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House of Commons Hansard
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11 July 2013
Volume 566

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With permission, Mr Speaker, I would like to make a statement about the Ministry of Justice’s electronic monitoring contracts with G4S Care and Justice Services and Serco Monitoring.

These contracts provide for the tagging of individuals on bail and offenders under supervision in the community. The current contracts were awarded under the previous Government in November 2004 and are due to expire shortly.

The House will recall that I made an announcement on 17 May indicating that my Department had identified a number of issues surrounding the way in which we have been billed for monitoring under the current contracts, and that as a result I had ordered an independent audit of the billing arrangements under both contracts.

Let me begin by explaining to the House the nature of the issues that prompted the audit. As part of my Department’s work on tightening up procedures—both to prepare for the new electronic monitoring contracts which are now out to tender and to improve the quality of our contract management—we identified what appeared to be a significant anomaly in the billing practices under the current contracts. It appeared that we were being charged in ways not justified by the contracts and for people who were not in fact being monitored.

Following this discovery, I took immediate steps to investigate the issue, commissioning an audit by PricewaterhouseCoopers. I also sought assurances that there was no risk to the public as a result of issues we discovered, and I am clear that these billing issues have not given rise to any risk to public safety.

This audit has now confirmed the circumstances in which the Department was billed for services. This has included instances where our suppliers were not in fact providing electronic monitoring. It included charges for people who were back in prison and had had their tags removed, people who had left the country, and those who had never been tagged in the first place but who had instead been returned to court. There are a small number of cases where charging continued for a period when the subject was known to have died. In some instances, charging continued for a period of many months and indeed years after active monitoring had ceased. The House will share my view that this is a wholly indefensible and unacceptable state of affairs.

The audit team is at present confirming its calculations, but the current estimate is that the sums involved are significant and run into the low tens of millions of pounds in total, for both companies, since the contracts commenced in 2005. The audit shows that the overcharging began at least as far back as the commencement of the current electronic monitoring contracts in 2005. It might even date back as far as the previous contracts let in 1999.

The audit also reveals that contract managers in the Ministry of Justice discovered some of the issues around billing practices following a routine inspection in 2008. Although it appears that these contract managers had only a limited idea of the scope and scale of the problem, nothing substantive was done at that time to address the issues. None of that, however, justifies the billing practices followed by the suppliers. The House will share my astonishment that two of the Government’s biggest suppliers would seek to charge in this way. The House will also be surprised and disappointed, as was I, to learn that staff in the Ministry of Justice were aware of a potential problem and yet did not take adequate steps to address it.

Let me set out for the House what we are doing in response to these findings. The billing practices in question were clearly unacceptable and the Government will take all necessary steps to secure a refund for the taxpayer. In view of the seriousness of the issue, however, and having taken full legal advice, I am clear that, as Lord Chancellor, I must not only take action in terms of financial recovery, but seek to rule out the possibility that what went on involved dishonesty by anyone involved in the contracts. I have therefore put it to the two companies that we should now carry out an independent forensic audit, not just of the contractual arrangements, but of the evidence, such as internal e-mail trails between their executives, to establish the detail of what happened. I have now received their responses.

Let me deal with each company in turn. Serco, which is one of the Government’s biggest and most important suppliers, has agreed in full to such a forensic audit. It has said that it will co-operate fully with our auditors, PricewaterhouseCoopers, and that it takes the issue extremely seriously, and it assures me that senior management were not aware of it. It does not believe that anything dishonest has taken place, but we have agreed that if the audit does show dishonest action, we will jointly call in the relevant authorities to address it. Serco has also agreed to a forensic audit of all my Department’s contracts with it to ensure that there are no other issues. In addition, it has decided that it would not be appropriate for it to continue to participate in the current tender process for electronic monitoring and has agreed to withdraw. I am grateful to Serco for its co-operation.

Let me now turn to G4S. We put the same proposal for a further detailed forensic audit to G4S last night. It has rejected that proposal. I have given careful consideration to how to respond. I should state that I have no information to confirm that dishonesty has taken place on the part of either supplier, but given the nature of the findings of the audit work so far and the very clear legal advice that I have received, I am today asking the Serious Fraud Office to consider whether an investigation is appropriate into what happened in G4S and to confirm to me whether any of the actions of anyone in that company represent more than a contractual breach. I am also disappointed that G4S still feels it appropriate to participate in the tendering process for the next generation of electronic monitoring contracts, which we are in the process of renewing. I have therefore started a formal process to determine whether to exclude it from this competition. Furthermore, we will be commencing forensic audits of all existing contracts that the Department has with G4S.

