Liberal Democrat leader Sir was given permission by the
Speaker to ask an Urgent Queston on Capita. There is no direct
relevance to G4S (although there is a passing reference), but there
are several mentions of the benefits outsourcing.
The Parliamentary Secretary, Cabinet Office (Oliver Dowden)
said:
I genuinely welcome this opportunity to update the House on
Capita’s announcement yesterday, which covered its 2017 full-year
results, the launch of a £701 million rights issue and an update on
its transformation programme. As I have told the House repeatedly,
private companies can answer for themselves, but the Government’s
priority is the continued delivery of public services. As we
demonstrated with regard to Carillion, we have continued to deliver
public services without interruption.
The House will recall that I came here in February when Capita
initially announced the rights issue. Capita confirmed yesterday
that it is proceeding in line with that previous announcement.
The House might be interested to know that Capita’s statement
yesterday announced that underlying profit before tax is £383
million for 2017, which is in line with market expectations;
that, as a result of the rights issue, it has made a £21 million
contribution to reducing its pensions deficit; and that, as a
result of the announcement, the market reaction was a share price
rise of over 10% on the day.
Capita’s board and auditors have confirmed that the company will
continue to have adequate resources to deliver on its
obligations, supported by its rights issue and other steps
designed to strengthen its business. The rights issue is
underwritten and the required shareholder vote will take place in
early May. Management have confirmed that the key shareholders
fully support their plan. In addition, the company has suspended
dividends until it begins to generate positive cash flow; it
expects to generate at least £200 million in 2020. The impact of
all this has been to reduce dividends and shareholder returns in
favour of other stakeholders. This, once again, is evidence of
shareholders taking the burden, not taxpayers.
I understand that Members remain concerned about outsourcing
companies, following Carillion’s liquidation. However, we must be
clear that Capita has a very different business model and
financial situation; it is not a construction business and it has
minimal involvement in private finance initiatives. The measures
that it has announced are designed to strengthen its balance
sheet, reduce its pensions deficit and invest in core elements of
its business. As I said in February, arguably these are the
measures that might have prevented Carillion from getting into
the difficulties that it did.
It remains the position, as I said in February, that neither
Capita nor any other strategic supplier is in the same position
as Carillion, but I would like to reassure the House that
officials in my Department and I continue to engage regularly
with all strategic suppliers. It is in taxpayers’ interests to
have a well-financed and stable group of key suppliers, so we
welcome the moves that the company announced yesterday.
Sir
The public will clearly be deeply concerned that yet another
major Government contractor has been in financial distress,
following Carillion and earlier service problems with Serco and
G4S. Capita is not a construction company, but given that we are
dealing with IT services that affect literally millions of
people—for example, in relation to tax credits, disability
testing and benefits, the congestion charge, the BBC licence fee
and Army recruitment—what contingency plans has the Minister put
in place since he was informed that the company’s losses are not
sustainable? Is there a Crown representative in place? Have new
contracts been stopped? Since the new chief executive announced
cuts of £175 million a year, to make savings for the new company,
how far have these been discussed with the Government, and how
far have they a bearing on the provisions of those highly
sensitive services? In the light of this development and earlier
developments with Carillion, what steps have the Government taken
to reform the system of Government procurement, so that we do not
have companies low-balling to win contracts that then make
losses, and to break up some of the contracts, so that we are not
over-dependent on a handful of financially fragile companies?
I thank the right hon. Gentleman for his questions. I will seek
to address them all, but please forgive me if I miss any. I will
come back to him in writing if I do.
On the company’s overall position, it is important to understand
that what has happened is exactly in line with what was announced
back in February, so there is not really a new development. The
company’s underlying position, as it has said publicly, is that
it has about £1 billion of cash that it can call upon.
The right hon. Gentleman asks about the Crown rep. I confirm that
the Crown rep is Meryl Bushell. I met her this morning and
continue to engage with her, as I do with all the other Crown
reps.
The right hon. Gentleman asks whether new contracts had been
awarded. Since the statement in February, no new contracts have
been announced by central Government. However, I understand that
the BBC and authorities in Northern Ireland have announced
contracts.
