts requires a particular skill set and should be entered into by those with the necessary training.
Removing the private sector completely would not solve the problem. It has delivered benefits to NHS patients that are freely available to all. New, innovative, life-saving equipment—such as I have seen in the new endoscopy unit at Worcester—can diagnose cancers and other life-threatening illnesses, save patients long trips, and save lives. That would not be possible without private sector involvement.
Some Opposition Members have suggested that this debate comes down to ideology. I reject that. It is not a black-and-white choice. The private sector can be managed well or appallingly, just as the public sector can. We should not make a binary choice between on the one hand the public sector as morally superior and above reproach, and on the other hand the private sector as morally bankrupt. Instead, it comes down to an organisation’s culture and values, and they have to be led from the top.
The ownership and corporate structure of an organisation does not, in and of itself, guarantee either good or bad behaviour. Every human being is flawed and imperfect. I suggest that Members read the works of Shakespeare, any of our great works of literature or the Bible, to educate themselves about the human condition. We are all flawed people. Perhaps Opposition Members are flawless, but I am certainly not. People are capable of doing bad things.
As policy makers, our role is to make laws that go as far as they can to prevent individual flawed human beings, such as those we have seen in this case, from being put in a position to flout moral codes. We must uphold those codes and expect the best from those in power. We must all focus on better corporate governance, which is a priority for this Administration that I support. I serve on the Business, Energy and Industrial Strategy Committee, and I am looking forward to taking part in our joint work with the Work and Pensions Committee. I will be calling on the Government to act on our recommendations.
Jack Dromey (Birmingham, Erdington) (Lab)
It is very good to see you back, Mr Deputy Speaker.
The ideological zeal of the Conservative party has not dimmed since the days of Mrs Thatcher. The mantra then and now is one of “public bad, private good”. I remember then leading a delegation to see the good Lord Heseltine, the then Secretary of State for Defence, to convince him that we had a public sector alternative to privatisation of the royal naval dockyards. When we asked him, “Why then privatise?” he tossed his golden mane over his shoulder and said, “Because I am a Tory.” That says it all about the enduring ideological assumption made by the Conservative party. To this day, the heir to Mrs Thatcher refuses to listen to the reasonable case put by the Opposition for taking back into public ownership failing utilities that are letting the public down.
I have always argued that the public interest should come first, but why should workers come a sorry second? Let us look at the history of what has happened, at outsourcing and at what is threatened at the next stages. On history, we have had 10 years in which the Tories refused to apply TUPE to 6 million public servants, with those public servants paying a catastrophic price as a consequence. Ultimately, the old T&G won. We took the case to the European Court of Justice to force the Government to extend TUPE to cover the public sector. Now, once again, what we thought we had won is threatened by Brexit. We have heard successive Ministers, led by the Foreign Secretary, talking about abolishing red tape. Is guaranteeing workers’ rights on transfer red tape? Nonsense. The Government have refused to guarantee in British law—statute law—that workers will be protected on transfer.
On Carillion, it was a monumental failure by Government and of governance. It is a symbol of the utter irresponsibility and incompetence of the Government, driven by that ideological zeal with catastrophic consequences. Last Tuesday, at the Apprenticeship Centre in my constituency, apprentices were sent home weeping. One said, “What am I going to tell my mum? What do I do now?” Workers were in despair. What we were seeing were the catastrophic consequences of a company that had received three profit warnings, that was still paying dividends and that was not adequately investing in the pension deficit. It is not true that pensions are fully protected—notwithstanding the welcome steps taken by a Labour Government with the Pension Protection Fund. All workers, to a greater or lesser extent, will lose on their pensions.
Finally, when we are in government, the Labour party will act to end that ideological assumption of “public bad, private good”. We will use public spending power in the best interests of the public, in the best interests of workers and in the best interests of small and medium-sized enterprises. The difference between our two parties could not be greater. We will stand up for the public interest.