Let me deal with some other immediate procurement issues that I need to address. My Department was also due to announce the results of the competition to take over the management of prisons in Northumberland and Yorkshire. I can tell the House that the winning bidder for Northumberland is Sodexo, and that this transfer will continue as planned. However, the leading bidder in Yorkshire was Serco. I have decided that we will delay the award of this contract until the audit process I have put in place is complete, and clearly it will only be awarded if that process is completed to our satisfaction. We have also begun work on two new house blocks at prisons run by Serco and G4S. Since these are construction contracts at existing prisons and are an essential part of our replacement strategy for the older parts of the prison estate, I intend to proceed with this construction work.

As I have said, it is not only the behaviour of the suppliers that needs to be examined closely. I am making changes in my Department because it is quite clear that the management of these contracts has been wholly inadequate. I have put in place an entirely new contract management team, led by my procurement director and validated by the independent auditors. The Permanent Secretary is also instituting disciplinary investigations to consider whether failings on the part of individual members of staff constitute misconduct. I have also commissioned an urgent review of contract management across my Department’s major contracts, which will report by the early autumn. It will include independent audit expertise and will be overseen by my Department’s lead non-executive director, Tim Breedon, the former chief executive of Legal and General. I want to put in place arrangements that are robust and at all times deliver value for money for the taxpayer.

On wider Government contracting, the Minister for the Cabinet Office, my right hon. Friend the Member for Horsham (Mr Maude), is today announcing a review of all contracts held by both G4S and Serco across Government. In addition, this review will determine how Government will better manage similar contracts in the future. Separately, the National Audit Office is looking at the scale of Government contracting activity with key suppliers and how effectively those relationships are being managed by Government.

I have made it clear from the outset that I regard this as a very serious issue and have taken immediate action to address it. I would, though, like to reassure the House that, however serious these problems are, they concern billing arrangements rather than wider issues of public protection. I remain committed to the use of electronic monitoring as a powerful tool in supervising offenders. The steps we are taking to retender the contracts will deliver a significantly improved service that will be subject to robust contract management in the years ahead. I believe that the private sector brings significant benefits in delivering efficient and cost-effective services to the public, but we will not tolerate unacceptable activity of any kind, no matter who is responsible. I am angry at what has happened and am determined to put it right. I commend this statement to the House.

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I thank the Justice Secretary for advance sight of his statement, which I read in the presence of his officials 20 minutes ago. I can honestly say that I was left speechless.

Tagging is a crucial part of the criminal justice system, and the use of this technology has allowed the much greater use of curfews and home detention over the past 20 years. The Justice Secretary’s statement is a serious one, with wide-reaching consequences, and I have some questions for him. What other sanctions has he considered taking against the companies concerned? I remind him of what has happened: charging for people who were back in prison and had had their tags removed; charging for people who had left the country; charging for those who had never been tagged in the first place, having been returned to court; charging continuing when the subject was known to have died; and, in some instances, charging continuing for many months and years after active monitoring had ceased.

To the lay public, that appears to be straightforward fraud: obtaining property by deception. The Justice Secretary mentioned the SFO, but does he not agree that both companies should be investigated by the SFO, not simply G4S? Will he pass on all the papers from the audit to the police and the SFO and ask them to investigate whether any criminal offences have been committed? I am sure he will agree that the law applies to everyone, including big multinationals. What we need is the police and the SFO going to G4S and Serco offices and preserving evidence, not some cosy arrangement with one of the two companies. Will he confirm that all the evidence has been preserved by the two companies, as well as the Ministry of Justice? A forensic audit is one thing; what we need now, though, is the proper external authorities to investigate. I hope he agrees.

How soon will G4S and Serco be repaying the amount overbilled, or, as some will infer, claimed by fraud, and how much will it be? Have the companies concerned accepted guilt? Have the MOJ officials accepted their part in this? In May, I asked the Justice Secretary to ask the Public Accounts Committee for a full investigation into this? Will he now ask it to do so?

