I have been asked to comment on the stock market update issued by Capita plc yesterday and its impact on the delivery of public services. I completely understand that this is a matter of significant interest to many in the House following the recent failure of Carillion, but I can assure Members that this company is in a very different situation. To be clear, this announcement was primarily a balance sheet strengthening exercise, not purely a profit warning. As has been widely reported, the company has significant cash reserves on its balance sheet. We do not believe that Capita is in any way in a comparable position to Carillion. Furthermore, Capita has a very different business model, and if the House will allow me, I will give an update on that.
The issues that led to the insolvency of Carillion will come out in due course, but our current assessment is that they primarily flowed from difficulties in construction contracts, including those overseas. By contrast, Capita is primarily a services business, and 92% of its revenues come from within the UK. As Members would expect, we regularly monitor the financial stability of all our strategic suppliers, including Capita. As I said, we do not believe any of them are in a comparable position to Carillion. The measures Capita have announced are designed to strengthen its balance sheet, reduce its pension deficit and invest in core elements of its business. Arguably, those are exactly the measures that could have prevented Carillion from getting into the difficulties it did. Of course, the impact of these measures has been to reduce dividends and shareholder returns in favour of others, so this is further evidence of shareholders and not the taxpayer taking the burden on this.
As I have said, my officials met senior Capita executives yesterday to discuss the impact of the announcement. We continue to work closely with the company to monitor the execution of its plan and to ensure the continued delivery of public services. We continue to engage with all our strategic suppliers and make continuing assessments of our contingency plans, where necessary. It would not be appropriate for me to comment in any further detail on the specifics of those contingency plans, given their commercial sensitivity. But let me reiterate that the priority of this Government, and the reason why we contract with these companies, is to deliver public services, and our priority is the continued delivery of those services. As Members will have seen in respect of the collapse of Carillion, whatever the shortcomings there public services continue to be delivered, and we are confident that public services will continue to be delivered as provided by Capita.
I thank the Minister for his response, but I cannot help but conclude that the Government’s thinking on this is both muddled and complacent. He has told us that the situations at Capita and Carillion are completely different, but let us look in more detail at the circumstances of both companies: both have debts of more than £1 billion and pensions deficits in the hundreds of millions; both paid out dividends of more than £1 billion in the past five years; both rely on the public purse for half of their contracts; both were audited by KPMG; and both grew through acquisition and not through organic growth. It seems there are more similarities than differences between these two companies.
I join the Minister in welcoming the decision by the new Capita chief executive officer to face up to some of these problems with a rights issue and the suspension of dividends. But can the Minister honestly say that Capita could not come to the same fate that Carillion did just two weeks ago, that people working for Capita have nothing to fear, and that those saving prudently for a pension with Capita can rely on that pension paying out fully on retirement? Can he say to people who rely on Capita to carry out basic public services, such as the electronic tagging of offenders or the billion-pound contract with the NHS, that they can count on it to fulfil its contractual obligations for the life of those contracts?
I have some specific questions about what happens now. What is the contingency planning? Do the Government have representatives in the business, including a Crown representative? How long have the Government been aware of the problems at Capita, and how many contracts have been issued to it since then? What specific risk assessment have the Government made of other large outsourcing firms? Capita is currently bidding for the Defence Fire Risk Management Organisation contract. Will the Government now review that process and reconsider the decision to outsource that and other services they are currently looking to offload?
Will the Government commit to urgently reviewing what looks like a cosy and complicit relationship between the big accountancy firms, the Financial Reporting Council and the corporates they are supposed to be auditing? Is it not now time to split up the big accountancy firms and stop auditors being paid for other consultancy work at the firms they are supposed to be auditing? Capita has announced a fire sale of assets. Will the Minister confirm that Capita is in consultation with the trade unions and its workforce about redundancies and TUPE arrangements in the event that services are sold off?
Jobs, pensions, small businesses and vital public services now depend on these outsourcing companies, but it is time we rethought the whole strategy for public service provision. How many more warning signs do the Government need?
