Carillion

Debate between Rachel Reeves and Kelvin Hopkins

Thursday 12th July 2018 Commons Chamber

[Rachel Reeves]

I absolutely agree. The directors of the business were not invested in the business. They were not part of the pension fund that collapsed and, as the hon. Gentleman said, Richard Adam, the finance director who oversaw the accounting practices that helped to contribute to the collapse of the company, sold his shares as soon as he could because he knew what we all now know: this business was a failing business that would not be around for much longer.

What we found in Carillion was a board focused on short-term fixes and growing payouts, with no plan for what would happen when the illusion was shattered. Looking at the poor treatment of suppliers when the company was solvent and the trail of destruction the management of the company has caused, I cannot see how Carillion’s directors can make any claim that they had anything other than their own personal interests at heart. In the latest responses that we have published today, Carillion’s directors continue to refuse to demonstrate any culpability for the state the company was in. They have denied that our report is accurate, but have given no evidence whatsoever to support their case.

Let me be clear: the directors of Carillion are culpable for the company’s collapse. They should be ashamed of their performance and they should not be allowed to take the helm of a company ever again.

[Kelvin Hopkins (Luton North) (Ind)]

My hon. Friend is making a first-class speech. Does this not bring to mind the quotation from John Maynard Keynes that capitalism rewards bad behaviour?

[Rachel Reeves]

I thank my hon. Friend for that intervention. Bad behaviour was being rewarded at Carillion, but the people being rewarded were not the people investing in the business, or the people working for it and saving for their pensions with the business; the people being rewarded were those making the decisions about where the money went—making the decisions about whether to plug the pensions deficit or pay dividends to shareholders. Those are the people who should be paying the price, but under the system we have today, they walk away with their bonuses and their dividends intact. It is other people—the people who are not responsible and did not make the decisions but who did the work—who are paying the price, and that is what needs to be reformed.

When corporate governance is failing, there should be checks and balances, but our inquiry found a regime that was not up to the job of doing that. The first line of defence should have been those who were auditing and advising the company. KPMG, Carillion’s auditors for 19 years, continued to give a clean bill of health to the business, even just a few months before the July 2017 announcements that heralded its swift but painful decline. In the report we have published today, KPMG’s chairman, Bill Michael, denies any issues with the clean bill of health that his company gave to Carillion just months before it began to publicly collapse. Mr Michael is burying his head in the sand, which reflects badly on his understanding of the impact of Carillion on the reputation of his company, and of the future of audit as an industry. The status quo is simply not sustainable, and the big audit firms must understand that and respond to it.

Competition in industry is supposed to drive up quality and bring down costs. It is not working in the audit market, where a cosy club of four hoover up huge fees before, during and after any corporate failure, yet their audits and accounts, as one investor put it to our Committee, read like a mystery novel—a fiction, with the reader searching for scant clues on what is really happening. The big four firms audit all the FTSE 100 businesses and all but a handful of the FTSE 350 top businesses, as well as providing them with advice on a range of services. There are conflicts of interest at every turn, and it was left to the least conflicted, PwC, to clear up the mess during the liquidation process.

[Kelvin Hopkins]

My hon. Friend is making an important point about the audit companies. Is it not a major problem that they are ostensibly there to represent the shareholders’ interests against those of the managers but that they are actually employed by the managers, and that if they do not give the managers what they want, they will not get the next contract?

[Rachel Reeves]

My hon. Friend makes an important point. The people who rely on audit are the shareholders, and also the small businesses that supply the company, the people who work there and the pensioners who have saved for their pensions with that business. But they are not the people who employ the auditor, and they are not the people the auditors are accountable to. The auditor is accountable to the audit committee of the business, and it is often appointed by that committee on the advice of the chief financial officer. So, as my hon. Friend says, the incentives are all wrong.

I am pleased to see that our report has prompted some long-overdue soul searching in parts of the audit profession. While the written reactions of the big four accountancy firms to our report differed, they all seem to recognise that there were issues to be addressed. The Institute of Chartered Accountants in England and Wales has recognised this as a watershed moment, and it is leading a review of the audit profession. I hope that that review will propose some radical solutions. We have now referred the audit market for investigation by the Competition and Markets Authority. The new chair of the CMA, Lord Tyrie, was endorsed in his role by the Business, Energy and Industrial Strategy Committee, and he should now demonstrate the same determination he showed in this place leading the Parliamentary Commission on Banking Standards when he looks at the future of the audit market. I am convinced that we have to find a way of making the audit market more competitive and audits themselves more trusted, and of ending the conflicts of interest that can damage the reputation of some of our economy’s major firms.

