Carillion and Public Sector Outsourcing

Luke Graham Excerpts

Wednesday 24th January 2018 Commons Chamber

[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.

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[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.

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[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—