I thank the hon. Lady for her questions. I know she takes a close interest in this important issue. She has raised a large number of questions, and I shall seek to address as many of them as I can. I am pleased that she has acknowledged that Capita is facing up to its problems. Indeed, that creates a contrast with Carillion. She talked about the financial situation of Carillion versus Capita. The chief executive of Capita has faced up to this and strengthened its balance sheet—it has been widely reported that Capita has more than £1 billion on its balance sheet—which shows that the situation is significantly different from that at Carillion and gives us confidence in its ability to continue to deliver services.
The hon. Lady talked about dividends. Again, as a result of this announcement, Capita will not be issuing dividends, which means that money can go back into the pension scheme, allowing £200 million extra to be spent on the company’s core services, rather than dividends. That is evidence that the chief executive has understood the position and is creating a different situation from that which pertained to Carillion. She raised an important point about the major accountancy firms, such as KPMG, involved in this market. The Financial Reporting Council is looking into this matter. We expect to hear from it in about six months, and we will, of course, respond as appropriate. On her question about a Crown representative, I can assure her that there is one in Capita.
I explained in my original answer the role of the Cabinet Office and the Government and the reason that we contract with private companies. The previous Labour Government and other Governments did the same. As has been reported many times, a third of Carillion’s live contracts were agreed by the last Labour Government, a third by the coalition and a third by the current Government. Governments do this to deliver public services. Our role, as a Government, is to ensure the continued delivery of those public services, and the test for me and my colleagues and officials in the Department is this: is the company capable of delivering those public services, and if there is a problem with the company, will those public services continue to be delivered? In respect of Carillion, Members will have seen that all those public services have continued to be delivered, and I am confident that they will continue to be delivered.
Will my hon. Friend look at the total contempt that the Labour party has for the private sector today? Will he take the time to publish, in due course, a full list of all the contracts with the private sector that were entered into between 1997 and 2010? That will provide a fine example of how the Labour party of today is nothing like the Labour party of that period when they were in government.
My right hon. Friend makes an important point. This Government, and the previous Government, have engaged with private sector companies for the delivery of public services. Gordon Brown, Labour’s last successful Prime Minister—[Interruption.] Well, he was the last Labour Member to hold the office. May I take the opportunity to correct the record on that, Mr Speaker? Gordon Brown said:
“It simply would not have been possible to build or refurbish such a number of schools and hospitals without using the PFI model.”—[Official Report,
Vol. 467, c. 665.]
Why is it that we use these contractors? Because we know that they can deliver. Labour’s position is slightly confused. Is it honestly now Labour’s position that we should not use the private sector at all? Is the state going to start building roads again? Where does Labour draw the line? It is complete confusion.
Order. I am keen to accommodate the substantial interest in this matter, but may I remind the House that there is the business question to follow, and thereafter two debates to take place under the auspices of the Backbench Business Committee? I am anxious that time for those debates should not be artificially truncated, so pithy questions and pithy answers, please, and we will make progress.
I will take your advice, Mr Speaker.
Only two weeks ago, I warned that there was a danger that this whole outsourcing problem would become a set of dominoes, with one falling after another. I believe the House will conclude that the Government’s behaviour in response, and the Minister’s response today, has been marked by indifference to corporate mismanagement, incompetence in office and complacency in the face of a crisis.
The Minister will not tell the House, but I will: Capita was given 154 Government contracts last year. Only last week, Carillion contracts were being re-brokered to Capita, yet the company was clearly in trouble. Share values were plummeting and profit warnings were being issued. There was short selling on the stock market and allegations against Capita of fraud in the handling of public contracts. Yesterday, Capita’s total value on the exchange was barely much more than its total debt. The company is in serious trouble. It is a familiar tale of woe, with strong echoes of Carillion.
We want to know that the Government’s contingency plans in relation to Capita will assure jobs for current employees and protect the pensions of those employees and the pensions of the public sector workers that the company is managing. Will the Minister confirm that the public services that Capita manages will be protected in the event of a corporate disaster? Does the Government’s contingency plan allow for that? What will be the common impact of the problems at Carillion, and now Capita, on the spiralling costs of HS2? Does the Minister agree with the Opposition that not a single penny should be used to prop up badly managed outsourcing companies?
The Government are blind to the corporate greed of these outsourcing companies. Does the Minister agree that it is clear that, as the Under-Secretary of State for Justice, Dr Lee, said only the other day, the Government should be driven by the “evidence, not dogma” on outsourcing?
