With permission, Mr Speaker, I wish to make a statement to update the House on the situation relating to Carillion Plc.
Today the directors of Carillion concluded that the company is insolvent and that it is going into liquidation. The court has appointed the official receiver as the liquidator. It is regrettable that Carillion has not been able to find suitable financing options with its lenders, and I am disappointed that the company has become insolvent as a result. It is, however, the failure of a private sector company and it is the company’s shareholders and lenders who will bear the brunt of the losses; taxpayers should not, and will not, bail out a private sector company for private sector losses or allow rewards for failure.
I fully understand that both members of the public and particularly employees of companies in the Carillion group will have concerns at this time, and the Government are doing everything possible to minimise any impact on employees. 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. Additionally, in order to support staff—and in this instance this will apply to staff working for the private sector as well as for the public sector contracts of the Carillion group—we have established a helpline using Jobcentre Plus through its rapid response service.
The Government are also doing everything they can to minimise the impact on subcontractors and suppliers who, like employees, will continue to be paid through the official receiver. The action we have taken is designed to keep vital public services running, rather than to provide a bail-out on the failure of a commercial company. The role of the Government is to plan and prepare for the continuing delivery of public services that are dependent on these contracts, and that is what we have done.
The cause of Carillion’s financial difficulties is, for the most part, connected not with its Government contracts, but with other parts of its business. Private sector contracts account for more than 60% of the company’s revenue, and the vast majority of the problems the company has encountered come from these contracts rather than the public sector.
Our top priority is to safeguard the continuity of public services, and we have emphasised that to the official receiver. We are also laying a departmental minute today notifying the House of a contingent liability incurred by my Department in indemnifying the official receiver for his administrative and legal costs. The official receiver will now take over the running of services for a period following the insolvency of the company. The Government will support the official receiver to provide these public services until a suitable alternative is found, either through another contractor or through in-house provision. The court appointment of the official receiver will allow us to protect the uninterrupted delivery of public services—something that would not have been possible under a normal liquidation process.
The official receiver is also under a statutory duty to investigate the cause of failure of any company. He is under a duty to report any potential misconduct of the directors to my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy. My right hon. Friend has asked that the investigation look not only at the conduct of the directors at the point of the company’s insolvency but also at that of any previous directors, to determine whether their actions might have caused detriment to the company’s creditors. That includes detriment to any employees who are owed money. The investigation will also consider whether any action by directors has caused detriment to the pension schemes.
Carillion delivered a range of public services across a number of sectors, including health, education, justice, defence and transport, and in most cases the contracts have been running successfully. We have been monitoring Carillion closely since its first profit warning in July 2017, and since then we have planned extensively in case the current situation should arise. We have robust and deliverable contingency plans in place. These are being implemented immediately to minimise any disruption and to protect the integrity of public service delivery. Other public bodies have been preparing contingency plans for the contracts for which they are responsible. The majority of the small number of contracts awarded after the company’s July profit warning were joint ventures, in which the other companies are now contractually bound to take on Carillion’s share of the work. For example, the Kier group, one of the joint venture partners for HS2, confirmed this morning in a release to the stock exchange that it had now put in place its contingency plans for such an eventuality.
I recognise that this is also a difficult time for pension holders. The Pensions Advisory Service has set up a dedicated helpline number for staff and pensioners who have concerns about their pensions. Those who are already receiving their pensions will continue to receive payment from the various pension funds, including the Pension Protection Fund. For those people who have started an apprenticeship programme with Carillion, the Construction Industry Training Board has set up a taskforce to assist apprentices to seek new employment, while also working with the Education and Skills Funding Agency to find new training placements. The official receiver will be in contact with all apprentices. Companies and individuals in the supply chain working on public sector contracts have been asked to operate as usual. Normally, in the event of a company going into liquidation, the smaller firms working for it move across to the new contractor when it takes on the work.
The private sector plays an important and necessary role in delivering Government services—something recognised by this and previous Governments of all political parties. Currently, 700 private finance initiative and private finance 2 contracts reflecting capital investment of up to approximately £60 billion are being delivered successfully, and we also have a number of service provision contracts being delivered successfully by a range of companies. Such contracts allow us to leverage the expertise of specialist providers and to deliver value for money for taxpayers. I would like to reassure the House that we are doing all we can to ensure the continuity of the public services provided by Carillion and to support an orderly liquidation of the company.
I shall write to all right hon. and hon. Members today to summarise the situation and to inform colleagues of a helpline for the use of Members and their staff to provide answers in the fastest possible time to any constituency problems that may arise. Along with other ministerial colleagues, I shall keep the House updated on developments as the official receiver starts to go about his work. I commend this statement to the House.
I thank the Minister for an advance copy of the statement. The House will conclude that it was recklessly complacent for the Government to seek to avoid responsibility and to place it on to the company. After all, Carillion provides 450 separate taxpayer-funded contracts to the public, with 20,000 people working directly for it and many thousands more in the supply chain. All those thousands of people will have heard his reference to Jobcentre Plus with a shudder of fear for their futures at the beginning of a new year.
Will the Minister confirm that Carillion provides services to this Conservative Government in 50 prisons, 9,000 schools, 200 operating theatres and 11,000 hospital beds, as well as across a whole series of infrastructure works? Two fifths of Carillion’s income is paid by the taxpayer, so when did the Government first realise that Carillion was in trouble? After all, it had three chief executive officers in a short space of time, made three separate profit warnings and its stock was already subject to short selling on the stock exchange back in 2015. The Minister says that the Government were monitoring the company, so why did they leave the position of the Crown representative observing Carillion vacant for more than three months? How can they explain that £2 billion-worth of Government contracts—taxpayers’ money—was awarded despite all the information that has clearly been in the public domain? I have been asking questions about Carillion in this House for over three months. Why was it apparent to everyone except the Government that Carillion was in trouble? The Secretary of State for Transport in particular has questions to answer. Can the House be told what the Government knew about Carillion’s financial health when they awarded a £1.4 billion contract for HS2 quite recently?