Dr Caroline Johnson (Sleaford and North Hykeham) (Con)
First, I wish to share the concerns that have been expressed today about the workers who have been affected by Carillion’s insolvency. This is a troubling time for many people—those who work for Carillion, those who work for small and medium-sized enterprises that depend on Carillion contracts and those, such as my constituents, who are reliant on the local services that they provided. I am pleased that the Government have taken immediate action to minimise the impact on workers by providing the reassurance that those working on public sector contracts will continue to be paid and by ensuring that public services can continue to be provided.
Secondly, I wish to put on record the good work of Conservative-run Lincolnshire County Council. Carillion was in the process of building the Lincoln Eastern Bypass, a project that is hugely important to local residents and businesses in my constituency and in others. Lincolnshire County Council acted very swiftly to ensure that the contract with Carillion was terminated and that another company, Galliford Try, was taken on so that work could continue apace. Indeed, within one week of Carillion’s failure, work is already under way on site, with the new company making sure that the building of this bypass continues. I commend the council for its work and ask the Government to look at ensuring that people on apprenticeships are considered in this project and can see their training continued.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
It is very good to see you back in the Chair, Mr Deputy Speaker.
I am going to make four points. First, can we take the work back in-house at a local level? As we have heard, the local government network across the UK has been hollowed out with regard to skills and ability. That is a structural problem that has developed over very many years. It is an issue for Governments to address in future if we are serious about giving local authorities the power to do things in-house.
Secondly, can we take the work back in-house at a national level? The Minister said that he did not believe that the civil service had the skills to do that anymore and that is why it is all given to the big companies. We should look across the channel at the French. They can do it. Their civil servants are educated to the very highest level at their network of écoles. If they can do it, we can do it. We should look at that closely. I recommend a book to Conservative Members and to everyone else in this House—“Sixty Million Frenchmen Can’t Be Wrong”. They should read it. It explains how the system works, and it is fascinating. Thirdly, yes, we must see what the official receiver and PwC say, because we have to learn from what has happened.
That brings me to my fourth and final point; I chuck my speech over my shoulder like a golden mane. We must not underestimate how annoyed people out there are about what has happened. We all go on at our constituents about prudent management of their finances—that is what universal credit is all about. We say, “Save, budget and look after your money,” and then along comes Carillion. All of us, in all parts of the House, are tarnished by this. It reduces our constituents’ faith in us as their elected representatives. It is even—dare I say it?—dangerous for democracy. We have to sort this out and be seen to do it publicly. Let us restore the faith of our constituents.
Justin Madders (Ellesmere Port and Neston) (Lab)
For decades now, this country has been beguiled by the outsourcing and privatisation industry. The magic formula of better services for less money has permeated through every part of the public sector. But the Carillion debacle has shown us that that magic formula is an illusion—a con trick of epic proportions.
I want to focus on one element of outsourcing: the impact on employees. When a function transfers, it is usually the case that the staff who are employed in that function transfer along with it. While TUPE does offer a level of protection, it is far from perfect and often misunderstood. Contrary to what many people think, it does not offer unlimited protection against changes to terms and conditions. If someone works for an employer who has taken them on as part of an outsourcing or privatisation project, they are far more likely to have their terms and conditions attacked, because very often the whole purpose of the outsourcing project is to save money. As employee costs are often a significant part of the contract, they are usually first in line when savings are sought.
We then see an industrial scale of cowardice as blame is passed between the old employer and the new. The new employer says, “The company we are contracting with is asking us to make savings on the contract, and the only way we can do it is by cutting your pay,” but the old employer says, “Don’t look at us—we’re just a customer now. We were told that you would be protected when you left us.” A merry dance is led, and the employees facing a wage cut, or worse, are left high and dry.