I thank the hon. Gentleman for his questions, the core of which was about support for outsourcing companies. He said we should not provide a penny more to prop up badly managed outsourcing companies. Indeed, that is exactly what we did in respect of Carillion. We took the decision that this was a private company and should bear the loss. That is why shareholders in Carillion are unlikely to get more than a few pennies in the pound back for their investment. The private sector has taken the risk, but the job of the Government is to ensure the continued delivery of those public services—to ensure that the dinner ladies get paid, that the hospitals get cleaned, and that the railways continue to be built. That is exactly what we did in respect of Carillion and it is exactly what our contingencies involve for all our strategic suppliers. That is the test for the Government: can we ensure the continued delivery of those public services, and can those public services continue to be delivered?
The hon. Gentleman made a point about pensions. The fact that Capita has embarked on this course of restructuring means that it is effectively choosing to switch resources away from the continued payment of dividends and towards pension funds. That should give pensioners confidence in respect of that pension fund. He also asked about jobs, and again, the restructuring can give confidence about the continuing delivery of those jobs.
I keep coming back to the same point. This is a private company and the interest of the Government is to ensure the continued delivery of those public services, and those public services continue to be delivered. That takes me back to Labour’s position. What Labour seems to be suggesting is that the private sector has no role in public life, and that the level of small and medium-sized businesses working for the Government should be zero. If that is not Labour Members’ position, are they going to tell us where they choose to draw the line? Labour has gone from pumping billions of pounds into private companies for the delivery of public services when Gordon Brown and Tony Blair were Prime Minister, to saying that they should not have a penny. Some clarity would be helpful, because otherwise people may draw the conclusion that there is more than an element of opportunism here.
Does my hon. Friend agree that it would be irresponsible of this Government to cancel private companies’ contracts simply on the basis of a single profit update?
I thank my hon. Friend for that question, and this is an important point about profit warnings. A profit warning does not mean that a company is imminently going to collapse. A profit warning is a warning to the markets that its results will not be in line with what it had previously thought. If every time that a company issued a profit warning, we as a Government said that we would cease to contract with them, there would be very few companies we could contract with. I will not name leading companies, because I do not want to influence their market value, but I could name a huge list of FTSE 100 companies that routinely issue profit warnings. That does not mean that they are about to disappear.
For the second time in two weeks, we are discussing a private firm, responsible for the delivery of vital services, that has caught us cold with a profit warning. Will the Minister now acknowledge that there is a role for a proper public sector? Will the Government now start to roll back on the privatisation agenda that they and the previous Labour Government obsessed about? Can we look forward to a proper plan for taking public services back into the public sector? And will he now acknowledge that public sector employees should deliver public services?
Of course we acknowledge that there is a proper role for the public sector. That is why, for example, this Government committed at the last election to providing £8 billion more for the NHS and a further £6 billion more for the NHS. To go to the core of the hon. Lady’s argument, the reason that successive Governments of all political persuasions have chosen to engage with the private sector for the delivery of services is that those companies have a speciality in it. They have a speciality in delivering such services, so they can deliver them more efficiently. That means there are savings for the taxpayer. If the Scottish National party position is seriously that we should not have any outsourcing, they need to explain to taxpayers why, instead of ploughing those efficiency savings back into our schools and hospitals, they are choosing to use them to pay for less efficient ways of delivering public services.
Yes, my hon. Friend is absolutely right. If we were to choose overnight, in the face of one profit warning, to stop contracting with that company, there would be a significant risk of the delivery of public services falling over. As I have said, the objective of the Government is the continued delivery of public services, and we have continued to pay the cleaners, continued to have the dinners served and continued to ensure that what the people out there in the country care about, which is that their public services are delivered, continues to be delivered.
Yesterday, the chief executive of Capita said that his organisation was “far too complex”. If the chief executive finds it difficult to understand how his own organisation works, how do the Government monitor the stability and performance of these very large, complex outsourcing companies, such as Capita, Serco, Atos and G4S?
The right hon. Gentleman is absolutely right about what the chief executive said, and that is the reason why that chief executive has embarked on this restructuring; it is precisely because of that complexity. I well remember working with the right hon. Gentleman when I was an adviser in Downing Street and he was Business Secretary in the coalition, so he will have knowledge of that. In fact, a third of the contracts from Carillion were agreed by the coalition. The process that we had then, and that we have continued to strengthen, is twofold. First, we look at the published results of these companies and use third parties to understand them properly and verify them. Secondly, we continue to engage on a one-on-one basis with each of those companies through the Cabinet Office, to understand their financial position in order to ensure that we deliver on what the public expect—the continued delivery of public services.