The right hon. Gentleman asks what we are doing to break up the
system of Government procurement. I always ask, with every
contract that crosses my desk to be authorised, whether we have
broken it up into as many small pieces as possible to make it
accessible for small businesses. Over the Easter period, I made
an announcement to help us meet the very challenging target we
have set of 33% of all business going to small or medium-sized
enterprises. We set a target of 25% in the last Parliament and
met it. I announced a range of measures to help us towards the
33% target. I wrote to all the Government’s key suppliers saying
that I wanted them to appoint an SME representative to try to
drive business to SMEs. I have required all their subcontracting
over the value of £25,000 to be published on the Government’s
Contracts Finder. I am consulting on ways to improve prompt
payment to make it a condition of business being awarded to
strategic suppliers. That is very important to SMEs, and I am
looking at ways to give them a right to go over the top of key
suppliers to the Government to give them a right of recourse.
I say gently to the right hon. Gentleman that both he and I have
a proud record from our time working for the coalition
Government—he at a much more senior level, running the Department
for Business, Innovation and Skills. In line with other
Governments, we continue to award contracts to Capita. The House
may be interested to know that of the major central Government
contracts that have been awarded to Capita, about 20% were
awarded under Labour, over half under the coalition Government
and 27% under this Government. This issue does not to relate to
one party over another.
The reason we do it is that we know outsourcing delivers
efficiencies. According to one survey, we receive efficiencies of
at least 11%. If we get efficiencies of 11%, that means more
money to spend on health, more money to spend on education and
more money to spend on core services. That is why the Labour
Government did it, why the coalition Government in which the
right hon. Gentleman served did it and why this Government
continue to use outsourcing.
Mr (Harwich and North Essex)
(Con)
Does my hon. Friend agree that there is something of a correction
going on throughout the sector, as it adjusts to the effects of
the Carillion collapse and to the perhaps over-tight margins that
some contracts have imposed on providers? I draw his attention to
the fact that the Public Administration and Constitutional
Affairs Committee is doing an inquiry into the lessons to be
learned from the collapse of Carillion. Personally, I take
confidence from the fact that the investors have decided to trust
Capita with £700 million more of their capital to secure the
long-term future of the company.
I thank my hon. Friend for his question. He is absolutely right
that what we discovered yesterday was that the rights issue is
proceeding exactly as planned. In terms of the overall market, I
have tried to be clear all along that suppliers should expect a
decent rate of return—not an excessive rate of return, but one
that allows them to run a profitable business, while ensuring
that there are savings for the taxpayer. That is why we use
private companies. It is not because of ideology; it is because
they deliver savings to the taxpayer, which means more money to
be spent on health, education and other public services.
(City of Chester)
(Lab)
May I thank you, Mr Speaker, for granting the urgent question and
congratulate the right hon. Member for Twickenham (Sir Vince
Cable) on securing it?
Capita is one of the strategic suppliers to the Government,
providing services of particular strategic importance, yet, as we
heard from its boss today, it had no strategy aside from mucking
up the management of the dental register, leaving hundreds of
dentists to stand idle; failing to maintain the primary care
support service in England, which supervises GP and patient
records; and failing on the Army recruitment contract, among many
other failings. Members have been highlighting those and other
failures to the Government over a period of years and will not be
surprised at the latest news. I echo the call from the right hon.
Member for Twickenham for the Minister to outline what
contingency plans he has put in place to deal with a possible
default on any one of those contracts.
The Government claim to be monitoring the situation and have a
Crown representative in place, but do they even know what they
are monitoring if they are not sure about the number of contracts
Capita runs? I and other Members have asked for a list of
Government contracts undertaken by Capita and have not been
provided with one. Do the Government know how many contracts
Capita undertakes across central Government and, indeed, across
local government? Will they publish a list of all those
contracts?
Will the Minister confirm what improvement plans have been agreed
with Capita since its string of profit warnings or yesterday’s
refinancing? What quality thresholds will be built into
Government contracts to ensure that Capita and other privateers
reach an acceptable standard of service delivery, particularly in
view of their precarious financial situation?