The Minister has failed to satisfy the House that the jobs of Carillion’s employees and all those in the supply chain will be safeguarded. Will he confirm that the pay, conditions and jobs of those staff are the Government’s priority? Why has he apparently not had a single conversation with representatives of the workforce about their jobs and pensions? Those people should be a higher priority than the executives’ bonuses, which appear to have been safeguarded. Will he assure the House that Carillion is not the first in a series of suppliers that will fall one after the other like dominoes?
The Government have announced that public money will be given, presumably to the liquidator, to carry out vital public service contracts, but does that not mean that decisions about those contracts have now slipped out of the Government’s control and into the hands of an unaccountable administrator? Would not the simplest, most effective and most democratic way to handle all the contracts have been to bring them back into the public sector, where the ethos of serving the public prevails, rather than that of private profit? Is it not the case that the Government themselves and the Conservative party have too cosy a relationship with the chair of Carillion’s board who—believe it or not—is the Government’s chosen corporate responsibility tsar? He also urged people to vote Tory during the 2015 election. It is a chumocracy.
Is it not time that we reversed the presumption in favour of outsourcing once and for all? After all, this is not about the failure of a single company, but of a whole ideological system of contracting out public services. The Government are incompetent in office, reckless with taxpayers’ money and helpless with public services. Is it not time that they made way for an Administration that care, and will exercise due diligence?
First, may I correct the hon. Gentleman on one specific point about schools? He said that 9,000 schools have contracts with Carillion, but the figure I have is about 230—219 plus a small number of building contracts—which is much smaller than the exaggerated figure that he gave the House.
As I said in my statement, 60%—roughly three fifths—of Carillion’s revenues are actually from contracts that have nothing to do with the United Kingdom Government. Indeed, the problems that Carillion faced arose in the most part from those contracts, not from Government contracts.
The position of private sector employees is that they will not be getting the same protection that we are offering to public sector employees beyond a 48-hour period of grace, during which the Government will sustain the official receiver to give time for the private sector counter-parties to Carillion to decide whether they want to accept termination of those contracts or to pay for the ongoing costs. That is a reasonable gesture towards private sector employees.
As for those who have been employed by the Carillion group to deliver public service contracts, the Government are continuing to pay their wages for the services delivered —those payments are being made through the official receiver, instead of through Carillion. That money, of course, is budgeted for by various Departments, local authorities and NHS trusts. The best help that one can give to employees delivering vital public services is to give them the assurance that we are continuing to pay their wages and salaries, and not to indulge in the sort of scaremongering to which I am afraid the hon. Gentleman is prone.
The private sector employees are entitled to know that assistance will be there from Jobcentre Plus after the 48-hour period of grace runs out, when a number of them may face termination of the Carillion contracts through which they have been employed.
The hon. Gentleman asked about the contracts that were awarded after the first profits warning in 2017. As I said earlier, there was a small number of those contracts. The defence contracts were actually agreed and signed before the profits warning, although they were announced afterwards. The Government, quite rightly, have to operate a fair and transparent procurement process, guided by the Public Contracts Regulations 2015. There are a number of tests of financial capability for potential contractors. At the time when all those post-July 2017 contracts were bid for and awarded, Carillion met all the mandated tests, so it would have been, to put it mildly, a legal risk to have treated Carillion any differently from other bidders that were able to meet the tests.
In the light of what was in the public domain about Carillion’s profits warning, the Government Departments responsible for the contracts ensured that there were arrangements, such as the joint venture provision, to give protection in the event of Carillion being unsuccessful in its attempts, about which it was confident, to secure an agreement with its bankers. I emphasise that no money is paid to Carillion, or to any other contractor, other than for services that are actually delivered, so there is no question of money being spent twice for the same service.
I am disappointed that the hon. Gentleman resorted to party politics in his response. It is worth reminding ourselves of who awarded Carillion its contracts. Of the Carillion contracts that, until this morning, were still active, roughly a third were awarded by the Conservative Government, roughly a third were awarded by the coalition Government when the right hon. Member for Twickenham (Sir Vince Cable) was Secretary of State for Business, Innovation and Skills, and the other third were awarded by the Labour Government, during which time the hon. Member for Hemsworth (Jon Trickett), as he knows, worked in the office of the then Prime Minister.
When the hon. Gentleman returns to this subject, I suggest he treats it with the seriousness it deserves and does not preach sermons without taking a long, hard look in the mirror.
First, let me pay tribute to my right hon. Friend’s calm and workmanlike approach in working through all the contracts and liabilities, which is absolutely the responsible thing to do. I note what he says about the financial capabilities, awarding and the public procurement rules, and I am sure there are many questions to be asked about that and about future arrangements. However, may I just ask him about the small and medium-sized enterprises in the supply chain? Many companies supply Carillion contractors and are in contracts, and they will be concerned about meeting liabilities, perhaps to Her Majesty’s Revenue and Customs or to others. Has he or his Department had discussions with HMRC about things such as time to pay arrangements, so that SMEs are given time, rather than being under pressure to keep paying the taxman?
I am grateful to my right hon. Friend for that. Let me make two points in response to her. First, the Government, through the official receiver, are continuing to make provision for payments both to suppliers and subcontractors. If any subcontractor experiences any difficulties, I encourage them to talk in the first place to the Insolvency Service. This is exactly the sort of risk that led us to decide to set up a hotline for Members of Parliament and their staff, so that if anything does seem to be going wrong, Ministers can be alerted to it rapidly. May I also say to her that HMRC and the Treasury have been fully in the loop at all stages of these discussions, but I will make sure the point she has just made to the House is reinforced when I chair a meeting of interested Ministers later today?
I thank the Minister for advance sight of his statement. Obviously, our immediate thoughts are with the workers involved and their families—those affected by this announcement directly and the many thousands more who are indirectly affected. I am aware that the Scottish Government are working with the liquidator to try to work on contingency plans, and I seek an assurance from him that he will assist the Scottish Government in those endeavours. I also want to know what assurances he will give that UK-funded projects in Scotland will continue in light of Carillion’s collapse. What assurances can he give to the workers involved that their jobs will be safe?
