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Capita not in any way comparable to collapsed firm Carillion, says minister

Senior Labour MP Rachel Reeves accused the Government of ‘muddled and complacent’ thinking on the issue of outsourcing.

A minister has insisted that Capita is in a very different position from the collapsed outsourcing firm Carillion.

Oliver Dowden told MPs the two major public service providers had different business models and that Capita had taken swift action to address its problems.

His comments came as one council with major contracts with Capita committed to review its contingency plans for outsourced services.

Senior Labour MP Rachel Reeves accused Cabinet Office minister Mr Dowden of a “woeful response” and of “muddled and complacent” thinking on the issue.

“We do not believe that Capita is in any way in a comparable position to Carillion,” Mr Dowden told MPs.

“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 overseas.

“By contrast, Capita is primarily a services business, and 92% of Capita’s revenues come from within the United Kingdom.”

Outsourcing giant Capita saw its shares plunge to a 15-year low after warning over profits and announcing an investor cash-call as part of a major overhaul.

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Capita shares plunged following profits warning (PA Graphics)

New chief executive Jonathan Lewis, who took up the role on December 1, admitted the group had become “far too complex” and said “significant change” was needed to get Capita back on track.

Mr Dowden told MPs the announcement by Capita was primarily a balance sheet strengthening exercise and not just a profit warning, while the company had significant cash reserves.

He also said the Government monitored the financial stability of all its strategic suppliers and did not believe any of them were in a comparable position to Carillion.

He added: “The measures that Capita have announced are designed to strengthen its balance sheet, reduce its pension deficit and invest in core elements of its business.

“Arguably, these are exactly the measures that could have prevented Carillion from getting into the difficulties that they did.”

The minister also confirmed there was a crown representative in place for Capita.

During an urgent question in the Commons, Labour former minister Diana Johnson asked why Tory-run Barnet Council has “put in place contingency plans based on the possible failure of this company”.

This week the council voted to look at what contingency plans were in place should any of its suppliers collapse in the same way as Carillion.

Ms Reeves, who asked the urgent question, said there were “more similarities than differences” between Capita and Carillion.

She said both had debts of more than £1 billion, pension deficits in the hundreds of millions and relied on the public sector for half of their contracts.

“I can’t help but conclude that the Government’s thinking on this is both muddled and complacent,” said the Business, Energy and Industrial Strategy select committee chairwoman.

She later tweeted: “Govt complacent and muddled on Carillion, Capita and the outsourcing of public services. Response to my UQ in Parliament woeful.”

Shadow Cabinet Office minister Jon Trickett said Capita had been awarded 154 government contracts last year, and had also taken on some Carillion contracts.

“The minister’s response today has been marked, I believe the House will conclude, by indifference to corporate mismanagement, incompetence in office and complacency in the face of a crisis,” the Labour frontbencher added.

Barnet Council leader Richard Cornelius said in a statement: “Capita currently runs approximately 10% of our services by value. They do not run the entire council as some reports have suggested.

“The council regularly reviews the financial status of its major suppliers as part of its contract management and contingency planning arrangements. This is what any responsible local authority would do.”

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