This latest episode in the saga of outsourcing scandals again
shows the public that the Government’s commitment to this
practice is nothing more than ideological. Despite the danger to
public services, along with the treats to Capita’s staff and
subcontractors, the Government will not shift from their view
that these giant multinational firms should make huge profits
from the public purse, until the point when they fold, taking our
public services with them. The Government act as though these
firms should be allowed to privatise the profit of the public
sector, while nationalising the risk to the British public. We
need a change in direction now. Will the Minister use this latest
episode involving Capita to finally introduce a presumption in
favour of in-house provision of public services?
I have a great deal of respect for the hon. Gentleman, and he
could have done a little better than some of the overblown
rhetoric in his contribution. Yesterday’s announcement was
entirely in line with market expectations.
The hon. Gentleman asks what is being done in relation to
strategy. The strategy has been set out clearly by the new chief
executive. It includes a revised divisional structure and
executive team to better manage and enhance services and client
value, as well as a rights issue, which, as I said, has proceeded
as planned and will materially improve the company’s financial
stability, thereby reducing its debt, enabling it to invest in
core services, allowing it to reduce the pensions deficit, which
it has done by £21 million—I hope all Members will welcome that
fact—and allowing it to reduce its cost base.
The hon. Gentleman asks what contingency planning the Government
are doing. As I have said, we undertake appropriate contingency
planning in respect of all our strategic suppliers. I take a
close personal interest in that as a Minister, and I know that
the Chancellor of the Duchy of Lancaster and Minister for the
Cabinet Office takes a similarly close interest in it.
The hon. Gentleman asks about contracts that have been awarded to
Capita, so let me give him the numbers. Of the current major
central Government contracts that have been awarded to Capita,
nine were awarded under Labour, which is 20%, 24 were awarded
under the coalition, which is about 53%, and 12 were awarded
under the current Conservative Government, which is about 27%.
This is not a party issue; all three formations of government
have decided to use outsourcing companies.
To conclude, I had thought that the hon. Gentleman would agree
with the words of a previous Labour leader and somebody who many
regarded as being, at least in some senses, a successful leader.
, hardly a rabid
right-winger, said:
“It simply would not have been possible to build or refurbish
such a number of schools and hospitals without using the PFI
model.”—[Official Report, 14 November 2007; Vol. 467, c. 665.]
That was a sensible Labour Government who were committed to
delivering public services. We do not see such sense from the
current Labour party, I am afraid.
Mr (Rayleigh and Wickford)
(Con)
While I agree with the thrust of the Minister’s response, I am
afraid I have to tell him that a serious blot on Capita’s record
is the Army recruiting contract. Capita does not have much
experience in that area and has been underperforming very
seriously on the contract for some five years. I told the House
in Defence questions yesterday that it is now known universally
in the Army as “Crapita”, because of its poor performance on the
contract. Will the Minister accept it from me that, although
nobody wants to see Capita go bust because of all the jobs that
would be lost, equally we cannot have an Army without recruits?
Therefore, this is one contract that Capita, honourably, should
hand back.
Mr Speaker
I must tell the right hon. Gentleman that his second reference to
the rather unfortunate nickname of the company concerned has just
caused some merriment among school students in the Public
Gallery. They clearly found it very funny, as did I, so the right
hon. Gentleman may be a celebrity among those students—not to
mention, of course, in his constituency and in many other parts
of the country.
My children are aged six and eight, and on the off chance that
they happen to tune into this later, I will make sure that I do
not repeat that word, because I would not want to hear it around
our breakfast table.
I know about the commitment of my right hon. Friend the Member
for Rayleigh and Wickford (Mr Francois) to this issue; he is
absolutely right to raise it. We all know that there have been
problems with Capita, but I can update him and the House by
saying that the MOD and Capita have agreed an improvement plan
under their contract. I understand that Capita is looking to
deliver on that plan, so I am confident that it is making steps
in the right direction, although I do not deny that there have
been problems in the past.
(Inverness, Nairn, Badenoch
and Strathspey) (SNP)
A £701 million rights issue after a £530 million loss, with a
scramble to recover reputation after damaging contract bungles,
is indeed indicative of a business with no strategy. Given the
wide range of public services involved, is the Minister at all
worried by the situation? If so, what precautions has he put in
place to protect people’s jobs? Does he agree that this
highlights a role for the public sector in providing vital public
services? Given that he is wedded to the PFI model, will he take
the time to look closely at the Scottish Government’s Scottish
Futures Trust model, which has saved the Scottish Government £1
billion?
