Carillion: TUPE

Stephen Kerr Excerpts

Wednesday 21st February 2018 Westminster Hall

[Stephen Kerr (Stirling) (Con)]

It is a pleasure to be called to speak in this debate. I intend to be brief. I congratulate the hon. Member for Wolverhampton South West (Eleanor Smith) on securing this important debate. As a member of the Business, Energy and Industrial Strategy Committee, which is conducting an inquiry into the collapse of Carillion, I assure her and other Members present that a thorough investigation is ongoing. I am sure that Members are aware of the proceedings of that Committee.

As has been said, Carillion’s collapse was a complete commercial disaster, and one that could have been prevented with proper corporate governance. It is right that we focus our attention on the people most directly affected by the failure of Carillion—namely, the employees. It is not their fault that there was a failure of leadership and culture at the top of that business. They are made to suffer the consequences of a situation not of their making.

I recognise that this debate is not about the business model—we could talk about that endlessly—or the business strategy, how the business was run in terms of the standards adopted, or the culture of the business. In other circumstances we would review all of those carefully, to learn what must be learned from such a catastrophe. The decision making of the most senior executives has been mentioned. Having spent 30 years of my life in business before coming to this House, I can honestly say that I have never met such a sorry bunch of directors as the Carillion directors we had before us.

[Chris Stephens (Glasgow South West) (SNP)]

The hon. Gentleman and I are on the joint inquiry into Carillion. Will he say something about how the pension scheme was managed? Does he agree that dividend payments appeared to be a higher priority than funding the pension scheme for Carillion workers?

[Stephen Kerr]

Although that is not directly relevant to the debate, I agree with the hon. Gentleman. When we look at the facts, we see that there is no doubt that when the board faced choices about how to use money that, frankly, it did not have, it chose to pay dividends rather than to make payments into the pension fund. Those things need to be scrutinised, and lessons must be learned.

This debate is about the employees: decent, hard-working men and women—and their families—who brought their very best to work and did their very best for a company that many felt great fealty to and enjoyed working for. I know that, because just a few days ago a constituent approached me in the street and, in introducing himself, told me that he was a Carillion employee—in fact, he had been a manager. He spoke highly of the people he worked with and of the business he had spent some time at, which, as I have said, he felt some loyalty to. Graciously, he wanted me, as a member of the Select Committee looking into the failure of Carillion, to know that he and his colleagues—former Carillion employees—appreciated the thorough manner in which the Committee was conducting its inquiry. He said, “I know it won’t change anything, but it is right that the directors should be openly held to account. It’s about getting some form of justice, really, isn’t it?” That is what has brought me to my feet today. I needed to come to the debate to stand up and ask the Minister for some form of justice for the Carillion workers.

I congratulate the Government on the actions they have taken on the failure of Carillion, because they have managed to deal with the failure of the business. They could have been tempted to bail out the failing company by putting large sums of public money into it, but thankfully they resisted that temptation. They could have stood back and done nothing at all, but that would have been an abrogation of responsibility. In fact, the Government acted pragmatically, given the circumstances.

[Jo Stevens]

The hon. Gentleman mentions the Government taking responsibility and not standing back and doing nothing. Does he agree that, given the company’s three profit warnings, the Government should have done something before the collapse?

[Stephen Kerr]

Many issues relating to those profit warnings and the circumstances leading up to them need to be thoroughly investigated. Yes, at some point all of the stakeholders involved in this rather sorry story will have to explain and account for their decisions. That is right and proper and the way in which we run things in this country. We will learn from what we discover as we go through the process of inquiry. However, I congratulate the Government on acting pragmatically.

I now ask the Minister to act pragmatically on behalf of those workers who have moved from employment with Carillion to employment with a new private employer. We all know of the limitations of the regulations as things stand: TUPE applies only when a worker is transferred to a new company from an existing functioning company; it does not apply in the event of bankruptcy proceedings or analogous insolvency proceedings. I therefore ask the Minister to consider steps to provide, as my constituent said, some form of justice to Carillion workers who are transferred—thankfully, at one level—to another private company. Surely something can be done to protect the pay and conditions of those workers, because that is what would have happened had the contract changed hands: they would have been TUPE-ed across, as the saying goes. Instead, they have been caught up in the failure of Carillion.

It is wrong that these workers, through no fault of their own, should pay the price of lower pay and lesser conditions for doing the same job for a new company as they did for Carillion. When the Minister replies, I very much hope to hear that the Government will insist, at least in the transfer of public sector contracts from Carillion to new private companies, on a transfer of undertakings for the workers affected.