Behind the company and its auditors and advisers, there are statutory regulators who should have been expected to step in when the business and the audits were seen to be failing. Carillion’s finance directors and auditors were subject to scrutiny by the Financial Reporting Council. Now that the company has collapsed, two former CFOs are under investigation for the preparation of financial statements, and Carillion’s auditors are subject to further scrutiny. During our inquiry, we heard that the FRC had already taken an interest in the situation at Carillion, and that it had concerns about the quality of previous audits by KPMG. However, the regulator had been far too passive. It accepted extra disclosures being made by KPMG and Carillion the following year without any further follow-up action and, although it found repeat issues with KPMG’s wider audit work across other companies, it seemingly took no firm action there either.

Carillion’s huge pension debt was a matter of concern to its pension trustees and the Pensions Regulator, the other regulator involved, but the regulator’s response, again, was feeble. It threatened to impose a contributions schedule and then left the power unused. It sought to negotiate a payment agreement and then agreed precisely with what the company wanted. It launched action only once the company collapsed and then it was too late. Again and again, the Pensions Regulator barked but did not bite. While plugging the £2.6 billion hole in the pension fund would not have saved the company, it could have reduced the largest ever burden on the Pension Protection Fund, which will see pension holders receive less than they have been promised by their company’s scheme. It is telling that none of Carillion’s directors was in the collapsed scheme.

The Committees found serious concerns about the performance of both regulators, including their powers, remit and leadership. If regulators are not working well, employees, investors, suppliers and customers can have little confidence in the businesses in which they are invested. Statutory regulators need to be doing more. Across the work of the Business, Energy and Industrial Strategy Committee, we rarely find ourselves criticising regulators for being too bold. Instead, we keep hearing timid bodies apologising for letting consumers down. That needs to change, and the change should be led from the top.

Infrastructure

Debate between Rachel Reeves and Kelvin Hopkins

Tuesday 12th February 2013 Commons Chamber

[Rachel Reeves]

Close to 1 million young people are out of work, and one third of them are now long-term unemployed—a waste of their potential and a waste to our economy, as we are losing out on their skills. We so desperately need that economic recovery.

There is still no sign of the Government sharing the country’s sense of urgency. Only 14% of the 576 projects listed in the Government’s infrastructure pipeline have started and just 1% of those are said to be operational. The Government’s record on infrastructure is a complete and utter shambles. Wherever we look, the strategy is failing to deliver—a perfect storm of uncertainty, incompetence and delay.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is making an excellent speech. She is talking about projects. One project that might be considered seriously is the GB freight route—the building of a dedicated rail freight line from the channel tunnel to Glasgow, linking all the industrial areas of Britain and able to take lorries on trains. Will she give that serious consideration?

Public Service Pensions Bill

Debate between Rachel Reeves and Kelvin Hopkins

Monday 29th October 2012 Commons Chamber

[Rachel Reeves]

It could be reversed so that dividends were not treated in such a way in the future, but the Government have no intention of doing that. I do not think the hon. Lady understands the real crisis: some people are not saving at all for their pensions and have no occupational pension to save into, and the 20% of people who earn less than a living wage do not feel that they can put money aside every month. That is the real crisis we face and the Government excluded 1 million people from automatic enrolment and have done nothing to tackle the excessive fees and charges automatic enrolment schemes can charge. The Government should be focusing on that challenge to bring up the quality of pension provision for everybody so that nobody risks retiring into poverty and having to rely on means-tested benefits.

Improving governance and reducing costs across private pension schemes while cracking down on the excessive fees and charges that erode pension income should be the Government’s priority, but it is not. Instead, to address disparities they want to level down the pensions enjoyed by those who work in the public sector.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is right to draw attention to the pathetic performance of private sector schemes. Is not the answer a compulsory state earnings-related pension scheme for everyone in the private sector?