Since July last year, the Scottish Government have been setting about trying to manage the risk involved in these contracts, and we have to ask: given that since last July the UK Government have awarded more than £2 billion-worth of contracts to this company, despite it having had three profit warnings, what due diligence has been undertaken by UK Ministers? Is it incompetence or ideology that has led Ministers to sign off multi-million contracts to a company that was on the verge of going bust? It was not the employees or the communities that depend on these contracts that awarded the contracts, so it is for the Government to intervene and pick up the pieces when something like this happens. In recent years, we have had similar things happen in Scotland—we had Tata steel in Motherwell, BiFab engineering in Fife and others—and the Scottish Government worked night and day to save those jobs, and they succeeded. I would welcome a similar commitment from the UK Government to make that effort to try to protect these jobs.
In conclusion, many thousands of people are today worried about whether they will have a job next week and, if they do, who will be paying their wages and will their pension will be protected, so it is important that assurances are given that safeguards will be in place. There will be some joint venture projects, where other companies can take over the contract, and there may be some projects that can be easily transferred to another company. But there will also be some projects where the only solution will be to take the jobs and the project in-house and for them to be directly managed by the Government or their agencies. I seek an assurance from the Minister that where those circumstances pertain, that is what the Government will do in order to safeguard jobs and their services, which these contracts provide.
The hon. Gentleman spoke to this issue with the seriousness it deserved and in a constructive fashion. I can give him two assurances. The first is that the Government are certainly going to continue to pay the wages—salaries, as well as those of suppliers and subcontractors—in respect of UK Government contracts in Scotland, in the same fashion as occurs anywhere else in the UK. Secondly, as I think I said in my statement, the Government will be in discussions with the official receiver about the future provision of those services. I believe we will end up with a situation in which some are transferred to an alternative external contractor but others are taken in house by a Department or other agency of government.
On contact with the Scottish Government, we have had regular and constructive communications with them throughout the period in which the UK Government have been monitoring Carillion. Our priority has been to maintain public and essential services in every part of the UK, whether those are the responsibility of UK Government Departments or of devolved bodies. This morning, my right hon. Friend the Secretary of State for Scotland spoke to Keith Brown MSP, the Scottish Government Cabinet Secretary for the Economy, and assured him of the UK Government’s determination to support the Scottish Government in responding to the concerns of pension stakeholders, employees and contractors in Scotland, as well as those everywhere else in the UK.
I commend my right hon. Friend for his swift and urgent action on this issue. I urge him to pay no attention whatsoever to the politicking coming from the Opposition Benches, because it was of course Labour Members who, when in government, drove the process of private sector involvement hard. They did so for a very good reason: they said that it brought expertise that does not exist in the public sector to the running of these kinds of contracts.
Nevertheless, as we look into these matters—I am sure there will be a review—we should bear in mind two elements that when I was a Minister it always struck me were missing in the public sector. The first is direct contract management on a very regular basis, the lack of which was often the reason why some of these contracts drifted. That needs to be looked at very specifically. Secondly, the Government—probably the Cabinet Office—might want to think about having some kind of capability to review regularly the situation for companies that are engaged in large public contracts, to see what their status is on a wider basis.
I am grateful to my right hon. Friend for his suggestions. I note that the Chair of the Public Administration and Constitutional Affairs Committee, my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), said today that his Committee is going to launch an inquiry into Government procurement. My right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) makes some important points about the need to have a look at how successive Governments have conducted the procurement process. I hope he will understand if I say that today, and in the immediate future, my wish is for Ministers and officials to focus above everything else on the continuity of the provision of public services and on doing all that we can to give help and reassurance to employees, subcontractors, suppliers and pension holders. There will be an occasion to return to some of the broader questions posed by my right hon. Friend.
This morning, the 400 employees who work in the Carillion headquarters in my constituency in Wolverhampton, along with many others, woke up to the news that Carillion had gone into liquidation. It probably felt like a bomb had hit them. The Minister says that the Government are going to give them support, but what type of support will that be? It is absolutely not enough to say that people can ring the jobcentre. What other futures are there for those employees? I seek an urgent meeting with the Minister to discuss this issue, because the headquarters are in my constituency. Will the Government commit to investigating why contracts continued to be handed to Carillion despite the company’s known difficulties?
On the hon. Lady’s last point, I responded at quite some length to similar points made by her Front-Bench colleague, the hon. Member for Hemsworth (Jon Trickett). The Government are, as I have said more than once in these exchanges, not only offering advice but paying the wages and salaries of people who are involved in the delivery of public services, until such time as the official receiver has found an alternative provider, whether in the public or private sector. I am happy for either I or another Minister in my Department to meet the hon. Lady to talk about her particular constituency concerns.
On the HS2 aspect of this—my hon. Friend the Member for Stafford (Jeremy Lefroy) joins me in this question because HS2 carves straight through our constituencies—will my right hon. Friend make publicly available the assessment of the Government and HS2 Ltd of the impact of Carillion’s collapse and the viability of the HS2 project itself and the substituted contracts and subcontracts, and also the effect that he believes it will have on my constituents and the constituents of my hon. Friend?
I can certainly well understand the importance of this issue to my hon. Friend’s constituents and those of many other hon. and right hon. Members. The answer in respect of the particular contract that was awarded last year is that the two other private sector parties are now bound contractually to take over the responsibilities previously allotted to Carillion and to do so for exactly the same price as was set for the three-party consortium in the first place. I will refer his broader points about HS2 to my right hon. Friend the Secretary of State for Transport who I am sure will be in touch with him.
While 20,000 people across the UK, including 400 employees in Wolverhampton at Carillion’s headquarters, are now at risk of losing their jobs, it seems that the senior management of Carillion have changed the rules so that they can keep hold of their exorbitant bonuses. Does the right hon. Gentleman think that that is fair, and if he does not, what will the Government do about it?
I can certainly well understand and appreciate that sense of unfairness on the part of the hon. Lady’s constituents. It would be wrong for me from the Dispatch Box to pre-empt the inquiry that the official receiver will carry out into the conduct of both present and previous members of the board of directors, but I can say that the official receiver has the power not only to investigate, but to impose severe penalties if he finds that misconduct has taken place.
