Carillion

Pat McFadden Excerpts

Thursday 12th July 2018 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I shall endeavour to be brief, Madam Deputy Speaker, as many of the points about the collapse of Carillion have already been made by my hon. Friend the Member for Leeds West (Rachel Reeves) and the hon. Member for Harwich and North Essex (Sir Bernard Jenkin).

Carillion’s headquarters was in Wolverhampton. Of its 18,000 or so UK employees, some 450 were employed in the headquarters, so the city that I represent has a particular interest in the story of the company’s collapse. Six months after the collapse, there are still major questions about corporate governance, audit, ongoing costs, and, perhaps most fundamentally, the policy implications raised by the collapse. I thank both the Work and Pensions Committee and the Business, Energy and Industrial Strategy Committee for their joint report, which paints a very stark picture, describing a story of “recklessness, hubris and greed”. On the accounts of the company, it describes them as having

“misrepresented the reality of the business.”

The report sets out how the company collapsed, how the internal checks and balances failed and it makes damning indictments of the company’s leadership and the system of auditing, culminating in the recommendation that the whole audit system be referred to the Competition and Markets Authority.

Others will focus on particular parts of this story, but the part on which I wish to focus is the role of Government and the decisions before Government when a company of this nature is in danger of collapse. I have written to the Minister before about these questions. Carillion is a specific type of company. It was a private company, but it was engaged for much of its activity in the delivery of public services. Therefore, the responsibilities cross both the public and the private sectors. The National Audit Office report on this issue, published last month, says that the company, in its dying days, asked for a loan of £160 million from Government and a deferment in tax payments of £63 million. That is a difficult decision for Government. What do Ministers or officials do when a company comes and asks for such substantial funds? In those circumstances, Ministers and the government machine have to make an assessment between loaning that kind of money and letting the company go under.

[Dan Carden (Liverpool, Walton) (Lab)]

My right hon. Friend will know that the National Audit Office report has outlined that, in 2017, Carillion projected a loss of £83 million on the Royal Liverpool University Hospital. Does he know where that projected loss now sits?

[Mr McFadden]

That is a very good question and is exactly the kind of thing that Ministers had to look at when considering this request. In letting the company go under, the Cabinet Office realised that the taxpayer was still on the hook, because at the moment that it decided to say no to the company’s request for the loan, it gave the official receiver £150 million of taxpayers’ money to process the liquidation. Therefore, the taxpayer being on the hook does not stop when the decision is made to allow the company to go under. The taxpayer has been on the hook for the six months of this story, and it does not stop with the money for the official receiver. Public sector bodies are facing a 20% premium for some of the post-liquidation service delivery costs. As my hon. Friend just said, there are three major projects that lie unfinished. There is the Midland Metropolitan Hospital, the Royal Liverpool University Hospital, which he raised earlier this week in Parliament, and the Aberdeen bypass.

One question that I hope the Minister addresses is the one raised by my hon. Friend a moment ago. What will it cost to finish these projects and where will the money come from? The National Audit Office says that these projects face losses respectively of £91 million for the Aberdeen bypass, £83 million for the Royal Liverpool University Hospital, and £48 million for the Midland Metropolitan Hospital. In his winding up, will the Minister confirm how these projects will be finished and how they will be paid for? It was a public policy decision to build a new hospital in Liverpool; it was a public policy decision to build a new hospital in Sandwell; and it was a public policy decision to build a new road in Aberdeen, so whoever is carrying out the project, the public policy responsibility, in the end, still lies with Government. Can the Minister confirm that at the moment of collapse, the Government thought that the cost might not be the £150 million that they set aside, but more than £300 million, as paragraph 13 of the National Audit Office summary suggests?

This not just a story of corporate mismanagement; it raises major public policy questions. What does the Minister think are the lessons for Government decision making about: how procurement happens; whether a contract is to be tendered and how that tendering process is managed; and how they balance the risk of rescue and the cost to the taxpayer when a company engaged in the delivery of public services is in danger of collapse? Those are the fundamental public policy questions raised by this story.

[Several hon. Members rose—]