The blunt truth is that this is just an elaborate dance—a façade—because the evidence tells us that the minute the decision was taken to outsource, this was always where things would end up. People might kid themselves that their former employees will be protected and think that nothing will change, but the history of outsourcing tells us that sooner or later it is the workers who pay. How do people think that these miraculous savings will emerge? I am sure there are fields of expertise where the private sector can offer something, but really, what does a construction company know about cleaning hospitals?
Scrutiny, transparency and accountability are all jettisoned by outsourcing, as the private sector companies have none of the obligations that the public sector is obliged to adhere to, such as freedom of information. The only thing they are judged on is the contract itself. Social value, long-term investment and building capacity for the future, which ought to be by-products of a healthy public sector, are completely forgotten.
The Prime Minister said that the Government are just a customer of Carillion. That is of course true, but Labour Members expect much more than a passive role from the Government. The Government should be more than a customer: they should be the defender of public services and a vehicle for driving change in society. Outsourcing functions should not mean an outsourcing of that responsibility. We need to end the toxic cocktail of beguiling management consultants, weak employment rights and greedy bosses that leads to a race to the bottom that is accelerated by privatisation and outsourcing. It is time that Government put a stop to this instead of being a willing participant.
Chris Stephens (Glasgow South West) (SNP)
I am delighted to see you back in the Chair, Mr Deputy Speaker.
We heard from the Minister for the Cabinet Office a lengthy justification of outsourcing, but it was rather diminished by some of his colleagues—right-wing ideologues lecturing the rest of us on ideology—who claimed that, with outsourcing, risk is transferred from the public sector to the private sector. The current situation of Carillion shows that that is just complete and utter nonsense; the risk always remains with the public sector. As I remember as a trade union negotiator, the problems of outsourcing also include a reduction in workers’ wages, and not having a comparable pension scheme because the new employer would put less into it, so there are all sorts of issues. There is, however, a general principle. The Department for Work and Pensions has issued a contract to a company, Interserve, for cleaning services, but its current financial adviser is the same individual who was advising Monarch Airlines, so what chance have we got with some of these Government contracts?
I want to raise again the concerns expressed by the shadow Minister in relation to handing over contracts to blacklisters. In their procurement contracts, the devolved Administrations have specific rules that I think the Westminster Government should also apply: there should be an apology from companies participating in the blacklisting; they should take remedial action; and they should provide compensation to the workers who were blacklisted.
I think there is a sensible solution to the current Carillion crisis that would help the existing workforce. It can be found in the Workers (Definition and Rights) Bill, which was published last week and is available in all good Vote Offices. It is a visionary Bill, if I may say so, because we need to have the principle that where a subcontractor absconds or ceases trading, the principal contractor is then responsible for the wages of the subcontractor’s workers, including
“any fee, bonus, commission, sick pay, maternity pay, holiday pay, redundancy pay”
or any other payment. I hope the Government will look carefully at clause 3 of the Bill, and introduce emergency legislation to protect the workers of Carillion and to ensure that when subcontractors are caught up in such a situation, the principal contractor must pick up the tab.
Ian C. Lucas (Wrexham) (Lab)
It is a real pleasure to see you back in your rightful place, Mr Deputy Speaker.
The reaction of many of us to the demise of Carillion was, “Here we go again!” We have seen once more the very heavy cost of privatising profit and socialising risk. The buck stops with the British taxpayer, who will once more have to bear the cost of the failure of our current economic model. The Carillion crisis has again shown the failure of the model established in the 1980s—the privatisation of the delivery of public services.
Far from making the delivery of public services cheaper and more efficient, we instead see businesses building monopolies on the back of public investment, eliminating competitors on the way and using precious public money to maximise the return to senior executives and shareholders, often on the back of huge borrowing. The result is, in the case of Carillion, that when the banks say enough is enough, the public obligation to deliver services reverts to the taxpayer and the British taxpayer has to bail out the organisation.