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[Mr McFadden]

My hon. Friend makes a good point. The first thing I will raise is the question of redundancy and the payments available to those 1,000 or so people who have lost their jobs, but the second issue is about the workers who are left.

Carillion was, of course, a complex web of contracts, covering sectors as diverse as the Ministry of Defence, construction, prisons, school maintenance, cleaning and a whole number of other things. The official receiver is now going through those contracts and looking for alternative suppliers to take them over. The central question before us in this debate is on what terms those will be taken over, and what the pay levels and conditions will be for the workers who find themselves transferred.

[Stephen Kerr]

The right hon. Gentleman is making a valid point about the terms and conditions. I wonder whether he was as concerned as I was to read the reports about Serco picking up the contracts at, I think, about 50 NHS sites somewhere in England—I cannot remember exactly where—and the chief executive saying that it had saved £20 million on the contract. Does the right hon. Gentleman agree with my concern: that that £20 million might be coming from the terms and conditions and the wages of the workforce?

[Mr McFadden]

I quite agree; that is a concern. Of course, the context is that a company went into financial collapse while running those public sector contracts, so it hardly looks as though it was making a big killing out of them—frankly, if it was, it would not have gone bust. The margins were already thin, and the public sector has proven itself over the years to be more adept at driving narrow margins. My concern is that somebody who takes over will drive that down further in precisely the way that the hon. Gentleman said and that the people who will pay the price will be workers, some of whom are on quite low pay to begin with.

The legal position is that TUPE does not normally apply in an insolvency; I think hon. Members here understand that. But the point being made in this case is that such a complex web of contracts is involved and there is such a significant public interest: if there is a proliferation of new suppliers, there is a strong case that TUPE should apply, at least where employment is rolled over.

Given Carillion’s collapse into liquidation, it is hard to say that it was earning very heavy margins on the contracts in the first place. The Minister for the Cabinet Office seemed to agree with that point when he told the House, shortly after the company’s collapse, that the official receiver was

“looking at…whether it can offer arrangements whereby workers are no worse off than they were under the terms of their Carillion employment.”—[Official Report, 24 January 2018; Vol. 635, c. 347.]

I agree with what the Minister for the Cabinet Office said on that occasion. That is the point I stress today.

I think we all understand that, sadly, in a case of insolvency there may be some job losses; part of the reason why, legally speaking, TUPE does not apply in situations of an insolvency is that there will be job losses. The question to the Minister is a slightly different one. Even if we understand that there are job losses, can the Government and the official receiver not insist that, when we are talking about not job losses but employment being rolled over from Carillion to an alternative supplier, on this occasion, given the public interest, the existing terms and conditions should apply as though under TUPE? That would be reasonable, fair to those workers and fair in terms of the public interest. On this occasion, it is the right thing to do.

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[Justin Madders (Ellesmere Port and Neston) (Lab)]

It is a pleasure to serve under your chairmanship, Ms McDonagh. I congratulate my hon. Friend the Member for Wolverhampton South West (Eleanor Smith) on securing this extremely important debate. She clearly has a significant constituency interest in the matter, but as we have heard, such is the reach of Carillion that no part of the country is unaffected by its demise.

I will not repeat the stories of greed, arrogance and, probably, negligence that have led us to where we are today, except to say that it is a bitter irony that many of those culpable for the current state of affairs are the least affected by it. We know the company ramped up dividends, borrowed more and more money to effectively hand it over to shareholders, delayed payments to creditors and generally behaved as if there was no tomorrow, with no thought of the consequences of its actions.

[Stephen Kerr]

On that point, the hon. Gentleman did not mention—it is worth mentioning—the salaries and bonuses the directors were awarding each other, which should bear on our minds as we consider the wee people who the hon. Member for Strangford (Jim Shannon) described and who we should all be thinking about.

[Justin Madders]

Absolutely. This is a tale of a corporate system out of control. It sends a real message about how not to run a company responsibly. I hope that some concrete action will come to prevent these kind of scandals happening in the future. Comparing the pension deficit to the bonuses paid really brings home how unfairly and avariciously certain people have behaved in this case.

While it is hoped that, in the short term, there will be some protection for jobs—as we have heard today and as I will go on to explore, there are some questions about the precise arrangements—we must not forget those who work for subcontractors and those who have already been made redundant who need our support as well.

I am told that there is an issue with the liquidators providing termination numbers to redundant Carillion staff. Some of those staff have given a lifetime to the company but have been told by the liquidator that, until that number is issued, their claims for notice pay and redundancy pay cannot be processed. Those who have received those details have been told that they may have to wait up to six weeks for the Redundancy Payments Service to actually process the payments.