I thank the hon. Gentleman for his questions. As I have said,
Opposition Members keep trying to characterise this as
ideological, but the fact is that Governments of all colours have
used outsourcing. Why? Because they know that that can deliver
savings. It is just the same as when private companies use
outsourcing so that they can focus on their core businesses.
The hon. Gentleman asks whether I take a close interest in
this—yes, I take a close interest in all our strategic suppliers.
On a weekly basis, I receive updates on the position and on the
plans that we have, if necessary, in relation to all our
strategic suppliers. However, I restate to the House that
Capita’s position is not the same as Carillion’s—nor, indeed, are
any of the other strategic suppliers in that position.
Dr (Sleaford and North
Hykeham) (Con)
Does my hon. Friend agree that the Labour party is interested
only in the ideological pursuit of renationalisation at any cost?
What matters to the public is that they get the best services at
the best value to the taxpayer.
My hon. Friend’s raises a very important point that is another
rebuttal to this idea of ideology. If we want to look at
ideology, perhaps the number of PFI contracts signed by a
Government would give an indication of that, so let us look at
the numbers. How many contracts did Labour sign on average each
year? Fifty-five at the peak. How many have this Government
signed in the past year? One. If this is about an ideological
commitment to the use of the private sector, Labour Members
should search their souls in relation to their last Government.
(Hackney South and Shoreditch)
(Lab/Co-op)
The Minister makes great play of the 11% savings from contracting
out, but it is no good making savings if core services are not
being delivered well. Will he outline how many of the contracts
he is concerned about—he has listed them a couple of times—and
will he tell us how many contracts he is discussing with Capita
with regard to whether their delivery should be reviewed? It is
no good spending taxpayers’ money on a private company if it is
not delivering the services that it is paid to deliver.
The contracts that each Department agrees with the private sector
for the delivery of services are very stringent. Each Department
is responsible for ensuring their proper delivery, and if the
company is not delivering properly, it will be in breach of the
contract and remedies will be available. At the point of
re-letting a contract, we look at the overall performance of the
company concerned to ensure that it is in a fit state to be able
to deliver on its promises. There is a dual responsibility
between the individual Departments, which set out the terms, and
the Cabinet Office, in which I sit, which has overall
responsibility for the supplier market.
(Hendon) (Con)
Barnet Council has a significant contract with Capita. It also
has a business continuity planning framework that monitors
liquidity and indebtedness. It reviewed the situation twice last
year, and again after the recent profit warning, and the company
was shown to be far from reaching the relevant threshold for
triggering any action, but in the local elections, the Liberal
Democrats are using the issue to scaremonger. I urge the Minister
not to take advice or direction from someone who undersold Royal
Mail by £1 billion and then called the loss “froth”.
I thank my hon. Friend for his question. Tempting though it is, I
shall resist the urge to comment on the Royal Mail deal, but I
refer him again to the—[Interruption.] When the Department was
controlled by the Liberal Democrats, I do not think the right
hon. Member for Twickenham (Sir Vince Cable) would have taken
kindly to a Conservative special adviser getting too heavily
involved.
I refer my hon. Friend the Member for Hendon (Dr Offord) to
statistics that demonstrate that over half of the contracts that
were given to Capita were awarded under the coalition Government,
in which the Liberal Democrats played a sterling part. If they
want to play politics, I refer them to those statistics.
(Leeds West) (Lab)
May I push the Minister on contingency planning because I fear
that the Government are being a bit complacent about that issue?
Since Carillion went bankrupt, hospitals in Sandwell and
Liverpool have been mothballed. What confidence does he honestly
have that if Capita were to go the same way as Carillion, its
contracts would continue to run and these crucial public services
would continue to be delivered? The experience of Carillion is
that that is not happening.
I gently disagree with the hon. Lady, who has a great deal of
expertise in this area. Public services have continued to be
delivered without interruption. There is a specific question
about the PFI contracts in respect of those two hospitals, but I
reassure her and other hon. Members, who I know take an interest
in this, that we are taking a very close interest in the matter.