It is not just Labour MPs who are fed up with this situation. Conservative MPs should listen to the fact—according to the Legatum Institute, for goodness’ sake—that 83% of the British people favour the renationalisation of water services and 77% favour the renationalisation of energy services. They know they are being ripped off, and even the Conservatives are now talking about energy price caps. It is becoming increasingly clear that there is a developing consensus that the 1980s model of privatising the delivery of public services is not working and needs to be changed.
As the Minister with responsibility for construction in 2009, I remember construction businesses telling me that they had overcharged by about a third on public sector projects. The largest construction businesses were very often shells, simply managing contractors in a way that some would describe as parasitic. They held on to public money for as long as possible before finally paying it over to the small businesses actually doing the work, and the executives creamed off obscene levels of salaries and bonuses from the contract. Obligations to pension funds were not respected or looked after, and all of that was certified by an ever-diminishing group of the same old accountancy firms, which do not do their job properly and do not tell us when businesses are about to go bust.
The public have had enough of this. The Labour party has listened to the public, and it is about time the Government did so too. If they do not, they should get out and we can have a Government who do.
James Frith (Bury North) (Lab)
Welcome back, Mr Deputy Speaker; it is good to see you.
The collapse of Carillion presents us with a watershed moment, if we choose to see it as such. This large outsourcing company with responsibility for public contracts was puffed up as a vehicle to transfer public sector jobs and to seemingly create the private sector jobs that this Government like to boast as having created. The creators of boom and bust are now presiding over boast and bust.
The Government’s boasting is real, but the moment their plan hits the rocks they walk on by. The boast becomes hubris and the Government’s confidence becomes cowardice. Workers are bounced off to the jobcentre, and pensioners are sent a phone number to chase up their livelihood. It is not good enough. The response to date has been obnoxious.
Carillion amassed £1.5 billion in debts, borrowing against public sector contracts handed out by this Government to build schools and hospitals. It routinely retained fees for its subcontractors and abused 30-day payment terms by responding in an average of 126 days. That contentious practice was not welded to contract law, and a Goliath-like expectation was put on smaller companies by the large international outsourcing companies preferred by the Cabinet Office since 2010. Such companies determine their next venture not according to any deep expertise, but according to the potential profits as they consider it in a boardroom while evaluating their stock and portfolio of Whitehall contracts.
Man cannot live on private sector alone. The limitations of both sectors are known, so it should be about collaboration and playing to strengths. There is a role for private companies such as Hargreaves in Ramsbottom, which is owed for the work it completed on the Royal Liverpool Hospital. It is also owed a considerable amount for contracted work yet to be done, yet the administrators have asked it to finish the job unpaid, its retention lost.
I say to the Government: do not close the shutters and ensure that administrators secure payment for completed work first from the wreckage. The Government also need to identify where Government contracts have been awarded but not paid in full to Carillion and send them to the businesses that got the job done but are out of pocket. They need to ensure that the renewal of contracts is kept in the SME sector and lead a taskforce dedicated to stabilising them. The Government need to get rid of this blind creed and stand up for the real wealth creators—the doers, not the doers-over. They should enforce public sector 30-day payment terms for existing companies engaged in this work and disqualify those that do not comply. Finally, they should introduce new legislative proposals to place retentions in secure, independently held deposit protection schemes, with tougher measures to limit borrowing against public contracts. I say to the Government to get a grip, get involved, step in and stop walking on by.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
The ugly side of privatisation and outsourcing has been laid bare by the collapse of Carillion. While fat cat executives have taken action to protect their pensions and pay, the workers have been shafted. With a day’s notice, workers were told to not bother to turn up to work. These are workers with mortgages and families to feed, and the platitudes from this Government will not comfort them.