The whole House will be concerned for the employees who are facing an uncertain future, and I preface my remarks by showing my concern as well. On 17 July, I brought the Secretary of State for Transport to this House at 10 o’clock at night to answer the questions that I raised about HS2 contractors and the unacceptable risks to the taxpayer, and that included Carillion. Unfortunately, those words seem to have come true. While my right hon. Friend is looking at the assessment of the effect on the constituency of my hon. Friend the Member for Stone (Sir William Cash), will he also look at the other failures of HS2, management and Government? Would not he and his constituents, as well as my constituents and, perhaps, Mr Speaker, some of yours, feel that now is the time to cancel this ill-fated, poorly run project?
My right hon. Friend speaks, as always, both eloquently and forcefully on behalf not only of her constituents, but of very large numbers of people in the constituencies along the HS2 route. As I said in my response to my hon. Friend the Member for Stone (Sir William Cash), the particular HS2 contract that is at issue today will be covered by the joint venture arrangement. In that sense, Carillion’s liquidation today will not make a difference to the cost of delivering those particular services to the HS2 project.
When Carillion collapsed at the weekend, it had debts of £900 million and a pension deficit of £600 million and yet, year after year after year, Carillion paid out dividends to its shareholders. Although the chief executive was jettisoned after the profits warning last July, he is still being paid a salary in excess of £600,000 a year until this coming October. Will the Government confirm that those payments to the former chief executive will stop as of today, and will the right hon. Gentleman agree that it is about time that we reformed our corporate governance laws so that companies cannot siphon off money to the detriment of suppliers, workers and, ultimately, the British taxpayer?
As I also said in response to the hon. Member for Wolverhampton North East (Emma Reynolds), I completely understand the concerns that pension contributors and existing pensioners will have. As I said earlier, the official receiver will consider potential detriment to the interests of pension contributors and pensioners as well as to employees of the company, and may seek to impose penalties. In addition, the Pensions Regulator has the powers to recover payments made to executives or others in the company if there is evidence that they have abused their responsibilities.
As I said in response to my right hon. Friend the Member for Chingford and Wood Green, when the initial situation has stabilised there will be a need to take a fresh look at how the Government go about the contracting process. We will certainly wish to take into account the point that my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) makes.
Will the Secretary of State confirm that all annual fee payments made thus far by public authorities to Carillion in respect of private finance initiative contracts will now cease and that the liquidator will not be allowed to sell any of those contracts on to anyone else, so that there will not be a reward in the hands of others for the failures of this company?
I will look in more detail into that particular case and write to the right hon. Gentleman. The principle will be that one will need to find willing suppliers to take over the role of Carillion in a PFI, but on the basis of the information that I have been given today, no PFI faces an immediate crisis as a result of the liquidation.
Southend constituents and those in broader Essex will be worrying about how the situation affects their public services. Will my right hon. Friend consider publishing a list—a spreadsheet—of all the contracts and all the affected constituencies and use that as a basis for updating the House on progress on individual projects as mitigation takes place?
We are seeking to analyse the spread of Carillion contracts so that we know which Members of Parliament are particularly affected. Some contracts, of course, are specific to a particular location while others provide a service across a much greater swathe of the country. What I can say is that so far today the reports from different Government Departments and agencies, whether one looks at schools, hospitals or other public sector providers, are that workers seem to be responding and services are being delivered as usual. I hope very much that that situation continues.
The accounts show that in the last four years, on the PFI contracts alone, Carillion was part of deals that have made nearly £1 billion in profit directly from the public purse.
It is now clear that the notion, which all Governments have dealt with, that PFI is a good way to transfer risk to the private sector is a myth. Will the Government finally bring in a windfall tax to claw back the money so desperately needed for our public services from these companies? Or is it simply that they broke it but we will always end up fixing it?
The hon. Lady risks ignoring the £60 billion of capital investment that it has been possible to use to modernise and improve public services, and that would not have been available had this Government and their predecessors not used the PFI and PF2 approaches. The events of the past 24 hours have demonstrated that for private contractors this is not an easy ticket to riches; there are very real risks associated with taking on a contract. In this case it is—and rightly so—Carillion’s shareholders and creditors who are suffering very substantial losses as a consequence of the financial difficulties into which the company has fallen.
Does my right hon. Friend agree that sad occasions such as this demonstrate the importance of the strength and resilience of our model of pension protection? They also serve to underline the real importance of not allowing individual directors who might have put at risk employees’ pensions to walk away from their responsibilities. Will he assure the House that the investigation by the Pensions Regulator will be full and thorough?
My right hon. Friend makes a very good point. Obviously, the Pensions Regulator acts independently, but I am sure that both the Pensions Regulator and the trustees of the individual pension schemes will respond appropriately to what has happened. In addition, as I said earlier, the official receiver can take account of detriment to pensioners and pension contributors as part of his analysis.
The Secretary of State has said that staff should continue to turn up to work and that they will continue to be paid, but he has also said that he is setting up a helpline at Jobcentre Plus. What assurance can he give the staff—I am thinking particularly of the 400 staff in the Wolverhampton headquarters, as well as staff around the country—that they should continue to turn up, when they face the prospect of that Jobcentre helpline? Also, can he say anything more about investigations into the company’s changes in corporate governance in 2016, which appear to make the clawback of future bonuses more difficult?
On the second point that the right hon. Gentleman makes, the issue is covered by the scope of the advice that my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy has given to the official receiver about how his inquiry into the conduct of existing and previous directors might develop.
On the right hon. Gentleman’s first point, the situation for all employees of Carillion group companies is that for the next 48 hours—even for private sector employees, rather than those who are providing public services—there is that certainty that they can continue to turn up to work. After 48 hours, either the private sector counterparty must agree to fund future provision, including the fees of the official receiver, or those private sector contracts of Carillion’s will be terminated. It is those people whom the helpline from Jobcentre Plus is particularly intended to help.
The Government will, as I said in my statement, continue for the time being to fund wages, salaries and payments to contractors and suppliers where that is necessary for the provision of key public services. That is to give the official receiver the time to arrange, in an orderly fashion, the transfer of service provision, either to a new contractor or to an in-house provider within Government.
The Minister has offered reassurance in respect of joint venture partnerships with giants such as KBR and Kier Group, but what assessment has he made of arrangements such as CarillionAmey, which provides services to 50,000 MOD households—the homes of our brave men and women who serve in the armed forces?