We are engaging with NHS Improvement and the Department of Health
and Social Care to try to resolve this as quickly as possible and
ensure that we have a clear plan for the delivery of the
hospitals.
(Beckenham) (Con)
Obviously I support outsourcing in principle, but I am really
concerned. If Capita is reviewing the way it operates—it has
operated abysmally in various spheres, particularly Army
recruiting, as my right hon. Friend the Member for Rayleigh and
Wickford (Mr Francois) said—are the Government reviewing how they
have oversight of these contracts so that we can get more
effective feedback and problems can be corrected quicker?
I thank my hon. Friend for his question. He is absolutely right
to raise the issues that we have had with the Army recruitment
contract, but what is happening demonstrates that the Government
are engaging with these problems. The MOD and Capita have agreed
an improvement plan, which seeks to address some of the
significant problems that we have. When these problems arise, we
are engaging with the companies concerned to try to deliver
improvements.
(Hornsey and Wood Green)
(Lab)
What assessment have the Government made of the impact on
apprentices who are employed in Capita’s many workplaces? How
many individual apprentices may be affected? Which regions of the
UK are particularly exposed? What contingency plans are in place
to protect potential losses to the apprenticeship programme, and
what will be done to stop these failing business practices? I am
fed up of having to listen to poor apprentices in other companies
who have lost their roles as a result of failing business
practices.
I reassure the hon. Lady that the Chancellor of the Duchy of
Lancaster and Minister for the Cabinet Office is taking a very
close interest in this and working in respect of all those
apprenticeships. At the moment, those apprenticeships are
ongoing, but clearly we need to look at how we can manage their
future so that young people do not find themselves disadvantaged.
I can assure the hon. Lady that this is a top priority for my
right hon. Friend.
(Stirling) (Con)
The Minister says there have been problems with Capita, and while
Capita and Carillion are different businesses in different
situations, they have something in common: the businesses are
both big and complex. What steps are the Government taking to
involve more small and medium-sized businesses in the delivery of
public services?
My hon. Friend raises a very important point. It is right on two
levels that we have a diverse supply market: first, because the
more suppliers we have, the less we are at risk from the loss of
any one supplier; and, secondly, because small and medium-sized
enterprises are the backbone of our economy locally and
nationally, creating 16 million jobs, and I am determined to
ensure they get their fair share of such contracts. That was why
I announced a range of measures over Easter, including providing
subcontractors with a right of access to buying authorities in
order to report poor practices. It was also why the Prime
Minister wrote to every Secretary of State requesting that they
appoint an SME champion. I want the message to go out to all
SMEs—I spent a lot of time over Easter meeting small businesses
and communicating this—that they can bid for and win government
contracts. Go on to Contracts Finder, find them, and bid for
them!
(Luton North) (Ind)
In my two decades in the House, I have opposed PFI schemes root
and branch from the beginning. It seems that the number of PFI
agreements has dwindled to virtually zero, so it looks like the
Government agree with me now. A number of public authorities are
now insourcing and making financial gains as a result. Will the
Government encourage that process, which would save public money?
Will they also not hand out lucrative public contracts to Capita
to help it out of its present circumstances?
I shall resist the suggestions of Front-Bench colleagues; I do
not think I will ever convince the hon. Gentleman to cross the
Floor, despite his warm words.
We reviewed PFIs and introduced the new private finance 2
contracts, which removed many of the excesses we saw under the
last Government. The hon. Gentleman asks about the rewarding of
new contracts. Since the statement in January, as I said, no
contracts have been awarded to Capita by central Government. Two
have been awarded by the wider public sector—by the BBC and
Northern Ireland authorities.
(Harrow East) (Con)
My hon. Friend will recall that Capita developed from the public
sector in the first place. Does he agree that the use of
outsourcing not only controls costs and gives gains to the
public, but provides certainty over the standards of service
provided to the public? If an outsourced company fails to deliver
to those standards, the contract can be recalled and given to an
alternative provider.
As ever, my hon. Friend and neighbour is absolutely correct. That
happens regularly, and it is exactly why private companies all
use outsourcing to provide services such as cleaning and site
security—because they can use specialist providers and because
that delivers savings. He talks about how the Capita model arose.
