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Carillion - Statement

Part of the debate – in the House of Lords at 4:46 pm on 15th January 2018.

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Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office) 4:46 pm, 15th January 2018

My Lords, with the leave of the House, I shall repeat an Oral Statement made by the Chancellor of the Duchy of Lancaster in the other place. The Statement is as follows:

“Mr Speaker, I wish to make a Statement to update the House on the situation relating to Carillion plc. Today the directors concluded that the company is insolvent and that it is going into liquidation. The court has appointed the official receiver as 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. This is the failure of a private sector company, however, and the company’s shareholders and lenders 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 understand that members of the public and employees will have concerns at this time. The Government are doing everything possible to minimise any impact on employees. Let me be clear: all employees should continue to turn up to work in the knowledge that they will be paid, and to support the staff we have set up 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 will continue to be paid through the official receiver. The action that we have taken is designed to keep vital public services running, rather than providing a bailout 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; that is what we have done.

The cause of Carillion’s financial difficulties is not, for the most part, connected with its government contracts but with other parts of its business. Private sector contracts account for more than 60% of the company’s revenue; the vast majority of the problems the company has encountered come from those contracts, rather the public sector. Our top priority is safeguarding the continuity of public services, and we have emphasised this 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 its administrative and legal costs.

The official receiver will 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 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 which would not have been possible under a normal liquidation process.

The official receiver is under a statutory duty to investigate the cause of failure of any company, and it is under a duty to report any potential misconduct of the directors to my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. My right honourable friend has asked that the investigation look at not only the conduct of the directors at the point of its insolvency, but also of any previous directors and whether their actions may have caused detriment to its creditors; this includes detriment to any employees who are owed money. It 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. In most cases, these contracts had been running successfully. We have been monitoring Carillion closely since its first profit warning in July 2017. Since then, we have planned extensively for the current situation and 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 contracts awarded after the company’s July profit warning were joint venture, where the other companies are now contractually bound to take on Carillion’s share of the work.

I recognise this is also a difficult time for pension holders. The Pensions Advisory Service has set up a dedicated helpline for staff and pensioners who have concerns about their pensions. Those already receiving their pensions will continue to receive payment from the Pension Protection Fund. For those who have started an apprenticeship programme with Carillion, the Construction Industry Training Board has set up a task force to assist apprentices to seek new employment, while 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 which takes on the work.

The private sector plays an important and necessary role in delivering government services, something recognised by this and by previous Governments of all political parties. Currently, 700 PFI and PF2 contracts reflecting capital investment of approximately £60 billion are being delivered successfully. Furthermore, we have a number of service provision contracts being delivered successfully by a range of companies. These contracts allow us to leverage the expertise of specialist providers and 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 public services that were provided by Carillion and to support an orderly liquidation of the company. I shall write to Members today to summarise the situation and inform colleagues of a helpline for the use of Members and their staff, to provide answers 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 its work, and I commend this Statement to the House”.

My Lords, that concludes the Statement.