The Ministry of Defence has been very closely involved in all the cross-Whitehall discussions about our contingency plans. The assessment by the Ministry of Defence is that that contingency planning means that the collapse of Carillion will have minimal impact on service personnel and their families. The facilities management contracts, which provide services to service personnel and their families, and which involved Carillion, are all through joint ventures. The other parties to those joint ventures are now contractually required to deliver all the requirements.
I am very pleased that the Minister has mentioned apprentices, but the nature of apprentices is that they are young and they are training as well as working. I am concerned that many young people cannot bear the burden of not receiving any money, despite the low remuneration they get as part of the training process, and that it will not be easy midway between training schemes to find another appropriate training scheme for those young people to dovetail into. May I ask that special consideration is given to that particularly unique set of circumstances of being partly trained and having to find somewhere else to go?
My hon. Friend makes an important point. I can well understand why apprentices would be worried at the moment. Carillion has 11 training centres across England, with about 1,200 apprentices who are also Carillion employees and who are mostly 16 to 18-year-olds. The Construction Industry Training Board has now agreed to become the training provider for those apprentices, and it will assist apprentices accordingly in finding new employment as rapidly as possible.
There are 1,200 16 to 18-year-old apprentices. May I suggest that the statement that the CITB is going to call together a taskforce does not match the urgency with which Members across the House have raised the issue of these young people, and the crucial question of their future in construction, which we desperately need to fix in advance of the Brexit debate?
The 1,200 apprentices obviously needed to be found both a training provider and an employer, and Carillion had been performing both those roles. The CITB has now stepped in and taken up the role of the training provider for all those young men and women. I assure the hon. Lady that the CITB is going to be extremely active—and will be pressed by Ministers to be very active—in ensuring that it reaches out to employers and finds spaces for those young men and women as rapidly as possible.
This is a very serious day, with a most significant and unfortunate corporate collapse. I urge my right hon. Friend to give as much reassurance as he can to constituents such as mine, working in the Carillion headquarters in Wolverhampton, that there will be a continuing role for them under the administrator while a more permanent solution is put in place. I thank him, his colleagues and officials in the Department for their work in putting this statement together in order to reassure public sector providers of service within Carillion and its subcontractors that they will continue to provide service to the NHS hospitals in particular. Will he ensure that those construction projects where Carillion remains a prime contractor—I am particularly thinking about the NHS hospitals in Birmingham and Liverpool—will not suffer significant delays and that arrangements are put in place rapidly to maintain those contracts?
I am grateful to my hon. Friend for his comments. The Department of Health is looking at each of the different hospital construction contracts. Obviously, the way forward depends very much on the exact legal structure of those different contracts and on the stage that they have reached. For example, the chief executive of the Royal Liverpool and Broadgreen University Hospitals NHS Trust said earlier today that he saw no problem with moving forward to the completion of the new hospital construction work in Liverpool. The west midlands projects to which my hon. Friend refers are at a much earlier stage of development. However, I assure him that Health Ministers have this matter very much in their sights and I am sure that they will be in touch with him.
Despite the Minister’s comments, I remain deeply concerned about the future of the new Royal Liverpool University Hospital. When will the new arrangements be made and when will the hospital be completed? The people of Liverpool must not pay the price for Carillion’s failure.
Last week, under the ten-minute rule, I introduced, together with 11 colleagues, a Bill to tackle abuse of retentions in the construction industry. In preparing for that Bill, it very quickly became clear that Carillion was one of the worst offenders. Will the Minister give me an assurance that he will take this point into account in addressing the concerns of subcontractors? Will he also consider bringing forward my Bill during Government time?
On my hon. Friend’s last point, I promise, on a “without prejudice” basis, to examine the case for doing so and to discuss it with ministerial colleagues. On his broader point, as I have said in response to a number of hon. Members across the House, there is a case for the Government to take a fresh look at the procurement process. However, I do not want that, in the next few days and weeks, to get in the way of our immediate responsibility to make life as easy as it can be made for employees, pensioners and others who are very worried about their futures.
I echo the concerns of my hon. Friend the Member for Liverpool, Riverside (Mrs Ellman). The new Midland Metropolitan Hospital now towers over the terraced housing in the Smethwick part of my constituency. Despite a delay due to a design failure, work is now proceeding apace and it is two thirds completed. What will the Government be doing about ensuring the flow of funding and work so that the contract can be completed and we can look forward to the opening of this new, much-needed hospital?
Discussions are taking place with the trusts, with Carillion managers and contractors, with PwC—as a special manager in the liquidation on behalf of the official receiver—and with the lenders to the project companies so that in coming days construction activities can continue without material disruption on crucial projects that the Government strongly support.
Can my right hon. Friend specifically help us on what arrangements are being made to ensure continuity of the prison facilities management contracts, which, as he knows, already cause great problems, have only some two years to run, and are not joint ventures? Particular issues for staff and for prisoner security and welfare arise around those contracts.
I had better not trespass on the responsibilities of the new Secretary of State for Justice, but I can say that contingency plans at the Ministry of Justice included the creation of a Government company that is available to take on the provision of these services at any time.
The word from hospital trusts today so far has been that the work of hospitals has not been materially affected by the collapse of Carillion. The Department of Health has not been looking at this in isolation. In preparing contingency plans, it has been talking for some time to the NHS trusts that use Carillion as a contractor. The contingency plans address these issues with the aim of minimising disruption and making sure that services to patients continue both safely and to a high standard.
I highlighted the point I want to raise in a Westminster Hall debate on small businesses in November 2016. I am concerned about the consequences for subcontractors and suppliers down the supply chain that are now likely to be left unpaid by Carillion. This is what we would call a domino effect. Is it not time to change the insolvency rules to introduce an assumed Romalpa clause or similar, so that in the instance of the failure of a primary contractor such as Carillion, payments or the snatching back of recognisable goods and services are directed to the relevant companies down the supply chain by the receiver or the insolvency practitioner, rather than the primary client making post-insolvency payments into a likely black hole?