I remind Labour Members who are getting overexcited that Capita
was founded by Sir Rod Aldridge, who was a major donor to not the
Conservative party, but the Labour party.
(Warley) (Lab)
May I associate myself with the comments about Army recruitment
made by the right hon. Member for Rayleigh and Wickford (Mr
Francois) and the hon. Member for Beckenham (Bob Stewart)? Does
not the Minister accept that Capita is only the latest
outsourcing company to be in trouble? With some, including
probation, hospital and rail companies, having to hand back
contracts and the growing crisis in the over-leveraged, offshored
care industry, does he not question whether there are not
actually deep systemic problems with the Government’s
dogma-driven privatisation model?
I simply fail to understand how Labour Members can say that this
is dogma-driven when the last Labour Government awarded 55 PFI
contracts a year and one was awarded in the last year. Some 20%
of the contracts awarded to Capita were awarded by the Labour
party. This is not about ideology; it is about what works.
Outsourcing delivers savings, which means that we have more to
invest in the public sector—more in our schools; more in our
hospitals.
(Mid Dorset and North
Poole) (Con)
May I give the Minister an opportunity to repeat and reinforce
his message about small businesses and the importance of their
getting more involved in the delivery of public services? Will he
encourage businesses in my constituency and the wider Dorset
region to bid for contracts?
My hon. Friend is absolutely right. Small businesses should be
going out there and bidding for Government contracts. I know that
his constituency has much expertise in the aerospace sector, and
I announced further measures over Easter to help such small
businesses. I wrote to all our strategic suppliers asking that
they adhere to the prompt payment code, and I am requiring
suppliers on large contracts to provide their subcontracting
data. They can be under no illusion that the Government are
watching closely to ensure that in terms of contracts from
government itself and subcontracting, SMEs get their fair share.
(Caerphilly) (Lab)
I welcome the Government’s recognition that Capita is not
delivering on its contract for Army recruitment, but rather than
Capita simply introducing an improvement plan, would it not be
better for the Government to consider bringing contracts back
in-house so that Army recruitment is conducted by the Army? That
is what the Army wants.
As the hon. Gentleman has acknowledged, I have answered the
question about the Army recruitment contract, and I shall not
repeat my answer, but I would say that we are not driven by an
ideological approach. If services can be delivered better
in-house, of course they can be delivered in-house, but in the
majority of cases, for contracts such as cleaning and security,
both the private and public sectors have found that they get
cheaper services that are just as good quality when they
outsource. That is the right decision to make.
(Weaver Vale) (Lab)
Capita employs hundreds of people in my constituency at a place
called Preston Brook. What discussions have the Government had
with recognised unions, such as the Communication Workers Union,
about the job and pension security of those workers?
The hon. Gentleman raises a very important point. I can reassure
his constituents, as I have done repeatedly at the Dispatch Box
today, that yesterday’s announcement was in line with
expectations. Capita is not in a similar position to Carillion. I
can also reassure them that, as a result of the rights issue
yesterday, a further £21 million has been paid down into the
pension fund, meaning that their pensions are more secure as a
result of the announcement on Monday.
(Eastbourne) (LD)
The Minister has spoken several times in glowing terms about the
importance of the SME sector. One of the issues that came out of
Carillion’s collapse was the deplorable reality that it often did
not pay its SMEs their subs for 120 days, and sometimes more.
That is the way to destroy the SME sector. Given that this is
taxpayers’ money, will he give me a guarantee that that is not
happening at Capita and that people are getting paid within a
fair and reasonable time?
The hon. Gentleman is right to raise the issue of prompt payment,
and I know that various Select Committees are looking into the
Carillion case. My right hon. Friend the Secretary of State for
Business, Energy and Industrial Strategy is sitting next to me,
and the Chancellor announced in the spring statement a call for
evidence on the prompt payment code, which governs such payments.
The Government pay about 96% of our contractors within 30 days.
As I said, I have written, post Carillion, to all our strategic
suppliers to re-emphasise the importance of adhering to the code.
We are consulting on how to exclude suppliers if they do not do
so.
