POLITICS
15/01/2018 21:12 SAST | Updated 16/01/2018 11:57 SAST

Collapse Of UK Mega-Contractor Is 'Watershed Moment' That Should End 'Rip-Off Privatisation', Says Corbyn

Minister says firm's execs could face "severe penalties".

Jeremy Corbyn branded the collapse of HS2 contractor Carillion a “watershed moment” for the UK as MPs savaged huge salaries handed to the top execs who presided over its failure. 

The Labour leader said the fall of the mega-contractor was symptomatic of a failing “outsource-first dogma” as he linked the news to the ailing Virgin East Coast rail franchise deal and PFI deals with the NHS.

Corbyn’s warning came as ministers insisted that the taxpayer had been protected and claimed that the firm’s former bosses could face ‘severe penalties’ imposed by the Official Receiver and pensions regulator.

Outsourcing and construction giant Carillion - which employs 20,000 British people - went into liquidation after issuing a major profits warning last year. 

It has public sector or public/private partnership contracts worth a staggering £1.7bn and ministers were so worried about the implications an emergency COBRA meeting was called on Monday so they could discuss the crisis.

The group’s massive portfolio included providing school dinners, cleaning and catering at NHS hospitals, building HS2 and maintaining 50,000 army base homes for the Ministry of Defence, but it had been struggling under £900m of debt and a £587m pension deficit. 

Cabinet Office minister David Lidington said the Government refused a last-ditch plea for £20m bail-out for the firm so “shareholders and lenders bear the brunt”, rather than taxpayers. 

And in the House of Commons, Labour MPs put the PM’s spokesman under intense pressure to act after it emerged top execs who presided over the firm’s failure trousered huge pay-offs. 

In a special video released by Corbyn on Monday night, Corbyn echoed their concerns. 

He said: “In the wake of the collapse of the contractor Carillion, it is time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced the public of billions of pounds.

“This is a watershed moment. Across the public sector, the outsource-first dogma has wreaked havoc. Often it is the same companies that have gone from service to service, creaming off profits and failing to deliver the quality of service our people deserve.

“The evidence is clear and it is everywhere.”

He also linked the NHS winter crisis to private sector outsourcing of health services, adding: “It’s time we took back control. We not only need to guarantee the public sector takes over the work Carillion was contracted to do – but go much further and end contracts where costs spiral, profits soar and services are hollowed out.” 

PA Archive/PA Images
David Lidington in the House of Commons 

Lidington told MPs that the role of the company’s former and current directors in Carillion’s collapse will be investigated by the Official Receiver, and they could face “severe penalties”.

He said that while it would be wrong to pre-empt any inquiry, “I can certainly well understand and appreciate that sense of unfairness”.

Referring to claims that the past and present board of directors could still benefit from planned payouts, Lidington said: “The Official Receiver does not only have power to investigate but the power to impose severe penalties if he thinks misconduct has taken place.”

It comes amid growing anger at bumper payouts received by the firm’s former chief executive Richard Howson.

He pocketed £1.5m 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.

Former finance chief Zafar Khan, who left Carillion in September, will receive £425,000 in base salary for 12 months.

Interim chief executive Keith Cochrane will be paid his £750,000 salary until July, despite leaving the company in February.

Liberal Democrat leader Sir Vince Cable said that the former chief executive “still being paid his salary, plus perks and bonuses” is a “reward for failure that has to be looked into”.

The chair of the Business, Energy and Industrial Strategy Committee, Labour MP Rachel Reeves said the huge salary payments should stop “as of today”. 

She said that despite Carillion’s towering debts “year after year after year, they paid dividends out to their shareholders.” 

Rachel Reeves chair of the Business Energy and Industrial Strategy Committee
Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee

Reeves hit out at Howson’s continued salary payments and called for them to be stopped “as of today” before demanding a shake-up in the UK’s corporate governance laws “so that companies can’t siphon off money to the detriment of suppliers, workers and ultimately the British taxpayer.” 

Lidington replied: “The Official Receiver will consider potential detriment to the interest of pensioners as well as to employees. And may seek to impose penalties. ” He added the pensions regulator has powers to recover cash too if there was evidence directors had “abused their responsibilities”.

The Institute of Directors was scathing in its criticism of the company on Monday, attacking “highly inappropriate” pay packets awarded to directors and accusing them and shareholders of failing to provide “appropriate oversight”.

The group’s demise has posed questions as to why Carillion continued to receive Government contracts despite issuing a number of profit warnings.

Laura Pidcock, Shadow Minister for Labour, told HuffPost UK: “I think this is an unmitigated disaster. 

“There are serious questions for the Government as to how they give out contracts and the process they are using. 

“I do not buy that the Government was not aware that there were issues with these contracts. 

“The procedures the Government has in place are not fit for purpose if ministers haven’t taken notice of all the warning bells that were sounding about Carillion’s difficulties, both in delivery and the management of its contracts. 

“Those warning bells were sounding and no action was taken. That seems to me to be scandalous and it will come at a huge cost.” 

Asked whether it had been a mistake to continue awarding contracts to Carillion, Lidington told the Commons: “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.

“The receiver will carry out a full investigation and we will look at the findings.”

Carillion is also the largest trainer of construction apprenticeships and had a £6.5m public contract to train 2,000 apprentices whose future is now unclear.

Lidington said the Government would now switch to acting as the apprentices’ training provider, and was aiming to find the teenagers a fresh employer so they could complete their studies. 

 

The full list of Carillion’s public sector deals: 

  • In July 2017, Carillion announced that it was part of a partnership which had won two HS2 deals worth £1.4 billion.

  • The CEK joint venture - made up of Carillion, Eiffage and Kier - was commissioned to design and build a 50-mile section of the high speed railway roughly between Aylesbury and Royal Leamington Spa.

  • Carillion was selected by the Education and Skills Funding Agency in November 2017 to be part of its school building framework.

  • The framework allows education providers to access pre-selected contractors who can build new facilities.

  • At the time, Carillion wrote on its website: “These (the lots the company were selected for) are anticipated to be worth around £2.64 billion in total over the period to 2021, with the Group one of nine contractors selected on the framework.”

  • Last November, the construction company announced that it had signed a contract with Network Rail to upgrade the existing track and infrastructure on the London to Corby route.

  • Carillion said the contract was expected to generate £62 million of revenue for them over the succeeding two-and-a-half years.

  • In 2014, Carillion said that it had agreed a joint venture with Sunderland City Council to redevelop key sites across the city.

  • The company said the contract “is potentially worth up to £800 million to Carillion over the 20-year life of the regeneration programme”.

  • Carillion was selected to build the Royal Liverpool University Hospital in 2013.