In 2012 and 2013, G4S and Serco were paid more than £500 million of taxpayers’ money just by the MOJ, and the MOJ paid nearly £800 million—10% of its entire budget—to five companies. Will the Justice Secretary agree an independent audit of all contracts with the MOJ? How confident is he that none of the other private companies with which the MOJ has contracts has over-billed?

I understand that G4S and Serco have a number of contracts with the Home Office and a number of other Departments—I know the Chair of the Home Affairs Committee, my right hon. Friend the Member for Leicester East (Keith Vaz), raised a number of concerns over the past year about the conduct of G4S. Serco and G4S are two of the Government’s biggest contractors. The Justice Secretary mentioned the Cabinet Office, but in the light of his statement will he agree to the National Audit Office investigating all contracts that those two companies have with the Government?

There appears to have been a systematic pattern of fraud, and if we add to that the events of the past week and the inquest verdict, the fiasco at last year’s Olympics and the security that G4S failed to provide, we see a pattern emerging. Will the Justice Secretary confirm that those two companies will not be awarded any further Government contracts? Giving that tagging involves potentially dangerous offenders, we must be sure that public safety has not been compromised. Some 20,000 people are tagged at any one time, so what specific assurances can the Justice Secretary provide that public safety was not undermined at any time?

At the same time as serious failings have been exposed in the way the MOJ buys in hundreds of millions of pounds of services, the Justice Secretary is proposing a massive expansion in the amount of work handed over to private companies. He will be aware that the same two companies responsible for today’s statement are responsible for a number of other contracts in the MOJ—he has already referred to the prisons contracts—and they are the leading contenders for the privatisation of the probation service. In the light of that, will he confirm whether he intends to bar those companies from the retendering process for tagging and from any future contracts? He will be aware of concerns about the risk register and the privatisation of the probation service. Given today’s statement and its implications for G4S and Serco, will he delay the roll-out of the privatisation of the probation service to allow full and proper consideration of those findings?

The Justice Secretary has raised serious matters and we must not only get to the bottom of what has happened and see justice, but lessons need to be learned. We hope that the Justice Secretary will learn the right lessons.

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On the last point, it is important to say that we are learning the right lessons. That is why the issue emerged in the first place. The tighter contract management procedures that we are putting in place have revealed shortcomings that took place under a contract that was let in 2005, and information that came to the Department in 2008. The right hon. Gentleman will remember who were in government in those two years. This Government are taking a more robust approach to contract management, and this issue has arisen as a result.

The right hon. Gentleman makes a point about the privatisation of the probation service. We are outsourcing probation to a range of different organisations not linked to today’s situation, and a large number of organisations have expressed an interest, including those from the voluntary sector that have immense skills in this area. I would not countenance a situation in which those organisations are tainted by the actions of two individual companies, or where we allowed a debate about two contractors to taint the reputations of outsourcing organisations that work and do a good job across government.

The right hon. Gentleman made some specific points about the two companies involved. Last night, we put to those companies that we would ask for a forensic audit, at a level that will meet any kind of investigative standards, to be carried out by PricewaterhouseCoopers, one of our leading independent auditors that works on such investigations. I am satisfied about the quality of the investigation it will carry out with Serco, and the management of Serco has accepted that the consequence of that investigation, if dishonesty is found, will be a joint reference to the authorities. To my mind, that audit meets any test we need to address. Unfortunately, G4S has not chosen to accept such an audit, and we have therefore passed the matter straight to the Serious Fraud Office.

I must be careful because this is a sensitive legal process. At this time, I do not have evidence of dishonesty. I have a situation of unacceptable practice, but not of dishonesty, and that is why I have commissioned a detailed forensic audit from those with expertise in such matters. For G4S we have done what people would expect us to do and invited the Serious Fraud Office to rule on the matter.

The right hon. Gentleman mentioned the Public Accounts Committee and the National Audit Office. I confirm that the National Audit Office has been aware of this investigation from the start. It is already investigating contracts within Government, and we are liaising closely with it. He mentioned all other contracts, and my right hon. Friend the Minister for the Cabinet Office and Paymaster General will today set out his plans to take forward work he has already started to address contract management across Government. The review I have announced led by Tim Breedon, our lead non-executive director, will address the issue raised by the right hon. Gentleman about all contracting with major contractors across the Department, including smaller contractors.