As we know from the universal credit discussions we have had in here in recent times, expecting people to wait six weeks for payment after losing their job is far too long, so I do not see why we should allow that situation to occur here. I hope that, when the Minister next speaks to the liquidator, he will raise these issues and ensure that those who have been made redundant are able to access their statutory entitlements as soon as possible. Will the Minister inform us what resources have been allocated to the Insolvency Service to ensure that those payments are processed as quickly as possible?

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[Laura Pidcock (North West Durham) (Lab)]

It is fantastic to have you chairing this debate today, Ms McDonagh. I congratulate my hon. Friend the Member for Wolverhampton South West (Eleanor Smith) on securing it and on working so hard for her constituents. I know that her eagerness to secure this debate comes from a real anxiety about what will happen to all the workers.

What is wrong with the model of directly employed workers delivering contracts on behalf of the Government on such vital projects as school and hospital builds and prison maintenance; workers who have access to trade unions and vice versa; employers who afford rights and protections to their workers; and work that allows them to live a good life in security? Why not have a model whereby any profits made from the worker’s labour are reinvested in the wages of the workers and the projects that the nation needs? What we saw at Carillion was the absolute opposite of that.

Carillion is not only a well-known blacklister. From 2009 to 2016, it paid out £554 million in dividends—in other words, three quarters of the cash it made from operations. In the five-year period from January 2012 to June 2017, it paid out £333 million more in dividends than it generated in cash from its operations. We know that in the past six months Carillion issued three profit warnings. We also know that during that same period, as has been mentioned, and following those profit warnings, Carillion was awarded three contracts worth nearly £2 billion.

I know that Conservatives and those wedded to freedom of the market would maintain that a business does what it wants with its profits. It is up to them and there should be very little state intervention, but surely even those people—

[Stephen Kerr]

Will the hon. Lady give way?

[Laura Pidcock]

If the hon. Gentleman will let me finish, he might agree with what I say next. Surely even those people can see that paying out more in dividends to shareholders than the amount made in profits—paying out three quarters of cash made from operations—is not a healthy way to run a business.

[Stephen Kerr]

I agree with the hon. Lady’s last point, but her description of what Conservatives generally believe about the marketplace is a fallacy. We believe very much in the operation of markets, but within the framework of law. Directors of companies have serious responsibilities, both legal and moral, for the conduct of their affairs. That accountability is framed by the law that regulates the marketplace.

[Laura Pidcock]

Thanks for explaining the nature of conservatism. That was very welcome. I think the contracts made after three profit warnings tell their own story.

That way of doing business is catastrophic for workers, and damages progress on desperately needed public infrastructure. Imagine all the investment that could have been made if even half the money that went to shareholders had been invested in public projects and workers. That is why the Labour party calls on the Government to bring the contracts back in house. The situation today, with potential mass job losses, is not the fault of the workers, so a degradation of workers’ rights as a result of Carillion’s collapse—which threw 20,000 workers into a future of chaos and worry—is a price they should not have to pay.

The Government are not powerless in this situation, given that they have 450 contracts with Carillion. They were a major customer of the company, with a considerable stake in the future of the contracts and what the new jobs will be like. If there is any doubt that TUPE applies —particularly regulation 4 on protection of contractual rights and regulation 7 on protection from dismissal—I should hope at the very least for a Cabinet Office statement of practice to be issued to ensure the transfer of all employees in Carillion public sector contracts as if TUPE applied. That statement of practice should also apply to all contracts relating to central Government, local government, the NHS and all public bodies. Similarly, could the Government instruct the official receiver to transfer employees in private sector contracts as if TUPE applied? They gave an instruction to prioritise the continuation of public sector contracts, which was a good thing. It is right, in addition, to issue similar instructions on behalf of private sector workers, whose livelihoods are, as we know, no less important than those of people in the public sector.

It is extremely important that when workers transfer to a new employer, their individual contracts of employment and trade union recognition arrangements should follow them. So far, 980 workers have been made redundant and 7,500 have been transferred, but after all these weeks thousands of workers still face great uncertainty, as has been recounted in personal stories from constituencies. The Government, alongside the official receiver and special managers, must provide certainty.

The Government have said that the majority of employees who have already been transferred are on similar terms and conditions. What does “majority” mean—is it 51% or 99%—and what does “similar” mean? With three Conservative Members in the Chamber, I do not want to be accused of being overly sceptical, but the Government are hardly seen as a bastion of workers’ rights, and it is therefore unlikely that in this instance “similar” would equate to an upgrading of workers’ rights. As to those who were not transferred with similar conditions, what degradation was there of their terms?