Make no mistake: this is an ideological obsession of this Government. We have got to the farcical point where Oxfordshire County Council is forced to put firefighters on standby to deliver food in our schools. Private capital has seen all the benefits, and the state has taken the burden of the collapse again. It is estimated that subcontractors will receive only 1p of every pound owed to them. They also have families to feed and bills to pay. What do the Government have to offer them? Nothing. They are obsessed and determined to push ahead with the privatisation and outsourcing of the £1.2 billion HS2 contract. There has been more privatisation and outsourcing in Ministry of Defence contracts, and in school projects. When will they ever learn? We privatised the reward and we nationalised failure. It is the absolute reverse of socialism.
This is a crisis of capitalism. Workers are treated with utter disdain in the pursuit of capital accumulation. This is an ideological issue. Outsourcing, not just by Carillion, has brought our state to its knees. Southern Rail, schools: it is time that this experiment was brought to an end. The smoke and mirrors of PFI and outsourcing are no longer there.
Luke Graham (Ochil and South Perthshire) (Con)
In his criticism of capitalism and PFI, does the hon. Gentleman recognise that Labour, between 1997 and 2015, put in a capital value of £49.4 billion, compared with the Conservatives’ £7.9 billion. Labour is more responsible for this problem than the Conservatives have ever been.
Lloyd Russell-Moyle
That is right. The public will not fail to notice that the Labour party is under new management. We will build on the positives of the past, and discard the negatives. PFI, I am afraid, was a bad mistake that the Conservatives began under Major, and which we failed to stop. We will stop it this time, because when Jeremy Corbyn gets in and we have a socialist Government what will end is this—
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. It is one thing to test my patience but it is another to name Members. The hon. Gentleman cannot name the Leader of the Opposition. He can say “the next Prime Minister”, but he should not use his name.
Lloyd Russell-Moyle
I am terribly sorry. I get very excited about the thought of the Leader of the Opposition becoming Prime Minister, which will happen very shortly.
These contracts are an absolute mess. The Government say that civil servants cannot take things in-house. If that is the case, they cannot manage the contracts that they have issued. I call it baloney and ideological rubbish. We will put an end to it. The Government must put an end to it to prevent our country from going to the dogs.
Rebecca Long Bailey (Salford and Eccles) (Lab)
I am delighted, Mr Deputy Speaker, to see you in the Chair. The House will share my sentiments in sending our love and prayers to you at this difficult time.
Given the limited time available, I will not refer to all the poignant speeches that we have heard. We have heard Members in all parts of the House relate tales that have resulted from the aftermath of a week of crisis. Last Monday morning over 20,000 direct employees and pension-fund holders, as well as over 30,000 sub-contractors, suppliers and their staff, awoke to find they might be facing financial ruin. In the hours that followed, the cataclysmic effect that Carillion’s collapse could have on people’s lives became clear, along with the chaos it could cause to public services across Britain. One of the most scandalous stories to emerge in the aftermath was how much the Government knew, and how much they ought to have known, about the risks that Carillion posed, and how little they did to mitigate them.
In the last six months of its existence, Carillion issued three profit warnings. Indeed, the Government knew that those red flags were serious. Their own strategic risk management policy directed them to deem a business as high risk if it issued a profit warning. It specifically directed that for high-risk businesses, all Government Departments should be advised to reduce additional work with that business where possible. Despite that, the Government continued recklessly to award Carillion contracts again and again and again. They failed to monitor Carillion properly. The position of Crown representative was vacant from August to November 2017, and there were no meetings between senior UK Government Ministers and Carillion in the months immediately after the first profit warning. But that is not all. Even Government Members will think that what I have said so far is simply astonishing, but sadly—
Rebecca Long Bailey
Given the time I have left, I am afraid I cannot—I would love to.
Sadly the Government’s culpability also extends to the reckless treatment of Carillion’s suppliers and subcontractors. The late payment of suppliers by Carillion was no secret, and the Government knew this. In July last year, both the Specialist Engineering Contractors’ Group and the Federation of Small Businesses highlighted to the Government how risk was transferred to suppliers at Carillion; that it was not paying suppliers on time and extended its payment period to over 120 days; how the Government were not enforcing the Public Contracts Regulations 2015 that ensure that subcontractors with a public sector contract should be paid within 30 days; and how Carillion made money off the back of early payments by charging fees.