Rachel Reeves, in the Business, Energy and Industrial Strategy Committee, has rightly raised concerns about the failure of regulation from the Financial Reporting Council and KPMG. Does the Minister agree that the answer to this dilemma is not to nationalise those companies, but to make sure that those bodies do their job for the taxpayer and the public service user?
Yes, my hon. Friend is absolutely correct. That is why I, and we as a Government, welcome the fact that the FRC is looking into the four major accountancy firms and seeing what lessons we need to learn. Of course we will respond to that and act appropriately.
May I bring the Minister back to the core issue, which is that there are two separate but linked problems: the business model and the performance of these companies? Like Carillion, Capita seems to be part of the over-concentrated, over-leveraged, dividend-and-bonus-exploiting culture that relies on the state to bail out failure. Capita incompetence is only too clear from its lamentable performance on the recruitment contract for the armed services. When will this Government finally get a grip?
Behind the right hon. Gentleman’s question is an important point about the diversity of suppliers in this market. We do need to look to diversify further. That is why, for example, we have set a target that 33% of all our Government contracting should be with small and medium-sized enterprises—precisely to ensure that we have that greater diversity. On his point about state bail-out, we have done precisely the opposite of a state bail-out. Carillion went into liquidation, so its shareholders paid the price; because Capita has decided to stop paying dividends, its shareholders are paying the price. Therefore, it is not correct to say that the state is bailing them out in this situation.
Is not the Government’s role to continue to act as a prudent customer and to continue to monitor their suppliers and the services provided? Right now, the best thing that the Government can do is to allow the company to get on with its plans to restructure its business.
Yes, my hon. Friend is absolutely right. Capita and its executive and shareholders are responsible for Capita. Our responsibility as a Government is for the continued delivery of public services—to make sure that the services on which the public rely continue to be delivered. That is exactly what we did in respect of Carillion, and that is exactly what we are ensuring in relation to contingency plans for all our strategic suppliers, including Capita.
The Minister said that Capita has a positive record of delivery, but it has been responsible for the £1 billion contract for the delivery of NHS England’s primary care support services since 2015. From the outset, both GPs and local medical committees identified serious issues with the service, including patient safety, GP workload and an effect on GP finances. Although some progress has been made, two and a half years on the service falls far short of what is acceptable, and there is still an urgent need to resolve these issues to give practices and GPs across the country confidence in it. What are the Minister and the Government doing to improve the quality of services provided by Capita?
The Government contract with a company to deliver the individual services, and that is done through each Department. In respect of health services, that is done by the Department of Health, which has to ensure that Capita or any other contractor delivers on what it has promised. The function of the Cabinet Office in this respect is to ensure that overall public services continue to be delivered if there is a failure of the company.
If I understand the Minister correctly, this company is raising funds from its shareholders in order to strengthen its balance sheet, enhance its pension fund and invest money in its core business. These corporate actions should be welcomed on both sides of the House. Does he share my frustration that the attitude of the Opposition towards the private sector seems to be, “You’re damned if you do and you’re damned if you don’t”?
Yes, my hon. Friend is precisely right. As I said, it would have been helpful if Carillion had considered these actions; perhaps then it would not have got into this position. Members cannot say that somehow the Government are bankrolling these companies, while simultaneously saying that we are allowing the companies to go bust if things go wrong with them and shareholders pay the price. They cannot makes those two propositions at once.
The Government have not bailed out a single supplier. It is the shareholders who have paid the price. It is the shareholders of Carillion who will not receive back the money they invested—or, at least, they will receive a very small proportion of the money, depending on the outcome of the liquidation. The hon. Lady’s characterisation of the situation is simply not correct.
Will the Minister assure the House that the combatant steps that the Government have taken to date regarding Carillion have protected services and ensured that there is minimal disruption to citizens? Will he also assure us that they are taking a similar combatant approach to the Capita situation so that we can protect services such as the NHS admin that is so important to us all?