The full scale of the catastrophe cannot just be forgotten as another failure of outsourcing, especially when, rather than resorting wholesale to an alternative model, the Government are simply allowing a similar operation to bid for contracts. That makes me very concerned about the long-term security of the jobs. How will the Government track the long-term outcomes for Carillion workers in their new employment and training places, as well as those for the self-employed and employees of subcontractors?

As the Government know, regulation 13 of TUPE, which places a duty on the official receiver and the special manager to inform and consult employee representatives in relation to TUPE transfers, is still a requirement even if regulations 4 and 7 do not apply. It is therefore important in setting workers’ expectations and giving clarity about their future. It relates to information about whether there will be a transfer—and the transfer date—as well as the legal, social and economic implications for any affected employees. Have the official receiver and special managers been complying with that duty? That is not clear. Are those representatives being informed and consulted? Worryingly, I read yesterday that Unite the union has discovered that Carillion did not pay into the NHS pension scheme in December 2017, even though deductions were made from employees’ salaries. I should like to know what happened to those pension contributions.

My final point is that there could be an argument that regulations 4 and 7 of TUPE apply in the case of Carillion. I understand that the usual position when a company is put into compulsory liquidation is that trading ceases and operations come to a complete halt. In an ordinary liquidation, priority is given to paying off creditors, and therefore regulations 4 and 7 of TUPE do not apply. In Carillion’s situation, the Government made it clear that the official receiver should instruct some of the Carillion companies to continue with their operations—especially those relating to public sector contracts—so that the services being provided by Carillion could continue without a break. The Minister for the Cabinet office said:

“Let me be clear that all employees should continue to turn up to work confident in the knowledge that they will be paid for the public services they are providing.”—[Official Report, 15 January 2018; Vol. 634, c. 624.]

The official receiver’s decision that some Carillion companies should carry on trading to safeguard and maintain the services that they are providing means that the liquidation has been conducted in the same way as an administration, in which regulations 4 and 7 of TUPE would undoubtedly apply.

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[Andrew Griffiths]

That is the point the hon. Lady made in her speech. Let us be clear: Carillion is in insolvency, not in administration—there is a distinct difference in law. While the Government have stood behind Carillion to ensure that those public services continue to be delivered by the company during that smooth transition, in law, Carillion is in insolvency. I commend the hon. Lady on her Italian, but the point she makes is not relevant to the Carillion case, unfortunately. Later in my speech, I will explain why TUPE does not apply in this case.

The new company that I referred to, the GovCo from the Ministry of Justice, will ensure the delivery of, for example, prison facilities management previously provided by Carillion, including things such as cleaning, reactive maintenance, landscaping and planned repair building work. Those jobs have been taken in house to a GovCo. We have also seen positive signs regarding Carillion’s larger contracts.

As I said, a number of jobs have already been secured, but, as hon. Members will have seen, the media have recently reported on Serco’s and Brookfield’s interest in purchasing a number of contracts and transferring roughly 4,000 workers, although that is not yet confirmed. I understand that the official receiver and the special managers are working hard with customers to try to secure agreements, which will secure further jobs.

We also have to remember that some of these contracts are in the private sector and some are in the public sector. The Government were a customer of Carillion. We did not own Carillion. My hon. Friend the Member for Stirling (Stephen Kerr) rightly pointed out that we did not ride to the rescue and bail Carillion out. Our intention was to protect public services and, wherever possible, protect the jobs that relied on them.

The hon. Member for Barnsley East (Stephanie Peacock) has had to leave because of the Division, and I understand that. She mentioned in particular the issue of apprenticeships, which was also raised by other hon. Members. The Construction Industry Training Board, the CITB, has now conducted face-to-face discussions with all of the 1,400 Carillion apprentices and has so far found new employers for 725 of them. In addition, 180 of those were level 1 pre-apprenticeships, and those have been transferred to new training providers. The CITB is working to ensure that remaining apprentices are supported to find new employers and training providers. We are confident—the CITB is confident—that there will be opportunities and new apprenticeships for all of those apprentices who wish to continue with their studies.

As I said, we have had the question of whether TUPE should apply. While we welcome the protection of Carillion’s employees, and I fully understand the desire of the hon. Member for Wolverhampton South West to protect the terms and conditions of the staff that she represents, it might just help if I explain to hon. Members that there are over 300 companies in the Carillion group, of which around 200 are based in the UK. Currently, 27 companies are subject to compulsory liquidation proceedings in the UK. When these companies are responsible for employing Carillion’s 18,000 employees, it is simply a matter of law that some elements of TUPE do not apply. Protections for transferring employers is a well-established principle that, as we have heard today, derives from EU legislation dating back to the 1970s. However, there are good reasons why key TUPE provisions do not apply when a company goes into liquidation.