Infrastructure (Financial Assistance) Bill

Debate between Rachel Reeves and Kelvin Hopkins

Monday 17th September 2012 Commons Chamber

[Rachel Reeves]

I look forward to reading the book that the hon. Gentleman mentions, but I do not think that the Bill is pure Keynesianism—that would be doing things that Labour Front Benchers are recommending, such as introducing a temporary reduction in VAT, a tax on bank bonuses, genuinely bringing forward infrastructure investment and a national insurance holiday for small businesses. Those are the things that would kick-start the economy, get people back to work and get the deficit down in a sustainable way, because there would be more people in work and more businesses succeeding, unlike what we have from this Government, which is £150 billion of additional borrowing because more people are on welfare and fewer businesses are succeeding.

[Kelvin Hopkins]

I compliment my hon. Friend on her excellent speech and may I say that Friedrich von Hayek has caused more damage in this century and the last than any other economist in the history of the world? Nevertheless, she is absolutely right; this is about a supply-side measure which is not Keynesianism. Assisting and providing a little bit of investment with a little bit of Government subsidy is not Keynesianism. Keynesianism is direct spending to create demand in the economy. The private sector will not create demand. Only government can restore the demand where there is the vacuum at the moment.

[Rachel Reeves]

I thank my hon. Friend for that intervention. Of course he is agreeing with something that the Business Secretary said, which is that the real problem in the economy is a lack of demand. Supply-side measures will not do very much to help with that. When the Chief Secretary was asked in intervention what projects would be supported by this Bill he could name not one. That is the problem; this is a guarantee scheme, but we do not know what it guarantees. This is a project to help infrastructure investment, but we hear no announcement about which infrastructure investments will go ahead that would not have done previously. No wonder businesses and Members are sceptical and no wonder we are still in recession, if this is as good as the Government can get.

We will not oppose the Bill, but nor will we allow the Government to use the scheme as a substitute for the real plan that the economy and businesses so desperately need. Instead of devoting themselves to the task of getting our economy moving again, the Government have put before us an infrastructure investment guarantee that guarantees no infrastructure investment—fast-track legislation that has had the effect of getting the scheme stuck in the slow lane. The Government are preoccupied with distracting us from their fundamental failure and inaction, but people’s patience is wearing thin. We have had enough of initiatives and announcements: no more excuses, no more evasions—the Government need to get serious.

Two years ago, we warned that the Government’s economic plan would choke off recovery, shatter business confidence and add to borrowing, and that it would make it harder, not easier, to balance our books and pay our way in the world. A year ago, we called on the Government to bring forward infrastructure investment; we called for a bank bonus tax to fund the construction of 25,000 new affordable homes and to deliver a programme of youth jobs. If the Government had taken our advice then, just think how much progress we could have made by now.

Finance (No. 4) Bill

Debate between Rachel Reeves and Kelvin Hopkins

Thursday 19th April 2012 Commons Chamber

[Rachel Reeves]

I return to my earlier point: if inflation was 10% and pensioners got a £10 increase in their pension, would Government Members celebrate and say that that was huge largesse for pensioners? It is not; it just keeps pace with the cost of living. The increase in VAT, and the increases in gas and electricity prices, which the Government have done nothing to tackle, and the rise in petrol prices, mean that the cost of living for pensioners and other families has increased enormously because of the Government’s choices.

There is a further hit to pensioners’ incomes, buried in the detail of the Budget documents. This year, an estimated 300,000 pensioners stand to lose their savings credit, while others stand to lose as much as £276 a year as a result of reduced rates of savings credit. Under the Chancellor’s latest plans, the savings credit will be abolished completely, costing more than 100,000 new pensioners as much as £897 a year: another stealth tax that the Chancellor tried to slip past pensioners; another slice taken from the constrained budgets of ordinary families.

[Kelvin Hopkins (Luton North) (Lab)]

I support my hon. Friend’s comments. Rather than speculate about what the next Labour Government will do after the next election—I like to think that Government Members have already conceded defeat—what about the Government’s backing off now and reversing the dreadful decision?

[Rachel Reeves]

I thank my hon. Friend and congratulate him on hosting the National Pensioners Convention in Parliament today. It came to make the very point that my hon. Friend just made, and that pensioners made to us in the Committee Room earlier. Some Government Members would do well to listen to some of the pensioners in their constituencies.

It adds insult to injury for the Prime Minister and other Government Members to tell pensioners that they should be grateful for a rise in the basic state pension that merely matches the rate of inflation. It is not a rise—it simply keeps things level. If Government Members do not know the difference, they should get out into the real world, where the costs of food and fuel are going up and it is getting harder and harder to make ends meet.