‘The government was correct not to bail out Carillion’, MPs conclude

Written by Richard Johnstone and Sam Trendall on 17 May 2018 in News

Parliamentary select committees publish report revealing that fallen outsourcer sent a £160m ‘ransom note’ to the government days before its collapse

Credit: Bryan Mills/CC BY 2.0

The chair of collapsed outsourcing giant Carillion sent a “ransom note” to Cabinet Office just days before the company collapsed seeking £160m of government support to save the firm, MPs have revealed.

But two select committees have concluded that “the government was correct not to bail out Carillion” which, at the time of its collapse in January, held hundreds of millions in government contracts, and was involved in government-backed initiatives to roll out superfast broadband across the UK. 

In a scathing report where they say that directors of the company were “too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners”, the Work and Pensions and Business, Energy and Industrial Strategy select committees backed the government’s decision to turn down Carillion's request for support.

However, the MPs also concluded that successive governments have nurtured a business environment and pursued a model of service delivery that made a collapse like Carillion’s “almost inevitable”, while it has also criticised the Crown Representative system – which assigns civil servants to monitor companies in order to provide updates on their performance – as “semi-professional and part-time” and called for an immediate review.

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Carillion collapsed on 15 January after months of speculation that it was unable to service its debts, and today’s report sets out the timeline of the company’s demise, leading to its liquidation.

According to MPs, Carillion formally approached the government to ask for financial assistance on 31 December 2017, when it became clear that it was a prerequisite of discussions with existing lenders about further support.

Although the government was by that stage involved in discussions with Carillion about its future, the only relief they had granted the company was a deferral of tax liabilities under an HMRC “time to pay arrangement” worth £22m from October.

Discussions between the firm and government continued over the first two weeks of 2018 before the company’s chair Philip Green wrote a final letter to the Cabinet Office on 13 Janaury, claiming that Carillion’s closure would “come with enormous cost to HM Government, far exceeding the costs of continued funding for the business”.

He claimed there would be “no real ability to manage the widespread loss of employment, operational continuity, the impact on our customers and suppliers, or (in the extreme) the physical safety of Carillion employees and the members of the public they serve”.

However, this request for up to £160m in guarantees for four months to April was turned down by government, and the committee concluded that ministers were right in arguing that “taxpayers should not, and will not, bail out a private company for private sector losses or allow rewards for failure”.

Following the collapse of the firm, £150m was made available by the government to support the insolvency in 2017-18, as well as an unquantified contingent liability to indemnify the Official Receiver, and public services have been largely unaffected by the firm’s closure, with some provision, such as construction of the HS2 rail lines, moving to partner firms in joint ventures and other aspects, such as prison maintenance, being taken in-house by government.

The committee said Green’s “last-minute ransom note” was intended to make government feel Carillion was too big to fail. “But the government was correct not to bail out Carillion,” the report concluded. “Taxpayer money should not be used to prop up companies run by such negligent directors. When a company holds contracts with the government, however, its collapse will inevitably have significant knock-on effects for the public purse. It is simply not possible to transfer all the risk from the public to the private sector.”

MPs noted that there is little chance that the £150m of taxpayer money made available to support the insolvency will be fully recovered.

Carillion’s engagements in the technology space previously included holding a 60% stake in a joint venture with network services firm telent, dubbed Carillion telent.  The JV – which is now wholly owned and run by telent – holds a £1.5bn contract with BT Openreach to extend and service its nationwide voice and data networks.

Carillion was also a subcontractor to the Connecting Devon and Somerset scheme, a programme of work – back by local and central government – to deploy fibre internet connections to tens of thousands of homes across the south west of England.

At the time of its liquidation, the Department for Digital, Culture, Media and Sport said that Carillion’s collapse would “any impact on the… rollout of superfast broadband is likely to be minimal”.

About the author

Richard Johnstone is deputy and online editor of Civil Service World, where a version of this story first appeared. He tweets as @CSW_DepEd

Sam Trendall is editor of PublicTechnology

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