Cabinet meets amid Carillion collapse fallout
Corbyn says collapse should bring an end to “rip-off privatisation” of public services
Theresa May’s Cabinet was meeting on Tuesday as the fallout from the collapse of building giant Carillion continued to reverberate through the Government.
Top executives face investigation after the firm’s demise put thousands of jobs at risk and saw the Government heavily criticised for its role in the debacle.
Labour leader Jeremy Corbyn said Carillion’s collapse was a “watershed moment” that should bring an end to “rip-off privatisation” of public services.
The Government has been heavily criticised for its role in the collapse of Carillion.
But after attending a meeting of the Government’s emergency planning committee Cobra on Monday night, Cabinet Office minister David Lidington said efforts to deal with the crisis had “gone pretty well”.
He said: “The message today was that day one had gone pretty well, people were turning up to work, we had not had reports of any serious disruption to service delivery.
“But we also had a report from PwC, who are working as the special managers for the Official Receiver, that took us through the advice they are providing to concerned employees and contractors on their website and through their helpline.
“And it was an opportunity for ministers just to test what is going on, what sort of concerns are being expressed and to decide how we should best address those and provide the reassurance people want.”
A last ditch plea from Carillion to the Government to provide it with a £20 million lifeline fell on deaf ears over the weekend, triggering a compulsory liquidation to be overseen by PwC.
Carillion has public sector or public/private partnership contracts worth £1.7 billion, including providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.
But it has seen its shares price plunge more than 70% in the past six months after issuing a string of profit warnings and breaching its financial rules.
The group, which employs around 20,000 British workers, has been struggling under £900 million of debt and a £587 million pension deficit.
Mr Lidington told Parliament on Monday afternoon that the Official Receiver would investigate the role of the company’s former and current directors, warning they could face “severe penalties”.
He spoke amid growing anger at bumper payouts received by former chief executive Richard Howson.
He pocketed £1.5 million in salary, bonuses and pension payments during 2016 and, as part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.
Liberal Democrat leader Sir Vince Cable said this was a “reward for failure that has to be looked into”.
Theresa May’s official spokesman said that, initially, the Government will be paying staff through the Official Receiver to ensure that public services continue to run as normal.
He added that there would be some additional burden on the taxpayer from the cost of the receiver.
But Mr Lidington insisted that Carillion’s failure will see “shareholders and lenders bear the brunt” of the pain, rather than taxpayers.
Shareholders will be wiped out and lenders including HSBC, Barclays, Santander and Royal Bank of Scotland are reportedly set to lose an estimated £2 billion as a result of the collapse.
The group’s demise has posed questions as to why Carillion continued to receive Government contracts despite issuing a number of profit warnings.
Asked whether it had been a mistake to continue awarding contracts to Carillion, the PM’s spokesman said: “Since July, we have kept a very close eye on this, but of course if there are lessons which can be learned, they will be.”
Steve Webb, the former pensions minister, also questioned why the company had increased its dividend payments when it was grappling with a hefty pension deficit.
In a tweet, he wrote: “2016 Carillion annual report says dividend ‘has increased in each of 16 years since formation of company’; Is this really acceptable alongside a pension fund deficit over half a billion pounds?”
2016 Carillion annual report says dividend ‘has increased in each of 16 years since formation of company’; Is this really acceptable alongside a pension fund deficit over half a billion pounds?— Steve Webb (@stevewebb1) January 15, 2018
Carillion retirees already receiving their pensions will continue to receive payments, the Government has said.
However, there are around 27,000 staff involved in its defined benefit schemes which are likely to be transferred to the Pension Protection Fund (PPF).
Unions have called for urgent reassurances over the jobs, pay and pensions of thousands of workers following the “disastrous” news.
Rail, Maritime and Transport union general secretary Mick Cash said: “The blame for this lies squarely with the Government who are obsessed with outsourcing key works to these high-risk private enterprises.”