Carillion and Public Sector Outsourcing

Debate between James Cartlidge and Rebecca Long Bailey

Wednesday 24th January 2018 Commons Chamber

[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—

[James Cartlidge]

Will the hon. Lady give way?

[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.