In the case of Carillion, the Government have made provision for payments to subcontractors to continue where those subcontractors are involved in the delivery of key public services. As far as my hon. Friend’s broader points about insolvency law are concerned, he will have seen that my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy is in his place on the Bench beside me, and I am sure that he, given his responsibilities for the Insolvency Service, will have taken careful note of my hon. Friend’s request.
This morning, I spoke to my local council, which is already acting fast to do all it can to ensure continuity of services and of staffing contracts. I am sure that the Minister will agree that the uncertainty ahead is hugely unsettling for employees and their families, but there is the further concern that valued employees with great expertise will start to look for new jobs, further compounding the risk to service delivery. Will he again reassure the employees affected by local authority contracts, such as those in Hounslow, that the Government will not leave them in the lurch and that the commitment to protect public services and supplies will extend to local authority contracts and, indeed, to services such as prisons, including Feltham young offenders institution in my constituency?
Feltham young offenders institution is certainly covered by the overall contingency planning that the Ministry of Justice has put in place. As regards other local authority contracts, the same applies as with NHS trusts in that the Government’s protection for payments of wages and salaries for suppliers and subcontractors extends to contracts where they are involved in the delivery of key public services. The Ministry of Housing, Communities and Local Government has been in touch with all the local authorities where we know Carillion contracts are in operation, and its Ministers and officials will be doing their very best to support those local authorities.
Order. This is an extremely important matter, and it is hardly surprising that it has evoked intense interest in the House. As per usual, I am keen to accommodate the totality of the interest if possible, but if I am to have any prospect of doing so without jeopardising the time available for the Second Reading debate, may I advise Members—in respect of both questions and answers—that the abridged rather than the “War and Peace” version is to be preferred?
I will bear that in mind, Mr Speaker. I thank my right hon. Friend for his reassurances, and it is right that this discussion should focus on workers and services, but I am concerned about pensioners. What reassurance can he give existing pensioners about their continuing to receive their payments, as planned?
The Insolvency Service or the official receiver will have to look at each of the 14 pension schemes forming part of the Carillion Group and assess their solvency and that of the companies with which they are associated. The backstop in all this is that the Pension Protection Fund will guarantee that pensions now in payment will continue to be paid at 100% of their value.
Do not the strong condemnation by both the National Audit Office and the Public Accounts Committee of the Government’s decision to do a deal with EDF, a company that is €38 billion in debt, plus the Government’s failure to see the warning signs in this case mean that the Government are earning a well-deserved reputation for financial incompetence?
My right hon. Friend has made reference to the more recent contracts awarded to Carillion being done on the basis of a three-way partnership, and that seems a very pragmatic approach to Carillion’s recent problems, but with the collapse of Carillion, the financial burden will inevitably be passed on to the other partners. Will my right hon. Friend assure the House that when the Government did their due diligence on all the partners, they did it not just on the basis of one third of the risk, but of half of the risk and of 100% of the risk?
Yes, the Government did due diligence within the rules that I described earlier, and of course all the companies that signed up to those joint ventures knew that they were taking on that other potential risk, as well as the share to which they had definitely committed themselves.
A large number of companies issue profit warnings from time to time. If all potential contracting parties with such a company were suddenly to pull out and say it should have no more business in any circumstances, that would be guaranteed to block any chance of the company solving its problems. The Government’s position is as I have described it: we operated at all times within the rules of public procurement as laid out in regulation and in law, but once Carillion had made the profit warnings, we took steps to ensure that greater degrees of protection were built into the small number of specific contracts that were awarded after July last year.
In 2013, Stockport council entered into a £100 million, 10-year contract with Carillion for the provision of services. In addition, Carillion is the lead contractor on the £290 million A6 to Manchester airport relief road, which is currently under construction and goes through my constituency. What advice and reassurance is my right hon. Friend giving local authorities as they sit down today to contemplate the way forward?
The Department for Transport is now activating its contingency plans to move key work and projects to other suppliers where possible and to ensure that the impact is kept to the minimum. Clearly, the response will vary, depending on the specific contract terms, the level of Carillion’s involvement and whether it was contracted directly or through a joint venture, but I am sure that Transport Ministers will be happy to talk to my hon. Friend about her concerns in relation to the Stockport area.
Carillion is notorious in the subcontracting industry as a company that pays its bills very late—over 90 days in most cases. The Minister has talked about public sector contractors that will need to be paid, but what support will the Government give small business in the north-east and elsewhere that are in non-Government contracts and are still waiting to be paid?
Companies in non-Government contracts that are not involved in the provision of public services would become creditors of Carillion. The responsibility of the Government and the use of taxpayers’ money should be first and foremost for protecting the delivery of key public services and the employees who deliver those services.
I thank my right hon. Friend the Minister for wanting to minimise the impact on employees, pensioners, apprentices and subcontractors and for protecting vital services. Can he confirm that he will not fall into the Labour trap of dealing with corporate failure, as when the last Labour Government let bank investors pocket the profits for many years, but when the ship hit the rocks, the taxpayer had to pick up the bills while those same bond investors were let off scot-free?
South Tees NHS trust has substantial investment with Carillion as a result of PFI arrangements agreed under the last Labour Government. Carillion’s supply chain is now horribly exposed, and Slater Refrigeration, which is a small firm based in my constituency that supplies cooling systems for one hospital’s blood banks, its MRI scanner, its CT scanner, its mortuary and its operating theatres, has been told that, while its costs will be covered going forward, the £43,500 that it is already owed by Carillion is not covered, and that presents a critical threat to the business. Can the Minister provide reassurance that these outstanding liabilities will be paid, either via the PFI shell companies or, in extremis, via the Government themselves?
I would hope that the company in my hon. Friend’s constituency will talk directly to the official receiver and the Insolvency Service, which is working with the official receiver. If there are still problems after that, I would invite him to talk to me or one of my team, and we will see what might be possible.
Will the Secretary of State confirm that when he references key public services that includes projects at their early stage, such as the Sheffield tram-train project and the flood defences in the Don Valley, or are they at risk of cancellation? Will he also provide a bit more detail on the accountability for decisions made by the official receiver in transferring contracts?