I can reassure the right hon. Gentleman on public safety as I sought to establish that very early in this process. I have seen no evidence whatsoever to suggest that public safety has been compromised. The issue is about people who were recalled to court or to prison but where the charging continued, so I can lay to rest the right hon. Gentleman’s concerns on that point. He also asked about the acceptance of guilt, but, in the legal process, I cannot comment on the position of the companies. They must set that out themselves. I have said that Serco is being constructive and collaborative, and I have set out the process for G4S. I say clearly that there have been failings at the Ministry of Justice that go back over the past decade, possibly longer. Those shortcomings are now being addressed but they should not have happened in the first place and I have indicated that, if necessary, disciplinary proceedings will be undertaken.

These are serious matters. We are entering a legal process and hon. Members across the House will understand that I must be cautious in what I say to avoid compromising legal proceedings. The House should be under no illusion, however, that I am dealing with the issue with the utmost seriousness. We will take all appropriate action and we cannot allow such things to continue unchecked.

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May I praise the strong, expeditious and decisive action taken by the Lord Chancellor in response to this issue, and the way he has co-ordinated the Government’s response with the Minister for the Cabinet Office and Paymaster General, and the Attorney-General? As he indicated in his statement, Whitehall needs to raise its game on contract management. Will he continue to work as closely as possible with our right hon. Friend the Minister for the Cabinet Office and Paymaster General to get this matter resolved at permanent secretary level as soon as possible?

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I am grateful to my hon. Friend for his comments and I give him that assurance. Looking back to when the issue first became visible in the Department, it is clear that existing expertise in contract management was not up to the job. Those failings and shortcomings should never have happened, and I intend to introduce measures to ensure that they never happen again.

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This is a shocking statement and I believe that the Lord Chancellor has acted swiftly and decisively in dealing with the issue. G4S should never have got another Government contract after the shambles of the Olympics. G4S and Serco hold 17 contracts worth £118 million with the Home Office, and although I accept what the Lord Chancellor has done in referring G4S to the Serious Fraud Office and the police, I think he should have done the same to Serco. When its chief executive appeared before the Home Affairs Committee on 25 June, he said that he did not believe that Serco had overcharged. The right hon. Gentleman is right to have acted as he did, but he should not take a different approach to Serco. We need the high-risk register that the Home Affairs Committee recommended after the Olympics. That register should be held by the Cabinet Office, and any company that has failed the taxpayer should be on it and should not get another contract.

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Let me be clear about the different treatment of G4S and Serco. I have followed the legal advice I received very closely, and the right hon. Gentleman and all Members of the House would expect me to follow such advice in the interests of the taxpayer and the Government. I have done that, and the approach I have chosen follows closely the legal advice I received. I would not expect any Member of this House to expect me to do otherwise.

As for how the Cabinet Office approaches contracting, my right hon. Friend the Minister for the Cabinet Office, who is sitting next to me, will have heard what the right hon. Gentleman said. The Cabinet Office is taking both this issue and the broader issue of contracting very seriously, and my right hon. Friend will be saying more in due course.

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These are very serious matters indeed. Like others, I welcome today’s statement and the measures that the Secretary of State is taking. We have had interesting reactions from the two companies, and I hope that there will now be a robust means of oversight in his Department and in others, as contracts are looked into. The public’s concern is whether this is a security issue, so will he confirm to the House that this is a billing issue and that it had no impact on public safety?

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I can give my hon. Friend that assurance. This was obviously a matter of great concern to us, as we looked at these issues back in May for the first time. I can confirm that the Department has looked closely at the individual cases. The audit carried out by PricewaterhouseCoopers so far has gone through cases line by line. We have found no evidence of any issues that would give rise to public safety concerns; this is a financial issue.

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First, I thank the Secretary of State for his statement and also for his courtesy in letting me know that he was going to make it, although I quite understand that, for reasons of commercial sensitivity, he could not inform me of its content. I share the intense anger and shock of my right hon. Friend the Member for Tooting (Sadiq Khan) and, above all, the Secretary of State himself about this issue, not least because it was during my watch in 1999 that the original contract was let, before I was again responsible for the contracts between 2007 and 2010. It is a matter of deep regret to me that these failings happened at a time when I was the Secretary of State responsible for them. I want to know exactly why the failure happened, and I am glad to hear that steps are being taken to ensure that robust systems are put in place.