The Government were also advised on suppliers’ retention moneys—a security deposit held by Carillion until project works are completed—which were not ring-fenced, despite these organisations advising the Government of the risks. They were even advised by Labour back in 2014, when my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams)—the shadow Secretary of State for Work and Pensions—stated:
“There is evidence that cash retentions have been used to shore up the working capital of…tier 1 suppliers…if tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing their retentions.”—[Official Report, 18 November 2014; Vol. 588, c. 210.]
Today, those retentions are estimated at a whopping £1 billion, which suppliers may never, ever see again.
Then there was the Government’s aversion to project bank accounts to protect project moneys from insolvency and ensure prompt payment to subcontractors. Both Her Majesty’s Treasury and the Cabinet Office have historically recommended that project bank accounts are used by public sector organisations on appropriate projects, so why was that not enforced in Carillion’s case? The simple fact is that suppliers were mistreated again and again, and the Government did not care. They did not step in and act. They must now support subcontractors and ensure that all the issues that I have referred to are dealt with in both existing and future Government contracts.
Then there is the workforce—the good people the Government have asked simply to keep coming to work every day. They have stepped up in this crisis, but what security were they offered? Carillion was a company renowned for its poor treatment of workers. It was found guilty in court of widespread blacklisting that destroyed livelihoods and the lives of many workers’ families, yet the Government continued to award contract after contract to it, no questions asked. Through the lack of protection for subcontractors, they again put workers’ lives at risk. What they also failed to tell us last week is that under a compulsory liquidation, all employee contracts are terminated, so the fact is that most Carillion employees do not have an official contractual relationship any more. There are no existing terms and conditions to transfer to a new contractor, so what support have they received—a hotline? Some 88% of RMT members who work for Carillion have not been contacted by the liquidator so far.
The Government must assure us that any business or provider that takes over Carillion’s contracts must also take on those employees on their pre-existing terms, or better. Until the long-term position is clear, they must assure us that the official receiver will grant formal contracts to employees to give some degree of certainty as to the period they will be employed for. They must also seek to protect agency and zero-hours contracts for Carillion workers to ensure that people can recover unpaid wages and report back in detail to us on the workforce who were affected in Carillion’s private sector arm. We also want assurances from the Government that they are doing all they can to replace apprentices within other companies that the Government have contracted with.
Finally, I want to highlight the Government’s failures to spot the alleged corporate abuse. Carillion handed £500 million to shareholders in the seven years before its collapse, while its pensions black hole spiralled out of control. It is, frankly, a national scandal that Carillion paid sums in dividends similar to what could have filled the gaping hole in its pension deficit. Did the Government request to view the company’s accounts? Did they look at the auditors’ submissions? Who knows! But even the most basic due diligence would have uncovered this.
It is a little too late, therefore, for the Prime Minister to wax lyrical about her desire to protect workers’ pension schemes by stopping payments to directors, when all the evidence suggests the Government knew exactly what was happening—that the pensions deficit was spiralling out of control. This is typical of the last seven years: a laissez-faire approach from a laissez-faire Government. It is clear that the Government knew of the risk Carillion posed and failed to do anything about it, and Britain is left worrying who is next. Is this a house of cards waiting to collapse? How secure is the outsourcing of our public services? I urge the Government to be transparent about the risks we face and ensure that the Public Accounts Committee has sight of all the risk assessments and improvement plans as a matter of urgency, and I urge them to support today’s motion.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Andrew Griffiths)
Mr Deputy Speaker, may I begin by welcoming you back to your rightful place? It is a great pleasure to see you there once again.