My hon. Friend is absolutely right. Our focus has been to ensure the continued delivery of public services. In respect of all the key strategic suppliers, we ensure that we are confident that public services will continue to be delivered if there is an interruption to those companies. That is what the House saw in respect of Carillion, and it is exactly what we prepare for all the time with regards to all our strategic suppliers.
This is a very worrying time for Carillion employees in Wales, including the hundreds employed at the call centre in Bangor in my constituency. It is also a very worrying time for disabled people, as all personal independence payment assessments in Wales are carried out by the company. Will the Minister give these people a cast-iron guarantee that their jobs are safe, and that their benefits assessments will be carried out properly and accurately?
I assure the hon. Gentleman that it is the priority of the Government—this is what we are working on—to ensure that there will be no interruption to the very important public services that he outlined, no matter what happens to their delivery. That is what happened with Carillion. On the very day it was announced that Carillion was going into liquidation— the announcement was made at 7 o’clock in the morning—we ensured that the people delivering public services could continue to turn up to work and to be paid, and that the public services they delivered could continue to be delivered.
Before any new Government contracts are awarded to Capita, will the Government seek fresh assurances in respect of existing and future pension obligations to its employees?
I can assure my hon. Friend that in fact officials from my Department met Capita only yesterday. This is an ongoing process of engagement with all the strategic suppliers, asking exactly those sorts of questions to ensure that we have public services delivered. Of course, we are very cognisant of things like the pension fund as well.
One of the real issues that comes through with both Carillion and Capita is that the enormous growth of the conglomerate structure means that these corporations are vulnerable when any part begins to fail, and that of course puts at risk the whole. Where is the risk assessment that the Minister and his team have done that guarantees that we will not see failure in Capita and in other public service providers?
As I said, there is a continuing process of engagement. Over the years, the Government Commercial Function has been beefed up. We have brought in people with expertise who understand these companies and are engaging with them on a day-to-day basis to understand their business models. The purpose of doing that is to understand those business models to ensure that we are confident that we can continue to deliver these public services.
Will my hon. Friend confirm that what matters to this Government is what delivers the best public service outcomes to our constituents in terms of quality and value for money—exactly the same considerations that motivated Labour when, in government, it let so many public service delivery contracts to private companies?
Yes, Labour let lots of contracts to private companies, because it believed that they had the expertise to deliver them, and that is exactly what we are doing. Interestingly, since the surge in the use of PFIs that took place under the Labour Chancellor before last, Mr Gordon Brown, we have tightened up the terms of PFI. We are learning the lessons from some of the excessive PFI contracts that we saw, which had underneath them ludicrous service fees for some of the services provided.
Capita is a significant employer in Huddersfield in its shared transport business. It has a very important role in gas safety for the Health and Safety Executive. It is a very important company. Nobody on the Labour Benches wants to see it fail; like all businesses, we want to it to succeed. There is nothing wrong with a public-private partnership: what is important is getting the contract and the relationship right. What went wrong in many PFIs was rotten contracts that still bedevil local hospitals and local schools.
The hon. Gentleman makes a very important point. He is precisely right. There is nothing wrong, per se, with engaging with the private sector for the delivery of services, but we must ensure that there is rigour in the contracts. Many contracts in the past have not been properly negotiated and have not delivered value for the public sector, and they will continue to burden us for many decades to come. However, that is not an invalidation of the model; it is about problems with specific contractual negotiations.
It is clear that Capita is unique because it grew out of outsourcing from the public sector, but as it grew the structures outstripped its proper corporate responsibility. It is also clear that we need to argue the case for the benefits to the public sector of outsourcing. Will the Minister therefore set out the benefits of outsourcing and give one or two examples of where it has been a success and delivered better public service?
I am very happy to do so. This is precisely why private sector companies use outsourcing. Every company engages in outsourcing because it recognises that there are some areas where there is greater expertise than can be delivered by that company. It is exactly the same for the public sector. We focus on what actually works—what delivers for the public sector and what delivers the best price and the best value. Over 4,500 projects have been delivered since 2010; over a quarter of a trillion pounds has been invested in infrastructure; and over 70% of our 175 long-term priority projects and programmes identified are now complete, under construction, or part of a programme being delivered. This is delivering the public services that people want.