When the Secretary of State said in his statement that there was “a routine inspection in 2008”, but that “nothing substantive was done at that time to address the issues,” can he say whether the “nothing substantive” included not telling Ministers? I do not have complete recall of the contents of my 365 boxes in 2008, but I do not recall the matter ever being drawn to my attention. It would helpful to know whether it was. Lastly, I commend the review that the Minister for the Cabinet Office is establishing, because the control of long-term contracts with outside contractors is an issue that has bedevilled successive Governments for many decades.

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I have seen no evidence to suggest that the issue reached the right hon. Gentleman’s desk. I can reassure him that there is no suggestion that he was briefed about it. There is no evidence that we have so far seen that the Department was aware of the nature of what was happening up until 2008. There have subsequently been a number of interchanges in relation to this matter. In no case do we believe that the Department had full sight of the scale of what was happening, but it is clear to me that things were known at a junior level about what was going on and it should have been addressed. One of the things we are investigating is why it was not, and that might include disciplinary action, as I set out earlier.

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The right hon. Member for Tooting (Sadiq Khan) referred to the Public Accounts Committee. As a member of that Committee, may I say how welcome it is to see the firm, fair and quick way in which the Minister has brought the issue before the House and gripped it in a way that is different from many other areas that come before the Public Accounts Committee?

Further to the question from the right hon. Member for Blackburn (Mr Straw), will my right hon. Friend say explicitly whether the contracts were let before 2010, in which case the over-billing would predate the last general election? Will he also be clear that the reason the issue has come to light is because of the way he is gripping the renegotiation of such contracts?

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I can confirm that the contracts were originally negotiated in November 2004 and implemented in 2005. The original contracts date back, as the right hon. Member for Blackburn (Mr Straw) said, to 2009.

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To 1999.

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To 1999—I beg the right hon. Gentleman’s pardon.

As for how the issue has been addressed more recently, let me be clear that none of the team leading the effort in the Ministry of Justice today was in position when the matter first came to the Department’s attention in 2008. The team who are leading the renegotiation have done a first-rate job of putting together a much tighter contract management framework, which highlighted this issue. It is to their credit that they found it, and I am very grateful to them that they did.

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I thank the Secretary of State for his statement, which is quite shocking in its content. Does he not think there is a case for advising local government and the national health service, both of which have large contracts with both companies, of what action he is taking and why he has taken it, to see whether they might care to look at their contracts with the two companies and the performance of them? Does he not think for a moment that his almost love affair with contracting out services to the private sector should be tempered by possibly thinking of a public service option for delivering such important government services, rather than taking the first position, which is always to go to a private contractor?

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I am absolutely certain that my colleagues in the Cabinet Office will make both local government and health service bodies aware of what has happened. That would be right and proper.

On the hon. Gentleman’s latter point, I appreciate that he did not always agree with the leadership of the previous Government—I give him credit for that—but when he talks about a “love affair” with contracting out, I would remind him that the contracts were not let by this Government, but by the last Government.

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May I add my congratulations to my right hon. Friend on the robustness of his response? The emphasis of his statement is quite right, but will he extend his remarks and say something about the legitimate levels of pricing in such contracts? Earlier this week I visited the Cabinet Office to see how the Government Digital Service is wrestling with some really quite appalling pricing levels, which are the legacy of the last Government. Will he be able to drive down the cost of such contracts in future?

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I can give my hon. Friend that assurance. In fact, we are about to launch a revolution in tagging generally. The arrival of GPS tagging will enable us not simply to monitor whether an offender has left their home, but to understand whether they are breaking a curfew or, for example, whether a paedophile is going close to a school. That will transform the way in which tagging works and will do so—I can assure him—at a much lower price than we have paid up to now.

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I join others in commending the Justice Secretary for the action he has taken and the statement he has made today. I say that as the Minister for prisons and probation in 2004, when the contracts were awarded. If there has been wrongdoing, he is right to root it out in the way that he has set out.