This has been an important and timely debate on the insolvency of Carillion. The decision by the directors to put Carillion into compulsory insolvency affects the lives and livelihoods of not just the 19,500 Carillion employees but many thousands of small businesses, contractors and employees up and down the country. This debate has been well attended, and I am sure that Members will understand if I cannot address each and every point raised. I promise to write to everybody who has asked a question, and will briefly touch on a few of them now.
The hon. Members for Wolverhampton North East (Emma Reynolds) and for Wolverhampton South East (Mr McFadden) raised several issues. I pay tribute to the diligence and commitment they have shown their constituents in trying to find out what happened with Carillion and to ensure that those workers are being treated as fairly as possible. They asked when people would get paid. The special manager, as they may know, has given a commitment that staff will be paid until at least the end of the month. However, as was highlighted in the debate, Wolverhampton is the nerve centre, and if the special managers are to continue running the business to maximise the benefits to creditors and ensure a smooth transition, that nerve centre will be vital to its future. I think they can be confident, therefore, that the future for them looks more certain.
My hon. Friend the Member for Cheltenham (Alex Chalk) raised a point about a constituent of his. I have looked at this and been advised that PWC is talking to the directors of the company today. If it continues to have problems with the financing of the business, I ask that my hon. Friend get back in touch with me, because I have some more information, which I will come to in a few moments.
The hon. Member for Liverpool, Riverside (Mrs Ellman) understandably raised her concerns about the impact on the Royal Liverpool Hospital. I can confirm that PWC has been instructed to continue paying the Carillion construction staff currently on site. That project, along with the other hospital projects, is a priority for the Government, and we are working incredibly hard to get them moving as quickly as possible. I will endeavour to keep her updated.
James Frith
Hargreaves is a company in Ramsbottom in my constituency that is contracted to put fire extinguisher equipment into the hospital. It has been asked by PWC to go in and complete the work, but PWC has also acknowledged that its retention fee is lost and that it should not expect to be paid for completing that work. Will the Minister give special attention to that issue?
Andrew Griffiths
I thank the hon. Gentleman for raising that point; he mentioned it earlier in the debate. I think he said it was asked to “finish the job for nothing”. I can confirm, having discussed it with the special manager, that anybody who is contracted to complete work after the date of compulsory liquidation will be paid by the special manager. I can put him straight on that one.
The hon. Member for Birmingham, Erdington (Jack Dromey), when he had finished his Castro-esque anti-capitalism rant, raised the issue of apprentices in his constituency who were sobbing because they had lost their opportunity of an apprenticeship. I think that that issue was also raised from the Opposition Front Bench. The Construction Industry Trading Board has taken over responsibility for the apprenticeships, and 1,100 of the 1,400 apprentices who are currently working for Carillion have had face-to-face interviews with the board and have been offered new apprenticeship roles. The board has confirmed that any of those 1,400 who wish to continue their training will be allowed to do so, which I think is very good news.
The hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle) said that he was “excited”. This is probably the only occasion on which I will agree with him in the Chamber—he certainly was excited.
My right hon. Friend the Minister for the Cabinet Office set out his approach to the oversight of contracts and awards and how that process relates to Carillion, and gave a detailed explanation of the measures that had been introduced. Let me add that when it was decided to place Carillion in insolvency, the Government had two priorities: to protect and maintain the delivery of vital services in schools, hospitals and prisons and on the railways, and to support not only the 19,500 people directly employed by Carillion, but the contractors and small businesses involved.
It was because we wanted to support the people whose lives had been affected that, on the very day of the collapse, my right hon. Friend the Secretary of State held a meeting with the eight largest trade bodies in the construction sector in order to understand better what we could practically do to help. They had four requests. First, they said that they wanted to be supported by their banks at that difficult time. In response, the Secretary of State and I convened a meeting of the banks, and asked them for tailored and sympatheic support for those affected. As a result of that meeting, nearly £1 billion has been made available by major lenders such as HSBC, Lloyds, RBS, and Santander in the form of loans, credit facilities and further financial support.