The official receiver is clearly an independent authority—rightly so—but where we are talking about a contract to provide services to a Government Department or a Government agency, obviously that Department or agency has to decide whether the particular provider will deliver what is needed in terms of the quality and speed of public service. We are protecting the public service contracts on the basis of the value that they provide to the public, not where they might have got to in their development. Clearly, it is for the official receiver, in the first place, and for the relevant Departments to look at each project on its own merits and to assess how best to take it forward and through what type of provision.
Does my right hon. Friend agree that companies do not fail—directors and management teams fail? Does he also agree that capitalism without bankruptcy is like Christianity without hell: there is nothing to keep us on the straight and narrow? Carillion is finished, but demand for its services continues. The jobs will be recreated, and in future the management will have to be better.
I cannot match my hon. Friend’s theological knowledge, but the central point he made at the end is right: this work in providing public services will still need to be done. People will still need to be employed in the provision of support services, facilities management, repairs and maintenance, and so on. Although that will not be done by Carillion in future, it will be done by another provider, and the need to employ numbers of people will remain.
In Scotland, Carillion is in partnership with TIGERS—Training Initiatives Generating Effective Results Scotland—to provide a shared apprenticeship scheme, and my constituent Connor Mallon, from Toryglen, was taken on as the 1,000th apprentice as part of that scheme last year. What reassurance can the Minister give those such as Connor who are in the middle of an 18-month programme? Can he also tell me a bit more about the CIBT taskforce, how that interfaces with the Scottish Government and what is being done there?
The new Midland Metropolitan Hospital, which was referred to by the right hon. Member for Warley (John Spellar), will provide vital services to people in Rowley Regis and is due to open in 2019. Carillion is the principal contractor. Will the Minister commit to make sure that he speaks to his counterparts in the Treasury and the Department of Health to ensure that there is continuity in this construction project, which is now two thirds complete and needs to be gripped?
Certainly, the Government’s wish and intention is that we can get on with construction work in the west midlands without material disruption. I will certainly pass the message very clearly to fellow Ministers in the two Departments my hon. Friend referred to.
Carillion is a partner in an international joint venture to deliver Manchester airport city enterprise zone in my constituency. Does the Minister agree that what has happened gives a terrible signal to international investors about the state of UK plc?
No. There are few countries in which companies do not fail. What is important in this case is that responsibility and financial liability for that failure are seen very clearly to rest with the shareholders and creditors, not with the public purse, and that Government energy is directed towards ensuring that those public services continue to be provided.
Following on from the last question, once the official receiver’s investigation into the specifics of the directors of Carillion is concluded, how will my right hon. Friend ensure that any more general lessons regarding corporate governance are taken up, considered and applied where necessary elsewhere?
Ministers will want to consider these questions at a senior level. I am sure that we will also look with interest at whatever report the Public Administration and Constitutional Affairs Committee produces. It might be helpful in contributing to our thinking on this.
In Newcastle, Carillion bought Eaga, a successful, local and partly employee-owned energy company, which was then forced to shed thousands of jobs due to the Government’s U-turn on renewable subsidies. Will the Minister agree that the people of Newcastle have been twice betrayed by his Government with regard to Carillion and commit absolutely to ensuring that jobs, pensions and our local economy do not suffer further? Let me be clear: a helpline will not cut it.
I thank the Minister for his statement and commend Oxfordshire County Council for the swift work it has undertaken today, particularly to ensure that schoolchildren have been fed all over Oxfordshire. Will he please offer some reassurance to the 400 staff employed at Oxford’s John Radcliffe Hospital with regard to their jobs and to my constituents concerned about the continuity of services there?
Before coming to the House, I had a look at the latest briefing from the Department of Health and Social Care, and the John Radcliffe Hospital was reporting no disruption to services—we have had no notification of any problems. I am close enough in constituency terms to the John Radcliffe to know how important that modernisation project is. On schools, it is welcome that the message from Oxfordshire, Tameside and other local education authorities has been that business has been continuing as normal today.
This case is very similar to that of Southern Cross. We can see that, although we can transfer jobs, the provision of services and money to the private sector, ultimate responsibility and financial risk stay with the public sector. How high is the contingent liability set in the minute that the Minister is laying before the House today?
I question the premise on which the hon. Lady put her question. It is true that ultimate responsibility for the provision of public services remains with the public sector, but as this case has demonstrated beyond any doubt, the financial risk really and truly is transferred to the private sector contractor.
The Aberdeen western peripheral route is being constructed through my constituency. Will my right hon. Friend advise the House on what discussions he has had with the Scottish Government and the next steps that have been agreed to give reassurance to the workers turning up on site about their jobs, pay and pensions? Does he agree that the Scottish Government should outline their contingency plans as soon as possible, given reports that they have been slow in their payments to the project consortium?
This is one of the projects in Scotland that has been the subject of conversations between UK and Scottish Government officials. Because it is a Transport Scotland project, it is indeed a matter for the devolved Government in Scotland to take forward in seeking alternative providers, but the Government will continue to do whatever they can to support the Scottish Government in that endeavour.
This whole sorry tale is a textbook example of the privatisation of profit and the socialisation of risk. Companies such as Carillion have been taking taxpayers for a ride to the tune of billions of pounds of profit. Is not today the day when the case for a windfall tax on these sorts of companies became unanswerable?
I normally have time for the hon. Gentleman, but I am afraid that in this instance he wrote his script before listening to the statement. There have been no payments to Carillion except payments for services actually delivered by Carillion companies, in line with their contracts. What today has demonstrated is that the financial risk is transferred to the private sector contractor, and it is right that that should be the case while the Government concentrate on continuity of public services.
As was highlighted by the hon. Member for Waveney (Peter Aldous), hundreds of subcontractors risk losing money as a result of cash retentions on the part of Carillion. The Government could have legislated previously to end that practice. As part of the review, will the Government establish how much cash Carillion is withholding, and for how long the payments were due to subcontractors? Will the Minister try to ensure that the money is released, and legislate to end unprotected cash retentions? As a co-sponsor of the private Member’s Bill presented by the hon. Member for Waveney, I should be happy if the Government adopted it.
Carillion’s performance in respect of the contract for facilities management in prisons has been extremely poor for a number of years. Can the right hon. Gentleman confirm that penalties for performance failure have been extracted during the life of the contract, and that there will be no further payments when the contract has not been delivered as it should have been?