Will the Minister tell the House the size of the pension deficit and what arrangements the Government are putting in place to cover that black hole?
Capita is a private company, responsible for the running of its business. If the hon. Gentleman looks at the announcement made yesterday by Capita, he will see that it has chosen not to issue a dividend, which has released more cash and means that it can shore up its pension fund. It is a positive announcement in that respect.
Will the Government review all major outsourced contracts as a matter of urgency, and in particular the contracts awarded to Capita for assessing personal independence payments for disabled people? It has been subject to justified heavy criticism for the way it treats disabled people during that process.
The Government routinely publish all significant outsourcing contracts, and I would be happy to provide the hon. Lady with a link to the website so that she can get a full list of those. That is the process for doing it.
Is it not time that private companies providing public services were subject to the same rules of openness and transparency as the public sector, so that they can no longer hide behind the cloak of commercial confidentiality?
Of course there are lessons to be learned from this. Indeed, that is exactly what bodies such as the Select Committee on Public Administration and Constitutional Affairs is looking into. However, there is a distinction between a private company and a public body. I do not think it would be appropriate to extend the full FOI provisions to all private companies.
I welcome the hon. Gentleman’s question. Of course we will learn those lessons, but it is worth noting that the Scottish Government gave a contract to Capita in 2015. Capita was appointed by the Scottish Public Pensions Agency to deliver its integrated pensions IT software solutions, which is another example of Governments choosing to use the expertise of the private sector.
There are echoes of Corporal Jones from “Dad’s Army” in the Minister’s response this morning—“Don’t panic! It’s all okay.” Why does he think that Barnet Council—a flagship Tory council, known as “easy council” because of its extreme outsourcing—has put in place contingency plans based on the possible failure of this company?
I can assure the hon. Lady that we are not in any way complacent. That is why we continue to ensure—I believe Barnet Council will be doing exactly the same—that there are contingency plans in place. Indeed, those contingency plans have worked in respect of the one collapse of a company we have seen: Carillion. Those public services continue to be delivered.
Capita has a £1 billion contract in the primary care sector of the NHS. The Minister has sought to minimise the necessity of declaring any kind of contingency plans to the House. Does he not think that the House and the general public deserve to know exactly what plans the Government have in the event that Capita is unable to provide those essential services to the public?
I thank the hon. Lady for her question. I have given that reassurance, and I can reassure the House again that in respect of all our strategic suppliers, including Capita, we are understanding their financial position and taking appropriate contingency measures. I hope she will understand that lots of these things are commercially sensitive, and it would not be helpful to go into excessive detail on that.
It is worth noting that a large chunk of the drop in the share price came yesterday in respect of the restructuring of the business—it was a consequence, for example, of the rights issue—but we are of course engaging in such a way. I and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend Andrew Griffiths, who has responsibility for small businesses, have established a taskforce for Carillion. We are ensuring that we provide all the support we can for the private sector side of Carillion’s delivery of services. For example, we are ensuring that HMRC is showing flexibility in relation to payments, and that banks are showing some flexibility. Should the need arise, we would do exactly the same for Capita.
Poor service delivery is often an early warning sign of future financial difficulties. GP practices in my constituency have been complaining for at least two years about the poor quality of service they are receiving. We know that the contract for assessments for personal independence payments has been failing, and this morning we have heard examples of many other service delivery failures. Rather than leaving this to individual Departments to manage, should not the Cabinet Office have a central overview of where service performance is failing as an early warning of future difficulties?
Yes, we should, and we do exactly that. We of course take an overall view of the delivery of public services, the financial position and contingency. The specifics of public service delivery clearly have to be contracted by the relevant Department, because the relevant Department has a deeper understanding of the need. For example, for health and education, the Department of Health and Social Care and the Department for Education are in a better position to negotiate such contracts.
Last year, a Press Association investigation revealed that Capita received £200 million more than originally planned from the Department for Work and Pensions for PIP assessments, so there is a clear trail of the Government rewarding failed performance. Will the Minister assure me that the Government will not also be rewarding corporate recklessness?
No, the Government certainly will not be rewarding corporate recklessness. Carillion shareholders paid the price for the failures of Carillion in that they will not receive back their initial investment, which is precisely correct. The role of the Government is to ensure that those public services continue to be delivered, and the private sector bears the risk.