The reason why TUPE is not applied in various insolvency situations, including liquidation, is that it is considered an obstacle to rescuing the businesses and saving jobs. That has to be our priority, of course. We want to rescue and secure these jobs. A decision taken by policy makers and Governments of all colours not to apply TUPE provisions in these cases is well understood, as are the reasons behind it. As a result, regulation 8 of the TUPE regulations 2006, covers insolvency proceedings and provides that these provisions do not apply

“where the transferor is the subject of bankruptcy proceedings or…insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.”

That is exactly the case that we see here with Carillion.

There are two good reasons why the Government do not want to apply TUPE. First, it would undermine the intention of rescuing jobs, as I said. Secondly, to apply TUPE specifically to the present liquidation scenario would require an emergency Act of Parliament, creating a special statutory scheme for those named companies, having retrospective effects. That would cut across fundamental principles at the heart of our democracy. I am sure that no colleagues in Westminster Hall today would wish to do that. The compulsory application of TUPE to Carillion companies is not, therefore, a matter that can simply be agreed between the liquidator and the unions. There is legal precedence here that we cannot simply ignore.

[Stephen Kerr]

My hon. Friend is giving the position as it is, which is what has brought us to this debate. However, is it not possible for the Government, in relation to the public sector contracts, to stipulate, as the customer, that certain aspects of the contract roll over to the new company, such as the voluntary TUPE that has been referred to? Could they not insist on that?

[Andrew Griffiths]

My hon. Friend makes a fair point. As we heard previously, the Secretary of State for the Cabinet Office has explicitly said that we wish to ensure that, wherever practical and possible, workers are not worse off. In fact, I can share with the House that the Secretary of State for Business, Energy and Industrial Strategy has had conversations with the special manager to implore him, wherever possible, to protect workers in that way.

However, as I said, we also have to be aware that a large proportion of these contracts are actually private sector. Of course, the legal requirements and stipulations on the special manager, in order to be able to fulfil his duties and protect the interest of the creditors, are paramount here. It would be inappropriate for Ministers or any politician to try to interfere with that. As a result of agreements that we have seen in the press and entered into over the past few weeks to purchase contracts held by Carillion, we have secured those 7,500 jobs.

The hon. Member for North West Durham (Laura Pidcock) mentioned that we are on record as saying that most employees who have transferred so far have done so on existing or similar terms. The official receiver has worked to do that. I know that she would like more details—she would like an exact percentage, but she will also understand that given Carillion’s size, complicated governance and business structure and the difficulties in relation to managing the smooth transfer of these contracts, we do not yet have those exact figures. However, I am sure they will be available to her as soon as we have them.

In her speech, the hon. Member for Wolverhampton South West raised the issue of support for employees. Understandably, this remains a very troubling time for employees and we will do everything we can to help those affected. Unless told otherwise, employees who are working will continue to be paid by Carillion during the liquidation. My hon. Friend the Member for Stirling used the phrase “justice”—he wanted there to be justice for Carillion workers. It is not their fault that they find themselves in this perilous situation. I can say to him that those employees transferring across will still be eligible for redundancy payments. So if he is looking for justice, he may find that those payments go some way to delivering that.

Through the special managers, the official receiver has contacted all employees to explain the action being taken by Government and where they can seek advice and support. For example, the special managers and the Pensions Advisory Service have set up dedicated telephone support services. The special managers have a process in place to inform employees being made redundant in a timely fashion, and to give information about their employment status.

There was some suggestion earlier about delays in people being given the required information to be able to claim redundancy. We are in close contact with the special managers, and while we cannot guarantee that everybody has had the information as quickly as we would hope, there is a great imperative in these very difficult times for workers to ensure that they get access to the money that they have a right to receive. So we are working incredibly hard to try to ensure that happens as a matter of urgency.

We are also ensuring that practical support is available from Jobcentre Plus’s rapid response service. Hon. Members might be interested to know that so far Jobcentre Plus reports that it has had 34 claims by Carillion staff and 65 claims by individuals made redundant by firms in the Carillion supply chain. So thus far we have seen a small number of people turning up at Jobcentre Plus and claiming benefits.

I think the reason for that, in reality, is that these workers are incredibly valuable. They are a skilled, trained workforce in a tight jobs market. We have seen today that we have record employment in this country—unemployment is at levels not seen for 40 years. That is a great economic success, but it means that as the jobs market tightens the workers who we are talking about are greatly in demand.