I will ask Justice Ministers to respond to the hon. Lady in writing about the details of her question. I have seen enough prison inspection reports to know that in some prisons there were serious questions about the quality of Carillion’s provision. I am pleased to be able to reassure the hon. Lady that the Ministry of Justice has strong contingency plans not only to continue service, but to drive forward improvements. I know that my right hon. Friend the Secretary of State will be very committed to doing that.
Although a hedge fund seems to have been able to bet against Carillion and make millions of pounds, the Government’s due diligence gave it a clean bill of health. Can the Minister assure the House that at no stage did departmental officials advise Ministers against giving it further contracts following the profits warnings, and that Ministers did not act against any such advice?
Across Wales, Carillion is involved in rail, road, energy and digital infrastructure projects. What discussions about exposure to Welsh projects took place between the UK and Welsh Governments before the events of the weekend, and what discussions have there been over the last few days?
Officials have been in contact with the Welsh Government. There is minimal exposure to jobs in Wales: there are about 40 Carillion workers there, but they do not work on any public sector contracts. Carillion has been subcontractor to two contracts in Wales for a design phase, and it was bidding as a subcontractor to a rail project, but as a subcontractor only. It is for the main contractor to find out who will take its place.
The Minister has talked about continuity, but in many cases the current service provided by Carillion is appalling. Two independent reports on Wormwood Scrubs prison last month—to which the Minister may have just alluded—describe indecent living conditions involving broken toilets, showers, and heating, electric and fire safety equipment. What confidence can we have that the performance of Carillion contracts will be not only maintained, but rectified where it is failing?
I think it important that, whether a service is provided by the public or the private sector, every effort is made—both in the designing of the contract or in-house arrangements and subsequently, through management of those arrangements—to deliver a service of the highest possible quality. The hon. Gentleman cannot unfairly point to examples in which the private sector has fallen down on the job, but it is equally possible to point to examples in which the public sector has done so. Many of us remember only too vividly the report on Mid Staffordshire hospital in recent years. It is not a question of private-public, one good and the other bad; it is a question of seeking to drive forward the highest standards, whatever the form of provision.
It is not new news that Carillion had financial difficulties, and the Minister himself has referred to the Government having taken a particular interest in the performance of Carillion in the period since July 2017. Why did the Government leave the position of the Crown representative to Carillion vacant from August to November when there was such concern about the performance and financial health of Carillion?
Sheffield houses Carillion’s customer experience centre, often known as the nerve centre of the UK operations, where 250 people are employed. What reassurances can the Minister give to the workforce about their short and long-term futures?
In the immediate future, people will still be needed to carry out that co-ordinating work, and the Government are funding such provision through the official receiver. In the longer term, it will depend upon exactly how the provision of public services takes place in respect of the various services currently looked after by the Sheffield centre.
Bosses at Carillion took steps to protect their £4 million-worth of bonuses shortly before £600 million was wiped off the share values of the company, and with Persimmon recently awarding an obscene bonus to its chief executive, is it not time for this Government to take action on the culture of excessive bonuses at the public expense, and especially, in this case, on rewarding failure?
In respect of Carillion it is perfectly within the scope of both the official receiver and the Pensions Regulator to look at those actions taken by either current or previous directors and, if they are persuaded by evidence, to impose quite stringent penalties upon those people.
Every community represented in this place will be touched by the collapse of Carillion, including for me the Harplands Hospital in the constituency of my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell). My concern, however, relates to the wider impact on my county, which includes Army accommodation and over £1 billion nationally of Government funds that have been spent with Carillion both directly and through subsidiary companies. What assurances are you giving to them, and how are you communicating with service users from today to say that everything is going to be fine? One tweet from the Second Sea Lord is not enough.
I am advised by the Ministry of Defence that the services provided by Carillion are provided through joint ventures, and therefore the other joint venture partners are required to come forward and shoulder the responsibilities that Carillion was exercising. The MOD is working with those partners to ensure the services continue to run effectively. If the hon. Lady has evidence of things going awry in her constituency or county in this respect, I encourage her to take that up with the Secretary of State for Defence and his team, because they are rightly determined to make sure that things go as smoothly as possible for our servicemen and women and their families.
In the statement the Minister says, “We have been monitoring Carillion closely since its first profit warning in July 2017”. For 18 months, however, from March 2016 until July 2017, Carillion was the most shorted stock on the UK stock exchange. In fact in July, after the 70% drop in share price, there was still a 21% shorting of the stock. Just how closely were the Government monitoring the situation—or did they for some reason have a blindspot?
There is no question of any blindspot. The Government, in common with any other party that was doing business with Carillion, clearly did not have access to the company’s books. The evidence of our concern is the very fact that the relevant Departments and agencies ensured that there was protection through the creation of joint ventures on key contracts when it became a matter of public record that Carillion had difficulties.
The collapse of Carillion is the most appalling epitome of the worst kind of lemon socialism and corporate welfare, in which the socialisation of losses is underwritten by the state while private profits from state assets are siphoned off to shareholders. Given that these companies are responsible for huge swathes of critical national infrastructure and service provision, will the Minister give a guarantee that a new form of status will be granted to these companies whereby they will be forced to undergo much more onerous forms of regulation and supervision by the state, to ensure that any risk to the state’s functions can be prevented?
The action that the Government are taking today is, so far, ensuring that there is no risk to the state’s functions and that services are being provided as normal. As to the hon. Gentleman’s opening comments, this case demonstrates that this is, rightly, not a one-way ticket for contracting companies. They have had to suffer serious financial loss to both creditors and shareholders. The risk was transferred.
The West of Scotland Housing Association is headquartered in Barrowfield, which is part of my constituency. It is in the process of transitioning its maintenance contract from Carillion to Robertson FM, so there is no need for its tenants to worry, but what discussions has the Minister had with the Secretary of State for Housing, Communities and Local Government about the impact that this will have on other housing associations in these islands?
The Department for Housing, Communities and Local Government has been in touch with those housing associations that we think might have been affected by the collapse of Carillion. So far, we have not been alerted to any immediate difficulties, but this is something that the Secretary of State for Housing, Communities and Local Government will be keeping under close watch.