Capita

Lord Wallace of Saltaire Excerpts

Tuesday 24th April 2018 Lords Chamber

[Lord Young of Cookham]

I am grateful to the noble Lord, Lord Hunt, for his questions. I will try to answer all of them. On the question of a strategic approach, he will know that a new chairman, Ian Powell, was appointed last year and a new chief executive, Jon Lewis, in December. Jon Lewis has made it clear that he is in the process of putting together what he calls a “transformation programme”. Yesterday’s announcement was part of that process. The market’s response shows that it now has confidence in the new leadership team at Capita.

The noble Lord then asked why the Government are wedded to Capita. I have looked at the major central government contracts that have been awarded to Capita: 20% were awarded by the last Labour Government, just over 50% by the coalition Government and the balance by the current Government. So, it is not the case that we are more wedded than previous Administrations to the concept of using private providers and outsourcing contracts to get the best value for money. Appropriate contingency plans are in place for each contract. They depend on the nature of the contract—that is, whether others could immediately take over if there was a problem. Major contracts have terms that give contracting authorities the freedom to act in the event of supplier failure, including financial distress. I assure the noble Lord that appropriate contingency plans are in place for these contracts.

Turning to the noble Lord’s question about small providers and SMEs, the Government are anxious to break up these large contracts wherever possible to enable more SMEs to bid for them. During the Easter Recess, the Minister announced a whole raft of measures designed to boost opportunities for small businesses to gain government work. He is right to point out how important SMEs are. They provide 16 million jobs in this country and we are committed to ensuring that they are treated fairly by large suppliers. The Government have a target of HMG spend on SMEs. It was 25% but is now 33%, so I think we are at one on that issue.

On paying subcontractors promptly, Capita is currently paying 80% of invoice value to SMEs within 30 days and has plans to raise that to a higher percentage. I hope that deals with the thrust of the noble Lord’s questions.

[Lord Wallace of Saltaire (LD)]

My Lords, are the Government considering an overall review of the privatisation and outsourcing process? This is not just about Carillion and Capita. I have been reading about the problems that Serco has been going through and the recovery programme that it is now undertaking. I have been reading a little about the problems that G4S has had over the past few years in delivering some of the services it promised. There seems to be an underlying problem of large and diverse outsourcing companies, which are extremely good at drawing up contracts, managing to crowd out SMEs.

When I was a Minister, I remember being told that SMEs lose out because they are not as good at preparing contracts and spending the money in presenting them—so they end up as the subcontractors—and that we are therefore facing an oligopoly of diverse, major companies that successive Governments have allowed to grow, as the Minister said. What can be done to encourage more SMEs to become prime contractors? If I may say so, allowing more local authorities to take responsibility would help a great deal because more local suppliers would then be able to do so. The centralisation of these diverse outsourcing companies means that decisions are taken in London and small outsourcing companies in Leeds, Manchester and elsewhere end up as subcontractors. That is very bad for local enterprise. Are the Government now considering an overview of the sector and considering that competition policy needs to be rather more active here?

I have one final comment. I am very conscious that there is a problem of oligopoly in a number of sectors, with accountancy being a major example. Do we not need now to break up some of these oligopolies?

[Lord Young of Cookham]

There is nothing ideological about this. Governments of all persuasions have found that outsourcing certain activities enables them to focus on the key functions of government. A recent survey by the CBI showed that overall there was a saving of roughly 11% by going through the process of outsourcing activities, engaging competitive markets and awarding the contract to the contractor best able to meet the objectives.

I entirely agree with what the noble Lord said about SMEs. I think there is a contract with HMRC which, when it came to an end, we broke down into component parts. As I said in response to the noble Lord, an additional measure that we have taken is that, when a main contractor is slow in paying the subcontractors, that main contractor will be deleted from the opportunity to bid for future contracts. That is a good example of the steps that we are taking.

Subcontractors will have greater access to buying authorities to report payment performances, and suppliers will have to advertise subcontracting opportunities on the Contracts Finder website. Without repeating what I said a moment ago, we have a target of driving up from 25% to 33% the percentage of government spend with SMEs on these major contracts.