May I press him a little further on his plans for the probation service? I can only ask him to accept my word that I do so not in a partisan way, but because, like him, I care about the protection of the public. Given that two major players are facing serious questions and are likely to be out of the game, does it not make sense to look at having a more limited competition for certain services in one part of the country, rather than moving so rapidly to a national roll-out?

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I would make two points to the right hon. Gentleman. First, we must be careful not to apply the judgments that will inevitably be made after today’s announcement to all private sector contractors that work with Government. That would be a great shame and the wrong thing to do. I should also say that even in the two companies in question, there are large numbers of people—all our constituents—who are at work today, doing their best to operate on behalf of the public sector. We should not allow them individually to be tainted by what has happened.

At the same time, when we look at our plans for probation reform, we see a large number of organisations —public and voluntary organisations, as well as potential mutual organisations from staff—interested in providing a solution to what is a glaring problem, whereby at the moment people who go to prison for less than 12 months get no supervision at all. The longer we wait to introduce the reforms, the longer those people will walk our streets without supervision. When people talk about “leading candidates” for contracts, I am clear that there are no “leading candidates” for contracts in our probation reforms. We have not started a contracting process. We are actively encouraging as wide a range of participation as possible. I have been talking to the social investment sector to bring in social capital. We are working actively with the Cabinet Office to encourage employee mutuals to come forward, either individually or in partnership with potential investors. This is not a world that will simply be handed over to a couple of big companies. I am very much of the belief that there is expertise out there, which I want to capture, and skills that will help to bring down reoffending.

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G4S is headquartered in my constituency and operates a number of contracts there, so these fraud allegations in connection with electronic tagging are deeply troubling. May I seek an assurance from my right hon. Friend that, as the local Member of Parliament, I will be kept up to date with the investigation, particularly as it will be concerning to many of the day-to-day, honest employees who work for the company and who are going about their business?

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I give my hon. Friend that assurance absolutely. I say again that, as of today, I do not have evidence of dishonesty in either company. What I do have is legal advice that says that, on the back of the audit we have carried out, I have a duty to do further detailed forensic work to establish where there is a possibility of dishonesty. Serco has agreed to co-operate with that work. To my regret, G4S has not. That is what has prompted me to believe that I have no option but to ask the Serious Fraud Office to consider whether a formal investigation should take place.

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First, I put on record that I welcome the firm action the right hon. Gentleman has taken today. I would like to push him a little further on the point raised by my right hon. Friend the Member for Blackburn (Mr Straw). Although we have established that no Ministers were told of this, the Secretary of State said:

“contract managers had only a limited idea of the scope and scale…nothing substantive was done”.

What does he mean by “limited idea” and “substantive”? To use the word “substantive” means that something must have been done. On the “limited idea” of the scale of the problem, why was that then not followed up with further action?

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The hon. Gentleman raises a good point to which I do not yet know the answer fully. It is clear that, between 2008 and the present, on various occasions information has reached the Department that suggests something was amiss. It is also clear that that information was never followed up in a way that would have presented the true picture of the problem. We are now launching formal proceedings internally, which are likely or may well include—depending on the circumstances of the individuals—disciplinary proceedings to establish precisely what did go wrong. Something clearly did go wrong. Enough knowledge came into the Department to flag this issue some years ago, but it was not acted on.

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I thank my right hon. Friend for his statement and for the strong and decisive action he has taken. Given that both companies are substantial major companies, we may reasonably expect that all the moneys will be recovered. That will effectively amount to an unanticipated lump sum of income for the Ministry. Will the Lord Chancellor say at this stage what plans he has to use the lump sum? May I suggest that perhaps it be used to improve, modernise and upgrade the tagging system?

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I have some sympathy with my hon. Friend’s ambitions. The upgrade of the tagging system will happen anyway within the Ministry’s existing budgets. The difference in the next couple of years will be marked. It will provide a much greater and more effective resource to both those monitoring offenders and to the police guarding such places as our town centres, to understand who is where at any particular time. It will also, at times, exclude people from suspicion of an offence, because tag records will show if they were not at the scene of a crime. He can be reassured that that is happening anyway.

I have every intention of getting back every last penny to which we are entitled. Our auditors are working on the exact sum at the moment. That is the right thing to do for the taxpayer.