Secondly, many small businesses, in particular, were concerned about imminent tax liabilities. Her Majesty’s Revenue and Customs has now said that a “time to pay” facility will be available to businesses affected by Carillion’s insolvency, to give them the support and flexibility that they need.
Thirdly, the bodies asked for a meeting with the official receiver’s specialist manager to discuss the particular needs of the supply chain. At the Secretary of State’s request, PricewaterhouseCoopers has now met them, and me, twice, in order to tailor specific support where it is needed. Fourthly, they asked for a taskforce to be established to pool efforts to help the supply chain in particular. In response we have formed such a taskforce, chaired by my right hon. Friend the Secretary of State, which will meet for the third time—
Andrew Griffiths
This taskforce was requested by the trade unions because they thought that it would have value. If the hon. Gentleman does not think that that is an effective thing for us to do, perhaps he will have a word with his friend Len.
The taskforce includes representatives of business sector organisations, the TUC, the Federation of Small Businesses, the Department for Work and Pensions, the Cabinet Office, the Local Government Association and the Construction Industry Training Board. We are working together to address the challenges, and to come up with solutions that will support the affected businesses and employees.
Finally, there is the issue of accountability. There have been questions about directors’ pay and bonuses. I can reassure the House that my right hon. Friend the Secretary of State has written to the Insolvency Service asking it to investigate the actions of the directors properly. He has also written to the Financial Reporting Council to ensure that the actions of not just the current directors, but previous directors, are thoroughly investigated. Powers include the ability to claw back bonuses if that is required.
We have stepped up to work with those businesses that, through no fault of their own, find themselves in a difficult position. We give a commitment to this House that at the forefront of our efforts are the thousands of people whose jobs and livelihoods, through no fault of their own, have been affected by the Carillion insolvency—
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)
claimed to move the closure (Standing Order No. 36).
Question put forthwith, That the Question be now put.
Question agreed to.
Main Question accordingly put.
Question agreed to.
Resolved,
That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions to the Chancellor of the Duchy of Lancaster that the assessments of risks of Government Strategic Suppliers by Her Majesty’s Ministers referred to in the Answer of 19 December 2017 to Question 114546 and any improvement plans which Crown Representatives have agreed with such strategic suppliers since 2014 be provided to the Public Accounts Committee.
Andrew Gwynne (Denton and Reddish) (Lab)
On a point of order, Mr Deputy Speaker. The Municipal Journal has published an article today stating that Whitehall officials rushed out the provisional local government finance settlement before Christmas, knowing that the figures it was based on were wrong and that the information presented by Ministers to this House was incorrect. The Municipal Journal also reveals that the Valuation Office Agency notified the then Department of Communities and Local Government prior to the statement being made.
Given that 195 local authorities are now set to lose out, with Manchester City Council understood to be the biggest loser, can you advise me whether the Secretary of State for Housing, Communities and Local Government has indicated that he will make statement to the House about this debacle and apologise to Members for his Department’s knowingly having given the House incorrect information? If he has not given such an indication, what procedures may be utilised to bring Ministers to the House for questioning?
Mr Deputy Speaker (Sir Lindsay Hoyle)
There are two ways. First, the point is now on the record. Secondly, I know that there are other avenues that you will pursue personally, Mr Gwynne, and I am sure that the Opposition will pursue them as well. I am sure that that will bring a fruitful outcome, but in fairness to the Government, the point is now on the record and they can take it on board.
Rebecca Long Bailey (Salford and Eccles) (Lab)
On a point of order, Mr Deputy Speaker. My point of order is not as exciting. I just wanted to confirm that the motion we just dealt with was passed unanimously, in which case, have you received any indication from the Government about when the Public Accounts Committee will be provided with the relevant reports?
Mr Deputy Speaker (Sir Lindsay Hoyle)
Once again, the point is now on the record. I think we can leave it there at this stage.